<PAGE>
As filed with the Securities and Exchange Commission on November 18, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
AGILE SOFTWARE CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 7372 77-0397905
<S> <C> <C>
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
One Almaden Boulevard
San Jose, California 95113-2211
(408) 975-3900
(Address and telephone number of principal executive offices)
----------------
Bryan D. Stolle
Chairman of the Board and Chief Executive Officer
Agile Software Corporation
One Almaden Boulevard
San Jose, California 95113-2211
(408) 975-3900
(Name, address and telephone number of agent for service)
Copies to:
<TABLE>
<S> <C>
Gregory M. Gallo, Esq. Jeffrey R. Vetter, Esq.
Sally J. Rau, Esq. Scott J. Leichtner, Esq.
Gray Cary Ware & Freidenrich LLP Cynthia E. Garabedian, Esq.
400 Hamilton Avenue Fenwick & West LLP
Palo Alto, California 94301-1825 Two Palo Alto Square
(650) 328-6561 Palo Alto, California 94306
(650) 494-0600
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
----------------
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, please 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 of 1933, 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 number of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
Proposed
Proposed Maximum
Title of Each Class of Maximum Aggregate Amount of
Securities to be Amount to be Offering Price Offering Registration
Registered Registered Per Share Price(1) Fee
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.001 par
value)................ 2,587,500(2) $132.50 $342,843,750 $95,311
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(c) promulgated under the Securities Act, based on
the average of the high and low trading prices of our common stock as
reported by the Nasdaq National Market on November 15, 1999.
(2) Includes 337,500 shares subject to the underwriters over-allotment
option.
----------------
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 or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued November 18, 1999
2,250,000 Shares
[LOGO OF AGILE SOFTWARE APPEARS HERE]
COMMON STOCK
-----------
Agile Software Corporation is offering 1,250,000 shares of its common stock and
the selling stockholders are offering 1,000,000 shares.
-----------
Our common stock is listed on the Nasdaq National Market under the symbol
"AGIL." On November 17, 1999, the reported last sale price of the common stock
on the Nasdaq National Market was $138 per share.
-----------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 7.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting
Price Discounts Proceeds Proceeds to
to and to Selling
Public Commissions Agile Stockholders
------ ------------ -------- ------------
<S> <C> <C> <C> <C>
Per Share............................. $ $ $ $
Total................................. $ $ $ $
</TABLE>
Agile has granted the underwriters the right to purchase up to an additional
337,500 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 1999.
-----------
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANC ALEX. BROWN
HAMBRECHT & QUIST
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Use of Proceeds..................... 20
Dividend Policy..................... 20
Capitalization...................... 21
Dilution............................ 22
Selected Consolidated Financial
Data............................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
Business............................ 39
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management....................... 51
Certain Transactions............. 58
Principal and Selling
Stockholders.................... 60
Description of Capital Stock..... 64
Shares Eligible for Future Sale.. 67
Underwriters..................... 69
Legal Matters.................... 70
Experts.......................... 70
Where to Find Additional
Information About Agile......... 71
Index to Consolidated Financial
Statements...................... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in those jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of our common stock.
2
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our consolidated financial statements and notes to the
consolidated financial statements appearing elsewhere in this prospectus.
We develop and market product content management software, which is software
that enables companies to collaborate over the Internet by interactively
exchanging information about the manufacture and supply of products and
components. Our suite of software products is designed to improve the ability
of all members of the manufacturing supply chain to communicate and collaborate
with one another about new or changing information concerning the manufacture,
source or supply of products or components. We believe that our products are
well-suited for participants in outsourced supply chains, as well as companies
managing multi-site engineering, manufacturing, sales and distribution
operations, connected via the Internet. Since June 1996, when we shipped our
first product, we have licensed our products to over 350 customers in the
computers and peripherals, components, consumer electronics, data networking
and telecommunications equipment, electronics manufacturing, medical equipment
and semiconductor equipment markets.
The competitive environment for manufacturing and supply companies has
intensified dramatically and expanded globally in recent years. Many of these
companies are shifting their organizations from traditional manufacturing
approaches, where a manufacturer controls most phases of the manufacturing
process of its products from raw materials to finished goods, to a
manufacturing process where much or all of the manufacturing process is
outsourced to multiple companies as part of a supply chain. Outsourcing
production is geared toward creating supply chains that are more efficient,
dynamic and flexible than manufacturing operations that are controlled by
manufacturers. A critical aspect of managing the outsourced supply chain across
multiple suppliers is finding effective ways to store, access and share
information within the manufacturer, as well as with all participants in the
supply chain during each stage of the production process.
The Internet has created new and evolving ways for conducting commerce.
Companies that have successfully implemented strategies to communicate with
their customers over the Internet now face the challenge of utilizing the
Internet and intranets to gain the same level of increased efficiencies in
their supply chain.
The Agile solution is designed to facilitate communication and collaboration
within and among supply chain members without requiring substantial investments
in additional technology infrastructure. We believe that our solution enables
companies and their supply chain partners to increase revenues by accelerating
time-to-market, facilitate cost-effective production by increasing output,
reducing inventory and shortening the production process, and enhance return on
investment by facilitating rapid implementation.
Our growth strategy is to be the leading provider of business-to-business
collaborative supply chain applications to global organizations. We will focus
on providing superior customer satisfaction to continue to build a highly
referenceable customer base of market leaders in targeted manufacturing
industry vertical markets. We seek to capitalize on network effects that can be
created when our software is deployed across the supply chains of our
customers, enabling even non-customer participants in the supply chain to
experience first-hand some of the benefits from our solutions. We will also
seek to continue the development of our technology to extend the features and
functionality of our product content management software.
We incurred net losses of approximately $11.4 million for fiscal 1999 and
$8.4 million for the six months ended October 31, 1999, and as of October 31,
1999 we had an accumulated deficit of approximately $34.9 million.
3
<PAGE>
RECENT DEVELOPMENTS
As of October 10, 1999, we entered into an agreement to acquire Digital
Market, Inc., a California corporation. Digital Market provides Internet-based
solutions for the sourcing and procurement of production materials used by
manufacturing companies. This acquisition is an example of our strategy of
extending supply chain collaboration and the functionality of our products.
With Digital Market, we believe that we will be able to address the constraints
in the sourcing and procurement of electronic production materials. Our Agile
Anywhere products enable multiple parties within a manufacturing supply chain
to collaboratively make product and component sourcing, production and supply
decisions and to respond to changes made by other supply chain partners. This
functionality aids companies in determining what components to use to build a
product. Digital Market's electronic procurement solution enables companies to
streamline the processes of sourcing, quoting and ordering production materials
and more efficiently purchase those components. We believe that the combination
of Agile's products with those of Digital Market will enable the product
content information aggregated in Agile Anywhere during the new product
introduction and product change processes to be fed directly into Digital
Market's direct materials procurement applications, enhancing efficiency in the
purchase of those components. In particular, for companies sourcing electronic
components requiring accurate ordering, we believe this enhanced functionality
will create a powerful, Internet-based supply chain solution.
Digital Market's primary product is Digital Buyer, a software product that
automates the procurement process and enables manufacturers to acquire
electronic components in real time. Digital Buyer provides decision support
services, including parts list management and approved supplier maintenance, as
well as interactive generation and management of quotes and orders. Digital
Buyer can integrate into existing manufacturing and enterprise resource
planning software systems. Digital Buyer, like Agile Anywhere, is a Java-based
and Internet-focused business-ready application.
The purchase price will include $20.0 million in cash and approximately
$52.0 million in common stock, based on the average closing price of our common
stock for the ten trading days ending the day prior to the closing of the
acquisition, subject to a minimum of 611,764 shares and a maximum of 1,485,714
shares. The ultimate number of shares to be issued cannot be determined until
the acquisition has been completed. In addition, we will assume all of the
outstanding options to purchase the common stock of Digital Market under its
stock option plans. The fair value of the assumed options is approximately $8.0
million and will be included as a component of the purchase price. We also
anticipate incurring approximately $2.0 million in acquisition expenses. The
total anticipated purchase price of Digital Market is $82.0 million.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered:
Shares offered by us..................................... 1,250,000 shares
Shares offered by the selling stockholders............... 1,000,000 shares
Total.................................................. 2,250,000 shares
Total common stock to be outstanding after this offering.. 22,617,199 shares
Over-allotment option..................................... 337,500 shares
Use of proceeds........................................... For general corporate
purposes, including
working capital and
capital expenditures.
See "Use of Proceeds."
Nasdaq National Market symbol............................. AGIL
</TABLE>
The above information is based on 20,698,245 shares outstanding as of
October 31, 1999. This information does not include 1,834,525 shares of common
stock subject to outstanding options under our 1995 Stock Option Plan as of
October 31, 1999, and 41,111 shares of common stock issuable upon exercise of
an outstanding warrant. See "Capitalization" on page 21 and "Management--Stock
Plans" on page 55 for additional information concerning the terms, conditions
and number of outstanding shares of our capital stock and stock options.
Unless otherwise specifically stated, the information in this prospectus:
. assumes no exercise of the underwriters' over-allotment option;
. assumes the exercise of outstanding warrants to purchase 57,190
shares of our common stock in November 1999 and assumes no exercise
of outstanding warrants to purchase 41,111 shares of our common
stock; and
. assumes the issuance of 611,764 shares of common stock in connection
with our proposed acquisition of Digital Market. We anticipate that
this acquisition will close prior to the date of this offering.
We are incorporated in Delaware. Our principal executive offices are located
at One Almaden Boulevard, San Jose, California 95113, and our telephone number
is (408) 975-3900. Our principal web site is located at www.agilesoft.com.
Information contained on our web site does not constitute a part of this
prospectus. In this prospectus, "Agile," "we," "us" and "our" refer to Agile
Software Corporation and not to the underwriters.
Agile, Agile Workplace, Agile Anywhere, Agile eHub, Agile iCM, My Agile,
Agile eXpress Viewer, Agile ChangeCAST, Agile Product Definition Server, Agile
Product Change Server, Agile AML Server, Agile Administrator, Agile Scan, Agile
Import, Agile Export and the Agile logo are trademarks of Agile Software
Corporation, which may be registered or pending registration in certain
jurisdictions. Digital Market and the Digital Market logo are trademarks of
Digital Market. All other trademarks or tradenames referred to in this
prospectus are the property of their respective owners.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 13, Pro Forma Six Months Pro Forma
1995 Fiscal Year Ended April Fiscal Year Ended October Six Months
(Inception) to 30, Ended 31, Ended
April 30, -------------------------- April 30, ---------------- October 31,
1996 1997 1998 1999 1999 1998 1999 1999
-------------- ------- ------- -------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Total revenues.......... $ 38 $ 1,352 $ 8,003 $ 16,807 $ 18,293 $ 7,053 $12,825 $13,230
Gross profit............ 32 1,086 5,835 10,822 9,860 4,558 9,647 8,722
Loss from operations.... (1,399) (4,906) (8,874) (11,606) (45,821) (5,463) (8,723) (26,789)
Net loss................ (1,327) (4,836) (8,942) (11,428) (45,531) (5,313) (8,359) (26,731)
Net loss per share:
Basic and diluted...... $ (1.94) $ (3.72) $ (4.20) $ (3.87) $ (12.78) $ (1.89) $ (.90) $ (2.71)
Weighted average
shares................ 684 1,300 2,129 2,952 3,564 2,814 9,264 9,876
Unaudited pro forma net
loss per share:
Basic and diluted...... $ (.78) $ (.50)
Weighted average
shares................ 14,668 16,852
</TABLE>
<TABLE>
<CAPTION>
As of October 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents......................... $81,174 $61,302 $222,858
Working capital................................... 76,210 50,159 211,715
Total assets...................................... 91,465 154,310 315,866
Long-term obligations, noncurrent................. 858 956 956
Stockholders' equity.............................. 78,725 136,075 297,631
</TABLE>
Shares used in computing unaudited pro forma basic and diluted net loss per
share include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of preferred stock to common stock, as if the
conversion occurred at the date of original issuance. The pro forma information
above assumes the issuance of 611,764 shares of common stock to the holders of
all outstanding capital stock and warrants of Digital Market in connection with
our proposed acquisition of Digital Market. We anticipate that this acquisition
will close prior to the date of this offering. The pro forma as adjusted
information above reflects the application of the net proceeds from the sale of
the 1,250,000 shares of common stock that we are offering, based upon an
assumed public offering price of $138.00 per share, after deducting estimated
underwriting discounts and commissions and our estimated offering expenses, and
reflects the exercise of warrants to purchase 57,190 shares of common stock.
The unaudited pro forma combined statement of operations data presents the
results of operations of Agile for the year ended April 30, 1999 and the six
months ended October 31, 1999, combined with the statement of operations of
Digital Market for the year ended March 31, 1999 and the six months ended
September 30, 1999, giving effect to the acquisition as if it had occurred as
of May 1, 1998. The unaudited pro forma combined balance sheet data gives
effect to the merger as if the transaction occurred on October 31, 1999 and
combines the unaudited balance sheet of Agile as of October 31, 1999 and the
unaudited balance sheet of Digital Market as of September 30, 1999.
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before you decide to buy
our common stock. If any of the following risks actually occur, our business
could be harmed. If our business is harmed, the trading price of our common
stock could decline, and you could lose all or part of your investment.
Risks Related to Our Operations
Because We Have a Limited Operating History, It Is Difficult to Evaluate
Our Business and Prospects
We are still in the early stages of our development, so evaluating our
business operations and our prospects is difficult. We incorporated in 1995
and began shipping our first product in June 1996. The revenues and income
potential of our business and market are unproven. We will encounter risks and
difficulties frequently encountered by early-stage companies in new and
rapidly evolving markets. These risks include the following:
. until our acquisition of Digital Market, we have had only one product
suite, and will need to successfully introduce new products and enhance
existing products to this suite, including Agile Anywhere, a new version
which has been available only since July 1999;
. we need to integrate our acquisition of Digital Market and successfully
market its Digital Buyer product which has only been sold to a limited
number of customers;
. we need to increase sales to achieve profitability, requiring us to sell
additional licenses and software products to our existing customers and
expand our customer base outside of the electronics and medical device
industries;
. we need to expand our sales and marketing, customer support and
professional services organizations, build strategic relationships and
expand our international operations in order to increase sales; and
. we need to effectively manage our anticipated growth which could lead to
management distractions and increased operating expenses, and will
require us to attract and retain key personnel.
Our business strategy may not be successful and we may not be able to
successfully address these risks. In addition, because of our limited
operating history, we have limited insight into trends that may emerge and
affect our business.
We Have a History of Losses, We Expect to Incur Losses in the Future and We
May Not Achieve or Maintain Profitability
We incurred net losses of approximately $4.8 million for fiscal 1997, $8.9
million for fiscal 1998, $11.4 million for fiscal 1999 and $8.4 million for
the six months ended October 31, 1999. As of October 31, 1999, we had an
accumulated deficit of approximately $34.9 million. Moreover, we expect to
continue to incur significant sales and marketing, research and development
and general and administrative expenses. We have incurred and expect to
continue to incur substantial non-cash costs relating to the amortization of
deferred compensation which will contribute to our net losses. We expect to
incur losses for the foreseeable future. We will need to generate significant
increases in revenues to achieve and maintain profitability, and we may not be
able to do so. Even if we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis in the
future. See "Selected Consolidated Financial Data" on page 23 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 25 for more detailed information about our operating
results.
7
<PAGE>
Our Quarterly Operating Results Fluctuate and Are Difficult to Predict and,
if Our Future Results Are Below the Expectations of Public Market Analysts
or Investors, the Price of Our Common Stock May Decline
Our quarterly operating results have varied significantly in the past and
are likely to vary significantly in the future, which makes it difficult for
us to predict our future operating results. This quarter-to-quarter
fluctuation is due to a number of factors, including the following:
. our successful integration of Digital Market, its Digital Buyer product,
technologies, computer systems and employees;
. fluctuations in demand for Internet product content management software;
. size and timing of sales and installations of our products;
. entry of new competitors into our market, or the announcement of new
products or product enhancements by competitors;
. our ability to successfully expand our direct sales force and our
international sales organization;
. changes in our sales force incentives;
. unexpected delays in developing or introducing new and enhanced products;
. unexpected decline in purchases by our existing customers, including
purchases of additional licenses and maintenance contracts;
. delays in our customers' orders due to their year 2000 priorities;
. variability in the mix of our license and professional service revenues;
. our ability to accurately price fixed-priced professional services
projects;
. variability in the mix of professional services that we perform versus
those performed for our customers by others; and
. our ability to establish and maintain relationships with our third-party
implementation partners.
License revenues in any quarter can be difficult to forecast because they
depend on orders shipped or installed in that quarter. Moreover, we typically
recognize a substantial percentage of revenues in the last month of each
quarter; for example, in fiscal 1999 as well as the first two quarters of
fiscal 2000, revenues generated each quarter that were recognized in the last
month of the quarter ranged from approximately 35% to 51%. This increase in
revenues earned in the last month of each quarter is driven primarily by
quarter-end commissions payable and the time required to implement software
installations. A high percentage of our operating expenses are essentially
fixed in the short term and we may be unable to adjust spending to compensate
for an unexpected shortfall in our revenues. In addition, we expect our
operating expenses to increase as we expand our engineering and sales and
marketing operations, broaden our customer support capabilities, develop new
distribution channels and strategic alliances, fund increased levels of
research and development and build our operational infrastructure. As a
result, if we experience delays in recognizing revenue, or if our revenues do
not grow faster than the increase in these expenses, we could experience
significant variations in operating results from quarter to quarter.
If, in response to market pressures or other demands, we introduce new
pricing structures for our existing products, we could experience customer
dissatisfaction and loss of sales. In addition, if we introduce products that
are sold in a manner different from how we currently market our products, or
we could recognize revenue differently than under our current accounting
policies. Depending on the manner in which we sell existing or future
products, this could have the effect of extending the length of time over
which we recognize revenues. Furthermore, our quarterly revenues could be
significantly affected based on how applicable accounting standards are
amended or interpreted over time.
8
<PAGE>
In addition, we have accounted for options to purchase 70,000 shares of
common stock granted to consultants subsequent to April 30, 1999 under
variable plan accounting, and will record approximately $6.4 million in
expense over the vesting period of the options. This expense associated with
these options may fluctuate significantly from quarter to quarter through
fiscal 2005 if the price of our stock fluctuates and could cause our operating
results to vary significantly from quarter to quarter. During the three months
ended October 31, 1999, the expense associated with these options totaled
$320,000.
Due to these and other factors, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of our future performance. It is possible that in
some future periods our results of operations may be below the expectations of
public market analysts and investors. If this occurs, the price of our common
stock may decline.
We May Not Achieve Anticipated Revenues if the Introduction and Customer
Acceptance of Our New Release, Agile Anywhere, or Any Upgrades or
Enhancements to Our Products, Is Unsuccessful
Our future financial performance will depend on the successful introduction
and customer acceptance of Agile Anywhere and any upgrades or enhancements
that we may make to our products in the future, including our introduction of
the Digital Buyer product formerly offered by Digital Market. We have
generated substantially all of our revenues from licenses and services related
to current and prior versions of our product suite. Agile Anywhere, the latest
version of our product suite, has only been available since July 1999. We
believe that revenues from Agile Anywhere, together with revenues from
maintenance and support contracts from Agile Anywhere and prior versions of
our suite, will account for a substantial portion of our revenues for the
foreseeable future. If we are unable to ship or implement any upgrades or
enhancements when planned, or if the introduction of upgrades or enhancements
causes customers to defer orders for our existing products, we may not achieve
anticipated revenues.
Our Acquisition of Digital Market, and any Future Acquisitions, May Be
Difficult to Integrate, Disrupt Our Business, Dilute Stockholder Value or
Divert Management Attention
We have agreed to acquire Digital Market and we expect to close the
acquisition prior to the date of this offering. Because the closing of the
acquisition is subject to a number of conditions, we cannot assure you that we
will complete the acquisition prior to this offering, or at all. If we do
complete the acquisition, we may encounter risks to our business, including:
. difficulties in assimilation of acquired personnel, operations,
technologies or products;
. unanticipated costs associated with the acquisition;
. diversion of management's attention from other business concerns;
. adverse effects on our existing business relationships with our or
Digital Market's customers; and
. inability to retain employees of Digital Market.
As part of our business strategy, we may in the future seek to acquire or
invest in additional businesses, products or technologies that we believe
could complement or expand our business, augment our market coverage, enhance
our technical capabilities or that may otherwise offer growth opportunities.
These future acquisitions could pose the same risks to our business posed by
the proposed acquisition of Digital Market described above. In addition, with
future acquisitions, we could use substantial portions of our available cash,
including the proceeds of this offering, as all or a portion of the purchase
price. We could also issue additional securities as consideration for these
acquisitions, which could cause our stockholders to suffer significant
dilution. Our acquisition of Digital Market, and any future acquisitions, even
if successfully completed, may not generate any additional revenue or provide
any benefit to our business.
9
<PAGE>
We May Not Achieve Anticipated Additional Revenues or Benefits As a Result
of Our Acquisition of Digital Market
With the acquisition of Digital Market, we will seek to extend the
functionality of Agile Anywhere with Digital Market's direct materials
sourcing, quoting and ordering applications. If we are unable to successfully
market our products with the Digital Buyer product offered by Digital Market,
or create new or enhanced products combining the functionality provided by
both, we may not achieve enhanced sales or other anticipated benefits from our
acquisition of Digital Market. This is particularly difficult because Digital
Market has had limited product sales to date. If we fail to achieve the
anticipated benefits from the acquisition, we may incur increased expenses,
experience a shortfall in our anticipated revenues and may not obtain a
satisfactory return on our investment. In addition, if any significant number
of the Digital Market employees fail to remain employed with us, we may
experience delays in the production and shipment of the Digital Buyer product,
or fail to achieve the expected benefits of the acquisition.
Year 2000 Considerations Among Our Customers and Potential Customers May
Reduce Our Sales
We may experience reduced sales of products as customers and potential
customers put a priority on correcting year 2000 problems and therefore defer
purchasing decisions for software products until later in 2000. Accordingly,
demand for our products may be particularly volatile and unpredictable for the
remainder of 1999 and early 2000.
Implementation of Our Products By Large Customers May Be Complex and
Customers Could Become Dissatisfied if Implementation of Our Products
Proves Difficult, Costly or Time-Consuming
Our products must integrate with many existing computer systems and
software programs used by our customers. Integrating with many other computer
systems and software programs can be complex, time consuming and expensive and
cause delays in the deployment of our products. Because we are one of the
first companies to offer products designed for product content management,
many customers will be facing these integration issues for the first time in
the context of collaborating with supply chain partners. Customers could
become dissatisfied with our products if implementations prove to be
difficult, costly or time-consuming.
We Currently Perform Most of Our Implementations on a Fixed-Price Basis,
Which Could Cause Us to Incur More Costs Than We Expect
When we install our products or when we have a third party install them, we
typically charge customers a fixed fee for these services. At the time of a
product sale and prior to agreeing to an installation price, we estimate the
amount of work involved for a particular installation project. We have at
times in the past underestimated and may in the future underestimate the
amount of time or resources required to install our products. If we do not
correctly estimate the amount of time or resources required for a large number
of installations, our gross margins could decline.
If We Do Not Sell Additional Licenses or Enhanced Versions or Upgrades of
Our Products to Existing Customers, We May Not Achieve Revenue Growth
The size of a new customer's initial order is relatively small and may
include a limited number of user licenses. In later orders, customers often
add user licenses or additional products designed for specific functions, such
as the AML Server targeted at manufacturers. In order to grow revenues, we
depend on sales of additional user licenses to our existing customers as well
as sales of new licenses to new customers. Therefore, it is important that our
customers are satisfied with their initial product implementations and that
they believe that expanded use of the product they purchased will provide them
with additional benefits. Customers could choose not to purchase any new
products or expand the use of our products. If we do not increase sales to
existing customers, we may not be able to achieve revenue growth.
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If We Do Not Establish and Maintain Relationships With Key Partners, We May
Encounter Difficulty in Providing Implementation and Customer Support of
Our Products
We rely heavily on our relationships with consulting and integration
partners to implement our software, provide customer support services and
endorse our products during the evaluation stage of the sales cycle.
Currently, only four companies provide implementation services for our
products in North America. We expect to increasingly rely on these types of
partners in the future. These companies are not contractually obligated to
continue to provide implementation services for us or to otherwise promote our
products. Although we seek to develop and maintain relationships with these
types of service providers, they may have similar or more established
relationships with our competitors. If these service providers do not increase
this segment of their business, or reduce or discontinue their relationships
with us or their support of our products, our business could be harmed. We
will need to develop new third party relationships if sales of our products
increase and our current partners cannot fulfill the need for implementation
and customer support services. Without these third parties we would have to
expand our services organization to increase the consulting and professional
services that we provide to our customers and divert resources from other
areas of our business. If we are required to expand our professional services
capabilities, we may not be able to do so on a timely basis.
We are beginning to implement larger deployments of our products together
with third parties such as Andersen Consulting and Siemens. If we are not
successful with these joint deployments, we may incur increased costs and
customer dissatisfaction and may not achieve increased sales and market
acceptance of our products.
To meet customer demand, we might have to outsource services to more costly
independent contractors and other third parties. In addition, if our
implementation partners do not adequately perform implementation services, our
customers could become dissatisfied with our products. In order to avoid
dissatisfaction, we may need to provide supplemental implementation services
at no additional cost to the customer. Although we could experience an
increase in services revenues if our service partners are not successful,
services revenues have lower gross margins than license revenues. We could
also experience delays in revenue recognition if customer implementation
projects fall behind schedule.
We May Experience Customer Dissatisfaction and Lost Sales if Our Products
Do Not Scale to Accommodate Substantial Increases in the Number of
Concurrent Users
Our strategy requires that our software be highly scalable, or able to
accommodate substantial increases in the number of users concurrently using
the product. To date, however, only a limited number of our customers have
deployed our software to manage the manufacturing process across their entire
organization. While we have performed product testing on the scalability of
our products, these products have not been tested in the context of a customer
implementation. If our customers cannot successfully implement large-scale
deployments, or if they determine that our products cannot accommodate large-
scale deployments, we could experience customer dissatisfaction and find it
more difficult to obtain new customers or to sell additional products to our
existing customers.
We May Not Be Able to Increase Sales of Our Products if We Do Not Expand
Our Direct Sales Organization
We sell our products primarily through our direct sales force. Our ability
to increase our sales will depend on our ability to recruit, train and retain
top quality sales people with the advanced sales skills and technical
knowledge we need. There is a shortage of the sales personnel we need, and
competition for qualified personnel is intense in our industry. In addition,
it takes time for our new sales personnel to become productive, particularly
our senior sales and services personnel, who could take up to nine months to
become fully productive. If we are unable to hire or retain qualified sales
personnel, or if newly hired personnel fail to develop the necessary skills or
reach productivity more slowly than anticipated, it would be more difficult
for us to sell our products, and we may experience a shortfall in revenues.
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Our Lengthy and Variable Sales Cycle Makes it Difficult For Us to Predict
When or if Sales Will Be Made
Our products have an unpredictable sales cycle that contributes to the
uncertainty of our future operating results. Our product content management
software is a new category of products, and customers often view the purchase
of our products as a significant and strategic decision. As a result,
customers may take time to evaluate our products, resulting in a sales cycle
that has historically ranged from approximately four to seven months. The sale
of our products may be subject to delays due to the lengthy internal
budgeting, approval and evaluation processes of our customers. We may expend
significant sales and marketing expenses during this evaluation period before
the customer places an order with us. Customers may initially purchase a
smaller number of user licenses before expanding the order to allow a greater
number of users to benefit from the application. Larger customers may purchase
our products as part of multiple simultaneous purchasing decisions, which may
result in additional unplanned administrative processing and other delays in
our product sales. If sales forecasted from a specific customer for a
particular quarter are not realized, we may experience an unplanned shortfall
in revenues. As a result, we have only a limited ability to forecast the
timing and size of sales of our products.
The Success of Our Business Depends on Our Key Personnel, Whose Knowledge
of Our Business and Technical Expertise Would Be Difficult to Replace
Our success depends largely on the continued contributions of our key
senior management, particularly Bryan D. Stolle, our Chief Executive Officer,
who is not bound by an employment agreement, as well as of our key engineering
and sales and marketing personnel. We do not have key-man life insurance on
Mr. Stolle. If one or more members of our senior management or any of our key
employees were to resign, the loss of personnel could result in delays to
product development, loss of sales, and diversion of management resources. See
"Management" for additional information on our key personnel.
Because of Competition for Additional Qualified Personnel, We May Not Be
Able to Recruit or Retain Necessary Personnel, Which Could Impact
Development or Sales of Our Products
Our success depends on our ability to attract and retain qualified,
experienced employees. There is substantial competition for experienced
engineering, sales and marketing personnel in our industry. The volatility and
current market price of our common stock may make it more difficult for us to
recruit, hire and retain qualified personnel, or cause us to incur higher
salary costs. In addition, there is currently a very low employment rate,
particularly for technical personnel, in the Silicon Valley where we are
located, increasing our difficulty in hiring and retaining personnel. If we
are unable to retain our existing key personnel, or attract and retain
additional qualified personnel, we may from time to time experience inadequate
levels of staffing to perform services for our customers. As a result, our
growth could be limited due to our lack of capacity to develop and market our
products to our customers, or we could experience deterioration in service
levels or decreased customer satisfaction.
Our Efforts to Expand Sales of Our Products to Other Industries May Not
Succeed
We have historically sold our products primarily to companies in the
electronics and medical device manufacturing industries. We intend to market
products to customers in additional industries. Although we have targeted
enterprises in other markets as potential customers, these potential customers
may not be as willing to purchase products like ours as have other technology-
based industries such as the electronics and medical device manufacturing
industries.
The Market For Our Products Is Newly Emerging and Customers May Not Accept
Our Products
The market for software products that allow companies to collaborate with
suppliers on product information and change is newly emerging. Companies have
not traditionally automated this product content management process throughout
the supply chain. We cannot be certain that this market will continue to
develop and grow or that companies will elect to utilize our products rather
than attempt to develop applications internally or through
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other sources. In addition, the use of the Internet, as well as corporate
intranets, has not been widely adopted for sharing product information as well
as for collaboration among supply chain participants. Companies that have
already invested substantial resources in other methods of sharing product
information during the manufacturing and supply process may be reluctant to
adopt a new approach that may replace, limit or compete with their existing
systems or methods. We expect that we will continue to need to pursue
intensive marketing and sales efforts to educate prospective customers about
the uses and benefits of our products. Therefore, demand for and market
acceptance of our products will be subject to a high level of uncertainty.
Competition Among Providers of Software Enabling Collaboration in a
Manufacturing Supply Chain May Increase, Which Could Cause Us to Reduce
Prices, and Result in Reduced Gross Margins or Loss of Market Share
The market for products that enable companies to interactively manage and
share information relating to the manufacture and supply of products is new,
highly fragmented, rapidly changing and increasingly competitive. We expect
competition to intensify, which could result in price reductions for our
products, reduced gross margins and loss of market share. Competitors vary in
size and in the scope and breadth of the products and services offered. We
face potential competition from in-house development efforts by potential
customers or partners, vendors of software designed for management of
engineering information, and developers of general purpose groupware software
addressing only limited technology components involved in managing data
generated by changes to the engineering process. We also face potential
competition from providers of enterprise software.
Many of our actual or potential competitors have a number of significant
advantages over us, including:
. longer operating histories;
. significantly greater financial, technical, marketing and other
resources;
. significantly greater name recognition and a larger installed base of
customers; and
. well-established relationships with our actual and potential customers as
well as with systems integrators and other vendors and service providers.
These competitors may also be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products,
than we can. Some of our actual or potential competitors may also bundle their
products in a manner that may discourage potential customers from purchasing
our products. Accordingly, we may not be able to maintain or expand our sales
if competition increases and we are unable to respond effectively. See
"Business--Competition" on page 47 for further discussion of the competitive
market in which we operate.
We May Experience Difficulties in Introducing New Products and Upgrades
Which Could Result in Negative Publicity, Loss of Sales, Delay in Market
Acceptance or Customer Dissatisfaction
Our future financial performance depends on our successful and timely
development, introduction and market acceptance of new and enhanced products.
The life cycles of our products are difficult to predict because the market
for our products is new and emerging, and is characterized by rapid
technological change, changing customer needs and evolving industry standards.
The introduction of products or computer systems employing new technologies
and emerging industry standards could render our existing products obsolete
and unmarketable. For example, portions of our software are written in the
Java computer programming language. If a new software language becomes
standard in our industry or is considered more robust than Java, we may need
to rewrite portions of our products in another computer language in order to
remain competitive. The introduction of enhancements to our suite of products
may also cause customers to defer orders for our existing products. We may
experience difficulties that could delay or prevent the successful
development, introduction or marketing of new or enhanced products in the
future. In addition, those products may not meet the requirements of the
marketplace and achieve market acceptance.
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We expect to add new products to our supply chain applications by
acquisition or internal development and by developing enhancements to our
existing products. We have in the past experienced delays in the planned
release dates of our software products and upgrades, and we have discovered
software defects in new products after their introduction. New products or
upgrades may not be released according to schedule, or may contain defects when
released. Either situation could result in negative publicity, loss of sales,
delay in market acceptance of our products or customer claims against us.
Our Products Might Not Be Compatible With All Major Platforms, Which Could
Inhibit Sales
We must continually modify and enhance our products to keep pace with
changes in computer hardware and software and database technology, as well as
emerging technical standards in the software industry. For example, we have
designed our products to work with databases and servers such as Oracle and
Microsoft SQL Server. Any changes to these platforms could require us to modify
our products, and could cause us to delay releasing a product until the updated
version of that platform has been released. Furthermore, third parties develop
adapters to integrate our products with other design, manufacture, finance and
supply chain systems used by our customers. We rely on these third parties to
update the adapters to reflect changes to our products as well as to the
targeted platform in order to maintain the functionality provided by our
products. As a result, uncertainties related to the timing and nature of new
product announcements, introductions or modifications by vendors of operating
systems, back-office applications and browsers and other Internet-related
applications could hurt our business, as customers may not be certain as to how
our product will operate with their existing systems.
In addition, although portions of our products are based upon the Java
programming language, the Java language does not offer all of the features
available in Windows. Accordingly, certain features available to products that
run on Windows may not be available in the non-Windows version of our products,
and this could result in reduced customer demand. Furthermore, some of our
products do not run on certain types of popular server computers, such as those
that utilize the UNIX operating system. If another platform becomes more widely
used, we could be required to convert, or "port," our product to that platform.
We may not succeed in these efforts, and even if we do, potential customers may
not choose our product. As we extend the functionality of our products to run
on additional platforms, we may incur increased development costs.
If We Are Unable to Timely Expand Our International Operations, We May Not
Achieve Anticipated Revenue Growth
We believe that expansion of our international operations will be necessary
for our future success, and a key aspect to our business strategy is to expand
our sales and support organizations internationally. Therefore, we believe that
we will need to commit significant resources to expand our international
operations. We employ sales professionals in Europe and are in the early stages
of expanding into the Asia Pacific market. If we are unable to successfully
enter into and expand these international markets on a timely basis, we may not
be able to achieve anticipated revenue growth. This expansion may be more
difficult or take longer than we anticipate, and we may not be able to
successfully market, sell, deliver and support our products internationally.
If successful in our international expansion, we will be subject to a number
of risks associated with international business activities. These risks
include:
. difficulty in providing customer support for our software in multiple
time zones;
. need to develop our software in multiple foreign languages;
. longer sales cycles associated with educating foreign customers on the
benefits of using our products;
. greater difficulty in collecting accounts receivable from customers
located abroad;
. political and economic instability, particularly in Asia;
. difficulties in enforcing agreements through foreign legal systems; and
. unexpected changes in regulatory requirements that may limit our ability
to export our software or sell into particular jurisdictions or impose
multiple conflicting tax laws and regulations.
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To date, most of our revenues have been denominated in United States
dollars. If we experience an increase in the portion of our revenues
denominated in foreign currencies, we may incur greater risks in currency
fluctuations, particularly since we translate our foreign currency revenues
once at the end of each quarter. In the future, our international revenues
could be denominated in the Euro, the currency of the European Union. The Euro
is an untested currency and may be subject to economic risks that are not
currently contemplated. We currently do not engage in foreign exchange hedging
activities, and therefore our international revenues and expenses are
currently subject to the risks of foreign currency fluctuations.
We Depend on Licensed Technology and the Loss or Inability to Maintain
These Technology Licenses Could Result in Increased Cost or Delays in Sales
of Our Products
We license technology on a non-exclusive basis from several businesses for
use with our products, including licenses from RSA Data Security, Inc. for
security and encryption technology software, Actuate Corporation for reporting
capability and from Cimmetry Systems Inc. for our viewers. We anticipate that
we will continue to license technology from third parties in the future. Some
of the software we license from third parties would be difficult to replace.
This software may not continue to be available on commercially reasonable
terms, if at all. The loss or inability to maintain any of these technology
licenses could result in delays in the licensing of our products until
equivalent technology, if available, is identified, licensed and integrated.
In addition, the effective implementation of our products depends upon the
successful operation of third-party licensed products in conjunction with our
products, and therefore any undetected errors in these licensed products may
prevent the implementation or impair the functionality of products, delay new
product introductions and/or injure our reputation. The increased use of
third-party software could require us to enter into license agreements with
third parties, which could result in higher royalty payments and a loss of
product differentiation.
Defects in Our Software Products Could Diminish Demand For Our Products
Our software products are complex and may contain errors, including year
2000 related errors, that may be detected at any point in the life of the
product. We have in the past discovered software errors in certain of our
products and as a result have experienced delays in shipment of products
during the period required to correct these errors. We cannot assure you that,
despite testing by us, our implementation partners and our current and
potential customers, errors will not be found in new products or releases
after shipment, resulting in loss of revenue, delay in market acceptance and
sales, diversion of development resources, injury to our reputation or
increased service and warranty costs.
Further, our products are generally used in systems with other vendors'
products, and as a result, our products must integrate successfully with these
existing systems. System errors, whether caused by our products or those of
another vendor, could adversely affect the market acceptance of our products,
and any necessary revisions could cause us to incur significant expenses.
If We Become Subject to Product Liability Litigation, It Could Be Time
Consuming and Costly to Defend
Since our products are used for mission critical applications in the supply
chain, errors, defects or other performance problems could result in financial
or other damages to our customers. For example, our products are designed to
communicate information relating to changes in product specifications during
the manufacturing process. If a supplier or other participant receives
inaccurate or erroneous data, it is possible that it could claim it incurred
damages based on its reliance on that data. Although our license agreements
generally contain provisions designed to limit our exposure to product
liability litigation, existing or future laws or unfavorable judicial
decisions could negate such limitation of liability provisions. Product
liability litigation, even if unsuccessful, would be time-consuming and costly
to defend and could harm our business.
In Order to Manage Our Growth and Expansion, We Will Need to Improve and
Implement New Systems, Procedures and Controls
We have recently experienced a period of rapid growth and expansion that
has placed a significant strain on our management information systems and our
administrative, operational and financial resources. For example,
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we have grown from 65 employees at April 30, 1997 to 188 employees at October
31, 1999. In addition, Digital Market had 49 employees as of October 31, 1999.
If we are unable to manage our growth and expansion in an efficient or timely
manner, our business will be seriously harmed. In addition, we have recently
hired a significant number of employees and plan to further increase our total
headcount. We also plan to expand the geographic scope of our operations. This
expansion has resulted and will continue to result in substantial demands on
our management resources. To accommodate continued anticipated growth and
expansion, we will be required to:
. improve existing and implement new operational and financial systems,
procedures and controls;
. hire, train, manage, retain and motivate qualified personnel; and
. enter into relationships with strategic partners.
These measures may place additional burdens on our management and our
internal resources.
If We Are Unable to Protect Our Intellectual Property We May Lose a
Valuable Asset, Experience Reduced Market Share or Incur Costly Litigation
to Protect Our Rights
Our success and ability to compete depend upon our proprietary technology,
including our brand and logo and the technology underlying our products. We
rely on trademark, trade secret and copyright laws to protect our intellectual
property. Despite our efforts to protect our intellectual property, a third
party could copy or otherwise obtain our software or other proprietary
information without authorization, or could develop software competitive to
ours. Our means of protecting our proprietary rights may not be adequate and
our competitors may independently develop similar technology, duplicate our
products or design around patents that may be issued to us or our other
intellectual property. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States, and we expect that it will become more difficult to monitor the
use of our products if we increase our international presence.
We may have to resort to litigation to enforce our intellectual property
rights, to protect our trade secrets or know-how or to determine their scope,
validity or enforceability. Enforcing or defending our proprietary technology
is expensive, could cause the diversion of our resources, and may not prove
successful. Our protective measures may prove inadequate to protect our
proprietary rights, and any failure to enforce or protect our rights could
cause us to lose a valuable asset.
We May Be Subject to Intellectual Property Infringement Claims That, With
or Without Merit, Could Be Costly to Defend or Settle
We may from time to time be subject to claims of infringement of other
parties' proprietary rights or claims that our own intellectual property
rights are invalid. For example, Digital Market is currently involved in
litigation relating to alleged infringement of another party's intellectual
property, as described under "Business--Legal Proceedings" on page 49. There
has been a substantial amount of litigation in the software and Internet
industries regarding intellectual property rights. It is possible that, in the
future, third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers and providers of electronic commerce solutions will increasingly be
subject to infringement claims as the number of products and competitors in
our industry segment grows and the functionality of products in industry
segments overlaps. Any infringement claims made against us, with or without
merit, could be time-consuming, result in costly litigation, cause product
shipment delays or negative publicity. In addition, if our products were found
to infringe a third party's proprietary rights, we could be required to enter
into royalty or licensing agreements in order to continue to be able to sell
our products. Royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all.
Year 2000 Compliance Costs and Risks Are Difficult to Assess and Could
Result in Delay or Loss of Revenue, Diversion of Development Resources,
Damage to Our Reputation or Increased Service, Warranty or Litigation Costs
Our products are generally integrated into computer systems involving
sophisticated hardware and complex software products, which may not be year
2000 compliant. The failure of our customers' systems to be year
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2000 compliant could impede the success of applications that we have developed
for them. Accordingly, known or unknown defects that affect the operation of
our software, including any defects or errors in applications that include our
products, could result in delay or loss of revenue, diversion of development
resources, damage to our reputation or increased service, warranty or
litigation costs, any of which could harm our business.
In addition, earlier versions of our products may not be year 2000
compliant, and we do not intend to make them year 2000 compliant. We also need
to ensure year 2000 compliance of our own internal computer and other systems,
to continue testing our software products, and to audit the year 2000
compliance status of our suppliers and business partners. We have not
completed our year 2000 investigation and overall compliance initiative, and
the total cost of our year 2000 compliance may be substantial and may harm our
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Readiness Disclosure" on page 37 for a
discussion of the status of our year 2000 compliance review.
Provisions Contained in Our Charter Documents May Delay or Prevent a Change
in Our Control
Provisions of our Delaware certificate of incorporation and bylaws and of
Delaware law could make it more difficult for a third party to acquire us,
even if a change in control would be beneficial to our stockholders. These
provisions also may prevent changes in our management. See "Description of
Capital Stock--Antitakeover Effects of Delaware Law and Provisions of Our
Certificate of Incorporation and Bylaws" on page 65 for further discussion of
the specific provisions in our charter documents that may delay or prevent a
change in our control.
Risks Related to the Internet on Our Business and Prospects
If Use of the Internet Does Not Continue to Develop and Reliably Support
the Demands Placed on It by Electronic Commerce, We May Experience Loss of
Sales
Our success depends upon continued growth in the use of the Internet as a
medium of commerce. Although the Internet is experiencing rapid growth in the
number of users, this growth is a recent phenomenon and may not continue.
Furthermore, despite this growth in usage, the use of the Internet for
commerce is relatively new. As a result, a sufficiently broad base of
companies and their supply chain partners may not adopt or continue to use the
Internet as a medium of exchanging product content information. Our business
would be seriously harmed if:
. use of the Internet does not continue to increase or increases more
slowly than expected;
. the infrastructure for the Internet does not effectively support
enterprises and their supply chain partners;
. the Internet does not create a viable commercial marketplace, inhibiting
the development of electronic commerce and reducing the demand for our
products; or
. concerns over the secure transmission of confidential information over
public networks inhibit the growth of the Internet as a means of
conducting commercial transactions.
Capacity Restraints May Restrict the Use of the Internet as a Commercial
Marketplace, Resulting in Decreased Demand For Our Products
The Internet infrastructure may not be able to support the demands placed
on it by increased usage or the limited capacity of networks to transmit large
amounts of data. Other risks associated with commercial use of the Internet
could slow its growth, including:
. outages and other delays resulting from the inadequate reliability of the
network infrastructure;
. slow development of enabling technologies and complementary products; and
. limited availability of cost-effective, high-speed access.
Delays in the development or adoption of new equipment standards or
protocols required to handle increased levels of Internet activity, or
increased governmental regulation, could cause the Internet to lose its
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viability as a means of communication between manufacturers and their supply
chain partners. If these or any other factors cause use of the Internet for
commerce to slow or decline, the Internet may not prove viable as a commercial
marketplace, resulting in decreased demand for our products.
Increasing Governmental Regulation of the Internet Could Limit the Market
for Our Products
As Internet commerce continues to evolve, we expect that federal, state and
foreign governments will adopt laws and regulations covering issues such as
user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. It is possible that
legislation could expose companies involved in electronic commerce to
liability, taxation or other increased costs, any of which could limit the
growth of electronic commerce generally. Legislation could dampen the growth
in Internet usage and decrease its acceptance as a communications and
commercial medium. If enacted, these laws and regulations could limit the
market for our products.
Risks Related to This Offering
Our Executive Officers, Directors and Major Stockholders Will Retain
Significant Control Over Us After This Offering, Which May Lead to
Conflicts With Other Stockholders Over Corporate Governance Matters
After this offering, executive officers, directors and holders of 5% or
more of our outstanding common stock will, in the aggregate, own approximately
44.8% of our outstanding common stock. These stockholders would be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership may also delay, deter or prevent
a change in our control and may make some transactions more difficult or
impossible to complete without the support of these stockholders.
Our Stock Price Has Been and May Continue to Be Extremely Volatile, Which
May Lead to Losses By Investors and to Securities Litigation
The stock market has experienced significant price and volume fluctuations
and the market prices of securities of technology companies, particularly
Internet-related companies including us, have been highly volatile. Investors
may not be able to resell their shares purchased in this offering at or above
the offering price.
The market price of our common stock may decrease significantly in response to
a number of factors, some of which are beyond our control, including the
following:
. variations in our quarterly operating results;
. announcements that our revenues or income are below securities
analysts' expectations;
. changes in securities analysts' estimates of our performance or
industry performance;
. changes in market valuations of similar companies;
. sales of large blocks of our common stock;
. the termination 91 days after the date of this offering with regard to
our principal and selling stockholders, directors and officers, and
the termination on February 16, 2000 with regard to some of our other
stockholders and the shareholders of Digital Market, of the lock-up
period during which these stockholders are not permitted to sell our
common stock acquired before our initial public offering; and
. fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of software and Internet-based
companies.
In the past, securities class action litigation has often been instituted
against a company following periods of volatility in the company's stock
price. This type of litigation, if filed against us, could result in
substantial costs and could divert our management's attention and resources.
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Our Management Will Retain Broad Discretion in the Use of Proceeds From
This Offering and May Not Obtain a Significant Return on the Use of These
Proceeds
We currently have no specific plans for a significant portion of our net
proceeds from this offering. Consequently, our management has complete
discretion as to how to spend the proceeds from this offering. They may spend
these proceeds in ways with which our stockholders may not agree. Management's
allocation of the proceeds of this offering may not benefit our business and
the investment of the proceeds may not yield a favorable return.
Substantial Future Sales of Our Common Stock Could Cause Our Stock Price to
Decline
Sales of a substantial number of shares of our common stock after this
offering could cause the market price of our common stock to decline by
potentially introducing a large number of sellers of our common stock into a
market in which our common stock price is already volatile. In addition, the
sale of these shares could impair our ability to raise capital through the
sale of additional equity securities. Based on shares outstanding as of
October 31, 1999, and assuming the closing of our acquisition of Digital
Market at an average closing price in excess of $85.00 per share, we will have
22,617,199 shares of our common stock outstanding, or 22,954,699 shares if the
underwriters' overallotment is exercised in full. All of the 2,250,000 shares
sold in this offering will be freely tradeable. Our directors, executive
officers and substantially all of our current stockholders have executed lock-
up agreements that limit their ability to sell shares of our common stock.
These stockholders have agreed, subject to limited exceptions, not to sell or
otherwise dispose of any shares of our common stock for a period of time
without the prior written approval of Morgan Stanley & Co. Incorporated. The
lock-up agreements signed by our directors, officers and principal and selling
stockholders expire 91 days after the date of this offering, and the lock-up
agreements signed by our other stockholders expire on February 16, 2000, at
which time these shares and the shares of the common stock underlying any
options held by these individuals will become eligible for sale, in some cases
subject only to the volume, manner of sale and notice requirements of Rule 144
of the Securities Act of 1933. See "Shares Eligible for Future Sale" on page
67 for further discussion of the shares that will be freely tradeable after
the date of this prospectus.
Investors in This Offering Will Suffer Immediate Dilution
We expect that the public offering price of our common stock in this
offering will be substantially higher than the net tangible book value per
share of our outstanding common stock. Accordingly, purchasers of common stock
in this offering will experience immediate and substantial dilution of
approximately $127.06 in net tangible book value per share, or approximately
92.1% of the assumed public offering price of $138.00 per share. In contrast,
our existing stockholders paid an average price of $5.15 per share. Investors
will incur additional dilution upon the exercise of outstanding stock options
and warrants. See "Dilution" on page 22 for further discussion of the dilution
that new investors will incur.
Special Note Regarding Forward-Looking Statements
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions. Because
these forward-looking statements involve risks and uncertainties, actual
results could differ materially from those expressed or implied by these
forward-looking statements for a number of reasons, including those discussed
under "Risk Factors" and elsewhere in this prospectus.
You should read statements that contain these words carefully because they
discuss our expectations about our future performance, contain projections of
our future operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you
should be aware that the occurrence of any of the events described in these
risk factors and elsewhere in this prospectus could substantially harm our
business, results of operations and financial condition and that upon the
occurrence of any of these events, the trading price of our common stock could
decline and you could lose all or part of your investment.
19
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of $161.5 million from the
sale of the 1,250,000 shares of common stock offered by us in this offering,
based upon an assumed public offering price of $138.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses of $11.1 million payable by us. If the underwriters' over-
allotment option is exercised in full, we estimate that our net proceeds will
be $205.2 million. We will not receive any proceeds from the sale of shares by
the selling stockholders.
We intend to use the net proceeds of the offering primarily for general
corporate purposes, including working capital and capital expenditures. We
may, if appropriate opportunities arise, use an undetermined portion of the
net proceeds to acquire or invest in complementary companies, product lines,
products or technologies. We do not currently have any agreements or
commitments with respect to any acquisition or investment other than Digital
Market and we are not currently involved in any negotiations with respect to
any such transaction. Pending these uses, the net proceeds of the offering
will be invested in short-term, interest-bearing investments or accounts.
DIVIDEND POLICY
We have never paid cash dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future. We currently intend to retain
any future earnings to develop and expand our business. Under the terms of our
line of credit facilities, we may not declare or pay any dividends without the
prior consent of the lenders under these facilities.
PRICE RANGE OF COMMON STOCK
Our common stock has traded on the Nasdaq National Market under the symbol
"AGIL" since August 20, 1999. The following table sets forth, for the periods
indicated, the high and low bid quotations for the common stock as reported by
the Nasdaq National Market.
<TABLE>
<CAPTION>
Common
Stock
Price
--------------
High Low
----- ----
<S> <C> <C>
Fiscal Year Ended April 30, 2000
Second Quarter (August 20, 1999 through October 31,
1999)................................................ $100 9/16 $34 1/4
Third Quarter (through November 17, 1999)............. 177 7/8 93 3/16
</TABLE>
On November 17, 1999, the reported last sale price on the Nasdaq National
Market for our common stock was $138.00 per share.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of October 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the issuance of 611,764 shares of common
stock to the holders of all outstanding capital stock and warrants of
Digital Market in connection with our proposed acquisition of Digital
Market; and
. on a pro forma as adjusted basis to reflect the application of the net
proceeds from the sale of 1,250,000 shares of common stock offered by us
in this offering, based upon an assumed public offering price of $138.00
per share, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, and the
exercise of warrants to purchase 57,190 shares of common stock;
The outstanding share information does not include 1,834,525 shares of
common stock reserved for issuance upon exercise of outstanding options
granted under our 1995 Stock Option Plan with a weighted average exercise
price of $8.25 per share; 1,125,419 shares of common stock available for
issuance under our 1995 Stock Option Plan; 500,000 shares of common stock
reserved for issuance under our 1999 Employee Stock Purchase Plan; and 41,111
shares of common stock issuable upon exercise of an outstanding warrant at an
exercise price of $.354 per share. Of the total shares outstanding, 1,058,654
shares are subject to our right of repurchase.
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and the related notes to the consolidated
financial statements.
<TABLE>
<CAPTION>
As of October 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Capital lease obligations and notes payable,
less current portion.......................... $ 858 $ 956 $ 956
-------- -------- --------
Stockholders' equity:
Preferred stock, $.001 par value; 10,000,000
shares authorized, no shares issued or
outstanding actual, pro forma and pro forma
as adjusted................................. -- -- --
Common stock, $.001 par value;
100,000,000 shares authorized, 20,698,245
shares issued and outstanding actual;
21,310,009 shares issued and outstanding
pro forma, 22,617,199 shares issued and
outstanding pro forma as adjusted........... 21 21 23
Additional paid-in capital................... 134,488 194,488 356,042
Notes receivable from stockholders........... (1,826) (1,826) (1,826)
Unearned stock compensation.................. (19,066) (19,066) (19,066)
Accumulated deficit.......................... (34,892) (37,542) (37,542)
-------- -------- --------
Total stockholders' equity................. 78,725 136,075 297,631
-------- -------- --------
Total capitalization..................... $ 79,583 $137,031 $298,587
======== ======== ========
</TABLE>
21
<PAGE>
DILUTION
Our net tangible book value at October 31, 1999 was approximately $78.7
million or approximately $3.80 per share. Net tangible book value per share
represents actual total assets less total liabilities, divided by the actual
number of shares outstanding as of October 31, 1999.
After giving effect to our sale of 1,250,000 shares of common stock in this
offering at an assumed public offering price of $138.00 per share, after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us, our net tangible book value as of October 31,
1999 would have been approximately $240.2 million, or $10.94 per share. This
represents an immediate increase in net tangible book value of $7.14 per share
to existing stockholders and an immediate dilution in net tangible book value
of $127.06 per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.......................... $138.00
Net tangible book value per share as of October 31, 1999....... $3.80
Increase in tangible book value per share attributable to new
investors..................................................... 7.14
-----
Net tangible book value per share after this offering............ 10.94
-------
Dilution per share to new investors in this offering............. $127.06
=======
</TABLE>
The following table sets forth, on a pro forma basis as of October 31,
1999, the difference between the existing stockholders and the purchasers of
shares in this offering at an assumed public offering price of $138.00 per
share, with respect to the number of shares of common stock purchased, the
total consideration paid and the average price per share paid, before
deduction of the estimated underwriting discounts and commissions and
estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 20,698,245 94.3% $106,584,000 38.2% $ 5.15
New stockholders.............. 1,250,000 5.7 172,500,000 61.8 138.00
---------- ----- ------------ -----
Totals...................... 21,948,245 100.0% $279,084,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing tables assume no exercise of the underwriters' over-allotment
option and do not include the consideration received in exchange for the
issuance of shares of our common stock in connection with the proposed
acquisition of Digital Market. As of October 31, 1999, there were options
outstanding to purchase a total of 1,834,525 shares of common stock at a
weighted average exercise price of $8.25 per share under our 1995 Stock Option
Plan. In addition, as of October 31, 1999, there were 98,301 shares of common
stock issuable upon exercise of outstanding warrants at a weighted average
exercise price of $1.22 per share. Subsequent to October 31, 1999, warrants to
purchase 57,190 shares of our common stock were exercised at a weighted
average exercise price of $1.85, which will result in further dilution to new
investors.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated
financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The selected
consolidated statement of operations data for each of the three years in the
period ended April 30, 1999 and the selected consolidated balance sheet data
at April 30, 1998 and April 30, 1999, are derived from, and are qualified by
reference to, our consolidated financial statements included elsewhere in this
prospectus. The selected consolidated statement of operations data for the
period from inception on March 13, 1995 to April 30, 1996 and the selected
consolidated balance sheet data as of April 30, 1996 and April 30, 1997 are
derived from consolidated financial statements not included in this
prospectus.
The consolidated statements of operations data for the six months ended
October 31, 1998 and 1999 and the consolidated balance sheet data as of
October 31, 1999 are derived from unaudited condensed consolidated financial
statements included elsewhere in this prospectus. In the opinion of
management, the unaudited condensed consolidated financial statements have
been prepared on the same basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair statement of the results of these periods.
The historical results are not necessarily indicative of results to be
expected in any future period.
The unaudited pro forma combined statement of operations data presents the
results of operations of Agile for the year ended April 30, 1999 and the six
months ended October 31, 1999, combined with the statement of operations of
Digital Market for the year ended March 31, 1999 and the six months ended
September 30, 1999, giving effect to the acquisition as if it had occurred as
of the beginning of the period presented. The unaudited pro forma combined
balance sheet data gives effect to the merger as if the transaction occurred
on October 31, 1999 and combines the unaudited balance sheet of Agile as of
October 31, 1999 and the unaudited balance sheet of Digital Market as of
September 30, 1999. The unaudited pro forma condensed combined information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
transaction had been consummated at the dates indicated, nor is it necessarily
indicative of the future operating results or financial position of the
combined companies.
23
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Six Months Pro Forma
Period from Fiscal Year Ended Six Months
March 13, 1995 Fiscal Year Ended April 30, Ended October 31, Ended
(Inception) to ----------------------------- April 30, ---------------- October 31,
April 30, 1996 1997 1998 1999 1999 1998 1999 1999
-------------- --------- --------- --------- ----------- ------- ------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
License............... $ 24 $ 1,143 $ 6,102 $ 10,859 $ 4,756 $ 8,339
Professional
services............. 14 187 1,385 3,665 1,471 2,165
Maintenance........... -- 22 516 2,283 826 2,321
------- -------- -------- --------- ------- -------
Total revenues....... 38 1,352 8,003 16,807 $ 18,293 7,053 12,825 $ 13,230
------- -------- -------- --------- -------- ------- ------- --------
Cost of revenues:
License............... 2 113 543 819 406 528
Professional
services............. 4 88 1,347 3,823 1,546 1,726
Maintenance........... -- 65 278 1,343 543 924
------- -------- -------- --------- ------- -------
Total cost of
revenues............ 6 266 2,168 5,985 8,433 2,495 3,178 4,508
------- -------- -------- --------- -------- ------- ------- --------
Gross profit............ 32 1,086 5,835 10,822 9,860 4,558 9,647 8,722
------- -------- -------- --------- -------- ------- ------- --------
Operating expenses:
Sales and marketing... 198 2,149 8,070 13,495 15,358 5,990 10,013 11,220
Research and
development.......... 852 2,510 3,788 4,742 7,708 2,216 3,194 5,344
General and
administrative....... 381 1,333 1,995 1,938 2,764 870 1,505 2,190
Amortization of stock
compensation......... -- -- 856 2,253 2,253 945 3,658 3,658
In-process research
and development...... -- -- -- -- 1,400 -- -- --
Goodwill
amortization......... -- -- -- -- 26,198 -- -- 13,099
------- -------- -------- --------- -------- ------- ------- --------
Total operating
expenses............ 1,431 5,992 14,709 22,428 55,681 10,021 18,370 35,511
------- -------- -------- --------- -------- ------- ------- --------
Loss from operations.... (1,399) (4,906) (8,874) (11,606) (45,821) (5,463) (8,723) (26,789)
Interest income
(expense), net......... 72 70 (68) 178 290 150 364 58
------- -------- -------- --------- -------- ------- ------- --------
Net loss................ $(1,327) $ (4,836) $ (8,942) $ (11,428) $(45,531) $(5,313) $(8,359) $(26,731)
======= ======== ======== ========= ======== ======= ======= ========
Net loss per share:
Basic and diluted..... $ (1.94) $ (3.72) $ (4.20) $ (3.87) $ (12.78) $ (1.89) $ (.90) $ (2.71)
======= ======== ======== ========= ======== ======= ======= ========
Weighted average
shares............... 684 1,300 2,129 2,952 3,564 2,814 9,264 9,876
======= ======== ======== ========= ======== ======= ======= ========
Pro forma net loss per
share:
Basic and diluted..... $ (.78) $ (.50)
========= =======
Weighted average
shares............... 14,668 16,852
========= =======
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
As of April 30, As of As of
----------------------------- October 31, October 31,
1996 1997 1998 1999 1999 1999
------ ------ ------ ------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash, cash equivalents
and short-term
investments............ $3,829 $3,292 $2,160 $10,003 $81,174 $ 61,302
Working capital
(deficit).............. 3,747 2,617 (930) 4,174 76,210 50,159
Total assets............ 4,219 5,366 7,531 17,948 91,465 154,310
Long-term obligations... 152 626 782 3,224 858 956
Stockholders' equity.... 3,867 3,154 177 3,291 78,725 136,075
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected
Consolidated Financial Data" and our consolidated financial statements and
related notes included elsewhere in this prospectus. In addition to historical
information, the discussion in this prospectus contains certain forward-
looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated by these forward-looking
statements due to factors, including, but not limited to, those set forth
under "Risk Factors" and elsewhere in this prospectus.
Overview
We develop and market product content management software for the use
within and among companies in a manufacturing supply chain over the Internet.
Our suite of software products is designed to improve the ability of all
members of the supply chain to communicate and collaborate with one another
about new or changing information concerning the manufacture, source or supply
of products or components. We were founded in March 1995 and in June 1996 we
began selling our first products and delivering related services. We currently
license our products in the United States through our direct sales force, and
in Europe through our direct sales force and distributors. To date, revenues
from international sales have not been material. We have derived our revenues
principally from the licenses of our products, the delivery of professional
services and from maintenance contracts.
Customers who license our software products receive a license for our
application servers, one or more user licenses, and third-party provided
adapters to connect with the customer's other existing enterprise systems. Our
customers generally purchase a limited number of user licenses at the time of
the initial license of the software products and may purchase additional user
licenses as needed. Customers may purchase implementation services from us.
These professional services are generally provided on a fixed-price basis and
are often provided by third-party consulting organizations. We also offer fee-
based training services to our customers. As of October 31, 1999, over 98% of
our customers who licensed our products had purchased maintenance contracts,
which provide unspecified software upgrades, on a when-and-if available basis,
and technical support over a stated term, which is generally a twelve-month
period, and over 90% of our customers had renewed their maintenance contracts.
We cannot assure that we will continue to experience these rates of purchases
of maintenance agreements or renewals.
We recognize revenue under Statement of Position, or SOP, 97-2, Software
Revenue Recognition, and SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions. When contracts contain
multiple elements and vendor-specific objective evidence exists for all
undelivered elements, we account for the delivered elements in accordance with
the "Residual Method" prescribed by SOP 98-9. Software licenses sold to new
customers are recognized upon installation and acceptance by the customer.
Software licenses sold to existing customers, or add-on sales, do not include
acceptance provisions and are recognized upon shipment of the software
product. In the event we grant our customers the right to specified upgrades,
license revenue is deferred until delivery of the specified upgrade. If
vendor-specific objective evidence of fair value exists for the specified
upgrade, then an amount equal to this fair value is deferred. If vendor-
specific objective evidence of fair value does not exist, then the entire
license fee is deferred until the delivery of the specified upgrade. During
fiscal 1997, our first full year of operations, substantially all of our
license revenues were generated from new customers. License revenues generated
from new customers represented 79% of total revenues in fiscal 1998, 66% in
fiscal 1999, and 50% for the six months ended October 31, 1999, with the
remaining license revenues attributable to existing customers. Our
professional services revenues consist of implementation services which are
recognized upon customer acceptance and training revenues which are recognized
as the services are performed. Our maintenance revenues are recognized ratably
over the contract period, generally twelve months.
25
<PAGE>
Our cost of license revenues include royalties due to third parties for
integrated technology, the cost of manuals and product documentation,
production media used to deliver our products and packaging costs. Our cost of
professional services revenues include salaries and related expenses for the
implementation and training services organizations, costs of third parties
contracted to provide implementation services to customers and an allocation
of our overhead expenses. Our cost of maintenance revenues include salaries
and related expenses for the customer support organization and an allocation
of our overhead expenses. The cost of professional services can fluctuate
depending upon whether more or less of the professional services are provided
to our customers by us rather than by third-party service providers. We
generally provide implementation services to our customers on a fixed-price
basis. If we have to engage independent contractors or third parties to
provide these services on our behalf, it is generally at higher cost resulting
in a lower gross margin than if we had provided the services to our customers
ourselves. Therefore, our gross margin from professional services may
fluctuate based on who performs the services and the actual cost to provide
these services. Although services revenues may increase in absolute dollars if
we increase the professional services we provide, services revenues have lower
gross margins than license revenues. Our overall gross profit can therefore
fluctuate based on the mix of license revenues compared to professional
services revenues and maintenance revenues.
Our operating expenses are classified as sales and marketing, research and
development and general and administrative. We classify all charges to these
operating expense categories based on the nature of the expenditures. Although
each category includes expenses that are unique to the category type, there
are common recurring expenditures that are typically included in all operating
expenses categories, such as salaries, employee benefits, incentive
compensation, bonuses, travel costs, telephone, communication, rent and
allocated facilities costs and professional fees. The sales and marketing
category of operating expenses includes additional expenditures specific to
the marketing group, such as public relations and advertising, trade shows,
marketing collateral materials, and customer user group meetings and
expenditures specific to the sales group, such as commissions. To date, all
software development costs in research and development have been expensed as
incurred. Also included in our operating expenses is the amortization of stock
compensation described below.
As of October 10, 1999, we entered into an agreement to acquire Digital
Market in a merger transaction to be accounted for as a purchase. The purchase
price will include $20.0 million in cash, and approximately $52.0 million in
common stock, based on the average closing price of our common stock for the
ten trading days ending the day prior to the closing of the acquisition,
subject to a minimum of 611,764 shares and a maximum of 1,485,714 shares. The
ultimate number of shares to be issued cannot be determined until the
acquisition has been completed. In addition, we will assume all of the
outstanding options to purchase the common stock of Digital Market under its
stock option plans. The estimated fair value of the assumed options is
approximately $8.0 million and will be included as a component of the purchase
price. We also anticipate incurring approximately $2.0 million in acquisition
expenses. The total anticipated purchase price of Digital Market is $82.0
million.
The purchase price will be allocated to the tangible and identifiable
intangible assets acquired and liabilities assumed on the basis of their fair
values. The aggregate purchase price is expected to be allocated as follows,
based upon an independent appraisal of Digital Market (in thousands):
<TABLE>
<S> <C>
Net tangible liabilities of Digital Market......................... $(2,295)
In-process research and development................................ 1,400
Existing technology................................................ 2,050
Trademarks......................................................... 150
Workforce in place................................................. 2,100
Goodwill........................................................... 78,595
-------
$82,000
=======
</TABLE>
The net tangible liabilities of Digital Market consist primarily of cash
and cash equivalents, accounts receivable, property and equipment, accounts
payable and other liabilities and notes payable. In-process research
26
<PAGE>
and development has not reached the stage of technological feasibility at the
acquisition date and will be immediately charged to operations. Existing
technology will be amortized over its estimated useful life of three years,
trademarks will be amortized over its estimated useful life of three years and
workforce in place will be amortized over its estimated useful life of four
years. The purchase price in excess of net tangible liabilities and
identifiable assets will be allocated to goodwill and amortized over its
expected useful life of three years.
In connection with the granting of stock options to our employees and non-
employee consultants, we have recorded unearned stock compensation totaling
approximately $25.8 million through October 31, 1999, of which $19.1 million
remains to be amortized. This amount represents the difference between the
exercise price and the current estimated fair value of our common stock on the
date these stock options were granted. This amount is included as a component
of stockholders' equity and is being amortized by charges to operations over
the expected term of the options, consistent with the method described in
Financial Accounting Standards Board, or FASB, Interpretation No. 28. We
recognized amortization of unearned stock compensation of $856,000 for fiscal
1998, $2.3 million for fiscal 1999, $945,000 for the six months ended October
31, 1998 and $3.7 million for the six months ended October 31, 1999. The
amortization of the remaining unearned stock compensation at October 31, 1999
will result in additional charges to operations through fiscal 2005. We
calculated the minimum fair value of options to purchase 70,000 shares of our
common stock granted to non-employee consultants, which totals $6.4 million,
on the date of grant using the Black-Scholes option pricing model as
prescribed by SFAS No. 123 with the following underlying assumptions: expected
volatility of 75%, risk-free interest rate of 5.9% and option terms of ten
years. We are accounting for these options under variable plan accounting and
therefore the expense associated with these options may fluctuate
significantly from quarter to quarter through fiscal 2005. The amortization of
stock compensation is classified as a separate component of operating expenses
in our consolidated statement of operations. We expect to grant options at
below market price to purchase shares of our common stock to certain of
Digital Market's employees who remain employed with us after the acquisition
is completed. If we make these below market grants, we will record additional
deferred stock compensation which will be amortized over the expected term of
the options.
Although our total revenues have increased from quarter to quarter, we have
incurred significant costs to develop our products and to recruit and train
personnel for our engineering, sales, marketing, professional services and
administration departments. As a result, we have incurred significant losses
since inception, and, as of October 31, 1999, had an accumulated deficit of
$34.9 million.
We intend to continue to incur significant sales and marketing, research
and development and general and administrative expenses. For example, we had
65 full-time employees as of April 30, 1997 compared to 103 at April 30, 1998,
156 at April 30, 1999 and 188 at October 31, 1999. In addition, Digital Market
had 49 employees as of October 31, 1999. We will seek to hire additional
employees in the future. We expect to continue to incur operating losses for
the foreseeable future. In order to achieve profitability, we will need to
increase our revenues significantly. Therefore, we cannot assure you that we
will ever attain or maintain profitability. Our expansion will also place
significant demands on our management and operational resources. To manage
this rapid growth and increased demands, we must improve existing and
implement new operational and financial systems, procedures and controls. We
must also hire, train, manage, retain and motivate qualified personnel. We
expect future expansion to continue to challenge our ability to hire, train,
manage, retain and motivate our employees.
In view of the rapidly changing nature of our market and our limited
operating history, we believe that period-to-period comparisons of our
revenues and other operating results are not necessarily meaningful and should
not be relied upon as indications of future performance. Our historic revenue
growth rates are not necessarily sustainable or indicative of our future
growth.
27
<PAGE>
Results of Operations
The following table sets forth selected consolidated financial data for the
periods indicated, expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
Six Months
Fiscal Year Ended Ended
April 30, October 31,
----------------------- --------------
1997 1998 1999 1998 1999
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
License.......................... 84 % 76 % 65 % 67 % 65%
Professional services............ 14 17 22 21 17
Maintenance...................... 2 7 13 12 18
------ ------ ----- ----- -----
Total revenues................. 100 100 100 100 100
------ ------ ----- ----- -----
Cost of revenues:
License.......................... 8 7 5 6 4
Professional services............ 7 17 23 22 14
Maintenance...................... 5 3 8 7 7
------ ------ ----- ----- -----
Total cost of revenues......... 20 27 36 35 25
------ ------ ----- ----- -----
Gross profit....................... 80 73 64 65 75
------ ------ ----- ----- -----
Operating expenses:
Sales and marketing.............. 159 101 80 85 78
Research and development......... 185 47 28 32 25
General and administrative....... 99 25 12 12 12
Amortization of stock
compensation.................... -- 11 13 13 28
------ ------ ----- ----- -----
Total operating expenses....... 443 184 133 142 143
------ ------ ----- ----- -----
Loss from operations............... (363) (111) (69) (77) (68)
Interest income (expense), net..... 5 (1) 1 2 3
------ ------ ----- ----- -----
Net loss........................... (358)% (112)% (68)% (75)% (65)%
====== ====== ===== ===== =====
</TABLE>
Six Months Ended October 31, 1998 and 1999
Revenues
Our total revenues for the six months ended October 31, 1999 were $12.8
million, representing an increase of $5.8 million, or 82%, from the revenues
of $7.1 million for the six months ended October 31, 1998. We had no customer
that accounted for more than 10% of our total revenues for the quarter ended
October 31, 1999 or 1998.
License Revenues. Our license revenues for the six months ended October 31,
1999 were $8.3 million, representing an increase of $3.5 million, or 73%, from
the revenues of $4.8 million for the six months ended October 31, 1998. The
increase in our license revenues from the prior year's period was due to
increased market acceptance of our suite of products, including new versions
of our products. During the quarter ended July 31, 1999, we offered specified
upgrade rights to certain customers, which resulted in the deferral of
approximately $238,000 of license revenues. These specified upgrades were
delivered to our customers in the quarter ended October 31, 1999, and
accordingly, we recognized these license revenues in that quarter.
Professional Services Revenues. Our professional services revenues for the
six months ended October 31, 1999 were $2.2 million, representing an increase
of $700,000 or 47%, from the revenues of $1.5 million for the six months ended
October 31, 1998. Professional services revenues as a percentage of total
revenues were 17% for the six months ended October 31, 1999 and 21% for the
six months ended October 31, 1998. The increase in professional services
revenues in absolute dollars was due to increased license revenues and an
increased range
28
<PAGE>
of services, consisting of additional data migration and integration services.
To date, a portion of our professional services revenues relates to our
invoicing for services provided by third parties. In the future, we anticipate
that an increasing percentage of professional services will be provided by
third parties who will invoice the customer directly. As a result, we
anticipate that professional services revenues will decline as a percentage of
total revenues.
Maintenance Revenues. Our maintenance revenues were $2.3 million for the
six months ended October 31, 1999, representing an increase of $1.5 million,
or 81%, from the maintenance revenues of $826,000 for the six months ended
October 31, 1998. Maintenance revenues as a percentage of total revenues were
18% for the six months ended October 31, 1999 and 12% for the six months ended
October 31, 1998. The increase in maintenance revenues and maintenance
revenues as a percentage of total revenues for the six months ended October
31, 1999 compared to the six months ended October 31, 1998 was attributable to
increased licenses for our products.
Cost of Revenues
Cost of License Revenues. Cost of license revenues were $528,000 for the
six months ended October 31, 1999, representing an increase of $122,000, or
30%, from the cost of license revenues of $406,000 for the six months ended
October 31, 1998. The increased expenses were primarily due to the sub-
licensing of third-party software used in our products. Cost of license
revenues as a percentage of total license revenues has decreased as add-on
licenses, which have a higher gross margin than initial customer licenses,
have increased as a percentage of total license revenues.
Cost of Professional Services Revenues. Cost of professional services
revenues were $1.7 million for the six months ended October 31, 1999,
representing an increase of $180,000, or 12%, from the cost of professional
services revenues of $1.5 million for the six months ended October 31, 1998.
The increase in cost of our professional services revenues was primarily due
to an increase in professional services personnel to support the increased
customer base. In certain periods in the past, and potentially in the future,
our cost of professional services revenues exceeded our professional services
revenues, primarily because the actual cost of providing the services, whether
provided internally or through third parties, exceeded the fixed price payment
received from some of our customers. In addition, as we increase the size of
our professional services staff, costs are incurred for new personnel before
they become fully productive.
Cost of Maintenance Revenues. Cost of maintenance revenues were $924,000
for the six months ended October 31, 1999, representing an increase of 70%, or
$381,000, from the cost of maintenance revenues of $543,000 for the six months
ended October 31, 1998. The decrease in cost of maintenance revenues as a
percentage of maintenance revenues for the six months ended October 31, 1999
compared to the six months ended October 31, 1998 was due to economies of
scale realized as a result of increased management personnel and experienced
maintenance personnel.
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $10.0 million for
the six months ended October 31, 1999, representing an increase of $4.0
million, or 67%, from the sales and marketing expenses of $6.0 million for the
six months ended October 31, 1998. Sales and marketing expenses as a
percentage of total revenues were 78% for the six months ended October 31,
1999 compared to 85% for the six months ended October 31, 1998. The increase
in sales and marketing expenses reflect significant personnel-related expenses
such as salaries, benefits and commissions, recruiting fees, travel expenses
and related costs of hiring sales management, sales representatives, sales
engineers and marketing personnel. We anticipate that our sales and marketing
expenses will increase in absolute dollars for the foreseeable future as we
expand our domestic and international sales force.
Research and Development. Research and development expenses were $3.2
million for the six months ended October 31, 1999, representing an increase of
$1.0 million, or 44% from the research and development expenses of $2.2
million for the six months ended October 31, 1998. Research and development
expenses as a percentage of total revenues were 25% for the six months ended
October 31, 1999, compared to 31% for the six
29
<PAGE>
months ended October 31, 1998. The increase in research and development
expenses for the six months ended October 31, 1999 compared to the
corresponding periods in the prior fiscal year was due to the increase in the
number of our software developers, quality assurance personnel and outside
contractors to support our product development, documentation and testing
activities related to the development and release of the latest versions of
our products. We anticipate that research and development expenses will
continue to increase in absolute dollars for the foreseeable future as we
continue to add to our research and development staff.
General and Administrative. General and administrative expenses were $1.5
million for the six months ended October 31, 1999, representing an increase of
$635,000, or 73%, from general and administrative expenses of $ 870,000 for
the six months ended October 31, 1998. General and administrative expenses as
a percentage of total revenues were 12% for both the six months ended October
31, 1999 and 1998. The increase in general and administrative expenses was due
to hiring additional finance, executive and administrative personnel to
support the growth of our business during the period. We expect that general
and administrative expenses will increase in absolute dollars for the
foreseeable future as we expand our operations and incur the normal costs of a
public company.
Amortization of Stock Compensation. We recognized amortization of stock
compensation of approximately $3.7 million for the six months ended October
31, 1999 compared to $945,000 for the six months ended October 31, 1998.
Interest Income (Expense), Net. Interest income (expense), net was $364,000
for the six months ended October 31, 1999, compared to $150,000 for the six
months ended October 31, 1998. This increase was due primarily to higher
interest income generated from the increase in cash and cash equivalents as a
result of our initial public offering. At April 30, 1999, we had unamortized
interest of $253,000 related to warrants issued in connection with
subordinated notes payable. We used a portion of the proceeds from our initial
public offering to repay these subordinated notes payable in their entirety on
August 31, 1999. As a result, we recognized the remaining unamortized interest
balance as an expense in the six months ended October 31, 1999.
Provision for Income Taxes. Our operating losses are generated
domestically, and amounts attributable to our foreign operations have been
insignificant for all periods presented. No provision for income taxes has
been recorded since our inception because we have incurred net losses in all
periods.
Fiscal Years Ended April 30, 1997, 1998 and 1999
Revenues
Our total revenues were $1.4 million for fiscal 1997, $8.0 million for
fiscal 1998 and $16.8 million for fiscal 1999, representing increases of $6.6
million, or 492%, from fiscal 1997 to fiscal 1998 and $8.8 million, or 110%,
from fiscal 1998 to fiscal 1999. We had no customer that accounted for more
than 10% of our total revenues in fiscal 1997, fiscal 1998 or fiscal 1999.
License Revenues. Our license revenues were $1.1 million for fiscal 1997,
$6.1 million for fiscal 1998 and $10.9 million for fiscal 1999, representing
increases of $5.0 million, or 434%, from fiscal 1997 to fiscal 1998 and $4.8
million, or 78%, from fiscal 1998 to fiscal 1999. License revenues as a
percentage of total revenues were 84% for fiscal 1997, 76% for fiscal 1998 and
65% for fiscal 1999. The increase in our license revenues from fiscal 1997 to
fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to increased market
acceptance of our suite of products, including new versions of our products.
Professional Services Revenues. Our professional services revenues were
$187,000 for fiscal 1997, $1.4 million for fiscal 1998 and $3.7 million for
fiscal 1999, representing increases of $1.2 million, or 640%, from fiscal 1997
to fiscal 1998 and $2.3 million, or 165%, from fiscal 1998 to fiscal 1999.
Professional services revenues as a percentage of total revenues were 14% for
fiscal 1997, 17% for fiscal 1998 and 22% for fiscal 1999. The increase in
professional services revenues from fiscal 1997 to fiscal 1998 and from fiscal
1998 to fiscal 1999 reflects increased license revenues. The increase in
professional services revenues as a percentage of total
30
<PAGE>
revenues from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999
was due to an increased range of services, consisting of additional data
migration and integration services. To date, a portion of our professional
services revenues relates to our invoicing for services provided by third
parties. In the future, we anticipate that an increasing percentage of
professional services will be provided by third parties who will invoice the
customer directly. As a result, we anticipate that professional services
revenues will decline as a percentage of total revenues.
Maintenance Revenues. Our maintenance revenues were $22,000 for fiscal
1997, $516,000 for fiscal 1998 and $2.3 million for fiscal 1999, representing
increases of $494,000, or 2,245%, from fiscal 1997 to fiscal 1998 and $1.8
million, or 342%, from fiscal 1998 to fiscal 1999. Maintenance revenues as a
percentage of total revenues were 2% for fiscal 1997, 7% for fiscal 1998 and
13% for fiscal 1999. The increase in maintenance revenues and maintenance
revenues as a percentage of total revenues from fiscal 1997 to fiscal 1998 was
attributed to increased licenses of our products and from fiscal 1998 to
fiscal 1999 was due to increased licenses for our products, which accounted
for 53% of the increase, and to renewals of prior period maintenance
contracts, which accounted for 47% of the increase.
Cost of Revenues
Cost of License Revenues. Cost of license revenues were $113,000 for fiscal
1997, $543,000 for fiscal 1998 and $819,000 for fiscal 1999, representing
increases of $430,000, or 381%, from fiscal 1997 to fiscal 1998 and $276,000,
or 51%, from fiscal 1998 to fiscal 1999. Cost of license revenues as a
percentage of license revenues were 10% for fiscal 1997, 9% for fiscal 1998
and 8% for fiscal 1999. Cost of license revenues increased from fiscal 1997 to
fiscal 1998 and from fiscal 1998 to fiscal 1999 due to increased expenses
associated with the sub-licensing of third-party software used in our
products. Cost of license revenues as a percentage of total license revenues
have decreased as add-on licenses, which have a higher gross margin than
initial customer licenses, have increased as a percentage of total license
revenues.
Cost of Professional Services Revenues. Cost of professional services
revenues were $88,000 for fiscal 1997, $1.3 million for fiscal 1998 and $3.8
million for fiscal 1999, representing increases of $1.2 million, or 1,431%,
from fiscal 1997 to fiscal 1998 and $2.5 million, or 183%, from fiscal 1998 to
fiscal 1999. Cost of services revenues as a percentage of services revenues
were 47% for fiscal 1997, 97% for fiscal 1998 and 104% for fiscal 1999. The
increase in cost and as a percentage of professional services revenues from
fiscal 1997 to fiscal 1998 was due to hiring and training a consulting
organization to implement our products. The increase in cost and as a
percentage of professional services revenues from fiscal 1998 to fiscal 1999
was due to an increase in third-party professional services personnel to
support the increased customer base. In certain periods in the past, and
potentially in the future, our cost of professional services revenues exceeded
our professional services revenues. This is generally because the actual cost
of providing the services, whether provided internally or through third
parties, exceeded the fixed price payment received from some of our customers.
In addition, as we increase the size of our professional services staff, costs
are incurred for new personnel before they become fully productive.
Cost of Maintenance Revenues. Cost of maintenance revenues were $65,000 for
fiscal 1997, $278,000 for fiscal 1998 and $1.3 million for fiscal 1999,
representing increases of $213,000, or 328%, from fiscal 1997 to fiscal 1998
and $1.0 million, or 383%, from fiscal 1998 to fiscal 1999. Cost of
maintenance revenues as a percentage of maintenance revenues were 295% for
fiscal 1997, 54% for fiscal 1998 and 59% for fiscal 1999. The increase in cost
of maintenance revenues from fiscal 1997 to fiscal 1998 and from fiscal 1998
to fiscal 1999 was due to hiring and training a support organization needed in
connection with our increased customer base during these periods. The decrease
in cost of maintenance revenues as a percentage of maintenance revenues from
fiscal 1997 to fiscal 1998 was due to economies of scale realized as a result
of increased management personnel and experienced maintenance personnel. The
increase in the cost of maintenance revenues as a percentage of maintenance
revenues from fiscal 1998 to fiscal 1999 was due to expansion of the support
organization.
31
<PAGE>
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $2.1 million for
fiscal 1997, $8.1 million for fiscal 1998 and $13.5 million for fiscal 1999,
representing increases of $5.9 million, or 276%, from fiscal 1997 to fiscal
1998 and $5.4 million, or 67%, from fiscal 1998 to fiscal 1999. Sales and
marketing expenses as a percentage of total revenues were 159% for fiscal
1997, 101% for fiscal 1998 and 80% for fiscal 1999. The increase in sales and
marketing expenses from fiscal 1997 to fiscal 1998 and from fiscal 1998 to
fiscal 1999 reflect significant personnel-related expenses such as salaries,
benefits and commissions, recruiting fees, travel expenses and related costs
of hiring sales management, sales representatives, sales engineers and
marketing personnel. Forty-nine percent of the increase in sales and marketing
expense from fiscal 1997 to fiscal 1998 was due to additions to headcount and
personnel-related expenses. We anticipate that our sales and marketing
expenses will increase in absolute dollars for the foreseeable future as we
expand our domestic and international sales force.
Research and Development. Research and development expenses were $2.5
million for fiscal 1997, $3.8 million for fiscal 1998 and $4.7 million for
fiscal 1999, representing increases of $1.3 million, or 51%, from fiscal 1997
to fiscal 1998 and $954,000, or 25%, from fiscal 1998 to fiscal 1999. Research
and development costs as a percentage of total revenues were 185% for fiscal
1997, 47% for fiscal 1998 and 28% for fiscal 1999. The increases in research
and development expenses from fiscal 1997 to fiscal 1998 and from fiscal 1998
to fiscal 1999 were due to the increase in the number of our software
developers, quality assurance personnel and outside contractors to support our
product development, documentation and testing activities related to the
development and release of the latest versions of our products. We anticipate
that research and development expenses will continue to increase in absolute
dollars for the foreseeable future as we continue to add to our research and
development staff.
General and Administrative. General and administrative expenses were $1.3
million for fiscal 1997, $2.0 million for fiscal 1998 and $1.9 million for
fiscal 1999, representing an increase of $662,000, or 50%, from fiscal 1997 to
1998 and a decrease of $57,000, or 3%, from fiscal 1998 to 1999. General and
administrative expenses as a percentage of total revenues were 99% for fiscal
1997, 25% for fiscal 1998 and 12% for fiscal 1999. The increase in costs from
fiscal 1997 to fiscal 1998 was due to hiring additional finance, executive and
administrative personnel to support the growth of our business during that
period. We expect that general and administrative expenses will increase in
absolute dollars for the foreseeable future as we expand our operations and
incur the normal costs of a public company.
Amortization of Stock Compensation. During fiscal 1998 and fiscal 1999, we
recorded a total of approximately $8.1 million of unearned stock compensation.
We recognized amortization of stock compensation of $856,000 in fiscal 1998
and $2.3 million in fiscal 1999.
Interest Income (Expense), Net. Interest income (expense), net was $70,000
for fiscal 1997, $(68,000) for fiscal 1998 and, $178,000 for fiscal 1999.
Income Taxes. No provision for income taxes has been recorded since our
inception because we have incurred net losses in all periods. As of April 30,
1999, we had net operating loss carryforwards for federal income tax reporting
purposes of approximately $20.0 million that expire in various amounts
beginning in fiscal 2016. We also had net operating loss carryforwards for
state income tax reporting purposes of approximately$18.0 million that expire
in various amounts beginning in fiscal 2004. The U.S. tax laws contain
provisions that limit the use in any future period of net operating loss and
credit carryforwards upon the occurrence of certain events, including a
significant change in ownership interests. We had deferred tax assets,
including our net operating loss carryforwards and tax credits of
approximately $8.7 million as of April 30, 1999. A valuation allowance has
been recorded for the entire deferred tax asset as a result of uncertainties
regarding the realization of the asset balance. See note 4 of notes to
consolidated financial statements.
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<PAGE>
Quarterly Results of Operations
The following tables set forth our unaudited consolidated statement of
operations data for each of the ten quarterly periods ended October 31, 1999,
as well as that data expressed as a percentage of our total revenues for the
quarters presented. You should read this information in conjunction with our
consolidated financial statements and related notes appearing elsewhere in
this prospectus. We have prepared this unaudited consolidated information on a
basis consistent with our audited consolidated financial statements, and, in
the opinion of our management, reflects all normal recurring adjustments that
we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from the operating results for any
quarter.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------------------
Jul. 31, Oct. 31, Jan. 31, Apr. 30, Jul. 31, Oct. 31, Jan. 31, Apr. 30, Jul. 31, Oct. 31,
1997 1997 1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License................ $ 926 $ 1,324 $ 1,543 $ 2,309 $ 2,270 $ 2,486 $ 2,898 $ 3,205 $ 3,654 $ 4,685
Professional services.. 213 254 419 499 655 816 976 1,218 1,159 1,006
Maintenance............ 40 91 166 219 316 510 718 739 1,077 1,244
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues........ 1,179 1,669 2,128 3,027 3,241 3,812 4,592 5,162 5,890 6,935
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
License................ 79 124 119 221 165 241 211 202 223 305
Professional services.. 199 330 348 470 756 790 1,165 1,112 921 805
Maintenance............ 59 64 116 39 237 306 371 429 482 442
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues............. 337 518 583 730 1,158 1,337 1,747 1,743 1,626 1,552
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 842 1,151 1,545 2,297 2,083 2,475 2,845 3,419 4,264 5,383
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 1,279 2,024 2,006 2,761 2,756 3,234 3,339 4,166 4,546 5,467
Research and
development........... 745 826 1,044 1,173 1,076 1,140 1,294 1,232 1,486 1,708
General and
administrative........ 428 448 481 638 431 439 492 576 753 752
Amortization of stock
compensation.......... -- 223 280 353 444 501 622 686 1,428 2,230
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 2,452 3,521 3,811 4,925 4,707 5,314 5,747 6,660 8,213 10,157
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,610) (2,370) (2,266) (2,628) (2,624) (2,839) (2,902) (3,241) (3,949) (4,774)
Interest income
(expense), net......... (2) (26) (23) (17) 52 98 64 (36) (127) 491
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,612) $(2,396) $(2,289) $(2,645) $(2,572) $(2,741) $(2,838) $(3,277) $(4,076) $(4,283)
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
As a Percentage of Total Revenues
-----------------------------------------------------------------------------------------
July 31, Oct. 31, Jan. 31, Apr. 30, Jul. 31, Oct. 31, Jan. 31, Apr. 30, Jul. 31, Oct. 31,
1997 1997 1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License................ 79 % 79 % 72 % 76 % 70 % 65 % 63 % 62 % 62 % 68 %
Professional services.. 18 15 20 17 20 22 21 24 20 14
Maintenance............ 3 6 8 7 10 13 16 14 18 18
---- ---- ---- --- --- --- --- --- --- ---
Total revenues........ 100 100 100 100 100 100 100 100 100 100
---- ---- ---- --- --- --- --- --- --- ---
Cost of revenues:
License................ 7 7 6 7 5 6 5 4 4 4
Professional services.. 17 20 16 16 24 21 25 22 16 12
Maintenance............ 5 4 5 1 7 8 8 8 8 6
---- ---- ---- --- --- --- --- --- --- ---
Total cost of
revenues............. 29 31 27 24 36 35 38 34 28 22
---- ---- ---- --- --- --- --- --- --- ---
Gross profit............ 71 69 73 76 64 65 62 66 72 78
---- ---- ---- --- --- --- --- --- --- ---
Operating expenses:
Sales and marketing.... 109 121 94 91 85 85 73 80 77 79
Research and
development........... 63 50 49 39 33 30 28 24 25 25
General and
administrative........ 36 27 23 21 13 11 11 11 13 11
Amortization of stock
compensation.......... -- 13 13 12 14 13 13 14 24 32
---- ---- ---- --- --- --- --- --- --- ---
Total operating
expenses............. 208 211 179 163 145 139 125 129 139 147
---- ---- ---- --- --- --- --- --- --- ---
Loss from operations.... (137) (142) (106) (87) (81) (74) (63) (63) (67) (69)
Interest income
(expense), net......... -- (2) (2) -- 2 2 1 -- (2) 7
---- ---- ---- --- --- --- --- --- --- ---
Net loss................ (137)% (144)% (108)% (87)% (79)% (72)% (62)% (63)% (69)% (62)%
==== ==== ==== === === === === === === ===
</TABLE>
Revenues. Our total revenues increased in each of the ten quarterly periods
ended October 31, 1999. The increase in revenues in these periods reflects the
increase in the number of customers and increased sales following our December
1998 release of a new version of our product suite. License revenues in the
first quarter of fiscal 1999 decreased 2% from the fourth quarter of fiscal
1998 due to the effect of our sales commission plan providing increased
bonuses for sales in the last quarter of fiscal 1998. Although in future
periods first quarter license revenues could be lower than the level achieved
in the preceding fourth quarter due to year-end sales efforts, we are unable
to determine if this is a historical trend. Professional services revenues
declined in the quarterly periods ended July 31, 1999 and October 31, 1999 as
a result of our expected increased reliance on third party service providers.
Cost of Revenues. Cost of revenues increased in each of the eight quarterly
periods ended April 30, 1999 as a result of the growth of revenues. In the
quarters ended July 31, 1998 and January 31, 1999, cost of professional
services as a percentage of total professional services revenues significantly
increased due to lower margin third-party implementation projects and losses
on certain implementation projects. Cost of professional services revenues
decreased in the quarterly periods ended July 31, 1999 and October 31, 1999 as
a result of the increased reliance on third party service providers mentioned
above.
Operating Expenses. Operating expenses generally increased significantly in
each of the ten quarterly periods ended October 31, 1999 as a result of
increased sales and marketing expenses associated with higher
34
<PAGE>
numbers of personnel, use of independent contractors and other third parties
for development of our products, recruiting and related hiring expenses for
additional senior management in our research and development, administrative,
sales and marketing organizations and amortization of stock compensation. In
addition, sales and marketing expenses increased significantly in the fourth
quarter of fiscal 1998 and fiscal 1999 due to commissions and other
compensation paid to the direct sales force for the attainment of sales
quotas. Although general and administrative expenses declined slightly from
the quarter ended July 31, 1999 to October 31, 1999, we expect general and
administrative expenses to increase as a result of our proposed acquisition of
Digital Market.
Our quarterly operating results have varied widely in the past, and we
expect that they will continue to fluctuate in the future as a result of a
number of factors, many of which are outside our control. We believe that our
period-to-period operating results are not meaningful, and you should not rely
on them as indicative of our future performance. You should also evaluate our
prospects in light of the risks, expenses and difficulties commonly
encountered by comparable early-stage companies in new and rapidly emerging
markets. We might not successfully address the risks and challenges that face
us. In addition, although we have experienced significant revenue growth
recently, our revenue might not continue to grow and we might not become or
remain profitable in the future. Our future operating results will depend on
many factors, including:
. our successful integration of Digital Market, its Digital Buyer product,
technologies, computer systems and employees;
. size and timing of sales and installations of our products;
. entry of new competitors into our market, or the announcement of new
products or product enhancements by competitors;
. our ability to successfully expand our direct sales force and our
international sales organization;
. changes in our sales force incentives;
. unexpected delays in developing and marketing new and enhanced products;
. deferral of customer orders in anticipation of product enhancements or
new products;
. unexpected decline in purchases by our existing customers, including
purchases of additional licenses and maintenance contracts;
. delays in our customers' orders due to their year 2000 priorities;
. variability in the mix of our license and professional service revenues;
. our ability to accurately price fixed-priced professional services
projects;
. variability in the mix of professional services that we perform versus
those performed for our customers by others; and
. our ability to establish and maintain relationships with our third-party
implementation partners.
Liquidity and Capital Resources
In August 1999, we completed an initial public offering of 3,450,000 shares
of our common stock, including the exercise of the underwriters' overallotment
option, at $21.00 per share. Net proceeds to us, before offering expenses,
were $67.4 million, or $19.53 per share. Simultaneous with the closing of the
initial public offering, we sold an aggregate of 665,641 shares of our common
stock at $19.53 per share in a private placement to Dell Computer Corporation,
Flextronics International Ltd. and Marshall Industries (now owned by Avnet,
Inc.). Net proceeds from sales of common stock in the private placement were
$13.0 million. We expect to use $20.0 million of the proceeds from our initial
public offering to pay the cash portion of the consideration payable by us in
our acquisition of Digital Market. Prior to our initial public offering, we
raised $26.2 million of equity capital from the sale of preferred stock, net
of issuance costs, which was the primary source of financing for our
operations.
35
<PAGE>
As of October 31, 1999, we had cash and cash equivalents of $81.2 million,
an increase from $10.0 million of cash and cash equivalents held as of April
30, 1999. Our working capital at October 31, 1999 was $76.2 million.
We have a $5.0 million senior line of credit facility with a bank that
bears interest at 8.5% and expires on August 31, 2000. At October 31, 1999, no
balance was outstanding under this line of credit. This line of credit is
secured by accounts receivable and certain other assets. Capital lease
obligations, including both short-term and long-term portions, were $1.6
million at October 31, 1999, and are payable through fiscal 2003. Our senior
line of credit requires us to maintain certain monthly financial covenants,
including a minimum tangible net worth and a minimum quick ratio. We were in
compliance with all of our financial covenants at October 31, 1999.
We also have noncancelable operating leases for office space and equipment
of approximately $2.2 million at October 31, 1999 which are payable through
fiscal 2003.
Our operating activities resulted in net cash outflows of $4.2 million for
fiscal 1997, $6.4 million for fiscal 1998, $5.1 million for fiscal 1999, $3.3
million for the six months ended October 31, 1998 and $4.1 million for the six
months ended October 31, 1999.
Investing activities used cash of $728,000 for fiscal 1997, provided cash
of $2.6 million for fiscal 1998, and used cash of $459,000 for fiscal 1999,
$297,000 for the six months ended October 31, 1998 and $1.5 million for the
six months ended October 31, 1999. Net cash provided by investing activities
for fiscal 1998 consisted of proceeds from the sale of short-term investments
offset by cash used to acquire property and equipment. Net cash outflows were
due to the acquisition of property and equipment. We expect that capital
expenditures will continue to increase to the extent we continue to increase
our headcount and expand our operations.
Financing activities provided cash of $4.0 million in fiscal 1997, $5.7
million in fiscal 1998, $13.4 million in fiscal 1999, $10.7 million for the
six months ended October 31, 1998 and $76.7 million for the six months ended
October 31, 1999. Cash was provided for in these periods primarily from the
issuance of preferred stock and debt and capital lease borrowings, and in the
six months ended October 31, 1999, from our initial public offering.
Purchases of property and equipment, including equipment purchased under
capital leases, were approximately $1.1 million in fiscal 1997, $1.3 million
in fiscal 1998, $1.5 million in fiscal 1999, $297,000 for the six months ended
October 31, 1998 and $1.5 million for the six months ended October 31, 1999.
These expenditures were primarily for computer hardware and software and
furniture and fixtures. We expect that capital expenditures will continue to
increase to the extent we continue to increase our headcount or expand our
operations.
We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future as we:
. enter new markets for our products;
. increase research and development spending;
. increase our sales and marketing activities; and
. enhance our operational and financial systems.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalents and available credit facilities, will
be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months. However, we may need to
raise additional funds in future periods through public or private financings,
or other sources, to fund our operations and potential acquisitions, if any,
until we achieve profitability, if ever. We may not be able to obtain adequate
or favorable financing at that time. Failure to raise capital when needed
could harm our business. If we raise additional funds through the issuance of
equity securities, the percentage of ownership of our stockholders would be
reduced. Furthermore, these equity securities might have rights, preferences
or privileges senior to our common stock.
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Year 2000 Readiness Disclosure
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates or have been programmed with
default dates ending in 99, the common two-digit reference for 1999. As a
result, as we transition from the 20th century to the 21st century, computer
systems and software used by many companies and organizations in a wide
variety of industries will produce erroneous results or fail unless they have
been modified or upgraded to process date information correctly. Significant
uncertainty exists in the software industry and other industries concerning
the scope and magnitude of problems associated with the year 2000 issue.
State of Readiness. We have completed our initial assessment of the
potential overall impact of the impending century change on our business.
Based on our current assessment, we believe the current versions of our
software products are year 2000 compliant, although prior versions may not be
year 2000 compliant. By year 2000 compliant, we mean that our software
products, when used with accurate date data and in accordance with their
associated documentation, are capable of properly processing date data from,
into and between the 20th and 21st centuries, including the years 1999, 2000
and leap years, provided that all other products, e.g., hardware, software and
firmware, used with our products properly exchange date data with them.
However, our products are generally integrated into enterprise systems
involving sophisticated hardware and complex software products that we cannot
adequately evaluate for year 2000 compliance. We may face claims based on year
2000 problems in other companies' products, or issues arising from the
integration of multiple products within an overall system even if our products
are otherwise year 2000 compliant. Although we have not been a party to any
litigation or arbitration proceeding involving our products or services
related to year 2000 compliance issues, we may in the future be required to
defend our products or services in these proceedings, or to negotiate
resolutions of claims based on year 2000 issues. The costs of defending and
resolving year 2000-related disputes, regardless of the merits of these
disputes, and any liability we have for year 2000-related damages, including
consequential damages, could substantially harm our business.
In addition, we believe that the purchasing patterns of customers and
potential customers may be affected by year 2000 issues, as companies expend
significant resources to correct or upgrade their current software systems for
year 2000 compliance and as they delay purchase of new systems that may not be
year 2000 compliant. These expenditures may result in reduced funds available
to purchase software products such as those we offer. To the extent year 2000
issues cause a significant delay in, or cancellation of, decisions to purchase
our products or services, our business would be substantially harmed.
We are currently reviewing our internal management information and other
computer systems to identify any year 2000 problems, and are beginning to
communicate with the external vendors that supply us with material software
and information systems and with our significant suppliers to determine their
year 2000 readiness. We have not completed our year 2000 investigation and
overall compliance initiative.
Costs. To date, we have not incurred any material costs directly associated
with our year 2000 compliance efforts, except for compensation expenses
associated with our salaried employees who have devoted some of their time to
our year 2000 assessment and remediation efforts. We do not expect the total
cost of year 2000 problems to be material to our business. However, during the
months prior to the century change, we will continue to evaluate new versions
of our software products, new software and information systems provided to us
by third parties and any new infrastructure systems that we acquire to
determine whether they are year 2000 compliant. Despite our current
assessment, we may not identify and correct all significant year 2000 problems
on a timely basis. Year 2000 compliance efforts may involve significant time
and expense and unremediated problems could substantially harm our business.
We currently have no contingency plans to address the risks associated with
unremediated year 2000 problems.
Risks. We are not currently aware of any year 2000 readiness problems
relating to our internally-developed proprietary systems that would
substantially harm our business. We may discover year 2000 readiness problems
in these systems that will require substantial revision. In addition, third-
party software, hardware or
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services incorporated into our material systems may need to be revised or
replaced, all of which could be time-consuming and expensive. Our failure to
fix or replace our internally developed proprietary software or third-party
software, hardware or services on a timely basis could result in lost
revenues, increased operating costs, the loss of customers and other business
interruptions, any of which could substantially harm our business. Moreover,
our failure to adequately address year 2000 readiness issues in our internally
developed proprietary software could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside of our control may
not be year 2000 ready. The failure by these entities to be year 2000 ready
could result in a systemic failure beyond our control, such as a prolonged
Internet, telecommunications or electrical failure, which could also prevent
us from delivering our services to our customers, decrease the use of the
Internet or prevent users from accessing web sites.
Contingency Plan. As discussed above, we are engaged in an ongoing year
2000 assessment and have not yet developed any contingency plans. The results
of our year 2000 simulation testing and the responses received from third-
party vendors and service providers will be taken into account in determining
the nature and extent of any contingency plans we adopt.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position, or SOP, 98-1, Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 will be
effective for our fiscal year ending April 30, 2000. SOP 98-1 provides
guidance on accounting for computer software developed or obtained for
internal use including the requirement to capitalize and amortize specified
costs. We do not expect the adoption of this standard to have a material
impact on our results of operations, financial position or cash flows.
In June 1998, the FASB issued Statement of Financial Accounting Standard,
or SFAS, 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS 133 will be effective for our
fiscal year ending April 30, 2001. The adoption of SFAS is not expected to
have a material impact on our results of operations, financial position or
cash flows in the foreseeable future.
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and market our products in North
America, and to a lesser extent in the Europe and Asia Pacific regions. As a
result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign
markets. Because all of our revenues are currently denominated in U.S.
dollars, a strengthening of the dollar could make our products less
competitive in foreign markets. Our interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since the majority of
our investments are in short-term instruments. Due to the short-term nature of
our investments, we believe that there is not a material risk exposure.
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BUSINESS
The following description of Agile's business should be read in conjunction
with the information included elsewhere in this prospectus. This description
contains forward-looking statements that involve risks and uncertainties.
Agile's actual results could differ significantly from the results discussed
in the forward-looking statements as a result of the factors set forth in
"Risk Factors" and elsewhere in this prospectus.
Overview
We develop and market product content management software for use over the
Internet within and among companies in a manufacturing supply chain. Our suite
of products is designed to improve the ability of supply chain members to
communicate and collaborate with one another about new or changing product
content. We believe that our products are well-suited for participants
connected in outsourced supply chains, as well as those managing multi-site
engineering, manufacturing, sales and distribution via the Internet. Since
June 1996, when we shipped our first product, we have licensed our products to
over 350 customers in the computers and peripherals, components, consumer
electronics, data networking and telecommunications equipment, electronics
manufacturing, medical equipment and semiconductor equipment markets. Our
current customers in these markets include Gateway, Texas Instruments,
Phillips Mobile Computing, Lucent Technologies, Solectron, GE Marquette
Medical Systems and FSI International.
Industry Background
The competitive environment for companies engaged in the manufacture and
supply of products has intensified dramatically and expanded globally in
recent years. This trend has been driven principally by productivity
improvements arising from advances in technology and growing customer
expectations for feature-rich products delivered quickly and at competitive
prices. To remain competitive, companies are adopting new strategies to
address these challenges.
Many companies are shifting from traditional manufacturing approaches,
where a manufacturer controls most phases of the manufacturing process from
raw materials to finished goods, to a manufacturing process where much or all
of the manufacturing process is outsourced to multiple companies as part of a
supply chain.
By outsourcing their production, some companies have created supply chains
that are more efficient, dynamic and flexible than manufacturing operations
that control all phases of the manufacturing process. Use of the outsourced
supply chain has afforded companies the flexibility to choose top suppliers
and partners to make each link in the supply chain more competent, innovative
and productive. As companies operate on a global basis, supply chains can span
multiple continents, tying suppliers in one part of the world with a plant in
another to serve customers in a third location. The end result is that
companies can bring their products to market more efficiently while at the
same time achieving higher levels of customer satisfaction.
Managing the Outsourced Supply Chain
A critical aspect of managing the outsourced supply chain across multiple
suppliers is finding effective ways to store, access, and share information
within the company as well as with all supply chain partners during each stage
of the production process. Different stages of the production process generate
many complex types of data that need to be shared across the supply chain.
There are many types of data and a vast number of information flows that can
occur in the production process.
Product Content. During the product design stage, the company must
communicate large amounts of data within the company as well as to supply
chain partners. The company begins by designating the content of the finished
product with a list of components known as the bill of materials. The
components on this list can be divided into two classes: "buy" or "make." For
the "buy" components, also called off-the-shelf components, specifications for
each part must be determined and information must be collected and analyzed to
determine if the available components meet the required specifications. Once
eligible components have been selected, the
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manufacturers of the parts are incorporated into the approved manufacturers
list. For customized, or "make" components, other data are created, including:
. assembly drawings, detailing precisely how the component should be
fabricated;
. work instructions, which guide the manual assembly process;
. machine instructions, to drive automated manufacturing and assembly
equipment;
. art work, for processes such as printed circuit board fabrication;
. schematics, for describing electronic components and assemblies; and
. test instructions, which enable the suppliers and original equipment
manufacturers to test for conformity to the manufacturer's
specifications.
New Product Introduction. Prior to volume production, the data created
during the product design stage must be communicated to each relevant party in
the supply chain. One of the complexities of the outsourced supply chain model
is that supply chain members often have multiple discrete roles, including
sourcing parts, fabrication, assembling components, testing and delivery. In
addition, the manufacture of a product such as a personal computer can include
several hundred suppliers. Ensuring that accurate product information is
disseminated promptly and to the correct parties is one of the most difficult
challenges for a company employing the outsourced supply chain model. Further,
suppliers may often discover constraints and/or opportunities for improvements
during the prototyping and pilot production phases. This often prompts a
flurry of product changes that requires rapid collaboration among supply chain
partners to avoid delays and excessive start-up or inventory costs.
Volume Production and Product Changes. Product specifications frequently
change even during volume production. This can occur due to a number of
reasons, including:
. changes in design in response to customer requests or market conditions;
. changes required to address a defect in the design or to improve the
manufacturing process; and
. changes in the costs or availability of components.
The communication of information regarding product changes is a dynamic
loop in which members of the supply chain must respond to market-dictated
demands while also reacting to information being shared among supply chain
partners. Whatever the reason for the change, executing it through the
manufacturing process expeditiously and effectively, while minimizing cost, is
a complex problem. To change a design requires:
. creating an engineering change order;
. developing the specifications required by the engineering change order;
. securing the necessary approvals to effect the change; and
. communicating the change to the supply chain.
This problem is especially complex for companies operating in a market
where product specifications or volume requirements may be changing
continuously. For example, the requirements of a personal computer
manufacturer that builds products to order may change continuously during each
day as information regarding orders is received from customers or its sales
force.
To address these challenges, many companies have implemented software
systems that govern supply chain management, electronic data interchange,
product data management and enterprise resource planning. However, many of
these products were not designed to interconnect multiple companies in an
outsourced supply chain, and therefore do not fully address the need for
supply chain collaboration. Electronic data interchange, a software system
that facilitates interconnection and exchange of data, is expensive to install
and maintain and therefore is viable only to large organizations that can
justify the cost. Other methods of communication and collaboration
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within the supply chain, including phone, paper-based solutions such as
courier or fax, or e-mail or web page sources, are not linked in real-time and
are slow, incomplete and often inaccurate.
As product changes become more frequent and time to market becomes
increasingly important, the ability to manage this process effectively becomes
critical to a company's competitiveness. A company that can disseminate
information quickly and accurately to the appropriate supply chain partners
may be in a position to compete effectively. However, a company that is agile
and can effectively collaborate with its supply chain partners in real time
can gain competitive advantage. For example, through collaboration with its
supply chain partners, a company may learn that a component is not readily
available due to lack of supply or that a new component is available which
might substantially reduce costs or improve manufacturing efficiencies.
Instead of continuing to rely on the originally selected component, the
company can respond by incorporating another component in the product design
and notify partners before these components are incorporated into new
products. By doing so, the company has the opportunity to increase revenues by
maintaining product availability or increase profits by taking advantage of
lower cost components more quickly.
Impact of the Internet
The Internet, as a fast growing communications network, is changing the way
businesses communicate and share information and creating new and evolving
ways for conducting commerce. The typical corporate web site is evolving from
a mere repository for information regarding products into a medium for
conducting business. According to Forrester Research, its research indicates
that business-to-business electronic commerce is expected to grow to $1.3
trillion in 2003, accounting for more than 90% of the dollar value of
electronic commerce in the United States. This market is expected to create
substantial demand for Internet and intranet-based commerce applications.
However, we cannot be certain that this projection will be met.
Companies that have successfully implemented strategies to communicate with
their customers over the Internet now face the challenge of utilizing the
Internet and intranets to gain the same level of increased efficiencies in
their supply chain. An Internet-based software solution can offer scalability,
easier implementation, compatibility across diverse information technology
platforms and reduced incremental infrastructure investments. However, many
companies are wary of major software development projects due to the cost and
complications of enterprise application development projects undertaken in
recent years. To compete effectively, companies must implement a solution
which will allow them to interactively communicate information related to
product design, development and manufacturing within the company and will
allow them to collaborate with their supply chain partners. At the same time,
companies want to be able to implement new software systems without the need
to burden already over-taxed internal information technology staffs while
avoiding costs of outside consulting and minimizing incremental
infrastructure-related expenses.
The Agile Solution
Our product content management software is designed to improve the ability
of supply chain members to communicate and collaborate with one another over
the Internet about new or changing product content. Our solution is designed
for use over the Internet, reduces dependence upon traditional methods of
interaction, and allows supply chain members to link to each other without
requiring substantial investments in additional technology infrastructure. We
have also designed our products to allow for rapid implementation by the
manufacturer with limited consulting assistance and by supply chain members
with minimal technical expertise.
We believe that our products are well-suited for participants in outsourced
supply chains connected via the Internet, as well as those managing multi-site
engineering, manufacturing and sales and distribution. The Agile solution
delivers the following benefits to companies and their supply chain partners:
Enhanced Productivity and Response Time. With the help of our solution,
Agile Anywhere, and the Internet, companies can respond more rapidly to
changes in customer demand, availability of components, market conditions and
manufacturing capacities arising throughout the production cycle. This ability
to effect change even during volume production allows Agile Anywhere users to
adjust production strategies, enabling
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companies to produce what they can sell, rather than sell what they can
produce. Agile Anywhere also enables companies to enhance their sales
productivity by being first to market with the right product.
More Cost-Effective Production. The Agile Anywhere suite of products is
designed to help companies increase output, reduce inventory and compress the
time required to complete the production cycle. Through effective
collaboration, both time to market and design effectiveness can be improved.
Companies can benefit by reducing design and production errors due to
miscommunication within the supply chain, and can decrease operating
inefficiencies incurred when obsolete parts are specified and incorrectly
built products must be scrapped.
More Rapid Return on Investment. Because Agile Anywhere is based on
existing industry standards and does not require the implementation of custom
data models, Agile Anywhere implementations can be completed in less time than
required for traditional enterprise software applications which tend to
require extensive customization.
The Agile Growth Strategy
Our objective is to be the leading provider of product content management
software, enabling business-to-business global collaboration among supply
chain partners. Key elements of our strategy include:
Provide Superior Customer Satisfaction. We expect to continue to build a
highly referenceable customer base of market leaders in various vertical
markets. We intend to continue to focus significant resources on customer
satisfaction programs. We intend to continue to anticipate customer needs by
introducing new product functionality and new technology platforms. We believe
this focus can help create high levels of customer loyalty, which can provide
follow-on sales opportunities and shorter sales cycles.
Capitalize on Network Effects to Expand Our Customer Base. As users of
Agile Anywhere deploy our software across their supply chains, additional
supply chain members will be exposed to our solution and the functionality
provided by our products. We believe that this exposure, which allows non-
customer participants in the supply chain to benefit from our solution first
hand, creates a network effect that accelerates industry recognition and
adoption of our products. As additional members of a supply chain deploy Agile
Anywhere, the quality and timeliness of available information improves, which
increases the value to each participant and helps drive greater usage.
Pursue a Vertical Market Strategy. Since inception, we have pursued a
vertical market strategy, developing product features tailored for particular
industries. To date, we have focused on various electronics market segments,
including data communications, computers and peripherals, and the medical
device market. We seek to further penetrate our current markets while
addressing new vertical markets characterized by high rates of product change,
short product cycles, and extensive supply chains.
Leverage Our Technology Platform. We intend to continue to pioneer new
Internet business applications based on emerging standards supporting
electronic commerce. For instance, we have leveraged the Java computer
programming language to deliver a robust, powerful and rapidly deployable
Internet business application to our customers. Further, we have taken the
initiative to define a protocol for supply chains, Product Definition
eXchange, or PDX, based on eXtensible Mark-up Language, or XML, and have
submitted it to industry standards groups for approval. We intend to lead
technological innovation in the product content management market, offering
our customers solutions designed to provide a rapid and high return on
investment.
Extend Supply Chain Collaboration and Functionality. We believe our
solution provides a robust platform to enable us to extend the functionality
and application of our products to the creation and delivery of new value-
added applications. We intend to continue to develop our products to enable
increased collaboration among outsourced supply chain partners and to address
new opportunities that result from new business processes that are being
created for Internet-based collaboration and interaction among supply chain
partners. For example, our
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acquisition of Digital Market will extend the functionality of our solutions
to the sourcing and procurement of electronic production materials. By adding
the direct procurement capabilities of Digital Market's products to Agile
Anywhere, we believe that our customers will be able to enhance critical
supply chain processes, including new product introductions and direct
material procurement.
The Agile Suite of Products
The Agile Anywhere suite of products provides a comprehensive business-to-
business solution to the problem of product change collaboration across the
manufacturing supply chain. Utilizing XML technology, Agile Anywhere will
allow supply chain partners to share and collaborate on product content and
changes in real time via the Internet. Agile Anywhere is designed to provide
the scalability, security and open standards that are required in an
electronic supply chain. At the core of the Agile Anywhere suite is the Agile
eHub, which manages product content, processes and business rules. Users
interact with the product content within the eHub via the My Agile portal.
Enterprises that manage and create the product content interact with the Agile
iCM client. Utilizing the Agile eXpress Viewer, product content can also be
published to users anywhere throughout the supply chain. To complete the
suite, Agile provides several integration products that import, export, and
publish product content from or to existing design, manufacturing, finance,
and supply chain systems. Following the initial implementation of Agile
Anywhere, licenses for additional concurrent users and application-specific
modules can be added to expand the scope of the manufacturer's
implementations.
In our latest release, available since July 1999, we have renamed our
product suite "Agile Anywhere." Previously known as Agile Workplace, our
latest release retains all of the core technology and functionality provided
by earlier releases, but adds significant enhancements to the number of users
that can be accommodated, and the speed and performance of our solutions.
Agile Anywhere also incorporates additional security features, and provides
enhanced capabilities for the transmission and exchange of data and
integration with other software applications, allowing for further
collaboration capabilities among supply chain partners.
As part of the enhancements, individual products in the suite have been
renamed, and Agile eXpress Viewer and a software development kit have been
included as new products in the suite. All products in the suite are available
separately or in connection with other products in the suite.
Agile eHub
The foundation of the suite is Agile eHub. The Agile eHub is comprised of
application servers that enable users to define, store, change and manage
product content information. Agile eHub incorporates new technology for high
speed performance, storage and secure data, and is designed to scale to
accommodate the needs of supply chain partners of all sizes. It is also
designed to facilitate fast, direct Internet access, and is easily
implemented. Agile eHub includes one or more of the following server modules:
Agile Product Definition Server, previously Agile Configurator, manages
parts, documents, bills of materials and drawings, in a web environment that
provides fast, easy access to product content for all members of the supply
chain.
Agile Product Change Server, previously Agile CCB, automates the electronic
routing, notification and sign-off processes that are associated with
engineering changes. This functionality can result in reduced ordering errors
and costs and improved cycle times associated with evaluating, approving and
implementing changes.
Agile AML Server, previously Agile Parts, enables companies to collaborate
with supply chain partners on approved parts and manufacturers at the time of
new product introduction as well as tracking changes throughout the
manufacturing process.
Agile Administrator enables companies to easily and rapidly configure and
modify Agile Anywhere components without writing code. Agile Administrator,
which has not been renamed, speeds the implementation of the Agile Anywhere
suite and minimizes maintenance time.
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Accessing Agile eHub
Agile customers and their supply chain partners can gain access to product
content for review or modification by the following:
Agile iCM (Internet Content Manager) is designed for individuals who have
responsibility for managing a product and its content through its entire
lifecycle. This functionality is also provided through Agile CM, a module
designed for Windows-based applications.
My Agile includes a web portal to allow secure, personalized web access to
product content that is stored in any Agile eHub. It is an intuitive, easy-to-
use portal allowing users to link to any or all of their supply-chain
information sources in a customizable interface and participate in product
content related processes via the Internet.
Agile eXpress Viewer allows supply chain partners to send and receive
information in the PDX format, a new standard for data exchange that we have
first offered with Agile Anywhere. Agile eXpress Viewer will be available for
downloading free of charge from the Agile web site, to enable supply chain
partners to share data even if they are not Agile customers.
Agile Integration Products
Product content information flows throughout the supply chain, and is
published to or from Agile Anywhere and a variety of other design,
manufacturing, finance and supply chain systems. Agile Anywhere integration
products, previously available with Agile Workplace, provide data exchange
between systems, as follows:
Agile ChangeCAST publishes released engineering change orders, approved
parts lists, approved manufacturers lists and bills of materials from Agile to
separate enterprise resource planning systems.
Agile Scan allows customers to scan drawings and documents into the Agile
eHub database.
Agile Import allows customers to import bills of materials produced in
ASCII format or in Microsoft Excel, providing a consolidated database of
product information.
Agile Export provides a quick and easy method of exporting information to
an ASCII file, allowing information in Agile Anywhere to be shared with other
business applications.
Agile Software Development Kit, newly available with Agile Anywhere, allows
customers and partners to develop complementary applications integrating Agile
Anywhere with design, manufacturing, customer service, supply chain or other
legacy systems. The Agile Software Development Kit allows users to write
applications in Java, Visual Basic and Visual C++.
Initial implementations of the Agile Anywhere suite typically include the
Agile eHub and one or more server modules such as what we now call the Product
Definition Server, Product Change Server and AML Server, together with user
licenses, and one or more of the integration products, in particular Agile
ChangeCAST, and often a third-party adapter for other existing enterprise
systems of the customer. Following the initial implementation, additional user
licenses and additional server modules may be purchased.
Customers
To date, we have licensed our products to over 350 customers, predominantly
within the electronics and medical device manufacturing industries. No
customer accounted for more than ten percent of our total revenues in fiscal
1997, fiscal 1998, fiscal 1999 or for the six months ended October 31, 1999.
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The following is a representative list of current customers in our targeted
industry markets that to date have purchased over $50,000 of Agile products
and services. These customers represented more than 26% of our total revenue
for fiscal 1999:
<TABLE>
<S> <C> <C>
Datacom/Telecom Equipment Computers and Peripherals Medical Equipment
Alcatel Schweiz S3/Diamond Multimedia Systems EndoSonics
Aspect Telecommunications Fujitsu Computer Products GE Marquette Medical Systems
Brocade Communications Systems Gateway Guidant
Lucent Technologies Hitachi Hologic
Nortel Networks Iomega Humphrey Instruments
PairGain Packard Bell Visx
Xircom
Electronics Manufacturing Components Semiconductor Equipment
EFTC Advanced Micro Devices Credence Systems
Flextronics International Micron Technology Electro-Scientific Industries
Pemstar Reltec Communications FSI International
Solectron Texas Instruments Johnson Matthey Electronics
Xetel VLSI Technology Strasbaugh
Consumer Electronics
3Com Palm Computing
Dolby Laboratories
Philips Mobile Computing
Scientific Atlanta
WebTV Networks
</TABLE>
Product Technology and Architecture
The Agile Anywhere product suite is designed upon open systems based on
software industry standards for scalable Internet applications. The result is
a low cost, low maintenance end-user business application that eliminates the
need for complex custom or in-house development. Agile Anywhere is built on an
Internet-based architecture:
. The core of our architecture is the Agile eHub, the application server,
which currently runs on Microsoft NT. The application server is the
intermediary between the iCM and My Agile applications and the database,
providing the necessary security for validation of the data, and the web
server, which hosts the Internet access to Agile Anywhere. We use
encryption technology licensed from RSA Data Security to maintain secure
data when transported over the Internet.
. The applications are Java and HTML-based applications that can run on
versions of Microsoft Internet Explorer and Netscape Navigator. There is
also a Windows application for users who prefer a Windows user interface
rather than a web browser interface. Operating systems supported include
Windows 95, Windows 98, Windows NT and Sun Solaris. We follow the
Microsoft standards for the Windows 95 and 98 CM clients, and Internet
standards for the Java iCM application running within Microsoft Internet
Explorer and Netscape Communicator. Our products can be integrated with
more than 15 enterprise resource planning systems including, among
others, Oracle, J.D. Edwards and SAP.
. The backend includes the database server, which is either Oracle or
Microsoft SQL Server, and the Agile Internet File Server. We connect with
Microsoft SQL Server through Open Database Connectivity, and Oracle's
database through direct integration.
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We are certified in Windows Back-Office, Oracle CAI, as a Microsoft
Solution Provider, and from Sun Microsystems Inc. in "100% Pure Java." The
Agile Anywhere suite is enabled for both single-byte and double-byte
localization, and has been localized for French. We intend to provide
localization for additional languages.
We have entered into platform alliances to ensure our products are based on
industry standards and to enable us to take advantage of current and emerging
technologies, including alliances with Sun Microsystems, Oracle and Microsoft.
To promote development, definition, adoption, promotion and implementation of
open standards that can be leveraged by Agile Anywhere, we work with several
industry standards organizations such as the National Institute of Standards
and Technology, National Electronics Manufacturing Initiative, Institute for
Interconnecting and Packaging Electronic Circuits, RosettaNet, and World Wide
Web Consortium. We are involved with Solectron, Marshall Industries, and other
industry participants in an initiative to define an XML-based protocol called
Product Definition eXchange.
Product Development
Our product development objectives are to:
. be innovative in developing solutions to remove complexity from supply
chain collaboration;
. develop products that require no custom code, contain reusable components
and are easy to use, implement, maintain, and upgrade; and
. adopt industry standard technologies.
Our software development staff is divided into teams consisting of
development engineers, project managers, quality assurance engineers, and
technical writers. Working closely with our marketing department, we determine
product functionality based upon market requirements, customer feedback,
available technical support and customer engineering in addition to emerging
technologies allowing us to develop additional features.
We introduced our first product, Agile Configurator version 1.3, in June,
1996 and have subsequently released nine revisions, adding over a dozen new
modules. During this time, the product has evolved from a 2-tiered client-
server database application running on Oracle to a multi-tiered application
supporting both Windows and Java clients, and both Oracle and Microsoft SQL
Server databases. Our product development activities are focused on broadening
the scalability and functionality of Agile Anywhere, enhancing scalability,
and including application interfaces that allow customers to more easily
integrate Agile Anywhere with other systems.
Our research and development expenses were $2.5 million for fiscal 1997,
$3.8 million for fiscal 1998, $4.7 million for fiscal 1999 and $3.2 million
for the six months ended October 31, 1999, and we expect to continue to invest
significantly in research and development in the future.
We cannot be sure that we will complete our existing and future development
efforts within our anticipated schedule or that our new and enhanced products
will have the features to make them successful. We may experience difficulties
that could delay or prevent the successful development, introduction or
marketing of new or enhanced products. In addition, these new and enhanced
products may not meet the requirements of the marketplace and achieve market
acceptance. Furthermore, despite testing by us, our implementation partners
and our customers, errors might be found in new products or in releases after
shipment, resulting in loss of revenue or delay in market acceptance and
sales, diversion of development resources, injury to our reputation or
increased service and warranty costs.
Sales and Marketing
Our sales and marketing organization is responsible for identifying and
developing vertical markets as well as identifying and notifying our research
and development staff of customer product requirements. We market and sell our
products primarily through our direct sales force located at our headquarters
in San Jose, California, and at regional and local sales offices in the United
States and at one office in France. Our direct sales force
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consists of Major Account Executives who focus entirely on our major accounts,
Senior Account Executives who focus on specific geographic territories, and
Emerging Technology Manufacturers Account Executives who focus on emerging and
smaller-sized companies. We also market and sell through our direct telesales
and telemarketing representatives. Sales engineers at most regional offices
provide pre-sales technical support. We intend to expand our domestic and
international direct sales force significantly by expanding into additional
geographic locations. We are also in the early stages of complementing our
direct sales force, particularly internationally, through additional
distribution channels, including non-exclusive distributors, integrators and
consulting partners.
To support our direct sales efforts and to actively promote our Agile
brand, we engage in a variety of marketing activities. These include co-
marketing strategies with our existing business partners, targeting additional
strategic relationships, managing and maintaining our web site content,
advertising in industry and other publications, conducting public relations
campaigns and establishing and maintaining relationships with recognized
industry analysts. We also actively participant in manufacturing-related trade
shows.
A critical element of our sales strategy is to establish marketing
alliances to promote sales and marketing of our products, as well as to
increase product interoperability. We also pursue services alliances with
consulting and integration firms to implement our software, provide customer
support services, create customized customer presentations and demonstrations
and endorse our products during the evaluation stage of the sales cycle. We
believe that our relationships with these service providers may shorten our
sales cycle because these service providers have generated and qualified sales
leads, made initial customer contacts and assessed needs prior to our
introduction. We currently have relationships with Siemens and Origin
Technology in Business.
Customer Service and Support
Consulting and Implementation. We offer services, primarily on a fixed-
price basis, to assist in implementation planning, product installation,
implementation assistance, legacy data loading and effectiveness audits. To
facilitate and enhance the integration of our products, we have alliances for
integration of our products with existing design, manufacturing, finance and
supply chain systems. This approach allows us to focus on our core
competencies and leverage our partners' domain knowledge, which helps reduce
time to market both for us and our customers.
Customer Support. We believe that responsive technical support is a
requirement for our continued growth. We provide technical support and
unspecified product upgrades on a when-and-if available basis through our
annual maintenance program. Our customers are not entitled to new products
under our annual maintenance program. Customers generally purchase the first
year of support at the time they initially license a product. After the
initial term, support may be renewed on an annual or multi-year basis.
Customer support is offered by telephone, email, fax and Internet-based
support that features frequently asked questions, technical alerts, product
upgrades and updates, problem reporting and analysis, and self-help through
our on-line knowledge base. In addition, our consulting and implementation
partners provide customer support and maintenance in some instances. Revenues
associated with maintenance contracts are recognized ratably over the term of
the maintenance contract, which is generally 12 months.
Training. We offer a variety of classes and related materials to train our
customers on system administration, upgrades and new releases. These classes
are also available as part of our Train the Trainer program. Training classes
are offered at our headquarters in San Jose, California, at customer sites,
and at other locations. To improve access to our explanatory materials, we
offer on-line documentation contained on the compact discs for our products
and from our web site for all our products. We also offer on-line help for the
majority of our products. Customers can purchase additional documentation via
our web site.
Competition
The market for product content management software is new, highly
fragmented, rapidly changing and increasingly competitive. We expect
competition to persist and intensify, which could result in price reductions,
47
<PAGE>
reduced gross margins and loss of market share, any one of which could
seriously harm our business. Competitors vary in size and in the scope and
breadth of the products and services offered.
We believe that our ability to compete depends on many factors both within
and beyond our control, including:
. the performance, functionality, price, reliability and speed of
implementation of our solutions;
. the timing and market acceptance of new products and product enhancements
to our Agile Anywhere suite of products;
. the quality of our customer service; and
. the effectiveness of our sales and marketing efforts.
Although we believe that we currently compete favorably as to each of these
factors, our market is relatively new and our product content management
software is a new category of products. In particular, we believe that we
offer a suite of product content management software that offers collaborative
and interactive capabilities that many of our competitors do not effectively
provide. However, we encounter competition with respect to different aspects
of our solution from a variety of vendors. We currently face three primary
sources of competition:
. in-house development efforts by potential customers or partners;
. vendors of engineering information management software, such as
Parametric Technology Corporation, Dassault Systemes S.A., Structural
Dynamics Research Corporation and Unigraphics Solutions, Inc.; and
. developers of general purpose groupware software addressing only limited
technology components of engineering change management, including
companies such as Novell, Inc. and Lotus Development Corporation.
In addition, we face potential competition from providers of enterprise
software who seek to extend the functionality of their products, such as
Oracle Corporation, SAP A.G., i2 Technologies, Inc., Aspect Development, Inc.
and Baan Company N.V.
We may not be able to maintain our competitive position against current and
potential competition, particularly competitors that have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do and therefore may be able to respond more quickly to new
or changing opportunities, technologies and customer requirements. Also, many
current and potential competitors have greater name recognition and more
extensive customer bases that could be leveraged to gain market share to our
detriment. These competitors may be able to undertake more extensive
promotional activities, adopt more aggressive pricing policies, and offer more
attractive terms to purchasers than we can. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to enhance their products. Accordingly it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. We also expect that competition may
increase as a result of industry consolidation. We may not be able to maintain
our competitive position against current and potential competitors, especially
those with significantly greater financial, marketing, service, support,
technical and other resources.
Proprietary Rights
Our success and ability to compete depend upon our proprietary technology.
We rely on patent, copyright, trade secret and trademark law to protect our
proprietary information. We also typically enter into agreements with our
employees, consultants and customers to control their access to and
distribution of our software, documentation and other proprietary information.
Nevertheless, a third party could copy or otherwise obtain our software or
other proprietary information without authorization, or could develop software
competitive to ours.
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Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our
products or design around patents that may be issued to us or our other
intellectual property. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States, and we expect that it will become more difficult to monitor the
use of our products if we increase our international presence.
We utilize database management software from Microsoft and Oracle for our
database servers. Our customers can purchase this software directly from
Microsoft and Oracle or from us. In addition, we integrate third-party
software into our products from RSA Data Security for security and encryption
technology, from Actuate for reporting capability and from Cimmetry Systems
for our viewers. This third-party software may not continue to be available on
commercially reasonable terms. If we cannot maintain licenses to this third-
party software at an acceptable cost, shipments of our products could be
delayed until equivalent software could be developed or licensed and
integrated into our products. We do not believe that our business could be
considered to be substantially dependent on any one of these license
agreements, and none of these licenses are responsible for a significant
amount of our revenues.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible
that, in the future, third parties may claim that we or our current or
potential future products infringe their intellectual property. We expect that
software product developers and providers of electronic commerce solutions
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and the functionality of
products in industry segments overlaps. Any claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require us to enter into royalty or licensing agreements. If our
products were found to infringe a third party's proprietary rights, we could
be required to enter into royalty or licensing agreements in order to continue
to be able to sell our products. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all, which could
seriously harm our business.
Employees
As of October 31, 1999, we had a total of 188 employees. Of this total, 42
were in engineering, 76 were in sales and marketing, 43 were in professional
services, including technical support and customer training, and 27 were in
finance and administration. In addition, as of October 31, 1999, Digital
Market had 49 employees, of which 23 were in engineering, 19 were in sales and
marketing, 5 were in professional services and 2 were in finance and
administration. We also retain independent contractors to support activities
such as our professional services and product development. Our success depends
on our ability to attract and retain qualified, experienced employees. None of
our employees are represented by a collective bargaining unit, and we have
never experienced a work stoppage. We consider our relations with our
employees to be good.
Facilities
Our headquarters are currently located in a leased facility in San Jose,
California, consisting of approximately 43,000 square feet under a lease
expiring in 2002 with expansion and renewal options, of which approximately
12,000 square feet is currently sublet to other tenants on short-term
subleases. We have recently entered into a lease agreement expiring in 2005
for an additional approximately 34,000 square feet in a building adjoining our
San Jose facility, beginning in March 2000. We also lease offices for sales
and service personnel in eight locations in the United States as well as in
Paris, France. We believe our current facilities will be adequate to meet our
needs for the foreseeable future.
Legal Proceedings
We are currently involved in litigation with Facilities Management
International, a Southern California based systems integration company that
filed a complaint against us in the Superior Court for the State of
California, County of Orange, on February 19, 1999. The complaint alleges our
interference with prospective economic advantage and unfair business practices
in connection with our quote for services to one of our customers. We have
responded by filing an answer that denies all allegations. The lawsuit seeks
unspecified
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compensatory and punitive damages as well as injunctive relief. We intend to
defend ourselves vigorously, and after consideration of the nature of the
claims do not believe that resolution of this matter will harm our business.
However, due to the inherently uncertain nature of litigation and the fact
that discovery has yet to take place, we cannot determine the possible loss,
if any, that we may ultimately incur either in the context of a trial or as a
result of a negotiated settlement. Our defense of this litigation, regardless
of its outcome, could result in the expenditure of significant financial and
managerial resources.
Digital Market is a party to two related lawsuits in federal court with
PolyDyne Development Corporation:
PolyDyne originally filed a Bill of Discovery on October 2, 1998, and filed
a formal complaint on July 13, 1999, in the District Court of Travis County,
Texas, which was removed to the United States District Court for the Western
District of Texas on August 13, 1999. In its complaint, PolyDyne has alleged
that Digital Market introduced its Digital Buyer software, a product that it
alleges competes with PolyDyne's QuoteWin and SupplyWin software, under
circumstances that it claims constituted trade secrets misappropriation, theft
of trade secrets and conversion. Digital Market has responded by denying all
allegations, and intends to defend itself vigorously.
Related to this lawsuit, Digital Market filed suit on July 26, 1999 in the
Federal District Court for the Northern District of California, alleging that
PolyDyne made false, misleading and deceptive statements about Digital Market,
involving accusations that Digital Market infringed PolyDyne's copyrights and
trade secrets, resulting in commercial disparagement, trade libel, defamation
and interference with Digital Market's prospective business relations. Digital
Market seeks damages and declaratory relief. PolyDyne has answered the
pleadings and brought counterclaims alleging theft of trade secrets,
conversion and common law misappropriation.
After consideration of the nature of the claims, we do not believe that
resolution of these related matters will harm our business. However, due to
the inherently uncertain nature of litigation, we cannot determine the
possible loss, if any, that we may ultimately incur either in the context of a
trial or as a result of a negotiated settlement. Our defense of this
litigation, regardless of its outcome, could result in the expenditure of
significant financial and managerial resources.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of October 31, 1999
are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Bryan D. Stolle......... 41 Chairman of the Board, Chief Executive Officer, President and Director
Thomas P. Shanahan...... 53 Executive Vice President, Chief Financial Officer, Secretary and Director
D. Kenneth Coulter...... 54 Senior Vice President, Worldwide Field Operations
Gregory G. Schott....... 35 Vice President, Business Development
Carol B. Schrader....... 43 Vice President, Marketing
Dorothy O. Wise......... 38 Vice President, Development and Support
Klaus-Dieter Laidig..... 57 Director
Michael Moritz.......... 44 Director
James L. Patterson...... 61 Director
Nancy J. Schoendorf..... 44 Director
</TABLE>
Bryan D. Stolle is a co-founder of Agile and has served as our President
and Chief Executive Officer and a member of our board of directors since our
inception in March 1995. From 1987 to 1994, Mr. Stolle served as Director of
Product and Strategic Marketing at Sherpa Corporation, a developer of
enterprise product data management software. From 1983 to 1987, Mr. Stolle
served as Marketing Officer at Rexcom Systems, a software company co-founded
by Mr. Stolle. Mr. Stolle received a B.A. in Business Administration and an
M.B.A. from the University of Texas at Austin.
Thomas P. Shanahan is a co-founder of Agile and has been a member of our
board of directors since our inception in March 1995. Since November 1997, Mr.
Shanahan has served as Agile's Executive Vice President and Chief Financial
Officer. From 1994 to 1997, Mr. Shanahan served as Vice President and Chief
Financial Officer of Digital Generation Systems, Inc., a provider of digital
distribution systems to the broadcast advertising industry. From 1993 to 1994,
Mr. Shanahan served as Chief Financial Officer of Sherpa Corporation. Mr.
Shanahan received a B.A. in Economics from Stanford University and an M.B.A.
from Harvard University.
D. Kenneth Coulter has served as Agile's Senior Vice President of Worldwide
Field Operations since August 1999. From 1998 to 1999, Mr. Coulter served as
President, and as Senior Vice President, Worldwide Sales, at TriStrata, Inc.,
a provider of network security software. From 1997 to 1998, Mr. Coulter served
as Senior Vice President, Worldwide Sales, at Memco Software, a provider of
network security software. From 1988 to 1997, Mr. Coulter served in various
positions culminating in Executive Vice President, Worldwide Operations, at
Informix Software, a provider of database software.
Gregory G. Schott has served as Agile's Vice President of Business
Development since June 1999. From 1997 to 1999, Mr. Schott served as Vice
President of Marketing at Digital Generation Systems, Inc., a provider of
digital distribution systems to the broadcast advertising industry. From 1996
to 1997, Mr. Schott served as Vice President of Operations, from 1995 to 1996
as Director of Business Development and from 1994 to 1995 as Director of
Operations, all at Digital Generation Systems. From 1991 to 1994, Mr. Schott
served as a management consultant at The Boston Consulting Group. Mr. Schott
received a B.S. in Mechanical Engineering from North Carolina State University
and an M.B.A. from Stanford University.
Carol B. Schrader has served as Agile's Vice President of Marketing since
October 1997. In 1997, Ms. Schrader served as an independent consultant with
Killarney Group. From 1995 to 1997, Ms. Schrader served as Director, Industry
Development at Documentum, Inc., a provider of web content management
solutions. From 1990 to 1995, Ms. Schrader served as Director, Market
Development at Sherpa Corporation. Ms. Schrader received a B.A. in Business
Management from Clarke College.
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Dorothy O. Wise has served as Agile's Vice President of Development and
Support since March 1996. From 1994 to 1996, Ms. Wise served as Vice
President, Quattro Pro Business Unit, at Novell, Inc., a provider of network
services operating system software. Ms. Wise received a B.S.E. in Electrical
Engineering and Computer Science from Princeton University.
Klaus-Dieter Laidig has served as a director of Agile since 1998. Mr.
Laidig has served as a management consultant with Laidig Business Consulting
GmbH since 1998. From 1984 to 1997, Mr. Laidig served as General Manager of
Hewlett-Packard GmbH. Mr. Laidig currently serves as a director of SAP AG,
Henninger Braeu AG and several privately held companies. Mr. Laidig received
an M.B.A. from the Pforzheim University of Applied Sciences in Germany.
Michael Moritz has served as a director of Agile since 1996. Mr. Moritz has
been a general partner of Sequoia Capital, a venture capital firm, since 1986.
Mr. Moritz serves as a director of eToys, Inc., Flextronics International
Ltd., Yahoo! Inc., WebVan Group, Inc. and several additional private
companies. Mr. Moritz received an M.A. from Christ Church, Oxford.
James L. Patterson has served as a director of Agile since 1996. Mr.
Patterson has been an independent consultant since 1989. Mr. Patterson
currently serves as a director of Latitude Communications, Inc., a provider of
integrated voice and data conferencing solutions, and several privately held
companies. Mr. Patterson received a B.S. in Electrical Engineering from the
University of Colorado.
Nancy J. Schoendorf has served as a director of Agile since 1995. Ms.
Schoendorf has been a general partner of Mohr, Davidow Ventures, a venture
capital firm, since 1994, and a Managing Partner since 1997. Prior to joining
Mohr, Davidow Ventures, Ms. Schoendorf spent 17 years in the computer industry
including management positions with Hewlett-Packard, Software Publishing
Corporation and Sun Microsystems. Ms. Schoendorf currently serves as a
director of Actuate Software Corp., a provider of enterprise reporting
software solutions and several privately held companies. Ms. Schoendorf
received a B.S. in Computer Science from Iowa State University and an M.B.A.
from Santa Clara University.
Board of Directors
The terms of the board of directors are divided into three classes:
Class I, whose term will expire at the annual meeting of stockholders to be
held in 2000; Class II, whose term will expire at the annual meeting of
stockholders to be held in 2001; and Class III, whose term will expire at the
annual meeting of stockholders to be held in 2002. The Class I directors are
Mr. Moritz and Mr. Laidig, the Class II directors are Ms. Schoendorf and Mr.
Patterson, and the Class III directors are Mr. Stolle and Mr. Shanahan. At
each annual meeting of stockholders after the initial classification, the
successors to directors whose term expires will be elected to serve a term of
three years. This classification of directors may have the effect of delaying
or preventing changes in our control.
Board Committees
Audit Committee. The board of directors has established an audit committee
consisting of Mr. Laidig and Mr. Moritz. The audit committee reviews with our
independent accountants the scope and timing of their audit services and any
other services that they are asked to perform, the independent accountants'
report on our consolidated financial statements following completion of their
audit, and our policies and procedures with respect to internal accounting and
financial controls. In addition, the audit committee makes annual
recommendations to our board of directors for the appointment of independent
accountants for the ensuing year.
Compensation Committee. The board of directors has established a
compensation committee consisting of Mr. Patterson and Ms. Schoendorf. The
compensation committee makes recommendations to the board concerning salaries
and incentive compensation for our officers and employees and administers our
employee benefit plans.
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Director Compensation
Our directors do not receive any cash compensation for their services as
directors but are reimbursed for their reasonable travel expenses in attending
meetings of the board of directors. Our directors are eligible to participate
in our 1995 Stock Option Plan and employee-directors are able to participate
in our 1999 Employee Stock Purchase Plan. Mr. Laidig received an option to
purchase 50,000 shares of common stock at an exercise price of $2.65 per share
when he joined the board of directors in November, 1998.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between any member of our board of
directors or our compensation committee and any member of the board of
directors or compensation committee of any other company, and no such
relationship has existed in the past. Prior to the creation of our
compensation committee in May 1999, all compensation decisions were made by
our full board. Neither Mr. Stolle nor Mr. Shanahan participated in
discussions by our board with respect to his compensation.
Employment Contracts, Termination of Employment and Change of Control
Arrangements
None of our executive officers is employed under an employment agreement
with significant contractual severance provisions. However, if any of our
executives is terminated without cause during the eighteen months following a
change of control, then vesting of all options to purchase our common stock
held by these employees will accelerate.
Executive Compensation
The following table presents information for the fiscal years ended April
30, 1997, 1998 and 1999 regarding the compensation paid to our chief executive
officer and each of our other highest-paid executive officers whose total
salary and bonus exceeded $100,000 for the fiscal year ended April 30, 1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
--------------------- ---------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options/SARs(#) Compensation
- --------------------------- ---- -------- ------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Bryan D. Stolle............. 1999 $159,997 $50,000 125,000 $4,000
Chairman and Chief
Executive Officer 1998 150,000 20,000 56,750 2,025
1997 109,992 -- -- 1,083
Thomas P. Shanahan.......... 1999 146,664 29,735 25,000 --
Chief Financial Officer(1) 1998 52,494 17,500 30,000 --
1997 -- -- 145,000 --
Carol B. Schrader........... 1999 114,000 19,000 32,000 --
Vice President,
Marketing(2) 1998 55,250 -- 53,000 --
1997 -- -- -- --
Dorothy O. Wise............. 1999 138,000 41,669 25,000 --
Vice President, Development
and Support 1998 138,403 26,000 35,000 --
1997 138,000 24,000 -- --
</TABLE>
- --------
(1) Mr. Shanahan joined Agile in November 1997.
(2) Ms. Schrader joined Agile in October 1997.
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Option Grants in Last Fiscal Year
The following table designates each grant of stock options during the
fiscal year ended April 30, 1999 to our chief executive officer and each of
our other highest-paid executive officers. All of these options were granted
under our 1995 Stock Option Plan. Each of these options has been exercised,
but the shares purchased under these options are subject to repurchase by us
at the original exercise price paid per share upon the optionee's cessation of
service with us prior to vesting of the shares. Our repurchase right lapses
and the optionee vests in 20% of his or her option shares upon completion of
12 months of service from the vesting start date and vests in the balance in a
series of equal monthly installments over the next four years of service.
Vesting of the option shares will fully accelerate upon a change in our
control and involuntary termination of the employee's services during the
subsequent 18 months.
The percentages in the column entitled "Percent of Total Options Granted to
Employees in Fiscal 1999" are based on an aggregate of 978,275 options granted
to our employees under our 1995 Stock Option Plan during the fiscal year ended
April 30, 1999. The exercise price of each option is equal to the fair market
value of our common stock as determined by the board of directors on the date
of grant, taking into account the purchase price paid by investors for shares
of our preferred stock, the liquidation preferences and other rights,
privileges and preferences associated with the preferred stock and an
evaluation by the board of directors of our revenues, operating history and
prospects.
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. For purposes of these columns, we assumed
stock price appreciation of 5% and 10% as required by the Securities and
Exchange Commission. These rates of appreciation do not represent our
prediction of our stock price performance. The potential realizable values at
5% and 10% appreciation are calculated by assuming that the estimated fair
market value on the date of grant, based upon the initial public offering
price of $21.00 per share, appreciates at the indicated rate for the entire
term of the options and that the option is exercised at the exercise price and
sold on the last day of its term at the appreciated price.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
--------------------------------------------- ---------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal 1999 ($/Share) Date 5% 10%
---- ---------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bryan D. Stolle......... 33,333 3.4% $3.00 3/26/09 $1,040,216 $1,715,603
91,667 9.4 3.00 3/26/09 2,860,633 4,717,971
Thomas P. Shanahan...... 25,000 2.6 2.50 8/25/08 792,670 1,299,215
Carol B. Schrader....... 22,000 2.3 2.35 7/8/08 700,849 1,146,609
10,000 1.0 2.65 11/17/08 315,568 518,186
Dorothy O. Wise......... 25,000 2.6 2.65 11/17/08 788,920 1,295,465
</TABLE>
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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table presents for our chief executive officer and each of
our other highest-paid executive officers the number of options exercised
during the fiscal year ended April 30, 1999 and the number and value of
securities underlying unexercised options that are held by our chief executive
officer and each of our other highest-paid executive officers as of April 30,
1999. Each of the options listed in the table is immediately exercisable. The
shares purchased under the options may be repurchased by us at the original
exercise price paid per share if the optionee ceases service with us before
vesting in the shares. The heading "Vested" refers to shares no longer subject
to repurchase; the heading "Unvested" refers to shares subject to repurchase
as of April 30, 1999. The numbers in the column entitled "Value of Unexercised
In-the-Money Options at April 30, 1999" are based on the initial public
offering price of $21.00 per share and net of the exercise price payable for
these shares.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Shares Options at Options at
Acquired on April 30, 1999 April 30, 1999 ($)
Exercise Value --------------- ---------------------
Name (#) Realized ($) Vested Unvested Vested Unvested
---- ----------- ------------ ------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bryan D. Stolle......... -- $ -- -- 175,000 -- $3,227,500
Thomas P. Shanahan...... -- -- -- 25,000 -- 462,500
Carol B. Schrader....... 22,000 51,700 -- 10,000 -- 183,500
Dorothy O. Wise......... -- -- -- 25,000 -- 458,750
</TABLE>
Stock Plans
1995 Stock Option Plan. Our 1995 stock option plan was approved by our
board of directors in May 1995 and by our stockholders in January 1996. The
plan provides for the grant of incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, to employees, and for grants of
nonstatutory stock options and stock issuances to employees, including
officers, non-employee directors and consultants.
The plan is currently administered by the compensation committee. Subject
to the provisions of the plan, the board or its committee has the authority to
select the persons to whom options or stock issuances are granted and
determine the terms of each option or stock issuance, including:
. the number of shares of common stock covered by the option or stock
issuance;
. when the option becomes exercisable or when the stock issuance vests;
. the per share option exercise price, which in the case of incentive stock
options must be at least equal to the fair market value of a share of
common stock on the grant date or 110% of such fair market value for
incentive stock options granted to 10% stockholders, and, in the case of
nonstatutory stock options, must be at least 85% of the fair market value
of a share of common stock on the grant date; and
. the duration of the option, which for incentive stock options may not
exceed ten years, or, with respect to incentive stock options granted to
10% stockholders, five years.
Generally, options granted under the plan are immediately exercisable.
Options and stock issuances granted under the plan generally vest over five
years, although the board or its committee may specify a different vesting
schedule for a particular grant. Options granted under the plan are non-
transferable other than by will or the laws of descent and distribution;
provided, however that the board or its committee may provide that
nonstatutory stock options are transferable for estate planning purposes,
subject to applicable law. Unvested shares issued pursuant to a stock issuance
are generally non-transferrable.
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In the event of a change in control of Agile, the acquiring or successor
corporation may either assume the outstanding options granted under the plan
or replace the options with a cash incentive program that is paid out in
accordance with the original vesting schedule and that preserves the spread on
the unvested shares subject to the options. If the options or stock issuances
are not assumed or replaced by the acquiring or successor corporation, then
the shares subject to each option outstanding under the plan at the time of
the change in control shall automatically vest in full, and then expire.
Currently, the maximum number of shares issuable under the plan is
5,375,000. The share reserve will automatically be increased on the first day
of each fiscal year beginning on and after May 1, 2000 by the lesser of
500,000 shares per year, 5% of the number of shares of our common stock that
was issued and outstanding on the last day of the preceding fiscal year, or a
lesser number of shares determined by the board of directors. As of October
31, 1999, options to purchase a total of 1,834,525 shares at a weighted
average exercise price of $8.25 per share were outstanding and 1,125,419
shares were available for future option grants.
1999 Employee Stock Purchase Plan. The board of directors adopted our 1999
employee stock purchase plan in June 1999, which was approved by the
stockholders in August 1999. We have reserved a total of 500,000 shares of
common stock for issuance under the 1999 employee stock purchase plan, none of
which have been issued as of the effective date of this offering. The share
reserve will automatically be increased on May 1, 2000 and on each May 1
thereafter until and including May 1, 2009, by an amount equal to the lesser
of 500,000 shares per year, 2% of our outstanding common stock on the last day
of the immediately preceding fiscal year, or such lesser number of shares as
determined by the board of directors.
The employee stock purchase plan is intended to qualify under Section 423
of the Internal Revenue Code. The plan will be administered by our
compensation committee. Employees, including officers and employee directors,
of Agile or any subsidiary designated by the board for participation in the
plan, are eligible to participate in the plan if they are customarily employed
for more than 20 hours per week and more than five months per year. Eligible
employees may begin participating at the start of any offering period.
The first offering period will run for approximately 24 months and will be
divided into four consecutive purchase periods of approximately six months.
The first offering period and the first purchase period commenced on August
19, 1999 and will terminate on the last day of August, 2001. Subsequent
offering periods will generally have a duration of approximately 6 months.
Offering periods after the initial offering period will commence on the first
day of March and September of each year. The board may change the dates or
duration of one or more offering periods, but no offering may exceed 27
months.
The employee stock purchase plan permits eligible employees to purchase
common stock through payroll deductions at a price no less than 85% of the
lower of the fair market value of the common stock on (a) the first day of the
offering, or (b) the purchase date. Participants generally may not purchase
more than 1,000 shares in a six-month offering period or stock having a value
greater than $25,000 in any calendar year as measured at the beginning of the
offering period. In the event of a change in control of Agile, the board may
accelerate the purchase date of the then current offering period to a date
prior to the change in control, unless the acquiring or successor corporation
assumes or replaces the purchase rights outstanding under the employee stock
purchase plan. Our board of directors may amend or terminate the 1999 employee
stock purchase plan at any time.
401(k) Plan
Agile provides a tax-qualified employee savings and retirement plan,
commonly known as a 401(k) plan, which covers its eligible employees. Under
the 401(k) plan, employees may elect to reduce their current annual
compensation up to the lesser of 20% or the statutorily prescribed annual
limit, which is $10,000 in calendar year 1999, and have the amount of the
reduction contributed to the 401(k) plan. The 401(k) plan does not currently
permit additional matching contributions to the 401(k) plan by Agile on behalf
of the participants in the 401(k) plan. The 401(k) plan is intended to qualify
under Sections 401(a) and 401(k) of the Internal Revenue Code, so that
contributions by Agile or its employees to the 401(k) plan, and income earned
on such
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<PAGE>
contributions, are not taxable to employees until withdrawn from the 401(k)
plan, and so that contributions by Agile, if any, will be deductible by Agile
when made. The trustee of the 401(k) plan invests the assets of the 401(k)
plan in the various investment options as directed by the participants.
Limitation of Liability and Indemnification
As permitted by the Delaware General Corporation Law, we have adopted
provisions in our certificate of incorporation and bylaws that limit or
eliminate the personal liability of our directors for a breach of their
fiduciary duty of care as a director. The duty of care generally requires
that, when acting on behalf of the corporation, directors exercise an informed
business judgment based on all material information reasonably available to
them. Consequently, a director will not be personally liable to us or our
stockholders for monetary damages or breach of fiduciary duty as a director,
except for liability for:
. any breach of the director's duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
. any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation allows us to indemnify our officers,
directors and other agents to the full extent permitted by Delaware law. We
have entered into indemnification agreements with each of our directors and
officers that are, in some cases, broader than the specific indemnification
provisions permitted by Delaware law, and that may provide additional
procedural protection. The indemnification agreements require us, among other
things, to:
. indemnify officers and directors against certain liabilities that may
arise because of their status as officers or directors;
. advance expenses, as incurred, to officers and directors in connection
with a legal proceeding, subject to limited exceptions; or
. obtain directors' and officers' insurance.
Our bylaws also permit us to purchase insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether Delaware law would permit
indemnification, and to provide indemnification in circumstances in which
indemnification is otherwise discretionary under Delaware law. We have
purchased a policy of directors' and officers' liability insurance that
insures our directors and officers against the cost of defense, settlement or
payment of a judgment in some circumstances.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
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CERTAIN TRANSACTIONS
Since May 1, 1996 there has been no transaction or series of transactions
to which we were a party involving $60,000 or more and in which any director,
executive officer or holder of more than 5% of our capital stock had a
material interest other than the transactions described below.
Sales of Preferred Stock to Insiders
Since inception in March 1995, we have issued shares of preferred stock, in
private placement transactions to the following persons who are executive
officers, directors or principal stockholders of Agile:
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E Series F
Preferred Preferred Preferred Preferred Preferred Preferred
Investor Stock Stock Stock Stock Stock Stock
- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Entities affiliated with
Sequoia Capital........ 150,000 -- 2,275,000 322,000 334,672 148,148
Entities affiliated with
Mohr, Davidow
Ventures............... 30,000 2,825,000 1,225,000 448,000 565,424 74,074
Entities affiliated with
James L. Patterson..... -- -- 75,000 -- 14,011 14,816
Affiliates of Bryan D.
Stolle................. 185,000 -- -- -- -- --
Thomas P. Shanahan...... 85,000 -- -- -- -- --
</TABLE>
The preferred stock purchased by these directors and affiliates was
purchased on the same terms and conditions as the preferred stock purchased by
other investors. The preferred stock is convertible into common stock at the
rate of one share of common stock for each share of preferred stock.
In April, 1995, we issued a total of 1,150,000 shares of Series A preferred
stock and in May 1995 we issued 82,500 shares of Series A Preferred Stock at a
purchase price of $.10 per share. The purchasers of the Series A Preferred
Stock originally included various private individuals including Thomas P.
Shanahan, Chief Financial Officer and a director of Agile, and relatives of
Bryan Stolle, Chairman and Chief Executive Officer of Agile. Subsequently,
entities affiliated with Sequoia Capital and Mohr, Davidow Ventures purchased
the shares of Series A preferred stock reflected in the table above from some
of these private individuals.
In June 1995, we issued a total of 2,937,995 shares of Series B preferred
stock at a purchase price of $.354 per share. In January 1996, we issued
3,500,000 shares of Series C preferred stock and in October 1996 we issued
75,000 shares of Series C preferred stock at a purchase price of $1.16 per
share. In February 1997, we issued 1,350,000 shares of Series D preferred
stock at a purchase price of $2.964 per share. In November 1997, we issued
1,000,000 shares of Series E preferred stock at a purchase price of $5.00 per
share. In June 1998, we issued 1,777,778 shares of Series F preferred stock at
a purchase price of $6.75 per share.
The entities affiliated with Sequoia Capital are together considered a
greater than 5% stockholder of Agile. Mr. Michael Moritz, a director of Agile,
is a general partner of Sequoia Capital. Entities affiliated with Mohr,
Davidow are together considered a greater than 5% stockholder of Agile. Ms.
Nancy Schoendorf, a director of Agile, is a general partner of Mohr, Davidow.
Mr. James Patterson is a director of Agile, Mr. Bryan Stolle is Chairman and
Chief Executive Officer of Agile, and Mr. Thomas Shanahan is Chief Financial
Officer and a director of Agile.
All of our shares of preferred stock converted to common stock upon the
occurrence of our initial public offering in August 1999.
Loans to Executive Officers and Directors
On November 17, 1997, we loaned $31,800 to Carol B. Schrader, our Vice
President, Marketing, in connection with the purchase of 53,000 shares of our
common stock for $.60 per share upon exercise of stock options. The note
accrues interest at the rate of 6.14% per year and is due on November 17,
2001. This note was repaid on November 15, 1999. On August 4, 1998, we loaned
$51,700 to Ms. Schrader, in connection with the purchase of 22,000 shares of
our common stock for $2.35 per share upon exercise of stock options. This note
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<PAGE>
accrues interest at the rate of 5.68% per year, and is due on August 4, 2003.
On November 17, 1997, we loaned $5,475 to Eric Schrader, an affiliate of Carol
Schrader, in connection with the purchase of 9,125 shares of our common stock
for $.60 per share upon exercise of stock options. The note accrues interest
at the rate of 6.14% per year and is due on November 17, 2001. The principal
amounts of each of these notes remain outstanding. Each of these loans are
full recourse and secured by a pledge of the stock purchased upon exercise of
the stock option.
On November 12, 1999, we made an unsecured loan in the amount of $25,000 to
Ms. Schrader. The loan accrues interest at the rate of 6.00% per year and is
due on the earlier to occur of termination of Ms. Schrader's employment with
Agile, sale by Ms. Schrader of any Agile common stock, or at the rate of
$250.00 per semi-monthly pay period beginning July 1, 2000. The loan to Ms.
Schrader was not made in connection with the exercise of stock options.
On June 1, 1999, we loaned $132,500 to Klaus-Dieter Laidig, one of our
directors, in connection with the purchase of 50,000 shares of our common
stock for $2.65 per share upon exercise of stock options. The note accrues
interest at the rate of 4.84% per year, and is due on June 1, 2004. The
principal amount of the note remains outstanding. This loan is full recourse
and is secured by a pledge of the stock purchased upon exercise of the stock
option.
All loan amounts outstanding as of October 31, 1999 are reflected as a
reduction of equity in the consolidated balance sheet.
Indemnification
We have entered into indemnification agreements with each of our directors
and officers. These indemnification agreements will require us to indemnify
our directors and officers to the fullest extent permitted by Delaware law.
See "Management--Limitation of Liability and Indemnification" on page 57 for
additional information regarding these indemnification agreements and
provisions in our charter documents requiring us to indemnify our officers and
directors.
Conflict of Interest Policy
We believe that all transactions with our directors, officers and principal
stockholders described above were made on terms no less favorable to us than
could have been obtained from unaffiliated third parties. A majority of the
disinterested outside directors on our board of directors approves all
transactions between Agile and our officers, directors, principal stockholders
and their affiliates. Any similar transactions will continue to be on terms no
less favorable to us than we could have obtained from unaffiliated third
parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of October 31, 1999 and as adjusted to reflect the sale of the shares of
common stock offered hereby by:
. the chief executive officer, each of the executive officers named in the
summary compensation table and each of our directors;
. all executive officers and directors as a group;
. each person or entity who is known by us to beneficially own more than 5%
of our outstanding common stock; and
. each selling stockholder.
Unless otherwise indicated, the address for each of the named individuals
is c/o Agile Software Corporation, One Almaden Boulevard, San Jose, California
95113. Except as otherwise indicated, and subject to applicable community
property laws, we believe that the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them.
Applicable percentage ownership in the table is based on 21,367,199 shares
of common stock outstanding as of October 31, 1999, assuming the issuance of
611,764 shares of common stock in connection with our acquisition of Digital
Market and the exercise of warrants to purchase 57,190 shares of our common
stock, and 22,617,199 shares outstanding immediately following the completion
of this offering, assuming the underwriters' over-allotment option is not
exercised. Of the total shares outstanding, 1,058,654 shares are subject to
our right of repurchase. Beneficial ownership is determined under the rules
and regulations of the Securities and Exchange Commission. Shares of common
stock subject to options or warrants that are presently exercisable or
exercisable within 60 days of October 31, 1999 are deemed outstanding for the
purpose of computing the percentage ownership of the person or entity holding
options or warrants, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person or entity. Entries
denoted by an asterisk represent an amount less than 1%.
<TABLE>
<CAPTION>
Shares
Shares Beneficially Owned
Beneficially Owned After
Prior to Offering Offering
------------------ Shares ------------------
Name and Address of Beneficial Being
Owner Number Percent Offered Number Percent
- ------------------------------ ---------- ------- ------- ---------- -------
Executive Officers and
Directors:
<S> <C> <C> <C> <C> <C>
Bryan D. Stolle(1).............. 999,750 4.6% 70,000 929,750 4.1%
Thomas P. Shanahan(2)........... 435,000 2.0 40,000 395,000 1.7
Carol B. Schrader(3)............ 205,000 * 20,000 185,000 *
Dorothy O. Wise(4).............. 243,000 1.1 15,000 228,000 1.0
James L. Patterson(5)........... 122,627 * -- 122,627 *
Nancy J. Schoendorf(6).......... 5,280,493 24.7 50,000 5,230,493 23.1
c/o Mohr, Davidow Ventures
2775 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Michael Moritz(7)............... 3,229,820 15.1 -- 3,229,820 14.3
c/o Sequoia Capital
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Klaus-Dieter Laidig(8).......... 50,000 * -- 50,000 *
All executive officers and
directors
as a group (10 persons)(9).... 10,691,890 48.2 195,000 10,496,890 44.8
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Owned After
Offering Offering
----------------- Shares -----------------
Name and Address of Beneficial Being
Owner Number Percent Offered Number Percent
- ------------------------------ --------- ------- ------- --------- -------
Principal Stockholders:
<S> <C> <C> <C> <C> <C>
Entities affiliated with Mohr
Davidow Ventures(10)........... 5,280,493 24.7% 50,000 5,230,493 23.1%
2775 Sand Hill Road
Building 1, Suite 240
Menlo Park, CA 94025
Entities affiliated with Sequoia
Capital(11).................... 3,229,820 15.1 -- 3,229,820 14.3
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Entities affiliated with
Integral Capital(12)........... 593,000 2.8 -- 593,000 2.6
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with Accel
Partners(13)................... 1,028,115 4.8 -- 1,028,115 4.5
428 University Avenue
Palo Alto, CA 94301
<CAPTION>
Other Selling Stockholders:
<S> <C> <C> <C> <C> <C>
Entities affiliated with Charter
Growth Capital(14)............. 296,000 1.4 45,000 251,000 1.1
525 University Avenue, Suite
1500
Palo Alto, CA 94301
George A. Needham(15)........... 258,000 1.2 45,000 213,000 *
c/o Needham Capital Partners
445 Park Avenue
New York, NY 10022
Comdisco, Inc.(16).............. 158,301 * 92,190 66,111 *
6111 North River Road
Rosemont, Illinois 60018
Stanford A. Smith............... 150,000 * 25,000 125,000 *
67 Lowell Road
Wellesley, MA 02481
Wiley L. Carter................. 110,000 * 30,000 80,000 *
164 E. Dana Street
Mountain View, CA 94041-2229 *
Cheryl A. Breetwor.............. 100,000 * 55,000 45,000 *
12681 Mira Loma Way
Los Altos, CA 94024
Alvar J. Green.................. 80,000 * 25,000 55,000 *
2661 Kekaa Drive
Lahaina, HI 96761
Edward M. Leonard............... 50,000 * 23,500 26,500 *
950 Tower Lane, 18th Floor
Foster City, CA 94404-2130
Carlos R. Camacho............... 390,000 1.8 30,000 360,000 1.6
Joseph J. Fazio(17)............. 357,500 1.7 36,000 321,500 1.4
Matthias Moran.................. 355,000 1.7 75,000 280,000 1.2
90 Parkridge Drive #7
San Francisco, CA 94131
Vanda Stolle.................... 75,000 * 21,000 54,000 *
7518 Del Monte
Houston, TX 77063
Stuart P. Silverman(18)......... 45,000 * 22,500 22,500 *
870 Boyce Avenue
Palo Alto, CA 94301
Andrew Leonard.................. 1,500 * 1,500 -- --
3600 Fillmore St. #402
San Francisco, CA 94123
Cynthia Leonard................. 1,500 * 1,500 -- --
2849 Clay St.
San Francisco, CA 94115
C. Duane Wilson................. 90,000 * 10,000 80,000 *
7746 Deer Trail Place
Dallas, TX 75238
Carl D. Wilson.................. 85,250 * 12,500 73,750 *
3410 Augusta
Rockwall, TX 75087
Other selling stockholders(19).. 651,957 173,924 478,033
</TABLE>
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<PAGE>
- --------
(1) Includes 18,750 shares held by Bryan D. Stolle as Custodian for Jacob N.
Stolle under UCAUTMA, 18,750 shares held by Bryan D. Stolle as Custodian
for Wilson E. Stolle under UCAUTMA, 100,000 shares held by the Deborah S.
Stolle Annuity Trust dated 8/18/99, 100,000 shares held by the Bryan D.
Stolle Annuity Trust dated 8/18/99, 1,000 shares held by Bryan D. Stolle
as Custodian for Caroline Stolle under UCAUTMA, 1,000 shares held by
Bryan D. Stolle as Custodian for Michael Pettit under UCAUTMA, and 1,000
shares held by Bryan D. Stolle as Custodian for Jonathan Parlicek under
UCAUTMA. Also includes 175,000 shares subject to options that are
immediately exercisable.
(2) Includes 81,563 shares subject to a right of repurchase in favor of Agile
which lapses over time. Also includes 15,000 shares held by Robert M.
Smelick as Custodian for Thomas A. Shanahan, 15,000 shares held by Robert
M. Smelick as Custodian for Kelly J. Shanahan, 15,000 shares held by
Robert M. Smelick as Custodian for Patrick L. Shanahan, 5,000 shares held
by the Thomas Alan Shanahan Trust, 5,000 shares held by the Kelly Jean
Shanahan Trust, and 5,000 shares held by the Patrick Lee Shanahan Trust,
and 325,000 shares held by Thomas P. Shanahan and Robyn Lynn Shanahan,
Trustees of the Shanahan Family Trust u/d/t dated April 15, 1997. Also
includes 50,000 shares subject to options that are immediately
exercisable.
(3) Includes 55,125 shares subject to a right of repurchase in favor of Agile
which lapses over time. Also includes 74,725 shares subject to options
that are immediately exercisable and 45,275 shares held by Eric Schrader.
(4) Includes 70,000 shares subject to a right of repurchase in favor of Agile
which lapses over time. Also includes 40,000 shares subject to options
that are immediately exercisable.
(5) Includes 73,011 shares held directly by James L. Patterson, 34,800 shares
held by The Patterson Grandchildren's Trust, of which James L. Patterson
is trustee, and 14,816 shares held by The Patterson Family Trust, of
which James L. Patterson is trustee.
(6) Ms. Schoendorf is a general partner of Mohr, Davidow Ventures, and is a
director of Agile. Represents 216,284 shares held by MDV IV Entrepreneurs
Network Fund, L.P., and 5,064,209 shares held by Mohr, Davidow Ventures
IV, L.P. Ms. Schoendorf disclaims beneficial ownership of shares held by
these entities, except to the extent of her proportional pecuniary
interest arising from her partnership interest in Mohr, Davidow Ventures.
(7) Mr. Moritz is a general partner of the general partners of the entities
affiliated with Sequoia Capital and is a director of Agile. Represents
109,880 shares held by Sequoia 1995, 2,080 shares held by Sequoia 1997,
318,074 shares held by Sequoia Capital Growth Fund, 2,631,214 shares held
by Sequoia Capital VI, 20,302 shares held by Sequoia Technology Partners
III, 144,572 shares held by Sequoia Technology Partners VI, and 3,698
shares held by SQP 1997. SC VIII Management, LLC exercises investment and
voting power over the shares held by Sequoia 1997. Mr. Moritz disclaims
beneficial ownership of shares held by these entities, except to the
extent of his proportional pecuniary interest arising from his
partnership interest in the general partner of the general partners of
the entities affiliated with Sequoia Capital. Mr. Moritz does not hold
sole voting or investment power in any of these entities.
(8) Represents shares subject to options that are immediately exercisable.
(9) Shares listed as held by all directors and executive officers as a group
include 802,000 shares subject to options that are immediately
exercisable.
(10) Represents 216,284 shares held by MDV IV Entrepreneurs Network Fund,
L.P., and 5,064,209 shares held by Mohr, Davidow Ventures IV, L.P. Ms.
Schoendorf, a director of Agile, is a general partner of Mohr, Davidow
Ventures. The 50,000 shares are being sold by Mohr Davidow Ventures IV,
L.P.
(11) Represents 109,880 shares held by Sequoia 1995, 2,080 shares held by
Sequoia 1997, 318,074 shares held by Sequoia Capital Growth Fund,
2,631,214 shares held by Sequoia Capital VI, 20,302 shares held by
Sequoia Technology Partners III, 144,572 shares held by Sequoia
Technology Partners VI, and 3,698 shares held by SQP 1997. SC VIII
Management, LLC exercises investment and voting power over the shares
held by Sequoia 1997. Mr. Moritz, a director of Agile, is a general
partner of the general partners of the entities affiliated with Sequoia
Capital.
(12) Represents 589,689 shares held by Integral Capital Partners IV, L.P. and
2,904 shares held by Integral Partners IV MS Side Fund L.P.
(13) Represents 828,661 shares held by Accel V L.P., 111,036 shares held by
Accel Internet/Strategic Technology Fund L.P., 49,350 shares held by
Accel Investors '96 L.P., 16,450 shares held by Accel Keiretsu V L.P. and
22,618 shares held by Ellmore C. Patterson Partners.
(14) Represents 237,037 shares held by Charter Growth Capital, L.P., 44,444
shares held by Charter Growth Capital Co-Investment Fund L.P. and 14,815
shares held by CGC Investors L.P. Of the 45,000 shares sold, 36,000 are
being sold by Charter Growth Capital, L.P., 6,750 shares are being sold
by Charter Growth Captal Co-Investment Fund L.P. and 2,250 shares are
being sold by CGC Investors L.P.
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<PAGE>
(15) Represents 116,895 shares held by Needham Capital Partners II, L.P.,
16,438 shares held by Needham Capital Partners II (Bermuda), L.P. and
125,000 shares held by George A. Needham. Mr. Needham is a general
partner of each of Needham Capital Partners II, L.P. and Needham Capital
Partners II (Bermuda), L.P. Mr. Needham disclaims beneficial ownership of
shares held by Needham Capital Partners II, L.P. and Needham Capital
Partners II (Bermuda), L.P. except to the extent of his proportional
pecuniary interest in these partnerships. Of the 45,000 shares sold,
17,500 shares are being sold by Needham Capital Partners II, L.P., 2,500
shares are being sold by Needham Capital Partners (Bermuda), L.P. and
25,000 shares are being sold by George A. Needham.
(16) Includes 41,111 shares issuable upon exercise of an outstanding warrant,
and 57,190 shares issuable upon exercise of warrants in November 1999.
(17) Includes 326,500 shares held by Joseph J. Fazio, 15,500 shares held by
Joseph J. Fazio as Custodian for James J. Fazio under UCAUTMA, and 15,500
shares held by James J. Fazio as Custodian for Therese Victoria Fazio
under UCAUTMA.
(18) Represents shares held by Stuart P. Silverman and Terry K. Silverman,
Trustee under the Stuart P. Silverman and Terry K. Silverman Family Trust
dated 9/17/85.
(19) Consists of stockholders, including former shareholders of Digital
Market, each of whom individually owns or will own less than 1% of the
shares outstanding before and after the offering.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common stock
and 10,000,000 shares of preferred stock.
The following is a summary of our capital stock. Our certificate of
incorporation and bylaws, to be effective after the closing of this offering,
and the provisions of applicable law provide further information about our
capital stock.
Common Stock
As of October 31, 1999, there were 20,698,245 shares of common stock
outstanding. Subject to preferences that may be applicable to any preferred
stock outstanding at the time, the holders of outstanding shares of common
stock are entitled to the following rights:
. to receive dividends out of assets legally available therefor at such
times and in such amounts as the board from time to time may determine in
its sole discretion;
. one vote for each share held on all matters submitted to a vote of
stockholders; and
. upon liquidation, dissolution or winding-up of Agile, to share ratably in
all assets remaining after payment of liabilities and the liquidation of
any preferred stock.
Cumulative voting for the election of directors is not authorized by our
certificate of incorporation, which means that the holders of a majority of
the shares voted can elect all of the directors then standing for election.
The common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, upon payment, duly and validly issued, fully paid and nonassessable. The
rights, preferences and privileges of the holders of common stock are subject
to, and may be adversely affected by, the rights of the holders of any shares
of preferred stock which we may issue in the future.
Preferred Stock
Under our certificate of incorporation, the board of directors is
authorized, without further action by the stockholders, to designate and issue
up to 10,000,000 shares of preferred stock in one or more series. The board of
directors can fix the rights, preferences and privileges of the shares of each
series and any qualifications, limitations or restrictions on these shares.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could, under certain circumstances, have the effect of
delaying, deferring or preventing a change in control of Agile. We have no
current plans to issue any shares of preferred stock.
Warrants
In September 1995, Agile issued a warrant to Comdisco, Inc. to purchase an
aggregate of 41,111 shares of Series B preferred stock at an exercise price of
$.354 per share. The warrant may be exercised at any time within seven years
after issuance.
In March 1996, Agile issued a warrant to Comdisco, Inc. to purchase an
aggregate of 35,313 shares of Series C preferred stock at an exercise price of
$1.16 per share. The warrant may be exercised at any time within seven years
after issuance.
In February 1997, Agile issued a warrant to Comdisco, Inc. to purchase an
aggregate of 17,828 shares of Series D preferred stock at an exercise price of
$2.964 per share. The warrant may be exercised at any time within seven years
after issuance.
64
<PAGE>
In November 1997, Agile issued a warrant to Comdisco, Inc. to purchase an
aggregate of 4,049 shares of Series D preferred stock at an exercise price of
$2.964 per share. The warrant may be exercised at any time within seven years
after issuance.
Registration Rights of Some of Our Stockholders
Following this offering, the holders of approximately 11,241,966 shares of
common stock and 41,111 shares of stock issuable upon exercise of a warrant
will have rights to register those shares under the Securities Act and an
amended and restated rights agreement. Subject to certain limitations in the
registration rights agreement, the holders of at least 30% of these shares, or
a lesser percent if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $10,000,000, may require,
on two occasions, that Agile use its best efforts to register those shares for
public resale. If Agile registers any of its common stock for its own account
or for the account of other security holders, the holders of those shares are
entitled to include their shares of common stock in the registration, subject
to the ability of the underwriters to limit the number of shares included in
the offering. Any holder or holders of those shares may also require Agile to
register all or a portion of their registrable securities in a registration
statement on Form S-3 when Agile is eligible to use that form, provided, among
other limitations, that the proposed aggregate price to the public is at least
$500,000 and that Agile has not effected two of these registrations in any 12-
month period. Agile will pay all fees, costs and expenses of these
registrations, other than underwriting discounts and commissions. These rights
terminate on the earlier of August 24, 2002, and the date when all shares of a
holder can be sold by the holder under Rule 144 of the Securities Act during
any 90 day period.
All of the registration rights described above are subject to conditions
and limitations, among them the right of the underwriters in any underwritten
offering to limit the number of shares of common stock to be included in a
registration. Registrations of any shares of common stock held by holders with
registration rights would result in these shares being freely tradeable
without restriction under the Securities Act upon the effective date of the
registration.
Antitakeover Effects of Delaware Law and Provisions of Our Certificate of
Incorporation and Bylaws
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law. This
provision generally prohibits any Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years following the date the stockholder became an interested stockholder,
unless:
. prior to that date the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
began; or
. on or following that date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines a business combination to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
65
<PAGE>
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Certificate of Incorporation and Bylaws
Our certificate of incorporation provides that all stockholder actions must
be effected at a duly called meeting and not by a consent in writing. The
bylaws provide that, except as otherwise required by law or by our certificate
of incorporation, special meetings of the stockholders can only be called by a
resolution adopted by a majority of the board of directors, or by the
president or at the request of stockholders holding at least 10% of our
capital stock. Our certificate of incorporation and bylaws also provide that
our board of directors will be divided into three classes, with each class
serving staggered three-year terms. The classification system of electing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of us and may maintain the incumbency
of our board of directors, as the classification of the board of directors
generally increases the difficulty of replacing a majority of the directors.
Our certificate of incorporation authorizes undesignated preferred stock,
which makes it possible for the board of directors to issue preferred stock
with voting or other rights or preferences that could discourage potential
acquisition proposals and could delay or prevent a change in our control or
management. The amendment of any of these provisions would require approval by
holders of at least two-thirds of the outstanding common stock.
These provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal, and to enhance the likelihood of continuity and
stability in the composition of our board of directors. These provisions are
also designed to discourage tactics that may be used in proxy fights. However,
these provisions could have the effect of discouraging others from making
tender offers for our shares and, as a consequence, they may also inhibit
fluctuations in the market price of our shares that could result from rumored
or actual takeover attempts.
Transfer Agent and Registrar
The transfer agent and registrar for Agile's common stock is Boston
EquiServe. Its address is 150 Royall Street, Canton Massachusetts 02021 and
its telephone number at this location is (781) 575-3400.
66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our common stock in the public
market, or the possibility of these sales, could cause the trading price of
our common stock to decline.
Upon completion of this offering, we will have outstanding 22,617,199
shares of common stock, assuming no exercise of the underwriters' over-
allotment option, no exercise of outstanding options to purchase common stock
after October 31, 1999, the issuance of 611,764 shares to the shareholders of
Digital Market upon the closing of our acquisition of Digital Market, and the
exercise of outstanding warrants to purchase 57,190 shares of our common stock
in November 1999. Of these shares, all of the 2,250,000 shares sold in this
offering and the 3,450,000 shares sold in our initial public offering in
August 1999 will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by our
"affiliates," as defined in Rule 144 under the Securities Act, which would be
subject to the limitations and restrictions described below. In addition,
150,000 shares were released from lock-up agreements in November 1999 and will
be freely tradable subject to Rule 144 or 701.
The remaining shares of common stock held by existing stockholders are
"restricted securities" as defined in Rule 144. These securities may be sold
in the public market only if registered or if they qualify for an exemption
from registration under Rules 144 or 701 under the Securities Act, which are
summarized below. Of these shares, 2,761,462 shares, including 397,647 shares
to be issued to the shareholders of Digital Market upon our acquisition of
Digital Market, will be subject to "lock-up" agreements on the effective date
of the offering expiring on February 16, 2000, and 14,159,346 shares will be
subject to "lock-up" agreements expiring 91 days after the date of this
offering. Sales of these restricted securities in the public market, or the
availability of these shares for sale, could cause the trading price of our
common stock to decline.
The amounts of restricted securities that will be available for sale in the
public market, subject in some cases to the volume limitations and other
restrictions of Rule 144, will be as follows:
<TABLE>
<CAPTION>
Days after Date of Approximate Shares
this Prospectus Eligible for Future Sale Comment
---------------------------------------- ------------------------ ------------------------
<C> <C> <S>
Currently.................................. 3,600,000 Freely tradable shares
sold in our initial
public offering, plus
150,000 shares no longer
subject to lock-up
agreements and salable
under Rule 144 or 701
On Effectiveness........................... 2,250,000 Shares sold in this
offering
February 16, 2000.......................... 2,761,462 Initial public offering
lock-up expires; shares
salable under Rule 144
or 701
91 Days after the date of this prospectus.. 14,159,346 90 day lock-up expires;
shares salable under
Rule 144 or 701
</TABLE>
Shares issued upon exercise of options granted by us prior to the date of
this prospectus will be available for sale in the public market under Rule 701
of the Securities Act. Rule 701 permits resales of these shares in reliance
upon Rule 144 but without compliance with various restrictions, including the
holding period requirement, imposed under Rule 144. In general, under Rule
144, beginning 90 days after the date of this prospectus, a person (or persons
whose shares are aggregated) 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 not to exceed the greater of (1) one percent of the then
outstanding shares of common stock or (2) the average weekly trading volume of
our common stock during the four calendar weeks preceding the filing of a Form
144 with respect to the sale. Sales under Rule 144 are also subject to manner
of sale and notice requirements, as well as to the availability of current
public information about us. Under Rule 144(k), a person who is not deemed to
have been an affiliate at any time during the 90 days preceding a sale and who
has beneficially owned the shares proposed to be sold for at least two years
is entitled to sell the shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
67
<PAGE>
We have reserved an aggregate of 5,375,000 shares of common stock for
issuance pursuant to our 1995 Stock Option Plan. As of October 31, 1999,
options to purchase an aggregate of 1,834,525 shares of common stock were
outstanding and 1,125,419 shares remained available for grant under our 1995
Stock Option Plan. We intend to file registration statements on Form S-8 under
the Securities Act after completion of this offering to register all of the
shares of common stock issued or reserved for issuance under our 1995 Stock
Option Plan and 1999 Employee Stock Purchase Plan. Shares of common stock
issued under these plans, after the filing of related registration statements,
will be freely tradable in the public market, subject to the Rule 144
limitations applicable to our affiliates, lock-up agreements with the
underwriters and vesting restrictions imposed by us.
In connection with our initial public offering on August 19, 1999, our
officers, directors and substantially all other stockholders agreed, and the
shareholders of Digital Market are expected to agree, with Morgan Stanley &
Co. Incorporated not to sell or otherwise dispose of any of their shares for a
period expiring on February 16, 2000. In addition, the officers, directors,
selling stockholders and principal stockholders of Agile have agreed not to
sell or otherwise dispose of an aggregate of 14,159,346 shares until 91 days
after the date of this offering. Morgan Stanley & Co. Incorporated, however,
may in its sole discretion, at any time without notice, release all or any
portion of the shares subject to either of these lock-up agreements.
68
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc. and
Hambrecht & Quist LLC are acting as representatives, have severally agreed to
purchase, and we and the selling stockholders have agreed to sell to them,
severally, the respective number of shares of common stock set forth opposite
the names of the underwriters below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...............................
Deutsche Bank Securities Inc. ..................................
Hambrecht & Quist LLC...........................................
---------
Total......................................................... 2,250,000
=========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and the selling stockholders and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The underwriters are obligated to
take and pay for all of the shares of common stock offered by this prospectus,
other than those covered by the over-allotment option described below, if any
such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. Any underwriter may allow, and the dealers may reallow, a
concession not in excess of $ a share to other underwriters or to certain
other dealers. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives of the underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 337,500
additional shares of common stock at the public offering price set forth on
the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose
of covering over-allotments, if any, made in connection with this offering of
the shares of common stock. To the extent this option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number set forth next to each underwriters name in the preceding table bears
to the total number of shares of common stock set forth next to the names of
all underwriters in the preceding table.
Each of Agile, our officers, directors and the selling stockholders has
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, or otherwise during the period
ending 90 days after the date of this prospectus, it will not:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise dispose of, directly or
indirectly, any shares of common stock or any securities convertible into
or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or by alternative payment.
69
<PAGE>
The restrictions described in the previous paragraph do not apply to:
. the sale of shares to the underwriters;
. the issuance by Agile of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus which is described in the prospectus;
. transactions by any person other than Agile relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares; or
. the grant of options to purchase shares of common stock pursuant to our
existing employee benefit plans.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
Our common stock is listed on the Nasdaq National Market under the symbol
"AGIL."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
The underwriting agreement provides that Agile and the selling stockholders
will indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act.
On June 4, 1998, we sold shares of our Series F Preferred Stock in a
private placement. In this private placement, entities associated with
Hambrecht & Quist LLC, one of the underwriters in this offering, purchased
148,148 shares of Series F Preferred Stock, which are convertible into 148,148
shares of common stock, for an aggregate of $999,999, or $6.75 per share.
These entities purchased these shares on the same terms as the other investors
in the private placement. Morgan Stanley & Co. Incorporated, Deutsche Bank
Securities Inc. and Hambrecht & Quist LLC served as co-managing underwriters
of our initial public offering in August 1999, and received customary
underwriting discounts and commissions in connection therewith.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Agile by Gray Cary Ware & Freidenrich LLP, Palo Alto, California.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by Fenwick & West LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements of Agile Software Corporation as of
April 30, 1998 and 1999 and for each of the three years in the period ended
April 30, 1999 included in this Prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The financial statements of Digital Market, Inc. as of March 31, 1998 and
1999 and for each of the three years in the period ended March 31, 1999
included in this Prospectus have been so included in reliance on the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein
and upon the authority of said firm as experts in accounting and auditing.
70
<PAGE>
WHERE TO FIND ADDITIONAL INFORMATION ABOUT AGILE
Agile has filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules filed with it. For
further information with respect to Agile and the common stock, reference is
made to the registration statement and the exhibits and schedules filed with
it. With respect to statements contained in this prospectus regarding the
contents of any agreement or any other document, in each instance, reference
is made to the copy of such agreement or other document filed as an exhibit to
the registration statement. Each statement is qualified in all respects by the
exhibits and schedules.
For further information with respect to Agile and the common stock,
reference is made to the registration statement and its exhibits and
schedules. You may read and copy any document Agile files at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Agile's SEC filings are also available to the public from the
SEC's web site at http://www.sec.gov.
Agile is subject to the information and periodic reporting requirements of
the Exchange Act, and files periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other
information are available for inspection and copying at the SEC's public
reference rooms and the SEC's web site, which is described above.
71
<PAGE>
AGILE SOFTWARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Agile Software Corporation
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Stockholders' Equity............................. F-5
Consolidated Statement of Cash Flows....................................... F-7
Notes to Consolidated Financial Statements................................. F-8
Unaudited Pro Forma Combined Financial Information
Overview................................................................... F-24
Unaudited Pro Forma Combined Balance Sheet................................. F-25
Unaudited Pro Forma Combined Statement of Operations....................... F-26
Notes to Unaudited Pro Forma Combined Financial Information................ F-28
Digital Market, Inc.
Independent Auditors' Report............................................... F-29
Balance Sheet.............................................................. F-30
Statement of Operations.................................................... F-31
Statement of Shareholders' (Deficit) Equity................................ F-32
Statement of Cash Flows.................................................... F-33
Notes to Financial Statements.............................................. F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Agile Software Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Agile Software Corporation and its subsidiary (the "Company") at April 30,
1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended April 30, 1999 in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
May 28, 1999, except for Note 8,
which is as of August 16, 1999
F-2
<PAGE>
AGILE SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
As of April 30, As of
------------------ October 31,
1998 1999 1999
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 2,160 $ 10,003 $ 81,174
Accounts receivable, net of allowance for
doubtful accounts of $379, $495 and $565
(unaudited), respectively................... 3,384 4,980 4,467
Other current assets......................... 98 624 2,451
-------- -------- --------
Total current assets........................... 5,642 15,607 88,092
Property and equipment, net.................... 1,694 1,973 3,164
Other assets................................... 195 368 209
-------- -------- --------
$ 7,531 $ 17,948 $ 91,465
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit borrowings............... $ 1,000 $ -- $ --
Accounts payable............................. 698 1,287 603
Accrued expenses and other liabilities....... 1,227 3,618 4,815
Deferred revenue............................. 3,146 5,107 5,655
Current portion of capital lease
obligations................................. 501 735 809
Current portion of notes payable............. -- 686 --
-------- -------- --------
Total current liabilities...................... 6,572 11,433 11,882
Capital lease obligations, noncurrent.......... 743 871 819
Notes payable, noncurrent...................... 39 2,353 39
-------- -------- --------
7,354 14,657 12,740
-------- -------- --------
Commitments and contingencies (Note 7)
Stockholders' equity:
Convertible Preferred Stock, $.001 par value;
31,176 shares authorized; 10,096, 11,874 and
no (unaudited) shares issued and
outstanding................................. 10 12 --
Common Stock, $.001 par value; 100,000 shares
authorized; 3,998, 4,200 and 20,698
(unaudited) shares issued and outstanding... 4 4 21
Additional paid-in capital................... 17,868 35,503 134,488
Notes receivable from stockholders........... (363) (748) (1,826)
Unearned stock compensation (Notes 6 and 9).. (2,237) (4,947) (19,066)
Accumulated deficit.......................... (15,105) (26,533) (34,892)
-------- -------- --------
Total stockholders' equity..................... 177 3,291 78,725
-------- -------- --------
$ 7,531 $ 17,948 $ 91,465
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AGILE SOFTWARE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Year Ended April 30, October 31,
----------------------------- ------------------
1997 1998 1999 1998 1999
--------- --------- --------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License................... $ 1,143 $ 6,102 $ 10,859 $ 4,756 $ 8,339
Professional services..... 187 1,385 3,665 1,471 2,165
Maintenance............... 22 516 2,283 826 2,321
-------- -------- --------- -------- --------
Total revenues.......... 1,352 8,003 16,807 7,053 12,825
-------- -------- --------- -------- --------
Cost of revenues:
License................... 113 543 819 406 528
Professional services..... 88 1,347 3,823 1,546 1,726
Maintenance............... 65 278 1,343 543 924
-------- -------- --------- -------- --------
Total cost of revenues.. 266 2,168 5,985 2,495 3,178
-------- -------- --------- -------- --------
Gross profit................ 1,086 5,835 10,822 4,558 9,647
-------- -------- --------- -------- --------
Operating expenses:
Sales and marketing....... 2,149 8,070 13,495 5,990 10,013
Research and development.. 2,510 3,788 4,742 2,216 3,194
General and
administrative........... 1,333 1,995 1,938 870 1,505
Amortization of stock
compensation (Notes 6
and 9)................... -- 856 2,253 945 3,658
-------- -------- --------- -------- --------
Total operating
expenses............... 5,992 14,709 22,428 10,021 18,370
-------- -------- --------- -------- --------
Loss from operations........ (4,906) (8,874) (11,606) (5,463) (8,723)
Interest and other income... 134 95 447 243 933
Interest expense............ (64) (163) (269) (93) (569)
-------- -------- --------- -------- --------
Net loss.................... $ (4,836) $ (8,942) $ (11,428) $ (5,313) $ (8,359)
======== ======== ========= ======== ========
Net loss per share:
Basic and diluted......... $ (3.72) $ (4.20) $ (3.87) $ (1.89) $ (.90)
======== ======== ========= ======== ========
Weighted average shares... 1,300 2,129 2,952 2,814 9,264
======== ======== ========= ======== ========
Unaudited pro forma net loss
per share:
Basic and diluted......... $ (.78) $ (.50)
========= ========
Weighted average shares... 14,668 16,852
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AGILE SOFTWARE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Convertible
Preferred Notes
Stock Common Stock Additional Receivable Unearned
------------- -------------- Paid-In From Stock Accumulated
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Total
------ ------ ------ ------ ---------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30,
1996................... 7,671 $ 8 2,215 $ 2 $5,214 $ (40) $ -- $ (1,327) $ 3,857
Issuance of Common Stock
for cash............... -- -- 52 -- 3 -- -- -- 3
Issuance of Common Stock
on exercise of
options................ -- -- 564 1 64 -- -- -- 65
Issuance of Common Stock
in exchange for
services............... -- -- 12 -- 2 -- -- -- 2
Issuance of Series C
Convertible Preferred
Stock at $1.16 per
share, net of issuance
costs.................. 75 -- -- -- 83 -- -- -- 83
Issuance of Series D
Convertible Preferred
Stock at $2.964 per
share, net of issuance
costs.................. 1,350 1 -- -- 3,979 -- -- -- 3,980
Net loss................ -- -- -- -- -- -- -- (4,836) (4,836)
------ --- ----- --- ------ ----- ------ -------- --------
Balance at April 30,
1997................... 9,096 9 2,843 3 9,345 (40) -- (6,163) 3,154
Repurchase of unvested
Common Stock........... -- -- (48) -- (18) 15 -- -- (3)
Issuance of Common Stock
on exercise of
options................ -- -- 255 -- 71 -- -- -- 71
Issuance of Common Stock
in exchange for notes
receivable on exercise
of options............. -- -- 772 1 293 (294) -- -- --
Issuance of restricted
Common Stock in
exchange for notes
receivable............. -- -- 176 -- 106 (106) -- -- --
Repayment of notes
receivable............. -- -- -- -- -- 62 -- -- 62
Issuance of Series E
Convertible Preferred
Stock at $5.00 per
share, net of issuance
costs.................. 1,000 1 -- -- 4,978 -- -- -- 4,979
Unearned stock
compensation (Note 6).. -- -- -- -- 3,093 -- (3,093) -- --
Amortization of unearned
compensation (Note 6).. -- -- -- -- -- -- 856 -- 856
Net loss................ -- -- -- -- -- -- -- (8,942) (8,942)
------ --- ----- --- ------ ----- ------ -------- --------
Balance at April 30,
1998................... 10,096 10 3,998 4 17,868 (363) (2,237) (15,105) 177
Repurchase of unvested
Common Stock........... -- -- (120) -- (38) 32 -- -- (6)
Issuance of Common Stock
on exercise of
options................ -- -- 56 -- 28 -- -- -- 28
Issuance of Common Stock
in exchange for notes
receivable on exercise
of options............. -- -- 259 -- 419 (419) -- -- --
Issuance of restricted
Common Stock in
exchange for notes
receivable............. -- -- 7 -- 19 (19) -- -- --
Repayment of notes
receivable............. -- -- -- -- -- 21 -- -- 21
Issuance of Series F
Convertible Preferred
Stock at $6.75 per
share, net of issuance
costs.................. 1,778 2 -- -- 11,970 -- -- -- 11,972
Issuance of warrants.... -- -- -- -- 274 -- -- -- 274
Unearned stock
compensation (Note 6).. -- -- -- -- 4,963 -- (4,963) -- --
Amortization of unearned
compensation (Note 6).. -- -- -- -- -- -- 2,253 -- 2,253
Net loss................ -- -- -- -- -- -- -- (11,428) (11,428)
------ --- ----- --- ------ ----- ------ -------- --------
Balance at April 30,
1999................... 11,874 12 4,200 4 35,503 (748) (4,947) (26,533) 3,291
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Convertible
Preferred Notes
Stock Common Stock Additional Receivable Unearned
--------------- -------------- Paid-In From Stock Accumulated
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Total
------- ------ ------ ------ ---------- ------------ ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Repurchase of Common
Stock (unaudited)...... -- -- (14) -- (3) -- -- -- (3)
Issuance of Common Stock
in exchange for notes
receivable on exercise
of options
(unaudited)............ -- -- 107 -- 1,196 (1,196) -- -- --
Issuance of Common Stock
(unaudited)............ (11,874) (12) 15,989 16 79,445 -- -- -- 79,449
Issuance of Common Stock
on exercise of options
(unaudited)............ -- -- 356 1 165 -- -- -- 166
Repayment of notes
receivable
(unaudited)............ -- -- -- -- -- 118 -- -- 118
Issuance of Common Stock
upon exercise of
warrants (unaudited)... -- -- 60 -- 405 -- -- -- 405
Unearned stock
Compensation
(unaudited)............ -- -- -- -- 17,777 -- (17,777) -- --
Amortization of unearned
compensation
(unaudited)............ -- -- -- -- -- -- 3,658 -- 3,658
Net loss (unaudited).... -- -- -- -- -- -- -- (8,359) (8,359)
------- --- ------ --- -------- ------- -------- -------- -------
Balance at October 31,
1999 (unaudited)....... -- $-- 20,698 $21 $134,488 $(1,826) $(19,066) $(34,892) $78,725
======= === ====== === ======== ======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AGILE SOFTWARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended April Six Months
30, Ended October 31,
-------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating ac-
tivities:
Net loss..................... $(4,836) $(8,942) $(11,428) $ (5,313) $ (8,359)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Provision for doubtful
accounts................... 100 277 155 83 70
Depreciation................ 220 673 1,180 483 743
Amortization of stock
compensation (Note 6)...... -- 856 2,253 945 3,658
Warrant expense............. -- -- 21 -- 253
Changes in assets and
liabilities:
Accounts receivable....... (838) (2,900) (1,751) (936) 443
Other assets, current and
non-current.............. (90) (89) (446) (63) (1,921)
Accounts payable.......... 370 313 589 (337) (684)
Accrued expenses and
other liabilities........ 270 912 2,391 977 1,197
Deferred revenue.......... 607 2,485 1,961 908 548
------- ------- -------- -------- --------
Net cash used in
operating activities... (4,197) (6,415) (5,075) (3,253) (4,052)
------- ------- -------- -------- --------
Cash flows from investing ac-
tivities:
Purchase of short-term
investments................. (387) -- -- -- --
Proceeds from sale of short-
term investments............ -- 3,023 -- -- --
Acquisition of property and
equipment................... (341) (420) (459) (297) (1,518)
------- ------- -------- -------- --------
Net cash provided by
(used in) investing
activities............. (728) 2,603 (459) (297) (1,518)
------- ------- -------- -------- --------
Cash flows from financing ac-
tivities:
Proceeds from bank line of
credit...................... -- 2,230 1,900 900 --
Repayment of bank line of
credit...................... -- (1,230) (2,900) (1,900) --
Repayment of capital lease
obligations................. (145) (382) (638) (276) (394)
Proceeds from notes payable.. 39 -- 3,000 -- --
Repayment of notes payable... (24) (24) -- -- (3,000)
Proceeds from issuance of
Common Stock, net of
repurchase.................. 68 68 22 14 80,017
Repayment of notes receivable
from stockholders........... -- 62 21 10 118
Proceeds from issuance of
Convertible Preferred Stock,
net......................... 4,063 4,979 11,972 11,975 --
------- ------- -------- -------- --------
Net cash provided by
financing activities... 4,001 5,703 13,377 10,723 76,741
------- ------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents.......... (924) 1,891 7,843 7,173 71,171
Cash and cash equivalents at
beginning of period........... 1,193 269 2,160 2,160 10,003
------- ------- -------- -------- --------
Cash and cash equivalents at
end of period................. $ 269 $ 2,160 $ 10,003 $ 9,333 $ 81,174
======= ======= ======== ======== ========
Supplemental disclosure:
Cash paid during the period
for interest................ $ 48 $ 138 $ 168 $ 74 $ 207
======= ======= ======== ======== ========
Noncash investing and financing
activities:
Common Stock issued in
exchange for notes
receivable.................. $ -- $ 400 $ 438 $ 222 $ 1,196
======= ======= ======== ======== ========
Property and equipment
acquired under capital
lease....................... $ 743 $ 838 $ 1,000 $ 422 $ 416
======= ======= ======== ======== ========
Issuance of warrants......... $ -- $ -- $ 274 $ -- $ --
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--The Company And Summary Of Significant Accounting Policies:
The Company
Agile Software Corporation (the "Company") was incorporated in California
on March 13, 1995 and is headquartered in San Jose, California. The Company is
a leading supplier of product content management software for use within and
among companies in a manufacturing supply chain over the Internet. The
Company's suite of software products is designed to improve the ability of all
members of the supply chain to communicate and collaborate with one another
about new or changing information concerning the manufacture, source or supply
of products or components.
Principles of consolidation and basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Agile Software International Corporation. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim financial information (unaudited)
The accompanying interim consolidated financial statements are unaudited
but have been prepared on the same basis as the annual financial statements
and, in the opinion of management, reflect all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the Company's
financial condition at October 31, 1999 and the results of its operations and
cash flows for the six-month periods ended October 31, 1998 and 1999. The
financial data and other information disclosed in the notes to consolidated
financial statements related to these periods is unaudited. The results of
operations of any interim period are not necessarily indicative of the results
of operations for the full year.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The majority of the
Company's cash equivalents consist of money market funds.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, short-term investments and accounts receivable. Cash and cash
equivalents are deposited with financial institutions that management believes
are credit worthy.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The
Company maintains an allowance for doubtful accounts receivable based on the
expected collectibility of accounts receivable. To date, the Company has not
experienced any material losses with respect to its accounts receivable.
F-8
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair value of financial instruments
The Company's financial instruments, including cash, cash equivalents,
short-term investments, accounts receivable, accounts payable, notes payable
and capital lease obligations are carried at cost, which approximates their
fair value because of the short-term maturity of these instruments.
Property and equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based upon the useful lives of the assets, which
range from two to five years, or the lease term of the respective assets.
Software development costs
Software development costs are included in research and development and are
expensed as incurred. After technological feasibility is established, material
software development costs are capitalized. The capitalized cost is then
amortized on a straight-line basis over the estimated product life, or in the
ratio of current revenues to total projected product revenues, whichever is
greater. To date, the period between achieving technological feasibility,
which the Company has defined as the establishment of a working model which
typically occurs when the beta testing commences, and the general availability
of such software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.
Revenue recognition
The Company recognizes revenues in accordance with Statement of Position
("SOP") 97-2, "Software Revenue Recognition," and SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions."
The Company derives revenues from the license of software products under
software license agreements and from the delivery of professional services and
maintenance services. When contracts contain multiple elements, and vendor
specific objective evidence exists for all undelivered elements, the Company
accounts for the delivered elements in accordance with the "Residual Method"
prescribed by Statement of Position ("SOP") 98-9. License revenues are
recognized when persuasive evidence of an arrangement exists, the fee is fixed
or determinable, collectibility is probable, and delivery and customer
acceptance, if required under the terms of the contract, of the software
products have occurred. In the event the Company grants its customers the
right to specified upgrades, license revenue is deferred until delivery of the
specified upgrade. If vendor-specific objective evidence of fair value exists
for the specified upgrade, then an amount equal to this fair value is
deferred. If vendor-specific objective evidence of fair value does not exist,
then the entire license fee is deferred until the delivery of the specified
upgrade. A provision for the estimated losses on fixed-price contracts is
recognized in the period in which the loss becomes known. Allowances for
estimated returns are provided upon product delivery. In instances where
vendor obligations remain, revenues are deferred until the obligation has been
satisfied. Revenues from professional services consist of implementation and
training services. Training revenues are recognized as the services are
performed. Implementation services are typically performed under fixed-price
contracts and accordingly, revenues are recognized upon customer acceptance.
Maintenance contracts include the right to unspecified upgrades on a when-and-
if available basis, and ongoing support. Maintenance revenues are recognized
ratably over the term of the maintenance contract, which is generally twelve
months.
Income taxes
The Company accounts for income taxes under the asset and liability
approach which recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the tax basis of
assets and liabilities and their financial statement reported amounts. The
Company records a valuation allowance against deferred tax assets when it is
more likely than not that such assets will not be realized.
F-9
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive income
Effective May 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. To date, the Company has not had any significant transactions that
are required to be reported in comprehensive income.
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic and diluted net loss per
share is computed by dividing the net loss available to holders of Common
Stock for the period by the weighted average number of shares of Common Stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential Common Stock if their effect is antidilutive. Potential
Common Stock consists of unvested restricted Common Stock, incremental common
shares issuable upon the exercise of stock options and warrants and shares
issuable upon conversion of the Series A, Series B, Series C, Series D, Series
E and Series F Convertible Preferred Stock.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Six Months
Fiscal Year Ended April Ended October
30, 31,
-------------------------- ----------------
1997 1998 1999 1998 1999
------- ------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss................... $(4,836) $(8,942) $(11,428) $(5,313) $(8,359)
======= ======= ======== ======= =======
Denominator:
Weighted average shares.... 2,414 3,467 4,140 4,070 10,361
Weighted average unvested
shares of Common Stock
subject to repurchase..... (1,114) (1,338) (1,188) (1,256) (1,097)
------- ------- -------- ------- -------
Denominator for basic and
diluted calculation....... 1,300 2,129 2,952 2,814 9,264
======= ======= ======== ======= =======
Net loss per share:
Basic and diluted.......... $ (3.72) $ (4.20) $ (3.87) $ (1.89) $ (.90)
======= ======= ======== ======= =======
</TABLE>
F-10
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth potential shares of Common Stock that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive as of the dates indicated (in thousands):
<TABLE>
<CAPTION>
As of
As of April 30, October 31,
-------------------- ----------------
1997 1998 1999 1998 1999
------ ------ ------ ------ -----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Series A Preferred Stock............. 1,233 1,233 1,233 1,233 --
Series B Preferred Stock............. 2,938 2,938 2,938 2,938 --
Series C Preferred Stock............. 3,575 3,575 3,575 3,575 --
Series D Preferred Stock............. 1,350 1,350 1,350 1,350 --
Series E Preferred Stock............. -- 1,000 1,000 1,000 --
Series F Preferred Stock............. -- -- 1,778 1,778 --
Preferred Stock warrants............. 94 98 158 98 98
Unvested Common Stock subject to
repurchase.......................... 1,251 1,361 964 1,203 1,059
Common Stock options................. 732 527 1,160 847 1,835
------ ------ ------ ------ -----
11,173 12,082 14,156 14,022 2,992
====== ====== ====== ====== =====
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended April 30, 1999 and the six
months ended October 31, 1999 is computed using the weighted average number of
shares of Common Stock outstanding, including the pro forma effects of the
automatic conversion of the Company's Series A, Series B, Series C, Series D,
Series E and Series F Convertible Preferred Stock and Series F Preferred Stock
warrants into shares of the Company's Common Stock effective upon the closing
of the Company's initial public offering as if such conversion occurred on May
1, 1998, or at the date of original issuance, if later. The resulting pro
forma adjustment includes an increase in the weighted average shares used to
compute basic net loss per share of 11,716,000 for the year ended April 30,
1999 and 7,588,000 for the six months ended October 31, 1999. The calculation
of diluted net loss per share excludes potential shares of Common Stock as
their effect would be antidilutive. Pro forma potential Common Stock consist
of unvested Common Stock subject to repurchase rights and incremental shares
of Common Stock issuable upon the exercise of stock options and warrants.
Stock compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, unearned compensation is based on the
difference, if any, on the date of the grant, between the fair value of the
Company's stock and the exercise price. Unearned compensation is amortized and
expensed in accordance with Financial Accounting Standards Board ("FASB")
Interpretation No. 28. The Company accounts for stock issued to non-employees
in accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."
Foreign currency translation
The Company uses the U.S. dollar as its functional currency in all foreign
locations expect for France. The balance sheet accounts are translated into
United States dollars at the end-of-period exchange rates except for fixed
assets, which are translated at historical exchange rates. Revenue and
expenses are translated at average exchange rates in effect during each
period. Gains and losses resulting from translation are accumulated as a
component of stockholders' equity. Net gains or losses resulting from foreign
currency exchange transactions are included in the consolidated statement of
operations and were not significant during any of the periods presented.
F-11
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment information
Effective May 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. During each of the three
years in the period ended April 30, 1999, the Company operated in a single
business segment, primarily in the United States. Through April 30, 1999,
foreign operations have not been significant in either revenue or investment
in long-lived assets.
Recent accounting pronouncements
In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP No. 98-1 will
be effective for the Company's fiscal year ending April 30, 2000. SOP No. 98-1
provides guidance on accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company does not expect the adoption of SOP
No. 98-1 to have a material effect on the Company's results of operations,
financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 will be
effective for the Company's fiscal year ending April 30, 2001. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
results of operations, financial position or cash flows.
Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
Note 2--Balance Sheet Components (in thousands):
Property and equipment comprise the following:
<TABLE>
<CAPTION>
As of
April 30, As of
--------------- October 31,
1998 1999 1999
------ ------- -----------
(unaudited)
<S> <C> <C> <C>
Computer hardware and software.................. $2,087 $ 3,214 $ 4,506
Furniture and equipment......................... 508 828 1,261
Leasehold improvements.......................... 34 46 255
------ ------- -------
2,629 4,088 6,022
Less: accumulated depreciation.................. (935) (2,115) (2,858)
------ ------- -------
$1,694 $ 1,973 $ 3,164
====== ======= =======
</TABLE>
Accrued expenses and other liabilities comprise the following:
<TABLE>
<CAPTION>
As of
April 30, As of
-------------- October 31,
1998 1999 1999
------ ------- -----------
(unaudited)
<S> <C> <C> <C>
Accrued employee costs............................ $ 661 $ 1,770 $2,036
Sales taxes payable............................... 151 172 104
Accrued professional fees......................... 125 400 488
Other............................................. 290 1,276 2,187
------ ------- ------
$1,227 $ 3,618 $4,815
====== ======= ======
</TABLE>
F-12
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Borrowings:
Notes payable
Notes payable consist of amounts payable to equipment financing companies
and are collateralized by the underlying assets as follows (in thousands):
<TABLE>
<CAPTION>
As of
April 30, As of
----------- October 31,
1998 1999 1999
---- ------ -----------
(unaudited)
<S> <C> <C> <C>
11.75% note; interest payable monthly; principal
payable monthly commencing September 1999; matures
February 2002........................................ $-- $1,000 $--
11.75% note; interest payable monthly; principal
payable monthly commencing November 1999; matures
March 2002........................................... -- 1,000 --
11.75% note; interest payable monthly; principal
payable monthly commencing December 1999; matures
April 2002........................................... -- 1,000 --
Non-interest bearing note; principal payable upon
maturity in July 2002................................ 39 39 39
--- ------ ---
39 3,039 39
Less: current portion................................. -- (686) --
--- ------ ---
Notes payable, non-current............................ $39 $2,353 $39
=== ====== ===
</TABLE>
Future minimum principal payments under the notes at April 30, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ending April 30,
----------------------------
<S> <C>
2000................................................................. $ 686
2001................................................................. 1,181
2002................................................................. 1,133
2003................................................................. 39
------
Total payments....................................................... $3,039
======
</TABLE>
Bank line-of-credit
As of April 30, 1999, the Company had a $2,000,000 line-of-credit agreement
with a bank that provides for borrowings of up to $2,000,000, including
$250,000 available for the issuance of letters of credit and foreign currency
exchange activity. Borrowings under the credit agreement bear interest at an
annual rate of 8.5%, subject to adjustment by the bank. The interest rate was
8.5% at April 30, 1999. Borrowings under the line of credit are secured by the
assets of the Company. As of April 30, 1998 and 1999, $1,000,000 and no
amount, respectively, were outstanding under the line. The credit agreement
expires in August 1999. In connection with this line-of-credit, the Company is
required to meet certain monthly financial tests, including a minimum tangible
net worth and a minimum quick ratio. At April 30, 1999, the Company was in
compliance with all financial covenants.
Note 4--Income Taxes:
The Company's operating losses are generated domestically, and amounts
attributable to its foreign operations have been insignificant for all periods
presented. For each of the three years in the period ended April 30, 1999, the
Company incurred net operating losses and accordingly no provision for income
taxes has been recorded. In addition, no benefit for income taxes has been
recorded due to the uncertainty of the realization of any tax assets. At April
30, 1999, the Company had approximately $20,000,000 of federal and $18,000,000
of state net operating loss carryforwards available to offset future taxable
income which expire in varying amounts
F-13
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
beginning in 2016 and 2004, respectively. Under the Tax Reform Act of 1986,
the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances. Events which cause limitations
in the amounts of net operating losses that the Company may utilize in any one
year include, but are not limited to, a cumulative ownership change of more
than 50%, as defined, over a three year period.
Deferred taxes comprise the following (in thousands):
<TABLE>
<CAPTION>
As of April 30,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Depreciation............................................. $ 66 $ 67
Other accruals and liabilities........................... 123 398
Net operating loss and credit carryforwards.............. 5,235 8,197
------- -------
Total deferred tax assets................................ 5,424 8,662
Less: Valuation allowance................................ (5,424) (8,662)
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======
</TABLE>
For financial reporting purposes, the Company has incurred a loss in each
period since its inception. Based on the available objective evidence,
including the Company's history of losses, management believes it is more
likely than not that the net deferred tax assets will not be fully realizable.
Accordingly, the Company provided for a full valuation allowance against its
net deferred tax assets at April 30, 1998 and 1999.
A reconciliation between the amount of income tax benefit determined by
applying the applicable U.S. statutory income tax rate to pre-tax loss is as
follows:
<TABLE>
<CAPTION>
Fiscal Year
Ended
April 30,
------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate................................. (35)% (35)% (35)%
State tax, net of federal impact....................... (6) (6) (6)
Provision for valuation allowance on deferred tax
assets................................................ 41 41 41
--- --- ---
-- % -- % -- %
=== === ===
</TABLE>
F-14
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Stockholders' Equity:
Preferred stock
Convertible Preferred Stock at April 30, 1999 comprise the following (in
thousands):
<TABLE>
<CAPTION>
Shares Liquidation Proceeds, Net
---------------------- Preference of Issuance
Authorized Outstanding Amount Costs
---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Series A.................... 1,500 1,233 $ 123 $ 115
Series B.................... 3,000 2,938 1,040 1,024
Series C.................... 4,000 3,575 4,147 4,124
Series C1................... 4,000 -- -- --
Series D.................... 1,500 1,350 4,001 3,980
Series D1................... 1,500 -- -- --
Series E.................... 1,000 1,000 5,000 4,979
Series E1................... 1,000 -- -- --
Series F.................... 1,838 1,778 12,002 11,972
Series F1................... 1,838 -- -- --
Undesignated................ 10,000 -- -- --
------ ------ ------- -------
31,176 11,874 $26,313 $26,194
====== ====== ======= =======
</TABLE>
Each share of Series A, Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock is convertible
into one share of Common Stock, at the option of the holder. The conversion
ratio of the Series C Preferred Stock is subject to adjustment for dilution.
Holders of at least 100,000 shares of Preferred Stock have a right of first
offer in connection with any subsequent issuances of Preferred Stock. These
provisions will terminate upon the Company's initial public offering. In the
event that such holders of Series C or Series D Preferred Stock elect not to
participate in certain subsequent financings, their existing shares of Series
C and Series D Preferred Stock will automatically convert into shares of
Series C1 and Series D1 Preferred Stock, respectively.
Each share of Series A, Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock automatically
converts into Common Stock upon the closing of an underwritten public offering
with an offering price of at least $8.78 per share and aggregate proceeds of
at least $20,000,000 or upon the consent of the holders of a majority of the
outstanding shares of Series A, Series B, Series C, Series C1, Series D,
Series D1, Series E and Series E1 Preferred Stock (voting together as a single
class and not as separate series, on an as-converted basis). Each share of
Series F and Series F1 will automatically convert into Common Stock upon the
consent of a majority of the outstanding Series F and Series F1 shares.
Each share of Series A, Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock has voting rights
equal to the number of shares of Common Stock into which it is convertible. As
long as at least 50% or more of the original issued shares of each respective
class remain outstanding, holders of Series A, Series B and Series C and C1
(Series C and C1 voting as a class) are entitled to elect one director at each
annual election of members of the Board of Directors. Holders of all shares of
Common Stock and Preferred Stock, on an as-converted basis, are entitled to
vote to elect the remaining directors of the Company.
As long as at least 50% of the original Preferred Stock issued remains
outstanding, the Company may not, without prior approval of at least the
majority of the then outstanding shares of Preferred Stock, (a) sell, merge or
consolidate the Company, (b) effect any transaction or series of transactions
which would result in the
F-15
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
dissolution of more than 50% of the voting power of the Company, (c) change
the rights, preferences and privileges of the Preferred Stock or (d) authorize
or issue any equity security or any security convertible into or exercisable
for any equity security having a preference over or equal to those of the
existing Preferred Stock with respect to voting, dividends or liquidation.
Holders of Series A, Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock are entitled to
receive, when and as declared by the Board of Directors, noncumulative annual
dividends of $.01 per share. No dividends on the Preferred Stock or Common
Stock have been declared by the Board of Directors from the Company's
inception through April 30, 1999.
In the event of a liquidation, dissolution or winding up of the Company,
the holders of Series A, Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock shall be entitled
to receive $.10, $.354, $1.16, $1.16, $2.964, $2.964, $5.00, $5.00, $6.75 and
$6.75 per share, respectively, plus any declared but unpaid dividends.
Thereafter, the remaining assets of the Company will be distributed pro rata
among the holders of Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock and Common Stock
until the holders of Series B, Series C, Series C1, Series D, Series D1,
Series E, Series E1, Series F and Series F1 Preferred Stock have received an
aggregate of $.708, $2.32, $2.32, $5.928, $5.928, $10.00, $10.00, $13.50 and
$13.50 per share, respectively. Thereafter, the holders of Common Stock will
receive all of the remaining assets of the Company.
Preferred Stock warrants
In conjunction with certain capital leases and notes payable, the Company
issued warrants to purchase shares of the Company's Preferred Stock as
follows:
<TABLE>
<CAPTION>
Fiscal
Exercise Year of
Date of Grant Shares Price Expiration Value
-------------- ------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Series B Preferred Stock
warrants...................... September 1995 41,111 $ .354 2003 de minimus
Series C Preferred Stock
warrants...................... March 1996 35,313 1.160 2003 de minimus
Series D Preferred Stock
warrants...................... February 1997 17,828 2.964 2004 de minimus
Series D Preferred Stock
warrants...................... November 1997 4,049 2.964 2005 de minimus
Series F Preferred Stock
warrants...................... February 1999 60,000 6.750 2010 $ 274,000
</TABLE>
The Company calculated the minimum fair value of all warrants on the date
of grant using the Black-Scholes option pricing model as prescribed by SFAS
No. 123 with the following underlying assumptions: expected volatility of 50%,
risk free interest rates ranging from 4.7% to 6.3% and terms ranging from 7 to
10.5 years.
The Series B, Series C and Series D Preferred Stock warrants are
exercisable for the period stated above or three years from the effective date
of the Company's initial public offering, whichever is longer. The Series F
Preferred Stock warrants are exercisable for the shorter of the period stated
above or immediately prior to the Company's initial public offering. Upon
completion of the Company's initial public offering, the Series F Preferred
Stock warrants expire. If the Company's initial public offering yields
proceeds of not less than $14.00 per share, then the warrant shall be
exercisable for no more than 45,000 shares of Series F Preferred Stock or the
Common Stock issuable upon conversion thereof. The Company records the expense
related to the warrants over the life of the associated financing instrument
as interest expense. At April 30, 1999, the Company had unamortized interest
of $253,000 related to warrants issued in connection with $3.0 million of
subordinated notes payable which were issued during fiscal 1999. The Company
plans to use proceeds from its initial public offering to prepay these
subordinated notes payable in their entirety. As a result, the Company will
recognize the unamortized interest balance as an expense in the period it
prepays the notes payable in entirety.
F-16
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common Stock
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 100,000,000 shares of $.001 par value Common Stock.
The Company has granted stock to certain founders and granted stock to
certain employees under a restricted stock plan. Through April 30, 1999, the
Company had sold 2,269,775 shares of Common Stock to such founders and
employees that were subject to certain repurchase rights by the Company. The
Company has a right of first offer in connection with any proposed sale or
transfer of these shares and has the right to repurchase these shares at the
original issue price. The Company's right to repurchase such shares declines
on a percentage basis, usually over four years, based on the length of the
employees' continual employment with the Company. At April 30, 1999, no shares
of founders restricted stock and 173,371 shares granted under the Company's
restricted stock plan were subject to repurchase at a weighted-average
exercise price of $.69 per share and 76,500 shares were reserved for issuance
as restricted Common Stock in the future. This plan was terminated in June
1999.
Certain of these and other shares were issued in exchange for notes
receivable, which are full recourse and additionally collateralized by the
underlying shares of Common Stock. These notes receivable are payable on
various dates through March 2004 and bear interest at rates ranging from 4.52%
to 7.34%. These notes receivable have been included in stockholders' equity.
At April 30, 1999, the Company had reserved shares of Common Stock for
future issuance as follows (in thousands):
<TABLE>
<CAPTION>
As of
April 30,
1999
---------
<S> <C>
Conversion of Series A Preferred Stock............................. 1,500
Conversion of Series B Preferred Stock............................. 3,000
Conversion of Series C and Series C1 Preferred Stock............... 8,000
Conversion of Series D and Series D1 Preferred Stock............... 3,000
Conversion of Series E and Series E1 Preferred Stock............... 2,000
Conversion of Series F and Series F1 Preferred Stock............... 3,556
Exercise of Preferred Stock warrants............................... 158
Exercise of Common Stock options................................... 1,405
Issuance of restricted Common Stock................................ 77
</TABLE>
Note 6--Employee Benefit Plans:
401(k) plan
Employees of the Company may elect to participate in the Company's 401(k)
plan. The Company does not make contributions to the 401(k) plan.
Stock option plan
In May 1995, the Company adopted the 1995 Stock Option Plan (the "Plan")
which, as amended, provides for the issuance of incentive and nonqualified
stock options to employees, directors and consultants of the Company. Under
the Plan, 3,375,000 shares have been authorized for issuance. Options granted
under the Plan are for periods not to exceed ten years and options must be
issued at prices not less than 100% and 85%, for incentive and nonqualified
stock options, respectively, of the estimated fair value of the stock on the
date of grant as determined by the Board of Directors. Options granted to
shareholders who own greater than 10% of
F-17
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the outstanding stock are for periods not to exceed five years, and must be
issued at prices not less than 110% of the estimated fair value of the stock
on the date of grant. Options are exercisable upon grant and generally vest
25% or 20% at the end of the first year and at a rate of 1/36 or 1/48 per
month thereafter such that they vest over four or five years, respectively.
The following table summarizes activity under the Plan (shares in
thousands):
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Number Exercise
for Grant Outstanding Price
--------- ----------- --------
<S> <C> <C> <C>
Balance at April 30, 1996........................ 372 406 $ .10
Options authorized............................. 575 -- --
Options granted................................ (933) 933 .24
Options exercised.............................. -- (564) .12
Options canceled............................... 43 (43) .18
------ ------
Balance at April 30, 1997........................ 57 732 .26
Options authorized............................. 800 -- --
Options granted................................ (857) 857 .63
Options exercised.............................. -- (1,027) .31
Options canceled............................... 35 (35) .56
Unvested shares repurchased.................... 43 -- --
------ ------
Balance at April 30, 1998........................ 78 527 .84
Options authorized............................. 1,000 -- --
Options granted................................ (978) 978 2.57
Options exercised.............................. -- (315) 1.42
Options canceled............................... 30 (30) 1.70
Unvested shares repurchased.................... 115 -- --
------ ------
Balance at April 30, 1999........................ 245 1,160 2.12
Options authorized (unaudited)................. 2,000 -- --
Options granted (unaudited).................... (1,303) 1,303 11.17
Options exercised (unaudited).................. -- (463) 2.98
Options canceled (unaudited)................... 168 (168) 2.92
Unvested shares repurchased (unaudited)........ 14 -- --
------ ------
Balance at October 31, 1999 (unaudited).......... 1,124 1,832 8.25
====== ======
</TABLE>
At April 30, 1999, 790,235 outstanding shares of Common Stock purchased
under the Plan were subject to repurchase. Upon termination of employment,
unvested shares previously purchased under the Plan are subject to repurchase
by the Company at a price equal to the exercise price.
F-18
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the information about stock options
outstanding and exercisable as of April 30, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Options Vested
Options Outstanding and Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
------------ ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.015 - .45 83 7.97 $ .36 38 $ .35
.50 - 1.25 154 8.54 .91 52 .86
1.45 - 2.50 454 9.20 2.19 18 1.91
2.65 - 3.00 469 9.71 2.77 -- --
----- ---
1,160 9.23 2.12 108 .86
===== ===
</TABLE>
Fair value disclosures
The Company calculated the minimum fair value of each option grant under
the Plan on the date of grant using the Black-Scholes option pricing model as
prescribed by SFAS No. 123 with the followings underlying assumptions:
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
-----------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield.............................. -- -- --
Expected volatility......................... -- -- --
Average risk free interest rate............. 6.3% 6.0% 5.7%
Expected life (in years).................... 5 5 5
Weighted average fair value of options
granted.................................... $ .07 $ .17 $ .64
Had compensation cost for options granted under the Plan been determined
based on the fair value at the grant dates for the awards under a method
prescribed by SFAS No. 123, the Company's net loss would have been increased
to the pro forma amounts below for the fiscal years ended April 30, 1997, 1998
and 1999, respectively (in thousands, except per share amounts):
<CAPTION>
Fiscal Year Ended April 30,
-----------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net loss as reported........................ $ (4,836) $ (8,942) $ (11,428)
Pro forma net loss.......................... (4,843) (8,973) (11,529)
Net loss per share as reported.............. (3.72) (4.20) (3.87)
Pro forma net loss per share................ (3.73) (4.21) (3.91)
</TABLE>
Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described above and because additional option
grants are expected to be made each year, the compensation expense for options
granted during each of the three years in the period ended April 30, 1999 are
not representative of the pro forma effects of option grants on reported net
income (loss) for future years.
F-19
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unearned stock compensation
In connection with certain stock option grants during the years ended April
30, 1998 and 1999, the Company recorded unearned stock compensation cost
totaling $3,093,000 and $4,963,000, respectively, which is being recognized
over the vesting period of the related options of five years. Amortization of
unearned stock compensation totaled $856,000 and $2,253,000 for the years
ended April 30, 1998 and 1999, respectively.
Note 7--Commitments And Contingencies:
Leases
The Company has entered into noncancelable operating leases for office
space and equipment and capital leases for equipment with original terms
ranging from 12 to 60 months. The terms of certain operating leases provide
for rental payments on a graduated scale. The Company recognizes expense on a
straight-line basis over the lease period and has accrued for rent expense
incurred but not paid. The future minimum lease payments under these leases at
April 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Ending April 30, Leases Leases
---------------------------- --------- -------
<S> <C> <C>
2000...................................................... $1,061 $ 843
2001...................................................... 967 598
2002...................................................... 339 292
2003...................................................... 56 58
------ ------
Total minimum lease payments.............................. $2,423 1,791
======
Less: Amount representing interest........................ (185)
------
Present value of capital lease obligations................ 1,606
Less: Current portion..................................... (735)
------
Capital lease obligations, noncurrent..................... $ 871
======
</TABLE>
Property and equipment under capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
As of
April 30,
---------------
1998 1999
------ -------
<S> <C> <C>
Computer hardware and software.............................. $1,519 $ 2,338
Furniture and equipment..................................... 289 470
------ -------
1,808 2,808
Less: Accumulated depreciation.............................. (710) (1,558)
------ -------
$1,098 $ 1,250
====== =======
</TABLE>
Rent expense under noncancelable operating leases was approximately
$160,000, net of sublease rental income of $28,000, for the year ended April
30, 1997, $396,000 for the year ended April 30, 1998 and $568,000, net of
sublease rental income of $208,000, for the year ended April 30, 1999.
Contingencies
As of April 30, 1999, the Company was involved in litigation with
Facilities Management International. The complaint against the Company, filed
in the Orange County Superior Court, alleges interference with prospective
economic advantage and unfair business practices in connection with the
Company's quote for
F-20
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
services to a customer. The lawsuit seeks unspecified compensatory and
punitive damages as well as injunctive relief. The Company intends to
vigorously defend itself against the claim. The Company believes that the
ultimate outcome of this matter will not have a material adverse affect on its
financial condition, results of operations or cash flows.
Note 8--Subsequent Events:
Reincorporation
In June 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 100,000,000 shares of
$.001 par value Common Stock and 31,175,556 shares of $.001 par value
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof. The par value of the
Preferred Stock and shares of Common Stock and Preferred Stock authorized in
the consolidated balance sheet at April 30, 1998 and 1999 and in consolidated
statement of stockholders' equity for the each of the three years in the
period ended April 30, 1999 have been retroactively adjusted to reflect the
reincorporation.
Initial public offering
In June 1999, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its Common Stock to the public.
On August 2, 1999, the Company entered into agreements to sell shares of
Common Stock in a private placement with two separate corporate investors for
$5.0 million each. On August 16, 1999, the Company entered into an agreement
to sell shares of Common Stock in a private placement with one corporate
investor for $3.0 million. The sale of Common Stock to each of these three
investors will occur contemporaneous with the Company's initial public
offering and the number of shares issued to the corporate investors will be
calculated by dividing the amount invested by the offering price per share
less an amount equal to the underwriter's commissions and discounts per share.
Stock option plan
Subsequent to April 30, 1999, the Board adopted an increase in the number
of shares reserved for issuance under the Company's 1995 Stock Option Plan by
an additional 2,000,000 shares. This reserve will be automatically increased
on the first day of each fiscal year beginning on and after May 1, 2001 by the
lesser of 500,000 shares per year, 5% of the number of shares of the Company's
Common Stock which were issued and outstanding on the last day of the
preceding fiscal year or a number of shares determined by the Company's board
of directors.
Employee stock purchase plan
In June 1999, the Board adopted the 1999 Employee Stock Purchase Plan (the
"Purchase Plan") which will become effective on the date of the Company's
initial public offering, and reserved 500,000 shares of Common Stock for
issuance thereunder. This reserve will be automatically increased on May 1,
2000 and on each May 1 thereafter until and including May 1, 2009, by an
amount equal to the lesser of 500,000 shares per year, 2% of the number of
shares of Common Stock which are issued and outstanding on the last day of the
preceding fiscal year or a number of shares determined by the Company's board
of directors. Employees generally will be eligible to participate in the
Purchase Plan if they are customarily employed by the Company
F-21
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
for more than 20 hours per week and more than five months in a fiscal year
end. The first Offering Period is expected to begin on the first business day
on which price quotations for the Company's Common Stock are available.
Depending on the effective date, the first Offering Period may be more or less
than 24 months long. Offering Periods and Purchase Periods thereafter will
begin on the first day of May and September of each year. In general, the
price at which the Common Stock is purchased under the Purchase Plan is 85% of
the lesser of the fair market value of the Company's Common Stock on the first
day of the applicable Offering Period or on the purchase date. Employees
generally may not purchase more than 1,000 shares in a six-month period or
stock having a value greater than $25,000 in any calendar year as measured at
the beginning of the offering period.
Note 9--Subsequent Events (Unaudited):
Completion of initial public offering
In August 1999, the Company completed its initial public offering of
3,450,000 shares of Common Stock, including the exercise of the underwriter's
overallotment option, at $21.00 per share. Net proceeds to the Company totaled
$57.6 million. Simultaneous with the closing of the initial public offering,
the Company sold an aggregate of 665,641 shares of Common Stock at $19.53
share in private placements to three corporate investors. Upon the closing of
the initial public offering, the outstanding 11,874,000 shares of Preferred
Stock were converted into to Common Stock and a warrant to purchase 60,000
shares of common stock at $6.76 per share was exercised.
Stock compensation
During the period May 1, 1999 through October 31, 1999, the Company granted
options to employees and consultants to purchase an aggregate of 1,303,000
shares of Common Stock at exercise prices ranging from $5.00 to $65.50 per
share. The Company has recorded additional unearned stock compensation with
respect to stock option grants to employees and to non-employee consultants
made subsequent to April 30, 1999 of $17.8 million. Included within the
1,303,000 options granted subsequent to year end are 70,000 options granted to
consultants. The Company is accounting for these options granted to
consultants under variable plan accounting and has calculated the minimum fair
value of these options on the date of grant of $6.4 million using the Black-
Scholes option pricing model as prescribed by SFAS No. 123 with the following
underlying assumptions: expected volatility of 75%, risk-free interest rate of
5.9% and option terms of ten years. The Company will record an expense each
quarter relating to these options over the vesting period of the options.
Acquisition of DMI
As of October 10, 1999, the Company entered into an agreement to acquire
Digital Market, Inc. ("DMI") in a merger transaction to be accounted for as a
purchase. The purchase price will include $20.0 million in cash, and
approximately $52.0 million in Common Stock, based on the average closing
price of the Company's Common Stock for the ten trading days ending the day
prior to the closing of the acquisition, subject to a minimum of 611,764
shares and a maximum of 1,485,714 shares. The ultimate number of shares to be
issued cannot be determined until the acquisition has been completed. In
addition, the Company will assume all of the outstanding options to purchase
DMI Common Stock under its stock option plans. The estimated fair value of the
assumed options is approximately $8.0 million and will be included as a
component of the purchase price. The Company also anticipates incurring
approximately $2.0 million in acquisition expenses. The total anticipated
purchase price of DMI is $82.0 million.
F-22
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The acquisition of DMI will be accounted for as a purchase business
combination and, accordingly, the purchase price will be allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed
on the basis of their fair values. The aggregated purchase price is expected
to be allocated as follows, based on an independent appraisal of DMI and
management estimates (in thousands):
<TABLE>
<S> <C>
Net tangible liabilities of DMI.................................... $(2,295)
In-process research and development................................ 1,400
Existing technology................................................ 2,050
Trademarks......................................................... 150
Workforce in place................................................. 2,100
Goodwill........................................................... 78,595
-------
$82,000
=======
</TABLE>
This allocation is subject to change pending a final analysis of the total
purchase cost and the fair value of the assets acquired and liabilities
assumed. The net tangible liabilities of DMI consist primarily of cash and
cash equivalents, accounts receivable, property and equipment, accounts
payable and other liabilities and notes payable. In-process research and
development has not reached the stage of technological feasibility at the
acquisition date, and will be immediately charged to operations. Existing
technology, trademarks and workforce in place will be amortized over their
estimated useful lives of three, three and four years, respectively. The
purchase price in excess of net tangible liabilities and identifiable
intangible assets will be allocated to goodwill, and amortized over its
expected useful life of three years.
Note 10--Unaudited Quarterly Consolidated Financial Data:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
Jul. 31, Oct. 31, Jan. 31, Apr. 30,
1998 1998 1999 1999
-------- -------- -------- --------
(in thousands, except per share
1999: amounts)
<S> <C> <C> <C> <C>
Total revenues........................... $ 3,241 $ 3,812 $ 4,592 $ 5,162
Gross profit............................. 2,083 2,475 2,845 3,419
Loss from operations..................... (2,624) (2,839) (2,902) (3,241)
Net loss................................. (2,572) (2,741) (2,838) (3,277)
Net loss per share--basic and diluted.... (.94) (.96) (.94) (1.02)
<CAPTION>
Three Months Ended
--------------------------------------
Jul. 31, Oct. 31, Jan. 31, Apr. 30,
1997 1997 1998 1998
-------- -------- -------- --------
(in thousands, except per share
1998: amounts)
<S> <C> <C> <C> <C>
Total revenues........................... $ 1,179 $ 1,669 $ 2,128 $ 3,027
Gross profit............................. 842 1,151 1,545 2,297
Loss from operations..................... (1,610) (2,370) (2,266) (2,628)
Net loss................................. (1,612) (2,396) (2,289) (2,645)
Net loss per share--basic and diluted.... (.89) (1.20) (1.02) (1.07)
</TABLE>
F-23
<PAGE>
AGILE SOFTWARE CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
As October 10, 1999, Agile Software Corporation ("Agile" or the "Company")
entered into an agreement to merge with Digital Market, Inc. ("DMI") in a
merger transaction to be accounted for as a purchase business combination.
Agile will pay $20.0 million in cash and approximately $52.0 million in common
stock, based on the average closing prices of Agile's Common Stock for the ten
trading days ending the day prior to the closing of this transaction, subject
to a minimum of 611,764 shares and a maximum of 1,485,714 shares. As the value
of the Common Stock will not be determined until the transaction has been
completed, the estimated value of $52.0 million is being used for purposes of
calculating the total acquisition price. Agile also will assume all unvested
stock options granted by DMI. The fair value of the assumed options is
approximately $8.0 million, and is included as a component of the purchase
price. The Company also anticipates incurring approximately $2.0 million in
acquisition expenses, including financial advisory and legal fees and other
direct transaction costs.
The total anticipated acquisition price of $82.0 million will be allocated
to the assets acquired, including tangible and intangible assets, and
liabilities assumed based upon the fair value of such assets and liabilities
on the date of the acquisition. The total estimated purchase cost of the
acquisition has been allocated on a preliminary basis to assets and
liabilities based on management's estimates of their fair value with the
excess costs over the net assets acquired allocated to goodwill. This
allocation is subject to change pending a final analysis of the total purchase
cost and the fair value of the assets acquired and liabilities assumed. The
aggregate purchase price is expected to be allocated as follows (in
thousands):
<TABLE>
<S> <C>
Net tangible liabilities....................................... $(2,295)
In-process technology.......................................... 1,400
Existing technology............................................ 2,050
Trademark...................................................... 150
Workforce in place............................................. 2,100
Goodwill....................................................... 78,595
-------
$82,000
=======
</TABLE>
The net tangible liabilities consist primarily of cash and cash
equivalents, accounts receivable, property and equipment, accounts payable and
other liabilities and notes payable. DMI's net tangible liabilities as of
September 30, 1999 were used for purposes of calculating the pro forma
adjustments as the transaction has not been completed and approximate their
fair value at such date. Because the in-process technology had not reached the
stage of technological feasibility at the acquisition date and had no
alternative future use, the amount was immediately charged to operations. The
amount allocated to existing technology, trademarks and workforce in place are
being amortized over the estimated useful lives of three, three and four
years, respectively. The purchase price in excess of identified tangible and
intangible assets is allocated as goodwill. As a result of the rapid
technological changes occurring in the software and Internet industries,
goodwill is being amortized over the estimated useful life of three years. The
valuation for the intangible assets has been determined using management's
assumptions and the preliminary reports from an independent appraiser.
The accompanying unaudited pro forma combined balance sheet gives effect to
the merger of Agile and DMI as if such transaction occurred on October 31,
1999. The unaudited pro forma combined balance sheet combines the unaudited
consolidated balance sheet of Agile as of October 31, 1999 and the unaudited
balance sheet of DMI as of September 30, 1999.
The accompanying unaudited pro forma combined statements of operations
presents the results of operations of Agile for the year ended April 30, 1999
and the six-month period ended October 31, 1999, combined with the statement
of operations of DMI for the year ended March 31, 1999 and the six-month
period ended September 30, 1999. The unaudited pro forma combined statements
of operations gives effect to this acquisition as if it had occurred as of May
1, 1998.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or the financial position of the combined companies.
F-24
<PAGE>
AGILE SOFTWARE CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Agile DMI
----------- -------------
As of As of Pro Forma
October 31, September 30, -----------------------------
1999 1999 Adjustments Combined
----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 81,174 $ 128 $(20,000)(A) $ 61,302
Accounts receivable,
net.................. 4,467 339 -- 4,806
Other current assets.. 2,451 129 (1,250)(D) 1,330
-------- -------- -------- --------
Total current assets.... 88,092 596 (21,250) 67,438
Property and equipment,
net.................... 3,164 604 -- 3,768
Intangible assets....... -- -- 82,895 (B) 82,895
Other assets............ 209 -- -- 209
-------- -------- -------- --------
$ 91,465 $ 1,200 $ 61,645 $154,310
======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 603 $ 680 $ -- $ 1,283
Accrued expenses and
other liabilities.... 4,815 1,986 2,000 (C) 8,801
Deferred revenue...... 5,655 175 -- 5,830
Current portion of
capital lease
obligations.......... 809 -- -- 809
Current portion of
notes payable........ -- 556 -- 556
-------- -------- -------- --------
Total current
liabilities............ 11,882 3,397 2,000 17,279
Capital lease
obligations,
noncurrent............. 819 -- -- 819
Notes payable,
noncurrent............. 39 98 -- 137
-------- -------- -------- --------
12,740 3,495 2,000 18,235
Stockholders' equity:
Preferred Stock....... -- 179 (179)(F) --
Common Stock.......... 21 5 (5)(F) 21
Additional paid-in
capital.............. 134,488 13,024 46,976 (E)(F) 194,488
Notes receivable from
stockholders......... (1,826) -- -- (1,826)
Unearned stock
compensation......... (19,066) (447) 447 (F) (19,066)
Accumulated deficit... (34,892) (15,056) 12,406 (D)(F)(J) (37,542)
-------- -------- -------- --------
Total stockholders'
equity................. 78,725 (2,295) 59,645 136,075
-------- -------- -------- --------
$ 91,465 $ 1,200 $ 61,645 $154,310
======== ======== ======== ========
</TABLE>
F-25
<PAGE>
AGILE SOFTWARE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share date)
<TABLE>
<CAPTION>
Agile DMI
----------- -------------
Six Months Ended Pro Forma
------------------------- ----------------------
October 31, September 30,
1999 1999 Adjustments Combined
----------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Total revenues.............. $12,825 $ 405 $ -- $ 13,230
Total cost of revenues...... 3,178 701 629(G) 4,508
------- ------- -------- --------
Gross profit................ 9,647 (296) (629) 8,722
------- ------- -------- --------
Operating expenses:
Sales and marketing....... 10,013 1,207 -- 11,220
Research and development.. 3,194 2,150 -- 5,344
General and
administrative........... 1,505 685 -- 2,190
Amortization of stock
compensation............. 3,658 -- -- 3,658
Goodwill amortization..... -- -- 13,099(H) 13,099
------- ------- -------- --------
Total operating
expenses............... 18,370 4,042 13,099 35,511
------- ------- -------- --------
Loss from operations........ (8,723) (4,338) (13,728) (26,789)
Interest expense, net....... 364 (306) -- 58
------- ------- -------- --------
Net loss from continuing
operations................. $(8,359) $(4,644) $(13,728) $(26,731)
======= ======= ======== ========
Net loss per share:
Basic and diluted......... $ (.90) $ (2.71)
======= ========
Weighted average shares... 9,264 9,876(I)
======= ========
</TABLE>
F-26
<PAGE>
AGILE SOFTWARE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Agile DMI
-------- ---------
Fiscal Year Ended Pro Forma
------------------- -----------------------
April March 31,
30, 1999 1999 Adjustments Combined
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Total revenues.................. $ 16,807 $ 1,486 $ -- $ 18,293
Total cost of revenues.......... 5,985 1,190 1,258 (G) 8,433
-------- ------- -------- --------
Gross Profit.................... 10,822 296 (1,258) 9,860
-------- ------- -------- --------
Operating expenses:
Sales and marketing........... 13,495 1,863 -- 15,358
Research and development...... 4,742 2,966 -- 7,708
General and administrative.... 1,938 826 -- 2,764
Amortization of stock
compensation................. 2,253 -- -- 2,253
In-process research and
development.................. -- -- 1,400 (J) 1,400
Goodwill amortization......... -- -- 26,198 (H) 26,198
-------- ------- -------- --------
Total operating expenses.... 22,428 5,655 27,598 55,681
-------- ------- -------- --------
Loss from operations............ (11,606) (5,359) (28,856) (45,821)
Interest income, net............ 178 112 -- 290
-------- ------- -------- --------
Net loss from continuing
operations..................... $(11,428) $(5,247) $(28,856) $(45,531)
======== ======= ======== ========
Net loss per share:
Basic and diluted............. $ (3.87) $ (12.78)
======== ========
Weighted average shares....... 2,952 3,564 (I)
======== ========
</TABLE>
F-27
<PAGE>
AGILE SOFTWARE CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(unaudited)
The following adjustments were applied to Agile's historical financial
statements and those of DMI to arrive at the pro forma combined financial
information.
(A) To reflect cash payment of $20.0 million for the acquisition of DMI.
(B) To record the allocation of the purchase price of DMI as described in the
overview.
(C) To reflect anticipated acquisition expenses of $2.0 million.
(D) To adjust for advances to DMI for operating expenses in October 1999.
(E) To reflect the acquisition of DMI assuming the issuance of 611,764 shares
of Agile's Common Stock valued at $52.0 million and the assumption of
outstanding DMI stock options valued at approximately $8.0 million.
(F) To eliminate the historical equity accounts of DMI.
(G) To record the amortization of identifiable intangible assets related to
the acquisition of DMI as if the transaction occurred on May 1, 1998.
Identifiable intangible assets recorded in relation to the acquisition
were approximately $4.3 million and are being amortized on a straight-line
basis over three years for existing technology and trademark, and four
years for workforce in place .
(H) To record the amortization of goodwill related to the acquisition of DMI
as if the transaction occurred on May 1, 1998. Goodwill recorded in
relation to the acquisition was approximately $78.6 million and is being
amortized on a straight-line basis over three years.
(I) Weighted average shares used to calculate pro forma basic and diluted net
loss per share for the period presented is computed using the weighted
average number of Common Stock outstanding for the period presented and
the shares to be issued in conjunction with the acquisition of DMI as if
such shares were outstanding from May 1, 1998.
(J) The in-process research and development charge related to the acquisition
has been reflected in the
historical statements of operations as if the transaction occurred on May
1, 1998.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Digital Market, Inc.:
We have audited the accompanying balance sheets of Digital Market, Inc.
(the Company), as of March 31, 1999 and 1998, and the related statements of
operations, shareholders' equity (deficit), and cash flows for each of the
years in the three-year period ended March 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Digital Market, Inc. as of
March 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the years in the three-year period ended March 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from
operations since inception and has an accumulated deficit that raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ KPMG LLP
Mountain View, California
June 18, 1999, except as to Note 11,
which is as of October 10, 1999
F-29
<PAGE>
DIGITAL MARKET, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
As of As of March 31,
September 30, -------------------------
1999 1999 1998
------------- ------------ -----------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......... $ 128,343 $ 1,287,974 $ 555,072
Accounts receivable............... 338,852 878,534 18,010
Prepaid expenses.................. 121,091 67,591 38,759
Other current assets.............. 7,320 -- 2,660
------------ ------------ -----------
Total current assets................ 595,606 2,234,099 614,501
Property and equipment, net......... 604,415 641,484 558,168
------------ ------------ -----------
$ 1,200,021 $ 2,875,583 $ 1,172,669
============ ============ ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C> <C>
Current liabilities:
Accounts payable.................. $ 679,945 $ 348,755 $ 381,842
Accrued expenses.................. 288,652 182,522 123,847
Deferred revenue.................. 175,254 99,927 61,522
Bridge loan from shareholders..... 1,697,054 -- 1,137,482
Current maturities of long-term
debt............................. 555,638 361,704 124,412
------------ ------------ -----------
Total current liabilities........... 3,396,543 992,908 1,829,105
Long-term debt, less current
maturities......................... 98,077 203,578 302,009
------------ ------------ -----------
3,494,620 1,196,486 2,131,114
------------ ------------ -----------
Shareholders' (deficit) equity:
Convertible Preferred Stock;
19,769,359 shares authorized:
Series A; $.01 par value;
1,950,686 shares designated;
1,950,686 shares issued and
outstanding; liquidation
preference of $356,000......... 19,507 19,507 19,507
Series B; $.01 par value;
7,366,181 shares designated;
6,221,053, 6,138,484, and
6,138,484 shares issued and
outstanding, respectively,
liquidation preference of
$3,800,441, $3,750,000 and
$3,750,000 respectively........ 62,211 61,385 61,385
Series C; $.01 par value;
10,452,492 shares designated;
9,780,027 shares issued and
outstanding; liquidation
preference of $7,895,416....... 97,800 97,800 --
Common stock; $.001 par value;
30,000,000 shares authorized;
5,005,928, 4,761,378, and
4,400,317 shares issued and
outstanding, respectively...... 5,006 4,761 4,400
Additional paid-in capital........ 13,024,090 11,907,212 4,129,882
Shareholder note receivable....... -- -- (9,000)
Deferred stock-based
compensation..................... (447,119) -- --
Accumulated deficit .............. (15,056,094) (10,411,568) (5,164,619)
------------ ------------ -----------
Total shareholders' (deficit)
equity........................... (2,294,599) 1,679,097 (958,445)
------------ ------------ -----------
$ 1,200,021 $ 2,875,583 $ 1,172,669
============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
DIGITAL MARKET, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
September 30, Fiscal Years Ended March 31,
------------------------ -------------------------------------
1999 1998 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license...... $ 287,356 $ -- $ 396,130 $ -- $ --
Contract revenue...... -- -- 850,032 1,600,000 550,000
Maintenance and
other................ 118,056 33,307 239,744 133,069 74,014
----------- ----------- ----------- ----------- -----------
Total revenues...... 405,412 33,307 1,485,906 1,733,069 624,014
Cost of revenues:....... (701,545) (465,914) (1,190,469) (761,408) (184,770)
----------- ----------- ----------- ----------- -----------
Gross profit (deficit).. (296,133) (432,607) 295,437 971,661 439,244
----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing... 1,206,751 756,365 1,862,965 1,335,979 803,803
Research and
development.......... 2,149,652 1,461,592 2,965,583 1,545,569 1,474,827
General and
administrative....... 685,391 366,762 826,043 560,238 291,268
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 4,041,794 2,584,719 5,654,591 3,441,786 2,569,898
----------- ----------- ----------- ----------- -----------
Loss from operations.... (4,337,927) (3,017,326) (5,359,154) (2,470,125) (2,130,654)
Interest income......... 6,872 120,291 193,906 24,033 61,673
Interest expense........ (313,471) (67,398) (81,701) (103,720) --
----------- ----------- ----------- ----------- -----------
Net loss................ $(4,644,526) $(2,964,433) $(5,246,949) $(2,549,812) $(2,068,981)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
DIGITAL MARKET, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Convertible Preferred Stock
----------------------------------------------------- Notes
Series A Series B Series C Common Stock Additional Receivable Deferred
----------------- ----------------- ----------------- ----------------- Paid-In From Stock-Based
Shares Amount Shares Amount Shares Amount Shares Amount Capital Shareholder Compensation
--------- ------- --------- ------- --------- ------- --------- ------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of
March 31, 1996.. 1,950,686 $19,507 -- $ -- -- $ -- 3,866,667 $3,867 $ 329,453 $ -- $ --
Issuance of
Series B
Convertible
Preferred Stock,
net of issuance
costs of
$35,883......... -- -- 6,138,484 61,385 -- -- -- -- 3,652,974 -- --
Issuance of
warrants for the
purchase of
Series B
Convertible
Preferred
Stock........... -- -- -- -- -- -- -- -- 73,662 -- --
Issuance of
Common Stock
upon exercise of
stock options... -- -- -- -- -- -- 450,000 450 8,550 (9,000) --
Issuance of
Common Stock
upon exercise of
warrants........ -- -- -- -- -- -- 27,400 27 521 -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- ------ ----------- ------- ----------
Balances as of
March 31, 1997.. 1,950,686 19,507 6,138,484 61,385 -- -- 4,344,067 4,344 4,065,160 (9,000) --
Issuance of
warrants for the
purchase of
Convertible
Preferred
Stock........... -- -- -- -- -- -- -- -- 62,589 -- --
Issuance of
Common Stock
upon exercise of
stock options... -- -- -- -- -- -- 56,250 56 2,133 -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- ------ ----------- ------- ----------
Balances as of
March 31, 1998.. 1,950,686 19,507 6,138,484 61,385 -- -- 4,400,317 4,400 4,129,882 (9,000) --
Issuance of
Series C
Convertible
Preferred Stock,
net of issuance
costs of
$39,191......... -- -- -- -- 9,780,027 97,800 -- -- 7,758,507 -- --
Issuance of
Common Stock
upon exercise of
stock options... -- -- -- -- -- -- 561,061 561 22,623 -- --
Repurchase of
Common Stock.... -- -- -- -- -- -- (200,000) (200) (3,800) -- --
Repayment of
Shareholder Note
................ -- -- -- -- -- -- -- -- -- 9,000 --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- ------ ----------- ------- ----------
Balances as of
March 31, 1999.. 1,950,686 19,507 6,138,484 61,385 9,780,027 97,800 4,761,378 4,761 11,907,212 -- --
Issuance of
Common Stock
upon exercise of
stock options
(unaudited)..... -- -- -- -- -- -- 244,550 245 8,942 -- --
Issuance of
Preferred Stock
upon exercise of
warrant
(unaudited)..... -- -- 82,569 826 -- -- -- -- 49,616 -- --
Issuance of
warrants for
bridge loan from
shareholders
(unaudited)..... -- -- -- -- -- -- -- -- 586,420 -- --
Deferred stock-
based
compensation
(unaudited)..... -- -- -- -- -- -- -- -- 471,900 -- (471,900)
Amortization of
stock-based
compensation
(unaudited)..... -- -- -- -- -- -- -- -- -- -- 24,781
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- ------ ----------- ------- ----------
Balances as of
September 30,
1999
(unaudited)..... 1,950,686 $19,507 6,221,053 $62,211 9,780,027 $97,800 5,005,928 $5,006 $13,024,090 $ -- $(447,119)
========= ======= ========= ======= ========= ======= ========= ====== =========== ======= ==========
<CAPTION>
Total
Shareholders'
Accumulated Equity
Deficit (Deficit)
------------- -------------
<S> <C> <C>
Balances as of
March 31, 1996.. $ (545,826) $ (192,999)
Issuance of
Series B
Convertible
Preferred Stock,
net of issuance
costs of
$35,883......... -- 3,714,359
Issuance of
warrants for the
purchase of
Series B
Convertible
Preferred
Stock........... -- 73,662
Issuance of
Common Stock
upon exercise of
stock options... -- --
Issuance of
Common Stock
upon exercise of
warrants........ -- 548
Net loss........ (2,068,981) (2,068,981)
------------- -------------
Balances as of
March 31, 1997.. (2,614,807) 1,526,589
Issuance of
warrants for the
purchase of
Convertible
Preferred
Stock........... -- 62,589
Issuance of
Common Stock
upon exercise of
stock options... -- 2,189
Net loss........ (2,549,812) (2,549,812)
------------- -------------
Balances as of
March 31, 1998.. (5,164,619) (958,445)
Issuance of
Series C
Convertible
Preferred Stock,
net of issuance
costs of
$39,191......... -- 7,856,307
Issuance of
Common Stock
upon exercise of
stock options... -- 23,184
Repurchase of
Common Stock.... -- (4,000)
Repayment of
Shareholder Note
................ -- 9,000
Net loss........ (5,246,949) (5,246,949)
------------- -------------
Balances as of
March 31, 1999.. (10,411,568) 1,679,097
Issuance of
Common Stock
upon exercise of
stock options
(unaudited)..... -- 9,187
Issuance of
Preferred Stock
upon exercise of
warrant
(unaudited)..... -- 50,442
Issuance of
warrants for
bridge loan from
shareholders
(unaudited)..... -- 586,420
Deferred stock-
based
compensation
(unaudited)..... -- --
Amortization of
stock-based
compensation
(unaudited)..... -- 24,781
Net loss
(unaudited)..... (4,644,526) (4,644,526)
------------- -------------
Balances as of
September 30,
1999
(unaudited)..... $(15,056,094) $(2,294,599)
============= =============
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
DIGITAL MARKET, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
September 30, Fiscal Years Ended March 31,
------------------------ -------------------------------------
1999 1998 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(4,644,526) $(2,964,433) $(5,246,949) $(2,549,812) $(2,068,981)
Adjustments to
reconcile net loss to
net cash used for
operating activities:
Depreciation and
amortization........ 215,774 162,880 370,244 138,366 72,000
Debt discount
amortization........ 254,115 -- 12,518 50,071 --
Amortization of
stock-based
compensation........ 24,781 -- -- -- --
Changes in operating
assets and
liabilities:
Accounts receivable.. 539,682 16,599 (860,524) 266,748 (284,758)
Prepaid expenses..... (53,500) (11,185) (28,832) (20,606) (15,360)
Other current
assets.............. (7,320) 2,521 2,660 -- --
Accounts payable..... 331,190 (157,508) (33,087) (233,260) 588,588
Accrued expenses..... 106,130 (40,308) 58,675 70,765 31,523
Deferred revenue..... 75,327 3,613 38,405 (29,640) 75,000
----------- ----------- ----------- ----------- -----------
Net cash used for
operating
activities......... (3,158,347) (2,987,821) (5,686,890) (2,307,368) (1,601,988)
----------- ----------- ----------- ----------- -----------
Cash flows used for
investing activities:
Capital expenditures.. (178,705) (306,011) (453,560) (367,915) (410,307)
Cash flows from
financing activities:
Proceeds from issuance
of debt.............. 2,442,939 277,870 411,924 1,576,421 --
Repayments of debt.... (911,567) (1,511,235) (1,423,063) -- --
Proceeds from issuance
of Preferred Stock,
net.................. 50,442 7,856,307 7,856,307 -- 3,327,781
Proceeds from issuance
of Common Stock...... 9,187 10,685 23,184 2,189 548
Proceeds from
shareholder note..... -- -- 9,000 -- --
Repurchase of Common
Stock................ -- -- (4,000) -- --
Proceeds from issuance
of Convertible Debt.. -- -- -- -- 256,578
Proceeds from issuance
of Preferred Stock
warrants............. -- -- -- -- 73,662
Proceeds from issuance
of bridge loan
warrants............. 586,420 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 2,177,421 6,633,627 6,873,352 1,578,610 3,658,569
----------- ----------- ----------- ----------- -----------
Net (decrease) increase
in cash and cash
equivalents........... (1,159,631) 3,339,795 732,902 (1,096,673) 1,646,274
Cash and cash
equivalents at
beginning of period... 1,287,974 555,072 555,072 1,651,745 5,471
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................ $ 128,343 $ 3,894,867 $ 1,287,974 $ 555,072 $ 1,651,745
=========== =========== =========== =========== ===========
Supplemental
disclosures of noncash
investing and
financing activities:
Exercise of Common
Stock options in
exchange for note
receivable........... $ -- $ -- $ -- $ -- $ 9,000
=========== =========== =========== =========== ===========
Debt converted to
Series B Preferred
Stock................ $ -- $ -- $ -- $ -- $ 386,578
=========== =========== =========== =========== ===========
Warrants issued in
connection with
bridge loan.......... $ -- $ -- $ -- $ 62,589 $ --
=========== =========== =========== =========== ===========
Deferred stock-based
compensation......... $ 471,900 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
DIGITAL MARKET, INC.
NOTES TO FINANCIAL STATEMENTS
1--Business
Digital Market, Inc. (the Company) was incorporated in California on
June 30, 1995. The Company provides Internet-based solutions for the sourcing
and procurement of production materials used by manufacturing companies in the
electronics industry.
2--Summary of Significant Accounting Policies
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
(b) Revenue Recognition
Contract revenues are recognized as milestones are achieved.
The Company recognizes software license and maintenance revenue in
accordance with the provisions of Statement of Position (SOP) No. 97-2,
Software Revenue Recognition, as amended. The Company adopted SOP 97-2 for
software transactions entered into beginning April 1, 1998. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple elements
such as software products, upgrades, enhancements, post-contract customer
support, installation, and training to be allocated to each element based on
the relative fair values of the elements. The fair value of the element must
be based on evidence that is specific to the vendor. If a vendor does not have
evidence of the fair value for all elements in a multiple-element arrangement,
all revenues from the arrangement are deferred until such evidence exists or
until all elements are delivered.
Revenues from software license agreements are recognized upon shipment of
the software when all of the following criteria have been met: persuasive
evidence of an arrangement exists; delivery has occurred; the fee is fixed or
determinable; and collectibility is probable. Revenues from maintenance
services are recognized ratably over the term of the support period.
In December 1998, the Accounting Standards Executive Committee issued SOP
98-9, Modification of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions, which requires recognition of revenue using the
"residual method" in multiple-element arrangements when fair value does not
exist for one or more of the delivered elements in the arrangement. Under the
"residual method," the total fair value of the undelivered elements is
deferred and subsequently recognized in accordance with SOP 97-2. The Company
does not expect a material change to its accounting for revenues as a result
of the fiscal 2000 adoption of the provisions of SOP 98-9.
Cost of revenue comprises the costs of providing maintenance services.
There are no significant direct costs related to software license revenue.
Costs associated with contract revenue are included in research and
development costs on the accompanying statements of operations.
(c) Cash Equivalents
Cash equivalents are comprised of money market funds. For purposes of the
statements of cash flows the Company considers all highly liquid investments
with remaining maturities of 90 days or less at the date of purchase to be
cash equivalents.
(d) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation,
which is calculated using the straight-line method over the estimated useful
life of the assets, generally three years.
F-34
<PAGE>
DIGITAL MARKET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(e) Capitalized Software
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility in the form of a working model has
been established. To date, the Company's software development has been
completed concurrent with the establishment of technological feasibility, and,
accordingly, no costs have been capitalized.
(f) Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
A valuation allowance is recorded to reduce deferred tax assets to an amount
for which realization is more likely than not.
(g) Concentration of Credit Risk
Financial instruments that potentially subject the Company to a significant
concentration of credit risk consist primarily of accounts receivable. The
Company maintains reserves for potential credit losses on accounts receivable,
but historically has not experienced any significant losses.
(h) Accounting for Stock-Based Compensation
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. Pursuant to Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, the Company discloses the pro forma effects of using the fair
value method of accounting for stock-based compensation arrangements.
(i) Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, bridge loan from shareholders and long-term debt, and accounts
payable approximate their respective fair values.
(j) Accounting for Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future 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. Assets
to be disposed of are reported at the lower of their carrying amount or fair
value less cost to sell.
3--Liquidity
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, during the six-month period ended September 30, 1999 and the years
ended March 31, 1999 and 1998, the Company incurred losses of $4,644,526,
$5,246,949 and $2,549,812, respectively, and has an
F-35
<PAGE>
DIGITAL MARKET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
accumulated deficit of $15,056,094 and $10,411,568 at September 30, 1999 and
March 31, 1999, respectively. These factors, among others, raise substantial
doubt about the company's ability to continue as a going concern for a
reasonable period of time.
The financial statements do not include adjustments relating to the
recoverability of recorded asset amounts or the amounts or classification of
liabilities that might be necessary should the Company be unable to continue
as a going concern.
The Company's continuation as a going concern is dependent on its ability
to raise additional capital and ultimately to achieve profitability. The
Company's management is working with banks and investors to raise additional
financing. There can be no assurance that management will be successful in its
endeavors. If the Company is unable to obtain additional financing and achieve
profitability, there can be no assurance that the Company can continue as a
going concern.
4--Property and Equipment
Property and equipment as of March 31, 1999 and 1998, and September 30,
1999, consisted of the following:
<TABLE>
<CAPTION>
As of As of March 30,
September 30, -------------------
1999 1999 1998
------------- ---------- --------
(unaudited)
<S> <C> <C> <C>
Computer equipment....................... $1,135,308 $ 970,406 $586,035
Furniture and fixtures................... 86,279 86,279 74,217
Software................................. 191,802 177,999 120,872
---------- ---------- --------
1,413,389 1,234,684 781,124
Less accumulated depreciation and
amortization............................ 808,974 593,200 222,956
---------- ---------- --------
$ 604,415 $ 641,484 $558,168
========== ========== ========
</TABLE>
5--Debt
(a) Bridge Loan
In July and August 1999, the Company received bridge loans from
shareholders. The loans bear interest at a rate of 7.75%. The loans are
convertible into shares of the Company's next preferred stock equity
financing. If not repaid or converted within 30 days, the loans include
provisions for the issuance of warrants to purchase shares of the Company's
next preferred stock financing. The number of such warrants increases every 30
days if the loan is not repaid or converted to preferred stock. The number of
shares, subject to warrants, will be determined based on the closing price of
the next preferred stock equity financing on the date of conversion. If not
repaid or converted before December 31, 1999 the aforementioned warrants
become exercisable into common shares. The number of shares of common stock
will be determined based on the common per share price as defined in the loan
agreements. The estimated $586,420 fair value of these warrants was recorded
as a debt discount and is being amortized as interest expense over the
estimated term of the bridge loan. The balance and accrued interest
outstanding on these loans as of September 30, 1999 is $1,697,054.
(b) Bank Debt
During fiscal 1999 and 1998, the Company entered into several debt
agreements with a bank. All of the outstanding debt under these agreements
bear interest at the prime rate (7.75% as of September 30, 1999) plus 0.5% or
1%. In addition, as collateral, the bank has a security interest in the
Company's intangible assets, including copyrights, patents, trademarks and all
intellectual property rights in computer software products.
F-36
<PAGE>
DIGITAL MARKET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The bank requires the Company to be in compliance with certain financial
covenants. As of September 30, 1999, the Company was in violation of several
of these covenants and has received a letter from the bank waiving the bank's
rights under the default provision through November 30, 1999.
The Company has a loan used for the purchase of equipment and furniture.
The balance outstanding on this loan as of March 31, 1999 and September 30,
1999, was $101,388 and $40,555 respectively and is being repaid in equal
monthly installments of $10,139 through February 2000.
The Company has an equipment line of credit that allowed for maximum
borrowings of $200,000. The Company drew against the line of credit until May
15, 1998, at which time the outstanding balance was
converted to a two-year term loan. Principal on the term loan is being repaid
in equal monthly installments of $3,712 through May 2000. As of March 31, 1999
and September 30, 1999, the outstanding balance of the loan was $51,970 and
$29,697.
In February 1999, the Company obtained a nonrevolving line of credit that
allows for maximum borrowings of $750,000. The Company may draw against the
line of credit until May 15, 1999, at which time, the outstanding balance will
be converted into a 21-month term loan. Principal on the term loan will be
payable in 21 equal monthly installments beginning June 15, 1999. As of March
31, 1999 and September 30, 1999, the Company had an outstanding balance of
$411,924 and $333,463.
The $98,077 long-term debt, less current maturities as presented in the
accompanying September 30, 1999 balance sheet is due during the Company's
fiscal year ending March 2001.
(c) Convertible Promissory Note
In September 1999, the Company entered into a convertible promissory note
with Agile Software Corporation for up to $2,000,000. The note is convertible
into share of Series C preferred stock at a conversion price of $.81 per
share. The note bears interest at a rate of 7.0%. The note shall be due and
payable on the first to occur of (i) September 15, 2000, (ii) the date of
closing of a third party acquisition of the Company or (iii) the date of
closing of an equity financing by the Company. The balance outstanding on this
note as of September 30, 1999 is $250,000 and this amount is included in
current maturities of long-term debt.
6--Shareholders' Equity (Deficit)
(a) Convertible Preferred Stock
The rights, preferences, and privileges of the holders of Series A, B, and
C convertible preferred stock are as follows:
. The holders of Series A, B, and C convertible preferred stock are
entitled to noncumulative annual dividends of $.01825, $.048872, and
$.064584 per share, respectively, if and when declared by the Company's
Board of Directors.
. Shares of Series A, B, and C convertible preferred stock have a
liquidation preference of $.1825, $.6109, and $.8073 per share,
respectively, plus any declared and unpaid dividends.
. Upon liquidation of the Company, any assets remaining after payment of
the liquidation preference amounts to the holders of the convertible
preferred stock will be distributed equally among all the holders of
Series A, B, and C convertible preferred stock and common stock on an "as
if converted" basis. Total distributions to the holders of Series A, B,
and C convertible preferred stock are limited to $.365, $1.2218, and
$1.6146 per share, respectively.
F-37
<PAGE>
DIGITAL MARKET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
. Each share of convertible preferred stock is convertible at the option of
the holder into one share of common stock, subject to certain
antidilutive adjustments.
. Shares of convertible preferred stock automatically convert to common
stock upon the consent of at least two-thirds of the outstanding shares
of preferred stock or upon an initial public offering.
. The holders of Series A, B, and C convertible preferred stock vote
equally with the shareholders of common stock on an "as if converted"
basis.
(b) Warrants
In connection with the issuance of convertible promissory notes in fiscal
1996, the Company issued warrants for the purchase of 517,860 shares of common
stock. These warrants expire on January 31, 2000, and have an exercise price
of $.02 per share. As of March 31, 1999 and September 30, 1999, 490,460 and
330,160 warrants are exercisable and outstanding, respectively. The fair value
of these warrants, as determined using the Black-Scholes option pricing model,
was not significant to the accompanying financial statements.
In connection with the issuance of Series B convertible preferred stock in
1997, the Company issued warrants to purchase 1,227,697 shares of Series B
convertible preferred stock. The warrants expire on August 26, 2001, and have
an exercise price of $.6109 per share. As of September 30, 1999, 1,145,128
Series B convertible preferred stock warrants are exercisable and outstanding.
The fair value of these warrants, as determined using the Black-Scholes option
pricing model, was not significant to the accompanying financial statements.
In connection with a bridge loan issued in fiscal 1998, the Company issued
warrants to purchase 110,000 shares of Series C preferred stock with an
exercise price of $.75 per share. These warrants are exercisable upon
issuance. The Company has recorded the fair value of these warrants of
$62,589, determined using the Black-Scholes option pricing model, as an
increase to paid-in capital and as a loan discount. The loan discount was
amortized over the term of the bridge loan.
(c) Option Plan
The Company's 1995 Stock Option Plan (the Plan) provides for "incentive"
stock options, defined by the Internal Revenue Code of 1986 as amended (the
Code), to be granted to employees, at an exercise price not less than 100% of
the fair value, at the grant date, as determined by the Board of Directors.
The Plan also provides for "nonqualified" stock options, at an exercise price
of not less than 85% of the fair value at the grant date, to be issued to
nonemployee officers, directors, and consultants. Options generally have a
term of 10 years and vest over a period of 48 months.
(d) Accounting for Stock-Based Compensation
The Company has elected to use the intrinsic value-based method to account
for the Plan. Under APB Opinion No. 25, the Company has recorded no
compensation costs related to its stock option plan since inception, because
the exercise price of each option granted has equaled or exceeded the fair
value of the underlying common stock as of the grant date for each stock
option. With respect to the options granted between April 1, 1999 and
September 30, 1999, the Company recorded deferred stock compensation of
$471,900 for the difference, at the grant date, between the exercise price of
each stock option granted and the fair value of the underlying common stock.
This amount is being amortized over the vesting period, generally four years.
Pursuant to SFAS No. 123, the Company is required to disclose the pro forma
effect on net loss as if the Company had elected to use the fair value method
to account for the Plan. Had compensation cost for the Plan been determined
consistent with the fair value method described in SFAS No. 123, the Company's
pro forma net loss for the years ended March 31, 1999 and 1998, and for the
six month ended September 30, 1999 would have increased by $8,000, $1,000 and
$50,000, respectively, from the respective net loss amounts reported in the
accompanying statements of operations.
F-38
<PAGE>
DIGITAL MARKET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of options granted was estimated on the date of grant using
the minimum value method with the following weighted-average assumptions:
risk-free interest rate of approximately 5.5%; expected life of five years;
and no dividends.
A summary of the status of the Plan is presented below:
<TABLE>
<CAPTION>
Options
Outstanding
-------------------
Weighted
Options Average
Available Exercise
for Grant Shares Price
---------- --------- --------
<S> <C> <C> <C>
Balances as of March 31, 1997.............. 637,333 1,262,667 $.05
Granted.................................. (292,000) 292,000 .07
Exercised................................ -- (56,250) .04
Canceled................................. 127,250 (127,250) .07
---------- ---------
Balances as of March 31, 1998.............. 472,583 1,371,167 .05
Authorized............................... 1,000,000 -- --
Granted.................................. (1,657,875) 1,657,875 .10
Exercised................................ -- (561,061) .04
Canceled................................. 731,731 (731,731) .08
---------- ---------
Balances as of March 31, 1999.............. 546,439 1,736,250 .09
Granted.................................. (246,000) 246,000 .10
Exercised................................ -- (244,550) .06
Canceled................................. 216,500 (216,500) .10
---------- ---------
Balances as of September 30, 1999.......... 516,939 1,521,200 .09
========== =========
Options exercisable as of March 31, 1999... 263,875 .06
Options exercisable as of September 30,
1999...................................... 420,742 .07
=========
Weighted-average fair value of options
granted during the year/period ended:
March 31, 1998........................... .02
March 31, 1999........................... .03
September 30, 1999....................... 1.89
</TABLE>
The following table summarizes information about stock options outstanding
as of March 31, 1999:
<TABLE>
<CAPTION>
Options outstanding
---------------------------------
Weighted-Average
Number Remaining Contractual Options
Exercise Price Outstanding Life (Years) Exercisable
-------------- ----------- --------------------- -----------
<S> <C> <C> <C>
$.02........................... 125,000 6.95 81,875
.07........................... 284,000 8.10 166,625
.10........................... 1,327,250 9.52 15,375
--------- -------
1,736,250 263,875
========= =======
</TABLE>
F-39
<PAGE>
DIGITAL MARKET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
as of September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------
Weighted-Average
Number Remaining Contractual Options
Exercise Price Outstanding Life (Years) Exercisable
-------------- ----------- --------------------- -----------
<S> <C> <C> <C>
$.02........................... 70,100 6.70 76,875
.07........................... 244,000 7.64 154,500
.10........................... 1,207,100 9.20 189,367
--------- -------
1,521,200 420,742
========= =======
</TABLE>
7--Income Taxes
The differences between the income tax expense computed at the federal
statutory rate and the Company's the Company's tax provision for all periods
presented primarily related to net operating losses not benefited.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets presented below:
<TABLE>
<CAPTION>
As of As of March 31,
September 30, ----------------------
1999 1999 1998
------------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.... $5,876,000 $4,233,000 $2,211,000
Research credit carryforwards....... 475,000 341,000 63,000
Reserves and accruals............... 46,000 8,000 25,000
Fixed assets........................ -- -- 2,000
---------- ---------- ----------
Total gross deferred tax assets... 6,397,000 4,582,000 2,301,000
Valuation allowance................... (6,001,000) (4,266,000) (2,135,000)
Deferred tax liability:
State tax........................... (370,000) (282,000) (166,000)
Fixed assets........................ (26,000) (34,000) --
---------- ---------- ----------
Total deferred tax liabilities.... (396,000) (316,000) (166,000)
---------- ---------- ----------
Net deferred tax assets........... $ -- $ -- $ --
========== ========== ==========
</TABLE>
In light of the Company's recent history of operating losses, the Company
has provided a valuation allowance for all of its deferred tax assets as it is
presently unable to conclude that it is more likely than not that the deferred
tax assets will be realized.
As of September 30, 1999, the Company has net operating loss carryforwards
for federal and California income tax purposes of approximately $14,700,000
and $9,931,000, respectively. In addition, the Company had federal and
California research and development credit carryforwards of approximately
$269,000 and $206,000, respectively. The Company's federal net operating loss
and research and development credit carryforwards will expire in the years
2011 through 2019, if not utilized. The Company's California net operating
loss carryforwards will expire in the year 2004. The California research and
development credit can be carried forward indefinitely.
F-40
<PAGE>
DIGITAL MARKET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Federal and California tax laws impose substantial restrictions on the
utilization of net operating loss and tax credit carryforwards in the event of
an "ownership change" as defined in Internal Revenue Code Section 382. If the
Company has an ownership change, the Company's ability to utilize the above
mentioned carryforwards could be significantly reduced.
8--Research and Development Arrangement
In November 1996, the Company signed an agreement with the Defense Advanced
Research Project Agency (DARPA) for the development of an on-line procurement
system for electronic components. The contract represents a cost-reimbursement
arrangement whereby DARPA will reimburse the Company for allowable research
and development costs. Total development costs under the arrangement were
approximately $6,800,000 with allowable reimbursed expenses approximating
$3,000,000. Costs reimbursed in fiscal 1999, 1998 and 1997 and recognized as
revenue in the accompanying statements of operations were $850,032, $1,600,000
and $550,000 respectively. Costs incurred by the Company, under this
arrangement are included in research and development costs.
The agreement was terminated in July 1999. Subsequent to March 31, 1999, no
revenue was recognized or costs incurred, under this arrangement.
9--Segment Information
The Company has one operating segment. The Company's chief operating
decision maker, the president and chief executive officer, evaluates
performance, makes operating decisions and allocates resources based on
financial data consistent with the presentation in the accompanying financial
statements. All operations and assets are within the United States of America.
10--Lease Commitments
The Company leases certain facilities and office equipment under
noncancelable operating leases. Rent expense for the years ended March 31,
1999 and 1998, and for the six month periods ended September 30, 1999 and 1998
was approximately $204,000, $112,000, $101,771, and $92,677, respectively.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year Ending
March 31,
-----------
<S> <C>
2000............................................................. $180,800
2001............................................................. 60,800
--------
Future minimum lease payments..................................... $241,600
========
</TABLE>
11--Subsequent Event
On October 10, 1999, the Company entered into an Agreement and Plan of
Reorganization (the Agreement) with Agile Software Corporation. Agile's common
stock is publicly traded and is listed on the Nasdaq Stock Market under the
symbol AGIL. Under the Agreement, the Company will merge with and into a
wholly-owned subsidiary of Agile, subject among other things to shareholder
approval of the Agreement and the Merger. Subject to certain escrow and
indemnity provisions contained in the Agreement, each shareholder of the
Company will be entitled to receive his pro rata portion of (i) $20,000,000 in
cash and (ii) Agile common stock with an aggregate value of $52,000,000. In
addition, the Agreement provides that all outstanding warrants to purchase
capital stock of the Company will be canceled immediately prior to the merger
in exchange for an amount of cash and a number of shares of Agile common stock
equal to the amount of cash and stock such holder otherwise would have been
entitled to receive had such holder exercised his warrants on a net exercise
basis immediately prior to Merger. All outstanding options of the Company will
be assumed by Agile.
F-41
<PAGE>
A lawsuit was filed against the Company by PolyDyne Development Corporation
(PolyDyne) on July 13, 1999, in Travis County, Texas. This lawsuit is now
pending in Federal District Court. In this lawsuit, Polydyne seeks affirmative
relief against the Company arising from an alleged misappropriation of trade
secrets by the Company.
After consideration of the nature of the claims, the Company does not
believe that resolution of the lawsuit will harm their business. However, due
to the inherently uncertain nature of the litigation, the Company cannot
determine the possible loss, if any, that they may ultimately incur either in
the context of the trial or as a result of a negotiated settlement. The
defense of the litigation, regardless of the outcome, could result in the
expenditure of significant financial and management resources of the Company.
F-42
<PAGE>
[LOGO OF AGILE SOFTWARE APPEARS HERE]
<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 to be paid by Agile, in connection with
this offering. All amounts shown are estimates except for the registration fee
and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 95,311
NASD filing fee.................................................. 34,785
Nasdaq National Market listing fee............................... 45,000
Blue sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 100,000
Legal fees and expenses.......................................... 100,000
Accounting fees and expenses..................................... 250,000
Miscellaneous expenses........................................... 64,904
--------
Total.......................................................... $700,000
========
</TABLE>
Item 14. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to officers,
directors and other corporate agents under certain circumstances and subject
to certain limitations. Our certificate of incorporation and bylaws provide
that we shall indemnify our directors, officers, employees and agents to the
full extent permitted by Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. In addition, we intend to enter into separate indemnification
agreements with our directors, officers and certain employees which would
require us, among other things, to indemnify them against certain liabilities
which may arise by reason of their status as directors, officers or certain
other employees. We also intend to maintain director and officer liability
insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreements that we
have entered into with our officers and directors may be sufficiently broad to
permit indemnification of our officers and directors for liabilities
(including reimbursement of expenses incurred) arising under the Securities
Act.
We have a policy of directors' and officers' liability insurance that
insures our directors and officers against the cost of defense, settlement or
payment of a judgment under certain circumstances.
The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the underwriters of
Agile and our officers and directors for certain liabilities arising under the
Securities Act, or otherwise.
Item 15. Recent Sales of Unregistered Securities
(a) Since May 1, 1996, we have sold and issued the following unregistered
securities:
(1) From inception to October 31, 1999, we issued options to purchase an
aggregate of 4,692,950 shares of common stock under the 1995 Stock Option
Plan at exercise prices of $.015 to $65.50 per share, of which options to
purchase 2,582,813 shares have been exercised, options to purchase 443,369
have been cancelled or repurchased, and options to purchase 1,834,525 are
available for grant.
II-1
<PAGE>
(2) From inception to April 30, 1999, we issued options to purchase an
aggregate of 183,500 shares of common stock under our Restricted Stock
Purchase Plan at exercise prices of $.60 to $2.65 per share, of which
options to purchase 183,500 shares have been exercised.
(3) On January 16, 1996, we issued and sold 3,500,000 shares of Series C
Preferred Stock to 5 private investors at a price of $1.16 per share for a
total offering of $4,060,000.
(4) On October 31, 1996, we issued and sold 75,000 shares of Series C
Preferred Stock to one private investor at a price of $1.16 per share for a
total price of $87,000.
(5) On February 16, 1997, in connection with an equipment lease, we
issued a warrant to an equipment lessor to purchase 17,828 shares of Series
D preferred stock at an exercise price of $2.964 per share.
(6) On February 16, 1997, we issued and sold an aggregate of 1,350,000
shares of Series D Preferred Stock to 10 private investors at a price of
$2.964 per share for a total offering price of $4,001,400.
(7) On May 1, 1997, we issued 6,750 shares of Common Stock to our Chief
Executive Officer as a bonus in lieu of cash.
(8) On November 14, 1997, we issued and sold an aggregate of 1,000,000
shares of Series E Preferred Stock to 14 private investors at a price of
$5.00 per share for a total offering price of $5,000,000.
(9) On November 14, 1997, in connection with an equipment lease, we
issued a warrant to an equipment lessor to purchase 4,049 shares of Series
D preferred stock at an exercise price of $2.964 per share.
(10) On June 4, 1998, we issued and sold an aggregate of 1,777,778
shares of Series F Preferred Stock to 24 private investors at a price of
$6.75 per share for a total offering price of $12,000,001.50.
(11) On February 8, 1999, in connection with an equipment lease, we
issued a warrant to an equipment lessor to purchase an aggregate of 60,000
shares of Series F preferred stock at an exercise price of $6.75 per share.
(12) On August 23, 1999, we sold 256,016 shares of common stock to Dell
Computer Corporation, 256,016 shares of common stock to Flextronics
International Ltd. and 153,609 shares of common stock to Marshall
Industries, concurrently with our initial public offering, at $13.02 per
share.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
For additional information concerning these equity investment transactions,
please see the section entitled "Certain Transactions" in the prospectus.
The issuances described in Items 15(a)(3) through 15(a)(6) and 15(a)(8)
through 15(a)(12) were deemed exempt from registration under the Securities
Act in reliance on Section 4(2) of the Securities Act as transactions by an
issuer not involving a public offering. Certain issuances described in Item
15(a)(1), 15(a)(2) and 15(a)(7) were deemed exempt from registration under the
Securities Act in reliance on Section 4(2) or Rule 701 promulgated thereunder
as transactions pursuant to compensatory benefit plans and contracts relating
to compensation. The recipients of securities in each such transaction
represented their intention 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 were affixed to the share certificates and other
instruments issued in such transactions. All recipients either received
adequate information about us or had access, through employment or other
relationships, to such information.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger dated as of August 17, 1999 by and
between Agile Software Corporation and Delaware Agile Software
Corporation.(2)
2.2 Agreement and Plan of Reorganization dated as of October 10, 1999,
by and between Agile Software Corporation, Alaska Acquisition
Corporation and Digital Market, Inc.
3.1 Certificate of Incorporation of Agile Software Corporation, as
amended to date.(1)
3.2 Certificate of Elimination and Certificate of Amendment.(1)
3.3 Bylaws of Agile Software Corporation.(1)
4.1 Specimen Common Stock Certificate.(1)
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
10.1 Amended and Restated 1995 Stock Option Plan.(1)
10.2 1999 Employee Stock Purchase Plan.(1)
10.3 Form of Indemnity Agreement between Agile Software Corporation and
its directors and officers.(1)
10.4 Almaden Financial Plaza Office Lease dated May 30, 1996 between
North Block Partnership and Agile Software Corporation, as
amended.(1)
10.5 Subordinated Loan and Security Agreement dated February 8, 1999
between Comdisco, Inc. and Agile Software Corporation.(1)
10.6 Revolving Credit Loan and Security Agreement (Accounts and
Inventory) dated December 11, 1996 between Comerica Bank--
California and Agile Software Corporation as modified.(1)
10.7 Master Lease Agreement dated September 18, 1995 between Comdisco,
Inc. and Agile Software Corporation, and associated equipment
schedules.(1)
10.8 Fifth Amended and Restated Investors' Rights Agreement dated June 4,
1998 by and among Agile Software Corporation and the investors
listed on Schedule A thereto.(1)
10.9 Series A Preferred Stock Purchase Agreement.(1)
10.10 Series B Preferred Stock Purchase Agreement.(1)
10.11 Series C Preferred Stock Purchase Agreement.(1)
10.12 Series D Preferred Stock Purchase Agreement.(1)
10.13 Series E Preferred Stock Purchase Agreement.(1)
10.14 Series F Preferred Stock Purchase Agreement.(1)
10.15 Sixth Amended and Restated Investor Rights Agreement dated as August
16, 1999 by and among Agile Software Corporation and the investors
listed on Schedule A thereto.(2)
10.16 Office Lease dated as of November 5, 1999 by and between 55 Almaden
Boulevard Limited Partnership and Agile Software Corporation.
21.1 Subsidiaries of Agile Software Corporation.(1)
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of KPMG LLP, Independent Accountants.
23.3 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit
5.1).
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule (EDGAR filed version only).
</TABLE>
- --------
(1)Incorporated by reference herein to Agile's Registration Statement on Form
S-1 (File No. 333-81387).
(2) Incorporated by reference herein to Agile's Quarterly Report on Form 10-Q
for the quarterly period ended July 31, 1999.
II-3
<PAGE>
(b) Financial Statement Schedules
All financial statement schedules 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
We hereby undertake 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 by us for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the provisions described in Item 14 above or otherwise, we
have been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by a director, officer, or controlling person of
ours 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, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the 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, Agile has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on the 18th day of November, 1999.
Agile Software Corporation
/s/ Bryan D. Stolle
By: _________________________________
Bryan D. Stolle
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Bryan D. Stolle and Thomas P.
Shanahan, and each of them acting individually, as his or her true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him or
her in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments or any abbreviated
registration statement and any amendments thereto filed pursuant to Rule
462(b) increasing the number of securities for which registration is sought),
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, with full power of each to act alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully for all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his, her or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bryan D. Stolle Chief Executive Officer, November 18, 1999
____________________________________ President and Director
Bryan D. Stolle (Principal Executive
Officer)
/s/ Thomas P. Shanahan Chief Financial Officer, November 18, 1999
____________________________________ Secretary and Director
Thomas P. Shanahan (Principal Financial and
Accounting Officer)
/s/ Michael Moritz Director November 18, 1999
____________________________________
Michael Moritz
/s/ James L. Patterson Director November 18, 1999
____________________________________
James L. Patterson
/s/ Nancy J. Schoendorf Director November 18, 1999
____________________________________
Nancy J. Schoendorf
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger dated as of August 17, 1999 by and
between Agile Software Corporation and Delaware Agile Software
Corporation.(2)
2.2 Agreement and Plan of Reorganization dated as of October 10, 1999, by
and between Agile Software Corporation, Alaska Acquisition
Corporation and Digital Market, Inc.
3.1 Certificate of Incorporation of Agile Software Corporation, as amended
to date.(1)
3.2 Form of Certificate of Elimination and Certificate of Amendment.(1)
3.3 Bylaws of Agile Software Corporation.(1)
4.1 Specimen Common Stock Certificate.(1)
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
10.1 Amended and Restated 1995 Stock Option Plan.(1)
10.2 1999 Employee Stock Purchase Plan.(1)
10.3 Form of Indemnity Agreement between Agile Software Corporation and its
directors and officers.(1)
10.4 Almaden Financial Plaza Office Lease dated May 30, 1996 between North
Block Partnership and Agile Software Corporation, as amended.(1)
10.5 Subordinated Loan and Security Agreement dated February 8, 1999
between Comdisco, Inc. and Agile Software Corporation.(1)
10.6 Revolving Credit Loan and Security Agreement (Accounts and Inventory)
dated December 11, 1996 between Comerica Bank--California and Agile
Software Corporation as modified.(1)
10.7 Master Lease Agreement dated September 18, 1995 between Comdisco, Inc.
and Agile Software Corporation, and associated equipment
schedules.(1)
10.8 Fifth Amended and Restated Investors' Rights Agreement dated June 4,
1998 by and among Agile Software Corporation and the investors listed
on Schedule A thereto.(1)
10.9 Series A Preferred Stock Purchase Agreement.(1)
10.10 Series B Preferred Stock Purchase Agreement.(1)
10.11 Series C Preferred Stock Purchase Agreement.(1)
10.12 Series D Preferred Stock Purchase Agreement.(1)
10.13 Series E Preferred Stock Purchase Agreement.(1)
10.14 Series F Preferred Stock Purchase Agreement.(1)
10.15 Sixth Amended and Restated Investor Rights Agreement dated as August
16, 1999 by and among Agile Software Corporation and the investors
listed on Schedule A thereto.(2)
10.16 Office Lease dated as of November 5, 1999 by and between 55 Almaden
Boulevard Limited Partnership and Agile Software Corporation.
21.1 Subsidiaries of Agile Software Corporation.(1)
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of KPMG LLP, Independent Accountants.
23.3 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule (EDGAR filed version only).
</TABLE>
- --------
(1) Incorporated by reference herein to Agile's Registration Statement on Form
S-1 (File No. 333-8137)
(2) Incorporated by reference herein to Agile's Quarterly Report on Form 10-Q
for the quarterly period ended July 31, 1999.
<PAGE>
Exhibit 1.1
2,250,000 Shares
AGILE SOFTWARE CORPORATION
COMMON STOCK, $.001 PAR VALUE
UNDERWRITING AGREEMENT
November __, 1999
<PAGE>
November __, 1999
Morgan Stanley & Co. Incorporated
Deutsche Bank Securities Inc.
Hambrecht & Quist LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Agile Software Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule II
hereto (the "Underwriters"), and certain stockholders of the Company named in
Schedule I hereto (the "Selling Stockholders") severally propose to sell to the
several Underwriters, an aggregate of 2,250,000 shares of the Company's Common
Stock, $.001 par value (the "Firm Shares"), of which 1,250,000 shares are to be
issued and sold by the Company and 1,000,000 shares are to be sold by the
Selling Stockholders, each Selling Stockholder selling the amount set forth
opposite such Selling Stockholder's name in Schedule I hereto.
The Company also proposes to issue and sell to the several
Underwriters not more than an additional 337,500 shares of its Common Stock,
$.001 par value (the "Additional Shares") if and to the extent that you, as
Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 4 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of Common
Stock, $.001 par value, of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "Common Stock."
The Company and the Selling Stockholders are hereinafter sometimes collectively
referred to as the "Sellers."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
2
<PAGE>
1. Representations and Warranties. The Company represents and
warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities or claims. No subsidiary of the Company
is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X
under the Securities Act.
3
<PAGE>
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be sold by
the Selling Stockholders) outstanding prior to the issuance of the Shares
have been duly authorized and are validly issued, fully paid and non-
assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
4
<PAGE>
(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(p) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement, except such as have been validly waived.
(q) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Company and
its subsidiaries have not incurred any material liability or obligations,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (2) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (3) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its subsidiaries, except in each case as described in the
Prospectus.
5
<PAGE>
(s) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries, in each
case except as described in the Prospectus.
(t) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would have a material adverse
affect on the Company and its subsidiaries, taken as a whole.
(u) No material labor dispute with the employees of the Company or any
of its subsidiaries exists, except as described in the Prospectus, or, to
the knowledge of the Company, is imminent; and the Company is not aware of
any existing, threatened or imminent labor disturbance by the employees of
any its principal suppliers, manufacturers or contractors that could
reasonably be expected to have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(v) The Company and its subsidiaries are insured by the insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any of its subsidiaries has been
refused any insurance coverage sought or applied for; and neither the
Company nor any of its subsidiaries has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole, except as described in the Prospectus.
(w) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
business, and neither the Company nor any of its subsidiaries has received
any notice of proceedings relating to the revocation or modification of any
such certificate, authorization or permit which, singly or in the
6
<PAGE>
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the Company and its subsidiaries,
taken as a whole, except as described in the Prospectus.
(x) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's general
or specific authorizations; (2) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (3)
access to assets is permitted only in accordance with management's general
or specific authorization; and (4) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(y) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations of
the Company or any of its subsidiaries will be affected by the Year 2000
Problem (that is, any significant risk that computer hardware or software
applications used by the Company and its subsidiaries will not, in the case
of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000); as a result of such review, (i) the Company has
no reason to believe, and does not believe, that (A) there are any issues
related to the Company's preparedness to address the Year 2000 Problem that
are of a character required to be described or referred to in the
Registration Statement or Prospectus which have not been accurately
described in the Registration Statement or Prospectus and (B) the Year 2000
Problem will have a material adverse effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, or result in any material loss or
interference with the business or operations of the Company and its
subsidiaries, taken as a whole; and (ii) the Company reasonably believes,
after due inquiry, that the suppliers, vendors, customers or other material
third parties used or served by the Company and such subsidiaries are
addressing or will address the Year 2000 Problem in a timely manner, except
to the extent that a failure to address the Year 2000 Problem by any
supplier, vendor, customer or material third party would not have a
material adverse effect on the condition, financial or otherwise, or on the
earnings, business or operations of the Company and its subsidiaries, taken
as a whole.
(z) The section of the Prospectus entitled "Shares Eligible for Future
Sale" properly describes all agreements (collectively, the "Lock-up
Agreements") that restrict the holders thereof from selling, making any
short sale of, granting any option for the purchase of, or otherwise
transferring or disposing of, any of such shares of Common Stock, or any
such securities convertible into or exercisable or exchangeable for Common
Stock, for the respective periods of time designated in such Lock-up
Agreements, without the prior written consent of the Company or Morgan
Stanley & Co. Incorporated, and all of such Lock-up Agreements are valid
and binding.
7
<PAGE>
(aa) The Common Stock has been approved for listing on the Nasdaq
National Market.
(bb) PricewaterhouseCoopers LLP are independent public accountants
with respect to the Company and its subsidiaries as required by the
Securities Act.
(cc) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with related schedules and notes, present fairly the
consolidated financial position, results of operations and changes in
financial position of the Company and its subsidiaries on the basis stated
therein at the respective dates or for the respective periods to which they
apply; such statements and related schedules and notes have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein; the
supporting schedules, if any, included in the Registration Statement
present fairly in accordance with generally accepted accounting principles
the information required to be stated therein; and the other financial and
statistical information and data set forth in the Registration Statement
and Prospectus (and any amendment or supplement thereto) are, in all
material respects, accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company.
2. Representations and Warranties of the Selling Stockholders.
(a) Each of the Selling Stockholders, including the Insiders (defined
below), severally and not jointly, represents, warrants and covenants to
and agrees with each of the Underwriters that:
(i) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.
(ii) The execution and delivery by such Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations
under, this Agreement, the Transmittal Letter and Custodian Agreement
signed by such Selling Stockholder and Boston EquiServe, as Custodian,
relating to the deposit of the Shares to be sold by such Selling
Stockholder (the "Custody Agreement") and the Irrevocable Power of
Attorney of Selling Stockholder appointing certain individuals as such
Selling Stockholder's attorneys-in-fact to the extent set forth
therein, relating to the transactions contemplated hereby and by the
Registration Statement (the "Power of Attorney") will not contravene
any provision of applicable law, or the certificate of incorporation
or by-laws of such Selling Stockholder (if such Selling Stockholder is
a corporation), or any agreement or other instrument to which such
Selling Stockholder is a party (or by which any property or assets of
such Selling Stockholder is bound or to which any property or assets
of such Selling Stockholder is subject) or any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over such Selling
8
<PAGE>
Stockholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by such Selling Stockholder of its obligations under
this Agreement or the Custody Agreement or Power of Attorney of such
Selling Stockholder, except such as may be required by the securities
or Blue Sky laws of the various states in connection with the offer
and sale of the Shares.
(iii) Such Selling Stockholder has, and on the Closing Date will
have, good and marketable title to the Shares to be sold by such
Selling Stockholder and the full legal right and power (including, if
such Selling Stockholder is a corporation or similar entity, corporate
power), and all authorization and approval required by law, to enter
into this Agreement, the Custody Agreement and the Power of Attorney
and to sell, transfer and deliver the Shares to be sold by such
Selling Stockholder.
(iv) The Shares to be sold by such Selling Stockholder pursuant
to this Agreement have been fully paid.
(v) The Custody Agreement and the Power of Attorney have been
duly authorized, executed and delivered by such Selling Stockholder
and are valid and binding agreements of such Selling Stockholder.
(vi) Delivery of the Shares to be sold by such Selling
Stockholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances.
(vii) All information furnished in writing by the Selling
Stockholder for use in the Registration Statement is, and on the
Closing Date will be, true, correct, and complete, and does not, and
on the Closing Date will not, contain any untrue statement of a
material fact or omit to state any material fact necessary to make
such information not misleading, and all information furnished in
writing by the Selling Stockholder for use in the Prospectus is, and
on the Closing Date will be, true, correct, and complete, and does
not, and on the Closing Date will not, contain any untrue statement or
a material fact or omit to state any materials fact necessary to make
such information not misleading in the light of the circumstances
under which they were made.
(viii) the section of the Registration Statement entitled
"Principal and Selling Stockholders," when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(ix) There are no shares of Common Stock that are beneficially
owned (within the meaning of Rule 13d-3 of the Securities Exchange Act
of 1934, as
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amended (the "Exchange Act")) by such Selling Stockholder or by an
affiliate (within the meaning of Rule 12b-2 of the Exchange Act) of
such Selling Stockholder that are not subject to an agreement
restricting the transfer of such shares during the period between the
date of this Agreement and 90 days after the date of the Prospectus.
(x) The sale of the Shares by such Selling Stockholder pursuant
to this Agreement is not prompted by any material information
concerning the Company or any of its subsidiaries which is not set
forth in the Registration Statement or the documents incorporated by
reference therein.
(b) In addition to the representations and warranties set forth in
Section 2(a) above, Scott R. Hammond represents, warrants and agrees with
each of the Underwriters that the financial statements of Digital Market,
Inc., a California corporation ("DMI"), included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto),
together with related schedules and notes, present fairly the financial
position, results of operations and changes in financial position of DMI on
the basis stated therein at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and
the other financial and statistical information and data set forth in the
Registration Statement and Prospectus (and any amendment or supplement
thereto) regarding DMI are, in all material respects, accurately presented
and prepared on a basis consistent with such financial statements and the
books and records of DMI.
3. Additional Representations and Warranties of the Insider Selling
Stockholders. Each of the Selling Stockholders that is an Insider (as defined
below) represents and warrants to and agrees with each of the Underwriters that
such Selling Stockholder has reviewed the Company's representations and
warranties contained in Section 1 of this Agreement and, based on such review
and such Selling Stockholder's knowledge of the Company's industry, the Company
and its business (but without further investigation), such Selling Stockholder
does not have knowledge that, and nothing has come to such Selling Stockholder's
attention that would give such Selling Stockholder reason to believe that any of
such Company representations and warranties are not true and correct. "Insider"
shall mean the individual Selling Stockholders that are officers and/or
directors of the Company and individual Selling Stockholders that are selling
Shares that are beneficially owned (within the meaning of Rule 13d-3 of the
Exchange Act) by an officer and/or director of the Company.
4. Agreements to Sell and Purchase. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated,
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agrees, severally and not jointly, to purchase from such Seller the respective
numbers of Firm Shares set forth in Schedule II hereto opposite its name at
$____ a share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell to the Underwriters the Additional Shares, and the Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 337,500
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule II hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder; (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof as described in the
Registration Statement or of which the Underwriters have been advised in
writing; (C) the grant of options to purchase Common Stock pursuant to the 1995
Stock Option Plan; and (D) the issuance by the Company of shares of Common Stock
pursuant to the 1999 Employee Stock Purchase Plan. In addition, each Selling
Stockholder agrees that, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the Underwriters, it will not, during the period
ending 90 days after the date of the Prospectus, initiate any demand for the
registration of any shares of Common Stock or any security convertible into or
exchangeable for Common Stock.
5. Terms of Public Offering. The Sellers are advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public
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initially at $____ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $____ a share, to any
Underwriter or to certain other dealers
6. Payment and Delivery. Payment for the Firm Shares to be sold by
each Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on November __, 1999, or at such other time on the same or such other
date, not later than November __, 1999, as shall be designated in writing by
you. The time and date of such payment are hereinafter referred to as the
"Closing Date."
Payment for any Additional Shares shall be made to such Seller in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 4 or at such other time on the same or on such other
date, in any event not later than November __, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to
as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
7. Conditions to the Underwriters' Obligations. The obligations of
the Sellers to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 1:30 p.m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally
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recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 7(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the Selling Stockholders
(or by their attorney-in-fact on their behalf), to the effect that the
representations and warranties of the Selling Stockholders (and, in the
case of the Selling Stockholders that are Insiders, that the additional
representations and warranties of the Selling Stockholders that are
Insiders) contained in this Agreement are true and correct as of the
Closing Date and that each Selling Stockholder has complied with all of the
agreements and satisfied all of the conditions on its part to be performed
or satisfied hereunder on or before the Closing Date.
(d) The Underwriters shall have received on the Closing Date an
opinion of Gray Cary Ware & Freidenrich LLP, outside counsel for the
Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would
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<PAGE>
not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock (including the Shares to be
sold by the Selling Stockholders) outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully
paid and non-assessable;
(v) all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly by
the Company, free and clear of all liens, encumbrances, equities or
claims;
(vi) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company
and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this
Agreement, except such as may be required by the
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<PAGE>
securities or Blue Sky laws of the various states in connection with
the offer and sale of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"Business - Legal Proceedings," "Description of Capital Stock,"
"Shares Eligible for Future Sale" and "Underwriters" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar as
such statements constitute summaries of the legal matters, documents
or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(x) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required;
(xi) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended; and
(xii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as
to which such counsel need not express any opinion) comply as to form
in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) has no reason
to believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not
express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no reason to
believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not
express any belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(e) The Underwriters shall have received on the Closing Date an
opinion of Gray Cary Ware & Freidenrich LLP, counsel for the Selling
Stockholders, dated the Closing Date, to the effect that:
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<PAGE>
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders;
(ii) the execution and delivery by or on behalf of each Selling
Stockholder of, and the performance by such Selling Stockholder of its
obligations under, this Agreement and the Custody Agreement and Power
of Attorney of such Selling Stockholder will not contravene any
provision of applicable law, or the certificate of incorporation or
by-laws of such Selling Stockholder (if such Selling Stockholder is a
corporation), or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon such Selling Stockholder
or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over such Selling Stockholder, and no consent, approval, authorization
or order of, or qualification with, any governmental body or agency is
required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power of
Attorney of such Selling Stockholder, except such as may be required
by the securities or Blue Sky laws of the various states in connection
with offer and sale of the Shares;
(iii) each of the Selling Stockholders has valid title to the
Shares to be sold by such Selling Stockholder and the legal right and
power (including if such Selling Stockholder is a corporation or
similar entity, corporate power), and all authorization and approval
required by law, to enter into this Agreement and the Custody
Agreement and Power of Attorney of such Selling Stockholder and to
sell, transfer and deliver the Shares to be sold by such Selling
Stockholder;
(iv) the Custody Agreement and the Power of Attorney of each
Selling Stockholder have been duly authorized, executed and delivered
by such Selling Stockholder and are valid and binding agreements of
such Selling Stockholder; and
(v) delivery of the Shares to be sold by each Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and
clear of any security interests, claims, liens, equities and other
encumbrances.
(f) The Underwriters shall have received on the Closing Date an
opinion of Fenwick & West LLP, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 7(d)(vi),
7(d)(vii), 7(d)(ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and 7(d)(xii) above.
With respect to Section 7(d)(xii) above, Gray Cary Ware & Freidenrich
LLP and Fenwick & West LLP may state that their opinion and belief are
based upon their participation in the preparation of the Registration
Statement and Prospectus and any
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amendments or supplements thereto and review and discussion of the contents
thereof, but are without independent check or verification, except as
specified.
The opinion of Gray Cary Ware & Freidenrich LLP described in Sections
7(d) and 7(e) above shall be rendered to the Underwriters at the request of
the Company and shall so state therein.
With respect to Section 7(e) above, Gray Cary Ware & Freidenrich LLP
may rely upon an opinion or opinions of counsel for any Selling
Stockholders and, with respect to factual matters and to the extent such
counsel deems appropriate, upon the representations of each Selling
Stockholder contained herein and in the Custody Agreement and the Power of
Attorney of such Selling Stockholder and in other documents and
instruments; provided that (A) each such counsel for the Selling
Stockholders is satisfactory to your counsel; (B) a copy of each opinion so
relied upon is delivered to you and is in form and substance satisfactory
to your counsel, (C) copies of such Custody Agreements and Powers of
Attorney and of any such other documents and instruments shall be delivered
to you and shall be in form and substance satisfactory to your counsel and
Gray Cary Ware & Freidenrich LLP shall state in their opinion that they are
justified in relying on each such other opinion.
(g) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from PricewaterhouseCoopers LLP, Independent Accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(h) The Lock-Up Agreements, each substantially in the form of Exhibit
A hereto, between you and certain shareholders, officers and directors of
the Company relating to sales and certain other dispositions of shares of
Common Stock or certain other securities, delivered to you on or before the
date hereof, shall be in full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares and an
opinion or opinions of Gray Cary Ware & Freidenrich LLP in form and substance
satisfactory to Fenwick & West LLP, counsel for the Underwriters.
8. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
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(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 8(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending December 31, 2000 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or
any national securities exchange.
(g) The Company will apply the proceeds from the sale of the Shares
as set forth under "Use of Proceeds" in the Prospectus.
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(h) The Company will use its best efforts to obtain and maintain in
effect the quotation of the Shares on the Nasdaq National Market and will
take all necessary steps to cause the Shares to be included on the Nasdaq
National Market as promptly as practicable and to maintain such inclusion
for a period of three years after the date hereof or until such earlier
date as the Shares shall be listed for regular trading privileges on
another national securities exchange approved by you.
(i) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act which may from time to time be
applicable to the Company.
(j) The Company will comply with all provisions of all undertakings
contained in the Registration Statement.
(k) Prior to the Closing Date, the Company will not, directly or
indirectly, issue any press release or other communication and will not
hold any press conference with respect to the Company, or its financial
condition, results of operations, business, properties, assets, or
prospects or this offering, without your prior written consent.
(l) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws
as provided in Section 8(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and the reasonable fees
and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the
National Association of Securities Dealers, Inc., (v) all fees and expenses
in connection with the preparation and filing of the registration statement
on Form 8-A relating to the Common Stock and all costs and expenses
incident to listing the Shares on the Nasdaq National Market, (vi) the cost
of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the costs
and expenses of the Company relating to investor presentations
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on any "road show" undertaken in connection with the marketing of the
offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of
any consultants engaged in connection with the road show presentations with
the prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and
the cost of any aircraft chartered in connection with the road show, and
(ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise
made in this Section. It is understood, however, that except as provided in
this Section, Section 9 entitled "Indemnity and Contribution", and the last
paragraph of Section 11 below, the Underwriters will pay all of their costs
and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
(m) the Company agrees: (i) to enforce the terms of each Lock-up
Agreement and (ii) issue stop-transfer instructions to the transfer agent
for the Common Stock with respect to any transaction or contemplated
transaction that would constitute a breach of or default under the
applicable Lock-up Agreement. In addition, without the prior written
consent of Morgan Stanley, the Company agrees: (i) not to amend or
terminate, or waive any right under, any Lock-up Agreement, or take any
other action that would directly or indirectly have the same effect as an
amendment or termination, or waiver of any right under, any Lock-up
Agreement, that would permit any holder of shares of Common Stock, or
securities convertible into or exercisable or exchangeable for Common
Stock, to (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
other than the exercise of options granted under the 1995 Stock Option Plan
or the purchase of shares of Common Stock under the 1999 Employee Stock
Purchase Plan or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences
of ownership of Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock or
such other securities, in cash or otherwise, or (ii) not to consent to any
of the foregoing.
(n) the Company agrees to place a restrictive legend on any shares of
Common Stock acquired pursuant to the exercise, after the date hereof and
prior to the expiration of the 90-day period after the date of the
Prospectus, of any option granted under the Company's 1995 Stock Option
Plan, which legend shall restrict the transfer of such shares prior to the
expiration of such 90-day period. In addition, the Company agrees that,
without the prior written consent of Morgan Stanley, it will not release
any stockholder or option holder from the market standoff provision imposed
by the Company pursuant to its 1995 Stock Option Plan earlier than 90 days
after the date of the initial public offering of the Shares.
20
<PAGE>
9. Indemnity and Contribution. (a) The Company and the Selling
Stockholders that are Insiders, jointly and severally, agree to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein. Notwithstanding
anything herein to the contrary, the Underwriters agree that they shall not seek
indemnification under this Section 9(a) from any Selling Stockholder that is an
Insider unless the Underwriters shall first have sought indemnity from the
Company under this Section 9(a) and the Company has not agreed to satisfy such
request for indemnification in full with 30 days; provided, however, that the
Underwriters shall not be required to effect such initial demand upon the
Company and wait such 30-day period if it would prejudice their right to
indemnification from any of the Insiders. The liability of each Selling
Stockholder that is an Insider under the indemnity agreement contained in this
paragraph 9(a) and the contribution agreement contained in paragraphs 9(e) and
(f) below shall be limited to an amount equal to the net proceeds received by
such Selling Stockholder from the sale of the Shares sold by such Selling
Stockholder under this Agreement.
(b) Each Selling Stockholder (other than Selling Stockholders that
are Insiders) agrees, severally and not jointly, to indemnify and hold harmless
the Underwriters and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to (i) information relating to such Selling Stockholder
furnished in writing by or on behalf of such Selling Stockholder expressly for
use in the Registration Statement, any preliminary prospectus, the Prospectus or
any amendments or supplements thereto or (ii) solely with regard to Scott R.
Hammond, the financial statements of DMI, together with related schedules,
notes, statistical information and data, included in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or supplements
thereto. The aggregate liability of each Selling Stockholder under the
indemnity agreement contained in this paragraph and the
21
<PAGE>
contribution agreement contained in paragraphs 9(e) and (f) below shall be
limited to an amount equal to the net proceeds received by such Selling
Stockholder from the offering of the Shares sold by such Selling Stockholder
under this Agreement.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Stockholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any Selling Stockholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company and
the Selling Stockholders to such Underwriter, but only with reference to
information relating to such Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 9(a), 9(b) or 9(c), such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters and such control persons of any Underwriters,
such firm shall be designated in writing by Morgan Stanley & Co. Incorporated.
In the case of any such separate firm for the Company, and such directors,
officers and control persons of the Company, such firm shall be designated in
writing by the Company. In the case of any separate firm for the Selling
Stockholders and such control persons of the Selling Stockholders, such firm
shall be designated in writing by the Selling Stockholders. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected
22
<PAGE>
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in Section 9(a),
9(b) or 9(c) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 9(e)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
9(e)(i) above but also the relative fault of the Company on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Sellers on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Sellers on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint. The
aggregate liability of each Selling Stockholder under the contribution agreement
contained in this paragraph and paragraph 9(f) and under the indemnification
agreement contained in paragraphs 9(a) and 9(b) above shall be limited to an
amount equal to the net proceeds received by such Selling Stockholder from the
offering of the Shares sold by such Selling Stockholder.
(f) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 9(e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the
23
<PAGE>
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 9 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Selling Stockholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, any Selling Stockholder or any person
controlling any Selling Stockholder or by or on behalf of the Company, its
officers or directors or any person controlling the Company and (iii) acceptance
of and payment for any of the Shares.
10. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 10(a)(i) through 10(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite
24
<PAGE>
the names of all such non-defaulting Underwriters, or in such other proportions
as you may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 10 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you, the Company and the Selling Stockholders for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case, either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
25
<PAGE>
14. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
AGILE SOFTWARE CORPORATION
By:______________________________
Name: Thomas P. Shanahan
Title: Chief Financial Officer
The Selling Stockholders named in Schedule I hereto,
acting severally
By:_____________________________
Name: Thomas P. Shanahan
Title: Attorney-in-fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Deutsche Bank Securities Inc.
Hambrecht & Quist LLC
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:___________________________
Name:
Title:
26
<PAGE>
SCHEDULE I
Number of Firm Number of
Selling Stockholder Shares To Be Sold Additional Shares
- ------------------- ----------------- -----------------
Total..............
----------------- -----------------
================= =================
<PAGE>
SCHEDULE II
Number of Firm Shares
Underwriter Shares To Be Purchased
- ----------- ----------------------
Morgan Stanley & Co. Incorporated
Deutsche Bank Securities Inc.
Hambrecht & Quist LLC
Total 2,250,000
<PAGE>
Exhibit A
[FORM OF LOCK-UP LETTER]
_____________, 1999
Morgan Stanley & Co. Incorporated
Deutsche Bank Securities Inc.
Hambrecht & Quist LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") proposes to enter into an Underwriting Agreement (the "Underwriting
Agreement") with Agile Software Corporation, a Delaware corporation (the
"Company"), providing for the public offering (the "Public Offering") by the
several Underwriters, including Morgan Stanley (the "Underwriters"), of shares
(the "Shares") of the Common Stock, par value $0.001 per share, of the Company
(the "Common Stock").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 90 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (a) the sale of any Shares
to the Underwriters pursuant to the Underwriting Agreement or (b) transactions
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for or exercise
<PAGE>
any right with respect to, the registration of any shares of Common Stock or any
security convertible into or exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
_________________________
(Name)
_________________________
(Address)
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
AGILE SOFTWARE CORPORATION,
ALASKA ACQUISITION CORPORATION,
AND
DIGITAL MARKET, INC.
October 10, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. The Merger..................................................................................................... 1
1.1 The Merger................................................................................................ 1
1.2 Closing; Effective Time................................................................................... 2
1.3 Effect of the Merger...................................................................................... 2
1.4 Certificate of Incorporation; Bylaws...................................................................... 2
1.5 Directors and Officers.................................................................................... 2
1.6 Effect on Capital Stock................................................................................... 2
1.7 Surrender of Certificates................................................................................. 6
1.8 No Further Ownership Rights in Digital Capital Stock...................................................... 9
1.9 Lost, Stolen or Destroyed Certificates.................................................................... 9
1.10 Tax and Accounting Consequences........................................................................... 9
1.11 Certificate Legends....................................................................................... 9
1.12 Taking of Necessary Action; Further Action................................................................ 9
2. Representations and Warranties of Digital...................................................................... 9
2.1 Organization, Standing and Power......................................................................... 10
2.2 Authority................................................................................................ 10
2.3 Governmental Authorization............................................................................... 11
2.4 Financial Statements..................................................................................... 11
2.5 Capital Structure........................................................................................ 11
2.6 Absence of Certain Changes............................................................................... 12
2.7 Absence of Undisclosed Liabilities....................................................................... 12
2.8 Litigation............................................................................................... 13
2.9 Restrictions on Business Activities...................................................................... 13
2.10 Intellectual Property.................................................................................... 13
2.11 Interested Party Transactions............................................................................ 17
2.12 Minute Books............................................................................................. 17
2.13 Complete Copies of Materials............................................................................. 17
2.14 Material Contracts....................................................................................... 17
2.15 Inventory................................................................................................ 18
2.16 Accounts Receivable...................................................................................... 18
2.17 Customers and Suppliers.................................................................................. 18
2.18 Employees and Consultants................................................................................ 19
2.19 Title to Property........................................................................................ 19
2.20 Environmental Matters.................................................................................... 19
2.21 Taxes.................................................................................................... 20
2.22 Employee Benefit Plans................................................................................... 22
2.23 Employee Matters......................................................................................... 24
2.24 Insurance................................................................................................ 25
2.25 Compliance With Laws..................................................................................... 25
2.26 Brokers' and Finders' Fees............................................................................... 25
2.27 Bank Accounts............................................................................................ 25
2.28 Indemnification Claims................................................................................... 25
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<S> <C>
2.29 Power of Attorney........................................................................................ 25
2.30 Permit Application; Information Statement................................................................ 25
2.31 Representations Complete................................................................................. 26
3. Representations and Warranties of Agile and Merger Sub......................................................... 26
3.1 Organization, Standing and Power......................................................................... 26
3.2 Authority................................................................................................ 26
3.3 SEC Documents; Financial Statements...................................................................... 27
3.4 Capital Structure........................................................................................ 28
3.5 Interim Operations of Merger Sub......................................................................... 28
3.6 Permit Application; Information Statement................................................................ 28
3.7 Capital Resources........................................................................................ 29
3.8 Representations Complete................................................................................. 29
4. Conduct Prior To The Effective Time............................................................................ 29
4.1 Conduct of Business of Digital........................................................................... 29
4.2 No Solicitation.......................................................................................... 31
5. Additional Agreements.......................................................................................... 32
5.1 Preparation of Permit Application/Information Statement.................................................. 32
5.2 Approval of Shareholders................................................................................. 33
5.3 Access to Information.................................................................................... 33
5.4 Confidentiality.......................................................................................... 34
5.5 Public Disclosure........................................................................................ 34
5.6 Consents; Cooperation.................................................................................... 34
5.7 Shareholder Voting Agreement............................................................................. 34
5.8 Exemption from Federal Registration; California Blue Sky................................................. 34
5.9 Securityholder Agreement; Lock-Up........................................................................ 35
5.10 Legal Requirements....................................................................................... 35
5.11 Employee Options......................................................................................... 35
5.12 Escrow Agreement......................................................................................... 36
5.13 Option Exercise.......................................................................................... 36
5.14 Assumed Options; SEC Filing.............................................................................. 36
5.15 Reorganization........................................................................................... 36
5.16 Digital Warrants Exercise................................................................................ 36
5.17 Directors' and Officers' Indemnification................................................................. 36
5.18 Employees................................................................................................ 36
5.19 Employee Registration Rights............................................................................. 37
5.20 Preferred Registration Rights and Obligations Agreement; Letter of Transmittal and Custodian Agreement... 37
5.21 Expenses; Transaction Fees............................................................................... 37
5.22 Termination of 401(k) Plan............................................................................... 37
5.23 Employee Benefits........................................................................................ 37
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<S> <C>
6. Conditions to the Merger....................................................................................... 38
6.1 Conditions to Obligations of Each Party to Effect the Merger............................................. 38
6.2 Additional Conditions to the Obligations of Agile and Merger Sub......................................... 38
6.3 Additional Conditions to Obligations of Digital.......................................................... 40
7. Termination, Amendment and Waiver.............................................................................. 41
7.1 Termination.............................................................................................. 41
7.2 Effect of Termination.................................................................................... 42
7.3 Amendment................................................................................................ 42
7.4 Extension; Waiver........................................................................................ 42
8. Escrow and Indemnification..................................................................................... 42
8.1 Escrow Fund.............................................................................................. 42
8.2 Indemnification.......................................................................................... 43
8.3 Escrow Period; Release From Escrow....................................................................... 44
8.4 Claims Upon Escrow Fund.................................................................................. 45
8.5 Objections to Claims..................................................................................... 45
8.6 Resolution of Conflicts and Arbitration.................................................................. 46
8.7 Shareholders' Agent...................................................................................... 47
8.8 Actions of the Shareholders' Agent....................................................................... 48
8.9 Third-Party Claims; Settlements.......................................................................... 48
9. General Provisions............................................................................................. 49
9.1 Notices.................................................................................................. 49
9.2 Definitions.............................................................................................. 50
9.3 Counterparts............................................................................................. 50
9.4 Entire Agreement; Nonassignability; Parties in Interest.................................................. 50
9.5 Severability............................................................................................. 50
9.6 Remedies Cumulative...................................................................................... 50
9.7 Arbitration.............................................................................................. 50
9.8 Governing Law............................................................................................ 51
9.9 Rules of Construction.................................................................................... 51
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of October 10, 1999 by and among Agile Software Corporation, a
Delaware corporation ("Agile"), Alaska Acquisition Corporation, a Delaware
corporation ("Merger Sub") and wholly owned subsidiary of Agile, and Digital
Market, Inc., a California corporation ("Digital").
RECITALS
A. The Boards of Directors of Digital, Agile and Merger Sub believe it is
in the best interests of their respective companies and the shareholders of
their respective companies that Digital and Merger Sub combine into a single
company through the statutory merger of Digital with and into Merger Sub (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to this Agreement, prior to the Effective Time (as defined in
Section 1.2), all outstanding shares of preferred stock of Digital ("Digital
Preferred Stock") will be converted into outstanding shares of common stock of
Digital ("Digital Common Stock").
C. Pursuant to the Merger, among other things, the outstanding shares of
Digital Common Stock shall be converted into the right to receive the Merger
Consideration (as defined in Section 1.6(a)) upon the terms and subject to the
conditions set forth herein.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code.
E. Concurrent with the execution and delivery of this Agreement, as a
material inducement to Agile and Merger Sub to enter into this Agreement, all of
the shareholders who are officers and directors of Digital and all of the
shareholders of Digital affiliated with the directors and officers of Digital
are entering into a Shareholder Voting Agreement (each a "Voting Agreement"),
with Agile.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
1. The Merger.
----------
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
----------
subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger in the form attached hereto as Exhibit A (the "Certificate of Merger")
---------
and the applicable provisions of the Delaware General Corporation Law ("Delaware
Law") and the California Corporations Code ("California Law"), Digital shall be
merged with and into Merger Sub, the separate corporate existence of Digital
shall cease and Merger Sub shall continue as the surviving corporation. Merger
Sub as the surviving corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
<PAGE>
1.2 Closing; Effective Time. The closing of the transactions contemplated
-----------------------
hereby (the "Closing") shall take place as soon as practicable, but no later
than two (2) business days, after the satisfaction or waiver of each of the
conditions set forth in Section 6 hereof, or at such other time as the parties
hereto agree (the "Closing Date"). The Closing shall take place at the offices
of Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, California
94301, or at such other location as the parties hereto agree. In connection
with the Closing, the parties hereto shall cause the Merger to be consummated by
filing (i) the Certificate of Merger and a California Franchise Tax Board Tax
Clearance Certificate with the Secretary of State of the State of California, in
accordance with the relevant provisions of California Law and (ii) the
Certificate of Merger with the Secretary of State of the State of Delaware (the
time of the filing with the Delaware Secretary of State being the "Effective
Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
--------------------
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of California Law and Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Digital and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Digital and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
------------------------------------
(a) At the Effective Time, the Certificate of Incorporation of the
Merger Sub, as in effect immediately prior to the Effective Time and as set
forth in Exhibit B to this Agreement, shall be the Certificate of Incorporation
---------
of the Surviving Corporation until thereafter amended as provided by law and
such Certificate of Incorporation; provided, however, that Section 1 of the
Certificate of Incorporation of the Surviving Corporation shall be amended to
read as follows: "First: The name of the corporation is Digital Market, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law and such Bylaws of the Surviving
Corporation.
1.5 Directors and Officers. At the Effective Time, the directors and
----------------------
officers of Merger Sub immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of Merger Sub, Digital or the holders
of any of the following securities:
(a) Conversion of Digital Capital Stock. Each share of Digital
-----------------------------------
Common Stock (assuming the conversion of all outstanding shares of the Digital
Preferred Stock) issued and outstanding immediately prior to the Effective Time
(other than shares to be canceled pursuant to Section 1.6(b) hereof and any
Dissenting Shares (to the extent provided in Sections 1.6(g) and 1.7(i) hereof))
will be canceled and extinguished and shall be converted and
2
<PAGE>
exchanged, without any action on the part of the holders (the "Shareholders")
thereof, into the right to receive the following (the "Merger Consideration"):
(i) that number of validly issued, fully paid and
nonassessable shares of the Common Stock of the Agile ("Agile Common Stock")
equal to the amount obtained by (i) the quotient of $52,000,000 divided by the
-------
Deemed Closing Market Price (defined below) divided by (ii) the number of Total
-------
Outstanding Shares (the "Exchange Ratio"); and
(ii) the cash amount equal to $20,000,000 divided by the
-------
Total Outstanding Shares (the "Per Share Cash Consideration").
For purposes of this Agreement, the term "Total Outstanding Shares" shall
mean the sum of the number of shares of Digital Common Stock issued and
outstanding immediately prior to the Effective Time, on a fully-diluted, as-
converted basis, assuming that all outstanding shares of Digital Preferred
Stock, all warrants ("Warrants") to purchase shares of Digital's capital stock
("Digital Capital Stock"), all options to purchase shares of Digital Common
Stock to the extent vested, and other rights to acquire Digital Capital Stock
outstanding immediately prior to the Effective Time are exercised (and converted
to shares of Digital Common Stock if exercisable for shares of Digital Preferred
Stock), as the case may be, immediately prior to the Effective Time, provided,
however, that the Total Outstanding Shares shall be exclusive of shares of
---------
Digital Common Stock subject to options to the extent unvested immediately prior
to the Effective Time; and provided further that, for purposes of determining
the "Total Outstanding Shares," it shall be assumed that the Warrants were
exercised for shares of Digital Capital Stock on a "net exercise" basis.
Additionally, for purposes of this Agreement, the term "Deemed Closing
Market Price" shall mean the average of the closing price per share of Agile
Common Stock as quoted on the NASDAQ National Market System for the 10
consecutive trading days ending two (2) trading days immediately prior to the
Closing Date (such average to include the closing price per share of Agile
Common Stock of the first day of such two trading days), as reported in the West
Coast edition of the Wall Street Journal, provided that, if (A) such average is
equal to, or greater than, $85.00 per share of Agile Common Stock, the Deemed
Closing Market Price shall be deemed to be $85.00 per share or (B) such average
is equal to, or less than, $35.00 per share of Agile Common Stock, the Deemed
Closing Market Price shall be deemed to be $35.00 per share.
(b) Cancellation of Digital Common Stock Owned by Agile. At the
---------------------------------------------------
Effective Time, each share of Digital Common Stock owned by Agile or any direct
or indirect wholly owned subsidiary of Agile immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof.
(c) Common Stock of Merger Sub. At the Effective Time, each share
--------------------------
of Common Stock of Merger Sub ("Merger Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of Common Stock of
the Surviving Corporation. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
3
<PAGE>
(d) Adjustments to Exchange Ratio. The Exchange Ratio and Per Share
-----------------------------
Cash Consideration shall be adjusted to reflect fully the effect of any stock
split, reverse split, stock dividend (including any dividend or distribution of
securities convertible into Agile Common Stock or Digital Common Stock),
reorganization, recapitalization or other like change with respect to Agile
Common Stock or Digital Common Stock occurring after the date hereof and prior
to the Effective Time.
(e) Fractional Shares. No fraction of a share of Agile Common Stock
-----------------
will be issued, but in lieu thereof each holder of shares of Digital Common
Stock who would otherwise be entitled to a fraction of a share of Agile Common
Stock (after aggregating all fractional shares of Agile Common Stock to be
received by such holder) shall receive from Agile an amount of cash (rounded to
the nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the Actual Closing Market Price (as defined in Section 1.7(b)(ii) hereof).
The fractional share interests of each Digital shareholder shall be aggregated,
so that no Digital shareholder shall receive cash in respect of fractional share
interests in an amount greater than the value of one full share of Agile Common
Stock.
(f) Preferred Stock, Options and Warrants.
-------------------------------------
(i) Preferred Stock. Digital shall take all necessary action to
---------------
cause all shares of Digital Preferred Stock to be converted into shares of
Digital Common Stock prior to the Effective Time.
(ii) Vested Options Exercise Entitlement. The holders of
-----------------------------------
outstanding options to purchase shares of Digital Common Stock ("Options") under
the Digital Stock Plan (as defined in Section 2.5), to the extent vested
("Vested Options") may elect to exercise such Vested Options effective
immediately prior to the Effective Time by signing and delivering to Digital and
Agile, prior to the Effective Time, a written instrument in a form reasonably
satisfactory to Agile evidencing the agreement of such holder to receive upon
the Effective Time, in full consideration for the exercise of such Vested
Options and the agreement of such holder to surrender for cancellation the
Digital Common Stock to be received upon such exercise, the Merger Consideration
into which such Digital Common Stock are convertible in the Merger, less the
deductions described below in this Section 1.6(f)(ii). Such exercise form will
be accompanied by payment of the exercise price for such Vested Options in the
form of cash or the holder's full recourse demand promissory note payable to
Digital in the amount of the exercise price (a "Note"). The holder will
authorize Agile to withhold from the cash payable to the holder in the Merger
such amounts as Agile or Digital is required to withhold under applicable tax
laws. In addition, in the event a holder elects to pay the exercise price with a
Note, the holder shall also authorize Agile to deduct from the cash payable to
the holder in the Merger the amount due under such Note. To the extent that the
cash payable to the holder in the Merger is insufficient to pay the foregoing
amounts, the Note shall remain outstanding and shall continue to be due and
payable to the extent of the deficiency, with any portion of the deficiency that
exceeds the amount due under the Note to be added to the outstanding principal
under the Note. Any holder of Vested Options that elects to exercise his or her
Vested Options immediately prior to the Effective Time as contemplated by this
Section 1.6(f)(ii) shall be considered a Shareholder immediately prior to the
Effective Time and a Shareholder Indemnitor (as defined in Section 8.2 hereof)
for purposes of this Agreement (but not for purposes of voting on the Merger).
4
<PAGE>
(iii) Assumption of Options. At the Effective Time, each
---------------------
outstanding Option, whether vested or unvested, granted under the Digital Stock
Plan shall be deemed to constitute an option (an "Assumed Option") to acquire,
on the same terms and conditions as were applicable under the Option, a number
of shares of Agile Common Stock equal to the number of shares of Digital Common
Stock that could have been purchased under the Option multiplied by the Option
Exchange Ratio (with the resulting number of shares being rounded to the nearest
whole share), at a price per share of Agile Common Stock equal to the option
exercise price (rounded up to the nearest whole cent) of the Option divided by
the Option Exchange Ratio (as defined below); provided, however, that in the
--------
case of any Option to which Section 422 of the Code applies ("Incentive Stock
Options"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such options shall be
determined in order to comply with Section 424(a) of the Code; provided further
-------- -------
that, there shall be no accelerated exercisability of any unvested Option solely
as a result of the consummation of the Merger except for an aggregate of 42,500
shares under Options held by the optionees set forth in Schedule 1.6(f) attached
---------------
hereto in the amounts set opposite the name of each such optionee on the date
hereof; and provided further that, the holders of any Options shall be, pursuant
-------- -------
to Section 5.9 hereof, required to enter into a Lock-Up Agreement (as defined in
Section 5.9) in connection with the Current Effective Registration (as defined
in Section 5.9) and a "lock-up" agreement in connection with Prospective
Effective Registrations (as defined in Section 5.9 hereof), under terms no more
restrictive under "lock-up" arrangement required of all Agile securityholders
holding a comparable number of shares of Agile Common Stock outstanding or under
an option or other security to purchase shares of Agile Common Stock entering
into such "lock-up" arrangements. For purposes of this Agreement, "Option
Exchange Ratio" shall mean and equal that number of shares of Agile Common Stock
obtained by (i) the quotient of $72,000,000 divided by the Deemed Closing Market
Price divided by (ii) the number of Total Outstanding Shares.
-------
(iv) Warrants. Digital shall take all necessary action
--------
such that, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, Digital or any of the Shareholders or any holder of a
Warrant, each Warrant outstanding immediately prior to the Effective Time shall
be canceled and extinguished, and automatically converted into the right to
receive, upon surrender of the Warrant in the manner provided in Section 1.7(c)
hereof: (i) an amount of cash (without interest) equal to the Net Warrant Shares
multiplied by the Per Share Cash Consideration, and (ii) a number of shares
equal to the Net Warrant Shares multiplied by the Exchange Ratio, all upon the
terms and subject to conditions set forth below in this Section 1.6 and
throughout this Agreement, including, without limitation, the escrow provisions
set forth in Section 8 hereof. For purposes of this Section 1.6(f)(iv), "Net
Warrant Shares" shall mean, with respect to each Warrant, an amount equal to the
quotient obtained by dividing (i) product of (x) the Fair Market Value Per Share
minus the per share exercise price of such Warrant, multiplied by (y) the
aggregate number of shares of Digital Capital Stock issuable upon the exercise
in full of such Warrant (and subsequent conversion of the Digital Preferred
Stock to Digital Common Stock with respect to Warrants exercisable for Digital
Preferred Stock), by (ii) the Fair Market Value Per Share. For purposes of this
Section 1.6(f)(iv), the "Fair Market Value Per Share" shall equal the sum of (i)
the Actual Closing Market Price (as defined in Section 1.7(b) hereof) multiplied
by the Exchange Ratio plus (ii) the Per Share Cash Consideration. The exchange
procedures set forth in Section 1.7(c) shall apply to Warrants as appropriately
adjusted to give credit to the provisions of this
5
<PAGE>
Section 1.6(f)(iv). For all purposes of Section 8 of this Agreement, the holders
of Warrants ("Warrantholders") shall be deemed to be Shareholders immediately
prior to the Effective Time and hence "Shareholder Indemnitors," as defined in
Section 8.2 hereof. For purposes of determining the portion of Indemnification
Shares (as defined in Section 1.7(j)) to be placed in escrow pursuant to Section
1.7(j) and of the Custody Shares (defined in Section 1.7(b)), the portion of the
Merger Consideration attributable to each Warrantholder shall be the portion of
the Aggregate Merger Consideration (defined in Section 1.7(b)) and Aggregate
Merger Share Consideration (defined in Section 1.7(b)) to which the
Warrantholder will be entitled subsequent to the conversion of such
Warrantholder's Warrants pursuant to Section 1.6(f)(iv) hereof.
(g) Dissenters' Rights. Dissenting Shares, if any, shall not be
------------------
converted into the Merger Consideration but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to California Law. Digital shall give Agile
prompt notice of any demand received by Digital to require Digital to purchase
shares of Common Stock of Digital, and Agile shall have the right to direct (in
consultation with Digital prior to the Closing Date) and to participate in all
negotiations and proceedings with respect to such demand. Digital agrees that,
except with the prior written consent of Agile, which Agile shall not
unreasonably withhold or delay, or as required under the California Law, it will
not voluntarily make any payment with respect to, or settle or offer to settle,
any such purchase demand. Each holder of Dissenting Shares ("Dissenting
Shareholder") who, pursuant to the provisions of California Law, becomes
entitled to payment of the fair value for shares of Digital Capital Stock shall
receive payment therefor (but only after the value therefor shall have been
agreed upon or finally determined pursuant to such provisions). If, after the
Effective Time, any Dissenting Shares shall lose their status as Dissenting
Shares, Agile shall issue and deliver, upon surrender by such shareholder of a
certificate or certificates representing shares of Digital Capital Stock, the
Merger Consideration to which such shareholder would otherwise be entitled under
this Section 1.6 and the Certificate of Merger less the Merger Consideration
allocable to such shareholder that has been deposited in the Escrow Fund (as
defined below) in respect of such shares of Digital Common Stock pursuant to
Section 1.7(j) and Section 8 hereof and in custody pursuant to Section 1.7(k)
hereof.
1.7 Surrender of Certificates.
-------------------------
(a) Exchange Agent. Boston EquiServe shall act as exchange agent
--------------
(the "Exchange Agent") in the Merger.
(b) Agile to Provide Common Stock and Cash.
--------------------------------------
(i) At, or within five business days after, the Effective Time,
Agile shall supply or cause to be supplied to the Exchange Agent for exchange in
accordance with this Section 1 through such reasonable procedures as Agile may
adopt (i) certificates evidencing the shares of Agile Common Stock issuable
pursuant to Section 1.6(a) in exchange for shares of Digital Capital Stock
outstanding immediately prior to the Effective Time and upon automatic
conversion of the Warrants pursuant to Section 1.6(f)(iv), less (x) the number
of shares of Agile Common Stock equal in value (based on the Actual Closing
Market Price, as hereafter defined) to 15% of the Aggregate Merger Consideration
(as hereafter defined), to be deposited into an escrow fund (the "Escrow Fund")
pursuant to the requirements of Section 1.7(j) and
6
<PAGE>
Section 8 and pursuant to the requirements of Section 1.7(k) and (y) for
purposes of maintaining the rights and fulfilling the obligations of each holder
of Digital Preferred Stock and each holder of Warrants to acquire shares of
Digital Preferred Stock pursuant to a Preferred Shareholders Registration Rights
and Obligations Agreement in the form attached as Exhibit C hereto (the
---------
"Preferred Registration Rights and Obligations Agreement"), a number of shares
of Agile Common Stock equal to 35% of the Aggregate Merger Share Consideration
to be placed in custody (the "Custody Shares") under the terms set forth under a
Transmittal Letter and Custodian Agreement (as defined and attached as Exhibit A
---------
to such Preferred Registration Rights and Obligations Agreement), (ii) cash in
an amount sufficient to pay the Per Share Cash Consideration which the
Shareholders are entitled to receive pursuant to Section 1.6(a) and the
Warrantholders are entitled to receive pursuant to Section 1.6(f)(iv), and (iii)
cash in an amount sufficient to permit payment of cash in lieu of fractional
shares pursuant to Section 1.6(f) (collectively, (i), (ii) and (iii) shall be
referred to as the "Exchange Fund").
(ii) For purposes of the Agreement, the terms set forth
below shall have the following meanings:
a) The term "Actual Closing Market Price" shall mean
the average of the closing price per share of Agile Common Stock as quoted on
the NASDAQ National Market System for the 10 consecutive trading days ending two
(2) trading days immediately prior to the Closing Date (such average to include
the closing price per share of Agile Common Stock of the first day of such two
trading days), as reported in the West Coast edition of the Wall Street Journal.
b) The term "Aggregate Merger Consideration" shall
mean the sum of (A) the product obtained by multiplying the Actual Closing
Market Price by the Aggregate Merger Share Consideration plus (B) $20,000,000.
c) The term "Aggregate Merger Share Consideration"
shall mean the number equal to the product obtained by multiplying the Exchange
Ratio by the Total Outstanding Shares.
(c) Exchange Procedures. Within five business (5) days following
-------------------
the Effective Time, the Surviving Corporation shall cause to be mailed to each
holder of record of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding shares of
Digital Common Stock, whose shares were converted into the right to receive
shares of Agile Common Stock and the Per Share Cash Consideration (and cash in
lieu of fractional shares) pursuant to Section 1.6 and each Warrantholder whose
Warrants were automatically converted pursuant to the provisions of Section
1.6(f)(iv), (i) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates or Warrants (as the
case may be) shall pass, only upon receipt of the Certificates or Warrants (as
the case may be) by the Exchange Agent, and shall be in such form and have such
other provisions as Agile may reasonably specify), (ii) such other customary
documents as may be required pursuant to such instructions, and (iii)
instructions for use in effecting the surrender of the Certificates and Warrants
in exchange for certificates representing shares of Agile Common Stock and the
Per Share Cash Consideration (and cash in lieu of fractional shares). Upon
surrender of a Certificate or Warrant for cancellation to the Exchange Agent or
to such
7
<PAGE>
other agent or agents as may be appointed by Agile, together with such letter of
transmittal and other documents, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate or
Warrant (as the case may be) shall be entitled to receive in exchange therefor
(A) a certificate representing the number of whole shares of Agile Common Stock
to which the holder is entitled to less the number of shares of Agile Common
Stock to be deposited in the Escrow Fund on such holder's behalf pursuant to
Sections 1.7(j) and 8 hereof (which number shall be based on the percentage of
Aggregate Merger Consideration received or attributed to such holder relative to
the total Aggregate Merger Consideration received or attributed to all
Shareholders and Warrantholders) and, with respect to the holders of former
shares of Digital Preferred Stock or former Warrants to acquire Digital
Preferred Stock, less such holders pro-rata portion (which shall be based on the
percentage of Aggregate Merger Share Consideration received or attributed to
such holder in respect of such holder's Digital Preferred Stock or Warrants to
acquire Digital Preferred Stock relative to the total Aggregate Merger Share
Consideration received or attributable to all holders in respect of all such
holders' Digital Preferred Stock and Warrants to acquire Digital Preferred
Stock) of the Custody Shares (if any) to be placed in custody pursuant to
Section 1.7(k), (B) any dividends or other distributions to which such holder is
entitled pursuant to Section 1.6(d), (C) the aggregate Per Share Cash
Consideration which the holder is entitled to, and (D) cash (without interest)
in respect of fractional shares as provided in Section 1.6(e) and the
Certificate or Warrant so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate or Warrant that, prior to the
Effective Time, represented shares of Digital Capital Stock or the right to
acquire shares of Digital Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Agile Common Stock
into which such shares of Digital Capital Stock or Warrants shall have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.6. Agile shall use reasonable
best efforts to cause the Exchange Agent to issue to each Shareholder and
Warrantholder such Merger Consideration or consideration receivable upon
conversion of Warrants from the Exchange Fund within (5) business days after the
Exchange Agent receives all necessary documents from the Shareholder or
Warrantholder.
(d) Digital Restricted Stock. [Intentionally Deleted.]
------------------------
(e) Distributions With Respect to Unexchanged Shares. No dividends
------------------------------------------------
or other distributions with respect to Agile Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Agile Common Stock represented thereby
until the holder of record of such Certificate shall surrender such Certificate.
Subject to applicable law, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of Agile Common Stock issued in exchange therefor, without interest at the time
of such surrender, the amount of any such dividends or other distributions with
a record date after the Effective Time theretofore payable (but for the
provisions of this Section 1.7(e)) with respect to such shares of Agile Common
Stock.
(f) Transfers of Ownership. At the Effective Time, the stock and
----------------------
Warrant transfer books of the Digital shall be closed and there shall be no
further registration of transfers of Digital Common Stock or Warrants thereafter
on the records of the Digital. If any
8
<PAGE>
certificate for shares of Agile Common Stock and Per Share Cash Consideration
are to be issued in a name other than that in which the Certificate surrendered
in exchange therefor is registered, it will be a condition of the issuance
thereof that the Certificate so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Agile or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Agile Common Stock and Per Share Cash Consideration are in any name other than
that of the registered holder of the Certificate surrendered, or established to
the satisfaction of Agile or any agent designated by it that such tax has been
paid or is not payable. No shares of Agile Common Stock or cash shall be issued
other than in the name in which the Warrant is surrendered.
(g) Termination of Exchange Fund. Any portion of the Exchange Fund
----------------------------
which remains undistributed to the Shareholders or Warrantholders one year after
the Effective Time shall be delivered to Agile, upon demand, and any
Shareholders and Warrantholders who have not previously complied with this
Section 1.7 shall thereafter look only to Agile for payment of their claim for
the Merger Consideration or consideration receivable upon conversion of
Warrants, as the case may be, and any dividends or distributions with respect to
Agile Common Stock.
(h) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.7, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to any person for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(i) Dissenting Shares. The provisions of this Section 1.7 shall also
-----------------
apply to Dissenting Shares that lose their status as such, except that the
obligations of Agile under this Section 1.7 shall commence on the date of loss
of such status and the holder of such shares shall be entitled to receive in
exchange for such shares the Merger Consideration to which such holder is
entitled pursuant to Section 1.6 hereof.
(j) Escrow. As soon as practicable after the Effective Time, and
------
subject to and in accordance with the provisions of Section 8 hereof, Agile
shall cause to be deposited in Escrow (as defined in Section 8.1 hereof) with
the Escrow Agent (as defined in Section 8.1 hereof) the number of shares of
Agile Common Stock equal to the value (based on the Actual Closing Market Price)
of fifteen percent (15%) of the Aggregate Merger Consideration (the
"Indemnification Shares" or "Escrowed Consideration").
(k) Custody Shares. As soon as practicable after the Effective
--------------
Time, Agile shall cause the Custody Shares to be placed in custody pursuant to
the form of Letter of Transmittal and Custodian Agreement under the Preferred
Registration Rights and Obligations Agreement.
1.8 No Further Ownership Rights in Digital Capital Stock. The Merger
----------------------------------------------------
Consideration delivered upon the surrender for exchange of shares of Digital
Common Stock in accordance with the terms hereof (including any dividends,
distributions or cash paid in lieu of fractional shares) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Digital Common Stock, and there shall be no further registration of transfers on
9
<PAGE>
the records of the Surviving Corporation of shares of Digital Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Section 1.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof such Merger
Consideration (and dividends, distributions and cash in lieu of fractional
shares) as may be required pursuant to Section 1.6; provided, however, that
Agile may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct and will indemnify it
against any claim that may be made against Agile, the Surviving Corporation
and/or the Exchange Agent with respect to the Certificates alleged to have been
lost stolen or destroyed.
1.10 Tax and Accounting Consequences. It is intended by the parties
-------------------------------
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368(a) of the Code and shall be accounted for as a purchase.
1.11 Certificate Legends. The shares of Agile Common Stock to be
-------------------
issued pursuant to Section 1 shall have been qualified or registered in
accordance with Section 5.8 hereof and shall only bear legends as relates to (i)
restrictions on the transfer of shares by "affiliates" of Agile and Digital
pursuant to Rule 144 of the Securities Act of 1933, as amended (the "Securities
Act"), to the extent required under Rule 144 itself or Rule 145 of the
Securities Act, as applicable pursuant to Section 5.8 hereof and (ii) the "lock-
up" period pursuant to the Lock-Up Agreement. Agile acknowledges that no holding
period under Rule 144 will apply to the shares of Agile Common Stock to be
issued pursuant to Section 1 hereof, if issued pursuant to the Fairness Hearing
(as defined in Section 2.30 hereof).
1.12 Taking of Necessary Action; Further Action. Each of Agile,
------------------------------------------
Merger Sub and Digital will take all such reasonable and lawful action as may be
necessary or desirable in order to effectuate the Merger in accordance with this
Agreement as promptly as possible. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
Digital and Merger Sub, the officers and directors of Digital and Merger Sub are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
2. Representations and Warranties of Digital. Digital hereby represents
-----------------------------------------
and warrants to Agile that the statements contained in this Section 2 are true
and correct, except as set forth in the disclosure schedule delivered by Digital
to Agile on or before the date of this Agreement (the "Digital Disclosure
Schedule"). The Digital Disclosure Schedule and shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Section
2 and shall qualify only the corresponding paragraph in this Section 2 and any
other section hereof where it is reasonably clear, upon a reading of such
disclosure without any
10
<PAGE>
independent knowledge on the part of the reader regarding the matter disclosed,
that the disclosure is intended to apply to such other section.
2.1 Organization, Standing and Power. Digital is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Digital has the corporate power to own its
properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a Material
Adverse Effect on Digital. Digital has delivered a true and correct copy of the
Articles of Incorporation and Bylaws or other charter documents, as applicable,
of Digital, each as amended to date, to Agile. Digital is not in violation of
any of the provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents. Digital does not directly or indirectly own any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity. Digital
does not have, nor has it ever had, any subsidiaries.
2.2 Authority. Digital has all requisite corporate power and authority to
---------
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Digital subject only to the approval of the
Merger by Digital's shareholders as contemplated by Section 6.1(a). The
affirmative vote of the holders of a majority of the shares of Digital's Common
Stock and Digital Preferred Stock outstanding on the record date for the Written
Consent of Shareholders relating to this Agreement, voting as separate classes,
is the only vote of the holders of any of Digital's Capital Stock necessary
under the Articles of Incorporation, as amended to date, and California Law to
approve this Agreement and the transactions contemplated hereby. The Board of
Directors of Digital (i) has unanimously approved this Agreement and the Merger
and determined that in its opinion the Merger is in the best interests of the
Shareholders and is on terms that are fair to such shareholders and (ii) will
recommend that the Shareholders approve this Agreement and the Merger. This
Agreement has been duly executed and delivered by Digital and constitutes the
valid and binding obligation of Digital enforceable against Digital in
accordance with its terms, except that such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and is subject to general principles of equity.
The execution and delivery of this Agreement by Digital does not, and the
consummation of the transactions contemplated hereby will not conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any material obligation or loss of any material benefit under
(i) any provision of the Articles of Incorporation or Bylaws of Digital, as
amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument to which Digital is a party or by which its assets or
properties are bound, or any permit, concession, franchise, license, judgment,
order, decree, or, to Digital's knowledge, any statute, law, ordinance, rule or
regulation applicable to Digital or any of its properties or assets. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality ("Governmental Entity") is required by
or with respect to Digital in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Certificate of Merger, as
11
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provided in Section 1.2; (ii) the filing by Agile of an application for
qualification by permit with the State of California pursuant to Section 25121
of the California Securities Act of 1968 (the "California Securities Act") or a
Registration Statement (defined in Section 5.8) to the extent such permit is not
issued by the State of California; (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
and (iv) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Digital and would not prevent, or materially alter or delay any of the
transactions contemplated by this Agreement.
2.3 Governmental Authorization. Digital has obtained each federal,
--------------------------
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Digital
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Digital's business or the holding of any such
interest and all of such authorizations are in full force and effect except
where the failure to obtain or have any such authorizations could not reasonably
be expected to have a Material Adverse Effect on Digital.
2.4 Financial Statements. Digital has delivered to Agile its audited
--------------------
financial statements for each of the fiscal years ended March 31, 1997, March
31, 1998, and March 31, 1999, respectively, and its unaudited financial
statements (balance sheet, statement of operations and statement of cash flows)
on a consolidated basis as at and for the five-month period ended August 30,
1999 (collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles (except that the
Financial Statements do not have notes thereto) applied on a consistent basis
throughout the periods indicated and with each other. The Financial Statements
fairly present the consolidated financial condition and operating results of
Digital as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments. Digital maintains and will continue, prior
to the Effective Time, to maintain a standard system of accounting established
and administered in accordance with generally accepted accounting principles
consistent with prior practice.
2.5 Capital Structure. The authorized capital stock of Digital
-----------------
consists of 30,000,000 shares of Digital Common Stock, of which there are
4,857,798 issued and outstanding shares as of the close of business on the date
hereof and 17,869,298 shares of Digital Preferred Stock, of which there are
issued on the date hereof 1,950,686 shares of Series A Preferred Stock,
6,138,484 shares of Series B Preferred Stock and 9,780,128 shares of Series C
Preferred Stock. All outstanding shares of Digital Common Stock and Digital
Preferred Stock are duly authorized, validly issued, fully paid and non-
assessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and are not subject
to preemptive rights or rights of first refusal created by statute, the Articles
of Incorporation or Bylaws of Digital or any agreement to which Digital is a
party or by which it is bound. Digital maintains the 1995 Stock Plan (the
"Digital Stock Plan"), pursuant to which there are outstanding on the date
hereof 1,894,625 options to purchase shares of Digital Common Stock and has
reserved an additional 1,105,375 shares of the Digital Common Stock for issuance
pursuant to options to be granted to employees, consultants and directors of
Digital. Section 2.5 of the Digital Disclosure Schedule sets forth a schedule
delivered by Digital to Agile
12
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of a true and complete list as of the date hereof of all holders of outstanding
Options under the Digital Stock Plan, including the number of shares of Digital
Common Stock subject to each such Option, the vesting schedule, the exercise
price per share and the terms of each such Option. Except for the rights created
pursuant to this Agreement and the rights disclosed in the preceding sentence,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Digital is a party or by which it is bound obligating
Digital to issue, deliver, sell, repurchase or redeem or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of Digital Capital Stock or
obligating Digital to grant, extend, accelerate the vesting of, change the price
of, or otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no other contracts, commitments or agreements
relating to voting, purchase or sale of Digital Capital Stock (i) between or
among Digital and any of its Shareholders and (ii) to Digital's knowledge,
between or among any of its Shareholders, except for the Shareholders delivering
the Voting Agreements. All shares of outstanding Digital Common Stock and
Digital Preferred Stock were issued in compliance with all applicable federal
and state securities laws. Except for repurchases made by Digital from former
service providers of Digital pursuant to the terms of restricted stock purchase
agreements, Digital has not repurchased any shares of Digital Capital Stock.
There are no unvested shares of Digital Common Stock subject to a right of
repurchase by Digital ("Digital Restricted Stock") as of the date hereof nor
will there be any shares of Digital Restricted Stock outstanding immediately
prior to the Effective Time.
2.6 Absence of Certain Changes. Since August 30, 1999, (the
--------------------------
"Digital Balance Sheet Date"), Digital has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or might reasonably be expected to result in, a Material Adverse
Effect to Digital; (ii) any acquisition, sale or transfer of any material asset
of Digital other than in the ordinary course of business and consistent with
past practice; (iii) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by Digital or any
revaluation by Digital assets; (iv) any declaration, setting aside, or payment
of a dividend or other distribution with respect to the shares of Digital or any
direct or indirect redemption, purchase or other acquisition by Digital of any
of its shares of capital stock; (v) any material contract entered into by
Digital, other than in the ordinary course of business and as provided to Agile,
or any material amendment or termination of, or default under, any material
contract to which Digital is a party or by which it is bound; (vi) any amendment
or change to the Articles of Incorporation or Bylaws of Digital; (vii) any
increase in or modification of the compensation or benefits payable or to become
payable by Digital to any of its directors or employees other than customary
cost-of-living and customary merit increases in the ordinary course of business
consistent with past practice or (viii) any negotiation or agreement by Digital
to do any of the things described in the preceding clauses (i) through (vii)
(other than negotiations with Agile and its representatives regarding the
transactions contemplated by this Agreement). At the Effective Time, there will
be no accrued but unpaid dividends on shares of Digital Capital Stock.
2.7 Absence of Undisclosed Liabilities. Digital has no material
----------------------------------
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet for the period ended August 30, 1999 (the "Digital Balance
Sheet"), (ii) those incurred in the ordinary course of business and not required
13
<PAGE>
to be set forth in the Digital Balance Sheet under generally accepted accounting
principles, (iii) those incurred in the ordinary course of business since the
Digital Balance Sheet Date and consistent with past practice; and (iv) those
incurred in connection with the execution of this Agreement. Notwithstanding the
foregoing, Digital has made available or delivered to Agile a list of all of its
accounts payable (invoiced or otherwise) and other liabilities outstanding as of
the date hereof.
2.8 Litigation. There is no private or governmental action, suit,
----------
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Digital, threatened
against Digital or any of its properties or any of its officers or directors (in
their capacities as such) or, to the knowledge of Digital, any basis therefor.
There is no judgment, decree or order against Digital, or, to the knowledge of
Digital, any of its directors or officers (in their capacities as such), or any
basis therefor, that could prevent, enjoin, or materially alter or delay any of
the transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Digital. All litigation to which
Digital is a party (or, to the knowledge of Digital, threatened to become a
party) is disclosed in the Digital Disclosure Schedule.
2.9 Restrictions on Business Activities. There is no agreement,
-----------------------------------
judgment, injunction, order or decree binding upon Digital which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current business practice of Digital, any acquisition of property by Digital
or the conduct of business by Digital as currently conducted by Digital.
2.10 Intellectual Property.
---------------------
(a) For purposes of this Agreement, "Intellectual Property"
means:
(i) all issued patents, reissued or reexamined patents,
revivals of patents, utility models, certificates of invention, registrations of
patents and extensions thereof, regardless of country or formal name
(collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional and
provisional patent applications, reexamination proceedings, invention
disclosures and records of invention (collectively "Patent Applications" and,
with the Issued Patents, the "Patents");
(iii) all copyrights, copyrightable works, semiconductor
topography and mask work rights, including all rights of authorship, use,
publication, reproduction, distribution, performance transformation, moral
rights and rights of ownership of copyrightable works, semiconductor topography
works and mask works, and all rights to register and obtain renewals and
extensions of registrations, together with all other interests accruing by
reason of international copyright, semiconductor topography and mask work
conventions (collectively, "Copyrights");
(iv) trademarks, registered trademarks, applications for
registration of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names, registered trade
names and applications for registrations of trade names (collectively,
"Trademarks");
14
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(v) all technology, ideas, inventions, designs, proprietary
information, manufacturing and operating specifications, know-how, formulae,
trade secrets, technical data, computer programs, hardware, software and
processes; and
(vi) all other intangible assets, properties and rights
(whether or not appropriate steps have been taken to protect, under applicable
law, such other intangible assets, properties or rights).
(b) Digital owns and has good and marketable title to, or
possess legally enforceable rights to use, all Intellectual Property used in the
business of Digital as currently conducted by Digital. The Intellectual Property
owned by or licensed to Digital collectively constitutes all of the Intellectual
Property necessary to enable Digital to conduct its business as such business is
currently being conducted.
(c) With respect to each item of Intellectual Property
incorporated into any product of Digital or otherwise used in the business of
Digital (except "off the shelf" or other software widely available through
regular commercial distribution channels at a cost not exceeding $25,000 on
standard terms and conditions, as modified for Digital's operations) ("Digital
Intellectual Property") the Digital Disclosure Schedule lists:
(i) all Issued Patents and Patent Applications and all
registered trademarks, and trademark applications and all registered copyrights,
including the jurisdictions in which each such Intellectual Property has been
issued or registered or in which any such application for such issuance and
registration has been filed; and
(ii) the following agreements relating to each of the
products of Digital (the "Digital Products") or other Digital Intellectual
Property: all (A) agreements granting any right to distribute or sublicense a
Digital Product on any exclusive basis, (B) any exclusive licenses of
Intellectual Property to or from Digital, (C) agreements pursuant to which the
amounts actually paid or payable under firm commitments to Digital for $25,000
or more, (D) joint development agreements, (E) any agreement by which Digital
grants any ownership right to any Digital Intellectual Property owned by
Digital, (F) any purchase order relating to Digital Intellectual Property, (G)
any option relating to any Digital Intellectual Property, and (H) agreements
pursuant to which any party is granted any rights to access source code or to
use source code to create derivative works of Digital Products.
(d) Section 2.10(d) of the Digital Disclosure Schedule contains
an accurate list as of the date of this Agreement of all licenses, sublicenses
and other agreements to which Digital is a party and pursuant to which Digital
is authorized to use any Intellectual Property owned by any third party
excluding "off the shelf" or other software at a cost not exceeding $25,000 and
widely available through regular commercial distribution channels on standard
terms and conditions, as modified for Digital's operations ("Third Party
Intellectual Property"). Digital has not been subject to an audit by the
Software Publishers Association as to any of its Third Party Intellectual
Property.
(e) To the knowledge of Digital, there is no unauthorized use,
disclosure, infringement or misappropriation of any Digital Intellectual
Property by any third
15
<PAGE>
party, including any employee or former employee of Digital. Digital has not
entered into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification provisions
contained in standard sales or license agreements to end users arising in the
ordinary course of business, the forms of which have been delivered to Agile or
its counsel. There are no royalties, fees or other payments payable by Digital
to any Person by reason of the ownership, use, sale or disposition of
Intellectual Property.
(f) Digital has not breached, or received in writing any claim or
threat that it has breached (i) any license, sublicense or other agreement (the
"License Agreements") to which it is a party relating to Digital Intellectual
Property or Third Party Intellectual Property involving more than $10,000 in
consideration in each such case, or (ii) any License Agreement in such a manner
as would permit any other party to cancel or terminate the same (with or without
notice of passage of time) or would provide a basis for any other party to claim
money damages (either individually or in the aggregate with all other such
claims) from Digital or give rise to a right of acceleration of any material
obligation or loss of any material benefit under any such License Agreement,
which in the aggregate could reasonably be expected to have a Material Adverse
Effect on Digital. Neither the execution, delivery or performance of this
Agreement or any ancillary agreement contemplated hereby nor the consummation of
the Merger or any of the transactions contemplated by this Agreement will
contravene, conflict with or result in an infringement on the Surviving
Corporation's right to own or use any Digital Intellectual Property, including
any Third Party Intellectual Property.
(g) All patents, registered trademarks, service marks and copyrights
held by Digital are valid and subsisting. All maintenance and annual fees have
been fully paid and all fees paid during prosecution and after issuance of any
patent comprising or relating to such item have been paid in the correct entity
status amounts. Excluding from consideration all "off the shelf" or other
software at a cost not exceeding $25,000 and widely available through regular
commercial distribution channels on standard terms and conditions, as modified
for Digital's operations, Digital is not infringing, misappropriating or making
unlawful use of any proprietary asset owned or used by any third party, and
Digital has received no notice or other communication (in writing or otherwise)
of any actual, alleged, possible or potential infringement, misappropriation or
unlawful use of any proprietary asset owned or used by any third party. There
is no proceeding pending or, to the knowledge of Digital, threatened, nor has
any claim or demand been made, which challenges the legality, validity,
enforceability or ownership of any item of Digital Intellectual Property or
Third Party Intellectual Property or alleges a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party. Digital has not brought a
proceeding alleging infringement of Digital Intellectual Property or breach of
any license or agreement involving Intellectual Property against any third
party.
(h) All current and former officers and employees of Digital who have
or had access to Digital's Intellectual Property have executed and delivered to
Digital an agreement regarding the protection of proprietary information and the
assignment to Digital of any Intellectual Property arising from services
performed for Digital by such persons, the form of which has been supplied to
Agile, and such form contains no exceptions or exclusions from the scope of its
coverage (except as set forth therein). All current and former consultants and
independent contractors to Digital involved in the development or modification
of Digital's
16
<PAGE>
products (including those involved in supporting those products), and/or Digital
Intellectual Property have executed and delivered to Digital an agreement in the
form delivered to Agile, and such form contains no exceptions or exclusions from
the scope of its coverage (except as set forth therein). To Digital's knowledge,
no employee or independent contractor of Digital is in violation of any term of
any patent disclosure agreement or employment contract or any other contract or
agreement relating to the relationship of any such employee or independent
contractor with Digital. No current or former officer, director, stockholder,
employee, consultant or independent contractor has any right, claim or interest
in or with respect to any Digital Intellectual Property.
(i) Digital has taken commercially reasonable and customary measures
and precautions as necessary to protect and maintain the confidentiality of all
Digital Intellectual Property (except such Digital Intellectual Property whose
value would be unimpaired by public disclosure) and otherwise to maintain and
protect the full value of all material Intellectual Property it owns or uses.
Digital has not disclosed, either directly or through a third party,
Intellectual Property not otherwise protected by patents, patent applications or
copyright ("Confidential Information") owned by Digital to third parties for use
or appropriation by such third parties except pursuant to the terms of a written
agreement between Digital and such third parties and, to Digital's knowledge, no
disclosure, use or appropriation by or for a third party has occurred, either
through Digital or through a third party, without Digital's consent. All use,
disclosure or appropriation by Digital of Confidential Information not owned by
Digital has been pursuant to the terms of a written agreement between Digital
and the owner of such Confidential Information, or is otherwise lawful.
(j) No product liability claims have been communicated in writing to
or, to the knowledge of Digital, threatened against Digital.
(k) A complete list of each of the Digital Products and Digital's
proprietary software ("Digital Software"), together with a brief description of
each, is set forth in Section 2.10(k) of the Digital Disclosure Schedule. The
Digital Software and Digital Products conform in all material respects with any
published specification, documentation, or performance standard, as published
through any means, provided with respect thereto by or on behalf of Digital.
(l) Digital is not subject to any proceeding or outstanding decree,
order, judgment, or stipulation restricting in any manner the use, transfer, or
licensing thereof by Digital, or which may affect the validity, use or
enforceability of such Digital Intellectual Property. Digital is not subject to
any agreement which restricts in any material respect the use, transfer, or
licensing by Digital of the Digital Intellectual Property or Digital Products.
(m) All of Digital's products in the versions which are in present
commercial release, as listed on Section 2.10(k) of the Digital Disclosure
Schedule (i) accept input and provide output of data involving dates or portions
of dates before, during and after January 1, 2000 in a consistent, defined,
disclosed and unambiguous manner as to the appropriate century, (ii) manage,
store, manipulate, sort, sequence and perform calculations with respect to data
involving dates or portions of dates before, during and after January 1, 2000,
consistently and accurately, (iii) recognize, to the extent that such products
contain functionality
17
<PAGE>
which requires the recognition of leap years generally, the year 2000 as a leap
year and (iv) operate continuously without material error, malfunction or
interruption caused by or resulting from the change of the centuries from 1999
to 2000, or the transition from any date in the twentieth or twenty-first
century to any other date in the twentieth or the twenty-first centuries, and
will record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000
(collectively, "Year 2000 Compliant").
(n) To Digital's knowledge, all of the Digital's and its Information
Technology (as defined below) is Year 2000 Compliant, and will not cause a
material interruption in the ongoing operations of Digital's business as it is
presently conducted on or after January 1, 2000. For purposes of the foregoing,
the term "Information Technology" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services (other than general utility services
including gas, electric, telephone and postal) that are owned or used by Digital
in the conduct of its business.
2.11 Interested Party Transactions. Digital is not indebted to any
-----------------------------
director, officer, employee or agent of Digital (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to Digital. There have been no transactions which would
require disclosure if Digital were subject to disclosure under Item 404 of
Regulation S-K under the Securities Act.
2.12 Minute Books. The minute books of Digital made available to Agile
------------
contain a complete and accurate summary of actions taken by the board of
directors and the shareholders, whether at a meeting or by written consent since
the time of incorporation of Digital through the date of this Agreement, except
for such actions, if any, the omission of which is not material to Digital, its
Shareholders or its business, and reflect all transactions referred to in such
minutes accurately in all material respects.
2.13 Complete Copies of Materials. [Intentionally Deleted.]
----------------------------
2.14 Material Contracts. All the Material Contracts (as hereafter
------------------
defined) to which Digital is a party are listed in Section 2.14 of the Digital
Disclosure Schedule hereto. With respect to each agreement so listed: (i) the
agreement is legal, valid, binding and enforceable and in full force and effect,
and to Digital's knowledge is legal, valid, binding, enforceable and in full
force and effect with respect to each other party thereto, in either case
subject to the effect of bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and except as the
availability of equitable remedies may be limited by general principles of
equity; (ii) the agreement will continue to be legal, valid, binding and
enforceable and in full force and effect with respect to Digital immediately
following the Closing in accordance with the terms thereof as in effect prior to
the Closing, subject to the effect of bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
except as the availability of equitable remedies may be limited by general
principles of equity; and (iii) neither Digital nor, to Digital's knowledge, any
other party, is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default by Digital or, to
Digital's knowledge, by
18
<PAGE>
any such other party, or permit termination, modification or acceleration, under
the agreement. Digital is not a party to any oral contract, agreement or other
arrangement. "Material Contract" means any contract, agreement or commitment to
which Digital is a party (i) involving more than $10,000 in consideration in
each such case, or (ii) which if breached by Digital in such a manner as would
permit any other party to cancel or terminate the same (with or without notice
of passage of time) or would provide a basis for any other party to claim money
damages (either individually or in the aggregate with all other such claims
under that contract) from Digital or give rise to a right of acceleration of any
material obligation or loss of any material benefit under any such contract,
agreement or commitment which, if exercised, in the aggregate could reasonably
be expected to have a Material Adverse Effect on Digital.
2.15 Inventory. The inventories shown on the Financial Statements or
---------
thereafter acquired by Digital, were acquired and maintained in the ordinary
course of business, are of good and merchantable quality, and consist of items
of a quantity and quality usable or salable in the ordinary course of business.
Since the Digital Balance Sheet Date, Digital has continued to replenish
inventories in a normal and customary manner consistent with past practices.
Digital has not received notice that it will experience in the foreseeable
future any difficulty in obtaining, in the desired quantity and quality and at a
reasonable price and upon reasonable terms and conditions, the raw materials,
supplies or component products required for the manufacture, assembly or
production of its products. The values at which inventories are carried reflect
the inventory valuation policy of Digital, which is consistent with its past
practice and in accordance with generally accepted accounting principles applied
on a consistent basis. Digital is not under any liability or obligation with
respect to the return of any material item of inventory in the possession of
wholesalers, retailers or other customers.
2.16 Accounts Receivable. Subject to any reserves set forth in the
-------------------
Financial Statements, the accounts receivable shown on the Financial Statements
are valid and genuine, have arisen solely out of bona fide sales and deliveries
of goods, performance of services, and other business transactions in the
ordinary course of business consistent with past practices in each case with
persons other than affiliates, are not subject to any prior assignment, lien or
security interest and are not subject to valid defenses, set-offs or counter
claims.
2.17 Customers and Suppliers. As of the date hereof, no customer
-----------------------
which individually accounted for more than 5% of Digital's gross revenues during
the 12 month period preceding the date hereof and no supplier of Digital, has
canceled or otherwise terminated, or made any written threat to Digital to
cancel or otherwise terminate its relationship with Digital or has at any time
on or after the Digital Balance Sheet Date, decreased materially its services or
supplies to Digital in the case of any such supplier, or its usage of the
services or products of Digital in the case of such customer, and to Digital's
knowledge, no such supplier or customer has indicated either orally or in
writing that it will cancel or otherwise terminate its relationship with Digital
or to decrease materially its services or supplies to Digital or its usage of
the services or products of Digital, as the case may be. Digital has not
engaged in any fraudulent conduct with respect to, any customer or supplier of
Digital.
Section 2.17 of the Digital Disclosure Schedule sets forth all
customers which individually account for 5% or more of Digital's gross revenues
during the 12 month period (the "Revenue Period") preceding August 30, 1999,
specifically setting forth opposite such
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customers' respective names (i) their gross revenue amounts during such Revenue
Period and (ii) the percentage of gross revenues attributable to such customers
during such Revenue Period.
2.18 Employees and Consultants. Section 2.18 of the Digital
-------------------------
Disclosure Schedule or a letter previously delivered by Digital to Agile
contains a list of the names of all present employees and consultants of Digital
and their respective salaries or wages, other compensation and dates of
employment or engagement.
2.19 Title to Property. Digital has good and marketable title to all
-----------------
of its respective properties, interests in properties and assets, real and
personal, reflected in the Digital Balance Sheet or acquired after the Digital
Balance Sheet Date (except properties, interests in properties and assets sold
or otherwise disposed of since the Digital Balance Sheet Date in the ordinary
course of business), or with respect to leased properties and assets, valid
leasehold interests therein, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien of current
taxes not yet due and payable, (ii) such imperfections of title, liens and
easements as do not and will not materially detract from or materially interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the Digital Balance Sheet. The plants,
property and equipment of Digital that are used in the operations of their
businesses are in all material respects in good operating condition and repair,
subject to normal wear and tear. All properties used in the operations of
Digital are reflected in the Digital Balance Sheet to the extent generally
accepted accounting principles require the same to be reflected. All leases to
which Digital is a party are in full force and effect and are valid, binding and
enforceable on Digital and, to Digital's knowledge, on the other party, in
accordance with their respective terms, except as such enforceability may be
limited by (i) bankruptcy laws and other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law. True and correct copies of all
such leases have been provided to Agile. Digital owns no real property.
2.20 Environmental Matters.
---------------------
(a) The following terms shall be defined as follows:
(i) "Environmental Laws" shall mean any applicable foreign,
federal, state or local governmental laws (including common laws), statutes,
ordinances, codes, regulations, rules, policies, permits, licenses,
certificates, approvals, judgments, decrees, orders, directives, or requirements
that pertain to the protection of the environment, protection of public health
and safety, or protection of worker health and safety, or that pertain to the
handling, use, manufacturing, processing, storage, treatment, transportation,
discharge, release, emission, disposal, re-use, recycling, or other contact or
involvement with Hazardous Materials (defined below), including, without
limitation, the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601, et seq., as amended ("CERCLA"),
and the federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., as amended ("RCRA").
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(ii) "Hazardous Materials" shall mean any material,
chemical, compound, substance, mixture, or by-product that is identified,
defined, designated, listed, restricted or otherwise regulated under
Environmental Laws (defined above) as a "hazardous constituent," "hazardous
substance," "hazardous material," "acutely hazardous material," "extremely
hazardous material," "hazardous waste," "hazardous waste constituent," "acutely
hazardous waste," "extremely hazardous waste," infectious waste," "medical
waste," "biomedical waste," "pollutant," "toxic pollutant," or "contaminant," or
any other formulation or terminology intended to classify or identify
substances, constituents, materials, or wastes by reason of properties that are
deleterious to the environment, natural resources, worker health and safety, or
public health and safety, including, without limitation, ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, and reproductive toxicity.
The term "Hazardous Materials" shall include, without limitation, any "hazardous
substances" as defined, listed, designated or regulated under CERCLA, any
"hazardous wastes" or "solid wastes" as defined, listed, designated or regulated
under RCRA, any asbestos or asbestos-containing materials, any polychlorinated
biphenyls, and any petroleum or hydrocarbonic substance, fraction, distillate,
or by-product.
(b) Digital is and has been in compliance with all Environmental
Laws relating to the properties or facilities used, leased, or occupied by
Digital at any time (collectively, "Digital's Facilities;" such properties or
facilities currently used, leased, or occupied by Digital are defined herein as
"Digital's Current Facilities"), and no discharge, emission, release, leak, or
spill of Hazardous Materials has occurred at any of Digital's Facilities which
may or will give rise to liability of Digital under Environmental Laws. To
Digital's knowledge, there are no Hazardous Materials (including, but not
limited to, asbestos) present in the surface waters, structures, groundwaters,
or soils of or beneath any of Digital's Current Facilities. To Digital's
knowledge, there neither are nor have been any aboveground or underground
storage tanks for Hazardous Materials at Digital's Current Facilities. To
Digital's knowledge, no Digital employee or other person has claimed that
Digital is liable for alleged injury or illness resulting from an alleged
exposure to a Hazardous Material. No civil, criminal or administrative action,
proceeding or investigation is pending against Digital, or to Digital's
knowledge, threatened against Digital, with respect to Hazardous Materials or
Environmental Laws, and Digital is not aware of any facts or circumstances which
could form the basis for assertion of a claim against Digital or which could
form the basis for liability of Digital, regarding Hazardous Materials or
regarding actual or potential non-compliance with Environmental Laws.
2.21 Taxes. As used in this Agreement, the terms "Tax" and,
-----
collectively, "Taxes" mean any and all federal, state and local taxes of any
country, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, stamp transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(a) Digital has prepared and timely filed all returns, estimates,
information statements and reports required to be filed with any taxing
authority ("Returns")
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relating to any and all Taxes concerning or attributable to Digital or its
operations with respect to Taxes for any period ending on or before the Closing
Date and such Returns are true and correct in all material respects and have
been completed in accordance with applicable law.
(b) Digital, as of the Closing Date: (i) will have paid all Taxes
shown to be payable on such Returns covered by Section 2.21(a) and (ii) will
have withheld with respect to its employees all Taxes required to be withheld.
(c) There is no Tax deficiency outstanding or assessed or, to the best
of Digital's knowledge, proposed against Digital that is not reflected as a
liability on the Digital Balance Sheet nor has Digital executed any agreements
or waivers extending any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(d) Digital has no liabilities for unpaid Taxes that have not been
accrued for or reserved on the Digital Balance Sheet, whether asserted or
unasserted, contingent or otherwise and Digital has no knowledge of any basis
for the assertion of any such liability attributable to each of Digital, its
assets or operations.
(e) Digital is not a party to any tax-sharing agreement or similar
arrangement with any other party, and Digital has not assumed to pay any Tax
obligations of, or with respect to any transaction relating to, any other person
or agreed to indemnify any other person with respect to any Tax.
(f) Digital's Returns have never been audited by a government or
taxing authority, nor is any such audit in process or pending, and Digital has
not been notified of any request for such an audit or other examination.
(g) Digital has never been a member of an affiliated group of
corporations filing a consolidated federal income tax return.
(h) Digital has disclosed to Agile (i) any Tax exemption, Tax holiday
or other Tax sparing arrangement that Digital has in any jurisdiction, including
the nature, amount and lengths of such Tax exemption, Tax holiday or other Tax-
sparing arrangement and (ii) any expatriate tax programs or policies affecting
Digital. Digital is in compliance with all terms and conditions required to
maintain such Tax exemption, Tax holiday or other Tax-sparing arrangement or
order of any governmental entity and the consummation of the transactions
contemplated hereby will not have any adverse effect on the continuing validity
and effectiveness of any such Tax exemption, Tax holiday or other Tax-sparing
arrangement or order.
(i) Digital has made available to Agile copies of all Returns filed by
Digital for all periods since their inception.
(j) Digital has never filed any consent agreement under Section 341(f)
of the Code or agreed to have Section 341(f)(4) apply to any disposition of
assets owned by Digital.
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(k) Digital has never been a United States Real Property
Holding Corporation within the meaning of Section 897(c)(2) of the Code.
(l) Digital has not made any payments and is not required to
make any payment that will not be fully deductible due to the provisions of
Section 162(m) of the Code.
2.22 Employee Benefit Plans.
----------------------
(a) Section 2.22 of the Digital Disclosure Schedule contains
a complete and accurate list of each plan, program, policy, practice, contract,
agreement or other arrangement providing for employment, compensation, deferred
compensation, loans, severance, separation, relocation, repatriation,
expatriation, visas, work permits, termination pay, performance awards, bonus,
incentive, stock option, stock purchase, stock bonus, phantom stock, stock
appreciation right, supplemental retirement, fringe benefits, cafeteria
benefits, or other benefits, whether written or unwritten, including, without
limitation, each "employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") which
is or has been sponsored, maintained, contributed to, or required to be
contributed to by Digital and any trade or business (whether or not
incorporated) which is treated as a single employer with Digital within the
meaning of Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate),
for the benefit of any person who performs or who has performed services for
Digital or with respect to which Digital or ERISA Affiliate has or may have any
liability or obligation (collectively, the "Digital Employee Plans"). In
addition, Section 2.22 of the Digital Disclosure Schedule lists each Digital
Employee Plan that has been adopted or maintained by Digital, whether formally
or informally, for the benefit of employees outside the United States ("Digital
International Employee Plans"). There has been no amendment to, written
interpretation or announcement by Digital or ERISA Affiliate which would
materially increase the expense of maintaining any Digital Employee Plan above
the level of expense incurred with respect to such Digital Employee Plan for the
most recent fiscal year included in Digital's financial statements.
(b) Documents. Digital has furnished to Agile true and
---------
complete copies of documents embodying each of the Digital Employee Plans and
related plan documents, including, without limitation, to the extent such
documents exist, trust documents, group annuity contracts, plan amendments,
insurance policies or contracts, participant agreements, employee booklets,
administrative service agreements, summary plan descriptions, compliance and
nondiscrimination tests for the last three plan years, standard COBRA forms and
related notices, registration statements and prospectuses, and, to the extent
still in its possession, any material employee communications relating thereto.
With respect to each Digital Employee Plan which is subject to ERISA reporting
requirements, Digital has provided copies of the Form 5500 reports filed for the
last three (3) plan years. Digital has furnished Agile with the most recent
Internal Revenue Service determination or opinion letter issued with respect to
each such Digital Employee Plan, and nothing material has occurred since the
issuance of each such letter which could reasonably be expected to cause the
loss of the tax-qualified status of any Digital Employee Plan subject to Code
Section 401(a).
(c) Compliance. (i) Each Digital Employee Plan has been
----------
administered in accordance with its terms and in compliance with the
requirements prescribed by
23
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any and all statutes, rules and regulations (including ERISA and the Code) which
are applicable to it, except as would not have, in the aggregate, a Material
Adverse Effect, and Digital or ERISA Affiliate have performed all material
obligations required to be performed by them under, are not in material respect
in default under or violation of and have no knowledge of any material default
or violation by any other party to, any of the Digital Employee Plans; (ii) any
Digital Employee Plan intended to be qualified under Section 401(a) of the Code
has either obtained from the Internal Revenue Service a favorable determination,
opinion advisory or notification letter, as applicable, to its qualified status
under the Code, including all amendments to the Code effected by the Tax Reform
Act of 1986 and subsequent legislation, or has applied to the Internal Revenue
Service for such a determination letter, if applicable, prior to the expiration
of the requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination letter
and to make any amendments necessary to obtain a favorable determination, or has
been established under a standardized prototype plan for which an Internal
Revenue Service opinion letter has been obtained by the plan sponsor and is
valid as to the adopting employer; (iii) none of the Digital Employee Plans
promises or provides retiree medical benefits to any person other than as
required by law, (iv) there has been no "prohibited transaction," (other than
exempt prohibited transactions) as such term is defined in Section 406 of ERISA
and Section 4975 of the Code, with respect to any Digital Employee Plan, which
could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (v) neither Digital nor any ERISA Affiliate is subject to any liability
or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Digital Employee Plans; (vi) all contributions required to
be made by Digital or ERISA Affiliate to any Digital Employee Plan have been
made on or before their due dates and a reasonable amount has been accrued for
contributions to each Digital Employee Plan as applicable for the current plan
years; (vii) with respect to each Digital Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 or
ERISA has occurred; (viii) each Digital Employee Plan subject to ERISA, has
prepared in good faith and timely filed all requisite governmental reports
(which were true and correct as of the date filed) and has properly and timely
filed and distributed or posted all notices and reports to employees required to
be filed, distributed or posted with respect to each such Digital Employee Plan;
and (ix) no suit, administrative proceeding, action or other litigation has been
brought, or to the knowledge of Digital is threatened, against or with respect
to any such Digital Employee Plan, including any audit or inquiry by the IRS or
United States Department of Labor.
(d) No Title IV or, Multiemployer Plan. Neither Digital nor any ERISA
----------------------------------
Affiliate has ever maintained, established, sponsored, participated in,
contributed to, or otherwise incurred any obligation or liability (including
without limitation, contingent liability) under any "multiemployer plan" (as
defined in Section 3(37) of ERISA) or to any "pension plan" (as defined in
Section 3(2) of ERISA) subject to Title IV of ERISA or Section 412 of the Code.
Neither Digital nor any ERISA Affiliate has any actual or potential withdrawal
liability (including without limitation, any contingent liability) for any
complete or partial withdrawal (as defined in Sections 4203 and 4205 of ERISA)
from any multiemployer plan.
(e) COBRA, FMLA, HIPAA, CANCER RIGHTS. With respect to each Digital
---------------------------------
Employee Plan, Digital has complied with (i) the applicable health care
continuation
24
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and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and the regulations thereunder; (ii) the applicable requirements
of the Family and Medical Leave Act of 1993 and the regulations thereunder;
(iii) the Health Insurance Portability and Accountability Act ("HIPAA") and (iv)
the Cancer Rights Act of 1998 except to the extent that such failure to comply
would not in the aggregate, have a Material Adverse Effect. Digital has no
material unsatisfied obligations to any employees, former employees, or
qualified beneficiaries pursuant to COBRA, HIPAA, or any state law governing
health care coverage extension or continuation.
(f) Effect of Transaction. The consummation of the transactions
---------------------
contemplated by this Agreement will not (i) entitle any current or former
employee or other service provider of Digital or any ERISA Affiliate to
severance benefits or any other payment (including, without limitation,
unemployment compensation, golden parachute bonus or benefits under any Digital
Employee Plan), except as expressly provided in this Agreement or (ii)
accelerate the time of payment or vesting of any such benefits, or increase the
amount of compensation due any such employee or service provider (other than
full or partial vesting as a result of the actions required under the
Agreement). No benefit payable or which may become payable by Digital pursuant
to any Digital Employee Plan or as a result of or arising under this Agreement
shall constitute an "excess parachute payment" (as defined in Section 280G(b)(1)
of the Code) which is subject to the imposition of an excise Tax under Section
4999 of the Code or the deduction for which would not be disallowed by reason of
Section 280G of the Code. Each Digital Employee Plan can be amended, terminated
or otherwise discontinued after the Effective Time in accordance with its terms,
without material liability to Acquirer or Digital (other than ordinary
administration expenses typically incurred in a termination event).
(g) International Employee Plans. Each Digital International Employee
----------------------------
Plan has been established, maintained and administered in material compliance
with its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such International
Digital Employee Plan. No Digital International Employee Plan has unfunded
liabilities, that as of the Effective Time, will not be offset by insurance or
fully accrued. Except as required by law, no condition exists that would
prevent Digital or Agile from terminating or amending any International Digital
Employee Plan at any time for any reason.
2.23 Employee Matters. Digital is in compliance with all currently
----------------
applicable laws and regulations respecting terms and conditions of employment
including, without limitation, applicant and employee background checking,
immigration laws, discrimination laws, verification of employment eligibility,
employee leave laws, classification of workers as employees and independent
contractors, wage and hour laws, and occupational safety and health laws, except
for such noncompliance that neither has, nor reasonably would be expected to
have, a Material Adverse Effect on Digital. There are no proceedings pending
or, to Digital's knowledge, threatened, between Digital, on the one hand, and
any or all of its current or former employees, on the other hand, which
proceedings have, or would reasonably be expected to have, a Material Adverse
Effect on Digital, including, but not limited to, any claims for actual or
alleged harassment or discrimination based on race, national origin, age, sex,
sexual orientation, religion, disability, or similar tortious conduct, breach of
contract, wrongful termination, defamation, intentional or negligent infliction
of emotional distress, interference with contract or
25
<PAGE>
interference with actual or prospective economic disadvantage. There are no
claims pending, or, to Digital's knowledge, threatened, against Digital under
any workers' compensation or long term disability plan or policy. Digital is not
a party to any collective bargaining agreement or other labor union contract,
nor does Digital know of any activities or proceedings of any labor union to
organize its employees. Digital has provided all employees with all wages,
benefits, relocation benefits, stock options, bonuses and incentives, and all
other compensation earned up through the date of this Agreement, except for
those accrued and not yet due.
2.24 Insurance. Digital has policies of insurance and bonds of the
---------
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Digital. There is no material claim pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and Digital is
otherwise in compliance with the terms of such policies and bonds. Digital has
no knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.25 Compliance With Laws. Each of Digital has complied with, is not
--------------------
in violation of and has not received any notices of violation with respect to,
any federal state, local or foreign statute, law or regulation with respect to
the conduct of its business, or the ownership or operation of its business.
2.26 Brokers' and Finders' Fees. Except for fees payable to
--------------------------
Broadview International LLC, Digital has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
2.27 Bank Accounts. Section 2.27 of the Digital Disclosure Schedule
-------------
sets forth the names and locations of all banks and other financial institutions
at which Digital maintains accounts of any nature, the type of accounts
maintained at each such institution and the names of all persons authorized to
draw thereon or make withdrawals therefrom.
2.28 Indemnification Claims. Section 2.28 of the Digital Disclosure
----------------------
Schedule sets forth a list of all persons who are parties to director, officer
and/or employee indemnification agreements with Digital (the "Indemnification
Agreements"). Except as set forth in Section 2.28 of the Digital Disclosure
Schedule, there are no outstanding claims under any of the Indemnification
Agreements or under any indemnification rights granted pursuant to the Articles
of Incorporation or Bylaws of Digital (as currently in effect); and to the best
of Digital's knowledge, there are no facts or circumstances which would
reasonably be expected to provide a basis for a claim under any such
Indemnification Agreement or under any indemnification rights granted pursuant
to the Articles of Incorporation or Bylaws of Digital.
2.29 Power of Attorney. Except as set forth in Section 2.29 of the
-----------------
Digital Disclosure Schedule, Digital has not granted to any person a power of
attorney or similar authorization that is currently in effect of authority.
2.30 Permit Application; Information Statement. The information
-----------------------------------------
supplied by Digital for inclusion in the application for issuance of a permit
(the "Permit Application")
26
<PAGE>
pursuant to Section 25121 of the California Securities Act and information
statement to be sent to the holders of Digital Shares to consider the Merger
(such information statement as amended or supplemented is referred to herein as
the "Information Statement"), will not, on the date the fairness hearing is held
pursuant to Section 25142 of the California Securities Act (the "Fairness
Hearing"), on the date the Information Statement is first mailed to the
Shareholders, or at the Effective Time, contain any statement which, at such
time and in light of the circumstances under which it shall be made, is false or
misleading with respect to any material fact, or shall omit to state any
material fact necessary in order to make the statements made therein not false
or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the Permit Application or
the consent solicitation which has become false or misleading. Notwithstanding
the foregoing, Digital makes no representation or warranty with respect to any
information supplied by Agile or Merger Sub which is contained in any of the
foregoing documents.
2.31 Representations Complete. None of the representations or
------------------------
warranties made by Digital herein or in any Schedule or Exhibit hereto,
including the Digital Disclosure Schedule, or certificate furnished by Digital
pursuant to this Agreement when all such documents are read together in their
entirety, contain, or will contain at the Effective Time any untrue statement of
a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
3. Representations and Warranties of Agile and Merger Sub. Agile and
------------------------------------------------------
Merger Sub hereby represent and warrant to Digital that the statements contained
in this Section 3 are true and correct, except as set forth in the disclosure
schedule delivered by Agile to Digital on or before the date of this Agreement
(the "Agile Disclosure Schedule"). The Agile Disclosure Schedule and shall be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Section 3 and shall qualify only the corresponding paragraph
in this Section 3 and any other Section hereof where it is reasonably clear,
upon a reading of such disclosure without any independent knowledge on the part
of the reader regarding the matter disclosed, that the disclosure is intended to
apply to such other section.
3.1 Organization, Standing and Power. Each of Agile and Merger Sub
--------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of Agile and Merger Sub has the
corporate power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect on Agile.
Agile has made available a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Agile and
Merger Sub, each as amended to date, to Digital. Neither Agile nor Merger Sub
is in violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent organizational documents.
3.2 Authority. Agile and Merger Sub have all requisite corporate
---------
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been, or will
have been by the Closing, duly authorized by all
27
<PAGE>
necessary corporate action on the part of Agile and Merger Sub. The Boards of
Directors of Agile and Merger Sub have (i) unanimously approved this Agreement
and the Merger and (ii) determined that in their respective opinions the Merger
is in the best interests of the stockholders of Agile and Merger Sub,
respectively. This Agreement has been duly executed and delivered by Agile and
Merger Sub and constitutes the valid and binding obligations of Agile and Merger
Sub, enforceable against each of them in accordance with its terms, except that
such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to creditors' rights generally, and is
subject to general principles of equity. The execution and delivery of this
Agreement do not and the consummation of the transactions contemplated hereby
will not conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any material obligation or loss of
a material benefit under (i) any provision of the Certificate of Incorporation
or Bylaws of Agile or any of its subsidiaries, as amended, or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Agile or any of its subsidiaries or
any of their properties or assets. No consent approval, order or authorization
of or registration, declaration or filing with any Governmental Entity is
required by or with respect to Agile or any of its subsidiaries in connection
with the execution and delivery of this Agreement by Agile and Merger Sub or the
consummation by Agile and Merger Sub of the transactions contemplated hereby,
except for (i) the Certificate of Merger in Delaware as provided in Section 1.2,
(ii) the filing by Agile of an application for qualification by permit with the
State of California pursuant to Section 25121 of the California Securities Act,
(iii) the filing, if any, of a Form 8-K with the Securities and Exchange
Commission ("SEC") and National Association of Securities Dealers ("NASD"), (iv)
the issuance of a permit qualifying the issuance of the Agile Common Stock after
a Fairness Hearing before the California Department of Corporations or, to the
extent that such permit is not issued by the State of California, the filing of
a Registration Statement (defined in Section 5.8), (v) any filings as may be
required under applicable state securities laws and the securities laws of any
foreign country, (vi) the filing with the NASDAQ National Market of a
Notification Form for Listing of Additional Shares with respect to the shares of
Agile Common Stock issuable upon conversion of the Digital Common Stock in the
Merger, and (vii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Agile and would not prevent, materially alter or delay any of the
transactions contemplated by this Agreement.
3.3 SEC Documents; Financial Statements. Agile has made available to
-----------------------------------
Digital all statements, reports, registration statements and other filings filed
with the SEC by Agile since June 23, 1999 ("EDGAR Filings"), and, prior to the
Effective Time, Agile will have made available to Digital any additional EDGAR
Filings prior to the Effective Time (collectively together with the documents
described in the following sentence, the "Agile SEC Documents") and will
promptly make available to Digital all exhibits to any additional Agile SEC
Documents filed prior to the Effective Time. All documents required to be filed
as exhibits to the Agile SEC Documents have been so filed, and all material
contracts so filed as exhibits are in full force and effect except those which
have expired in accordance with their terms, and neither Agile nor any of its
subsidiaries is in default thereunder. As of their respective filing dates, the
Agile SEC Documents complied in all material respects with the requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
Securities Act and none of the Agile SEC
28
<PAGE>
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed Agile SEC
Document prior to the date hereof. Agile has filed each Agile SEC Document on or
before the applicable filing deadline for such document and Agile is not
currently and, immediately prior to the Effective Time, will not be untimely in
its filing of any document which is required to be filed with the SEC or
otherwise not in compliance with any SEC filing or reporting requirement. The
financial statements of Agile, including the notes thereto, included in the
Agile SEC Documents (the "Agile Financial Statements"), complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Qs, as permitted by Form 10-Q of the SEC). The Agile
Financial Statements fairly present the consolidated financial condition and
operating results of Agile and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring yearend adjustments). There has been no change in Agile
accounting policies except as described in the notes to the Agile Financial
Statements.
3.4 Capital Structure. The authorized capital stock of the Agile is
-----------------
(i) 100,000,000 shares of Common Stock and (ii) 10,000,000 shares of preferred
stock, and as of the close of business on October 1, 1999, 20,701,988 shares of
Agile Common Stock, and no shares of Agile preferred stock, were issued and
outstanding. There are no other outstanding shares of capital stock or voting
securities of Agile other than shares of Agile Common Stock issued after October
1, 1999, upon the exercise of stock options under Agile's 1999 Stock Option Plan
(the "Agile Stock Option Plan"). The authorized capital stock of Merger Sub
consists of 1,000 shares of Common Stock, 1,000 of which are issued and
outstanding and all of which are held by Agile. As of the close of business on
October 1, 1999, Agile has reserved 3,038,444 shares of Agile Common Stock
pursuant to the Agile Stock Option Plan, of which 1,790,525 shares are subject
to outstanding, unexercised options. Except as set forth above, there are no
other options, warrants, calls, rights, commitments or agreements of any
character to which Agile or Merger Sub is a party or by which either of them is
bound obligating Agile or Merger Sub to issue, deliver, sell, repurchase or
redeem or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of Agile or Merger Sub or obligating Agile or Merger
Sub to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. The shares of Agile Common Stock to be issued pursuant
to the Merger will be duly authorized, validly issued, fully paid and
unassessable.
3.5 Interim Operations of Merger Sub. Merger Sub was formed solely
--------------------------------
for the purpose of engaging in the transactions contemplated by this Agreement,
has engaged in no other business activities and has conducted its operations
only as contemplated by this Agreement.
3.6 Permit Application; Information Statement. The information
-----------------------------------------
supplied by Agile for inclusion in the Permit Application and the Information
Statement, will not, on the date of the Fairness Hearing, on the date the
Information Statement is first mailed to the Shareholders, or at the Effective
Time, contain any statement which, at such time and in light of the
29
<PAGE>
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the Permit Application or the consent solicitation
which has become false or misleading. Notwithstanding the foregoing, Agile
makes no representation or warranty with respect to any information supplied by
Digital which is contained in any of the foregoing documents.
3.7 Capital Resources. Agile has sufficient capital resources to pay
-----------------
the $20,000,000 cash amount of the aggregate Per Share Cash Consideration.
3.8 Representations Complete. None of the representations or
------------------------
warranties made by Agile or Merger Sub herein or in any Schedule hereto,
including the Agile Disclosure Schedule, or certificate furnished by Agile or
Merger Sub pursuant to this Agreement, or the Agile SEC Documents, or any
written statement furnished to Digital pursuant hereto or in connection with the
transactions contemplated hereby, when all such documents are read together in
their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
4. Conduct Prior To The Effective Time.
-----------------------------------
4.1 Conduct of Business of Digital. During the period from the date
------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Digital agrees, except to the extent that Agile
shall otherwise consent in writing, which consent shall not be unreasonably
withheld, to carry on Digital's business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, to pay the
debts and Taxes of Digital when due, to pay or perform other obligations when
due, and, to the extent consistent with such business, use its reasonable best
efforts consistent with past practice and policies to preserve intact Digital's
present business organizations, keep available the services of Digital's present
officers and key employees and preserve Digital's relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving unimpaired Digital's goodwill
and ongoing businesses at the Effective Time. Digital shall promptly notify
Agile of any event or occurrence or emergency not in the ordinary course of
business of Digital and any material event involving Digital. Except as
expressly contemplated by this Agreement as set forth in Section 4.1 of the
Digital Disclosure Schedule, Digital shall not, without the prior written
consent of Agile, which consent shall not be unreasonably withheld:
(a) Material Contracts. Enter into any material contract or
------------------
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(b) Issuance of Securities. Issue, deliver or sell or authorize
----------------------
or propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to
30
<PAGE>
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities other than the issuance of
shares of its Common Stock pursuant to the exercise of stock options, warrants
or other rights therefor outstanding as of the date of this Agreement;
(c) Intellectual Property. Transfer to any person or entity any
---------------------
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;
(d) Exclusive Rights. Enter into or amend any agreements pursuant to
----------------
which any other party is granted exclusive marketing or other exclusive rights
of any type or scope with respect to any of Digital Products or Digital
Intellectual Property;
(e) Dispositions. Sell, lease, license or otherwise dispose of or
------------
encumber any of its properties or assets which are material individually or in
the aggregate, to its business, taken as a whole, except in the ordinary course
of business consistent with past practice;
(f) Indebtedness. Incur any indebtedness for borrowed money or
------------
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others; provided, however, that Digital may
allow holders of options under the Digital Stock Option Plan to purchase Digital
Common Stock upon exercise thereof with interest bearing promissory notes;
(g) Agreements. Enter into, terminate or amend, in a manner which
----------
will adversely affect the business of Digital (i) any agreement involving an
obligation to pay or the right to receive $10,000 or more, (ii) any agreement
relating to the license, transfer or other disposition or acquisition of
Intellectual Property rights or rights to market or sell Digital Products, or
(iii) any other agreement which is material to the business or prospects of
Digital;
(h) Payment of Obligations. Pay, discharge or satisfy in an amount in
----------------------
excess of $10,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) arising
other than in the ordinary course of business, other than the payment, discharge
or satisfaction of liabilities reflected or reserved against in the Digital
Financial Statements;
(i) Capital Expenditures. Make any capital expenditures, capital
--------------------
additions or capital improvements except in the ordinary course of business and
consistent with past practice;
(j) Insurance. Materially reduce the amount of any material insurance
---------
coverage provided by existing insurance policies;
(k) Termination or Waiver. Terminate or waive any right of
---------------------
substantial value, other than in the ordinary course of business;
(l) Employee Benefit Plans; New Hires; Pay Increases. Amend any
------------------------------------------------
Digital Employee Plan or adopt any plan that would constitute a Digital Employee
Plan or hire
31
<PAGE>
any new officer level employee, pay any special bonus, special remuneration or
special noncash benefit (except payments and benefits made pursuant to written
agreements outstanding on the date hereof), or increase the benefits, salaries
or wage rates of its employees except in the ordinary course of business in
accordance with its standard past practice;
(m) Severance Arrangements. Grant any severance or termination pay or
----------------------
benefits (i) to any director or officer or (ii) to any other employee except (A)
payments made pursuant to written agreements outstanding on the date hereof or
(B) grants which are made in the ordinary course of business in accordance with
its standard past practice;
(n) Lawsuits. Commence a lawsuit other than (i) for the routine
--------
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with Agile prior to the filing
of such a suit, or (iii) for a breach of this Agreement;
(o) Acquisitions. Acquire or agree to acquire by merging or
------------
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire or agree
to acquire any assets which are material individually or in the aggregate to its
business, taken as a whole;
(p) Taxes. Other than in the ordinary course of business, make or
-----
change any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, file any material Tax Return or any amendment to a
material Tax Return, enter into any closing agreement, settle any material claim
or assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any material claim or assessment in respect of
Taxes;
(q) Revaluation. Revalue any of its assets, including without
-----------
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
(r) Other. Take or agree in writing or otherwise to take, any of the
-----
actions described in Sections 4.1(a) through (q) above, or any action which
would cause a material breach of its representations or warranties contained in
this Agreement or prevent it from materially performing or cause it not to
materially perform its covenants hereunder.
4.2 No Solicitation. Until the earlier of (i) the Effective Time, or
---------------
(ii) the date of termination of this Agreement pursuant to the provisions of
Section 7 hereof, Digital shall not (nor shall Digital permit, as applicable,
any of Digital's officers, directors, employees, shareholders, agents,
representatives or affiliates to), directly or indirectly, take any of the
following actions with any party other than Agile and its designees: (a)
solicit, encourage, initiate or participate in any inquiry, negotiations or
discussions, or enter into any agreement, with respect to any offer or proposal
to acquire all or any material part of Digital's business, properties or
technologies, or any material amount of Digital's Capital Stock, whether by
merger, purchase of assets, tender offer or otherwise, or effect any such
transaction, (b) disclose any information not customarily disclosed to any
person concerning Digital's business, technologies
32
<PAGE>
or properties, or afford to any person or entity access to its properties,
technologies, books or records, not customarily afforded such access, (c) assist
or cooperate with any person to make any proposal to purchase all or any
material part of Digital Capital Stock, any of its capital stock or assets of
the Company, other than inventory in the ordinary course of business, or (d)
enter into any agreement with any person providing for the acquisition of
Digital, whether by merger, purchase of assets, tender offer or otherwise. In
the event that Digital, or any of the Digital's affiliates shall receive, prior
to the Effective Time or the termination of this Agreement, any offer, proposal,
or request, directly or indirectly, of the type referenced in clause (a) or (c)
above, or any request for disclosure or access pursuant to clause (b) above,
Digital shall promptly notify Agile, but not later than 24 hours thereof,
including information as to the identity of the offeror or the party making any
such offer or proposal and the specific terms of such offer or proposal, as the
case may be, and such other information related thereto as Agile may reasonably
request. The parties hereto agree that irreparable damage would occur in the
event that the provisions of this Section 4.2 were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
by the parties hereto that Agile shall be entitled to seek an injunction or
injunctions to prevent breaches of the provisions of this Section 4.2 and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which Agile may be entitled at law or in equity.
5. Additional Agreements.
---------------------
5.1 Preparation of Permit Application/Information Statement.
-------------------------------------------------------
(a) As soon as practicable after the execution of this Agreement,
Digital shall prepare, with the cooperation of Agile, an Information Statement
for the Shareholders to approve this Agreement, the Certificate of Merger and
the transactions contemplated hereby and thereby. The Information Statement
shall constitute a disclosure document for the offer and issuance of the shares
of Agile Common Stock to be received by the holders of Digital Common Stock in
the Merger. Agile and Digital shall each use reasonable commercial efforts to
cause the Information Statement to comply with applicable federal and state
securities laws requirements. Each of Agile and Digital agrees to provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for inclusion in the Information
Statement, or in any amendments or supplements thereto, and to cause its counsel
and auditors to cooperate with the other's counsel and auditors in the
preparation of the Information Statement. Digital will promptly advise Agile,
and Agile will promptly advise Digital, in writing if at any time prior to the
Effective Time either Digital or Agile shall obtain knowledge of any facts that
might make it necessary or appropriate to amend or supplement the Information
Statement in order to make the statements contained or incorporated by reference
therein not misleading or to comply with applicable law. The Information
Statement shall contain the recommendation of the Board of Directors of Digital
that the Digital shareholders approve the Merger and this Agreement and the
conclusion of the Board of Directors that the terms and conditions of the Merger
are fair and reasonable to the Shareholders. Anything to the contrary contained
herein notwithstanding, Digital shall not include in the Information Statement
any information with respect to Agile or its affiliates or
33
<PAGE>
associates, the form and content of which information shall not have been
approved by Agile prior to such inclusion.
(b) As soon as practicable after the execution of this Agreement,
Agile shall prepare, with the cooperation of Digital, the Permit Application.
Agile and Digital shall each use reasonable commercial efforts to cause the
Permit Application to comply with the requirements of applicable federal and
state laws. Each of Agile and Digital agrees to provide promptly to the other
such information concerning its business and financial statements and affairs
as, in the reasonable judgment of the providing party or its counsel, may be
required or appropriate for inclusion in the Permit Application, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the Permit
Application. Digital will promptly advise Agile, and Agile will promptly advise
Digital, in writing if at any time prior to the Effective Time either Digital or
Agile shall obtain knowledge of any facts that might make it necessary or
appropriate to amend or supplement the Permit Application in order to make the
statements contained or incorporated by reference therein not misleading or to
comply with applicable law. Anything to the contrary contained herein
notwithstanding, Agile shall not include in the Permit Application any
information with respect to Digital or its affiliates or associates, the form
and content of which information shall not have been approved by Digital prior
to such inclusion.
5.2 Approval of Shareholders. Digital shall promptly after the date
------------------------
hereof use reasonable best efforts to take all action necessary in accordance
with California Law and its Articles of Incorporation and Bylaws to obtain by
written consent, the approval of the Digital shareholders of the Merger as soon
as practicable, provided that Digital shall not be required to take any action
that could reasonably be expected to adversely affect the possibility of
obtaining the Permit pursuant to the Fairness Hearing. Subject to Section 5.1,
Digital shall use its efforts to solicit from Shareholders the vote or consent
in favor of the Merger and shall use reasonable best efforts to secure the vote
or consent of shareholders required to effect the Merger.
5.3 Access to Information.
---------------------
(a) Digital shall afford Agile and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of Digital's properties, personnel
books, contracts, commitments and records, and (ii) all other information
concerning the business, properties and personnel of Digital as Agile may
reasonably request. Agile shall likewise provide Digital with reasonable access
customarily associated with seller-side due diligence in connection with a
merger where the merger consideration includes shares of the acquiring entity.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Agile and Digital shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.4 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
34
<PAGE>
5.4 Confidentiality. The terms of that certain Confidentiality
---------------
Agreement, previously executed by the parties on July 22, 1999 (the
"Confidentiality Agreement") shall remain in effect pursuant to its terms during
the term hereof.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
-----------------
Agile and Digital shall consult with each other before issuing any press release
or otherwise making any public statement or making any other public (or non-
confidential) disclosure (whether or not in response to an inquiry) regarding
the terms of this Agreement and the transactions contemplated hereby, and
neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD upon prior notice to the other party. The foregoing shall not be
construed as prohibiting Digital from indicating in general terms in response to
inquiries from third parties concerning a potential acquisition that it is under
a contractual obligation not to discuss such matters.
5.6 Consents; Cooperation.
---------------------
(a) Each of Agile and Digital shall promptly apply for or
otherwise seek, and use reasonable best efforts to obtain, all consents and
approvals required to be obtained by it from Governmental Authorities for the
consummation of the Merger and all necessary consents, waivers and approvals
pursuant to an agreement listed in Sections 2.3, 2.10, 2.14, 2.22 and 2.24 of
the Digital Disclosure Schedule (except for such agreements which are to be
terminated at or before Closing pursuant to the terms hereof) and Section 3.2 of
the Agile Disclosure Schedule in connection with the Merger for the assignment
thereof or otherwise.
(b) Notwithstanding anything to the contrary in Section 5.6(a),
neither Agile nor any of it subsidiaries shall be required to divest any of
their respective businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation that could reasonably be
expected to have a Material Adverse Effect on Agile or on Agile combined with
the Surviving Corporation after the Effective Time.
5.7 Shareholder Voting Agreement. [Intentionally Deleted.]
----------------------------
5.8 Exemption from Federal Registration; California Blue Sky. The
--------------------------------------------------------
parties shall use their reasonable best efforts to cause the Agile Common Stock
to be issued in connection with the Merger to be issued in a transaction exempt
from registration under the Securities Act by reason of Section 3(a)(10)
thereof, and to cause the Agile Common Stock and the assumption of the Assumed
Options hereunder to be qualified under the California Securities Act, pursuant
to Section 25121 thereof, after the Fairness Hearing has been held pursuant to
the authority granted by Section 25142 of such California Securities Act;
provided however, that if notwithstanding such exercise of reasonable best
efforts, the parties fail to obtain such qualification by permit of such Agile
Common Stock, the parties agree that Agile, with full cooperation of Digital,
shall promptly prepare and file with the Securities and Exchange Commission an
appropriate registration form (the "Registration Statement") in connection with
the offer and issuance of the Agile Common Stock pursuant to the Merger.
35
<PAGE>
5.9 Securityholder Agreement; Lock-Up. Digital shall use its
---------------------------------
reasonable best efforts to cause each securityholder of Digital receiving Agile
Common Stock as Merger Consideration, and/or Agile Common Stock upon conversion
of Warrants and/or having Digital Options converted into Assumed Options
pursuant to the Merger (the "Securityholders"), prior to the Closing Date, to
execute and deliver a Securityholder Agreement in the form attached as Exhibit D
---------
hereto. Pursuant to (A) Section 1 of the Securityholder Agreement, such
Securityholders will execute and deliver concurrently with the Securityholder
Agreement a "lock-up" agreement with Agile and Morgan Stanley & Co.
Incorporated, among others, ("the Morgan Stanley Group") in the form attached as
Exhibit A thereto (the "Lock-Up Agreement"), pursuant to which, among other
- ---------
matters, such Securityholder shall agree with the Morgan Stanley Group not to
offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase
or make any short sale of, or otherwise dispose of any shares of Agile Common
Stock or any rights to acquire Agile Common Stock for such period of time from
and after the Effective Time in connection with Agile's current effective
registration statement (Registration No. 333-81387) pursuant to its initial
public offering (the "Current Effective Registration") and (B) Section 2 of such
Securityholder Agreement, such Securityholders shall agree with Agile to such
restrictions regarding dispositions in the event of, and contingent on, other
underwritten public offerings filed under the Securities Act subsequent to the
Effective Time (the "Prospective Effective Registrations," and collectively with
the Current Effective Registration, the "Effective Registrations"), all as
established under such Securityholder Agreement, provided that the terms of such
restrictions are no more restrictive than those required of all Agile
securityholders holding a comparable number of shares of Agile Common Stock
outstanding or under an option or other security to purchase shares of Agile
Common Stock.
5.10 Legal Requirements. Each of Agile, Merger Sub and Digital will,
------------------
and will cause their respective subsidiaries to, take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon such
other party in connection with the consummation of the transactions contemplated
by this Agreement and will take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any consent,
approval, order or authorization of or any registration, declaration or filing
with, any Governmental Entity or other person, required to be obtained or made
in connection with the taking of any action contemplated by this Agreement.
5.11 Employee Options. At the Effective Time, certain employees of
----------------
Digital, as mutually selected by the parties hereto shall be granted new options
to purchase shares of Agile Common Stock under and pursuant to the Agile Stock
Option Plan and having a fair market value on the date of grant thereof, based
on the closing price per share of Agile Common Stock as quoted on the NASDAQ
National Market System as of the Closing Date, an aggregate amount of $5,000,000
after netting the exercise price under such options in the amounts set forth
opposite the name of each such employee. Such options so granted shall be
governed under the terms and conditions of the Agile Stock Option Plan, provided
that the options will vest as to 25% of the underlying shares no later than, on
a weighted average basis, the six-month anniversary from the Closing Date (the
"Initial Vesting Date") and the remaining 75% of the underlying shares will vest
in equal installments on a monthly basis over no greater than an additional 18-
month period after the Initial Vesting Date.
36
<PAGE>
5.12 Escrow Agreement. On or before the Effective Time, Agile,
----------------
Escrow Agent (defined below) and the Shareholders' Agent (as defined in Section
8 hereto) will execute the Escrow Agreement contemplated by Section 8 in the
form attached hereto as Exhibit E ("Escrow Agreement").
---------
5.13 Option Exercise. [Intentionally deleted.]
---------------
5.14 Assumed Options; SEC Filing. Agile shall take all corporate
---------------------------
action necessary to reserve for issuance a sufficient number of shares of Agile
Common Stock for delivery under the Assumed Options. Within thirty (30) days
after the Effective Time, Agile shall file a registration statement on Form S-8
(or any successor or other appropriate forms), or another appropriate form, with
respect to the shares of Agile Common Stock subject to the Assumed Options and
shall use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses in connection therewith) for so long as the Assumed
Options remain outstanding.
5.15 Reorganization. Agile and Digital shall each use its reasonable
--------------
best efforts to cause the business combination to be effected by the Merger to
qualify as a "reorganization" described in Section 368 of the Code and to obtain
the opinion of its respective counsel contemplated by Sections 6.2(g) and
6.3(c). Each party shall make such representations as counsel to the parties
shall reasonably request to enable them to render such opinions.
5.16 Digital Warrants Exercise. [Intentionally deleted.]
-------------------------
5.17 Directors' and Officers' Indemnification. For 6 years after the
----------------------------------------
Effective Time, Agile and the Surviving Corporation (or any successor to the
Surviving Corporation) shall indemnify, defend and hold harmless each present
and former officer and director of Digital, and each person who become any of
the foregoing prior to the Effective Time (each, a "Digital Indemnified Party")
against all losses, claims, damages, liabilities, costs, fees and expenses,
including reasonable fees and disbursements of counsel and judgments, fines,
losses, claims, liabilities and amounts paid in settlement (provided that any
such settlement is effected with the written consent of Agile or the Surviving
Corporation such consent not to be unreasonably withheld) arising out of actions
or omissions occurring at or prior to the Effective Time to the full extent
required under applicable California law, the terms of the Articles or Bylaws of
Digital, provided, however, that nothing herein shall limit Agile's rights set
forth in Section 8 hereof.
5.18 Employees. Digital shall use its reasonable best efforts to
---------
cause:
(a) each of Scott Hammond, and the employees of Digital as
mutually determined by the parties hereto (the "Designated Employees"), to enter
into employment with Agile;
(b) each Designated Employee, except for Scott Hammond, to
execute a Non-Solicitation Agreement in the form attached hereto as Exhibit F
---------
(the "Non-Solicitation Agreement");
37
<PAGE>
(c) Scott Hammond to execute a Non-Competition and Non-
Solicitation Agreement in the form attached hereto as Exhibit G (the "Non-
---------
Competition and Non-Solicitation Agreement"); and
(d) each Designated Employee to execute and deliver an
Assignment of Inventions and Non-Disclosure Agreement in the form provided by
Agile (the "Inventions Agreement").
5.19 Employee Registration Rights. The parties agree that, in the
----------------------------
event employees of Agile ("Agile Employees") are permitted to register for sale,
in the aggregate, a total amount of shares of Agile Common Stock ("Agile
Employee Holdings") exceeding 28% (the "Threshold Percentage") of their
aggregate holdings of Agile Common Stock pursuant to a Prospective Effective
Registration prior to the expiration of the "lock-up" period under the Lock-Up
Agreement, then the employees of Digital shall be entitled to register for sale
in such Prospective Effective Registration the percentage of their aggregate
total holdings of Agile Common Stock equal to the differential between the
actual percentage of shares of Agile Employee Holdings permitted to be
registered for sale and the Threshold Percentage.
5.20 Preferred Registration Rights and Obligations Agreement; Letter
---------------------------------------------------------------
of Transmittal and Custodian Agreement. Digital shall use its reasonable best
- --------------------------------------
efforts to cause all holders of Digital Preferred Stock and Warrants to acquire
Digital Preferred Stock to enter into the Preferred Registration Rights and
Obligations Agreement and the Letter of Transmittal and Custodian Agreement
thereto.
5.21 Expenses; Transaction Fees. Whether or not the Merger is
--------------------------
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expense. The parties agree that all legal, accounting and investment
banking fees incurred by Digital in connection with the Merger shall be deemed
to be expenses of Digital and shall not become obligations of the Shareholders.
5.22 Termination of 401(k) Plan. Digital agrees to take appropriate
--------------------------
corporate action through its Board of Directors to terminate any and all Digital
Employee Plans that Digital maintains or sponsors which are subject to the
requirements of Section 401(k) of the Code (the "401(k) Plan") prior to the
Closing Date and agrees that no further contributions shall be made to the
401(k) Plan on or after the Closing Date. Prior to the Closing Date, Digital
shall provide to Agile (i) documentation evidencing (to the reasonable
satisfaction of Agile) that any restatement or amendment to the 401(k) Plan was
duly authorized and timely adopted by Digital; (ii) executed resolutions by
Digital's Board of Directors authorizing the termination of the 401(k) Plan and
(iii) an executed amendment to the 401(k) Plan to add all applicable
requirements of the Code and regulations thereunder so that the tax-qualified
status of the 401(k) Plan shall be maintained at the time of termination.
6. Conditions to the Merger.
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger.
------------------------------------------------------------
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the
38
<PAGE>
Effective Time of each of the following conditions, any of which may be waived,
in writing, by agreement of all the parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall be
--------------------
approved and adopted by the Shareholders by the requisite vote under applicable
law and the Digital's Articles of Incorporation.
(b) Fairness Hearing; Registration Statement. The Fairness Hearing
----------------------------------------
shall have been held by the Department of Corporations of the State of
California and a permit for the issuance of Agile securities shall have been
issued by the State of California or, pursuant to Section 5.8 hereof, the
Registration Statement shall have been declared effective by the SEC.
(c) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be and remain in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending, which would have a Material
Adverse Effect on either Agile or on Agile combined with the Surviving
Corporation after the Effective Time, nor shall there be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal.
(d) Governmental Approval. Agile, Digital and Merger Sub and their
---------------------
respective subsidiaries, if any, shall have timely obtained from each
Governmental Entity (as defined below) all approvals, waivers and consents, if
any, necessary for consummation of or in connection with the Merger and the
several transactions contemplated hereby, including such approvals, waivers and
consents as may be required under the Securities Act, and under state blue sky
laws, other than filings and approvals relating to the Merger on any of its
properties if failure to obtain such approval, waiver or consent would not have
a Material Adverse Effect on Agile after the Effective Time.
6.2 Additional Conditions to the Obligations of Agile and Merger Sub. The
----------------------------------------------------------------
obligations of Agile and Merger Sub to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Agile:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Digital set forth in this Agreement shall be true and correct
in each case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specific date which shall be true
and correct as of such date) as of the Closing Date as though made on and as of
the Closing Date, except where the failure of such representations and
warranties to be so true and correct (without giving effect to any limitation as
to "materiality" or "Material Adverse Effect" set forth therein) would not
individually or in the aggregate have a Material Adverse Effect. Agile and
Merger Sub shall have received a certificate signed on behalf of Digital by the
chief executive officer and the chief financial officer of Digital to the effect
set forth in this paragraph.
39
<PAGE>
(b) Performance of Obligations. Digital shall have performed and
--------------------------
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by it as of the
Closing.
(c) Conversion of Preferred Stock. The Digital Preferred Stock shall
-----------------------------
have been converted into Digital Common Stock.
(d) Tax Opinion. Agile shall have received a written opinion from
-----------
Gray Cary Ware & Freidenrich LLP to the effect that the Merger will be treated
for Federal income tax purposes as a reorganization within the meaning of
Section 368 of the Internal Revenue Code.
(e) Escrow Agreement. Escrow Agent and the Shareholders' Agent (as
----------------
defined in Section 8 hereof) shall have entered into the Escrow Agreement.
(f) Non-Competition and Non-Solicitation Agreement. Scott Hammond and
----------------------------------------------
Agile shall have entered into the Non-Competition and Non-Solicitation
Agreement.
(g) No Material Adverse Change. There shall not have occurred any
--------------------------
material adverse change in the financial condition, properties, assets
(including intangible assets), liabilities, business, operations, results of
operations or prospects of Digital, taken as a whole, but shall not include any
of the following in and of themselves, either alone or in combination: (i) any
effect or change occurring as a result of (A) general economic or financial
conditions or (B) other developments which are not unique to Digital but also
affect other persons who participate or are engaged in the lines of business in
which Digital participates or is engaged and (ii) any change or effect on the
financial condition, properties, assets, liabilities, business, operations,
results of operations, or prospects of Digital, taken as a whole, following the
date of this Agreement attributable to the announcement of this Agreement or the
transactions contemplated hereby.
(h) No Material Changes in Balance Sheet. There shall not have
------------------------------------
occurred any material adverse changes in Digital's Balance Sheet (including, but
not limited to, cash contributions or material decreases in net assets) between
September 17, 1999 and the Closing Date.
(i) Securityholder Agreement; Lock-Up Agreement. All securityholders
-------------------------------------------
of Digital shall have executed and delivered the Securityholder Agreement and a
Lock-Up Agreement in the form exhibited in such Securityholder Agreement.
(j) Dissenters' Rights. Not more than nine percent (9%) of the
------------------
Digital Capital Stock outstanding immediately prior to the Effective Time shall
have voted against the Merger or shall otherwise be eligible as Dissenters'
Shares.
(k) Legal Opinion. Agile shall have received a legal opinion from
-------------
Wilson Sonsini Goodrich & Rosati, Professional Corporation substantially in the
form of Exhibit H hereto.
---------
40
<PAGE>
(l) Termination of 401(k) Plan. Digital shall have taken the actions
--------------------------
described in Section 5.22 to terminate the 401(k) Plan.
(m) Preferred Registration Rights and Obligations Agreement. All
-------------------------------------------------------
holders of Digital Preferred Stock shall have executed and delivered the
Preferred Registration Rights and Obligations Agreement.
(n) Letter of Transmittal and Custodian Agreement. All holders of
---------------------------------------------
Digital Preferred Stock shall have executed and delivered a Letter of
Transmittal and Custodian Agreement.
(o) Warrants. Digital shall have taken all actions required under
--------
Section 1.6(f)(iv) hereof.
6.3 Additional Conditions to Obligations of Digital. The obligations of
-----------------------------------------------
Digital to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Digital:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Agile and Merger Sub set forth in this Agreement shall be true
and correct, in each case as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specific date which
shall be true and correct as of such date) as of the Closing Date as though made
on and as of the Closing Date, except where the failure of such representations
and warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth therein)
would not individually or in the aggregate have a Material Adverse Effect with
respect to, Agile and Merger Sub. Digital shall have received a certificate
signed on behalf of Agile by an authorized officer of Agile to the effect set
forth in this paragraph.
(b) Performance of Obligations. Agile and Merger Sub shall have
--------------------------
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
them as of the Closing and Digital shall have received a certificate executed on
behalf of Agile and Merger Sub by the chief executive officer and the chief
financial officer of Agile and Merger Sub, respectively.
(c) Tax Opinion. Digital shall have received a written opinion from
-----------
Wilson Sonsini Goodrich & Rosati, Professional Corporation, to the effect that
the Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368 of the Internal Revenue Code.
(d) Nasdaq Listing. The shares of Agile Common Stock to be issued to
--------------
the Shareholders pursuant to this Agreement shall have been authorized for
listing on the Nasdaq Stock Market upon official notice of issuance.
(e) Delivery of Cash Consideration. The cash consideration issuable
------------------------------
to the Shareholders and Warrantholders pursuant to this Agreement shall have
been delivered to the Exchange Agent.
41
<PAGE>
(f) Legal Opinion. Digital shall have received a legal opinion from
-------------
Gray Cary Ware & Freidenrich LLP substantially in the form of Exhibit I hereto.
---------
7. Termination, Amendment and Waiver.
---------------------------------
7.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time (with respect to Section 7.1(b) through Section 7.1(d), by
written notice by the terminating party to the other party):
(a) by the mutual written consent of Agile and Digital;
(b) by either Agile or Digital if the Merger shall not have been
consummated by January 31, 2000, provided, however, that the right to terminate
--------
this Agreement under this Section 7.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date;
(c) by either Agile or Digital if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, except, if the party relying on such order, decree or ruling or other
action has not complied with its obligations under this Agreement; or
(d) by Agile or Digital, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 6.1 or 6.2 (in the case of termination by Agile) or Section 6.1 or 6.3
(in the case of termination by Digital) not to be satisfied and (ii) shall not
have been cured within fifteen (15) business days following receipt by the
breaching party of written notice of such breach from the other party, provided
that such notifying party shall not be able to terminate the Agreement if it is
likewise in breach of any such representation, warranty, covenant or agreement.
7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 7.1, there shall be no liability or obligation
on the part of Agile, Digital, Merger Sub or their respective officers,
directors, or stockholders, except to the extent that such termination results
from the breach by a party of any of its representations, warranties or
covenants set forth in this Agreement; provided that the provisions of Sections
5.4, 5.21, 7.1, 9.4 and 9.8 shall remain in full force and effect and survive
any termination of this Agreement.
7.3 Amendment. This Agreement may be amended by the parties hereto,
---------
by action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
-----------------
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with
42
<PAGE>
any of the agreements or conditions contained herein. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in a written instrument signed on behalf of such party.
8. Escrow and Indemnification.
--------------------------
8.1 Escrow Fund.
-----------
(a) Pursuant to Section 1.7(j) hereof, and as soon as practicable
after the Effective Time, the Indemnification Shares shall be registered in the
name of, and be deposited with, State Street Bank and Trust Company (or such
other institution selected by Agile with the reasonable consent of Digital) as
escrow agent (the "Escrow Agent"), the treatment of which shall be governed by
the terms set forth herein, and in the Escrow Agreement. The foregoing deposit
consisting of the Escrowed Consideration, shall constitute the escrow fund (the
"Escrow Fund") and will be governed by the terms set forth herein and in the
Escrow Agreement. Agile may not receive any proceeds from the Escrow Fund unless
and until one or more Officer's Certificates (as defined in Section 8.3 below)
identifying Damages (as defined in Section 8.2(b) below) in excess of $250,000
(the "Basket Amount") has or have been delivered to the Escrow Agent as provided
in paragraph 8.4 below, in which case Agile shall be entitled to recover for all
Damages (as defined in Section 8.2(b) below) so identified, which when
aggregated with all other Damages, exceed $125,000, provided however, that Agile
shall be entitled to recover for all Damages arising from, or connected to, the
Digital Litigation Matters (defined in Section 8.2(b)), including, without
limitation, the Basket Amount at such time as the identified Damages arising
from, or connected to, the Digital Litigation Matters (when aggregated with all
other Damages) exceed the Basket Amount. In the event Agile issues any
Additional Escrow Shares (as defined below), such shares will be issued in the
name of the Escrow Agent and delivered to the Escrow Agent in the same manner as
the shares of Agile Common Stock delivered pursuant to this Section 8.1(a) (the
"Escrow Shares").
(b) Except for dividends paid in stock declared with respect to
the Escrow Shares ("Additional Escrow Shares"), which shall be treated as set
forth in Section 8.1(a) hereof, any cash dividends, dividends payable in
securities or other distributions of any kind made in respect of the Escrow
Shares will be delivered to the former Shareholders and Warrantholders on a pro
rata basis based on the number of Escrow Shares contributed to the Escrow Fund.
Each former Shareholder or Warrantholder will have voting rights with respect to
the Escrow Shares deposited in the Escrow Fund with respect to such former
Shareholder or Warrantholder so long as such Escrow Shares are held in escrow
("Escrow") and Agile will take all reasonable steps necessary to allow the
exercise of such rights. While the Escrow Shares remain in the Escrow Agent's
possession pursuant to this Agreement, the former Shareholders and
Warrantholders will retain and will be able to exercise all other incidents of
ownership of said Escrow Shares which are not inconsistent with the terms and
conditions of this Agreement.
8.2 Indemnification.
---------------
(a) Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Notwithstanding any investigation conducted before or after the Closing Date,
and notwithstanding any actual or implied knowledge or notice of any facts or
circumstances which
43
<PAGE>
Agile may have as a result of such investigation or otherwise, Agile will be
entitled to rely upon Digital's representations, warranties and covenants set
forth in this Agreement (as modified by the Digital Disclosure Schedule) or in
any certificate, schedule or exhibit delivered pursuant hereto. The obligations
of Digital with respect to such representations, warranties, agreements and
covenants will survive the Closing and continue in full force and effect until
the date twelve (12) months following the Closing Date (the "Termination Date"),
at which time the representations, warranties and covenants of Digital set forth
in this Agreement or in any certificate, schedule or exhibit delivered pursuant
hereto will terminate; provided, however, that thereafter Digital will remain
liable to the extent set forth below for Damages provided that a notice of such
Damages has been delivered to such party on or before the Termination Date and
until such time as such indemnity claim has been fully quantified and/or
decided, settled or adjudicated.
(b) Indemnification by Digital. Subject to the limitations set forth
--------------------------
in this Section 8, the Shareholders and Warrantholders immediately prior to the
Effective Time (collectively, the "Shareholder Indemnitors") will jointly and
severally indemnify and hold harmless Agile and the Surviving Corporation and
its respective officers, directors, agents, attorneys and employees, and each
person, if any, who controls or may control Agile or the Surviving Corporation
within the meaning of the Securities Act (hereinafter referred to individually
as an "Agile Indemnified Person" and collectively as "Agile Indemnified
Persons") from and against any and all any and all debts, obligations and other
liabilities, losses, damages (including any diminution in value of Digital or
its assets and all actual, punitive and consequential damages), claims, fines,
fees, penalties, interest obligations, deficiencies, and expenses (including,
without limitation, amounts paid in settlement, interest, court costs,
reasonable out-of-pocket fees and expenses of investigators, attorneys,
accountants, financial advisors and other experts, and other reasonable out-of-
pocket expenses of litigation, whether or not such litigation is resolved
against Agile) ("Damages") directly or indirectly arising from, or connected to,
(i) any misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by Digital
in this Agreement, the Digital Disclosure Schedules or any schedule to this
Agreement; (ii) any claim by a third party, which if true, would constitute a
misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by Digital
in this Agreement, the Digital Disclosure Schedules or any schedule to this
Agreement; or (iii) the litigation matters described and set forth in Schedule
8.2(b) attached hereto (each a "Digital Litigation Matter," and collectively,
the "Digital Litigation Matters").
(c) Maximum Indemnification. In the event the Shareholder Indemnitors
-----------------------
shall have any liability for indemnification or otherwise (including without
limitation, for breach of covenants or otherwise at law or equity) to any Agile
Indemnified Person under this Agreement, the sole satisfaction of such liability
shall be from the Escrow Fund, provided however, that nothing in this Agreement
shall limit the liability in amount, indemnification period, or otherwise (i) of
Digital with respect to fraud or criminal activity or (ii) of any Shareholder
Indemnitor with respect to fraud or criminal activity or in connection with any
breach by such Shareholder Indemnitor of any representation or covenant of such
Shareholder Indemnitor in any of the agreements which are Exhibits hereto or any
agreement, certificate or document delivered by such Shareholder Indemnitor
(excluding those entered into as an authorized and qualified representative on
behalf of Digital) in connection with the Merger
44
<PAGE>
and the transactions contemplated thereby to which such Shareholder Indemnitor
is a party or otherwise bound.
8.3 Escrow Period; Release From Escrow.
----------------------------------
(a) The Escrow Period shall terminate upon the expiration of twelve
(12) months after the Effective Time, provided, however, that a portion of the
Escrow Fund, which, in the reasonable judgment of Agile, subject to the
objection of the Shareholders' Agent (defined below) and the subsequent
arbitration of the matter in the manner provided in Section 8.6 hereof, is
necessary or reasonably potentially necessary to satisfy any unsatisfied or
unquantified claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent prior to termination of the Escrow Period shall remain in
the Escrow Fund until such claims have been quantified or resolved.
(b) Within three (3) business days after the Termination Date (the
"Release Date"), the Escrow Agent shall release from escrow to the Shareholder
Indemnitors their pro rata portion of the Escrow Shares in the Escrow Fund, less
with respect to each such Shareholder Indemnitor the number of Escrow Shares in
the Escrow Fund with a value (as determined pursuant to Section 8.4) equal to
(A) such Shareholder Indemnitor's pro rata portion of any Escrow Shares
delivered to Agile in accordance with Section 8.4 in satisfaction of
indemnification claims by an Agile Indemnified Person and (B) such Shareholder
Indemnitor's pro rata portion of any liability subject to delivery to an Agile
Indemnified Person in accordance with Section 8.3(a) with respect to any pending
but unquantified or unresolved indemnification claims of an Agile Indemnified
Person. Any Escrow Shares in the Escrow held as a result of clause (B) shall be
released to the Shareholder Indemnitors or released to Agile (as appropriate)
promptly upon quantification or resolution of each specific indemnification
claim involved. Escrow Shares in the Escrow shall be released to the respective
Shareholder Indemnitors, in proportion to their respective percentage interest
in the Escrow Fund as specified in Appendix B to the Escrow Agreement. Agile
will take such action as may be necessary to cause such certificates to be
issued in the names of the appropriate persons. Certificates representing
Escrowed Consideration and Additional Escrow Shares in the Escrow so issued that
are subject to resale restrictions under applicable securities laws will bear a
legend to that effect. No fractional shares shall be released and delivered
from Escrow to the Shareholder Indemnitors. In lieu of any fraction of an
Escrow Share to which a Shareholder Indemnitor would otherwise be entitled, such
holder will receive from Agile an amount of cash (rounded to the nearest whole
cent) equal to the product of such fraction multiplied by the Escrow Release
Price (as defined in Section 8.4).
(c) No Escrow Shares in the Escrow Fund or any beneficial interest
therein may be pledged, sold, assigned or transferred, including by operation of
law, by any Shareholder Indemnitor or be taken or reached by any legal or
equitable process in satisfaction of any debt or other liability of any such
Shareholder Indemnitor prior to the delivery to such Shareholder Indemnitor of
his pro rata portion of the Escrow Fund by the Escrow Agent as provided herein.
45
<PAGE>
(d) The Escrow Agent is hereby granted the power to effect any
transfer of Escrow Shares contemplated by this Agreement. Agile will cooperate
with the Escrow Agent in promptly issuing stock certificates to effect such
transfers.
8.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or
-----------------------
before the Release Date of a certificate signed by the Chief Executive Officer,
President or Chief Financial Officer of Agile (an "Officer's Certificate")
stating that with respect to the indemnification obligations of the Shareholder
Indemnitors in Section 8.2, Damages exist and specifying in reasonable detail
the individual items of such Damages included in the amount so stated, the date
each such item was paid, or properly accrued or arose, and the nature of the
misrepresentation, breach of warranty, default of a covenant or other agreement
or claim to which such item is related, or the manner in which it is related to
a Digital Litigation Matter, the Escrow Agent shall, subject to the provisions
of this Section 8, deliver to Agile out of the Escrow Fund, as promptly as
practicable after the claim is determined to be undisputed or any dispute
concerning the claim is resolved as set forth in this Section 8, Agile Common
Stock, cash or other assets held in the Escrow Fund having a value equal to such
Damages, provided, however, that if the claim is based on a third-party claim,
including a Digital Litigation Matter, that has not been fully adjudicated or
settled or is not otherwise reasonably quantifiable by objective means, then the
Officer's Certificate shall so state and briefly describe the circumstances that
affect the quantifiability of the claimed amount. At such time, if any, as
Agile enters into a settlement pursuant to Section 8.9(b) with respect to a
claim made in an Officer's Certificate that was unquantified and the
Shareholders' Agent has not consented in writing to such settlement, Agile will
file a supplementary Officer's Certificate (which may be filed after the Release
Date) with respect to such claim. For the purpose of compensating Agile for its
Damages pursuant to this Agreement, the Escrow Shares shall be valued at the
Escrow Release Price (defined below). For purposes of this Agreement, the term
"Escrow Release Price" shall mean the average of the closing price per share of
Agile's Common Stock as quoted on the NASDAQ National Market System, as reported
on the West Coast Edition of the Wall Street Journal, for the 10 consecutive
trading days ending five (5) trading days (such average to include the closing
price per share of Agile Common Stock on the first day of the five trading days)
prior to the date on which the Escrow Agent releases the Escrow Shares to Agile
in accordance with this Section 8 and the Escrow Agreement.
8.5 Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Shareholders' Agent and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery of Escrow
Shares pursuant to Section 8.4 hereof unless the Escrow Agent shall have
received written authorization from the Shareholders' Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of the Escrow Shares in the Escrow Fund in accordance with
Section 8.4 hereof, provided that no such payment or delivery may be made if the
Shareholders' Agent shall object in a written statement to the claim made in the
Officer's Certificate, including a claim in connection with any settlements made
by Agile pursuant to Section 8.9(b) hereof without having received the
Shareholder Agent's consent, and such statement shall have been delivered to the
Escrow Agent and to Agile prior to the expiration of such thirty (30) day
period. With respect to any Officer's Certificate filed with respect to a claim
that has not been fully adjudicated or settled or is otherwise not quantifiable
as of the time of the filing of the Officer's Certificate (an
46
<PAGE>
"Unquantifiable Claim"), regardless of whether an objection to such claim is
actually delivered pursuant to this Section 8.5, an objection to the amount of
the claim shall be deemed filed pursuant to this Section 8.5.
8.6 Resolution of Conflicts and Arbitration.
---------------------------------------
(a) In case the Shareholders' Agent shall so object in writing to any
claim or claims by Agile made in any Officer's Certificate, including a claim by
Agile in connection with any settlements pursuant to Section 8.9(b) hereof
without having received the Shareholder Agent's consent, Agile shall have thirty
(30) days to respond in a written statement to the objection of the
Shareholders' Agent. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agent and Agile shall attempt in
good faith for sixty (60) days to agree upon the rights of the respective
parties with respect to each of such claims. With respect to Unquantifiable
Claims, the parties shall attempt in good faith to agree upon the rights of the
respective parties with respect to each such claim for ninety (90) days after
the date of any Officer's Certificate with respect to such claim. If the
Shareholders' Agent and Agile should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties and shall be furnished to
the Escrow Agent. With respect to an Unquantifiable Claim, such memorandum may
provide that the amount of liability with respect to the Unquantifiable Claim
shall be determined by mutual agreement of the parties after the third party
claim has been reduced to judgment or settled or until the claim has otherwise
become reasonably quantifiable by objective reasons. The Escrow Agent shall be
entitled to rely on any such memorandum and shall distribute the Agile Common
Stock or other property from the Escrow Fund in accordance with the terms
thereof. Agile shall have no obligation to respond to objections to
Unquantifiable Claims deemed made pursuant to Section 8.5.
(b) If no such agreement can be reached after good faith negotiation,
either Agile or the Shareholders' Agent may, by written notice to the other,
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by one arbitrator. Agile and the Shareholders' Agent shall agree on
the arbitrator, provided that if Agile and the Shareholders' Agent cannot agree
on such arbitrator, either Agile or Shareholders' Agent can request that
Judicial Arbitration and Mediation Services ("JAMS") select the arbitrator. The
arbitrator shall set a limited time period and establish procedures designed to
reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrator, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrator shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys' fees and
costs, to the same extent as a court of competent law or equity, should the
arbitrator determine that discovery was sought without substantial
justification, that discovery was refused or objected to without substantial
justification, or that a party has engaged in any other practice that would
justify the imposition of sanctions if the dispute were being litigated in
Superior Court in the county in which the arbitration is being held. The
decision of the arbitrator shall be written, shall be in accordance with
applicable law and with this Agreement, and shall be supported by written
findings of fact and conclusion of law which shall set forth the basis for the
decision of the arbitrator. The decision of the arbitrator as to the validity
and amount of any claim
47
<PAGE>
in such Officer's Certificate shall be binding and conclusive upon the parties
to this Agreement, and notwithstanding anything in Section 8.5 hereof, the
Escrow Agent shall be entitled to act in accordance with such decision and make
or withhold payments out of the Escrow Fund in accordance therewith.
Notwithstanding any other provision of this Section 8.6, if the claim is an
Unquantifiable Claim at the time when the arbitration proceeding is scheduled to
commence, then either party shall have the right to delay the arbitration
proceeding as to the amount of the liability, but not as to whether Shareholder
Indemnitors are liable for such claim, until such third-party claim, including a
claim for any Digital Litigation Matter, has been reduced to judgment or settled
or until the claim has otherwise become reasonably quantifiable by objective
means. Any dispute as to the quantifiability of the claim shall be settled by
binding arbitration in accordance with the procedures set forth herein.
(c) Judgment upon any award rendered by the arbitrator may be entered
in any court having jurisdiction. Any such arbitration shall be held in Santa
Clara County, California under the commercial rules then in effect of the
American Arbitration Association. For purposes of this Section 8.6(c), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Agile shall be deemed to be the Non-
Prevailing Party unless the arbitrators award Agile more than one-half (1/2) of
the amount in dispute, plus any amounts not in dispute; otherwise, the
Shareholder Indemnitors for whom the Escrow Shares have been deposited in the
Escrow Fund shall be deemed to be the Non-Prevailing Party. The Non-Prevailing
Party to an arbitration shall pay its own expenses, the fees of the arbitrator,
any administrative fee of JAMS, and the expenses, including attorneys' fees and
costs, reasonably incurred by the other party to the arbitration.
8.7 Shareholders' Agent.
-------------------
(a) Hon Wong shall be constituted and appointed as agent
("Shareholders' Agent") for and on behalf of the Shareholder Indemnitors to give
and receive notices and communications, to authorize delivery to Agile of the
Escrow Shares from the Escrow Fund in satisfaction of claims by Agile, to object
to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Shareholders' Agent for the
accomplishment of the foregoing. Such agency may be changed by the holders of a
majority in interest of the Escrow Fund from time to time upon not less than ten
(10) days' prior written notice to Agile. No bond shall be required of the
Shareholders' Agent, and the Shareholders' Agent shall receive no compensation
for his services, provided, however that the Shareholder Agent shall be entitled
to reimbursement of all reasonable out-of-pocket expenses incurred in serving in
this capacity from the Escrow Fund. Notices or communications to or from the
Shareholders' Agent shall constitute notice to or from each of the Shareholder
Indemnitors.
(b) The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholder' Agent while acting in good faith and in the
exercise of reasonable judgment and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The
Shareholder Indemnitors shall severally indemnify the Shareholders' Agent and
hold him harmless against any loss, liability or expense incurred
48
<PAGE>
without gross negligence or bad faith on the part of the Shareholders' Agent and
arising out of or in connection with the acceptance or administration of his
duties hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about the Surviving Corporation, and Agile will not preclude the
Shareholders' Agent from relevant discussions with former officers and other
employees of Digital, provided that the Shareholders' Agent shall treat
confidentially and not disclose any nonpublic information from or about
Surviving Corporation to anyone (except on a need to know basis to individuals
who agree to treat such information confidentially).
8.8 Actions of the Shareholders' Agent. A decision, act, consent or
----------------------------------
instruction of the Shareholders' Agent shall constitute a decision of all
Shareholder Indemnitors for whom Escrow Shares are deposited in the Escrow Fund
and shall be final, binding and conclusive upon each such Shareholder
Indemnitor, and the Escrow Agent and Agile may rely upon any decision, act,
consent or instruction of the Shareholders' Agent as being the decision, act,
consent or instruction of each and every such Shareholder Indemnitor. The
Escrow Agent and Agile are hereby relieved from any liability to any person for
any acts done by them in accordance with such decision, act, consent or
instruction of the Shareholders' Agent.
8.9 Third-Party Claims; Settlements.
-------------------------------
(a) In the event Agile becomes aware of a third-party claim which
Agile believes may result in a demand against the Escrow Fund, Agile shall
notify the Shareholders' Agent of such claim, and the Shareholders' Agent and
the Shareholder Indemnitors for whom shares of Agile Common Stock and cash
otherwise issuable to them are deposited in the Escrow Fund shall be entitled,
at their expense, to participate in any defense of such claim. Agile shall have
the right in its sole discretion to settle any such claim. In the event that
the Shareholders' Agent has consented to any such settlement, the Shareholders'
Agent shall have no power or authority to object under Section 8.5 or any other
provision of this Section 8 to the amount of any claim by Agile against the
Escrow Fund for indemnity with respect to such settlement.
(b) Notwithstanding the foregoing, with respect to settlements
regarding any Digital Litigation Matter, including for those matters pending as
of the date hereof, Agile shall not agree to any settlement of such claims
without the prior written consent of the Shareholders' Agent, which shall not be
unreasonably withheld. Any disputes arising out of an objection by the
Shareholder Agent for such settlement by Agile shall be resolved pursuant to the
procedures set forth in Section 8.6 hereto. Despite any objection to the
settlement by Shareholder Agent, Agile shall be entitled to settle any Digital
Litigation Matters and to recover indemnification therefrom, subject to the
right of the Shareholders' Agent to dispute the claim pursuant to Section 8.5.
9. General Provisions.
------------------
9.1 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed duly delivered if delivered personally (upon
receipt), or three (3) business days after being mailed by registered or
certified mail, postage prepaid (return receipt
49
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requested), or one (1) business day after it is sent by commercial overnight
courier service, or upon transmission, if sent via facsimile (with confirmation
of receipt) to the parties at the following address (or at such other address
for a party as shall be specified by like notice):
(a) if to Agile or Merger Sub, to:
Agile Software Corporation
One Almaden Blvd.
San Jose, California 95113-2253
Attn: Thomas Shanahan, Chief Financial Officer
Telephone: (408) 975-3900
Facsimile: (408) 271-4862
with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301-1825
Attn: Bruce E. Schaeffer, Esq.
Telephone: (650) 833-2000
Facsimile: (650) 327-3699
(b) if to Digital, to:
Digital Market, Inc.
1261 Oakmead Parkway
Sunnyvale, California 94086
Attn: Scott Hammond
Telephone: (408) 720-7422
Facsimile: (408) 720-7420
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Steven E. Bochner, Esq.
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
50
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(c) if to Shareholders' Agent, to:
Hon Wong
c/o Wongfratris Company
51 Jordan Place
Palo Alto, CA 94303
Telephone: (650) 327-98899
Facsimile: (650) 473-1888
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Steven E. Bochner, Esq.
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
9.2 Definitions. In this Agreement any reference to any event,
-----------
change, condition or effect being "material" with respect to any entity or group
of entities means any material event, change, condition or effect related to the
financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the financial condition, properties,
assets, liabilities, business, operations, results of operations, or prospects
of Digital or Agile, as the case may be, taken as a whole, but shall not include
any of the following in and of themselves, either alone or in combination: (i)
any effect or change occurring as a result of (A) general economic or financial
conditions or (B) other developments which are not unique to Digital or Agile,
as the case may be, but also affect other persons who participate or are engaged
in the lines of business in which Digital or Agile, as the case may be,
participates or is engaged and (ii) any change or effect on the financial
condition, properties, assets, liabilities, business, operations, results of
operations, or prospects of Digital or Agile, as the case may be, following the
date of this Agreement attributable to the announcement of this Agreement or the
transactions contemplated hereby.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Nonassignability; Parties in Interest. This
-------------------------------------------------------
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Digital Disclosure Schedule and the Agile Disclosure
Schedule (a) constitute the entire agreement among the
51
<PAGE>
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any termination
of this Agreement or the Closing, in accordance with its terms; (b) are not
intended to confer upon any other person any rights or remedies hereunder, and
shall not be assigned by operation of law or otherwise without the written
consent of the other party.
9.5 Severability. In the event that any provision of this Agreement,
------------
or the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Remedies Cumulative. Except as otherwise provided herein, any
-------------------
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
9.7 Arbitration.
-----------
(a) Subject to paragraph (b) below and the limitations set forth
in the provisions of Section 8 hereof, the parties shall endeavor to resolve all
disputes by agreement and to that end shall each provide the other with
sufficient descriptions and information regarding its position to permit
informed assessments and decisions. Any disagreement, claim, demand,
controversy, or dispute which arises after the Closing in any way relating to
this Agreement and the performance or alleged breach by the parties, whether
involving questions of law or fact or both and regardless of the nature thereof
or the remedy therefor, which is not settled by agreement of the parties shall
be resolved consistent with the arbitration provisions in Section 8.6 of the
Agreement.
(b) Any party hereto may request a court of competent
jurisdiction to grant provisional injunctive relief to such party until an
arbitrator can render an award on the matter in question and such award can be
confirmed by a court having jurisdiction thereof.
9.8 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of California regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
9.9 Rules of Construction. The parties hereto agree that they have
---------------------
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
52
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[signature page follows.]
53
<PAGE>
IN WITNESS WHEREOF, Digital, Agile and Merger Sub have caused this
Agreement to be executed and delivered by each of them or their respective
officers thereunto duly authorized, all as of the date first written above.
DIGITAL MARKET, INC.
By: /s/ Scott R. Hammond
----------------------------------------
Scott R. Hammond, President and
Chief Executive Officer
AGILE SOFTWARE CORPORATION
By: /s/ Thomas P. Shanahan
----------------------------------------
Thomas P. Shanahan, Chief Financial
Officer
ALASKA ACQUISITION CORPORATION
By: /s/ Thomas P. Shanahan
----------------------------------------
Thomas P. Shanahan, Chief Executive
Officer
54
<PAGE>
Exhibit 5.1
[LETTERHEAD OF GRAY CARY WARE & FREIDENRICH LLP]
November 18, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Agile Software Corporation
Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
As counsel to Agile Software Corporation, a Delaware corporation (the
"Company"), we are rendering this opinion in connection with a proposed sale
of those certain shares of the Company's newly-issued Common Stock and those
certain additional shares of the Company's Common Stock held by certain
stockholders as set forth in the Registration Statement on Form S-1 to which
this opinion is being filed as Exhibit 5.1 (the "Shares"). We have examined
all instruments, documents and records which we deemed relevant and necessary
for the basis of our opinion hereinafter expressed. In such examination, we
have assumed the genuineness of all signatures and the authenticity of all
documents submitted to us as originals and the conformity to the originals of
all documents submitted to us as copies.
Based on such examination, we are of the opinion that the Shares identified in
the above-referenced Registration Statement will be, upon effectiveness of the
Registration Statement and receipt by the Company of payment therefor, validly
authorized, legally issued, fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting
a part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich LLP
GRAY CARY WARE & FREIDENRICH LLP
<PAGE>
EXHIBIT 10.16
OFFICE LEASE
1. PARTIES
1.1 This Lease is entered into as of this 5th day of November 1999, in the
City of San Jose, County of Santa Clara, State of California, by and between
55 ALMADEN BOULEVARD LIMITED PARTNERSHIP,
a California limited partnership
(hereinafter referred to as "Landlord") and
AGILE SOFTWARE, INC.
(hereinafter referred to as "Tenant").
2. PREMISES
2.1 In consideration of their respective agreements contained herein,
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord premises
consisting of the entire fifth (5/th/) and sixth (6/th/) floors of the building
located at:
55 Almaden Boulevard
San Jose, California
each comprising approximately 16,960 rentable square feet, designated as Suites
500 and 600 and depicted in Exhibit A attached. Said premises are herein
referred to as the "Premises" and the building in which the Premises are located
is herein referred to as the "Building".
3. TERM
3.1 The Term of this Lease shall be for a period of approximately sixty
(60) months commencing on the date defined in Article 4. If the Term expires on
a date other than the last day of the month, the Term shall continue up to and
including the last day of that month. If the Term expires on a day which falls
on a weekend, the Term shall continue up through and including Sunday.
4. LEASE COMMENCEMENT
4.1 The Term of this Lease shall commence on March 1, 2000, provided that
all of the following conditions have been satisfied:
4.1.1 Landlord has recaptured the Premises from Ernst & Young, LLP,
pursuant to the lease between Landlord and Ernst & Young with
expiration date of August 12, 2000. Said recapture must be on terms
that are acceptable to Landlord in its sole judgement.
4.1.2 Ernst & Young has vacated the Premises.
4.1.3 Landlord has substantially completed any improvements to the
Premises which may be required pursuant to Article 34 or Exhibits "E"
or "E-1" of this Lease.
4.2 The Lease Commencement Date and Lease Expiration Date as prescribed
herein shall be confirmed by Landlord to Tenant in a written Confirmation of
Lease Commencement which shall be prepared by Landlord, served on Tenant,
executed by Tenant, returned to Landlord and attached to this lease after Tenant
takes occupancy. Tenant's failure to execute and return the Confirmation of
Lease Commencement within fifteen (15) days after service by Landlord shall be
deemed approval by Tenant of all information set forth therein.
4.3 Tenant agrees that if Landlord is unable to deliver possession of the
Premises to Tenant on the date above specified for the commencement of the Term
of this Lease, this Lease shall not be void or voidable, nor shall Landlord be
liable to Tenant for any loss or damage resulting therefrom, but the expiration
date of the Term shall be extended by the same number of days that the Tenant's
possession of the Premises was delayed by Landlord's inability to deliver
possession, and in such event Tenant shall not be liable for any rent until such
time as Landlord tenders delivery of possession of the Premises to Tenant with
Landlord's work therein, if any, substantially completed. If Landlord's
inability to deliver the Premises is not the result of acts or omissions of
Tenant or its agents, and if such delay in delivery of possession continues for
150 days after the Lease Commencement date, Tenant shall have the right to
cancel this Lease
1
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by written notice to Landlord 15 days prior to the effective date of
cancellation. The above notwithstanding, there shall be no delay in commencement
of the Term or in Tenant's liability for payment of rent if Landlord is unable
to deliver possession of the Premises due to any act, omission or delay of
Tenant. Should Landlord tender possession of the premises to Tenant prior to the
date specified for commencement of the term hereof, and Tenant elects to accept
such prior tender, such early occupancy shall be subject to all of the terms,
covenants and conditions of this Lease, including the payment of rent, and shall
not alter or affect the expiration date of the Term as set forth in Paragraph 3
above. In the event that Tenant commences occupancy of the Premises on any date
other than the commencement date of the Term pursuant to this Paragraph 4,
Landlord and Tenant shall promptly execute a written amendment to this Lease
setting forth and confirming the date occupancy commenced.
5. RENT
5.1 Commencing on the first day of the Term of this Lease, Tenant shall
pay to Landlord as monthly installments of Rent in advance, due and payable on
the first day of each calendar month in lawful money of the United States the
following sums:
<TABLE>
<CAPTION>
5.2 Per Sq. Ft. Per Sq. Ft.
-------------- -------------------
Months Fifth Floor Sixth Floor Monthly Rent
--------------- -------------- ------------------- -----------------
<S> <C> <C> <C> <C>
01 - 12 $2.50 $2.30 $81,408.00
12 - 24 $2.60 $2.40 $84,800.00
25 - 36 $2.70 $2.50 $88,192.00
37 - 48 $2.81 $2.81 $95,315.20
49 - 60 $2.92 $2.92 $99,046.40
</TABLE>
5.3 All rent, including Rent and escalation, due under this Lease shall be
paid at the address set out after the name of the Landlord or such other address
as may be designated in writing by Landlord.
If the date of commencement occurs on a day other than the first day of a
calendar month, the rent for such first month shall be prorated at the monthly
rate agreed upon in this lease agreement divided by the total number of days in
the first month times the number of days occupied during the first month.
If the date of expiration occurs on a day other than the first day of a calendar
month, the rent for such last month shall be prorated at the monthly rate agreed
upon in this lease agreement divided by the total number of days in the last
month times the number of days occupied during the last month.
6. TAXES AND OPERATING EXPENSES ESCALATION
6.1 Tenant shall pay to Landlord its pro rata share (as defined in Section
6.2 below) of the following expenses ("Expenses") paid or incurred, by Landlord
on the Building, land, parking, and appurtenant site improvements whereon the
Premises are located (the "Property") to the extent the Expenses exceed the
expenses paid or incurred in the calendar year 2000, hereinafter defined as
"Base Year".
6.1.1. All real property taxes paid by Landlord that are levied upon
and/or assessed against the Property, including any taxes which may be levied on
rents (other than state or federal income taxes), the use or occupation of the
Building, vehicles utilizing parking areas, the making of this Lease, and the
occupancy of Tenant, Tenant shall be responsible for and charged separately for
any real property tax assessed on tenant improvements installed by Tenant in
accordance with Article 13 herein. If the local taxing authority issues a
separate tax statement for Tenant's improvements, Tenant shall pay those taxes
directly prior to delinquency. Notwithstanding the foregoing, the following
shall be excluded from real property taxes as defined herein:
(a) Any charges or penalties or interest accrued through Landlord's
nonpayment or late payment of taxes or assessments.
(b) Any taxes arising from or applicable to all other real and
personal property of the Landlord.
(c) Any real property tax assessed on tenant improvements installed by
or at the cost and expense of any other tenant of the Building.
6.1.2 Any tax, fee, charge, or excise, however designated, by any
governmental or public authority applicable to the Property that is a direct or
indirect substitute in whole or in part for or in addition to real property
taxes. Estate, inheritance, transfer, gift, or franchise taxes levied on
Landlord shall not be included in Expenses, provided such taxes are not levied
to replace real property taxes, or relate to environmental or energy charges.
2
<PAGE>
6.1.3 If, during the Term of this Lease, Landlord makes capital
improvements to the Building, Premises, or common areas as required by any new
or existing federal, state, city, or county legislation for reasons of energy
conservation, handicapped access, or other reasons of public health, safety, and
welfare, Landlord may amortize such capital improvement costs over the
reasonable life of the capital improvement period and include the amortized cost
in Expenses. Any work necessary to correct latent defects in the Building or to
correct Landlord's failure to construct the Building in accordance with
applicable building codes and standards, shall be excluded from Expenses.
6.1.4 All insurance premiums of fire, earthquake, extended coverage,
liability, and any other insurance that Landlord reasonably maintains on the
Building.
6.1.5 The cost of all Building services, including, without
limitation, elevator maintenance, engineering wages and benefits, maintenance
and repair, supplies, janitorial wages and benefits, utilities for heating and
ventilation, window cleaning, miscellaneous operating expenses, landscaping and
common area expenses, security, utilities provided to all common areas, the
salaries of the building manager and other building and parking personnel, and
administration and management fees. Any building services may be performed by
Landlord or its affiliates or agents provided such charges and fees do not
exceed those charges and fees of independent contractors in similar buildings in
the San Jose area.
6.2 Tenant's pro rata share of Taxes and Operating Expenses shall be
dividends of those fractions represented by Tenant's total net rentable square
feet as of Lease Commencement Date (defined as 33,920 Square Feet) increased by
the portion of any Expansion Space upon exercise of any Expansion Option,
divided by the total net rentable square feet of the building (134,980 Square
Feet which based on space originally leased would be 25.13%). If less than one
hundred percent (100%) of the net rentable area of the building is serviced as
applicable during any calendar year or portions thereon, there will be a
proportional decrease to the total net rentable area of the building for
variable expenses only based on the ratio of the Tenant's total net rentable
square footage bears to the total net rentable area of the Building actually
serviced as applicable. Variable expenses shall be defined as all utilities,
janitorial, janitorial supplies, window cleaning, Building services, and
Building supplies which are provided to the Property. Therefore, Tenant is only
responsible for its pro rata share of expenses on occupied or serviced areas and
not for vacant areas, which is Landlord's responsibility.
6.3 The amount of Additional Rent to be paid by Tenant shall be determined
and payable as follows:
6.3.1 After the end of each calendar year during the Lease Term,
Landlord shall deliver to Tenant a statement of the actual Operating Expenses
for the preceding calendar year which shall become the current year's estimate
of Operating Expenses ("Estimated Expenses"), and Landlord's statement of
Tenant's Pro rata Share of the increase, if any, in the Estimated Expenses over
the Base Year Expenses (the "Excess Expenses"). For purpose hereof, the term
"Base Year Expenses" shall mean the Expenses incurred during calendar year 2000.
6.3.2 If the Estimated Expenses as determined for any calendar year
are less than the actual Operating Expenses incurred by Landlord during that
calendar year, then Tenant shall pay its pro rata share of such difference
within thirty (30) days on receipt of Landlord's statement delivered pursuant to
Subparagraph 6.3.1.
6.3.3 Tenant shall also pay, within thirty (30) days of receipt of
such statement, an amount equal to one-twelfth (1/12th) of its Pro rata Share of
the Excess Expenses times the number of months (including the month in which
payment is made) since the first such month of the year.
6.3.4 Thereafter, with each payment of Rent, Tenant shall pay one-
twelfth (1/12) of its Pro rata Share of the Excess of Expenses.
6.3.5 If the Estimated Expenses as determined for any calendar year
exceed the actual operating Expenses incurred by Landlord during that calendar
year, then Tenant's Pro rata Share of such difference shall be credited against
its next payment of Rent.
6.3.6 Landlord's and Tenant's obligation to make any payment pursuant
to subparagraph 6.3.2 and 6.3.5 above shall survive the termination of this
Lease. If after termination of this Lease, actual Operating Expenses for the
calendar year of the termination are less than Estimated Expenses for such year,
Landlord shall pay Tenant in cash its Pro rata share of such difference. If
actual expenses are higher than Estimated Expenses, then Tenant shall pay
Landlord in cash its Pro rata Share of such difference. Any payment pursuant to
this subparagraph shall be prorated based upon the number of months of the Term
in the year of termination.
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6.4 Landlord shall maintain complete and accurate records of all Expenses.
Tenant or its representative shall have the right to inspect Landlord's records
of the Expenses once each year during reasonable business hours and following
thirty (30) days' notice to Landlord.
6.5 For purposes of computing Tenant's pro rata share of Excess Expenses
under this Lease, the maximum increase in the Building's Operating Expenses for
any one-year over the prior year shall be limited to ten percent (10%). This
provision limits the base for calculating Tenant's pro rata share and shall not
be construed to limit any increase in Tenant's pro rata share of the Excess
Expenses.
7. CONSIDERATION
7.1 Upon execution of this Lease by Tenant, Tenant shall deposit with
Landlord the sum of ninety-nine thousand forty-six and 40/100 dollars
($99,046.40), ("Security Deposit") to secure the faithful performance by Tenant
under this Lease. If Tenant shall at any time fail to make payment or fail to
keep or perform any Term, covenant, and condition on its part may be made or
performed or kept under this Lease, including without limitation, payment of
Rent, maintenance of the Premises in good repair, and surrendering the Premises
in a clean condition, Landlord may, but shall not be obligated to and without
waiving or releasing Tenant from any obligation under this Lease, and without
waiving its right to treat such failure as a default hereof, use, apply or
retain the whole or any part of the Security Deposit reasonably necessary to
remedy such failure of Tenant. In such event, Tenant shall, within five (5)
working days of written demand by Landlord, remit to Landlord sufficient funds
to restore said Security Deposit and Landlord may commingle it, use it in
ordinary business, transfer or assign it, or use it in any combination of those
ways. No interest shall accrue on the Security Deposit. Should Tenant comply
with all of said Terms, covenants, and conditions, and promptly pay all of the
rental herein provided as it falls due, and at the end of the Term of this
Lease, then said Security Deposit shall be returned to Tenant within thirty (30)
days following the termination of this Lease and vacating of the Premises by
Tenant.
8. LATE CHARGE
8.1 Lessee hereby acknowledges that late payment by Lessee to Lessor of
Base Rent, Lessee's Share of Operating Expense increases or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed coveting the Building. Accordingly, if any installment of Base Rent,
Operating Expense increase, or any other sum due from Lessee shall not be
received by Lessor or Lessor's designee within five (5) days after such amount
shall be due, then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor a late charge equal to 5% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder.
9. USE
9.1 Tenant shall use and occupy the Premises during the Term for general
office purposes and no other purpose without the prior written consent of
Landlord. Tenant shall not use, suffer or permit the Premises or any part
thereof to be used for any other purpose or purposes without obtaining written
consent of Landlord, which consent shall not be unreasonably withheld.
9.2 Nothing contained in this Lease shall be construed to prohibit or
limit Landlord from using or leasing any portion of the Building, development,
or project of which the Premises are a part, or any other property owned or
controlled by him, for any lawful purpose.
9.3 Should Tenant commit or permit any act or acts upon the Premises or
use the Premises or permit the Premises to be used in any manner which will
increase the existing rate of insurance on the Building, any part thereof or its
contents or any part thereof, such additional expense shall be paid by Tenant to
Landlord within ten (10) days of delivery to Tenant of notice of such increase.
Tenant shall not, however, commit any acts which will cause the cancellation of
any insurance policy. Tenant shall not sell or permit to be kept, used or sold
in or about the Premises any article which may be prohibited by the standard
form of fire insurance policies, as such now or are hereafter provided, covering
the Building, any part thereof, or its contents.
9.4 Tenant shall not commit or suffer to be committed any waste upon the
Premises or any public or private nuisance or any other act or thing which may
disturb the quiet enjoyment of any other tenant in the Building in which the
Premises are located. Tenant shall not use the Premises or permit the Premises
to be used in whole or in part for any purpose that is deemed to be in violation
of any laws, ordinances, regulations or roles of any public authority or
organization at any time. A judgement of any court of competent jurisdiction or
the admission by Tenant in any judicial or administrative action or proceeding
4
<PAGE>
against Tenant that Tenant has violated any such laws, ordinances, regulations,
or rules in the use of the Premises shall be deemed to be a conclusive
determination of that fact between Landlord and Tenant.
9.5 Upon the expiration or sooner termination of this Lease, Tenant shall
quit and surrender the Premises to Landlord in good condition and repair
reasonable wear and tear excepted.
10. BUILDING SERVICES
10.1 Landlord agrees to furnish heating, ventilating and air conditioning
to the Premises to an extent lawfully permitted for the comfort and occupation
of the Premises to during the hours 7:00 a.m. to 6:00 p.m., Monday through
Friday and from 9:00 a.m. through 3:00 p.m. on Saturdays, legal holidays
excepted. Tenant agrees to keep the corridor doors closed. Tenant agrees not to
install any equipment which gives off heat in an amount which would place an
overload on the central building facilities; and in all respects to conform with
any reasonable rules and regulations Landlord shall make for the use of the
heating and air conditioning systems and will not install equipment which would
place an overload on the structure of the Building. Tenant will have the right
to require and pay for at its cost and expense heating and air conditioning
delivered to the floor or floors in which its Premises are located at times
other than those specified herein, provided it gives Landlord twenty-four (24)
hours notice of such requirements during weekdays and forty-eight (48) hours
during weekends and holidays.
10.2 Landlord shall provide water, electricity, and use of elevators
twenty-four (24) hours per day, seven (7) days a week.
10.2.1 Landlord shall maintain, in good condition, the following:
(a) The structural parts and exterior walls of the Building, which
structural parts include the foundations, bearing walls, subfloor,
roof, and windows (except if caused by acts of Tenant or its
invitees).
(b) The unexposed electrical, plumbing and sewage systems including
without limitation, those portions of the systems lying outside
Premises;
(c) Utilities and building standard lamp replacement on a scheduled
basis;
(d) Heating, ventilating and air conditioning systems of the
Building;
(e) The landscaping, parking, loading areas, walks and driveways of
Premises;
(f) Elevators
10.3 Landlord agrees to furnish, or cause to be furnished, the Premises
with electricity necessary for lighting and fractional horsepower office
machines, water, and elevator service in the Building. Janitorial service will
be furnished five (5) times weekly, legal holidays excepted, time and days to be
at Landlord's option. Window cleaning, inside and outside, will be furnished two
(2) times per year. No electric current will be furnished for high-energy
consumption equipment such as electronic business machines or computers (other
than electric typewriters, word processors, adding machines, copy machines, fax
machines, or desk-top computers using 110 volts) or for hot plates or electric
heaters (see Exhibit B attached hereto).
10.4 If Tenant shall require electric current for purposes other than
those specified above, it is understood that Landlord may cause an electric
meter to be installed in the Premises for that equipment and kept in repair at
the sole cost and expense of the Tenant, so Tenant agrees to pay Landlord for
all such electric current consumed for any such other purposes at the rates
charged for similar services by the local public utility plus any additional
expense incurred in installing and maintaining such meter and keeping account of
the current so consumed. Statements of Landlord for such consumption of electric
current shall be rendered to Tenant not less frequently than quarter annually,
and final statements shall be rendered to Tenant on or before the last days of
the fourth month after expiration of the Lease. The amount of such statements
shall be paid by Tenant within fifteen (15) days after the same have been
rendered.
10.5 Landlord shall not be liable for any damage to person or property of
any nature whatsoever, or compensation or claim for abatement of Rent or
otherwise by reason of any inconvenience, annoyance, injury, or loss arising
from the installation, operation, and maintenance of any equipment or service
provided under this Article 10 or otherwise or from any failure to keep said
equipment or service in operation when such failure is occasioned by act or
neglect of Tenant or by repairs, removals, improvements needful in the judgement
of Landlord or by any power failure, labor controversy or by any accident or
casualty whatsoever, or for any other reason whatsoever and howsoever occurring
beyond Landlord's reasonable control. If interruptions, curtailment or stoppage
of any equipment or service extends beyond five (5) working days after written
notification is received by Landlord and is caused by Landlord or
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its agents', employees', or contractors' negligence in properly maintaining or
otherwise timely commencing repair of any item of equipment, then Tenant shall
be entitled to a pro rata adjustment of rent for the period of any such
curtailment or stoppage of service.
10.6 Landlord shall not be required to furnish and Tenant shall not be
entitled to receive any such service provided for in this Article 10 during any
period when Tenant is in default under the provisions of this Lease.
11. CONDITION OF PRESSES AND REPAIRS
11.1 Tenant shall be deemed to have agreed by accepting occupancy that the
Premises are in good order, condition, and repair except for latent defects and
except for items as to which Tenant has notified Landlord in writing prior to
the date on which Tenant occupies the Premises. Tenant, at Tenant's expense,
shall keep the Premises in good order, condition, and repair, including all
fixtures, and equipment installed by Tenant except for normal wear and tear. In
the event Tenant fails to maintain the Premises in good order and repair, except
for reasonable wear and tear, Landlord shall give Tenant notice to make such
repairs or perform such maintenance as Landlord deems appropriate. In the event
Tenant fails to do so within fifteen (15) days of receipt of notice, or if such
repairs cannot be reasonably made within such a period and if Tenant has not
commenced to make the repairs and/or has not diligently prosecuted the repairs
to completion, Tenant shall be in material breach and default of this Lease, and
Landlord shall have the option, but not the obligation, to make such repairs or
perform such maintenance at the expense of Tenant and the cost thereof shall be
deemed to be, and shall be paid, as additional rent, with the rent next due
following the delivery of notice to Tenant of said cost. Landlord shall have no
liability to Tenant for any damage, inconvenience, or interference with the use
of the Premises by Tenant as a result of making any such repairs or performing
such maintenance. Landlord's right to perform such repair is in addition to a
cumulative with all other rights Landlord has hereunder and at law and in
equity, and Landlord may elect to utilize any number of such other remedies with
or without so performing such work.
12. ALTERATIONS
12.1 Tenant, at its expense, may make changes, additions and improvements
to the Premises provided any change, addition or improvement shall:
(a) Be made only with the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed, and which shall
include approval of space plans and final working drawings, if
applicable; and
(b) comply with all applicable governmental regulations and carry
certification from the Tenant's designer or architect that the
changes, additions or improvements to the Premises, to the best of the
certifier's knowledge, meet the requirements of the Americans with
Disabilities Act; and
(c) equal or exceed the current construction standards for the
building; and
(d) be performed by licensed contractors who have, prior to commencing
work, delivered to Landlord evidence of insurance coverage in amount
and form satisfactory to Landlord, which current insurance
requirements are described in Article 12.1.1 of this Lease.
12.1.1 Commercial General Liability Insurance - Landlord's current
--------------------------------------
insurance requirements for contractors working in the Building, which may be
changed from time to time as is reasonably necessary, are as follows:
Each contractor or subcontractor shall secure and maintain, at its own expense,
a commercial general liability policy which insures against bodily injury,
property damage, personal injury and advertising injury claims arising from work
conducted or service provided on behalf of the Tenant, with a combined single
limit of $1,000,000 per occurrence, a general aggregate limit of $2,000,000, and
a products/completed operations aggregate limit of $2,000,000. Any general
aggregate limit shall apply per project (contractor). Such insurance shall
include Landlord, Landlord's Agents or Representatives and the
Engineer/Architect as additional insureds and certificate holders. Such
insurance shall include the following coverage extensions:
(a) Contractual liability;
(b) Broad form property damage liability;
(c) Personal and advertising injury liability; and
(d) Coverage for liability arising from independent contractors.
Contractor's completed operations insurance shall remain in effect for two years
after completion of work on behalf the Landlord. Coverage may not be written on
a claims made basis without prior approval of Landlord.
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High Risk
- ---------
Any contractors or subcontractors whose work or services listed on the "High
Risk Schedule" attached as Exhibit E-1 are required to provide a combined single
limit of $5,000,000 per occurrence, a general aggregate limit of $5,000,000 and
a products/completed operations aggregate of $5,000,000. All other requirements
remain unchanged.
Business Auto Liability
- -----------------------
Contractors and subcontractors shall secure and maintain, at their own expense,
a business auto liability policy which insures against bodily injury and
property damage claims arising out of maintenance, use or operation of "any
auto." A combined single limit of liability for bodily injury and property
damage of $1,000,000 per accident shall be furnished. Such insurance shall
include Landlord and Landlord's Agents or Representatives as additional insureds
and certificate holders.
Workers Compensation & Employers Liability
- ------------------------------------------
Contractors and subcontractors shall secure and maintain, at its own expense,
workers compensation insurance and employers liability insurance. The workers
compensation insurance must satisfy the Contractor's/Subcontractor's workers
compensation obligation to its employees in the states in which they operate on
the Tenant's behalf. Employers liability insurance must be secured with minimum
limits of $1,000,000 for bodily injury by accident, $1,000,000 each employee for
bodily injury by disease, and a $1,000,000 policy limit for bodily injury be
disease or by Contractor's/Subcontractor's employees.
Certificate of Insurance
- ------------------------
Contractors/Subcontractors shall furnish certificates of insurance, evidencing
such policies required above prior to commencement of work or services and prior
to each renewal thereafter. Such insurance shall be written with insurers
licensed to do business in the state in which the property is located, with a
Best Insurance Reports rating of "A," "VIII" or better unless otherwise approved
by Landlord, Landlord's Agents or Representatives. Such policies shall be
endorsed and such certificates shall provide that no cancellation, non-renewal
or material reduction in coverage can take effect unless 30 days prior written
notice by registered mail to furnished to the Landlord.
12.1.2 Tenant or Tenant's contractor(s) shall apply for and obtain any
and all permits required for any alteration. Copies of each permit, the signed,
approved inspection records and a Certificate of Occupancy issued by the
Building Department shall be provided to Landlord at the completion of work and
prior to Tenant's occupancy of the Premises.
12.1.3 Within sixty (60) days of the completion of any alterations to
the Premises, Tenant shall provide Landlord with a copy of the construction
contract for the alteration along with copies of lien releases evidencing
Tenant's full payment under that contract.
12.1.4 Within sixty (60) days of completion of any alterations to the
Premises, Tenant shall provide to Landlord one (1) set of reproducible sepia "as
built" drawings and two (2) "as built" copies of drawings showing all
alterations, improvements, and changes to the Building and Premises.
12.2 Tenant shall have the right at any time during the Term of this lease
to remove its trade fixtures and personal property from the Premises provided
that Tenant is not then in default of any of its obligations hereunder and
provided such removal shall not damage or mar the Premises. Tenant, upon the
termination of this lease or the expiration of the Term hereof or upon vacating
the Premises for any reason, shall quit and surrender the Premises in good
order, condition, and repair, reasonable wear and tear excepted. Upon the
termination of this Lease or the expiration of the Term, Landlord shall have the
option to require Tenant to remove from the Premises, at Tenant's expense, all
trade fixtures placed on the Premises by Tenant, with the Premises thereafter to
be restored or repaired as required in Article 11.1 by Landlord, at the expense
of the Tenant.
12.3 Tenant shall keep the Premises and the Building of which the Premises
are a part free and clear of any liens and shall indemnify, hold harmless, and
defend Landlord from any liens and encumbrances arising out of any work
performed or materials furnished by or at the direction of Tenant. In the event
any lien is filed, Tenant shall do all acts necessary to discharge any lien
within ten (10) days of filing, or if Tenant desires to contest any lien, then
Tenant shall deposit with Landlord within ten (10) days of filing the lien such
security as Landlord shall demand to insure the payment of the lien claim. In
the event Tenant shall fail to pay any lien claim when due or shall fail to
deposit the security with Landlord within the aforesaid ten (10) day period, the
Tenant shall be in default of this Lease. In addition to any other remedies
Landlord may have under this Lease for the default, Landlord shall also have the
right to expend all sums reasonably necessary to discharge the lien claim and to
notify the Tenant of the amount of such sums.
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Thereafter, Tenant shall pay as additional rental, when the next rental payment
is due, all sums expended by Landlord in discharging any lien, including actual
attorneys' fees and costs.
13. TAXES
13.1 Tenant shall pay, or cause to be paid, before delinquency, any and all
taxes levied or assessed and which become payable during the Term hereof upon
all Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property located in the Premises; except taxes attributed to Landlord's tenant
improvement allowance given to the original tenant of the Premises. In the event
any or all of the Tenant's leasehold improvements, equipment, furniture,
fixtures, and personal property shall be assessed or taxed with the Building,
Tenant shall pay to Landlord its share of such taxes within ten (10) days after
delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's property. If the local taxing
authority issues a separate tax statement for Tenant's improvements, Tenant
shall pay those taxes directly prior to delinquency. Failure of Tenant to so pay
timely all or any part of the taxes it is obligated to pay hereunder shall be a
material breach and default of this Lease.
14. ASSIGNMENT AND SUBLETTING
14.1 Tenant shall not voluntarily or by operation of law assign, transfer,
mortgage, sublet or otherwise transfer or encumber all or any part of Tenant's
interest in this Lease or in the Premises, without Landlord's prior written
consent, which Landlord shall not unreasonably withhold or delay. Landlord shall
respond to Tenant's request for consent hereunder in a timely manner and any
attempted assignment, transfer, mortgage, encumbrance or subletting without such
consent shall be void, and shall constitute a breach of this Lease.
14.2 If Tenant wishes to sublet any portion of the Premises ("Proposed
Sublease Space"), Tenant shall give to Landlord, at least fifteen (15) days
prior to the proposed effective date of such subletting ("Proposed Effective
Date") a notice of intention to sublease ("Notice Of Intention"), which states
the Proposed Effective Date and fully describes the Proposed Sublease Space and
the proposed subtenant. Tenant shall also provide Landlord any additional
information requested by Landlord concerning the proposed sublease or the
proposed sublessee immediately upon request.
14.3 If Tenant wishes to sublet the whole Premises for the entire remaining
term, as to the whole Premises, Landlord shall have the right, to be exercised
by giving notice ("Recapture Notice") to Tenant within fifteen (15) working days
after receipt of Tenant's Notice of Intention, to recapture the Premises. If
such Recapture Notice is given, it shall serve to cancel and terminate the
entire remaining Term of this Lease as of the Proposed Effective Date and as
fully and completely as if said Date had been definitely fixed for the
expiration of the Term of this Lease and all option rights of Tenant under this
Lease with respect to the space shall also terminate retroactively as of the
date Tenant gave its Notice of Intention. If such Recapture Notice is not given
within 15 working days after receipt of Tenant's Notice of Intention, to
recapture the Premises then approval to sublease shall be deemed given.
14.4 As to a portion of the Premises, upon receiving Tenant's Notice of
Intention, Landlord will not unreasonably withhold or delay its consent to
Tenant's subletting the Proposed Sublease Space pursuant to the Proposed
Agreement as provided in its Notice of Intention subject, however, to all the
other provisions of this Article.
14.5 In the event of any assignment or sublease of all or any portion of
the Premises ("Transferred Space") where the rental reserved and all other
consideration paid by or on behalf of the assignee or subtenant for such
assignment or sublease, no matter how characterized and without regard to
whether such appears in the assignment or sublease, exceed or are in addition to
the rental reserved in the Lease or prorate portion of such rental, as the case
may be, for such Transferred Space, Tenant shall pay Landlord, as additional
rent, immediately after Tenant receives the same, fifty percent (50%) of such
excess after first deducting the cost, amortized on a straight line basis over
the remaining term of the Lease, of (i) the Broker's commission paid by Tenant
with regards to the transfer; (ii) the cost of improvements made to the Premises
by Tenant at Tenant's expense for the purpose of subletting or assigning.
14.6 Tenant (and any guarantor of this Lease) remains fully liable during
the unexpired Term of the Lease. Regardless of the Landlord's consent, no
subletting or assignment shall release Tenant of Tenant's obligation or alter
the primary liability of Tenant to pay the rent and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of rent by
Landlord from any other person shall not be deemed to be a waiver by Landlord of
any provisions hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Tenant or any successor of Tenant, in the performance
of any of the terms hereof, Landlord may proceed directly against Tenant without
the necessity of exhausting remedies against said assignee. Landlord may consent
to subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and such action shall not relieve
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Tenant of liability under this lease.
14.7 Tenant shall have the right to enter into a sublease, subject to the
Landlord's approval as defined herein and which approval will not be
unreasonably withheld or delayed, provided that the proposed tenant is generally
compatible with the use and tenant mix of the Building and that existing tenants
would not be adversely affected by the sublease tenant's use and occupancy of
the Premises. Tenant shall not sublease the Premises to any other Tenant that is
or in the future will be prohibited by virtue of restrictive clause(s) in any
other tenant lease and Landlord reserves the right to deny the right to sublease
to such tenant(s) unless express permission and waiver are received from the
tenant or tenants holding such restrictive clause(s). For purpose of this
Section 14.7 any use permitted in Section 9.1 shall be deemed a compatible use
and tenant mix of the building.
14.8 If Tenant is a corporation (other than a corporation which has fifty
(50) or more shareholders and tangible assets of One Million Dollars
($1,000,000) or more in fair market value), or is an unincorporated association
or partnership (other than a partnership which has fifty (50) or more partners
and tangible assets of One Million Dollars ($1,000,000) or more in fair market
value), then the transfer, assignment, or hypothecation of any stock or interest
in such corporation or partnership in the aggregate during the Term of this
Lease in excess of thirty-three and one-third percent (33-1/3%) shall be deemed
an assignment within the meaning and provisions of this section 14.
14.9 Attorneys' Fees: In the event Tenant shall assign or sublet the
Premises or request the consent of Landlord to any assignment or subletting or
if Tenant shall request the consent of Landlord for any act Tenant proposes to
do then Tenant shall pay Landlord's reasonable attorney's fees incurred in
connection therewith, such attorney's fees not to exceed Three Hundred Fifty
($350.00) Dollars for each such request.
15. HOLDING OVER
15.1 Any holding over after the expiration of this Lease by Tenant with the
consent of the Landlord shall be deemed to be a tenancy from month to month and
except for the Term thereof shall be on the same terms and conditions specified
herein, so far as applicable, except for Rent which shall be at 150% of the rent
due under this agreement.
16. NOTICES
16.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 16.
Either Party may by written notice to the other specify a different address for
notice purposes, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate by
written notice to Lessee.
16.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Saturday, Sunday or legal holiday, it shall be deemed received on the next
business day.
16.3 Notices for Landlord shall be addressed to:
55 ALMADEN BOULEVARD LIMITED PARTNERSHIP
c/o Wolff Sesnon Buttery
99 Almaden Boulevard, Suite 1075
San Jose, California 95113
Attn: Robert E. Cullen
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cc: 55 ALMADEN BOULEVARD LIMITED PARTNERSHIP
c/o Wolff Sesnon Buttery
11828 La Grange Ave., Suite 200
Los Angeles, California 90025
16.3 Notices for Tenant, prior to its occupancy of the Premises, shall be
addressed to:
AGILE SOFTWARE, INC.
One Almaden Blvd., Suite 600
San Jose, CA 95113
Attn: Mr. Thomas Shanahan, CFO
17. SIGNS
17.1 Tenant may not place or permit to be placed in, upon, about, or
outside the Premises or any part of the Building in which the Premises are
located, any sign(s) unless the prior written consent of Landlord is obtained.
17.2 Tenant shall pay all permit and license fees which may be required to
be paid for the erection and maintenance of any and all such signs, and such
signs shall be legally permitted to be installed. Tenant agrees to exonerate,
save harmless, protect and indemnify Landlord from and against any and all
losses, damages, claims, suits, or actions for any damage or injury to person or
property caused by the erection and maintenance of such signs or parts thereof,
and insurance coverage for such signs shall be included in the public liability
policy which Tenant is required to furnish under Sections 20.1 and 20.2 hereof:
17.3 Landlord hereby agrees to install a building directory in the lobby of
the Building, which building directory shall list, one time only at Landlord's
expense in one location, both the name of the Tenant and each of Tenant's
partners, principals, and key executives. Each directory shall be listed
alphabetically from A through Z, and all names shall be of uniform size and
style.
18. RIGHT OF ENTRY
18.1 Landlord and its agents shall have the right at any reasonable time
upon reasonable notice and accompanied by Tenant, except for janitors,
emergencies and in response to Tenant's request for repairs, to enter upon the
Premises for the purposes of inspection, serving, or posting notices,
maintaining the Premises, making any necessary or appropriate repairs,
alterations, or additions to any portion of the Premises (including the erection
and maintenance of scaffolding, partitions, and repair equipment as shall be
required), complying with laws, ordinances, and regulations, protecting the
Premises, or for any other lawful purpose, including showing the Premises to
prospective purchasers or tenants, so long as such entry and activity do not
interfere with the business activities of Tenant on the Premises. Tenant shall
not, in such event, claim or be allowed or paid any damages for any injury or
inconvenience occasioned thereby.
19. INDEMNIFICATION
19.1 Tenant shall indemnify and hold harmless Landlord from any and all
claims arising from Tenant's use of the Premises or from the conduct of its
business or from any activity, work, or other things done, permitted or suffered
by Tenant in or about the Premises, and shall further indemnify and hold
harmless Landlord against and from any and all claims arising from any breach or
default to the performance of any obligation on Tenant's part to be performed
under the terms of this Lease, or arising from any act or negligence of the
Tenant, and from all costs, attorneys fees, and liabilities, incurred in or
about the defense of any such claim or any action or proceeding brought thereon.
Tenant upon notice from Landlord shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord. Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons in, upon, or about the Premises, from any cause other than
Landlord's negligence or intentional misconduct; and Tenant hereby waives all
claims in respect thereof against Landlord. Tenant shall give prompt notice to
Landlord of any casualty or accident in or about the Premises of which it has
knowledge or notice; its complete and total failure to do so shall be a material
breach and default and shall serve to nullify the above exception for Landlord's
active negligence. This indemnity is conditioned upon Landlord giving Tenant
prompt notice of any claim being asserted or claimed against Landlord for which
Tenant might be called upon to indemnify Landlord.
19.2 Landlord shall indemnify and hold harmless Tenant from any and all
claims arising from Landlord's work, or other things done, permitted or suffered
by Landlord in or about the Premises, and shall further indemnify and hold
harmless Tenant against and from any and all claims arising from any breach or
default to the performance of any obligation on Landlord's part to be performed
under the terms of this Lease, or arising from any act or negligence of the
Landlord, and from all costs, attorneys fees, and liabilities, incurred in or
about the defense of any such claim or any action or proceeding brought thereon.
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Landlord upon notice from Tenant shall defend the same at Landlord's expense by
counsel reasonably satisfactory to Tenant.
20. INSURANCE
20.1 Casualty Insurance. At all times during the Lease Term, Tenant, at
------------------
Tenant's expense, shall maintain in effect policies of casualty insurance
coveting; (a) all alterations made by Tenant and all leasehold improvements; and
(b) all of Tenant's Property and other personalty in, on or about the Premises,
in an amount not less than their full replacement cost (without deduction for
depreciation). Such policies shall contain clauses providing that the amount of
coverage shall be increased automatically by one percent (1%) at the end of each
calendar quarter, which rate of increase may be revised from time to time at
Landlord's request. Such policies shall provide for protection against any
perils normally included within the classification of "All Risks" and shall
contain endorsements coveting; demolition and increased costs of construction,
water damage, vandalism and malicious mischief, and liability for changes in
laws or ordinance. The proceeds of such insurance shall be used for the repair
or replacement of the property so insured. Landlord shall be named as loss payee
as respects alterations and leasehold improvements. Tenant shall, in addition,
maintain at Tenant's own expense a policy or policies of business interruption
and extra expense insurance coverage with limits adequate to protect Tenant's
operations for a period of not less than 12 months.
20.2 Commercial Liability Insurance. At all times during the Lease Term,
------------------------------
Tenant, at Tenant's expense, shall maintain in force a policy of commercial
general liability insurance written on an occurrence basis which contains, at a
minimum, the following coverages and limits:
Each Occurrence $1,000,000
General Aggregate $2,000,000
Products/Completed Operations Aggregate $2,000,000
Personal & Advertising Injury $1,000,000
Fire Damage Legal Liability $ 50,000
Medical Payments $ 5,000
Any general aggregate limit shall apply per location and/or project. Such
insurance shall name Landlord, its trustees, officers, directors, agents,
employees and representatives as additional insureds and shall provide that such
insurance is primary and non-contributing with any other such insurance carded
by the Landlord for the Landlord's own benefit. This coverage shall include
blanket contractual liability, broad form property damage and "hostile fire"
exception to any pollution exclusion in addition to a standard separation of
insureds provision. The amount of such insurance shall not limit Tenant's
liability nor relieve Tenant of any obligation hereunder. Each policy shall
contain cross liability endorsements, if applicable, and shall insure Tenant's
performance of the indemnity provisions contained in Section 19.1 and elsewhere
in this Lease and any other obligations of Tenant to Landlord hereunder.
20.3 Other Required Insurance. At all times during Lease Term Tenant shall,
------------------------
at Tenant's expense, maintain business auto liability which insures against
bodily injury and property damage claims arising out of the ownership,
operation, maintenance or use of "any auto". A minimum combined single limit of
$1,000,000 per accident shall apply.
20.4 Policy Requirements
-------------------
(a) All insurance required to be carried by Tenant hereunder shall be
issued by responsible insurance companies, qualified to do business in the
State of California, approved by Landlord and, if required, by Landlord's
Mortgagees. Copies of all policies and certificates thereof shall be
delivered to Landlord at lease ten (10) days prior to Tenant's occupancy of
the Premises. Each policy shall provide that it may not be canceled or
modified except after thirty (30) days' prior written notice to Landlord.
Tenant shall furnish Landlord with renewals or "binders" of each policy,
together with evidence of payment of the premium therefor, at least thirty
(30) days prior to expiration. Tenant shall have the right to provide
insurance coverage pursuant to blanket policies obtained by Tenant if the
blanket policies expressly afford coverage as required by this Lease.
(b) Landlord and, if required, Landlord's Mortgagees shall be named as
additional insureds in each insurance policy and, if requested by Landlord,
they also shall be named as loss payees. The Commercial General Liability
Insurance shall; apply severally to Landlord and Tenant; cover each of them
as if separate policies had been issued to each of them; not contain
provisions affecting any rights which any of them would have had as
claimants if not named as insureds; be primary insurance and not considered
contributory, with any other valid and collectible insurance available to
Landlord and be endorsed as necessary to cover the foregoing requirements.
(c) Each policy of All Risk Coverage which Tenant obtains for the Premises,
and which Landlord obtains for the Building, shall include a clause or
endorsement denying the insurer any right of
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subrogation against the other party hereto to the extent that rights have
been waived by the insured party prior to the occurrence of injury or less.
Landlord and Tenant each waive any rights of recovery against the other for
injury or loss due to hazards covered by its own insurance, to the extent
of the injury or loss covered thereby.
20.5 Tenant's Failure to Deliver Policies. If Tenant fails to deliver
------------------------------------
copies of the insurance policies and evidence of payment therefor within the
time required pursuant to Section 20.4, Landlord may, but shall not be obligated
to obtain the required insurance, and the cost thereof, together with an
administrative fee of Five Hundred Dollars ($500), shall be payable by Tenant to
Landlord on demand. Nothing in this Section shall be deemed to be a waiver of
any rights or remedies available to Landlord under this Lease or at law or in
equity if Tenant fails to obtain and deliver the required insurance policies and
evidence of payment.
21. ESTOPPEL CERTIFICATE
21.1 Tenant shall execute, acknowledge and deliver to Landlord within ten
(10) days of request by Landlord from Lease Commencement Date or payment in full
by Landlord of any contribution toward Tenant Improvements, if any, the attached
form of Estoppel unmodified and in full force and effect (or if there have been
modifications that the same are in full force and effect as modified), the date
of commencement of this Lease, the date on which rent has been paid, and any
such other information as Landlord shall reasonably request. Also, at any time
if requested by Landlord, Tenant shall execute and return to Landlord within ten
(10) days the same or a similar form of Estoppel Certificate. It is acknowledged
by Tenant that any such statement is intended to be delivered by Landlord and
relied upon by prospective purchasers, mortgages, beneficiaries under deeds of
trust or assignees thereof. Failure of Tenant to timely execute and return said
Certificate to Landlord within said ten (10) days shall be deemed approval of
same by Tenant and all information set forth on said Certificate shall be
conclusively binding on Tenant.
22. SUBORDINATION AND NONDISTURBANCE
22.1 Tenant shall, subject to the conditions set forth below, at the
request of Landlord, in writing, cause its interest to become subordinate to any
such first mortgage or first deed of trust which has been or shall be placed on
the land and building or land or building of which the Premises form a part.
Tenant shall, at any time hereinafter on demand, execute any instruments,
releases, or other documents that may be required by any mortgagee, mortgagor,
or trustor or beneficiary under any such first deed of trust or first mortgage
for the purpose of subjecting and subordinating this Lease to the lien of any
such first mortgage or first deed of trust, provided, however, that such
instrument must provide in effect that: (a) in the event of foreclosure or other
action taken under the mortgage or deed of trust by the holder thereof, this
Lease and the rights of Tenant hereunder (including the right, if any, to extend
the Term thereof and for additional space) shall not be disturbed but shall
continue in full force and effect so long as Tenant shall not be in default
hereunder; and (b) such holder shall permit insurance proceeds and condemnation
proceeds to be used for any restoration and repair required by this Lease; and
(c) no property owned or removable by Tenant shall be subject to any lien of the
mortgage or deed of trust. Tenant agrees that if the mortgagee, beneficiary, or
any person claiming under the mortgagee or beneficiary shall succeed to
the/merest of Landlord in this Lease, Tenant will recognize said mortgagee,
beneficiary, or person as its landlord under the terms of this Lease, provided
that said mortgagee, beneficiary, or person for the period during which
beneficiary, trustee, or person shall hold Landlord's interest in the Premises
shall assume all of its obligations of Landlord hereunder.
23. COMPLIANCE WITH LAWS AND RULES
23.1 Tenant, at Tenant's sole cost, shall comply at all times with all
laws, ordinances, orders, and regulations of all governmental and
public authorities with respect to the Premises. Tenant shall also
abide by applicable laws and Landlord's rules and regulations with
respect to its use of the common areas of the Building and the
associated adjacent Parking Facilities controlled or managed by
Landlord. A judgment of any court of competent jurisdiction or the
admission by Tenant in any judicial or administrative action or
proceeding against Tenant that Tenant has violated any such laws,
ordinances, or order or regulations, shall be deemed to be conclusive
as to Landlord and Tenant.
23.2 Tenant and Tenant's agent, servants, and employees, visitors, and
licensees shall observe and comply strictly with all reasonable roles and
regulations now adopted or which are adopted hereafter for the care, protection,
cleanliness, and proper operation of the Building. A copy of the current Rules
and Regulations is attached as Exhibit B. Landlord shall have no obligation to
Tenant as a result of the violation of any such rules by any tenant or any other
person. Landlord shall maintain a copy of such roles in the office of Landlord
for inspection by Tenant at any reasonable time. Each and every such role shall
be deemed a material term of this Lease.
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24. DESTRUCTION
24.1 In the event of damage causing a partial destruction of the Premises
during the Term of this Lease from any cause as to which repairs can be made
within (90) days from the date of the damage under the applicable laws and
regulations of governmental authorities, Landlord shall repair said damage
promptly and within a reasonable period of time, but Tenant and Tenant's
insurance carrier will be solely responsible for repair and replacement, if any,
of Tenant Improvement, furniture, fixture, or any other work required in the
Premises, and shall repair and replace within said ninety (90) days following
full access to the Premises by Tenant, all improvements made at Tenant's expense
and all furniture and fixtures in the Premises. Any such partial destruction
shall in no way void this Lease, except that Tenant shall be entitled to a
proportionate reduction of rent while such repairs are being made such
proportionate reduction to be based upon the extent to which the portion of the
Premises not usable by Tenant bears to the total area of the Premises, provided
that if such damage is caused by negligence or greater culpability of Tenant,
his agents, servants, employees, invitees, or permitees then Tenant shall not be
entitled to abatement of rent not covered by insurance. Tenant shall be liable
to Landlord for any and all damage caused by negligence or greater culpability
of Tenant, his agents, servants, employees, invitees, or permitees and the cost
of repairing same and Tenant shall be entitled to no reduction in rent.
24.2 If such repairs cannot be made within ninety (90) days, Landlord may,
at its option, make the same within the period of no more than one hundred
twenty (120) days, this Lease continuing in full force and effect and the rent
to be proportionately rebated as provided in the previous Section. In the event
that Landlord does not so elect to make such repairs which cannot be made in
ninety (90) days, or such repairs cannot be made under such laws and
regulations, or in the event Landlord does not make the repair within one
hundred twenty (120) days, this Lease may be terminated at the option of either
party.
24.3 With respect to any partial destruction which Landlord is obligated to
repair or may elect to repair under the terms of this Article, the provisions of
any statute or law permitting Tenant to terminate this Lease are waived by
Tenant. In the event that the Building which the Premises are situated is
destroyed to the extent of thirty-three and one-third percent (33-1/3%) or more
of the then replacement cost thereof, the Landlord may elect to terminate this
Lease, whether the Premises are injured or not.
24.4 A total destruction of the Premises or of the Building shall terminate
this Lease as of the date of such total destruction. The determination that such
total destruction has occurred shall be made by Landlord in its sole discretion
which shall be reasonably exercised.
24.5 Except as stated in Section 24.1 herein with respect to reduction of
rent as therein provided, Tenant shall not have any claim whatsoever against
Landlord for any damages, nor shall Tenant be released or discharged from any of
its obligations, liabilities, or indebtedness hereunder, should the possession
by Tenant of the Premises be disturbed or interfered with or affected in any
manner whatsoever, and irrespective of how caused, or by whom, excepting only
the negligent, intentional, or willful interference in the possession of Tenant
by Landlord.
24.6 Upon termination of this Lease pursuant to Article 24, an equitable
adjustment shall be made concerning advance rent and any advance payments made
by Tenant to Landlord. Landlord shall, in addition, return to Tenant so much of
Tenant's security deposit as to which Landlord is not entitled hereunder.
24.7 Tenant waives the provisions of California Civil Code Sections 1932
(2) and 1933 (4) and any successor statutes or other statutes or laws which may
now or during the Term of this Lease exist and which relate to termination of
leases when the thing leased is destroyed, in whole or in part, and agrees that
such event shall be governed solely by the terms of this Lease.
24.8 Anything contained in this Article to the contrary notwithstanding,
Landlord shall not have any obligation whatsoever to repair, reconstruct, or
restore the Premises when the damages from any casualty covered by this Article
occurs during the last twelve (12) months of this Lease or any extensions
thereof. Tenant shall have the right to cancel this lease if Landlord elects not
to make repairs under Section 24.2.
25. CONDEMNATION
25.1 If any part of the Premises shall be taken or condemned for public or
quasi-public use by right of eminent domain, with or without litigation, or
transferred by agreement in connection with such public or quasi-public use,
this Lease, as to the part so taken or condemned or transferred shall terminate
as of the date title shall vest in the condemnor or transferee and the rent
payable hereunder shall be adjusted so that tenant shall be required to pay for
the remainder of the Term only such portion of the rent as the area in the part
remaining that remains useable by Tenant for its business purposes after the
taking or condemnation or transfer bears to the area of the entire Premises as
of the date title shall vest in the condemnor.
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25.2 In the event of such partial taking or condemnation by judgment,
verdict or agreement, Landlord and Tenant each shall have the option to
terminate this Lease as of the date title shall vest in the condemnor or
transferee. If all of the Premises shall be so taken, condemned, or transferred
or such part thereof be so taken, condemned, or transferred so that there does
not remain a portion susceptible of occupation hereunder, this Lease shall
terminate as of the date title shall vest in the condemnor or transferee and
Tenant shall have no responsibility to pay rent from the date of such
termination.
25.3 All compensation awarded upon such condemnation or taking shall go to
the Landlord and the Tenant shall have no claim thereto, and the Tenant hereby
irrevocably assigns and transfers to Landlord any right to compensation or
damages to which Landlord may become entitled during the Term hereof by reason
of the condemnation of all or part of the Premises. Notwithstanding anything in
the foregoing to the contrary, Tenant, if not in default hereunder, shall have
the right to receive that portion of the award made expressly for the moving or
relocation expenses of Tenant, the trade fixtures of Tenant, any improvements
paid for by Tenant or business disruption of Tenant.
26. INABILITY TO PERFORM
26.1 This Lease and the obligation of Tenant hereunder shall not be
affected or impaired because Landlord is unable to fulfill any of his
obligations hereunder or is delayed in doing so, if such inability or delay is
caused by reason of unavailability or scarcity of material, strike, or other
labor troubles, or any other causes beyond the reasonable control of Landlord.
If Landlord is unable to give possession of the Premises to Tenant as provided
for under Article 4 hereof within three (3) months after the estimated Lease
Commencement Date set forth therein, this Lease shall automatically terminate,
and Landlord, by reason thereof shall not be subject to any liability therefor
except that Landlord shall return to Tenant all monies which Landlord has
theretofore received from Tenant as prepaid rent or as a security deposit.
27. INVOLUNTARY TERMINATION
27.1 This Lease, at the option of Landlord, shall cease and terminate upon
the happening of any of the following events:
(a) The filing of a petition for any proceeding under the Bankruptcy Act or
any amendment thereto by Tenant or Lease Guarantor or any other person
against Tenant or any Lease Guarantor, and same is not discharged within
ninety (90) days of filing.
(b) A finding or judgment of insolvency of Tenant or any Lease Guarantor.
(c) An assignment for the benefit of creditors by Tenant or any Lease
Guarantor.
(d) The levying of a writ of execution on the business of Tenant or any
Lease Guarantor or on the assets of Tenant or any Lease Guarantor which
represents thirty-three and one-third percent (33-1/3%) or more of net
worth of that Tenant or Lease Guarantor.
(e) The appointment of a receiver to take possession of the Premises or the
assets of Tenant or any Lease Guarantor which represents thirty-three and
one-third percent (33-1/3%) or more of the net worth of that Tenant or
Lease Guarantor.
28. DEFAULT
28.1 Tenant shall be in material default of this lease, if Tenant fails to
observe or perform any of the covenants, conditions or provisions of this Lease
to be observed or performed by Tenant other than the payment of rent where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Landlord to Tenant; provided, however, that if the nature of
Tenant's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given Tenant under applicable Unlawful Detainer statutes. If Tenant shall
fail to make any payment of rent or any other payment required to be made by
Tenant, as and when due, where such failure shall continue for a period of three
(3) days after written notice thereof from Landlord to Tenant, or if Tenant
should abandon, vacate, or surrender the Premises or be dispossessed by any
process of law, or Tenant shall fail to perform timely any of its other terms or
obligations under this Lease, the same shall constitute an act of default and
Tenant shall be in material breach of this Lease, and Landlord, in addition to
all other rights or remedies provided by law, shall have the following rights:
28.1.1 In the event Tenant commits an act of default and abandons the
Premises, Landlord may elect to continue this Lease in full force and effect and
not terminate Tenant's right to possession of the Premises, in which event
Landlord shall have the right to enforce any rights and remedies granted by this
Lease and by law against Tenant, including without limitation, the right to
collect when due
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rental and other sums payable hereunder, provided that after the occurrence of
the act of default and abandonment of the Premises by Tenant and for so long as
Landlord does not terminate Tenant's right to possession of the Premises, Tenant
shall have the right to assign or sublet this Lease upon the prior written
consent of Landlord, which consent Landlord will not unreasonably withhold.
Landlord shall not be deemed to have elected to terminate Tenant's right to
possession unless Landlord gives Tenant written notice of such election to
terminate and in no event shall Landlord's acts of maintenance or preservation
of the Premises, efforts to relet the Premises, or obtaining the appointment of
a receiver to protect the interest of Landlord under the Lease be deemed to
constitute such termination.
28.1.2 Landlord may elect by written notice to Tenant to terminate the
Lease at any time after the occurrence of an act of default, and in such event
Landlord may, at Landlord's option and to the extent permitted by law, declare
this Lease and Tenant's right to possession terminated, re-enter the Premises,
remove Tenant's property therefrom and store it for Tenant's account and at
Tenant's expense, eject all persons from the Premises, and recover damages from
Tenant without hindrance, and Landlord shall not thereby be liable in damages
for such re-entry or be guilty of trespass or forcible entry. In the event
Landlord elects to so terminate this Lease and Tenant's right to possession, or
they are terminated by operation of law, such termination shall cancel all
Tenant's options, if any, to extend the Term.
28.1.3 In the event Landlord elects to so terminate this Lease and
Tenant's right to possession in accordance with the foregoing paragraph, or the
same are terminated by operation of law, Landlord may recover as damages from
Tenant the following:
(i) The worth at the time of award of the unpaid rent and other sums
due hereunder which had been earned at the time of termination of the
Lease; plus
(ii) The worth at the time of the award of the amount by which the
unpaid rent and other sums due hereunder which would have been earned
after the date of termination of this Lease until the time of the
award exceeds the amount of such loss of rental and other sums due
that Tenant proves could have been reasonably avoided; plus
(iii) The worth at the time of award of the amount by which unpaid
rental and other sums due hereunder for the balance of the Term after
the time of award exceeds the amount of loss of such rental and other
sums that Tenant proves could be reasonably avoided; plus
(iv) Any other amount, including attorney's fees and court costs,
necessary to compensate Landlord for all detriment proximately caused
by Tenant's act of default or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the
cost of reletting and remodelling the Premises for a new tenant and
brokerage fees involved in same.
28.1.4 The "worth at the time of award" of the amounts referred to in
subparagraphs 28.1.3 (i) and 28.1.3 (ii) above is computed by allowing interest,
at the maximum rate allowable in California as of the date of this Agreement for
business loans, from the date(s) such unpaid rental and other sums became due.
The "worth at the time of award" of the amount referred to in subparagraph
28.1.3 (iii) above is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
29. ATTORNEY'S FEES AND HOLD HARMLESS
29.1 Tenant agrees that if Landlord is involuntarily made a party defendant
to any litigation. concerning this Lease or the Premises or the Building in
which the Premises are a part by reason, in whole or in part, of any act of
omission of Tenant and not because of any act or omission of Landlord, the
Tenant shall hold harmless the Landlord from all liability by reason thereof,
including reasonable attorney's fees incurred by Landlord in such litigation and
all taxable court costs. Landlord agrees that if Tenant is involuntarily made a
party defendant to any litigation concerning this Lease or the Premises or the
Building in which the Premises are a part by reason, in whole or in part, of any
act of omission of Landlord and not because of any act or omission of Tenant,
the Landlord shall hold harmless the Tenant from all liability by reason
thereof, including reasonable attorney's fees incurred by Tenant in such
litigation and all taxable court costs. If legal or equitable action shall be
brought by Landlord for unlawful detainer of the Premises, for the breach of any
term, covenant or provision hereof, the party prevailing in said action
(Landlord or Tenant as the case may be) shall be entitled to recover from the
party not prevailing costs of suit and a reasonable attorney's fee which shall
be fixed by the Judge of the Court, or any court-appointed arbitrator or any
Judge pro tem.
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30. WAIVER
30.1 No covenant, term, or condition or the breach thereof shall be deemed
to be waived by Landlord, except by written consent of Landlord, and any waiver
or breach of any covenant, term, or condition shall not be deemed to be a waiver
of any preceding or succeeding breach of the same or any other covenant, term,
or condition. Acceptance of all or any portion of rent at any time shall not be
deemed to be a waiver of any covenant, term, or condition except as to the rent
payment accepted.
31. QUIET POSSESSION
31.1 Upon commencement of the Term of this Lease and Tenant's timely paying
the Rent, Operating Expenses Escalation payments and other sums provided
hereunder and timely observing and performing all of the covenants, conditions,
and provisions on Tenant's part to be observed and performed hereunder, Tenant,
so long as not in default hereunder, shall have quiet possession of the Premises
for the entire Term hereof, subject to all the provisions of the Lease.
32. SALE BY LANDLORD
32.1 In the event of a sale or conveyance by Landlord of the Building
containing the Premises, the same shall operate to release Landlord from any
future liability upon any of the covenants or conditions, express or implied,
herein contained in favor of Tenant, and in such event Tenant agrees to look
solely to the responsibility of the successor in interest to Landlord in and to
this Lease. This Lease shall not be affected by any such sale, and Tenant agrees
to attorn to the purchaser or assign.
33. BROKER REPRESENTATION
33.1 Landlord and Tenant agree that neither party has appointed a real
estate broker to represent it in the negotiation and consummation of the Lease
except for Sutton Roley and Greg Davies of CPS representing Landlord and Gary
Seiden and Mark Ritchie of Ritchie Commercial representing Tenant, whose
commissions shall be paid by Landlord pursuant to a separate agreement between
Landlord and CPS.
34. CONDITION OF PREMISES
34.1 Tenant shall accept the Premises strictly "as-is", except for the
improvements described in the attached Exhibits "E". Prior to Tenant's occupancy
of the Premises, Landlord shall upgrade the fluorescent lighting in the Premises
to the updated, energy-efficient, building standard.
35. PARKING
35.1 Throughout the Term of this Lease, Tenant shall be granted the right
to purchase up to one hundred two (102) unreserved employee parking spaces, on a
monthly basis, at the then current rate for such spaces. The spaces shall be for
passenger cars only and shall be located in Park Center Plaza Garage III.
35.2 Tenant is granted the use of all spaces subject to the reasonable
rules and regulations for operation of the parking facilities.
35.3 Tenant agrees not to assign, sublet, or in any way transfer the right
to use of the parking spaces, except to any successor to Tenant's Premises.
36. HAZARDOUS MATERIALS
36.1 Landlord warrants that, to the best of its knowledge, the Premises are
free of Hazardous Substances at the time of delivery to Tenant.
36.2 Tenant shall not cause or permit any Hazardous Substances to be used,
stored, generated, or disposed of on or in the Premises by Tenant, Tenant's
agents, employees, contractors, or invitees without first obtaining Landlord's
written consent. If Hazardous Substances are used, stored, generated, or
disposed of on or in the Premises except as permitted above, or if the Premises
become contaminated in any manner for which Tenant is legally liable, Tenant
shall indemnify and hold harmless the Landlord from any and all claims, damages,
fine, judgments, penalties, costs, liabilities or losses (including, without
limitation, a decrease in value of the Premises, damages caused by loss or
restriction of rentable or usable space, and any and all sums paid for
settlement of claims, attorneys' fees, consultants' fees, and experts' free)
arising during or after the Lease Term and arising as a result of that
contamination by Tenant. This indemnification includes, without limitation, any
and all costs incurred because of any investigation of the site or any cleanup
removal, or restoration mandated by a federal, state, or local agency or
political subdivision.
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36.3 Without limitation of the foregoing, if Tenant causes or permits the
presence of any Hazardous Substance on the Premises and that results in
contamination, Tenant shall promptly, at its sole expense, take any and all
necessary actions to return the Premises to the condition existing prior to the
presence of any such Hazardous Substance on the Premises. Tenant shall first
obtain Landlord's approval for any such remedial action.
36.4 As used herein, "Hazardous Substances" means any substance that is
toxic, ignitable, reactive, or corrosive and that is regulated by any local
government, the state of California, or the United States Government. "Hazardous
Substance" includes any and all materials or substances that are defined as
"hazardous waste," extremely hazardous waste" or a "hazardous substance"
pursuant to state, federal or local governmental law. "Hazardous Substance"
includes, but is not restricted to, asbestos, polychlorobiphenyls ("PCBs") and
petroleum.
36.5 Without limitation of the foregoing, it is understood that Tenant may
use or store Hazardous Substances which are required for the operation of normal
office equipment, including, but not limited to copiers, printers, fax machines,
etc.
37. MISCELLANEOUS
37.1 The captions of the paragraphs contained in this Lease are for
convenience only and shall not be deemed to be relevant in resolving any
question of interpretation or construction of any paragraph of the Lease.
37.2 All of the terms, covenants, and conditions of the Lease shall be
binding upon and inure to the benefit of the parties hereto and their heirs,
executors, and administrators, successors, and assigns, except that nothing in
this provision shall be deemed to permit any assignment, subletting or use of
the Premises other than expressly provided herein.
37.3 This Lease shall be governed and interpreted solely by the laws of the
State of California then in force. Each number, singular or plural, as used in
this Lease shall include all numbers and each gender shall be deemed to include
all genders.
37.4 Time is of the essence of this Lease and of each and every provision
hereof, except as to the conditions relating to the delivery, of possession of
the Premises to Tenant. Each term and covenant contained in this Lease to be
performed by Tenant is a condition and any breach of such after notice and the
applicable grace period is a material breach of this Lease. If Tenant shall
consist of more than one person or organization, each such term and covenant
shall be deemed to be the joint and several obligation of each such person or
organization. All rights and remedies granted to Landlord by law or equity or
under the Lease shall be cumulative and non-exclusive of any other remedy.
37.5 In the event Tenant hereunder shall be a corporation, the Tenant
hereby covenants and warrants that Tenant is a duly qualified corporation and
all steps have been taken prior to the date hereof to qualify Tenant to do
business in California and all franchise and corporate taxes have been paid to
date, and all future forms, reports, fees, and other documents necessary to
comply with applicable law will be filed when due. Each individual executing
this Lease on behalf of said corporation, warrants that the execution and
delivery of this Lease by him has been duly authorized by the Board of Directors
of the Tenant. If Tenant is a corporation Tenant shall, within thirty (30) days
after execution of this Lease, deliver to Landlord a certified copy of a
resolution of the Board of Directors said corporation authorizing or ratifying
execution of this Lease.
37.6 If Tenant is a partnership, joint venture, or other unincorporated
association, each individual executing this Lease on behalf of Tenant represents
that this Lease is binding upon Tenant; furthermore, Tenant agrees that the
execution of any written consent hereunder, or of any written modification or
termination of this Lease, by a general partner of Tenant or any authorized
agent of Tenant, shall be binding upon Tenant.
37.7 The submission of this document for examination and negotiation does
not constitute an offer to lease, or a reservation of, or option for, the
Premises; and this document shall become effective and binding only upon
execution and delivery hereof by Tenant and by Landlord (or, when duly
authorized, by Landlord's agent or employee). No act or omission of any agent of
Landlord or of Landlord's broker shall alter, change, or modify any of the
provisions hereof.
37.8 If any provision of this Lease shall be determined to be void by any
court of competent jurisdiction, then such determination shall not affect any
other provisions of this lease and all other provisions shall remain in full
force and effect; and it is the intention of the parties hereto that if any
provision of this Lease is capable of two constructions, only one of which would
render the provision valid, then the provision shall have the meaning which
renders it valid.
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37.9 Tenant agrees and covenants to comply with all of Landlord's rules and
regulations as set forth in Exhibit B attached hereto. Landlord shall have the
right from time to time to promulgate amendments and additional new rules and
regulations for the care, safety, maintenance, and cleanliness of the Premises
and the Building, or for the preservation of good order. On delivery of a copy
of such amendments and additional new rules and regulations to Tenant, Tenant
shall comply with same. A violation of any such rules and regulations shall
constitute a default by Tenant under this Lease. If there is a conflict between
the said roles and regulations and any of the provisions of this Lease, the
provisions of the Lease shall prevail.
37.10 The laws of the State of California shall govern the validity,
performance and enforcement of this Lease. Should either party institute a legal
suit or action for enforcement of any obligation contained herein, it is agreed
that the venue of such suit or action shall be in the county in which the
Premises are located and Tenant expressly consents to Landlord's designating the
venue of any such suit or action. This Lease is the result of negotiations
between the parties hereto and shall not be construed either for or against
Landlord or Tenant, but this Lease shall be interpreted in accordance with the
general tenor of the language in an effort to reach an equitable result.
Landlord: 55 ALMADEN BOULEVARD LIMITED PARTNERSHIP
By: /s/ Lewis N. Wolff
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Lewis N. Wolff
Tenant: AGILE SOFTWARE, INC.
By:
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Its:
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Date: 11-12-99
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EXHIBIT "A"
55 Almaden Boulevard
33,920 Total Rentable Square Feet
[Floor plan of Fifth and Sixth Floors]
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EXHIBIT "B"
RULES AND REGULATIONS
1. Tenant, its agents or employees shall not in any way obstruct the sidewalks,
entry, passages, corridors, hall, stairways or elevators, or use the same in any
other way than as a means of passage to and from their respective offices, nor
bring nor keep anything therein which will obstruct or interfere with the rights
of other tenants, or in any way injure or annoy them, or which shall conflict
with the regulations of the Fire Department or the fire laws or with any
insurance policy on the Building or any part thereof, or with any roles or
ordinances established by the Board of Health, and they shall not make or permit
any improper or unusual noises or odors in the Building, nor bring into nor keep
within the Building any animal, bicycle, or motorcycle; and the tenant agrees
that it will pay any damages that the Landlord may suffer by a violation of this
clause by them, their agents or employees.
2. The wash basins, waterclosets, and urinals shall not be used for any purpose
other than those for which they were constructed and no sweepings, rubbish,
ashes, newspaper, or any other substances of any kind shall be discharged into
them. The doors between the Premises and the corridors of the Building shall at
all times, except when in actual use for ingress and egress, be kept closed.
3. No sign, advertisement, or notice shall be inscribed, painted, or affixed on
any part of the outside or inside of said Building without written consent of
the Landlord, and if such consent shall be inscribed, painted, or affixed by
Landlord or its agent and the cost thereof to be charged to and paid by Tenant.
All outside lettering shall be Building standard height and style.
4. When electric wiring of any kind is introduced it must be connected as
directed by the Landlord and no boring or cutting of wires will be allowed
except with the consent of the Landlord. The location of telephones, telegraph
instruments, electric appliances, call boxes, etc., shall be prescribed by the
Landlord.
5. The Landlord shall have the right to prescribe the weight, size, and position
of all safes and other property brought into the Building, and also the times of
moving the same in and out of the Building; and all such moving must be done
under the supervision of the Landlord. The Landlord will not be responsible for
loss or damage done to any such safe or property from any cause; but all damage
done to the Building by moving or maintaining any such safe or property shall be
repaired at the expense of Tenant. All safes shall stand on steel plates of such
size as shall be designated by Landlord. Any charges for the Building Structural
Engineer to evaluate floor load capacity for any Tenant furnishings (safes,
files, library systems, etc.) shall be paid for by Tenant.
6. No additional lock or locks shall be placed by the Tenant on any door in the
Building unless written consent of the Landlord shall have first been obtained,
and all locks must be identical to the Building Standard and Master Key System.
Duplicate keys for any lock shall be ordered through Landlord, Tenant agrees, at
the termination of the tenancy, to return all keys for doors and waterclosets.
Landlord reserves the right to number all doors and rooms in accordance with the
uniform system of numbering throughout the Building.
7. Tenant shall not employ any person or persons other than the janitor of the
Landlord for the purpose of cleaning the Premises without the written consent of
the Landlord first had and obtained. The Landlord shall be in nowise responsible
to Tenant for any loss of property from the Premises, however occurring, or for
any damage done to the effects of Tenant by the janitor or any of his employees,
or by any other person, or any other cause. Janitor's services will not include
the shampooing of carpets and rugs which, when considered necessary by the
Landlord, shall be done by the Tenant.
8. Waste and unnecessary use of electric lights is prohibited. No electric
current will be furnished for high-energy-consumption electronic business
machines or computers (other than electric typewriters, word processors, desk-
top microcomputers, adding machines, microwave ovens, and copy machines), or for
hot plates or electric heaters.
9. The requirements of tenants will be attended to only upon application to the
Office of the Building. The use of the Building freight elevator must be
approved by the Building Manager prior to the delivery or removal of any
furnishings or equipment. Building employees shall not perform any work or do
anything outside of their regular duties unless under special instructions from
the Office of the Building.
10. Tenant agrees not to store goods, wares, or merchandise upon the Premises.
Tenant waives the rights conferred upon the Tenant by law to have illuminating
gas supplies in or about the Premises leased. Tenant further agrees to use said
Premises in conformity with all the laws, regulations, and ordinances of the
United States of America, the State of California, the City and County where
said Premises are situated, and any national, municipal, or governmental
authority whatsoever.
20
<PAGE>
11. No alterations or general contractor work shall be done in any part of the
Building, such as painting, changing, or addition of any partitions, door or
doors, window or windows, nor shall there be any nailing, boring, or screwing
into walls, woodwork, or plastering without the consent of Landlord or its
agent. Any such work performed in the Building must be coordinated through the
Office of the Building, and comply with Landlord's Rules and Regulations for
contractor work in the Building.
12. All glass, locks and trimmings in or upon the doors and windows,
respectively, belonging to the Building shall be kept whole and whenever any
part thereof shall be broken, the same shall immediately be replaced or repaired
and put in order under the direction and to the satisfaction of the Landlord or
its agent, and shall be left whole or in good repair.
13. Landlord reserves the right to close and keep locked all entrance and exit
doors of the Building during such hours as Landlord may deem to be advisable for
the adequate protection of the property and during the entire day on Sundays and
legal holidays. All tenants, their employees, or other persons entering or
leaving the Building at any time when it is so locked may be required to sign
the Building Register when so doing, and the watchman in charge may refuse to
admit to the Building while it is locked Tenant or any of Tenant's employees, or
any other person, without a pass previously arranged, or other satisfactory
identification showing his right of access to the Building at such time.
Landlord assumes no responsibility and shall not be liable for any damage
resulting from any error in regard to any such pass or admission to the
Building, or for the admission of any unauthorized person to the Building.
14. No pets, other than seeing-eye-dogs for the blind, are allowed in the
Building.
15. The Landlord reserves the right to make such other or further reasonable
rules and regulations as in its judgment may from time to time be needful or
desirable for the safety, care, and cleanliness of the Premises and for the
preservation of good order therein.
21
<PAGE>
EXHIBIT C
ESTOPPEL CERTIFICATE
RE: Lessee's Certification and Agreement
Gentlemen:
The undersigned as Lessee of the _____ floors containing ____ square feet in
the above-named property from _________, as Lessor, under Lease dated _______,
has been advised that said Lease will be assigned, directly or by successive
assignments, to ________, (hereinafter referred to as "Assignee") as security
for a Mortgage Loan to be made of purchased by Assignee, and as inducement
therefor confirms and agrees to Items 1 through 9:
1. It hereby ratifies the above Lease.
2. The aforesaid Lease is in full force and effect and has not been modified,
altered, or amended, and constitutes the entire agreement between Lessor and the
undersigned and further, the undersigned, as Lessee, will not surrender, cancel
or otherwise terminate or seek to surrender, cancel or terminate said Lease
except:
(a) in the case of Lessor's default, upon fifteen (15) days' written notice
to Assignee, or upon such other and greater notice to Assignee as is
required by said Lease;
(b) upon written agreement of Assignee.
3. There are no offsets or credits against rentals, and rentals have not been
and will not be prepaid except for monthly advance payments require by said
Lease, except for the following amounts _________:
4. In the event the undersigned receives written notice from Assignee stating
that a default has occurred under the mentioned Mortgage Loan, the undersigned
will thereafter remit all rental payments as directed and to the address set
forth in such written notification.
5. It has received no notice of a prior Assignment, or pledge of rentals under
the mentioned Lease.
6. At any time after it takes possession of the Premises, it shall execute,
acknowledge, and deliver to Landlord at any time within ten (10) days after
request by Landlord, a statement in writing certifying, if such be the case,
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same are in full force and effect as modified), the
date of commencement of this Lease, the date on which the rent has been paid,
and such other information as Landlord shall reasonably request. It is
acknowledged by Tenant that any such statement is intended to be delivered by
Landlord and relied upon by prospective purchasers, mortgagees, beneficiaries
under deeds of trust or assignees thereof.
7. It has accepted the Building shell pursuant to the terms of the above Lease
and is now occupying same.
8. The said Lessor has fulfilled all of its duties relative to the tenant
improvement allowance set forth in the above Lease, and is not in default under
said Lease, nor does the undersigned know of any occurrence which with the
passage of time or the giving of notice would constitute a default of Lessor
thereunder.
9. The Lease rentals are now being paid on a current basis and Lessee is not in
default thereunder, except as may have been provided in Item 3.
This Certificate of Agreement shall insure to the benefit of Assignee, its
successors and assigns and be binding upon the undersigned and its successors
and assigns as Lessee under the Lease.
Date: Tenant:
---------------------
By:
---------------------
Title:
---------------------
22
<PAGE>
EXHIBIT D
CONFIRMATION OF LEASE COMMENCEMENT
This Memorandum is made on __________, 19____, between ___________________
("Landlord"), and ____________________________,("Tenant"), who entered into a
lease dated for reference purposes as of ___________, 19 ___, coveting certain
premises located at ______________________, San Jose, California, as more
particularly described in the Lease. All capitalized terms, if not defined
herein, shall be defined as they are defined in the Lease.
1. The parties to this Memorandum hereby agree to confirm the
establishment of the Commencement Date and Expiration Dates of the Term as
follows:
(a) The date of __________, 19_____, is the "Commencement Date" of the
Term;
(b) The date of __________, 19_____, is the "Expiration Date" of the
Term.
2. Tenant hereby confirms the following:
(a) That it has accepted possession of the Premises pursuant to the
terms of the Lease;
(b) That the improvements required to be furnished according to the
Lease by Landlord have been Substantially Completed, subject to the completion
of any "punchlist" items;
(c) That the Lease has not been modified, altered or amended, except
as follows:
(d) That there are no offsets or credits against rentals, nor has any
security deposit been paid except as provided by the Lease Terms; and
(e) That the Lease is in full force and effect.
3. This Memorandum, each and all of the provisions hereof, shall inure to
the benefit, or bind, as the case may require, the parties hereto, and their
respective heirs, successors, and assigns subject to the restrictions upon
assignment and subletting contained in the Lease.
LANDLORD: TENANT:
- -------- ------
By: By:
------------------------ ------------------------
Its: By:
------------------------ ------------------------
23
<PAGE>
EXHIBIT E
IMPROVEMENTS WORK LETTER
This Improvements Work Letter is made a part of that certain Office Lease dated
November 5, 1999, between Landlord and Tenant (the "Lease"), for the purpose of
setting forth the agreements between Landlord and Tenant pertaining to the
design, construction and installation of certain tenant improvements (the
"Tenant Improvements") to be constructed prior to or concurrently with
commencement of the term of the Lease. All capitalized terms in this
Improvements Work Letter shall have the same meaning as set forth in the Lease
unless otherwise defined herein.
1. Tenant Improvements. Reference herein to "Tenant Improvements" shall
-------------------
include all work to be done in the Premises pursuant to the Tenant
Improvement Plans described in Paragraph 4 below and Exhibit E-l,
including, but not limited to partitioning, doors, ceilings, floor
coverings, finishes (including paint and wall covering), electrical
(including lighting, switching, outlets, etc.), plumbing, heating,
ventilating and air conditioning, fire protection, cabinets and other mill
work.
2. Space Plan. Within fifteen (15) days following execution of this lease,
----------
Landlord and Tenant shall agree upon a mutually acceptable Space Plan ,to
be prepared by James Crawford (the "Architect") describing the Tenant
Improvements to be constructed in the Premises.
3. Final Pricing and Drawing Schedule. Following approval of the Space Plan,
----------------------------------
Landlord shall cause the Architect to prepare and submit to Tenant final
working drawings and specifications (the "Tenant Improvement Plans"). Upon
completion of the Tenant Improvement plans and their approval by Landlord,
the architect shall submit the Tenant Improvement Plans to Tenant for its
review and approval. Tenant shall have seven (7) days following submission
of the Tenant Improvement Plans to object to the same provided Tenant shall
object to the Tenant Improvement Plans only to the extent they are
inconsistent with the Space Plan approved in accordance with Paragraph 2
above. Any objection made by Tenant to the Tenant Improvements Plans shall
be in writing and submitted to the Architect with a copy to Landlord.
After approval of the Tenant Improvement Plans, they shall thereafter be
submitted to the appropriate governmental body or bodies for plan checking,
a building permit and any other governmental approval required by law.
Concurrent with the plan checking and governmental approval process,
Landlord shall prepare a final budget for Tenant's approval, excepting any
modifications which may be required to reflect changes in the Tenant
Improvement Plans required in order to obtain a building permit or any
other required governmental approval. This budget shall reflect all costs
incurred by Landlord in constructing furnishing or installing the Tenant
Improvements, such costs to include the following (by the way of
illustration only):
(i) All costs of interior design and completion of plans, drawings and
specifications or the Tenant Improvements, including working and as-built
drawings;
(ii) All costs of obtaining building permits and other required
approvals from any governmental entity or regulatory authority having
jurisdiction, including legal costs;
(iii) All fees payable to the Architect and to any other architect,
engineer or other consultant retaining by Landlord to assist in the
design, construction or installation of the Tenant Improvements or the
obtaining of building permits or other approvals in connection therewith;
(iv) All cost of materials, equipment, furnishings or fixtures necessary
to complete the Tenant Improvements in accordance with the Tenant
Improvement Plans; and
(v) All labor and insurance costs, and a construction fee for overhead
and profit and the cost of all on-site supervisory and administrative
staff, office, equipment and temporary services rendered by Landlord's
contractor or contractors in connection with construction of the Tenant
Improvements (including any fees charged by Landlord for Supervision).
After approval of the Tenant Improvement Plans, no further changes to the
Tenant Improvement Plans may be made without the prior written approval
of Landlord, and then only after agreement by Tenant to pay any excess
costs resulting from such changes.
4. Construction of Tenant Improvements. After the Tenant Improvement Plans
-----------------------------------
have been prepared and approved, the final budget has been reviewed and a
building permit and all other required governmental approvals for the
Tenant Improvements have been issued, Landlord shall enter into appropriate
contracts for construction and materials with parties selected by Landlord
for the installation of the Tenant Improvements in accordance with the
Tenant Improvement Plans. Landlord shall supervise the completion of such
work and shall use its best efforts to secure completion of the
24
<PAGE>
work in accordance with the Work Schedule. The cost of such work shall be
paid as provided in Paragraph 5 below.
If Tenant requests changes to the type, extent and quality of the Tenant
Improvements to be furnished, constructed or installed in the Premises
(whether such change is requested before or after commencement of
construction) which causes the cost of completing the Tenant Improvements
to exceed the cost specified in the final budget, Landlord will prepare a
Change Order for Tenant's review stating the cost of such changes and
indicating whether such changes may cause the completion of the Tenant
Improvements to be delayed beyond the Commencement Date of this Lease. No
work covered by a Change Order will commence until the Change Order is
approved in writing by Tenant. The cost of any Change Orders will be
charged against the Tenant Allowance or the Additional Tenant Allowance
until they are expended, and if no funds remain in the Tenant Allowance or
Additional Tenant Allowance, the cost will be paid by Tenant in the manner
prescribed in paragraph 5 of this Exhibit E.
5. Payment of Cost of the Tenant Improvements. Landlord hereby grants to
------------------------------------------
Tenant a "Tenant Allowance" of $254,400 (based on $10.00 per rentable
square foot in Suite 500 and $5.00 per rentable square foot in Suite 600).
This Tenant Allowance shall be used initially to pay the entire cost of the
design, construction, installation and furnishing of the Tenant
Improvements, including any and all Change Orders. If the cost of the
Tenant Improvements as described in this paragraph exceed the amount
provided in the Tenant Allowance, the costs in excess of the Tenant
Allowance shall be invoiced to Tenant by Landlord, and the invoiced amounts
will be paid to Landlord within fifteen (15) days of Tenant's receipt of
invoice.
6. Completion. Anything in the Lease or in this Improvements Work Letter to
----------
the contrary notwithstanding, but without limiting the generality of any
provisions in Paragraph 4 of the Lease benefitting Landlord, it is
understood that Landlord shall not be responsible for, nor shall
commencement of the Term of the Lease or payment of Rent be delayed as a
result of any delay in completion of the Tenant Improvements resulting
directly or indirectly from any of the following:
(a) Tenant's failure to approve any item or perform any other obligation
in accordance with and by the date specified in this Improvements Work
Letter;
(b) Tenant's orders and requests for materials, finishes or installations
other than those readily available; or
(c) Tenant's requested changes in the Tenant Improvement Plans after
their approval or in the type, extent or quality of the Tenant
Improvements to be furnished, constructed or installed in the Premises
(whether such change is requested before or after the Tenant Improvement
Plans have been approved).
Landlord shall provide Tenant with ten (10) days written notice of the
projected date that the Tenant Improvements will be substantially completed
and the Premises ready for occupancy.
7. Punch List. Within ten (10) days after Landlord has notified Tenant that
----------
the improvements of the Premises have been substantially completed (whether
or not Tenant is then in possession of the Premises), Tenant shall deliver
to Landlord a list (the "Preliminary Punch List") of items that Tenant
deems necessary that Landlord complete or correct in order for the Premises
to conform to the approved final working drawings. Should Tenant fail to
submit the Preliminary Punch List within the ten (10) day period, or should
additional non-conforming items be discovered after the ten (10) day
period, Tenant may submit another list of items for completion or
correction (the "Final Punch List"), which will replace or supplement the
Preliminary Punch List, within thirty (30) days of Landlord's notice to
Tenant of substantial completion of the Premises. Landlord shall
immediately commence to complete or correct the items, except those that it
contends are not justified. If Tenant does not deliver any Punch List to
Landlord within the thirty (30) day period, Tenant shall be deemed to have
accepted the Premises and approved the construction.
25
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated May 28, 1999, except for Note 8, which is as of August 16,
1999, relating to the consolidated financial statements of Agile Software
Corporation, which appears in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers llp
_____________________________________
PricewaterhouseCoopers LLP
San Jose, California
November 17, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Agile Software Corporation
We consent to the inclusion in the registration statement on Form S-1 of
Agile Software Corporation, of our report dated June 18, 1999, except as to
Note 11, which is as of October 10, 1999, on the financial statements of
Digital Market, Inc. as of March 31, 1999 and 1998 and for each of the years
in the three-year period ended March 31, 1999.
Our report dated June 18, 1999, except as to Note 11, which as of October
10, 1999, contains an explanatory paragraph that states that the Company has
suffered recurring losses from operations since inception and has an
accumulated deficit, which raises substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
We also consent to the reference of our firm under the heading "Experts" in
the Prospectus.
/s/ KPMG LLP
Mountain View, California
November 18, 1999
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