<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 15, 2000
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SERVICESOFT TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7372 52-1522481
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
TWO APPLE HILL DRIVE
NATICK, MASSACHUSETTS 01760
(508) 653-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
CHRISTOPHER M. BUTLER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SERVICESOFT TECHNOLOGIES, INC.
TWO APPLE HILL DRIVE
NATICK, MASSACHUSETTS 01760
(508) 653-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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JOHN J. EGAN III, P.C. JAY K. HACHIGIAN, ESQ.
DAVID J. POWERS, ESQ. GUNDERSON DETTMER STOUGH
MCDERMOTT, WILL & EMERY VILLENEUVE FRANKLIN & HACHIGIAN, LLP
28 STATE STREET 1000 WINTER STREET, SUITE 1100
BOSTON, MASSACHUSETTS 02109-1775 WALTHAM, MASSACHUSETTS 02451
(617) 535-4000 (781) 890-8800
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
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Common Stock, $.01 par value per share...................... $75,000,000 $19,800
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
------------------------
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 SECTION
8(a), MAY DETERMINE.
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<PAGE> 2
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 SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued , 2000
[ ] SHARES
SERVICESOFT LOGO
COMMON STOCK
------------------------
SERVICESOFT TECHNOLOGIES, INC. IS OFFERING SHARES OF ITS COMMON STOCK.
THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR
OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$ AND $ PER SHARE.
------------------------
WE HAVE APPLIED TO HAVE THE COMMON STOCK APPROVED FOR QUOTATION ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "SRVS."
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
------------------------
PRICE $ A SHARE
------------------------
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UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO
PUBLIC COMMISSIONS SERVICESOFT
--------- -------------- -----------
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total.................................. $ $ $
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Servicesoft Technologies, Inc. has granted the underwriters the option to
purchase up to an additional 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 of common stock
to purchasers on , 2000.
------------------------
MORGAN STANLEY DEAN WITTER
ROBERTSON STEPHENS
SG COWEN
, 2000
<PAGE> 3
Our art work will consist of diagrams displaying how our clients and their
customers, employees and business partners interact with the e-service
applications that compose our Servicesoft 2000 suite of products. Descriptive
captions will be used to describe the diagrams. In addition, we plan to use our
corporate logo which contains the word "Servicesoft."
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 4
Note on Forward-Looking Statements.... 14
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Consolidated Financial
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 27
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Management............................ 41
Certain Transactions.................. 51
Principal Stockholders................ 53
Description of Capital Stock.......... 56
Shares Eligible for Future Sale....... 59
Underwriting.......................... 61
Legal Matters......................... 63
Experts............................... 63
Where You Can Find More Information... 63
Index to 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 common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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<PAGE> 5
PROSPECTUS SUMMARY
This is only a summary and may not contain all of the information that you
should consider before investing in our common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and our consolidated
financial statements and the notes to those statements.
SERVICESOFT TECHNOLOGIES, INC.
We develop, market and deliver sophisticated software products and
professional services that help both traditional and Internet businesses provide
superior Internet-based service, or e-service, to their customers, employees and
business partners. We believe that our Servicesoft 2000 suite of products helps
our clients build personalized, profitable and sustainable on-line customer
relationships that maximize lifetime customer value. Our highly scalable
Servicesoft 2000 suite enables our clients to answer their customers' inquiries
through an automated on-line interface, known as self-service, as well as
through e-mail, live Internet-based interactions and traditional phone-based
communications. Our products enable our clients to build a sophisticated
knowledge base that aggregates customer information, transaction data and
individual employee expertise. By integrating this knowledge base with
self-service, e-mail and live interaction applications and traditional
phone-based communications, our products help our clients to consistently
deliver prompt, relevant and intelligent responses that directly address issues
raised by their customers, employees and business partners. By enabling our
clients' customers to escalate their inquiries from self-help to e-mail response
to live interaction, our products help our clients to efficiently apply the
appropriate level of resources while enhancing customer satisfaction. We also
believe our products increase employee productivity and decrease cost per
customer service interaction. Our Servicesoft 2000 suite of products integrates
with existing business systems, including automated call distribution systems,
such as those provided by Lucent and Nortel, customer relationship management
applications, such as those provided by Siebel, Clarify and Vantive, as well as
leading database and e-commerce applications.
We complement our products with a professional services organization that
offers a range of services, including rapid implementation assistance, e-service
system design, knowledge engineering and project management. We have designed
these services to decrease implementation risk, shorten the time it takes to
provide superior e-service, improve our clients' competitive position and
maximize return on investment. We believe that our ability to successfully
deliver an integrated, knowledge base-enabled solution to our clients provides
us with a significant competitive advantage in the market for e-service
solutions.
We market our products through our direct sales force, third party
resellers and systems integrators to e-businesses seeking to improve their
relationships with their customers, employees and business partners. We also
leverage strategic alliances with a number of information technology and
professional services organizations, including IBM and EDS, to increase the
penetration and market acceptance of our e-service suite of products.
To date, we have licensed our products to clients across a variety of
industries, including telecommunications, e-commerce, financial services,
technology, manufacturing and healthcare. Our clients include GTE, Eddie Bauer,
American Express, Akamai, Intel, Getronics Wang, John Deere and Shared Medical
Systems.
1
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THE OFFERING
Common stock offered.......... shares
Common stock to be outstanding
after the offering............ shares
Use of proceeds............... Working capital and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National
Market symbol................. SRVS
The number of shares of our common stock that will be outstanding after
this offering is based on the number outstanding on January 31, 2000, and
includes 3,198,705 shares of common stock and Series H preferred stock issuable
upon the exchange of Servicesoft Technologies Canada Inc. exchangeable shares
held by former shareholders of Balisoft Technologies Inc. as a result of our
merger with Balisoft in February 1999. The number of shares that will be
outstanding after this offering excludes:
- 3,304,116 shares of common stock issuable upon exercise of stock options
outstanding as of January 31, 2000 at a weighted average price of $1.38
per share.
- 545,382 shares of common stock available as of January 31, 2000 for
future issuance under our Amended and Restated 1994 Stock Option Plan
and our 1999 Stock Option and Grant Plan.
- 161,662 shares of common stock and exchangeable common shares issuable
upon exercise of warrants outstanding as of January 31, 2000 at a
weighted average price of $4.02 per share.
ADDITIONAL INFORMATION
Unless otherwise indicated, this prospectus assumes that the underwriters
have not exercised their option to purchase additional shares, and also assumes
that all shares of convertible preferred stock have been automatically converted
into shares of common stock.
We own or have rights to trademarks that we use in conjunction with the
sale of our products. "Servicesoft," "WebAdvisor," "Knowledge Builder,"
"Liveline," "Livesupport," "LiveContact," "LiveChat" and "E-mailContact" are our
trademarks. All other trade names and trademarks used in this prospectus are the
property of their respective owners.
We were first incorporated in Delaware in June 1987 as Rosh Intelligent
Systems, Inc. We changed our name to ServiceSoft Corporation in October 1993. We
merged with Balisoft Technologies Inc. in February 1999 and changed our name to
Servicesoft Technologies, Inc. In December 1999, we acquired Internet Business
Advantages, Inc. Our principal executive offices are located at Two Apple Hill
Drive, Natick, Massachusetts 01760 and our telephone number is 508-653-4000.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary historical and pro forma financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes appearing elsewhere in this prospectus. Our merger with
Balisoft Technologies Inc. and our acquisition of Internet Business Advantages,
Inc. were accounted for using the purchase method. Accordingly, the results of
operations of Balisoft and Internet Business Advantages are included in our
results from the applicable closing dates in 1999. Pro forma net loss per common
share reflects the assumed conversion of all outstanding convertible preferred
stock upon completion of this offering as if converted on the later of January
1, 1999 or the date of original issue. The summary pro forma combined statement
of operations presents the results of operations of Servicesoft, Balisoft and
Internet Business Advantages on a combined basis as if the transactions had
occurred on January 1, 1999. The summary balance sheet data as of December 31,
1999 includes information on an actual basis, a pro forma basis and a pro forma
as adjusted basis. Since the merger with Balisoft and the acquisition of
Internet Business Advantages were completed in 1999, the effects of these
transactions are reflected in the summary actual balance sheet data as of
December 31, 1999. The summary pro forma balance sheet data reflects the
issuance of 3,481,478 shares of Series J preferred stock in January 2000 for net
proceeds of $31.3 million and the automatic conversion of all convertible
preferred stock into common stock upon completion of this offering. The summary
pro forma as adjusted balance sheet data further adjusts the pro forma data to
reflect the net proceeds of $ million from the sale of common stock in this
offering at an assumed initial offering price of $ per share, after
deducting the underwriting discounts and commissions and estimated offering
expenses.
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PRO
FORMA
ACTUAL COMBINED
--------------------------- ---------
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999 1999
------ ------ ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue...................................... $2,526 $4,290 $ 7,144 $10,479
Gross profit....................................... 1,649 3,041 3,363 2,923
Operating expenses................................. 2,663 6,384 27,130 36,040
Loss from operations............................... (1,014) (3,343) (23,767) (33,117)
Net loss........................................... (1,104) (3,963) (23,553) (32,512)
Net loss attributable to common stockholders....... (1,444) (4,994) (26,278) (35,309)
Pro forma basic and diluted net loss per common
share............................................ (1.99)
Shares used in computing pro forma basic and
diluted net loss per common share................ 11,862
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DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 6,630 $37,918
Working capital.......................................... 288 31,576
Total assets............................................. 36,052 67,340
Capital lease obligations, net of current portion........ 522 522 522
Redeemable convertible preferred stock................... 52,251 -- --
Stockholders' equity (deficit)........................... (30,775) 52,764
</TABLE>
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<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones that we face. Our business, financial condition or results of
operations could be materially adversely affected by any of the following risks.
In such case, the trading price of our common stock could decline, and you may
lose all or part of your investment. You should also refer to the other
information set forth in this prospectus, including our financial statements and
the related notes.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES, EXPECT TO CONTINUE TO INCUR LOSSES AND MAY NOT
ACHIEVE PROFITABILITY IN THE FUTURE
We have never been profitable. Our failure to significantly increase our
revenue would seriously harm our business and operating results. We have
experienced quarterly and annual losses since our inception in 1987, and have
funded our business primarily through the sale of our stock and not from cash
generated by our business. We incurred a net loss of $1.1 million in 1997, $4.0
million in 1998 and $23.6 million in 1999, of which $4.6 million in 1999 was
amortization of intangible assets and stock compensation. As of December 31,
1999, we had an accumulated deficit of $46.0 million. We expect to continue to
incur losses on both a quarterly and annual basis for the foreseeable future.
Moreover, we expect to continue to incur significant sales and marketing and
research and development expenses. As a result, we will need to significantly
increase our revenue to achieve and maintain profitability. If our revenue grows
more slowly than we anticipate or if our operating expenses increase more than
we expect, we may be unable to achieve profitability.
FLUCTUATIONS IN OUR QUARTERLY RESULTS MAY CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE
Our quarterly revenue and operating results may fluctuate significantly as
a result of a variety of factors, many of which are outside our control. If our
quarterly revenue or operating results fall below the expectations of investors
or securities analysts, the price of our common stock could decline
substantially. Factors that might cause fluctuations in our quarterly revenue
and operating results include the following:
- demand for our products and services;
- the timing of product implementations by our clients;
- the timing of new product and service introductions or upgrades by us or
our competitors;
- the purchasing and budgeting cycles of our clients;
- changes in our pricing policies or those of our competitors;
- the timing of execution of large contracts that materially affect our
operating results;
- the mix of products and services sold and the sales channels through
which our products and services are sold;
- the mix of our domestic and international sales;
- costs related to the customization of our products;
- our ability to expand our operations, and the amount and timing of
expenditures related to this expansion;
- global economic conditions; and
- costs related to possible acquisitions of technology or businesses.
We also often offer volume-based discounts, which may affect our operating
margins. Most of our expenses, such as employee compensation and rent, are
relatively fixed in the short term. Moreover, our expense levels are based, in
part, on our expectations regarding future revenue levels. As a result, if total
4
<PAGE> 9
revenue for a particular quarter are below our expectations, we will not be able
to proportionately reduce operating expenses for that quarter.
Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not necessarily meaningful and you
should not rely on them as an indication of our future performance.
OUR PRODUCTS HAVE A LONG SALES AND IMPLEMENTATION CYCLE WHICH MAKES IT
DIFFICULT TO PREDICT OUR QUARTERLY RESULTS AND MAY CAUSE OPERATING RESULTS
TO VARY SIGNIFICANTLY
The sales and implementation cycle for our products is long, typically
ranging from five to nine months. Our products have a relatively high sales
price per unit, and often are part of a significant strategic decision by our
clients regarding their information systems infrastructure. We spend significant
time educating and providing information to prospective clients regarding the
use and benefits of our products. The decision to purchase our products
typically requires significant pre-purchase evaluation and is subject to delays
over which we have little or no control. Our long sales cycle makes it difficult
to predict the quarter in which sales and revenue recognition may occur, and our
operating results may vary significantly from quarter to quarter.
WE EXPECT TO DERIVE SUBSTANTIALLY ALL OF OUR REVENUE FOR THE FORESEEABLE
FUTURE FROM OUR SERVICESOFT 2000 SUITE OF PRODUCTS AND PROFESSIONAL
SERVICES, AND IF THESE PRODUCTS AND SERVICES ARE NOT WIDELY ACCEPTED BY THE
MARKET, WE MAY BE UNABLE TO SUSTAIN OR INCREASE OUR REVENUE
We expect to derive substantially all of our revenue in the future from
sales of our Servicesoft 2000 suite of products, which were released in their
current versions in the fourth quarter of 1999, and our professional services.
We cannot be certain that our target customers will widely adopt and deploy our
suite of products and services. Our business and operating results will be
harmed if our products do not achieve and maintain broad market acceptance.
THE MARKET FOR OUR PRODUCTS AND SERVICES IS IN THE EARLY STAGES OF
DEVELOPMENT AND OUR BUSINESS WILL SUFFER IF IT FAILS TO DEVELOP AS WE
EXPECT
Our products and services enable companies doing business online to provide
enhanced customer service. The market for our software and related services is
in the early stages of development and is rapidly evolving. A viable market may
fail to emerge or be sustainable, in which case our business and operating
results will be harmed.
IF WE FAIL TO EFFECTIVELY MANAGE AND SUPPORT THE RAPID GROWTH AND EXPANSION
OF OUR BUSINESS AND OPERATIONS, OUR FINANCIAL RESULTS WILL BE HARMED
We have substantially expanded our business and operations since 1996, when
we began to develop e-service software. We intend to continue to expand our
operations internationally and domestically, grow our client base and pursue
market opportunities through multiple growth strategies. Our rapid growth and
expansion places significant demands on our managerial, administrative,
operational, financial and other resources. To effectively manage our
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;
- enter into relationships with strategic partners; and
- complete the integration of our new management team.
If we are unable to accommodate our continued growth, our business and
financial results could be seriously harmed.
WE FACE INTENSE COMPETITION IN OUR MARKET, AND OUR FAILURE TO COMPETE
SUCCESSFULLY COULD MAKE IT DIFFICULT FOR US TO ACQUIRE AND RETAIN CUSTOMERS
The market for e-service solutions is intensely competitive. Increased
competition could result in pricing pressures, reduced margins or the failure of
our products to achieve or maintain market acceptance. If we are unable to
compete effectively, it will be difficult for us to acquire and retain
customers. Our competitors
5
<PAGE> 10
include companies providing similar solutions, including Brightware, Inc., eGain
Communications Corp., Inference Corporation, Kana Communications, Inc., Primus
Knowledge Solutions, Inc., Quintus Corporation, Serviceware, Inc. and Silknet
Software, Inc. In addition, we may compete with companies providing customer
relationship management, e-commerce and communications solutions, such as
Broadvision, Inc., E.piphany, Inc., Lucent Technologies, Inc., Oracle
Corporation, Siebel Systems, Inc., Vantive Corporation and Vignette Corporation.
Many of our current and potential competitors have longer operating histories,
greater name recognition and substantially greater financial, technical,
marketing, management, service, support and other resources than we do. They may
be able to respond more quickly than we can to new or changing opportunities,
technologies, standards or customer requirements. In addition, many of our
competitors have well-established relationships with our current or potential
clients and an extensive knowledge of our industry. We expect that new
competitors will enter the market with competing products as the size and
visibility of the market opportunity increases. We also expect that competition
will increase as a result of software industry consolidations and formations of
alliances among industry participants. Competitors with large market
capitalizations or cash reserves would be better positioned than we are to
acquire such new technologies or products. For example, Kana recently announced
its planned acquisition of Silknet. For more information on the competition we
face, see "Business--Competition."
WE MAY NOT ACHIEVE THE EXPECTED BENEFITS OF OUR RECENT MERGER AND
ACQUISITION
In February 1999, we merged with Balisoft and in December 1999, we acquired
Internet Business Advantages. Our failure to successfully address the risks
associated with these transactions could have a material adverse affect on our
ability to develop and market products based on the acquired technologies. We
anticipate that these transactions will facilitate the development of enhanced
product features and complementary new products and professional services
offerings, and will be devoting significant resources to product development,
sales and marketing. The success of these acquisitions will depend on our
ability to:
- successfully integrate and manage the acquired operations;
- retain or replace the key employees of the companies we acquired;
- develop, integrate and market the product and service offerings
anticipated to result from these transactions; and
- control costs and expenses as well as demands on our management
associated with the acquisitions.
If we are unable to successfully integrate and manage the Balisoft and
Internet Business Advantages operations, we may not achieve enhanced revenue or
other anticipated benefits that we expect.
WE MAY BE UNABLE TO DEVELOP A PROFITABLE PROFESSIONAL SERVICES
ORGANIZATION, WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS AND OUR
ABILITY TO ASSIST OUR CLIENTS WITH IMPLEMENTATION OF OUR PRODUCTS
We may be unable to attract or retain the number of the highly qualified
services personnel that we need for our business, and our services business may
never achieve profitability. Clients that license our software typically engage
our professional services organization to assist with support, training,
consulting and implementation of their e-service solutions. We believe that
growth in our product sales depends on our ability to provide our clients with
these services and to educate third-party systems integrators and distributors
on how to use and implement our products. To meet these needs, we plan to
increase the number of our services personnel, who will require training,
education and time to reach full productivity. In addition, we may also need to
use more costly third-party consultants to supplement our own professional
services organization. We expect our services revenue to increase in absolute
dollars as we continue to provide consulting and training services that
complement our products and our installed base of clients grows. To date, our
cost of services revenue have been significantly higher than our services
revenue, and we expect that trend to continue for the foreseeable future. In
addition, the competition for qualified services personnel with the appropriate
Internet-specific knowledge is intense, and we may not be able to attract and
retain people who have the skills needed to provide the services that our
clients demand.
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Failure to offer adequate integration, consulting and other professional
services in connection with the implementation of our products, and ongoing
customer support could harm our reputation and cause demand for our products to
decline.
ACQUISITIONS COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION
In order to remain competitive, we may find it necessary to acquire
additional businesses, products and technologies. In the event that we do
complete an acquisition, we could be required to do one or more of the
following:
- issue equity securities, which would dilute current stockholders'
percentage ownership;
- incur substantial debt;
- assume contingent liabilities;
- incur a one-time charge; or
- amortize goodwill and other intangible assets.
We may not be able to successfully integrate any technologies, products,
personnel or operations of companies that we acquire. These difficulties could
disrupt our ongoing business, divert management resources and increase our
expenses.
INTEGRATION OF A NEW MANAGEMENT TEAM AND NEW PERSONNEL MAY STRAIN OUR
OPERATIONS
All members of our senior management team have joined us since September
1998. On January 31, 2000, we had a total of 250 full-time employees compared to
54 full-time employees on January 31, 1999. A significant turnover of our
employees occurred in conjunction with our merger with Balisoft in February
1999. Our new employees include a number of key managerial, sales, marketing,
planning, technical and operations personnel who have not yet been fully
integrated into our organization.
A SMALL NUMBER OF CLIENTS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR REVENUE,
AND IF WE LOSE ONE OR MORE OF THESE CLIENTS, OUR REVENUE WILL BE MATERIALLY
ADVERSELY AFFECTED
Historically, we have derived a significant portion of our revenue from
providing products and services to a limited number of clients. For the year
ended December 31, 1999, our five largest customers accounted for 20% of our
revenue. We expect that a limited number of clients will continue to account for
a substantial portion of these revenue for the foreseeable future. As a result,
if we lose a major client or if a contract with a major client or prospect is
delayed, cancelled, reduced or deferred, our revenue will be materially
adversely affected.
WE MAY LOSE MONEY ON FIXED-FEE CONTRACTS
We derive a portion of our revenue from fixed-fee contracts. If we misjudge
the time and resources necessary to complete a project, we may incur a loss in
connection with the project. This risk is heightened because we work with
complex technologies in compressed time frames.
IF WE FAIL TO SUCCESSFULLY UPGRADE OUR CURRENT PRODUCTS AND INTRODUCE NEW
PRODUCTS, OUR FINANCIAL RESULTS MAY BE HARMED
Our future financial performance will depend, in significant part, on our
successful development and sale of new and enhanced versions of our Servicesoft
2000 suite of products, and other new products. We may be unable to upgrade and
continue to market our current products. We may not be able to successfully
develop new products and new products may not achieve market acceptance.
OUR SOFTWARE PRODUCTS MAY CONTAIN ERRORS OR DEFECTS THAT COULD RESULT IN
LOST REVENUE OR DELAYED OR LIMITED MARKET ACCEPTANCE
Complex software products such as ours may contain undetected errors, or
bugs, which cause them to fail to perform in accordance with customer
expectations. The latest versions of our products have only recently
7
<PAGE> 12
been generally released. As a result, these products may be particularly
susceptible to bugs. Product performance problems could result in:
- loss of or delay in revenues;
- loss of market share;
- failure to achieve market acceptance;
- diversion of development resources; or
- injury to our reputation.
IF WE FAIL TO RESPOND EFFECTIVELY TO RAPIDLY CHANGING TECHNOLOGY AND
EVOLVING INDUSTRY STANDARDS, OUR PRODUCTS MAY BECOME OBSOLETE
The market for software and services that enable enterprise e-business
initiatives is characterized by rapid technological change, changes in customer
requirements, frequent new product and service introductions and enhancements,
and evolving industry standards. Competing products based on new technologies or
new industry standards may perform better or cost less than our products and
could render our products obsolete and unmarketable. In addition, delays in our
ability to adapt our products to a new software language or operating system
that becomes standard or is widely adopted in our industry would impede our
ability to remain competitive. If we are unable to develop new and enhanced
products on a timely basis that respond to changing technology and satisfy the
increasingly sophisticated needs of our clients, our business could be seriously
harmed.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY IMPEDE OUR ABILITY TO
COMPETE EFFECTIVELY
The success of our business is largely dependent upon our ability to
protect our proprietary technology. We rely on a combination of copyright,
trademark, trade secret and other intellectual property laws, as well as
confidentiality and assignment of invention agreements and licensing
arrangements, to establish and protect our proprietary rights. However, existing
copyright, trademark and trade secret laws afford only limited protection. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States. Unauthorized
third parties may attempt to copy or otherwise obtain and use our software or
other proprietary information. Policing the unauthorized use of our products is
difficult. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of management resources, either of which could
harm our business.
WE MAY BECOME SUBJECT TO CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT,
WHICH COULD RESULT IN SIGNIFICANT COSTS, LOSS OF SIGNIFICANT RIGHTS AND
HARM TO OUR REPUTATION
Third parties may claim that we have infringed their patent, copyright,
trademark and other intellectual property rights. For example, we were subject
to a patent infringement claim, which we subsequently settled by entering into a
license agreement. This risk may increase as the number of entrants in our
market increases and the functionality of our products is enhanced and overlaps
with the products of other companies. Any claims, whether or not valid, could be
time-consuming, result in costly litigation, divert the efforts of our technical
and management personnel, cause product shipment delays, require us to develop
non-infringing technology, disrupt our relationships with our clients or require
us to enter into royalty or licensing agreements, any of which could have a
material adverse effect upon our operating results. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us, if at
all. In the event a claim against us is successful and we cannot obtain a
license to the relevant technology on acceptable terms or license a substitute
technology, we would be forced to redesign our products or cease selling,
incorporating or using products or services that incorporate the challenged
intellectual property.
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<PAGE> 13
WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES, AND THE LOSS OF
THIS TECHNOLOGY COULD DELAY IMPLEMENTATION OF OUR PRODUCTS, INJURE OUR
REPUTATION OR FORCE US TO PAY HIGHER ROYALTIES
We rely in part on technology that we license from a small number of
software providers for use with our products. This technology may not continue
to be available on commercially reasonable terms, if at all. Some of this
technology would be difficult to replace. The loss of any of these technology
licenses could result in delays in introducing our products until equivalent
technology, if available, is identified, licensed and integrated. In addition,
any defects in this licensed technology could prevent the implementation or
impair the functionality of our products, delay new product introductions or
injure our reputation. If we are required to enter into license agreements with
third parties for replacement technology, we could be subject to higher royalty
payments and a loss of product differentiation.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY AS A DEVELOPER OF E-SERVICE
SOFTWARE, OUR FUTURE SUCCESS IS UNCERTAIN
Although we were formed in 1987, we have operated as a developer of
e-service software only since 1996. As a result of our limited operating history
in our current field, it is difficult to accurately forecast our revenue. If our
revenue falls short of our expectations and those of securities analysts and
investors, the price of our common stock could decline substantially.
OUR FAILURE TO EXPAND OUR DIRECT SALES FORCE AND THIRD-PARTY DISTRIBUTION
CHANNELS WILL IMPEDE OUR GROWTH
To date, we have sold our products primarily through our direct sales
force. Our ability to achieve significant revenue growth in the future will
largely depend on our success in recruiting and training sufficient direct sales
personnel and establishing and maintaining relationships with distributors,
value-added resellers, systems integrators, consultants and other third-party
resellers. Our products and services require a sophisticated sales effort
targeted at the senior management of our prospective clients. New hires require
training and take time to achieve full productivity. Our recent hires and
planned new hires may not become as productive as necessary, and we may be
unable to hire sufficient numbers of qualified individuals in the future.
We plan to supplement the efforts of our in-house sales department with an
indirect sales channel of distributors, value-added resellers, systems
integrators, consultants and other third-party resellers. At times, we rely on
these third parties to recommend our products to their customers and to install
and support our products for their customers. If they choose not to recommend
and install our products, or develop, market or recommend software applications
that compete with our products, our business will be harmed. Moreover, if these
firms fail to implement our products successfully for their customers, we may be
unable to complete implementation on the schedule required by the customers. If
we fail to expand our direct sales force or other distribution channels, our
revenue may not grow or it may decline.
WE DEPEND ON INCREASED BUSINESS FROM OUR NEW CLIENTS AND IF WE FAIL TO GROW
OUR CLIENT BASE OR GENERATE REPEAT BUSINESS, OUR OPERATING RESULTS COULD BE
HARMED
If we fail to grow our client base or generate repeat and expanded business
from our current and future clients, our business and operating results will be
seriously harmed. Some of our clients initially make a limited purchase of our
products and services for pilot programs. These clients may not choose to
purchase additional licenses to expand their use of our products. These clients
have not yet developed or deployed initial applications based on our products.
If these clients do not successfully develop and deploy such initial
applications, they may choose not to purchase deployment licenses or additional
development licenses. The effectiveness of our e-service solution depends in
part on the widespread adoption and use of our products by customer-support
personnel. Some of our clients who have made initial purchases of our software
have deferred or suspended implementation of our products due to slower than
expected rates of internal adoption by customer support personnel. If more
clients decide to defer or suspend implementation of our products in the future,
we will be unable to increase our revenue from these clients from additional
licenses or maintenance agreements, and our financial position will be seriously
harmed. Our business model depends on the expanded use of our products within
our clients' organizations.
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<PAGE> 14
In addition, as we introduce new versions of our products or new products,
our current clients may not require the functionality of our new products and
may not ultimately license these products. Because the total amount of
maintenance and support fees we receive in any period depends in large part on
the size and number of licenses that we have previously sold, any downturn in
our software license revenue would negatively impact our future services
revenue. In addition, if clients elect not to renew their maintenance
agreements, our services revenue could be significantly adversely affected.
FAILURE TO DEVELOP AND EXPAND OUR MARKETING CAPABILITIES WOULD HARM OUR
BUSINESS
We need to expand our marketing operations in order to increase market
awareness of our products, market our products to a greater number of
organizations and generate increased revenue. Competition in the market for
e-service solutions is intense, and if we fail to differentiate our suite of
products from those of our competitors and acquire greater market share, our
ability to grow our business will be seriously harmed. Furthermore, we have
limited experience marketing our products broadly to a large number of clients
and may be unable to do so successfully.
OUR GROWTH WILL BE LIMITED IF WE CANNOT RETAIN CERTAIN KEY PERSONNEL AND
ATTRACT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL
Our success depends to a significant degree upon the continued
contributions of our senior sales, engineering and management personnel, many of
whom would be difficult to replace. Specifically, we believe that our future
success is highly dependent on Christopher M. Butler, our President and Chief
Executive Officer, and other senior management personnel. If we lose the
services of any key personnel, particularly senior management and engineers, our
business will be seriously harmed.
We intend to significantly expand our sales, marketing, engineering and
professional services personnel over the next 12 months. The demand for
qualified personnel in the software industry is high, due to the large number of
software companies and the low unemployment rate in this industry. We may not be
able to hire or retain the necessary personnel to implement our business
strategy. In addition, we may need to pay higher compensation than we currently
expect. Our failure to attract and retain the highly-trained technical personnel
that are integral to our product development, professional services and support
teams may limit the rate at which we can develop new products or product
enhancements or expand our operations.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD HARM OUR
BUSINESS
Our international operations are located in the Canada, the United Kingdom
and Belgium. We are expanding our existing international operations and
establish additional facilities in other parts of the world. We may face
difficulties in accomplishing international expansion, including finding
adequate staffing and management resources for our international operations. We
expect to commit significant management attention and financial resources to
expand our international sales and marketing activities. Expanding
internationally subjects us to a number of risks, including:
- increased expenses and delays associated with customizing our products
for foreign countries;
- increased difficulty in collecting accounts receivable, longer sales
cycles and collection periods and seasonal reductions in business
activity;
- potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- difficulty in complying with complex and varying international laws;
- tariffs, duties, price controls and other trade barriers;
- currency exchange rate fluctuations; and
- recently enacted privacy regulations in the European Union that may
result in limits on the collection and use of certain user information.
Even if we are able to successfully expand our international operations, we
may not be able to maintain or increase international market demand for our
products and services.
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<PAGE> 15
In addition, our international sales are denominated in local currencies
and as we increase our international business we will be increasingly exposed to
foreign currency exchange rate fluctuations. To date, we have not engaged in
hedging transactions to mitigate exchange rate risk and, accordingly, our
results of operations could be harmed by foreign currency exchange rate
fluctuations.
WE COULD INCUR SUBSTANTIAL COSTS AS A RESULT OF PRODUCT LIABILITY CLAIMS
RELATING TO OUR CUSTOMERS' CRITICAL BUSINESS OPERATIONS
Our products are critical to the operations of our clients' businesses. If
one of our products fails, a client may assert a claim for substantial damages
against us, regardless of our responsibility for such failure. Product liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. Any such claims, whether or not successful, could
seriously damage our reputation and our business.
OUR BUSINESS COULD BE DISRUPTED IF ANY OF THE COMPUTER SYSTEMS OR SOFTWARE
WE RELY UPON EXPERIENCE YEAR 2000 PROBLEMS
Although we have not experienced any Year 2000 problems, it is possible
that, even after January 1, 2000, Year 2000-related issues may cause problems or
disruptions. While we believe that all of our systems are Year 2000 compliant,
we cannot assure you that we will not discover a problem that needs to be
remedied. In addition, we depend on a number of third-party vendors to provide
both information and non-information technology systems and services. While we
believe that our material third-party systems and services are Year 2000
compliant, we may experience problems. In addition, governmental agencies,
utility companies, Internet access companies and others outside of our control
may experience future Year 2000 problems.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR BUSINESS DEPENDS ON THE GROWTH OF THE INTERNET AND ELECTRONIC BUSINESS
Our products address a new and emerging market for e-service solutions.
Therefore, our future success depends substantially upon the widespread adoption
of the Internet as a significant medium for commerce and business applications.
If this market fails to develop or develops more slowly than expected, demand
for our products and services will be reduced. Consumers and businesses may
reject the Internet as a viable commercial medium for a number of reasons,
including potentially inadequate network infrastructure, slow development of
enabling technologies or insufficient commercial support. The Internet
infrastructure may not be able to support the demands placed on it by increased
usage and bandwidth requirements. Moreover, critical issues such as security,
reliability, cost, accessibility and quality of service remain unresolved and
may negatively affect the attractiveness of conducting commerce and business
communication over the Internet. Even if the required infrastructure, standards,
protocols or complementary products, services or facilities are developed, we
may incur substantial expenses adapting our products and services to changing or
emerging technologies.
INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD HARM OUR BUSINESS
As e-commerce, e-service and the Internet continue 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. If
enacted, these laws and regulations could limit the market for e-commerce and
e-service and, therefore, the market for our products and services.
The Telecommunications Act of 1996 prohibits certain types of information
and content from being transmitted over the Internet. The prohibition's scope
and the liability associated with a Telecommunications Act violation are
currently unsettled. The imposition upon us and other software and service
providers of potential liability for information carried on or disseminated
through our applications could require us to implement measures to reduce our
exposure to this liability. These measures could require us to expend
substantial resources or discontinue certain services. In addition, although
substantial portions of the Communications Decency Act, the Act through which
the Telecommunications Act of 1996 imposes criminal penalties, were held to be
unconstitutional, similar legislation may be enacted and upheld in the future.
It is
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<PAGE> 16
possible that this legislation could expose companies involved in e-commerce to
liability, which could limit the growth of e-commerce generally. Legislation
like the Telecommunications Act and the Communications Decency Act could dampen
the growth of Internet usage and decrease its acceptance as a communications and
commercial medium.
THE IMPOSITION OF SALES AND OTHER TAXES ON PRODUCTS SOLD BY OUR CUSTOMERS
OVER THE INTERNET COULD HAVE A NEGATIVE EFFECT ON ONLINE COMMERCE AND THE
DEMAND FOR OUR PRODUCTS AND SERVICES
The imposition of new sales or other taxes could limit the growth of
Internet commerce generally and, as a result, the demand for our products and
services. Recent federal legislation limits the imposition of state and local
taxes on Internet-related sales. Congress may choose not to renew this
legislation in 2001, in which case state and local governments would be free to
impose taxes on electronically purchased goods.
We believe that most companies that sell products over the Internet do not
currently collect sales or other taxes on shipments of their products into
states or foreign countries where they are not physically present. However, one
or more states or foreign countries may seek to impose sales or other tax
collection obligations on out-of-jurisdiction companies that engage in
e-commerce. A successful assertion by one or more states or foreign countries
that companies that engage in e-commerce should collect sales or other taxes on
the sale of their products over the Internet, even though not physically in the
state or country, could indirectly reduce demand for our products.
PRIVACY CONCERNS RELATING TO THE INTERNET ARE INCREASING, WHICH COULD
RESULT IN LEGISLATION THAT ADVERSELY AFFECTS OUR BUSINESS OR REDUCED SALES
OF OUR PRODUCTS, OR BOTH
Businesses using our software capture information regarding their customers
when those customers contact them on-line with customer service inquiries.
Privacy concerns may cause visitors to resist providing the personal data
necessary to allow our clients to use our software products most effectively.
More importantly, even the perception of privacy concerns, whether or not valid,
may indirectly inhibit market acceptance of our products. In addition,
legislative or regulatory requirements may heighten these concerns if business
must notify Web site users that the data captured after visiting certain Web
sites may be used by marketing entities to unilaterally direct product promotion
and advertising to that user. While we are not aware of any such legislation or
regulatory requirements currently in effect in the United States, other
countries and political entities, such as the European Economic Community, have
adopted such legislation or regulatory requirements and the United States may do
so as well. If consumer privacy concerns are not adequately addressed, our
business could be harmed.
RISKS RELATED TO THIS OFFERING
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
We expect the net proceeds from this offering, together with cash on hand,
cash equivalents, short-term investments and commercial credit facilities will
be sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months. After that time, we may need to raise additional funds
to develop or enhance our products or services, to fund expansion, to respond to
competitive pressures or to acquire complementary products, businesses or
technologies. Additional financing may not be available on terms that are
acceptable to us. Further, if we raise additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of our
stockholders would be reduced and these securities might have rights, preference
and privileges senior to those of our current stockholders. If adequate funds,
if needed, are not available on acceptable terms, we may be unable to expand our
operations, take advantage of unanticipated opportunities, develop or enhance
products or services, or respond to competitive pressures or unanticipated
requirements.
BECAUSE OUR EXECUTIVE OFFICERS AND DIRECTORS CONTROL A SIGNIFICANT
PERCENTAGE OF OUR COMMON STOCK, THEY HAVE SUBSTANTIAL CONTROL OVER US
Upon completion of this offering, our executive officers, directors and
their affiliates will control 8,284,511 shares, or approximately % of the
outstanding shares of common stock, % if the
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<PAGE> 17
underwriters' over-allotment option is exercised in full. These stockholders can
control substantially all matters requiring approval by our stockholders,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership could have the effect of delaying
or preventing a change in our control or otherwise discouraging a potential
acquiror from attempting to obtain control of us, which in turn could have a
material adverse effect on the market price of our common stock. For information
about the ownership of common stock by our executive officers, directors and
principal stockholders, please refer to "Principal Stockholders."
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
BY INVESTORS
There has previously not been a public market for our common stock. An
active trading market for our common stock may not develop or be sustained after
this offering. The initial public offering price for the shares will be
determined by negotiations between us and the representatives of the
underwriters and may vary from the market price of the common stock after the
offering. The trading price of our common stock may fluctuate significantly. The
stock market in general, and the Nasdaq National Market and Internet and
software companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. The trading prices of many Internet and software
companies' stocks are at or near historical highs and may not be sustained.
These broad market and industry factors may materially adversely affect the
market price of our common stock, regardless of our actual operating
performance.
WE MAY BE SUBJECT TO CLASS ACTION LITIGATION DUE TO STOCK PRICE VOLATILITY
In the past, securities class-action litigation has often been instituted
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Such
litigation, if instituted, could result in substantial costs and the diversion
of management's attention and resources.
OUR STOCK PRICE COULD BE ADVERSELY AFFECTED BY SHARES BECOMING AVAILABLE
FOR SALE
Sales of a substantial number of shares of our common stock in the public
market after this offering could depress the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities. For a more detailed description, see "Shares Eligible for
Future Sale."
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE, SUBSTANTIAL DILUTION
The public offering price of our common stock in this offering is
substantially higher than the book value per share of our outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution. In the past, we issued options to
acquire common stock at prices significantly below the anticipated public
offering price. To the extent these outstanding options are ultimately
exercised, there will be further dilution to investors in this offering.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY
Provisions of our certificate of incorporation and by-laws, as well as
provisions of Delaware law, could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. For more
information on these anti-takeover provisions, see "Description of Capital
Stock -- Delaware Anti-Takeover Law and Certain Charter and By-Law Provisions."
WE MAY USE THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU DISAGREE
The net proceeds of this offering have not been allocated for any specific
purpose. Accordingly, our management will have significant discretion as to how
to spend the proceeds from this offering and may spend these proceeds in ways
with which our stockholders may not agree. We may not be successful in investing
the proceeds of this offering, in our operations or external investments, to
yield a favorable return. For more details of use of proceeds, see "Use of
Proceeds."
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<PAGE> 18
NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify
forward-looking statements. These risks and uncertainties include those
described in "Risk Factors" and elsewhere in this prospectus. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect our management's view only as of the date of this prospectus. Except as
required by law, we undertake no obligation to update any forward-looking
statement, whether as a result of new information, future events or otherwise.
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<PAGE> 19
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the common stock
will be approximately $
million, at an assumed initial offering price of $ per share and after
deducting the estimated underwriting discounts and commissions and offering
expenses payable by us in connection with the offering. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $ million. We expect to use these estimated net proceeds
to increase our sales and services capabilities, increase our research and
development activities and increase general and administrative personnel and
systems. In addition, these estimated net proceeds may be used for possible
acquisitions of businesses, products and technologies. From time to time, we
engage in discussions with potential acquisition candidates. However, we have no
current plans, commitments or agreements with respect to any acquisitions, and
we may not make any acquisitions.
We have not identified with certainty the particular uses for the net
proceeds to be received upon completion of this offering. Accordingly, our
management will have significant flexibility in applying the net proceeds of
this offering. Pending these uses, we plan to invest the net proceeds in
short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain any future earnings to fund the development and
growth of our business and do not currently anticipate paying any cash dividends
in the foreseeable future. Future dividends, if any, will be determined by our
Board of Directors after taking into account various factors, including our
financial condition, operating results and current and anticipated cash needs.
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<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the issuance of 3,481,478 shares
of our Series J preferred stock in January 2000 for net proceeds of $31.3
million, to reflect the automatic conversion of all outstanding shares of
convertible preferred stock into shares of common stock upon completion
of this offering, including the Series J preferred stock, and to reflect
our amended certificate of incorporation to be filed in connection with
the effectiveness of this prospectus increasing our authorized shares of
common stock to 100,000,000 and preferred stock to 5,000,000; and
- on a pro forma as adjusted basis to reflect the sale of the common stock
in this offering at an assumed initial public offering price of $ per
share for net proceeds of $ million, after deduction of estimated
underwriting discounts and commissions and our estimated offering
expenses.
The number of shares outstanding is based on the number of shares of our
common stock outstanding on December 31, 1999. The number of shares of Series H
preferred stock outstanding as of December 31, 1999 includes 2,224,943 shares of
exchangeable preferred stock of Servicesoft Technologies Canada, and the number
of shares of common stock outstanding as of December 31, 1999 includes 973,762
shares of exchangeable common stock of Servicesoft Technologies Canada, which
are exchangeable on a one-for-one basis into our Series H preferred stock and
common stock and have the same rights and privileges as those shares. Upon
completion of this offering, the exchangeable preferred stock will convert into
exchangeable common stock. As of December 31, 1999, we have one share of Series
X special voting preferred stock outstanding and one share of Series Y special
voting preferred stock outstanding, each with a recorded value of $.01. This
stock facilitates the voting rights of the holders of the exchangeable preferred
stock and exchangeable common stock. Upon completion of this offering, under the
terms of our certificate of incorporation, we will redeem the Series Y special
voting preferred stock for an aggregate price of $1.00. The number of shares
outstanding as of December 31, 1999 excludes 2,951,680 shares subject to options
outstanding under our stock option plans at a weighted average exercise price of
$1.24 per share, 897,818 additional shares available for issuance under those
plans, and 161,662 shares issuable upon the exercise of outstanding warrants at
a weighted average exercise price of $4.02 per share. The adjusted information
set forth below is unaudited and should be read in conjunction with our
consolidated financial statements and notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations, net of current portion........... $ 522 $ 522 $ 522
------- ------- -------
Redeemable convertible preferred stock, $.01 par value:
Series J; no shares authorized, issued and
outstanding - actual, pro forma and pro forma
adjusted................................................ -- -- --
Series I; 4,450,000 shares authorized, 3,982,271 shares
issued and outstanding - actual; no shares authorized,
issued and outstanding - pro forma and pro forma as
adjusted................................................ 17,211 -- --
Series H; 8,000,000 shares authorized, 7,605,073 shares
issued and outstanding - actual; no shares authorized,
issued and outstanding - pro forma and pro forma as
adjusted................................................ 35,040 -- --
------- ------- -------
Total redeemable convertible preferred stock............ 52,251 -- --
------- ------- -------
Stockholders' equity (deficit):
Preferred stock, $.01 par value; no shares authorized,
issued or outstanding - actual; 5,000,000 shares
authorized, no shares issued and outstanding - pro forma
and pro forma as adjusted............................... -- -- --
Common stock, $.01 par value; 17,450,000, 30,000,000 and
100,000,000 shares authorized - actual, pro forma and
pro forma as adjusted; 5,152,352, 20,221,174 and
shares issued and outstanding - actual, pro
forma and pro forma as adjusted......................... 51 202
Additional paid-in capital................................ 29,721 113,109
Accumulated deficit....................................... (46,032) (46,032) (46,032)
Notes receivable from stockholders........................ (1,117) (1,117) (1,117)
Deferred stock compensation............................... (13,286) (13,286) (13,286)
Accumulated other comprehensive loss...................... (112) (112) (112)
------- ------- -------
Total stockholders' equity (deficit).................... (30,775) 52,764
------- ------- -------
Total capitalization.................................... $21,998 $53,286 $
======= ======= =======
</TABLE>
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DILUTION
As of December 31, 1999, we had a pro forma net tangible book value of
$34.4 million, or $1.70 per share. Pro forma net tangible book value per share
is equal to our total tangible assets less total liabilities, divided by the
number of outstanding shares of our common stock, after giving effect to the
sale of our Series J preferred stock in January 2000 and the automatic
conversion of all shares of convertible preferred stock into common stock upon
completion of this offering. After giving effect to our receipt of the estimated
net proceeds from the sale of the shares of common stock in this offering at an
assumed initial public offering price of $ per share after deducting
the estimated underwriting discounts and commissions and the estimated expenses
relating to this offering, our pro forma net tangible book value as of December
31, 1999 would have been $ , or $ per share. This represents
an immediate increase in pro forma net tangible book value of $ per
share to existing stockholders and an immediate dilution of $ per share
to new investors purchasing shares in this offering. If the initial public
offering price is higher or lower than $ per share, the dilution to new
investors will be higher or lower. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $1.70
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after the
offering..................................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>
The following table summarizes, as of December 31, 1999, on the pro forma
basis described above, the difference between the number of shares of common
stock purchased from us, the total consideration paid and the average price per
share paid by the existing stockholders and by new public investors purchasing
shares from us in this offering before deducting estimated underwriting
discounts and commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 20,221,174 % $93,725,000 % $4.63
New investors................
---------- ----- ----------- -----
Total...................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The foregoing computations are based on the number of common shares
outstanding as of December 31, 1999 and include 3,198,705 shares of our common
stock and Series H preferred stock issuable upon conversion of exchangeable
stock of Servicesoft Technologies Canada and 12,843,879 shares of our common
stock issuable upon conversion of our preferred stock, and exclude 2,951,680
shares of common stock subject to outstanding options at December 31, 1999 at a
weighted average exercise price of $1.24 per share and 161,662 shares of common
stock, exchangeable common stock and Series H preferred stock issuable upon
exercise of warrants outstanding as of December 31, 1999 at a weighed average
exercise price of $4.02 per share.
To the extent stock is issued upon the exercise of outstanding stock
options under our stock option plans, there will be further dilution to new
investors. For a description of our stock plans, see "Management--1999 Stock
Option and Grant Plan" and "--Amended and Restated 1994 Stock Option Plan."
17
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes included elsewhere in this prospectus. The statement of operations data
for the years ended December 31, 1997, 1998 and 1999 and the balance sheet data
as of December 31, 1998 and 1999 are derived from our audited consolidated
financial statements appearing elsewhere in this prospectus. The statement of
operations data for the year ended December 31, 1996 and the balance sheet data
as of December 31, 1996 and 1997 are derived from our audited consolidated
financial statements not included in this prospectus. The statement of
operations data for the year ended December 31, 1995 and the balance sheet data
as of December 31, 1995 are derived from our unaudited consolidated financial
statements not included in this prospectus. The unaudited consolidated financial
statements, in the opinion of management, have been prepared on the same basis
as the audited consolidated financial statements and reflect all adjustments
necessary for a fair presentation of that data. There is no difference between
historical basic and diluted net loss per common share since potential common
shares from the conversion of preferred stock and the exercise of options and
warrants are anti-dilutive for all periods presented. Unaudited pro forma net
loss per common share reflects the assumed conversion of all outstanding
redeemable convertible preferred stock upon completion of this offering as if
converted on the later of January 1, 1999 or the date of original issue.
Our results for the year ended December 31, 1999 reflect the February 12,
1999 merger with Balisoft and the December 17, 1999 acquisition of Internet
Business Advantages which were accounted for using the purchase method.
Accordingly, the results of operations of Balisoft and Internet Business
Advantages are included in our results from the applicable closing dates. Since
the merger with Balisoft and the acquisition of Internet Business Advantages
were completed in 1999, the effects of these transactions are reflected in the
balance sheet data as of December 31, 1999. The unaudited pro forma combined
consolidated statement of operations data presents the results of operations of
Servicesoft, Balisoft and Internet Business Advantages on a combined basis as if
the transactions had occurred on January 1, 1999. The unaudited pro forma
combined consolidated results reflect adjustments for the purchase price
allocations and amortization of goodwill and other intangible assets.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL COMBINED
---------------------------------------------------- ---------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software license.......................................... $880 $706 $2,139 $2,508 $4,210 $4,210
Services.................................................. 1,618 498 387 1,782 2,934 6,269
-------- -------- -------- -------- -------- --------
Total revenue....................................... 2,498 1,204 2,526 4,290 7,144 10,479
-------- -------- -------- -------- -------- --------
Cost of revenue:
Cost of software license.................................. 106 148 252 148 406 406
Cost of services.......................................... 673 667 625 1,101 3,375 7,150
-------- -------- -------- -------- -------- --------
Total cost of revenue............................... 779 815 877 1,249 3,781 7,556
-------- -------- -------- -------- -------- --------
Gross profit................................................ 1,719 389 1,649 3,041 3,363 2,923
-------- -------- -------- -------- -------- --------
Operating expenses:
Research and development.................................. 1,048 787 930 1,174 4,205 4,420
Sales and marketing....................................... 891 890 977 3,598 13,310 15,119
General and administrative................................ 608 588 756 1,612 5,044 7,606
Amortization of goodwill and other intangible assets...... -- -- -- -- 2,671 6,995
Stock compensation........................................ -- -- -- -- 1,900 1,900
-------- -------- -------- -------- -------- --------
Total operating expenses............................ 2,547 2,265 2,663 6,384 27,130 36,040
-------- -------- -------- -------- -------- --------
Loss from operations........................................ (828) (1,876) (1,014) (3,343) (23,767) (33,117)
Interest and other income (expense), net.................... 7 61 (90) (620) 214 605
-------- -------- -------- -------- -------- --------
Net loss.................................................... (821) (1,815) (1,104) (3,963) (23,553) (32,512)
Accretion on redeemable convertible preferred stock......... (57) (230) (340) (1,031) (2,725) (2,797)
-------- -------- -------- -------- -------- --------
Net loss attributable to common stock....................... $(878) $(2,045) $(1,444) $(4,994) $(26,278) $(35,309)
======== ======== ======== ======== ======== ========
Basic and diluted net loss per common share................. $(109.75) $(227.22) $(144.40) $(262.84) $(11.02)
Shares used in computing basic and diluted net loss per
common share.............................................. 8 9 10 19 2,385
Pro forma basic and diluted net loss per common share....... $(1.99)
Shares used in computing pro forma basic and diluted net
loss per common share..................................... 11,862
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $289 $604 $206 $2,016 $6,630
Working capital (deficit)................................... (399) (439) (1,487) 2,398 288
Total assets................................................ 720 1,068 1,237 4,328 36,052
Capital lease obligations, net of current portion........... 37 -- -- 80 522
Redeemable convertible preferred stock...................... 14,015 15,976 16,316 25,441 52,251
Stockholders' deficit....................................... (14,358) (16,363) (17,784) (22,759) (30,775)
</TABLE>
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in such
forward-looking statements. See "Note on Forward-Looking Statements."
OVERVIEW
Servicesoft develops, markets and delivers sophisticated software products
and professional services that help both traditional and Internet businesses
provide superior e-service to their customers, employees and business partners.
We believe that our Servicesoft 2000 suite of products helps our clients build
personalized, profitable and sustainable on-line customer relationships that
maximize lifetime customer value. Through the integration of our sophisticated
knowledge base technology with self-service, e-mail, live interaction
applications and traditional phone-based communications, our products help our
clients to consistently deliver prompt, relevant and intelligent responses and
advice to their customers. To date, we have licensed our software products to
clients across a variety of industries, including telecommunications,
e-commerce, financial services, technology, manufacturing and healthcare.
We derive our revenue from three sources: the sale of software licenses,
implementation assistance and other professional services and software
maintenance services. We plan to generate future revenue from both existing and
new clients. As existing clients either expand their usage or implement new
Servicesoft products, they may be required to pay additional license fees under
existing license agreements or license additional copies of our software. We
recognize software license fees and implementation assistance fees on a
percentage of completion basis when we assist our clients in implementing our
products, there is evidence of a binding arrangement, the fees are fixed or
determinable and collection is probable. If we are not implementing our software
solution, we recognize software license fees when the software is delivered to
the end user, so long as the fees are fixed or determinable, there is evidence
of a binding arrangement and collection is probable. Professional services other
than implementation assistance or maintenance services are contracted for on
either a time-and-materials or fixed-price basis. We recognize service fees
contracted for on a time-and-materials basis as the services are performed. We
recognize service fees contracted for on a fixed-price basis on an estimated
percentage of completion as work progresses. Clients purchasing maintenance
services receive unspecified product upgrades and unlimited e-service and
telephone technical support. Our clients typically purchase maintenance services
annually, and we price maintenance services based on a percentage of our current
product list price. We recognize revenue on maintenance services ratably over
the term of the period covered, typically one year. We record cash receipts and
contracted amounts due from clients in excess of revenue recognized as deferred
revenue. The timing and amount of cash receipts from clients can vary
significantly depending on specific contract terms and can therefore have a
significant impact on the amounts of receivables due or deferred revenue in any
given period.
Our cost of software license revenue includes royalties due to third
parties for technology included in our products, the cost of manuals and product
documentation, media used to deliver our products, shipping and fulfillment
costs. Our cost of services revenue includes salaries and related costs for our
consulting and support organizations and costs of third parties contracted to
provide consulting services to our clients.
Our operating expenses are classified as sales and marketing, research and
development, general and administrative, amortization of goodwill and other
intangible assets and stock compensation expense for issuance of and
modification to stock options and restricted stock. Sales and marketing expenses
consist primarily of salaries and other related costs for sales and marketing
personnel, sales commissions, travel, public relations, advertising, promotional
materials and tradeshows. Research and development expenses consist primarily of
salaries and related costs for product development personnel and for consulting
fees to support our product development. To date, we have not capitalized any
research and development costs. General and administrative expenses consist
primarily of salaries and other related costs for finance, human resources,
internal systems and other administrative employees, legal and accounting fees
and insurance premiums. Stock compensation expenses for the issuance of stock
options and restricted stock represent the
19
<PAGE> 24
difference between the exercise price or purchase price of options or restricted
stock granted and the estimated fair market value for financial reporting
purposes of the common stock on the date of the grant or modification.
Over the past several years, we have incurred substantial costs to develop
and acquire our technology and products, to recruit and train personnel for
engineering, sales, marketing and professional services departments and to
establish an administrative organization. As a result, we have incurred
significant losses during this period and as of December 31, 1999, we had an
accumulated deficit of $46.0 million. We believe our success depends on
increasing our client base and on the emerging e-service market. Accordingly, we
intend to continue to invest heavily in sales, marketing, professional services,
research and development and in our operational and financial systems.
Furthermore, we expect to continue to incur substantial operating losses at
least through 2001, and our increase in operating expenses will require a
significant increase in revenue before we become profitable.
We had 250 full-time employees at January 31, 2000, up from 54 at January
31, 1999. This rapid growth places a significant demand on our management and
operational resources. In order to manage growth effectively, we must implement
and improve our operational systems, procedures and controls on a timely basis.
In addition, we expect that future expansion will continue to challenge our
ability to hire, train, motivate and manage our employees. Competition is
intense for highly qualified technical, sales, marketing, administrative and
management personnel. If our revenue does not increase relative to our operating
expenses, our management systems do not expand to meet increasing demands, we
fail to attract, assimilate and retain qualified personnel, or our management
otherwise fails to manage our expansion effectively, there would be a material
adverse effect on our business, operating results and financial condition.
In February 1999, we merged with Balisoft, a developer of e-mail management
and real-time Internet collaboration applications, in exchange for 2.2 million
shares of exchangeable common stock and 2.3 million shares of exchangeable
preferred stock; we also issued employee stock options and warrants to purchase
approximately 671,000 shares of our common stock. The total cost of the merger,
including transaction costs, was $12.6 million. We accounted for the merger as a
purchase business combination. Accordingly, the results of operations of
Balisoft have been included with our results of operations for periods
subsequent to the date of the merger and the acquired net assets were recorded
at their estimated fair values at the effective date of the merger, resulting in
$8.6 million recorded as goodwill and other intangibles.
In December 1999, we acquired Internet Business Advantages, an e-services
consulting organization, in exchange for $1.2 million in cash and 1.1 million
shares of our common stock; we also issued to former employees and warrant
holders of Internet Business Advantages stock options and warrants to purchase
approximately 470,000 shares of our common stock. The total cost of the
acquisition, including transaction costs, was $13.2 million. We accounted for
the acquisition as a purchase business combination. Accordingly, the results of
operations of Internet Business Advantages have been included with our results
of operations for periods subsequent to the date of acquisition and the acquired
net assets were recorded at their estimated fair values at the effective date of
the acquisition, resulting in $12.4 million recorded as goodwill and other
intangibles.
Of the $25.8 million total cost of the Balisoft and Internet Business
Advantages transactions, we allocated $21.0 million of the combined transaction
prices to goodwill and other intangible assets to be amortized over three years
commencing on the date of the respective transactions.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR
ENDED
DECEMBER 31, 1998
REVENUE
Total revenue increased $2.9 million, or 67%, to $7.1 million in 1999 from
$4.3 million in 1998. Software license revenue increased $1.7 million, or 68% to
$4.2 million in 1999, from $2.5 million in 1998. Revenue from services increased
$1.2 million, or 65%, to $2.9 million in 1999 from $1.8 million in 1998. The
increase in total revenue was primarily due to increased market demand for and
acceptance of our products, the expansion
20
<PAGE> 25
of our product offering and an expanding customer base. In August 1999, we
released our Servicesoft 2000 suite of products, including self-service, e-mail
management and live interaction applications. This expanded product offering has
been a significant factor in the increased demand for our products. We believe
that growth in software license revenue depends on our ability to provide our
clients with the support, training, consulting and implementation services they
require to successfully build, deploy and maintain e-service applications.
Accordingly, we expect that services revenue will increase in the future to the
extent that additional clients license our products and as we expand both our
capacity to deliver professional services and the scope of our professional
services offerings.
COST OF REVENUE
Cost of software license revenue increased $258,000, or 174%, to $406,000
in 1999 from $148,000 in 1998. The increase is directly attributable to the
increase in licenses sold during 1999 and the increase in third-party products
embedded in or licensed with our Servicesoft 2000 suite of products. Cost of
services revenue increased $2.3 million, or 207%, to $3.4 million in 1999 from
$1.1 million in 1998. The increase was primarily due to the expansion of the
professional services workforce to meet the demands of the market and to provide
support to the increased number of clients. We expect the cost of software
license revenue to increase in the future in absolute dollar terms as additional
clients license our products and as we license technology that we may choose to
embed in or license with our products. We further expect the cost of services
revenue to increase in the future to the extent that we continue to generate new
clients. Except for 1998, our cost of services revenue has been significantly
higher than our services revenue. Cost of services revenue can be expected to
vary significantly from period to period, depending on the mix of services we
provide, whether such services are provided by us or third-party contractors,
and overall utilization rates.
OPERATING EXPENSES
Research and development. Research and development expenses increased $3.0
million, or 258%, to $4.2 million in 1999 from $1.2 million in 1998. The
increase is primarily attributable to an increase in headcount relating to the
merger with Balisoft and new hires. The remainder of the increase is due to the
development of our Servicesoft 2000 suite of products. We believe that continued
investment in research and development will be crucial to achieving and
maintaining leadership in the market for e-service software. As a result, we
expect research and development costs to increase in future periods.
Sales and marketing. Sales and marketing expenses increased $9.7 million,
or 270%, to $13.3 million in 1999 from $3.6 million in 1998. The increase is due
primarily to the expansion of the sales and marketing workforce, travel
expenses, marketing promotions and an increase in commissions as a result of the
increase in sales generated. We believe that sales and marketing expenses will
increase in future periods as we continue to expand our sales and marketing
efforts. Sales and marketing expenses can be expected to fluctuate as a
percentage of total revenue from period to period resulting from the hiring and
training of new sales personnel and the timing of our marketing activities.
General and administrative. General and administrative expenses increased
$3.4 million, or 213%, to $5.0 million in 1999 from $1.6 million in 1998. The
increase is primarily due to increased personnel and facilities costs. We
believe that general and administrative costs will increase as we invest in the
personnel and systems necessary to support our expanding operations and in
connection with the growth of our business, and as we assume the expenses and
responsibilities of a public company.
Amortization of goodwill and other intangible assets. In February 1999, we
merged with Balisoft for total consideration of $12.6 million. In December 1999,
we acquired Internet Business Advantages for total consideration of $13.2
million. In 1999, we incurred amortization expense of $2.7 million. In 2000, we
expect to incur amortization expense of approximately $7.0 million in connection
with these transactions.
Stock compensation. We incurred a charge of $1.9 million in 1999 related
to the issuance of stock options and restricted stock with exercise or purchase
prices below the deemed fair market value of the common stock for financial
reporting purposes on the date of the grant and related to modifications of
certain stock options. We incurred no stock compensation charges in 1998.
Additional unvested outstanding options
21
<PAGE> 26
and restricted stock will continue to vest over the next four years, which will
result in additional compensation expense of approximately $13.3 million in the
aggregate over the next four years.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net was $214,000 of net income in 1999
and was $620,000 of net expense in 1998. Interest income increased $152,000 to
$320,000 in 1999 from $168,000 in 1998. The increase is directly attributable to
the investment of funds received as part of the Balisoft merger and funds raised
in the Series I convertible preferred stock financing. Interest expense
decreased $503,000 to $35,000 in 1999 from $538,000 in 1998. Of the $538,000
recorded in 1998, $530,000 related to the conversion of bridge loans at a value
below the then deemed fair market value of the equity issued. The balance of the
1998 expense and the majority of the 1999 expense relates to interest charges on
capitalized equipment leases. Other expense, net decreased $179,000 to $71,000
in 1999 from $250,000 in 1998. The majority of this expense in both 1998 and
1999 related to the settlement of a patent infringement dispute. Under the terms
of the settlement, we expended $250,000 in 1998 and $50,000 in 1999. In
addition, under the terms of the settlement we are obligated to make an
additional $250,000 payment if we are acquired.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR
ENDED
DECEMBER 31, 1997
REVENUE
Total revenue increased $1.8 million, or 70%, to $4.3 million in 1998 from
$2.5 million in 1997. Software license revenue increased $369,000, or 17%, to
$2.5 million in 1998 from $2.1 million in 1997. Revenue from services increased
$1.4 million, or 360%, to $1.8 million in 1998 from $387,000 in 1997. This
increase in total revenue was primarily due to increase in the implementation
services rendered.
COST OF REVENUE
Cost of software license revenue decreased $104,000, or 41%, to $148,000 in
1998 from $252,000 in 1997. The decrease is directly attributable to a decrease
in third-party products which were embedded in our products. Cost of services
revenue increased $476,000, or 76%, to $1.1 million in 1998 from $625,000 in
1997. The increase was primarily due to the expansion of the professional
services workforce to meet the demands of the market and to provide support to
the increased number of sales generated.
OPERATING EXPENSES
Research and development. Research and development expenses increased
$244,000, or 26%, to $1.2 million in 1998 from $930,000 in 1997. The increase is
primarily due to the expansion of research and development personnel to upgrade
the then existing products and develop new products.
Sales and marketing. Sales and marketing expenses increased $2.6 million,
or 268%, to $3.6 million in 1998 from $977,000 in 1997. The increases are due
primarily to the expansion of the sales and marketing workforce, travel
expenses, marketing promotions, such as public relations, advertising, trade
shows, and marketing collateral, and an increase in commissions as a result of
the increase in sales generated.
General and administrative. General and administrative expenses increased
$856,000, or 113%, to $1.6 million in 1998 from $756,000 in 1997. The increase
is primarily due to an increase in administrative personnel and significant
increases in recruiting costs and legal fees.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other expense, net increased $530,000, or 589%, to $620,000 of
net expense in 1998 from $90,000 of net expense in 1997. Interest income
increased $161,000 to $168,000 in 1998 from $7,000 in 1997. The increase is
directly attributable to the investment of funds raised in the Series G
convertible preferred stock financing. Interest expense increased $441,000 to
$538,000 in 1998 from $97,000 in 1997. Of the $538,000 recorded in 1998,
$530,000 related to the conversion of bridge loans at a value below the then
22
<PAGE> 27
deemed fair market value of the equity issued. The majority of the 1997 expense
relates to interest expense on notes payable and the balance of the 1998 expense
relates to interest charges on capitalized equipment leases. Other expense in
1998 totaled $250,000. This expense related to the settlement of a patent
infringement dispute. Under the terms of the settlement, we expended $250,000 in
1998. There was no additional other expense in 1997.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated quarterly statements
of operations data for each of the four quarters in the year ended December 31,
1999. The unaudited consolidated financial statements, in the opinion of
management, have been prepared on the same basis as the audited consolidated
financial statements and reflect all adjustments necessary for a fair
presentation of that data. The quarterly consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes included elsewhere in this prospectus. The results of
operations for any quarter are not necessarily indicative of the results of
operations for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software license.......................................... $ 496 $ 814 $ 1,251 $ 1,649
Services.................................................. 308 595 850 1,181
------- ------- ------- -------
Total revenue........................................... 804 1,409 2,101 2,830
------- ------- ------- -------
Cost of revenue:
Cost of software license.................................. 62 96 130 118
Cost of services.......................................... 457 565 773 1,580
------- ------- ------- -------
Total cost of revenue................................... 519 661 903 1,698
------- ------- ------- -------
Gross profit................................................ 285 748 1,198 1,132
------- ------- ------- -------
Operating expenses:
Research and development.................................. 661 1,032 1,134 1,378
Sales and marketing....................................... 2,098 2,405 3,423 5,384
General and administrative................................ 702 881 1,390 2,071
Amortization of goodwill and other intangible assets...... 357 713 713 888
Stock compensation........................................ 8 19 1,080 793
------- ------- ------- -------
Total operating expenses................................ 3,826 5,050 7,740 10,514
------- ------- ------- -------
Loss from operations........................................ (3,541) (4,302) (6,542) (9,382)
Interest and other income (expense), net.................... (16) 15 82 133
------- ------- ------- -------
Net loss.................................................... $(3,557) $(4,287) $(6,460) $(9,249)
======= ======= ======= =======
</TABLE>
23
<PAGE> 28
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenue:
Software license.......................................... 61.7% 57.8% 59.5% 58.3%
Services.................................................. 38.3 42.2 40.5 41.7
------ ------ ------ ------
Total revenue........................................... 100.0 100.0 100.0 100.0
====== ====== ====== ======
Cost of revenue:
Cost of software license.................................. 7.7 6.8 6.2 4.2
Cost of services.......................................... 56.8 40.1 36.8 55.8
------ ------ ------ ------
Total cost of revenue................................... 64.5 46.9 43.0 60.0
------ ------ ------ ------
Gross profit................................................ 35.5 53.1 57.0 40.0
------ ------ ------ ------
Operating expenses:
Research and development.................................. 82.2 73.2 54.0 48.7
Sales and marketing....................................... 260.9 170.7 162.9 190.2
General and administrative................................ 87.3 62.5 66.2 73.2
Amortization of goodwill and other intangible assets...... 44.5 50.7 33.9 31.4
Stock compensation........................................ 1.0 1.3 51.4 28.0
------ ------ ------ ------
Total operating expenses................................ 475.9 358.4 368.4 371.5
------ ------ ------ ------
Loss from operations........................................ (440.4) (305.3) (311.4) (331.5)
Interest and other income (expense), net.................... (2.0) 1.0 3.9 4.7
------ ------ ------ ------
Net loss.................................................... (442.4)% (304.3)% (307.5)% (326.8)%
====== ====== ====== ======
</TABLE>
Our total revenue has increased in each quarter of 1999 due to an expanding
e-service market and as we increased our product and services offerings and our
sales and marketing activities. Particularly, we have seen a significant
increase in customer demand since we released our Servicesoft 2000 suite of
products in the third quarter of 1999.
Cost of revenue has increased each quarter in conjunction with our
increases in total revenue. Cost of software license revenue was
disproportionately higher in the quarter ended September 30, 1999 primarily due
to higher than normal sales of a third-party product. Cost of services revenue
increased during each quarter of 1999 as we increased the number of professional
services consultants and customer care representatives in response to our
growing customer base.
Operating expenses have generally increased in absolute dollars each
quarter as we have increased staffing in sales and marketing, research and
development and general and administrative functions. In addition, the merger
with Balisoft in February 1999 significantly increased our research and
development costs commencing in the second quarter. With the release of our
Servicesoft 2000 suite of products early in the third quarter, we increased our
marketing activities, which has had a significant impact on sales and marketing
expenses. As part of the purchase accounting for the Balisoft merger in February
and the Internet Business Advantages acquisition in December, we recorded
goodwill and other intangible assets of $21.0 million. These intangible assets
are being amortized over a three year period as reflected in amortization of
goodwill and other intangible assets. Also, during 1999 we recorded deferred
stock compensation charges totaling $13.9 million in connection with stock
options and restricted stock granted during 1999. We are amortizing this amount
over the vesting periods of the applicable options or restricted stock, and we
have recognized other stock compensation charges resulting in stock compensation
expense of $8,000, $19,000, $1.1 million and $793,000 in the four quarters of
1999. The increased amounts in the third and fourth quarters of 1999 are due to
the significant increase in the deemed fair market value of our stock for
financial reporting purposes during 1999 and in the increase in the number of
stock options and restricted stock granted.
Because of the significant changes to our business in 1999, we cannot
forecast operating expenses based on historical results. Accordingly, we base
our expenses in part on future revenue projections. Most of these expenses are
fixed in the short term, and we may not be able to quickly reduce spending if
revenue is lower than we have projected. Our availability to forecast accurately
our quarterly revenue is limited due to the long sales cycle of our software
products, which makes it difficult to predict the quarter in which license sales
will occur, and the variability of client demand for professional services. We
would expect our business, operating results and financial condition to be
materially adversely affected if revenue does not meet projections and that net
losses in a given quarter would be even greater than expected.
24
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We expect our revenue and operating results may vary significantly from
quarter to quarter. A number of factors are likely to cause these variations,
including:
- demand for our products and services;
- the timing of sales of our products and services;
- unexpected delays in introducing new products and services;
- increased expenses, whether related to sales and marketing, product
development or administration;
- changes in the rapidly evolving market for e-service solutions;
- the mix of product license and services revenue;
- the mix of services provided and whether services are provided by our
staff or third-party contractors;
- the mix of domestic and international sales; and
- costs related to possible acquisitions of technology or business.
Accordingly, we believe that quarter-to-quarter comparisons of our
operating results are not necessarily meaningful. We plan to increase our
operating expenses to expand sales and marketing operations, develop new
distribution channels, fund greater levels of research and development, broaden
professional services and support and improve operational financial systems. If
our revenue does not increase along with these expenses, our business, operating
results or financial condition could be materially adversely affected and net
losses in a given quarter would be even greater than expected. Investors should
not rely on the results of one quarter as an indication of future performance.
NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
As a result of taxable losses generated, we have not recorded any
provisions for income taxes for the years ended December 31, 1997, 1998 and
1999. As of December 31, 1999, we had net operating loss carryforwards of $37.6
million, $29.1 million and $5.1 million for federal, state and foreign income
tax purposes. The net operating loss carryforwards will expire at various dates
through 2019, if not used. Under the provisions of the Internal Revenue Code,
substantial changes in our ownership may limit the amount of net operating loss
carryforwards that could be utilized annually in the future to offset taxable
income. We have established a full valuation allowance in our consolidated
financial statements reflecting the uncertainty of our ability to use available
net operating loss carryforwards and other deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have primarily funded our operations and met our
capital expenditure requirements through the private sale of equity securities,
resulting in net proceeds of $48.5 million through December 31, 1999. In
addition, in January 2000, we sold additional equity securities in a private
sale resulting in additional net proceeds of $31.3 million. Cash used in
operating activities was $1.2 million, $3.6 million, and $13.8 million in 1997,
1998 and 1999. The $13.8 million of cash used in operating activities for the
year ended December 31, 1999 results from net loss before non-cash charges and
includes an increase in client accounts receivables of approximately $4.2
million from December 31, 1998. This increase is directly attributable to
increased client contracts signed at the close of the quarter ended December 31,
1999 containing immediate invoicing terms.
To date, our investing activities have consisted primarily of capital
expenditures totaling $25,000 and $537,000 in 1997 and 1998. In 1999, capital
expenditures of $2.3 million were offset by cash acquired in the Balisoft merger
and Internet Business Advantages acquisition which totaled $3.4 million after
cash paid in the Internet Business Advantages acquisition and for transaction
expenses. Capital expenditures consist primarily of property and equipment,
mainly furniture and computer hardware and software, for our growing employee
base. We expect that our capital expenditures will increase as our employee base
grows. At December 31, 1999, we did not have any material commitments for
capital expenditures.
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At December 31, 1999, we had $6.6 million in cash and cash equivalents and
$288,000 in working capital. Net cash provided by financing activities in 1997,
1998, and 1999 were $817,000, $6.0 million and $17.2 million. We have a $2.0
million revolving and a $750,000 equipment line of credit with Fleet Bank that
bear interest at the bank's prime rate plus .50% and .75%. At December 31, 1999,
$1.0 million was outstanding under the revolving line of credit. We had no
borrowings against the equipment line of credit as of December 31, 1999. Under
the revolving line of credit we are required to maintain certain financial
ratios and are bound by certain covenants. As of January 31, 2000 we had no
outstanding borrowings under this revolving line of credit.
We believe that the net proceeds of this offering, together with cash on
hand, cash equivalents, short-term investments and commercial credit facilities
will be sufficient to meet our working capital requirements for at least the
next 12 months. Thereafter, we may require additional funds to support out
working capital requirements or for other purposes and may seek to raise such
additional funds through public or private equity financings or from other
sources. Such additional financing may not be available at all or, if available,
such financing may not be obtainable on terms favorable to us and may be
dilutive.
YEAR 2000 ISSUES
We are unaware of any problems that have arisen with respect to Year 2000
issues in our current software products, our internal computer systems or in the
computer systems of our vendors. Prior to January 1, 2000, we conducted a review
of the potential impact that the change in the date to the year 2000 would have
on our current products and computer systems. Based on this review, we
determined that all of our current products and major computer systems are able
to recognize and appropriately process dates commencing in the year 2000. Our
historical costs to assess our Year 2000 readiness have not been significant.
The majority of the costs required to complete our Year 2000 compliance process
were incurred as part of our normal capital asset acquisition program, and would
have been incurred without consideration of Year 2000 issues. We are not
currently able to estimate the final aggregate cost of addressing the Year 2000
issue, because funds may be required as a result of future findings. However,
given the lack of any problems related to the year 2000 since the year change,
we do not anticipate that we will experience any material problems related to
the year 2000 in the future. As a result, we do not expect costs associated with
these problems to have an adverse effect on our business and financial results.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. Because we do not currently hold any derivative instruments and
do not currently engage in hedging activities, we expect the adoption of SFAS
No. 133 will not have a material impact on our financial position or operating
results.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop our products in Canada and the United States. We sell our
products globally, primarily through our direct sales force. As a result, our
financial results are affected by factors such as changes in foreign currency
exchange rates and weak economic conditions in foreign markets. In the future,
we expect to increase our international operations in our existing markets and
in geographic locations where we do not have any operations now.
We collect a portion of our revenue and pay a portion of our operating
expenses in foreign currencies. As a result, changes in currency exchange rates
from time to time may affect our operating results. Currently, we do not engage
in hedging transactions to reduce our exposure to changes in currency exchange
rates, although we may do so in the future. We cannot assure you, however, that
any efforts we may make in the future to hedge our exposure to currency exchange
rate change will be successful.
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BUSINESS
OVERVIEW
We develop, market and deliver sophisticated software products and
professional services that help both traditional and Internet businesses provide
superior Internet-based service, or e-service, to their customers, employees and
business partners. We believe that our Servicesoft 2000 suite of products helps
our clients build personalized, profitable and sustainable on-line customer
relationships that maximize lifetime customer value. Our highly scaleable
Servicesoft 2000 suite enables our clients to answer their customers' inquiries
through an automated on-line interface, known as self-service, as well as
through e-mail, live Internet-based interactions and traditional phone-based
communications. Our products enable our clients to build a sophisticated
knowledge base that aggregates customer information, transaction data and
individual employee expertise. By integrating this knowledge base with
self-service, e-mail and live interaction applications and traditional
phone-based communications, our products help our clients to consistently
deliver prompt, relevant and intelligent responses that directly address issues
raised by their customers, employees and business partners. By enabling our
clients' customers to escalate their inquiries from self-help to e-mail response
to live interaction, our products help our clients efficiently apply the
appropriate level of resources while enhancing customer satisfaction. We also
believe our products increase employee productivity and decrease cost per
customer service interaction. Our Servicesoft 2000 suite of products integrates
with existing business systems, including automated call distribution systems,
such as those provided by Lucent and Nortel, customer relationship management
applications, such as those provided by Siebel, Clarify and Vantive, as well as
industry leading database and e-commerce applications.
We complement our products with a professional services organization that
offers a range of services including rapid implementation assistance, e-service
system designs, knowledge engineering and project management. We have designed
these services to decrease implementation risk, shorten the time it takes to
provide superior e-service, improve our clients' competitive position and
maximize return on investment. We believe that our ability to successfully
deliver an integrated, knowledge base-enabled solution to our clients provides
us with a significant competitive advantage in the market for e-service
solutions.
To date, we have licensed our products to clients across a variety of
industries, including telecommunications, e-commerce, financial services,
technology, manufacturing and healthcare. Our clients include, GTE, Eddie Bauer,
American Express, Akamai, Intel, Getronics Wang, John Deere and Shared Medical
Systems.
INDUSTRY BACKGROUND
GROWTH IN INTERNET USAGE
The growth in the number of Internet users has led to a shift in the way
that people communicate and conduct business. International Data Corporation
projects that the number of Internet users worldwide will grow from 196 million
in 1999 to 502 million users in 2003. The rapid adoption of the Internet as a
communications medium has placed e-mail, chat and Web sites alongside
traditional media such as television, telephony, radio, print and face-to-face
communications. Businesses are increasingly using the Internet, both to
communicate and conduct business with customers, business partners and
employees. The GartnerGroup estimates that by 2001 businesses will receive 25%
of all customer contacts and inquiries over the Internet.
EVOLUTION OF E-BUSINESS
The growth in the number of users on the Internet together with increased
Internet usage per person has led to the rapid development of business conducted
on-line, otherwise known as e-business. Forrester Research estimates that the
total value of business-to-business e-commerce will reach approximately $2.7
trillion in 2004. The first phase of e-business involved forays by businesses
onto the Internet that were primarily informational in nature, delivering
predominantly static information about a company and its products. Building on
the success of these on-line brochures, in the second phase of e-business these
efforts were quickly augmented by on-line storefronts that provided
transactional capabilities.
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Initially, on-line competition was waged primarily along the variables of
price and selection. E-businesses focused on maximizing the number of visitors
and first-time customers to their Web sites, often expending substantial sums of
money on advertising, marketing and inventory expansion. In today's increasingly
competitive environment, price and selection are no longer sufficient for
e-businesses, whether business-to-consumer, business-to-employee or
business-to-business, to distinguish themselves.
THE NEED FOR COMPREHENSIVE E-SERVICE SOLUTIONS
In the third phase of e-business evolution, e-businesses are looking to
provide superior e-service as an increasingly important means of competitive
differentiation. This shift in competitive focus is being driven by increasing
customer demand for prompt, accurate and personalized resolution of all
inquiries, ranging from product information requests and order status updates to
support questions and service complaints. Customers are coming to expect at
least the same level of service that they are used to receiving from traditional
businesses. E-businesses realize that superior e-service can create long-term
customer satisfaction and loyalty, thereby increasing profitability per customer
and reducing the need for continuous, substantial expenditures on marketing and
other customer acquisition efforts.
Providing quality e-service to customers is further complicated by the
variety of communication channels used by today's customers. Self-service
options allow customers to find answers to their questions using an e-business
Web site. E-mail allows customers to send their questions and inquiries
electronically, rather than through traditional means. Interactive chat allows
customers to log into an electronic forum, where on-line customer service
representatives can provide interactive responses. Customers also use call
centers to speak directly with customer service representatives. The
communication channel chosen is a function of a customer's own schedule, sense
of urgency, access to technology, inability to resolve an issue through other
channels and level of frustration.
The growing variety of communication channels requires that e-businesses
turn their traditional, telephone-based call centers into full-service,
Internet-enabled contact centers that provide customers, business partners and
employees with fast, expert service and support through a variety of channels.
The emergence of the contact center allows customers to choose the service
method most convenient and effective for their specific needs. With the growth
of the Internet and the increasing number of businesses launching their
e-commerce efforts, e-service is driving the next generation of e-business.
International Data Corporation forecasts that demand for e-service software and
services will grow from $11 billion in 1998 to $43 billion by 2003.
Despite this growing sense of urgency among e-businesses, service has not
kept up with the rapid evolution of e-business, leaving many customers
dissatisfied with the level of service provided on-line. Customers find that
existing e-business Web sites do not address specific inquiries or are difficult
to navigate successfully to find the needed information. This often results in
increased call center volumes and e-mail traffic, threatening to overwhelm call
centers leading to inaccurate and delayed responses. According to a survey of
Web sites conducted by Jupiter Communications, approximately half of the Web
sites surveyed either took five or more days to respond, never responded or
failed to post an e-mail address on their Web site to address support requests
via e-mail. Customers also find that switching from one communication channel to
another often results in having to describe the problem at each stage of the
process, as the customer information obtained from a self-service search is not
transferred to the e-mail or call center resulting in further customer
frustration.
Effective e-service goes beyond providing a Web site with basic frequently
asked questions, chat and e-mail, or staffing a call center. Truly
differentiating e-service requires that all communication channels access a
common knowledge base that aggregates customer information, transaction data and
the expertise of individual employees who interact with customers on a daily
basis. A customer's name, address and order history, and information about the
company, its products, services and business rules all can form components of
the knowledge base. By consolidating a company's intellectual capital and making
it available across multiple departments and communication channels,
e-businesses are able to provide prompt, relevant, intelligent responses that
directly address issues raised by their customers. Superior e-service further
requires
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that e-businesses present customers with the option of escalating to a higher
service level if they are unable to resolve their queries through a particular
communication channel. More importantly, any escalation or change in
communication channels should include a seamless transfer of the customer's
interaction with the e-business to date, thereby presenting a continuous and
personalized dialogue with the customer. Finally, e-service requirements must be
met 24 hours-a-day, 7 days-a-week.
To date, companies that have attempted to address the emerging needs of
e-businesses for e-service solutions have only offered point solutions that
focus on particular communication channels between e-commerce companies and
their customers. These point solutions ignore the wide variety of means through
which a customer may choose to interact with e-businesses, necessitating the
implementation and deployment of applications by multiple vendors. More
importantly, the use of multiple vendors' solutions further presents
e-businesses with the additional challenges of building, integrating and
maintaining these point solutions on a common knowledge base of enterprise and
customer information. Without such a unified approach to customer service,
e-businesses are limited in their ability to achieve meaningful differentiation
through superior e-service.
THE SERVICESOFT SOLUTION
Our Servicesoft 2000 suite of products provides our clients the ability to
offer superior e-service which helps them to build relationships with their
customers, employees and business partners, and provide the following benefits:
- Enhanced Customer Relationships. Our products and services enable
e-businesses to provide their customers with interactive, intelligent
and prompt responses to their questions and inquiries. Our Servicesoft
2000 suite of products allows our clients to create personalized
e-service experiences for their customers. These personalized
interactions occur in real time, 24 hours-a-day, and are designed to
increase the level of customer satisfaction. Our software also provides
e-businesses with the ability to accurately track and efficiently manage
customer interactions across communication channels to build and sustain
lasting customer relationships.
- Integrated Access to Extensive Knowledge Base. Our Servicesoft 2000
suite of products enables our clients to develop a common knowledge base
of intellectual capital, which is collected from their business systems
and experts throughout their organization. All communications from an
e-business to its customers, employees or business partners, whether
through self-service, e-mail, chat or live interaction, draw from this
knowledge base. By aggregating a company's intellectual capital into a
single, unified knowledge base, our Servicesoft 2000 suite ensures that
our clients provide consistent, accurate and up-to-date answers to all
of their customers' and business partners' inquiries, regardless of the
communication channel chosen.
- Unified and Personalized View of the Organization. A unified knowledge
base also allows an e-business to track the progress of a customer's
interactions with the company through any of the communication channels
used. At any point in time, any authorized customer service
representative, salesperson or marketing staff member can obtain the
history of each interaction with the company, the potential resolutions
or answers suggested, and any special needs of the customer. The linkage
between communication channels through a knowledge base enables our
clients to provide customer service that is highly personalized and
efficient.
- Intelligent Responses and Escalation. Our proprietary software also
enables customers to easily transfer inquiries from self-help to e-mail
responses to live interaction. Escalation of customer inquiries helps
ensure that our clients efficiently apply the appropriate level of
resources towards customer satisfaction while reducing the risk of
losing a customer because of perceived unresponsiveness.
- Rapid and Measurable Return on Investment. Our Servicesoft 2000 suite
of products helps our clients enhance customer acquisition and retention
in an efficient and cost-effective manner. Through our solution, our
clients are able to achieve a proportional reduction in the volume of
customer calls
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and e-mail messages in favor of less costly self-service features, while
maintaining customer satisfaction through timely and accurate
responsiveness to customer concerns. By enabling customers to service
themselves and by aiding our clients to more effectively handle each
customer transaction, our clients often experience cost efficiencies,
including savings associated with reduced volume of phone calls and
e-mails, and the ability to process more customer interactions per
employee. In addition, the use of the knowledge base can reduce the
level of employee training and associated costs required to provide
e-service.
- Scalability. Our Servicesoft 2000 suite of products addresses the
customer service needs of large organizations as well as rapidly growing
companies that require solutions to automate and manage high volumes of
customer interactions across traditional as well as Internet-based
communication channels. Architecturally, our products can scale to
provide automated intelligent responses and escalation for increasing
volumes of traffic through scaling of the servers on which they are run.
- Rapid Deployment. Our Servicesoft 2000 suite of products is designed
for rapid deployment, typically eight to twelve weeks, and some of our
clients have implemented our solutions in as little as three weeks. Our
professional services group provides on-site training and guidance
during the implementation and testing phases. This program is designed
to speed implementation, maximize efficiency and reduce the expense and
time associated with deployment.
- Integration with Business Applications and Systems. Our software
enables organizations to aggregate, incorporate and utilize relevant
data contained within existing corporate databases and systems. Our open
standards architecture can be integrated with leading e-commerce
platforms, automated call distribution systems, databases and customer
relationship management applications. Our clients' e-services
applications can efficiently access disparate applications and systems
to provide their customers, business partners and employees with the
information and service they need.
STRATEGY
Our objective is to enhance our position as a leading provider of
intelligent e-service software solutions and related services. To achieve this
goal, we are pursuing the following strategies:
Extend Technology Leadership. We intend to extend our leadership position
in the e-service solutions market by continuing to increase the performance,
functionality, and scalability of our Servicesoft 2000 suite of products. Our
Servicesoft 2000 suite is designed to offer the best solution for each
communication channel thereby allowing businesses to strengthen their customer
relationships by providing high quality service which leads to increased
customer loyalty and retention, and increased return on investment. We plan to
continue to devote substantial resources to the development of new and
innovative product capabilities, and where appropriate, may make acquisitions to
purchase new or complementary technologies.
Expand and Leverage Strategic Alliances. In order to broaden our market
presence, reach new geographic and vertical markets, and increase adoption of
our solutions, we will continue to pursue strategic alliances with consultants,
systems integrators, value-added resellers, and independent software vendors of
complementary products. We intend to use these indirect channels to increase our
sales by leveraging our partners' industry expertise, business relationships,
and sales and marketing resources. Currently, we have consulting, technology,
web integration and outsourcing alliances with EDS, IBM Global Services, Nortel,
through its acquisition of Clarify, Remedy, Peoplesoft, through its acquisition
of Vantive, Onyx, Barnhill Associates, Sol-S, Tertio, Logicasiel and CorporaTel.
We intend to continue to aggressively develop new relationships to broaden our
market presence and accelerate our growth. In addition, we plan to expand our
professional services capabilities by developing strategic relationships with
local systems integrators and consultants.
Expand Worldwide Presence and Distribution Capabilities. To expand our
sales to both new and existing customers, we intend to increase our sales effort
by adding direct sales personnel and new office locations. We currently have
eight offices throughout North America and plan to continue to expand our North
American sales staff. In addition, to capitalize on international opportunities
for our products and
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services, we also plan to continue expansion of our international presence by
establishing additional overseas offices, adding direct sales personnel and
increasing our relationships with local distributors and systems integrators. We
currently have offices in the United Kingdom and Belgium and plan to open
offices and in other European cities and Asia to meet the e-service needs of
e-business throughout the world.
Leverage Professional Services Capabilities. Through our recent
acquisition of Internet Business Advantages, we are now able to provide an
extensive set of professional services. We have established successful
relationships with our clients by providing professional services to facilitate
in the development and deployment of effective e-service solutions. By providing
clients with a full range of complementary services, we promote the success of
projects and create opportunities to sell additional products. Our professional
services organization provides clients with implementation, project management,
training and support to ensure that clients quickly realize the maximum benefits
from their investment in our products.
Increase Brand Awareness. To increase the effectiveness of our direct
selling efforts and our penetration of the e-service market, we believe it is
important to build awareness of the Servicesoft brand. We plan to increase our
marketing efforts by expanding the number of trade shows we participate in,
increasing advertising and publication efforts, and expanding our interactive
marketing and telemarketing activities. We believe our marketing programs will
highlight the advantages of our Servicesoft 2000 suite of products relative to
our competitors.
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SERVICESOFT PRODUCTS
Our Servicesoft 2000 suite of products integrates our leading applications
for self-service, e-mail and live interaction capabilities with our proprietary
knowledge-base technology, offering our clients a complete e-service solution.
In addition, our products may be purchased separately or in combination. By
offering our products individually, a client may purchase the products that best
suit its current needs. A client can subsequently add products from our suite to
enhance e-service functionality. Our integrated e-service solution enables our
clients to provide interactive self service, e-mail service, chat and live
interaction to their customers, business partners and employees. The following
table summarizes the current products which compromise our Servicesoft 2000
suite, the latest versions of which were all shipped in the fourth quarter of
1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PRODUCT FEATURES
- ------------------------------------------------------------------------------------------------
<S> <C>
Servicesoft WebAdvisor Knowledge-base solution that enables e-businesses to capture
knowledge from business systems, employees, partners and
customers and publish knowledge on intranets or internets.
Provides advanced search capabilities and automated guidance
and advice to focus and expedite self-service inquiries. In
addition, WebAdvisor serves as an integration platform that
allows all our products to access a common knowledge base.
Servicesoft E-MailContact E-mail management solution that improves productivity and
responsiveness to e-mails through auto-response,
auto-suggest and queue management. When integrated with
Servicesoft WebAdvisor, Servicesoft E-MailContact enables
e-businesses to take advantage of the knowledge base and
provide prompt, intelligent responses to their customers,
business partners and employees. In addition, if the
customer chooses to escalate to a customer service
representative, WebAdvisor escalates the session history to
the representative. Knowledge base-ready for integration
with Servicesoft WebAdvisor.
Servicesoft LiveContact Enables e-businesses to provide collaboration over the
Internet, using Internet communication technologies such as
text chat, voice over the Internet, call back and web page
and brochure push. Text chat allows on-line real-time
written communications. Voice over Internet Protocol
utilizes the Internet for voice communications. Call back
gives customers the ability to request a telephone call from
the first available contact center representative. Web page
push enables a contact center representative, customer or
business partner to present a Web page for simultaneous
viewing and navigation. Brochure push enables e-businesses
to interactively customize a collection of related Web pages
into a brochure that can be viewed by their customers
on-line. Allows business managers, technical managers,
marketing, support and partners to work collaboratively to
resolve e-service issues. Knowledge base-ready for
integration with Servicesoft WebAdvisor.
Servicesoft Connectors Enables e-businesses to integrate their e-service
applications with their legacy applications and systems.
Pre-packaged connectors are currently available for customer
relationship management applications by Siebel, Clarify,
Remedy, Vantive and Onyx and automated call distribution
systems by Lucent and Nortel.
Servicesoft Development Server Enables e-businesses to develop, stage, deploy and maintain
our products without affecting production environments.
- ------------------------------------------------------------------------------------------------
</TABLE>
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SERVICESOFT PROFESSIONAL SERVICES
Our professional services organization enhances our ability to provide our
clients with innovative and extensive e-service solutions. Professional services
help our clients to define, design, implement, and deploy our Servicesoft 2000
suite of products, speed the implementation and maximize the effectiveness of
our solutions. Our professional services organization also educates our clients
on how they can create and deliver intelligent e-service solutions to their
customers, business partners and employees. Our professional services
organization mitigates initial implementation risks and assures the integrity of
our solution. We charge our clients on either a fixed-fee or time-and-materials
basis. As of January 31, 2000, our professional services organization consisted
of 67 full-time employees.
We currently offer our clients a broad spectrum of services across design,
implementation and e-service improvement services. The following graphics
depicts the services we provide during the stages of e-service deployment and
usage.
[FLOW CHART]
In the design stage, we provide a variety of services to help ensure that
our clients' business objectives are defined and understood, and the technical
requirements and architecture are agreed upon. In the implementation stage, we
use our methodology and project management expertise to assure that the project
is well managed and satisfies the client's requirements. At this stage, our
expertise with e-service implementation reduces project risk and facilitates
integration with third-party software. Our professional services organization
offers education, training and technology transfer to enable our clients'
internal team to support the implementation of our Servicesoft 2000 suite of
products.
In addition to providing services through our professional services
organization, we have established complementary relationships with several
leading professional services companies, including IBM, EDS and Keane.
CLIENT SUPPORT
We believe that we must provide a superior level of client support services
to our clients. Our client support uses our Servicesoft 2000 suite of products,
allowing clients to interact with Servicesoft WebAdvisor to achieve prompt
resolution to their issues. In addition to the knowledge base implementation,
which is available to our clients on a 24 hours-a-day, 7 days-a-week basis, our
clients can use Servicesoft E-mailContact or Servicesoft LiveContact to interact
with our technical support engineers. Clients can also obtain service by working
directly with a support engineer via telephone, e-mail or text chat. Our support
engineers use the same knowledge base that is available on our support web site.
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TECHNOLOGY
We believe our technology enables our clients, partners, and consultants to
build, deliver and manage enterprise-class, scalable e-service applications in
less time, at lower cost and with better results than existing alternatives.
PRODUCT ARCHITECTURE
We believe that we have developed a unique, component and Internet-based
architecture for meeting the demands of e-service applications. By placing
emphasis on the integration of communications channels with knowledge-base
technology, our products effectively accommodate web customer interaction, and
assist in customer acquisition and retention. Our design is an efficient and
highly scalable architecture, which enables e-businesses to implement quickly
and cost effectively e-service applications that can handle large volumes of
customer interactions. Additionally, we believe this architecture provides a
strong foundation on which we can develop future e-service products.
SERVICESOFT 2000 SYSTEM ARCHITECTURE
[CHART]
SERVICESOFT KNOWLEDGE PLATFORM
We have developed proprietary knowledge-base technology designed to manage
the high volume of interactions with many concurrent Internet visitors who use
e-services. The knowledge-base technology provides the following key functions:
Knowledge Model. We have developed a proprietary knowledge representation
model that allows diverse domains of knowledge to be easily and accurately
represented. We have a unique object-oriented representation of knowledge that
links related pieces of information together and promotes re-use of knowledge in
multiple contexts. The foundation of our knowledge representation lies in using
terms and associations familiar to the authors within an organization.
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Knowledge Engine. We have developed a unique knowledge engine which
combines multiple knowledge access strategies and algorithms into a single
knowledge engine. We combine search, case-based reasoning, decision trees, and
expert models into a seamlessly presented experience for the end user.
Knowledge Acquisition Services. We allow e-service application developers
to build and deploy applications that can manage multiple types of data
including content, relations data and flat files through a single knowledge
engine and a single application programming interface model. This simplifies
knowledge authoring and significantly reduces time to deployment by uncoupling
decisions about storage and data formats from authoring.
Authoring can be both automatic, using filters, and manual. We provide an
authoring environment that allows our clients to set up a knowledge framework
that is specific to their domain. The authoring tools enable teams with
different skills and roles to easily collaborate on creation of knowledge in a
way that is appropriate for them. Authors are empowered to create or review
knowledge without needing to be computer scientists or knowledge engineers.
Browser-based authoring enables authoring by employees, business partners and
customers.
Publishing Services. We combine an innovative and customizable workflow
management system with our knowledge engine to enable our clients to establish a
publishing process that best fits their business processes and practices. This
allows our clients to separate the authoring process from the publishing and
deployment process.
SERVICESOFT INTERACTION SERVICES
Our interaction services are designed to help businesses provide
multi-channel e-service to their customers. The services are designed to help
e-businesses improve their responsiveness to their customers while they manage
their costs. These services include:
Support of HTML and Java User Interfaces. Our products provide the
capability to generate HTML, Java, Java Script, or Visual Basic Script user
interfaces. This provides the capability for the customer to have a single look
and feel on their Web site and facilities integration with any Web accessible
application.
Intelligent Routing and Queuing. We provide managers and administrators
the capability to customize and configure the system to intelligently route
their customers queries to the appropriate channels and appropriate customer
service representative.
Dynamic Generation of Web Pages. Unlike many Web sites that have sets of
pre-defined static pages, our products create Web pages dynamically. The pages
are created from the information in the knowledge base, the information about
the user and their environment and information from the users dialogue.
Escalation across Multiple-Communication Channels. Servicesoft WebAdvisor
provides escalation services that help escalate a session to Sevicesoft
E-mailContact, Servicesoft LiveContact or third party systems.
Session Capture and Management. Our products help our clients capture
their customers' on-line interaction. The session information is captured and
saved to provide a history of customer interactions.
PERFORMANCE AND SCALABILITY
We believe that one of our key technological strengths is the ability of
our Servicesoft 2000 suite of products to deliver e-service interaction over the
Internet, with industry leading web page delivery performance and scalability
running on low cost hardware. The ability of our Servicesoft 2000 suite to
deliver unique performance and scalability characteristics is achieved using the
following techniques:
- a unique and proprietary caching mechanism that is integrated with the
knowledge delivery architecture which allows our application to deliver
web-based service at the same speed as static web page delivery;
- integration of the caching mechanism with a component-based Internet
protocol architecture;
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- the ability to distribute components of our suite of products across
multiple physical servers allowing sites to scale up performance and
improve system availability as a result; and
- the ability to operate in load-balanced clusters, which allows
businesses to handle increased load simply by adding more hardware to
the cluster.
ADHERENCE TO INDUSTRY STANDARDS
We have invested significant resources in developing our architecture to
comply with widely accepted software industry standards for building large-scale
Internet applications. Our products use SQL for accessing relational database
systems, HTTP for Internet access, ISAPI and CGI for access to Internet servers,
SMTP and Pop3 for e-mail protocols, and XML and HTML for publishing. Our
software is written in C++ and Java, two widely accepted development languages
for developing object-oriented applications.
CLIENTS
Our client base spans multiple industry segments. The following is a
representative list of our clients who have purchased our products in the last
two years. We do not intend the identification of these clients to imply that
these clients are actively endorsing or promoting our products.
E-COMMERCE
Acxiom
Dade Behring
Eddie Bauer
Host Logic
GOVERNMENT
DMC Chambersburg Plans
UK Post Office
Westchester County
INDEPENDENT SOFTWARE VENDORS
Centrobe
Creative Labs
Creative Solutions
Merant
TECHNOLOGY
Akamai Technologies
Black Box
Intel
Philips Mobile Computing
SERVICES PROVIDERS
EDS
Entex
Getronics Wang
IBM
Intelligroup
Lockheed Martin
National TechTeam
HEALTHCARE
IDX Systems
Shared Medical Systems
TELECOMMUNICATIONS
GTE
Pagenet
Verio
MANUFACTURING
Abbott Laboratories
John Deere
Ricoh
FINANCIAL SERVICES
American Express
AON Innovative Solutions
CASE STUDIES
The following case studies illustrate the issues faced by three
representative clients in providing quality e-service and the benefits from
deploying our products.
EDDIE BAUER
Eddie Bauer, a leading specialty retailer, offers active, casual lifestyle
clothing, accessories and home furnishings and decor for the bed and bath
through its two concepts: Eddie Bauer and Eddie Bauer Home. Renowned for its
commitment to customer service through its retail stores and catalog, Eddie
Bauer sought to offer the same level of personalized service at eddiebauer.com.
Specific objectives included improving e-mail
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response times, providing effective self-service, offering text chat and
enhancing the overall on-line shopping experience.
After evaluating competitive products, Eddie Bauer selected our Servicesoft
2000 suite of products because they wanted integrated solutions to maintain its
commitment to customer service. Implemented in October 1999, Servicesoft
WebAdvisor sessions grew from 5,000 sessions in October to over 25,000 sessions
in December. In addition, Servicesoft E-mailContact responded to over 20,000
queries during the month of December, enhancing overall service and freeing
customer service representatives to focus on other customer needs. The addition
of self-service and other Web site improvements helped reduce the company's
ratio of e-mails to orders by a factor of two. Most importantly, our Servicesoft
2000 suite enabled Eddie Bauer to extend its reputation for offering superior
customer service to its on-line customers.
WANG GLOBAL SERVICES
Wang Global Services, now a part of Getronics, one of the world's leading
providers of solutions and services to the professional users of information and
communication technology, provides help desk services to its strategic
enterprise customers. To keep customers satisfied, Getronics wanted a solution
that would enable their service agents to provide consistent responses, faster
problem resolution and a single means to access existing information. Additional
requirements for the new system included that it be cost effective, easily
customized and Web-enabled.
After evaluating competitive products, Getronics decided to purchase
Servicesoft WebAdvisor because it featured a knowledge base that could be built
and maintained easily by call center agents. Soon after deployment, 150 service
center agents were accessing the knowledge base approximately 1,000 times a day.
Servicesoft WebAdvisor allowed each of the company's agents to handle
approximately 80% more calls per day and answer 60% more questions without
escalation to a higher level of support. In addition, Servicesoft WebAdvisor
allowed Getronics to significantly reduce the training time for new agents.
Based on the initial success of Servicesoft WebAdvisor implementation, Getronics
recently placed an order to roll out our Servicesoft 2000 suite of products to
its help desk professionals globally.
GTE
GTE, a leading telecommunications provider with one of the industry's
broadest arrays of products and services, entered the Internet service provider
marketplace. The new service, GTE Internetworking, became the company's fastest
growing division, which brought a commensurate increase in phone calls to the
company's customer service center. GTE estimated that each customer phone call
cost the company $5 to $30, depending on the time required to resolve the
caller's problem and that 80% of the calls were for questions that the customer
service staff had answered many times before. GTE was seeking to reduce call
volume into its call centers, minimize turnover among its Internet subscribers
and gain a competitive edge by keeping its customers satisfied.
After a thorough evaluation of a number of e-service software providers,
the company purchased Servicesoft WebAdvisor because of its ability to capture,
organize, and deliver answers through a knowledge base-enabled solution. With
our help, the company deployed the solution in just three months. Key features
of the system included the ability to let customers ask questions in everyday
language, select the answer that best fits their needs, track whether questions
were answered to their satisfaction, and allow them to request a return e-mail
or phone call from a service representative. After installing Servicesoft
WebAdvisor, GTE Internetworking quickly saw the number of self-service sessions
grow to more than 15,000 per week. Based on this initial success, GTE extended
Servicesoft WebAdvisor to its GTE Wireless site, which is now handling over
30,000 self-service sessions per week, and achieving significant monthly savings
by solving 65 to 75% of customer issues on-line. The success of these initial
implementations led the company to roll out Servicesoft WebAdvisor for its
Network Services, Digital Cable TV, and GTE Unlimited business units. In
addition, the company plans to launch Servicesoft WebAdvisor for its Long
Distance business unit in March 2000.
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SALES AND MARKETING
We market our solutions primarily through a direct sales force and
expanding indirect sales channels consisting primarily of distributors, system
integrators, value-added resellers, consultants and third-party resellers. We
use an assortment of marketing programs to create market awareness of
Servicesoft and our solutions and to generate leads. Programs range from
advertising, direct mail, trade shows, seminars, product and strategy updates to
industry analysts, public relationship activities, speaking engagements and
telemarketing to Web site and Web syndication efforts. Our marketing
organization creates materials to support the sales process, including
brochures, data sheets, case histories, return on investment analysis,
presentations, white papers, and demonstrations.
Initial sales activities typically include a rapid needs assessment, sales
presentation and demonstration followed by detailed technical reviews and
mapping of solutions to requirements. As of January 31, 2000, our direct sales
team consisted of 47 sales executives and support personnel. We have sales
personnel throughout North America with sales offices located domestically in
Natick and Concord, Massachusetts; San Francisco, California; Huntington Beach,
California; Oakbrook Terrace, Illinois; Independence, Ohio; and Plano, Texas;
and internationally in Toronto, Canada; London and Swindon, England; and
Antwerp, Belgium.
RESEARCH AND DEVELOPMENT
We have made substantial investments in research and development. We plan
to continue evaluating externally developed technologies for integration into
our product line, but we expect that most enhancements to existing and new
products will be developed internally.
In 1999, we directed the majority of our research and development
expenditure towards fully integrating our product offerings and platform changes
that provide us with the capability of building new applications and expanding
into new markets while doing so more quickly.
The market for our solutions is characterized by rapid technological
change, frequent new product introductions, evolving standards and changing
customer requirements. The introduction of products incorporating new
technologies and the emergence of new industry standards could render existing
products obsolete and unmarketable. Our future success will depend in part on
our ability to anticipate changes, enhance our current products, develop and
introduce new products that keep pace with technological advancements and
address the increasingly sophisticated needs of our clients.
In order to keep pace with this rapidly changing environment, we devote
significant resources toward research and development. Our research and
development expenditures for fiscal 1997, 1998 and 1999 were approximately
$900,000, $1.2 million and $4.2 million. We expect that we will continue to
commit significant resources to research and development in the future. All
research and development expenses have been expensed as incurred.
COMPETITION
The market for our products and services is intensely competitive, evolving
and subject to rapid technological change. We expect the intensity of
competition to increase as current competitors expand their product offerings
and new competitors enter the market. We currently face competition for our
products primarily from systems designed by other e-service software vendors. We
expect that these vendors will continue to be a principal source of competition
for the foreseeable future. Competitors providing e-service solutions include
Brightware, eGain, Inference, Kana, Primus, Quintus, Serviceware and Silknet. In
addition, from time to time, we also compete with companies providing customer
relationship management, e-commerce and communications software such as
Broadvision, E.piphany, Lucent, Oracle, Siebel, Vantive, Vignette and others.
We believe that the principal competitive factors affecting our market
include referenceable customers, the breadth and depth of a given solution
including the integration of a knowledge base, product quality and performance,
customer service, core technology, product scalability and reliability, product
features, the ability to implement solutions quickly and the value of a given
solution. Although we believe that our solution
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currently competes favorably with respect to these factors, our market is
relatively new and is evolving rapidly. 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.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed based of customers than do we.
In addition, many of our competitors have well-established relationships with
our current and potential clients and have extensive knowledge of our industry.
It is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. We also expect that competition
will increase as a result of industry consolidations.
INTELLECTUAL PROPERTY
Our success depends in part on our ability to protect our proprietary
rights. To protect our proprietary rights, we rely upon a combination of
copyright, trade secret and trademark laws and contractual restrictions. These
legal protections afford only limited protections for our proprietary rights. We
currently have ten trademark registrations and six pending trademark
applications in the United States and Canada.
Although we rely on copyright, trade secret and trademark law to protect
our technology, we believe that factors such as the technological and creative
skills of our personnel, new product developments, frequent product enhancements
and reliable product maintenance are more essential to establishing and
maintaining a technology leadership position. Competitors may develop
technologies that are similar or superior to our technology.
We license our software pursuant to signed license or shrink-wrap
agreements, which impose certain restrictions on the licensee's ability to
utilize the software. We seek to avoid disclosure of our intellectual property
by generally entering into confidentiality or license agreements with our
employees, consultants and alliance partners, and generally control access to
and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products or
technology or to develop products with the same functionality as our products.
Policing unauthorized use of our products is difficult, and we cannot be certain
that the steps we have taken will prevent misappropriation of our technology,
particularly in foreign countries where the laws may not protect proprietary
rights as fully as do the laws of the United States. Litigation may be necessary
in the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement or invalidity. Any such resulting
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition.
In addition, substantial litigation regarding intellectual property rights
exists in the software industry. We have been subject to a claim of patent
infringement by a third party, which we subsequently settled by entering into a
license agreement. Our software products may be increasingly subject to
third-party infringement claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Some of our competitors in the market for e-service software may have
filed or may intend to file patent applications covering aspects of their
technology that they may claim our technology infringes. Some of these
competitors may make a claim of infringement against us with respect to our
products and technology. Any resulting litigation could result in substantial
costs and diversion of resources, cause shipment delays or require us to enter
into licensing or royalty agreements. Such licensing or royalty agreements, if
required, may not be available on terms acceptable to us or at all.
We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms.
These licensed components enhance features in our products but are not critical
to the operation of our products. Some of these components are available, at no
charge, to our customers from the supplier but are included in our products for
customer convenience. In cases where the licensed component provides an
operating feature, we believe there are alternative suppliers for the technology
from whom we may license the software. In addition, if we cannot maintain
licenses to the other third-party software included in our products,
distribution of our products could be delayed until equivalent software could
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be developed or licensed and integrated into our products, which could
materially adversely affect our business, operating results and financial
condition.
EMPLOYEES
As of January 31, 2000, we had a total of 250 employees. Of the total
employees, 78 were in sales, strategic alliances and marketing, 84 in research
development and technical support, 67 in professional services and 21 in finance
and administration. Our future performance depends in significant part upon the
continued service of our key technical, sales and marketing, and senior
management personnel, none of whom is bound by an employment agreement requiring
service for any defined period of time. The loss of the services of one or more
of our key employees could harm our business.
Our future success also depends on our continuing ability to attract, train
and retain highly qualified technical, sales and managerial personnel.
Competition for these personnel is intense. Due to the limited number of people
available with the necessary technical skills and understanding of the Internet,
we may have difficulty retaining or attracting key personnel in the future. None
of our employees is represented by a labor union. We have not experience any
work stoppages and consider our relations with our employees to be good.
FACILITIES
Our principal executive offices are located in Natick, Massachusetts, where
we lease approximately 44,000 square feet under a lease that expires in July
2005. In addition, we lease facilities and offices domestically in Concord,
Massachusetts; San Francisco, California; Huntington Beach, California; Oakbrook
Terrace, Illinois; Independence, Ohio; and Plano, Texas; and internationally in
Toronto, Canada; London and Swindon, England; and Antwerp, Belgium. We believe
that our facilities will be sufficient to meet our needs through at least the
next 12 months.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, their ages and positions as of
February 14, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Christopher M. Butler..................... 45 President, Chief Executive Officer and Director
Daniel J. Kossmann........................ 43 Chief Financial Officer and Treasurer
Massood Zarrabian......................... 50 Executive Vice President, Product Operations
Chester S. Barnard, Jr.................... 47 Senior Vice President, Servicesoft Professional
Services
James S. Keller........................... 38 Senior Vice President, Strategic Alliances
Paul R. Maguire........................... 40 Vice President, Sales
Alf Saggese............................... 37 Managing Director, Europe
Jeffrey L. Whitney........................ 45 Vice President, Marketing
Mark S. Skapinker......................... 45 Chairman of the Board of Directors
Robert E. Davoli.......................... 51 Director
Sophie Forest............................. 31 Director
Christopher H. Greendale.................. 48 Director
Gary Rubinoff............................. 38 Director
</TABLE>
Christopher M. Butler has served as our President, Chief Executive Officer
and Director since August 1999. From March 1999 until joining Servicesoft, Mr.
Butler served as an independent consultant in the Internet service industry. In
June 1990, Mr. Butler founded Interactive Solutions, Inc., an Internet strategy
and services company that grew to 150 employees, where he served as President
until it was sold to Omnicom in March 1999.
Daniel J. Kossmann has served as our Chief Financial Officer and Treasurer
since December 1999. From June 1992 until joining Servicesoft, Mr. Kossmann was
Chief Financial Officer for Infinium, Inc., a company offering e-business
solutions, where he was responsible for finance, investor relations, information
systems, mergers and acquisitions, strategic partnerships, human resources and
operations.
Massood Zarrabian has served as our Executive Vice President, Product
Operations since July 1999. From January 1999 until joining Servicesoft, Mr.
Zarrabian served as the Vice President of Product Operations responsible for
product development, data collection and product management for Lewtan
Technologies, Inc., a software company specializing in securitized transactions,
and from October 1998 until January 1999, Mr. Zarrabian served as the Vice
President of Product Development at Lewtan. From July 1997 to October 1998, Mr.
Zarrabian held the positions of Executive Vice President and Chief Operating
Officer, responsible for product development, worldwide support, corporate
marketing, product management and information technology, and from July 1996 to
July 1997, he served as Executive Vice President, Product Operations,
responsible for product development, worldwide support and product management,
for Cayenne Software, Inc., a case tools company. From February 1994 to July
1996, Mr. Zarrabian held the positions of Vice President, Research and
Development and Vice President, Product Operations at Cayenne's predecessor
company, Bachman Information System.
Chester S. Barnard, Jr. has served as Senior Vice President, Servicesoft
Professional Services since joining Servicesoft in connection with the
acquisition of Internet Business Advantages in December 1999. From February 1999
until joining Servicesoft, Mr. Barnard served as the President and Chief
Executive Officer of Internet Business Advantages. He served as President of
Excalibur Group, a leading systems integration firm, from February 1997 to until
its acquisition by Baan/Vanenberg Ventures Company in May 1998. After the
acquisition, Mr. Barnard served as Vice President, Baan MidMarket Outsourcing
until February 1999. From April 1993 through January 1997, Mr. Barnard was a
Director of Business Development for Arthur Andersen & Co.
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James S. Keller has served as Senior Vice President, Strategic Alliances
since October 1999. From July 1999 to October 1999, Mr. Keller served as an
independent consultant in the Internet services industry. From October 1998
until July 1999, Mr. Keller served as Vice President, Worldwide Professional
Services for Open Market, Inc., an e-business software company. From October
1996 to October 1998, Mr. Keller held the position of Vice President,
Outsourcing, Services Division at Genesys Software Systems, Inc., a human
resources software company. From June 1993 to October 1996, Mr. Keller served as
a Director of Consulting Services for Hyperion Software, Inc., a business
analysis software company that acquired Pillar Corporation in 1994.
Paul R. Maguire has served as Vice President, Sales since February 1999.
From January 1997 through January 1999, Mr. Maguire served as Vice President of
World-Wide Business Development at Segue Software, Inc., a provider of
e-business reliability solutions. From January 1994 to January 1997 he served as
Vice President of Sales for Segue.
Alf Saggese has served as Managing Director, Europe since December 1999.
From August 1999 to November 1999, he served as Managing Director, Europe,
Middle East and Africa for Webline Communication, a customer Internet management
software company. From November 1995 through July 1999, Mr. Saggese served as
the Managing Director, Italy, Central Europe, Middle East and Africa for Genesys
Telecommunications, Ltd., a leading computer telephony integration software
applications company. From January 1992 to November 1995, Mr. Saggese served as
the European Sales and Marketing Director for Rockwell Electronic Commerce, a
manufacturer of automatic call distributors and computer telephony integration
middleware applications.
Jeffrey L. Whitney has served as Vice President, Marketing since September
1998. From May 1998 through August 1998 he served as an independent management
consultant. From October 1997 through April 1998, Mr. Whitney was Vice President
of Marketing of Prophet 21, a provider of enterprise distribution software, and
from February 1995 to October 1997 he was Vice President of Marketing of
Bluestone Software, Inc., a provider of Web application development and
deployment solutions.
Mark S. Skapinker has served as Chairman of the Board of Directors of
Servicesoft since our merger with Balisoft in February 1999 and served as our
Chief Executive Officer from February 1999 to August 1999. Since November 1999,
Mr. Skapinker has also served as Managing Director at Brightspark, Inc., a
venture capital and Internet incubation firm located in Toronto, Canada. Mr.
Skapinker founded and served as the Chief Executive Officer of Balisoft from
June 1997 until our merger with Balisoft. From April 1996 to June 1997, Mr.
Skapinker served as an independent consultant to software and Internet
companies. From May 1988 to November 1995, Mr. Skapinker served as president of
Delrina Corporation, an electronics forms and fax software company that he
co-founded and sold to Symantec Corporation in July 1995, and from November 1995
through March 1996, he served as Vice President for Symantec. Mr. Skapinker is a
director of Newkidco International Inc., a developer and publisher of video
games, and Multiactive Software, Inc., a developer of e-business front office
solutions. He also serves as a director of several privately held companies.
Robert E. Davoli has served as a director of Servicesoft since March 1998.
Since January 1995, Mr. Davoli has served as General Partner at Sigma Partners,
a venture capital firm. Mr. Davoli is a director of Vignette Corporation,
Versata, Inc., and ISS Group, Inc., and he also serves as a director of several
privately held companies.
Sophie Forest has served as a director of Servicesoft since June 1999.
Since October 1996, Ms. Forest has served as a Director, Information Technology
Investments for Sofinov, Societe Financiere d'Innovation Inc., a high tech
investment group and wholly owned subsidiary of Caisse de Depot et Placement du
Quebec. From January 1996 to October 1996, Ms. Forest served as a Director,
Mergers and Acquisitions for Bell Canada, a telecommunications company. From
October 1992 to January 1996, Ms. Forest served as a portfolio manager for GTI
Capital, a venture capital firm. Ms. Forest also serves as a director of several
privately held companies.
Christopher H. Greendale has served as a director of Servicesoft since July
1998. Since January 1999, Mr. Greendale has served as a Managing Director of
Internet Capital Group, Inc., a business-to-business
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e-commerce company. From January 1998 to December 1998, Mr. Greendale was
engaged as an independent investor. In 1991, Mr. Greendale co-founded Cambridge
Technology Partners, where he served in various capacities from 1991 through
December 1997, most recently as Executive Vice President, Marketing. Mr.
Greendale serves as a director of Clarify Inc. and as Chairman of Breakaway
Solutions Inc. and numerous privately held corporations.
Gary Rubinoff has served as a director of Servicesoft since our merger with
Balisoft in February 1999. Since April 1997, Mr. Rubinoff has served as a
partner of J.L. Albright Venture Partners, a venture capital fund. From July
1993 to April 1997, Mr. Rubinoff served as a Vice President for Jefferson
Partners Capital Inc., a venture capital fund.
BOARD OF DIRECTORS AND COMMITTEES
Following this offering, our Board of Director will consist of six
directors divided into two classes, with each class serving for a term of two
years. At each annual meeting of stockholders, directors will be elected for a
two-year term to succeed the directors whose terms are expiring.
, and are Class I directors whose
terms will expire in 2001, , and
are Class II directors whose terms will expire in 2002.
The Board of Directors has an audit committee which reviews and supervises
our financial controls, including the selection of our auditors, reviews our
books and accounts, meets with our officers regarding financial controls, acts
upon recommendations of the auditors and takes any further actions the audit
committee deems necessary to complete an audit of our books and accounts, as
well as addressing other matters that may come before it or as directed by the
Board of Directors. The audit committee currently consists of three directors,
, and .
The Board of Directors also has a compensation committee, which reviews and
recommends the compensation and benefits for our executive officers, administers
our stock plans and performs other duties as may from time to time be determined
by the Board of Directors, except that the full Board of Directors will grant
any options to our officers or executive officers. The compensation committee
currently consists of three directors, , and
.
The Board of Directors may establish, from time to time, other committees
to facilitate the management of our business.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable and necessary expenses
incurred in connection with attendance at meetings of the Board of Directors or
its committees. We may, in our discretion, grant stock options and other equity
awards to our non-employee directors from time to time under our stock incentive
plans. In June 1999, we issued options to purchase 25,000 shares of our common
stock to Sophie Forest pursuant to our Amended and Restated 1994 Stock Option
Plan. Under the option agreement, these options vest one-third upon the first
anniversary of the commencement of her service with us and quarterly thereafter
over two years so long as a service relationship exists between us and Ms.
Forest. Under the Amended and Restated 1994 Stock Option Plan, if we are
acquired, one-half of her unvested options will vest.
In November 1999, we issued restricted common stock pursuant to our 1999
Stock Option and Grant Plan to certain of our directors as follows:
<TABLE>
<CAPTION>
AGGREGATE
DIRECTOR NUMBER OF SHARES PURCHASE PRICE
-------- ---------------- --------------
<S> <C> <C>
Robert E. Davoli......................................... 25,000 $25,000
Christopher H. Greendale................................. 12,000 12,000
Gary Rubinoff............................................ 10,000 10,000
</TABLE>
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Under the restricted stock agreements, these shares vest one-third in April
2000, and quarterly thereafter over two years so long as a service relationship
exists between us and the director. We have the right to repurchase any unvested
shares at cost upon the termination of the director's service relationship with
us. Under the 1999 Stock Option and Grant Plan, if we are acquired, one-half of
the unvested shares under each award will vest in full.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves on the Board of Directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our Board of Directors or compensation committee. Mark S.
Skapinker, our former Chief Executive Officer, served on our compensation
committee while serving as our Chief Executive Officer.
EXECUTIVE OFFICERS
Each officer serves at the discretion of our Board of Directors and holds
office until his or her successor is elected and qualified or until his earlier
resignation or removal. There are no family relationships among any of our
directors or executive officers.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
earned for services rendered to us by our current Chief Executive Officer, our
former Chief Executive Officers, our former Chief Financial Officer and each of
our three other most highly compensated executive officers whose salary and
bonus compensation for the fiscal year ended December 31, 1999 exceeded
$100,000. We refer to these executives collectively as our Named Executive
Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL -------------------------
COMPENSATION SECURITIES
------------------ OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME & PRINCIPAL POSITION SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS COMPENSATION
- ------------------------- -------- ------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Christopher M. Butler(a)...... $ 72,051 $33,333 -- --(b) -- --
President and Chief
Executive Officer
Mark S. Skapinker............. 141,697 27,108 $36,145 -- -- --
Former Chief
Executive Officer(c)
David P. Tarrant.............. 125,000 33,334 -- -- -- $85,538(e)
Former Chief
Executive Officer(d)
Paul R. Maguire............... 125,731 -- 84,669 -- 110,000 --
Vice President, Sales
Jeffrey L. Whitney............ 140,000 42,000 -- -- 18,572 --
Vice President,
Marketing
Massood Zarrabian............. 85,269 24,000 -- -- 180,000 --
Executive Vice
President, Product
Operations
Stephen M. Harrison........... 124,583 26,000 -- -- -- 5,417(e)
Former Chief
Financial Officer
</TABLE>
- ------------
(a) Mr. Butler joined us as our President and Chief Executive Officer in August
1999 and earns an annual salary of $200,000.
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<PAGE> 49
(b) At the end of the fiscal year ended December 31, 1999, Mr. Butler held
833,502 shares of restricted stock, with an aggregate value of $6,668,016.
The value of the restricted stock holdings was calculated on the basis of
the fair market value of $8.00 per share at December 31, 1999, as determined
by the Board of Directors for financial reporting purposes, minus the
consideration paid for such shares. Dividends are payable on restricted
stock to the extent payable on shares of our common stock. Of these shares,
208,375 will vest in August 2000, and the remainder will vest quarterly
thereafter over three years.
(c) Mr. Skapinker served as our Chief Executive Officer from February 1999 until
August 1999.
(d) Mr. Tarrant served as our Chief Executive Officer until February 1999.
(e) Consists of severance payment.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during the fiscal year ended December 31, 1999 to the Named Executive Officers.
The amounts described in the following table under the heading "Potential
Realizable Value at Assumed Rates of Stock Price Appreciation for Option Term"
represents hypothetical gains that could be achieved for the options if
exercised at the end of the option term. These gains are based on assumed rates
of stock appreciation of 0%, 5% and 10% compounded annually from the date the
options were granted at their expiration date. Actual gains, if any, on stock
option exercises will depend on the future performance of the common stock and
the date on which the options are exercised.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF TOTAL AT ASSUMED ANNUAL RATES
SHARES OPTIONS GRANTED OF STOCK PRICE APPRECIATION
UNDERLYING TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------------
NAME GRANTED FISCAL YEAR(A) PER SHARE DATE 0% 5% 10%
---- ---------- ---------------- --------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Christopher M. Butler... -- -- -- -- -- -- --
Mark S. Skapinker....... -- -- -- -- -- -- --
David P. Tarrant(b)..... -- -- -- -- -- -- --
Paul R. Maguire......... 94,150(c) 3.3% $0.18 03/05/09 $143,108 $243,848 $ 398,255
15,850(d) .5 1.00 12/01/09 110,950 190,676 313,038
Jeffrey L. Whitney...... 18,572(d) .6 1.00 12/01/09 130,004 223,421 366,797
Massood Zarrabian....... 120,000(c) 4.2 0.50 08/19/09 300,000 526,800 873,600
60,000(d) 2.1 1.00 12/01/09 420,000 721,800 1,185,000
Stephen M. -- -- -- -- -- -- --
Harrison(d)...........
</TABLE>
- ------------
(a) Based on options to purchase an aggregate of 2,874,651 shares granted to
officers and employees during the fiscal year ended December 31, 1999.
(b) On September 15, 1999, Mr. Tarrant exercised options to purchase 368,122
shares of common stock. All of Mr. Tarrant's options were vested pursuant to
the terms of a letter agreement dated as of July 1999. On November 30, 1999,
Mr. Harrison exercised options to purchase 35,746 shares of common stock.
The remaining unvested portions of Mr. Harrison's unexercised options were
cancelled.
(c) Each of these option grants vest one-fourth on the first anniversary of the
grant date, and monthly thereafter over three years. One-half of the
outstanding unvested option shares will vest if the optionee is terminated
without cause on or within one year of our acquisition. Each of the options
has a ten-year term, subject to earlier termination in the event of the
optionee's cessation of service with us.
(d) Each of these option grants vest 28% on the six-month anniversary of the
grant date, and 2% monthly thereafter over three years. One-half of the
outstanding unvested option shares will vest if the optionee is terminated
without cause on or within one year of our acquisition. Each of the options
has a ten-year term, subject to earlier termination in the event of the
optionee's cessation of service with us.
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<PAGE> 50
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of unexercised options to purchase common stock held by the Named Executive
Officers. There was no public trading market for our common stock as of December
31, 1999. Accordingly, the values of the unexercised in-the-money options have
been calculated on the basis of the fair market value at that time of $8.00 per
share, as determined by the Board of Directors for financial reporting purposes.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED VALUE --------------------------- ---------------------------
NAME IN EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher M. Butler......... -- -- -- -- -- --
Mark S. Skapinker............. -- -- 10,543 28,385 $ 82,446 $ 221,971
David P. Tarrant.............. 368,122 $299,651 -- -- -- --
Paul R. Maguire............... -- -- -- 110,000 -- 770,000
Jeffrey L. Whitney............ -- -- 26,667 83,333 208,536 636,435
Massood Zarrabian............. -- -- -- 180,000 -- 1,320,000
Stephen M. Harrison........... 35,746 29,311 -- -- -- --
</TABLE>
1999 STOCK OPTION AND GRANT PLAN
Our 1999 Stock Option and Grant Plan permits us to grant incentive stock
options, non-qualified stock options and restricted and unrestricted stock to
our officers, employees, independent directors, consultants, advisors and key
persons. The 1999 Stock Option and Grant Plan initially allows for the issuance
of 1,876,498 shares of common stock. Upon completion of this offering and on
each January 1st afterwards, the number of reserved shares will automatically
increase by the greater of four percent of our issued and outstanding capital
stock on a fully-diluted basis or that number of shares as would be necessary to
maintain the reserved number of shares at 20% of our issued and outstanding
capital stock on a fully-diluted basis. The number of shares reserved for
issuance under the 1999 Stock Option and Grant Plan will not at any time exceed
10,000,000 shares. As of January 31, 2000, 1,415,395 shares were issued and
outstanding under the 1999 Stock Option and Grant Plan.
The 1999 Stock Option and Grant Plan is administered by our compensation
committee, except with respect to reporting persons under Section 16 of the
Securities Exchange Act of 1934, as amended, for which the 1999 Stock Option and
Grant Plan is administered by our Board of Directors. Subject to the provisions
of the 1999 Stock Option and Grant Plan, the compensation committee may select
the individuals eligible to receive awards, determine the terms and conditions
of the awards granted, accelerate the vesting schedule of any award and
generally administer and interpret the plan.
The exercise price of options granted under the 1999 Stock Option and Grant
Plan is determined by the compensation committee at the time of grant. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986, as amended, may not be granted at an exercise price less than the fair
market value of the common stock on the date of grant, or less than 110% of the
fair market value in the case of incentive stock options granted to optionees
holding more than 10% of the voting power of the company. Non-qualified stock
options may be granted at prices that are less than the fair market value of the
underlying shares on the date granted.
Options are typically subject to vesting schedules and terminate ten years
from the date of grant. The vesting date and requirements of each restricted
stock award are determined by the compensation committee. The compensation
committee may place conditions on the restricted stock awards such as continued
employment or the achievement of performance goals or objectives in a grant
document.
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<PAGE> 51
Upon the exercise of options, the option exercise price must be paid in
full either in cash or by certified or bank check or other instrument acceptable
to the compensation committee or, in the sole discretion of the committee, by
delivery of shares of common stock that have been owned by the optionee free of
restrictions for at least six months. The exercise price may also be delivered
to us (a) by the optionee in the form of a promissory note if the loan of such
funds to the optionee has been authorized by the Board of Directors and the
optionee pays so much of the exercise price as represents the par value of the
common stock acquired in a form other than a promissory note and (b) by a broker
under irrevocable instructions to the broker selling the underlying shares from
the optionee.
Restricted stock may not be sold, assigned, transferred or pledged except
as specifically provided in the grant document. If a restricted stock award
recipient's employment or other relationship with us terminates or other events
specified in the grant document occur, we have the right to repurchase some or
all of the shares of stock subject to the award at the purchase price of the
stock.
In the event of any merger, reorganization or sale in which the outstanding
awards issued under the 1999 Stock Option and Grant Plan are not assumed by the
surviving entity, or equivalent substitute awards are not issued by such issuing
entity, 50% of the outstanding awards issued under the 1999 Stock Option and
Grant Plan that are not then vested will become fully vested and exercisable
upon the closing of the transaction. In that event, all awards issued under the
1999 Stock Option and Grant Plan will terminate upon the closing of the
transaction. All participants under the 1999 Stock Option and Grant Plan will be
permitted to exercise, for a period of 15 days before any termination, all
awards held by them which are then exercisable or will become exercisable upon
the closing of the transaction.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
The Amended and Restated 1994 Stock Option Plan permits us to grant
incentive stock options and nonstatutory stock options to our employees,
consultants and other key personnel including our directors. The Amended and
Restated 1994 Stock Option Plan allows for the issuance of 2,200,000 shares of
common stock. As of January 31, 2000, 2,115,721 shares or options to purchase
shares were issued and outstanding under the Amended and Restated 1994 Stock
Option Plan.
The Amended and Restated 1994 Stock Option Plan is administered by our
compensation committee. Subject to the provisions of the Amended and Restated
1994 Stock Option Plan, the compensation committee may select the individuals
eligible to receive awards, determine the number of shares to be covered by each
option, the terms and conditions of the option granted and the option exercise
price of each option granted, and generally administer and interpret the plan.
Under present law, incentive stock options and options intended to qualify as
performance-based compensation may not be granted at an exercise price less than
the fair market value of the common stock at the date of grant, or less than
110% of the fair market value in the case of incentive stock options granted to
optionees holding more than 10% of the voting power of the company.
Non-qualified stock options may be granted at prices that are less than the fair
market value of the underlying shares or the date granted.
Options are typically subject to vesting schedules, terminate ten years
from the date of grant and, in the case of incentive stock options, may be
exercised for specified periods after termination of the optionee's employment.
In the event of any merger, reorganization or sale, 50% of the outstanding
unvested options held by employees that are terminated without cause on or
within twelve months following the merger, reorganization or sale will become
fully vested. In addition, 50% of the outstanding unvested options held by
non-employee directors will become fully vested and exercisable upon the closing
of the merger, reorganization or sale.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our Board of Directors has adopted our 2000 Employee Stock Purchase Plan
subject to stockholder approval. We will implement the 2000 Employee Stock
Purchase Plan upon the effectiveness of this offering to encourage our employees
to remain with us. We intend for this plan to qualify under Section 423 of the
Internal Revenue Code.
47
<PAGE> 52
The 2000 Employee Stock Purchase Plan permits our eligible employees to
purchase common stock through payroll deductions of up to 10% of their
compensation. Under this Plan, no employee may purchase common stock worth more
than $25,000 in any calendar year. Further, no employee may purchase more than
500 shares in any six-month purchase period.
We will implement the 2000 Employee Stock Purchase Plan with six-month
offering periods, except that the first offering period will begin on the
effectiveness of this offering and end on September 30, 2000. Subsequent
offering periods will begin on each October 1 and April 1. The price of the
common stock purchased under the 2000 Employee Stock Purchase Plan will be the
lesser of 85% of the fair market value on the first day of an offering period
and 85% of the fair market value on the last day of a purchase period. This Plan
terminates ten years after the date of adoption by our Board of Directors. The
Board of Directors may amend or terminate the Plan at any time. We have not
issued any shares of common stock under this Plan.
Employees generally will be eligible to participate in the Plan if they are
customarily employed by us for more than 20 hours per week, and are not, and
would not become as a result of being granted an option under this Plan, five
percent stockholders of us or our subsidiaries.
We have reserved 500,000 shares of common stock for issuance under the 2000
Employee Stock Purchase Plan. The 2000 Employee Stock Purchase Plan will end and
shares will be purchased with the payroll deductions accumulated to date by
participating employees.
INTERNET BUSINESS ADVANTAGES STOCK OPTION PLAN
In connection with the Internet Business Advantages acquisition, we assumed
all of the outstanding options to purchase Internet Business Advantages stock,
and we have reserved 53,760 shares of our common stock for issuance upon
exercise of these assumed options.
EMPLOYMENT ARRANGEMENTS
Christopher M. Butler's offer letter, dated August 9, 1999, provides for an
initial annual salary of $200,000 and an annual bonus of up to $100,000, based
on the achievement of established quarterly goals. In October 1999, we issued to
Mr. Butler 833,502 shares of our common stock pursuant to a stock restriction
agreement at a purchase price of $1.00 per share. Under the terms of the
agreement, 208,375 shares vest in August 2000, and the remainder vests quarterly
over three years, so long as Mr. Butler remains employed by us. The unvested
shares are subject to repurchase by us at cost upon termination of employment.
If we are acquired, 416,751 shares will vest in full and our right to repurchase
those unvested shares will automatically lapse. If Mr. Butler is demoted or
terminated within one year of our acquisition, his unvested shares will vest in
full and our right to repurchase all of his shares will automatically lapse.
Daniel J. Kossmann's offer letter, dated November 23, 1999, provides for an
initial annual salary of $180,000. In November 1999, we issued to Mr. Kossmann
180,000 shares of our common stock pursuant to a restricted stock agreement at a
price of $1.00 per share. Under the terms of the agreement, 45,000 shares vest
in November 2000, and the remainder vests monthly over a three-year period. The
unvested shares are subject to repurchase by us at cost upon termination of
employment. If we are acquired, one-half of the unvested shares will vest in
full and our right to repurchase those shares will automatically lapse. If Mr.
Kossmann is demoted or terminated within one year of our acquisition, his
unvested shares will vest in full and our right to repurchase all of his shares
will automatically lapse.
Massood Zarrabian's offer letter, dated June 9, 1999, provides for an
initial annual salary of $180,000. In August 1999, we issued to Mr. Zarrabian
options to purchase 120,000 shares of common stock at an exercise price of $.50
per share. These options vest at the rate of 25% on August 19, 2000 and 2.08%
per month thereafter. In December 1999, we issued to Mr. Zarrabian options to
purchase an additional 60,000 shares of common stock at an exercise price of
$1.00 per share. These options vest at the rate of 28% on June 1, 2000 and 2%
per month thereafter. If Mr. Zarrabian is terminated on or within one year of
our acquisition, under the terms of our Amended and Restated 1994 Stock Option
Plan, one-half of his unvested shares will vest in full.
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<PAGE> 53
Jeffrey L. Whitney's offer letter, dated August 30, 1998, provides for an
initial annual salary of $140,000. In October 1998, we issued to Mr. Whitney
options to purchase 91,428 shares of common stock at an exercise price of $.18
per share. These options vest at the rate of 25% on October 6, 1999 and 2.08%
per month thereafter. In December 1999, we issued to Mr. Whitney options to
purchase an additional 18,572 shares of common stock at an exercise price of
$1.00 per share. These options vest at the rate of 28% on June 1, 2000 and 2%
per month thereafter. If Mr. Whitney is terminated on or within one year of our
acquisition, under the terms of our Amended and Restated 1994 Stock Option Plan,
one-half of his unvested shares will vest in full.
Paul R. Maguire's offer letter, dated January 20, 1999, provides for an
initial annual salary of $140,000. In March 1999, we issued to Mr. Maguire
options to purchase 94,150 shares of common stock at an exercise price of $.18
per share. These options vest at the rate of 25% on March 5, 2000 and 2.08% per
month thereafter. In December 1999, we issued to Mr. Maguire options to purchase
an additional 15,850 shares of common stock at an exercise price of $1.00 per
share. These options vest at the rate of 28% on June 1, 2000 and 2% per month
thereafter. If Mr. Maguire is terminated on or within one year of our
acquisition, under the terms of our Amended and Restated 1994 Stock and Option
Plan, one-half of his unvested shares will vest in full.
SEVERANCE AGREEMENTS
In connection with our merger with Balisoft, David P. Tarrant, our then
President and Chief Executive Officer, relinquished his role as Chief Executive
Officer. In July 1999, Mr. Tarrant resigned as President of Servicesoft. Under
the terms of a letter agreement, Mr. Tarrant is entitled to receive his annual
salary of $200,000 per year through August 2000. We also paid Mr. Tarrant a
bonus of $33,334 for 1999. In addition, all of Mr. Tarrant's unvested options
immediately vested. Mr. Tarrant exercised options to purchase 368,122 shares of
common stock for an aggregate exercise price of $68,471. In connection with the
exercise by Mr. Tarrant of his options, we loaned him an amount equal to the
aggregate purchase price at a per annum rate of interest at 6%. We have forgiven
in full our loan to Mr. Tarrant.
In connection with our merger with Balisoft, Mark S. Skapinker, the then
Chief Executive Officer of Balisoft, became our Chief Executive Officer. In
August 1999, Mr. Skapinker relinquished his role as our Chief Executive Officer,
while continuing to serve as our Chairman. Under a letter agreement, Mr.
Skapinker received his annual salary of $180,000 through November 1999. Mr.
Skapinker's unvested options continue to vest so long as he remains a director
of Servicesoft.
On November 30, 1999, Stephen M. Harrison, our Chief Financial Officer,
resigned. Under the terms of a letter agreement, Mr. Harrison is entitled to
receive his annual salary of $175,000 through July 7, 2000. In addition, 9,750
of Mr. Harrison's unvested options to purchase our common stock immediately
vested and the remaining unvested portion of his options was cancelled. On
November 30, 1999, Mr. Harrison exercised the vested portion of his outstanding
options for 35,746 shares of common stock for an aggregate purchase price of
$6,434.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors to us or our
stockholders for monetary damages for breaches of their fiduciary duty,
including breaches involving negligence or gross negligence in business
combinations, unless the director has breached his or her duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or a knowing
violation of law, paid a dividend or approved a stock repurchase in violation of
the Delaware General Corporation Law or obtained an improper personal benefit.
This provision does not alter a director's liability under the federal
securities laws or to parties other than us or our stockholders and does not
affect the availability of equitable remedies, such as an injunction or
rescission, for breach of fiduciary duty.
Our by-laws provide that directors and officers shall be, and in the
discretion of the Board of Directors, non-officer employees may be, indemnified
by us to the fullest extent authorized by Delaware law, as it now exists or may
in the future be amended, against all expenses and liabilities reasonably
incurred in connection with service for or on our behalf. The by-laws also
provide that the right of directors and officers to
49
<PAGE> 54
indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any by-law, agreement,
vote of stockholders or otherwise. We also have directors' and officers'
insurance against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers or controlling persons as described
above, we have been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable.
50
<PAGE> 55
CERTAIN TRANSACTIONS
In February 1998, we raised capital to finance our operations through the
sale of an aggregate of 4,667,969 shares of Series G preferred stock to various
investors for $1.28 per share for an aggregate of $5,975,000. Of these shares,
Sigma Associates IV, L.P. purchased 315,532 shares for $403,881; Sigma Investors
IV, L.P. purchased 39,192 shares for $50,166; and Sigma Partners IV, L.P.
purchased 1,207,776 shares for $1,545,953. These Sigma entities are collectively
referred to as the "Sigma Group." Robert E. Davoli, currently a Servicesoft
director, is a General Partner of Sigma Partners. In addition, Internet Capital
Group, Inc. purchased 1,171,875 Series G shares for $1,500,000. Christopher H.
Greendale, currently a Servicesoft director, is a Managing Director of Internet
Capital Group, and individually purchased 97,656 Series G shares for $125,000.
In February 1999, we merged with Balisoft. In connection with the merger,
our Series H preferred stock was created and our Series G preferred stock and
Series F preferred stock were converted into Series H preferred stock. Also as a
result of the merger, all outstanding shares of Balisoft common and preferred
stock were converted into shares of exchangeable common stock and exchangeable
preferred stock of our subsidiary, Servicesoft Technologies Canada Inc. As part
of this transaction, Gemini Israel, L.P. received 226,820 shares of exchangeable
preferred; Gemini Israel II Parallel Fund L.P. received 34,023 shares of
exchangeable preferred; and Advent PGGM Gemini L.P. received 306,207 shares of
exchangeable preferred in exchange for shares of Series A preferred stock of
Balisoft held by those entities. In addition, J.L. Albright II Venture Fund L.P.
received 708,808 shares of exchangeable preferred stock in exchange for its
shares of Series A preferred stock of Balisoft. Gary Rubinoff, currently a
Servicesoft director, is a partner of J.L. Albright Venture Partners. Sofinov,
Societe Financiere d'Innovation received 708,808 shares of exchangeable
preferred stock. Sophie Forest, currently a Servicesoft director, serves as
Director, Information Technology of Sofinov, Societe Financiere d'Innovation.
3007618 Canada, Inc. received 56,710 shares of exchangeable preferred stock as a
result of this transaction which were subsequently converted into 56,710 shares
of our Series H preferred stock. In addition, Mark S. Skapinker and 3007618
Canada Inc. received 1,109,434 and 97,319 shares of exchangeable common stock
which were subsequently converted into an aggregate of 1,206,753 shares of our
common stock. In April 1999, 3007618 Canada and Mark S. Skapinker transferred
all of their shares of our common stock and Series H preferred stock to LRJ
Technologies, Inc. Mark S. Skapinker, currently a Servicesoft director, is the
controlling shareholder of LRJ Technologies.
In June and August 1999, we issued an aggregate of 3,982,271 shares of our
Series I convertible preferred stock at a price of $4.10 per share for an
aggregate of $16,327,310. In January 2000, we issued an aggregate of 3,481,478
shares of our Series J convertible preferred stock at a price of $9.03 per share
for an aggregate of $31,437,989.
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<PAGE> 56
The following table summarizes the shares of Series I and J preferred stock
purchased by our executive officers, directors and principal stockholders. For
more detail on shares held by these purchasers, see "Principal Stockholders."
<TABLE>
<CAPTION>
SHARES OF SERIES I AGGREGATE SHARES OF SERIES J AGGREGATE
INVESTOR PREFERRED STOCK CONSIDERATION PREFERRED STOCK CONSIDERATION
-------- ------------------ ------------- ------------------ -------------
<S> <C> <C> <C> <C>
CIBC WMV Inc...................... 1,219,512 $5,000,000 350,831 $3,168,004
Financial Technologies Ventures... 975,610 4,000,000 280,731 2,535,001
Gemini Capital Fund............... 487,805 2,000,000 306,423 2,766,997
Internet Capital Group, Inc....... 92,868 380,761 208,084 1,878,999
J.L. Albright II Venture Fund,
L.P............................. 104,445 428,223 147,287 1,330,002
Sigma Partners.................... 123,825 507,683 385,271 3,478,997
Sofinov, Societe Financiere
d'Innovation.................... 853,659 3,500,000 442,967 3,999,992
Mark S. Skapinker................. 27,685 249,996
Christopher M. Butler............. 55,371 500,000
Daniel J. Kossmann................ 16,611 149,997
Massood Zarrabian................. 22,148 199,996
Chester S. Barnard, Jr............ 2,769 25,004
Alf Saggese....................... 9,967 90,002
Paul R. Maguire................... 5,537 49,999
Jeffrey L. Whitney................ 5,537 49,999
James Keller...................... 9,967 90,002
</TABLE>
In December 1999, we acquired Internet Business Advantages. In connection
with the merger, we hired the Chief Executive Officer of Internet Business
Advantages, Chester S. Barnard, Jr., as our Senior Vice President, Servicesoft
Professional Services. Mr. Barnard received 48,780 shares of our common stock in
connection with the merger. Robert E. Davoli, currently a Director of
Servicesoft, also served on the Board of Directors of Internet Business
Advantages.
In October 1999, we loaned $833,502 to Christopher M. Butler, our Chief
Executive Officer, for the purchase by Mr. Butler of 833,502 shares of our
common stock. Mr. Butler issued a promissory note to us bearing interest at the
rate of 7.00% per annum, which note is secured by a pledge of the shares
acquired. In November 1999, we loaned $180,000 to Daniel J. Kossmann, our Chief
Financial Officer, for the purchase by Mr. Kossmann of 180,000 shares of our
common stock. Mr. Kossmann issued a promissory note to us bearing interest at
the rate of 7.00% per annum, which note is secured by a pledge of the shares
acquired.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of common stock as of January 31, 2000 and as adjusted to reflect the
sale of the common stock offered hereby, by:
- all persons who own beneficially 5% or more of our common stock;
- each of the Named Executive Officers and our Chief Financial Officer;
- each of our directors; and
- all directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned,
subject to community property laws, where applicable. Beneficial ownership is
determined in accordance with the rules issued by the SEC. Under these rules,
beneficial ownership includes any shares which the individual or entity has sole
or shared voting or investment power and shares of common stock subject to
options held that are currently exercisable or exercisable within 60 days of
January 31, 2000. The applicable percentage of "beneficial ownership" after the
offering is based upon shares of common stock outstanding, which includes
shares issuable upon conversion of all outstanding shares of convertible
preferred stock upon completion of this offering and shares issuable upon
exchange of the exchangeable common stock of Servicesoft Technologies Canada,
plus any shares subject to options or warrants held by each individual or
entity.
The address of CIBC WMV Inc. is 161 Bay Street, 8th Floor, BCE Place,
Toronto, Ontario, M5J 2F8, Canada. The address of Financial Technologies
Ventures is 601 California Street, Suite 2200, San Francisco, California 94108.
The address of Gemini Capital Fund is 11 Galgalei Haplada Street, P.O. Box
112548, Industrial Zone, Herzliya 46733, Israel. The address of J.L. Albright II
Venture Fund, L.P. and Gary Rubinoff is Canada Trust Tower, BCE Place, Suite
440, 161 Bay Street, Toronto, Ontario M5J 2S1, Canada. The address of Sigma
Partners and Robert E. Davoli is 20 Custom House Street, Suite 830, Boston,
Massachusetts 02110. The address of LRJ Technologies and Mark S. Skapinker is
c/o Brightspark, 20 Eglinton Avenue West, Suite 600, Toronto, Ontario M4R 1K8,
Canada. The address of Sofinov, Societe Financiere d'Innovation and Sophie
Forest is 1981 Avenue, McGill College, 13th Floor, Montreal, Quebec H3A 3C7,
Canada. The address of Christopher H. Greendale is c/o Internet Capital Group,
Inc., 145 Milk Street, Boston, Massachusetts 02109. The address of the other
listed stockholders is c/o Servicesoft Technologies, Inc., Two Apple Hill Drive,
Natick, Massachusetts 01760.
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<PAGE> 58
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
NUMBER OF OWNED
SHARES -----------------------
BENEFICIALLY BEFORE THE AFTER THE
OWNED OFFERING OFFERING
------------ ---------- ---------
<S> <C> <C> <C>
Sofinov, Societe Financiere d'Innovation.................. 2,005,434 9.9%
Sigma Partners(a)......................................... 1,724,611 8.5
CIBC WMV Inc. ............................................ 1,570,343 7.8
Gemini Capital Fund(b).................................... 1,371,664 6.8
LRJ Technologies.......................................... 1,263,463 6.3
Financial Technologies Ventures(c)........................ 1,256,341 6.2
Christopher M. Butler(d).................................. 888,873 4.4
Daniel J. Kossmann(e)..................................... 196,611 1.0
Massood Zarrabian......................................... 22,148 *
Paul R. Maguire........................................... 29,075 *
David P. Tarrant.......................................... 368,122 2.0
Jeffrey L. Whitney........................................ 37,918 *
Stephen M. Harrison....................................... 35,746 *
Mark S. Skapinker(f)...................................... 1,304,124 6.4
Sophie Forest(g).......................................... 2,005,434 9.9
Robert E. Davoli(h)....................................... 1,749,611 8.6
Christopher H. Greendale(i)............................... 1,001,882 5.0
Gary Rubinoff(j).......................................... 977,352 4.8
All directors and executive officers as a group (13
persons)(k)............................................. 8,284,511 41.0%
</TABLE>
- ------------
* Less than 1%
(a) Represents 1,024,021 shares or warrants held by Sigma Partners IV, L.P.,
281,742 shares or warrants held by Sigma Associates IV, L.P., 33,577 shares
or warrants held by Sigma Investors IV, L.P. and 385,271 shares held by
Sigma Partners V. These entities are part of an affiliated group of
investment partnerships referred to, collectively, as Sigma Partners.
(b) Represents 464,446 shares held by Gemini Israel II Parallel Fund, L.P.,
5,458 shares held by Gemini Partner Investors, L.P., 545,651 shares held by
Gemini Israel II, L.P., 354,034 shares held by Advent PGGM Gemini, L.P. and
2,076 shares held by Gemini Capital Fund Management, Inc. These entities
are part of an affiliated group of investment partnerships referred to,
collectively, as the Gemini Funds.
(c) Represents 43,681 shares held by Financial Technology Ventures, L.P. and
1,212,660 shares held by Financial Technology Ventures (Q), L.P. Financial
Technology Ventures, L.P. and Financial Technology Ventures (Q), L.P. are
part of an affiliated group of investment partnerships referred to,
collectively, as Financial Technology Ventures.
(d) Includes 833,502 shares issued to Mr. Butler pursuant to a stock
restriction agreement in November 1999. Of these shares, 208,375 shares
vest in August 2000, and the remainder vests quarterly thereafter for three
years so long as Mr. Butler remains employed by us.
(e) Includes 180,000 shares issued to Mr. Kossmann pursuant to a restricted
stock agreement, of which 45,000 shares vest in November 2000, and the
remainder vests monthly thereafter for three years so long as Mr. Kossmann
remains employed by us.
(f) Represents 27,685 shares and 12,976 vested options held by Mr. Skapinker
individually, and 1,263,463 shares beneficially owned by LRJ Technologies,
Inc.
(g) Includes the 2,005,434 shares that are beneficially owned by Sofinov,
Societe Financiere d'Innovation. Ms. Forest disclaims beneficial ownership
of such shares except to the extent of her pecuniary interest therein.
(h) Includes the 1,724,611 shares described in note (a) above that are
beneficially owned by Sigma Partners. Mr. Davoli disclaims beneficial
ownership of such shares except to the extent of his pecuniary
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<PAGE> 59
interest therein. Also includes 25,000 shares issued to Mr. Davoli pursuant
to a restricted stock agreement dated November 6, 1999, which shares vest
34% in April 2000, then 8.25% quarterly thereafter for two years so long as
a service relationship exists between us and Mr. Davoli.
(i) Includes 52,521 shares and 6,162 vested options held by Mr. Greendale
individually, and 931,199 shares beneficially owned by Internet Capital
Group, Inc. Mr. Greendale disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein. Also includes
12,000 shares issued to Mr. Greendale pursuant to a restricted stock
agreement dated November 1, 1999, which shares vest 34% in April 2000, then
8.25% quarterly thereafter for two years so long as a service relationship
exists between us and Mr. Greendale.
(j) Includes 960,540 shares beneficially owned by J.L. Albright II Venture
Fund, L.P. Mr. Rubinoff disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein. Also includes
10,000 shares issued to Mr. Rubinoff pursuant to a restricted stock
agreement dated November 1, 1999, which shares vest 34% in April 2000 then
8.25% quarterly thereafter over two years so long as a service relationship
exists between us and Mr. Rubinoff, and 6,812 vested options.
(k) Includes 81,869 shares underlying options which are exercisable within 60
days of January 31, 2000.
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
Set forth below is a summary of the material provisions governing our
capital stock. This summary is not complete and should be read together with our
certificate of incorporation, a copy of which has been filed as an exhibit to
the registration statement of which this prospectus forms a part.
Immediately following the offering, our authorized capital stock will
consist of 105,000,001 shares, par value $.01 per share, including 100,000,000
shares of common stock; one share of authorized, issued and outstanding Series X
preferred stock; and 5,000,000 shares of undesignated preferred stock issuable
in one or more series to be designated by our board of directors, of which no
shares will be issued and outstanding. Except as otherwise indicated, the
following information reflects the filing, as of the closing of this offering,
of our eleventh amended and restated certificate of incorporation and, as of the
effectiveness of this prospectus, the adoption of our amended and restated
by-laws.
COMMON STOCK
The holders of common stock have one vote per share. Holders of common
stock are not entitled to vote cumulatively for the election of directors.
Generally, all matters to be voted on by stockholders must be approved by a
majority, or, in the case of election of directors, by a plurality, subject to
any voting rights granted to holders of any then outstanding preferred stock.
Except as otherwise provided by law, amendments to our certificate of
incorporation, which will be effective upon consummation of the offering, must
be generally approved by a majority of the voting power of the common stock.
Holders of common stock share ratably in any dividends declared by the
Board of Directors, subject to the preferential rights of any preferred stock
then outstanding. Dividends consisting of shares of common stock may be paid to
holders of shares of common stock. In the event of our merger or consolidation
with or into another company as a result of which shares of common stock are
converted into or exchangeable for shares of stock, other securities or
property, including cash, all holders of common stock will be entitled to
receive the same kind and amount, on a per share of common stock basis, of such
shares of stock and other securities and property, including cash. On our
liquidation, dissolution or winding up, all holders of common stock are entitled
to share ratably in any assets available for distribution to the holders of
shares of common stock. No shares of common stock are subject to redemption or
have preemptive rights to purchase additional shares of common stock.
PREFERRED STOCK
Our certificate of incorporation provides that shares of preferred stock
may be issued from time to time in one or more series. Our Board of Directors is
authorized to establish the voting rights, if any, and the designations, powers,
preferences, qualifications, limitations and restrictions applicable to the
shares of each series. Our Board of Directors may, without stockholder approval,
issue preferred stock with voting and other rights that could adversely affect
the voting power and other rights of the holders of the common stock and could
have anti-takeover effects. The ability of our Board of Directors to issue
preferred stock without stockholder approval could have the effect of delaying,
deferring or preventing a change of control or the removal of our existing
management. We have no present plans to issue any shares of preferred stock.
We have one share of Series X preferred stock outstanding. As a result of
our merger with Balisoft in February 1999, as of January 31, 2000, we are
obligated to issue to the former Balisoft shareholders an aggregate of 3,198,705
shares of common stock in exchange for exchangeable shares of Servicesoft
Technologies Canada at any time, at the election of the holders thereof. The
share of Series X preferred stock was issued to a trustee for the former
Balisoft shareholders pursuant to a Voting and Exchange Trust Agreement. Under
this agreement, the exchangeable shareholders are entitled to exercise voting
rights equivalent to voting rights attaching to the same number of shares of our
common stock by and through the trustee of the share of Series X preferred
stock. The share of Series X preferred stock will be automatically redeemed at
such time that no exchangeable shares are held by the former Balisoft
shareholders. The exchangeable share structure is a common tax-advantageous
structure used in acquisitions of Canadian companies.
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<PAGE> 61
WARRANTS
As of January 31, 2000, there were outstanding:
- warrants to purchase up to an aggregate of 2,797 shares of our common
stock at a weighted average per share purchase price of $.60 which are
exercisable until January 1, 2003.
- a warrant to purchase 63,025 shares of our Series H preferred stock for
a purchase price of $4.76 per share. This warrant will expire upon the
closing of this offering.
- a warrant to purchase 77,855 shares of our common stock for a purchase
price of $3.53 per share which is exercisable until June 3, 2000.
- warrants to purchase an aggregate of 17,985 shares of our common stock
at per share purchase prices of $4.10 which are exercisable until
December 17, 2004.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
As of January 31, 2000, the holders of 17,022,867 shares of common stock,
including shares issuable upon the exchange of the exchangeable shares held by
the former holders of Balisoft and upon the conversion of our preferred stock,
have rights to register those shares under the Securities Act. These
stockholders will be entitled to piggyback registration rights in connection
with any registration by us of securities for our own account or the account of
other stockholders. If we propose to register any shares of common stock under
the Securities Act, we are required to give those stockholders notice of the
registration and to include their shares in the registration statement. In
addition, at any time after 180 days following the effective date of this
prospectus, holders of 15% of the registrable shares may demand that we register
these shares up to three times. At any time after we become eligible to file a
registration statement on Form S-3, these stockholders may require us to file up
to two registration statements on Form S-3 in any given twelve-month period
under the Securities Act with respect to their shares. We also have agreed to
register these registrable securities on a shelf registration statement, one
year after we become a public reporting company. The registration rights of
these stockholders, subject to certain limitations, will terminate when the
shares held by them may be sold under Rule 144, in any three-month period
without volume limitations, under the Securities Act. All expenses incurred in
connection with such registrations, other than underwriters and brokers'
discounts and commissions, will be borne by Servicesoft.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Statutory Business Combination Provision. Following the offering, we will
be subject to Section 203 of the Delaware General Corporation Law, which
prohibits a publicly held Delaware corporation from consummating a "business
combination" with an "interested stockholder" for a period of three years after
the date such person became an "interested stockholder" unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon the closing of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares held
by directors who are also officers of the corporation and shares held by
employee stock plans; or
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of two-thirds of the outstanding
voting stock of the corporation not owned by the interested stockholder.
The term "interested stockholder" generally is defined as a person who,
together with affiliates and associates, owns, or, within the prior three years,
owned, 15% or more of a corporation's outstanding voting
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<PAGE> 62
stock. The term "business combination" includes mergers, asset sales and other
similar transactions resulting in a financial benefit to an interested
stockholder. Section 203 makes it more difficult for an "interested stockholder"
to effect various business combinations with a corporation for a three-year
period. A Delaware corporation may "opt out" of Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or by-laws resulting from an amendment
approved by holders of at least a majority of the outstanding voting stock.
Neither our Certificate of Incorporation nor our By-laws contain any such
exclusion.
Charter and By-law Provisions. Our Eleventh Amended and Restated
Certificate of Incorporation, which will be effective on the completion of this
offering, provides that, subject to any rights of preferred shareholders to
remove their own elected directors, directors may only be removed from office
for cause and with the affirmative vote of the holders of two-thirds of our
capital stock. Furthermore, our certificate of incorporation also provides that
the Board of Directors will be divided into two classes, with each class serving
a staggered two-year term. The restrictions on removal and 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 Servicesoft, and may
maintain the incumbency of the Board of Directors as these provisions generally
increase the difficulty of replacing a majority of the directors. Our
certificate of incorporation also provides that any action required or permitted
to be taken by our stockholders at an annual or special meeting of stockholders
may only be taken if it is properly brought before such meeting and may not be
taken by written action in lieu of a meeting. Our by-laws provide that a special
meeting of stockholders may be called only by the Board of Directors, subject to
any rights of preferred stockholders, unless otherwise required by law. Our
by-laws provide that only those matters included in the notice of the special
meeting may be considered or acted upon at that special meeting unless otherwise
provided by law. In addition, our by-laws include advance notice and
informational requirements and time limitations on any director nomination or
any new proposal that a stockholder wishes to make at an annual meeting of
stockholders. Further, provisions of our certificate of incorporation and our
by-laws provide that stockholders may amend certain provisions of our
certificate of incorporation our by-laws only with the affirmative vote of the
holders of two-thirds of our capital stock. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors and
to discourage certain types of transactions that may involve an actual or
threatened change of control of Servicesoft.
Ability to Adopt Stockholder Rights Plan. The Board of Directors may in
the future resolve to issue shares of preferred stock or rights to acquire such
shares to implement a stockholder rights plan. A stockholder rights plan
typically creates voting or other impediments that would discourage persons
seeking to gain control of Servicesoft by means of a merger, tender offer, proxy
contest or otherwise if the Board of Directors determines that such change in
control is not in the best interests of our stockholders. The Board of Directors
has no present intention of adopting a stockholder rights plan and is not aware
of any attempt to obtain control of Servicesoft.
LISTING ON THE NASDAQ NATIONAL MARKET SYSTEM
We have applied to have the common stock approved for quotation on the
Nasdaq National Market under the symbol "SRVS."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be EquiServe.
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SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of shares of our common stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale,
as described below, sales of substantial amounts of common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price.
After this offering, shares of common stock will be
outstanding, assuming the issuance of an aggregate of shares of
common stock. The number of shares outstanding after this offering is based on
the number of shares outstanding as of January 31, 2000, and assumes no exercise
of outstanding options. The shares sold in this offering will be
freely tradable without restriction under the Securities Act. The remaining
shares of common stock outstanding upon completion of the
offering are restricted securities in that they may be sold in the public market
only if registered or if they qualify for an exemption from registration under
the Securities Act or Rules 144 or 701 of the Securities Act. In addition, upon
completion of this offering, there will be shares of exchangeable common
stock of Servicesoft Technologies Canada outstanding, which are exchangeable on
a one-for-one basis into our common stock. The holding period for purposes of
Rule 144 does not begin until these exchangeable shares are exchanged into our
common stock.
The remaining shares of common stock held by existing
stockholders are restricted shares or are subject to the contractual
restrictions described below. Restricted shares may be sold in the public market
only if registered or if they qualify for an exception from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Of these restricted shares, shares will be
available for resale in the public market in reliance on Rule 144(k) immediately
following this offering, of which shares are subject to lock-up
agreements described below. An additional shares will be
available for resale in the public market in reliance on Rule 144 beginning
ninety days following this offering, of which shares are subject
to lock-up agreements. The remaining shares become eligible for
resale in the public market at various dates thereafter, all of which shares are
subject to lock-up agreements.
Each of our executive officers and directors, and certain of our other
stockholders, who will own in the aggregate shares of common
stock after the offering, have entered into lock-up agreements generally
providing that they will not to offer to sell, contract to sell or otherwise
sell, dispose of, loan, pledge, or grant any rights with respect to any shares
of common stock, any options or warrants to purchase, any of the shares of
common stock or any securities convertible into, or exercisable or exchangeable
for, common stock owned by them, 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, for a period of 180 days after the date of
this prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated.
Morgan Stanley & Co. Incorporated may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. When determining whether or not to release shares from the
lock-up agreements, Morgan Stanley & Co. Incorporated will consider, among other
factors, the stockholder's reasons for requesting the release, the number of
shares for which the release is being requested and market conditions at the
time. Following the expiration of the 180 day lock-up period, additional shares
of common stock will be available for sale in the public market subject to
compliance with Rule 144 or Rule 701.
In general, under Rule 144 as currently in effect, an affiliate of
Servicesoft or a person, or persons whose shares are aggregated, who has
beneficially owned restricted securities for at least one year, including the
holding period of any prior owner except an affiliate of Servicesoft, would be
entitled to sell within any three month period a number of shares that does not
exceed the greater of 1% of our then outstanding shares of common stock or the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about Servicesoft. Any person, or
persons whose shares are aggregated, who is not deemed to have been an affiliate
of Servicesoft at
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any time during the 90 days preceding a sale, and who has beneficially owned
shares for at least two years including any period of ownership of preceding
non-affiliated holders, would be entitled to sell such shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from Servicesoft by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Exchange Act. To be
eligible for resale under Rule 701, shares must have been issued in connection
with written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the Securities and Exchange
Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Exchange Act, along with the shares acquired upon exercise of such options,
including exercises after the date of this offering. Securities issued in
reliance on Rule 701 are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the date of this
prospectus, may be sold by persons other than affiliates, subject only to the
manner of sale provisions of Rule 144, and by affiliates, under Rule 144 without
compliance with its one-year minimum holding period.
At January 31, 2000, we had reserved an aggregate of 2,200,000 shares of
common stock for issuance pursuant to the Amended and Restated 1994 Stock Option
Plan, and options to purchase approximately 2,115,721 shares were outstanding
under this Plan; we had reserved an aggregate of 1,876,498 shares of common
stock for issuance pursuant to the 1999 Stock Option and Grant Plan, and
1,415,395 options and shares of restricted stock were outstanding under this
Plan; and we had reserved an aggregate of 500,000 shares of common stock for
issuance pursuant to the 2000 Employee Stock Purchase Plan, and no shares were
outstanding under this Plan. As soon as practicable following the offering, we
intend to file registration statements under the Securities Act to register
shares of common stock reserved for issuance under the Amended and Restated 1994
Stock Option Plan, the 1999 Stock Option and Grant Plan, and the 2000 Employee
Stock Purchase Plan. Such registration statements will automatically become
effective immediately upon filing. Any shares issued upon the exercise of stock
options will be eligible for immediate public sale, subject to the lock-up
agreements noted above.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, except we
may issue, and grant options to purchase, shares of common stock under the
Amended and Restated 1994 Stock Option Plan, the 1999 Stock Option and Grant
Plan, and the 2000 Employee Stock Purchase Plan.
Following the offering, some of our stockholders will have rights to
require us to register their shares of common stock under the Securities Act,
and they will have rights to participate in any future registration of
securities by us. See "Description of Capital Stock--Registration Rights of
Certain Holders."
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, FleetBoston Robertson Stephens Inc. and
SG Cowen Securities Corporation are acting as representatives, have severally
agreed to purchase, and we have agreed to sell to them, severally, the number of
shares indicated below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
FleetBoston Robertson Stephens Inc. ........................
SG Cowen Securities Corporation.............................
Total.....................................................
========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us 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 by this prospectus 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 if any such shares are taken.
However, the underwriters are not required to take or pay for the share covered
by the underwriters over-allotment option described below.
The per share price of any shares sold by the underwriters shall be the
public offering price listed on the cover page of this prospectus less an amount
not greater than the per share amount of the concession to dealers described
below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed 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 such dealers may reallow, a concession not in excess
of $ a share to other underwriters or to certain 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.
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
additional shares of common stock at the public offering price listed on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise this option solely for the purpose of covering
overallotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent the option is exercised,
each underwriter will become obligated, subject to certain conditions, to
purchase about the same percentage of the additional shares of common stock as
the number listed next to the underwriter's name in the preceding table bears to
the total number of shares of common stock listed next to the names of all
underwriters in the preceding table. If the underwriters' option is exercised in
full, the total price to the public would be $ , the total
underwriters' discounts and commissions would be $ and total proceeds
to us would be $ .
We have applied to have our common stock approved for quotation, subject to
official notice of issuance, on the National Market under the symbol "SRVS."
We, the directors, executive officers and certain other of our stockholders
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, we will not, during the period
ending 180 days after the date of this prospectus:
- 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
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<PAGE> 66
- 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 otherwise.
The restrictions described in this paragraph do not apply to:
- the sale of shares to the underwriters;
- the issuance by us 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 of which the underwriters have been advised in
writing; or
- transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares.
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 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.
At our request, the underwriters have reserved for sale, at the initial
offering price, up to shares offered in this prospectus for our
directors, employees and business associates. The number of shares of common
stock available for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares that are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered in this prospectus. Concurrent with this
offering, we are also offering shares of our common stock at the initial
public offering price to our Canadian employees, directors and business
partners. Sales of those shares of common stock will be made directly by us to
our Canadian employees, directors and business partners and the underwriters
have not participated in and will not receive a commission in respect of those
sales.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
In January 2000, we sold shares of our Series J preferred stock in a
private placement. In this private placement, Morgan Stanley Dean Witter Equity
Funding, Inc. purchased 110,742 shares of Series J preferred stock, which are
convertible on a one-to-one basis into our common stock, for approximately
$1,000,000, or approximately $9.03 per share. Morgan Stanley Dean Witter Equity
Funding, Inc. purchased these shares on the same terms as the other investors in
the private placement. Morgan Stanley Dean Witter Equity Funding, Inc. is a
wholly owned subsidiary of Morgan Stanley & Co. Incorporated, one of the
underwriters in this offering.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiations
between us and the representatives. Among the factors to be considered in
determining the initial public offering price will be our future prospects and
our industry in general, our sales, earnings and certain other financial
operating information in recent periods, and the price-earnings ratios,
price-sales ratios, market prices of securities and certain financial and
operating information of companies engaged in activities similar to us. The
estimated initial public offering price range set forth on the cover page of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
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LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by McDermott, Will & Emery, Boston, Massachusetts. As of January 31,
2000, an investment partnership comprised of certain partners of McDermott, Will
& Emery beneficially owned 7,420 shares of our Series J preferred stock. Various
legal matters related to the sale of the common stock offered hereby will be
passed upon for the underwriters by Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP, Waltham, Massachusetts.
EXPERTS
The audited financial statements included in this Prospectus have been
audited by various independent accountants. The companies and periods covered by
these audits are indicated in the individual accountants' reports. Such
financial statements have been so included in reliance on the reports of the
various independent accountants given on the authority of such firms as experts
in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act and the rules and regulations thereunder, for the registration of
the common stock offered hereby. This prospectus, which forms a part of the
registration statement, does not contain all the information included in the
registration statement, parts of which have been omitted as permitted by the SEC
rules and regulations. For further information about us and our common stock,
you should refer to the registration statement. Statements contained in this
prospectus as to any contract or other document are not necessarily complete.
Where the contract or other document is an exhibit to the registration
statement, each statement is qualified by the provisions of that exhibit.
The registration statement can be inspected and copied at the public
reference facility maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the registration statement can be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the registration statement is publicly available
through the SEC's site on the Internet's World Wide Web, located at
http://www.sec.gov.
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You can also request copies of these
documents, for a copying fee, by writing to the SEC.
63
<PAGE> 68
SERVICESOFT TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SERVICESOFT TECHNOLOGIES, INC.
Report of Independent Accountants........................... F-2
Consolidated Balance Sheet as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statement of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statement of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999.................... F-6
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-8
Notes to Consolidated Financial Statements.................. F-9
BALISOFT TECHNOLOGIES INC.
Report of Independent Accountants........................... F-23
Consolidated Balance Sheet as of December 31, 1997 and
1998...................................................... F-24
Consolidated Statement of Loss and Deficit for the period
from June 5, 1997 (inception) to December 31, 1997 and the
year ended December 31, 1998.............................. F-25
Consolidated Statement of Changes in Financial Position for
the period from June 5, 1997 (inception) to December 31,
1997 and the year ended December 31, 1998................. F-26
Notes to Consolidated Financial Statements.................. F-27
INTERNET BUSINESS ADVANTAGES, INC.
Report of Independent Accountants........................... F-36
Balance Sheet as of December 31, 1997 and 1998 and September
30, 1999 (unaudited)...................................... F-37
Statement of Operations for the years ended December 31,
1997 and 1998 and the nine months ended September 30, 1998
and 1999 (unaudited)...................................... F-38
Statement of Stockholders' Deficit for the years ended
December 31, 1997 and 1998 and the nine months ended
September 30, 1999 (unaudited)............................ F-39
Statement of Cash Flows for the years ended December 31,
1997 and 1998 and the nine months ended September 30, 1998
and 1999 (unaudited)...................................... F-40
Notes to Financial Statements............................... F-41
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Statement of
Operations................................................ F-47
Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1999.............................. F-48
</TABLE>
F-1
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Servicesoft Technologies, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of redeemable convertible preferred stock
and stockholders' equity (deficit) and of cash flows present fairly, in all
material respects, the financial position of Servicesoft Technologies, Inc. and
its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States. 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 auditing standards generally accepted in the
United States, 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
Boston, Massachusetts
February 11, 2000
F-2
<PAGE> 70
SERVICESOFT TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------ DECEMBER 31,
1998 1999 1999
------- ------- ------------
(NOTE 2)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 2,016 $ 6,630 $ 6,630
Restricted cash........................................ 200 187 187
Accounts receivable, net of allowance for doubtful
accounts of $50, $170 and $170 at December 31, 1998
and 1999 and pro forma December 31, 1999
(unaudited)......................................... 1,593 6,635 6,635
Prepaid expenses and other current assets.............. 155 717 717
------- ------- -------
Total current assets................................ 3,964 14,169 14,169
Property and equipment, net.............................. 364 3,368 3,368
Other assets............................................. -- 200 200
Goodwill and other intangible assets, net................ -- 18,315 18,315
------- ------- -------
Total assets................................... $ 4,328 $36,052 $36,052
======= ======= =======
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Borrowings under revolving line of credit.............. $ -- $ 1,000 $ 1,000
Accounts payable....................................... 246 971 971
Accrued compensation and benefits...................... 338 2,052 2,052
Accrued expenses....................................... 123 3,088 3,088
Current portion of capital lease obligations........... 40 334 334
Deferred revenue....................................... 819 6,436 6,436
------- ------- -------
Total current liabilities........................... 1,566 13,881 13,881
Capital lease obligations, net of current portion........ 80 522 522
Other liabilities........................................ -- 173 173
------- ------- -------
Total liabilities................................... 1,646 14,576 14,576
------- ------- -------
Commitments (Note 9)
Redeemable convertible preferred stock, $0.01 par value;
10,200,000, 12,450,000 and 0 shares authorized;
9,898,621, 11,587,344 and 0 shares issued and
outstanding, at December 31, 1998 and 1999 and pro
forma December 31, 1999 (unaudited) (liquidation
preference of $38,095 at December 31, 1999)............ 25,441 52,251 --
------- ------- -------
Stockholders' equity (deficit):
Common stock, $0.01 par value; 13,000,000, 17,450,000
and 100,000,000 shares authorized; 34,788, 5,152,352
and 16,739,696 shares issued and outstanding, at
December 31, 1998 and 1999 and pro forma December
31, 1999 (unaudited)................................ -- 51 167
Additional paid-in capital............................. -- 29,721 81,856
Accumulated deficit.................................... (22,479) (46,032) (46,032)
Notes receivable from stockholders..................... -- (1,117) (1,117)
Deferred stock compensation............................ -- (13,286) (13,286)
Accumulated other comprehensive loss................... (280) (112) (112)
------- ------- -------
Total stockholders' equity (deficit)................ (22,759) (30,775) 21,476
------- ------- -------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity
(deficit).................................... $ 4,328 $36,052 $36,052
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 71
SERVICESOFT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Software license.......................................... $ 2,139 $ 2,508 $ 4,210
Services.................................................. 387 1,782 2,934
-------- -------- --------
Total revenue..................................... 2,526 4,290 7,144
-------- -------- --------
Cost of revenue:
Cost of software license.................................. 252 148 406
Cost of services (excluding in 1999 stock compensation of
$25)................................................... 625 1,101 3,375
-------- -------- --------
Total cost of revenue............................. 877 1,249 3,781
-------- -------- --------
Gross profit................................................ 1,649 3,041 3,363
-------- -------- --------
Operating expenses:
Research and development (excluding in 1999 stock
compensation of $124).................................. 930 1,174 4,205
Sales and marketing (excluding in 1999 stock compensation
of $156)............................................... 977 3,598 13,310
General and administrative (excluding in 1999 stock
compensation of $1,595)................................ 756 1,612 5,044
Amortization of goodwill and other intangible assets...... -- -- 2,671
Stock compensation........................................ -- -- 1,900
-------- -------- --------
Total operating expenses.......................... 2,663 6,384 27,130
-------- -------- --------
Loss from operations........................................ (1,014) (3,343) (23,767)
Interest income............................................. 7 168 320
Interest expense............................................ (97) (538) (35)
Other income (expense), net................................. -- (250) (71)
-------- -------- --------
Net loss.................................................... (1,104) (3,963) (23,553)
Accretion on redeemable convertible preferred stock......... (340) (1,031) (2,725)
-------- -------- --------
Net loss attributable to common stockholders................ $ (1,444) $ (4,994) $(26,278)
======== ======== ========
Basic and diluted net loss per common share................. $(144.40) $(262.84) $ (11.02)
Shares used in computing basic and diluted net loss per
common
share..................................................... 10 19 2,385
Pro forma basic and diluted net loss per common share
(unaudited)............................................... $ (1.99)
Shares used in computing pro forma basic and diluted net
loss per common share (unaudited)......................... 11,862
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 72
[This page intentionally left blank]
F-5
<PAGE> 73
SERVICESOFT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES I SERIES H SERIES G
REDEEMABLE REDEEMABLE REDEEMABLE
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
------------------- ------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- --------- ------- ---------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996........................ -- $ -- -- $ -- -- $ --
Exercise of stock options.........................
Accretion to redemption value of redeemable
convertible preferred stock.....................
Comprehensive loss:
Net loss........................................
Other comprehensive loss, net of tax:
Foreign currency translation adjustments......
Total comprehensive loss......................
--------- ------- --------- ------- ---------- -------
BALANCE, DECEMBER 31, 1997........................ -- -- -- -- -- --
Issuance of Series F redeemable convertible
preferred stock upon conversion of bridge loan
including accrued interest......................
Issuance of Series G redeemable convertible
preferred stock for cash........................ 4,667,969 5,975
Exercise of stock options.........................
Accretion to redemption value of redeemable
convertible preferred stock..................... 498
Comprehensive loss:
Net loss........................................
Other comprehensive income, net of tax:
Foreign currency translation adjustments......
Total comprehensive loss..................
--------- ------- --------- ------- ---------- -------
BALANCE, DECEMBER 31, 1998........................ -- -- -- -- 4,667,969 6,473
Issuance of Exchangeable Preferred Stock,
Exchangeable Common Stock and stock options in
connection with the acquisition of Balisoft
Technologies Inc................................ 2,281,653 7,758
Accretion to redemption value of Series F and
Series G redeemable convertible preferred
stock........................................... 81
Exchange of Series F and Series G redeemable
convertible preferred stock for Series H
redeemable convertible preferred stock.......... 5,323,420 25,602 (4,667,969) (6,554)
Issuance of Series I redeemable convertible
preferred stock for cash, including issue
costs........................................... 3,982,271 16,327
Accretion to redemption value of Series H and
Series I redeemable convertible preferred
stock........................................... 884 1,680
Sale of common stock..............................
Exercise of stock options and warrants............
Stock compensation expense for stock option
modifications...................................
Issuance of restricted common stock and related
deferred stock compensation.....................
Interest on notes receivable from stockholders....
Deferred stock compensation related to grants of
stock options...................................
Amortization of deferred stock compensation to
expense.........................................
Issuance of common stock and stock options in
connection with the acquisition of Internet
Business Advantages, Inc........................
Comprehensive loss:
Net loss........................................
Other comprehensive income, net of tax:
Foreign currency translation adjustments......
Total comprehensive loss..................
--------- ------- --------- ------- ---------- -------
BALANCE, DECEMBER 31, 1999........................ 3,982,271 $17,211 7,605,073 $35,040 -- $ --
========= ======= ========= ======= ========== =======
<CAPTION>
SERIES F
REDEEMABLE TOTAL
CONVERTIBLE REDEEMABLE
PREFERRED STOCK CONVERTIBLE
--------------------- PREFERRED
SHARES AMOUNT STOCK
---------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996........................ 3,111,917 $ 15,976 $15,976
Exercise of stock options.........................
Accretion to redemption value of redeemable
convertible preferred stock..................... 340 340
Comprehensive loss:
Net loss........................................
Other comprehensive loss, net of tax:
Foreign currency translation adjustments......
Total comprehensive loss......................
---------- -------- -------
BALANCE, DECEMBER 31, 1997........................ 3,111,917 16,316 16,316
Issuance of Series F redeemable convertible
preferred stock upon conversion of bridge loan
including accrued interest...................... 2,118,735 2,119 2,119
Issuance of Series G redeemable convertible
preferred stock for cash........................ 5,975
Exercise of stock options.........................
Accretion to redemption value of redeemable
convertible preferred stock..................... 533 1,031
Comprehensive loss:
Net loss........................................
Other comprehensive income, net of tax:
Foreign currency translation adjustments......
Total comprehensive loss..................
---------- -------- -------
BALANCE, DECEMBER 31, 1998........................ 5,230,652 18,968 25,441
Issuance of Exchangeable Preferred Stock,
Exchangeable Common Stock and stock options in
connection with the acquisition of Balisoft
Technologies Inc................................ 7,758
Accretion to redemption value of Series F and
Series G redeemable convertible preferred
stock........................................... 80 161
Exchange of Series F and Series G redeemable
convertible preferred stock for Series H
redeemable convertible preferred stock.......... (5,230,652) (19,048) --
Issuance of Series I redeemable convertible
preferred stock for cash, including issue
costs........................................... 16,327
Accretion to redemption value of Series H and
Series I redeemable convertible preferred
stock........................................... 2,564
Sale of common stock..............................
Exercise of stock options and warrants............
Stock compensation expense for stock option
modifications...................................
Issuance of restricted common stock and related
deferred stock compensation.....................
Interest on notes receivable from stockholders....
Deferred stock compensation related to grants of
stock options...................................
Amortization of deferred stock compensation to
expense.........................................
Issuance of common stock and stock options in
connection with the acquisition of Internet
Business Advantages, Inc........................
Comprehensive loss:
Net loss........................................
Other comprehensive income, net of tax:
Foreign currency translation adjustments......
Total comprehensive loss..................
---------- -------- -------
BALANCE, DECEMBER 31, 1999........................ -- $ -- $52,251
========== ======== =======
</TABLE>
F-6
<PAGE> 74
SERVICESOFT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED
--------------------- PAID-IN ACCUMULATED FROM STOCK
SHARES PAR VALUE CAPITAL DEFICIT STOCKHOLDERS COMPENSATION
--------- --------- ---------- ----------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996........ 8,386 $-- $ 487 $(16,567) $ -- $ --
Exercise of stock options......... 9,628 -- 35
Accretion to redemption value of
redeemable convertible preferred
stock............................ (340)
Comprehensive loss:
Net loss......................... (1,104)
Other comprehensive loss, net of
tax:
Foreign currency translation
adjustments..................
Total comprehensive loss.......
--------- --- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1997........ 18,014 -- 182 (17,671) -- --
Issuance of Series F redeemable
convertible preferred stock upon
conversion of bridge loan
including accrued interest.......
Issuance of Series G redeemable
convertible preferred stock for
cash.............................
Exercise of stock options......... 16,774 -- 4
Accretion to redemption value of
redeemable convertible preferred
stock............................ (186) (845)
Comprehensive loss:
Net loss......................... (3,963)
Other comprehensive income, net
of tax:
Foreign currency translation
adjustments..................
Total comprehensive loss...
--------- --- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1998........ 34,788 -- -- (22,479) -- --
Issuance of Exchangeable Preferred
Stock, Exchangeable Common Stock
and stock options in connection
with the acquisition of Balisoft
Technologies Inc................. 2,205,915 22 4,533
Accretion to redemption value of
Series F and Series G redeemable
convertible preferred stock...... (161)
Exchange of Series F and Series G
redeemable convertible preferred
stock for Series H redeemable
convertible preferred stock......
Issuance of Series I redeemable
convertible preferred stock for
cash, including issue costs...... (207)
Accretion to redemption value of
Series H and Series I redeemable
convertible preferred stock...... (2,564)
Sale of common stock.............. 10,000 -- 10
Exercise of stock options and
warrants......................... 717,137 7 184 (68)
Stock compensation expense for
stock option modifications....... 1,253
Issuance of restricted common
stock and related deferred stock
compensation..................... 1,060,502 11 5,760 (1,036) (4,710)
Interest on notes receivable from
stockholders..................... (13)
Deferred stock compensation
related to grants of stock
options.......................... 9,223 (9,223)
Amortization of deferred stock
compensation to expense.......... 647
Issuance of common stock and stock
options in connection with the
acquisition of Internet Business
Advantages, Inc.................. 1,124,010 11 11,690
Comprehensive loss:
Net loss......................... (23,553)
Other comprehensive income, net
of tax:
Foreign currency translation
adjustments..................
Total comprehensive loss...
--------- --- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1999........ 5,152,352 $51 $29,721 $(46,032) $(1,117) $(13,286)
========= === ======= ======== ======= ========
<CAPTION>
ACCUMULATED TOTAL
OTHER STOCKHOLDERS'
COMPREHENSIVE COMPREHENSIVE EQUITY
LOSS LOSS (DEFICIT)
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996........ $(283) $ (16,363)
Exercise of stock options......... 35
Accretion to redemption value of
redeemable convertible preferred
stock............................ (340)
Comprehensive loss:
Net loss......................... $ (1,104) (1,104)
Other comprehensive loss, net of
tax:
Foreign currency translation
adjustments.................. (12) (12) (12)
--------
Total comprehensive loss....... (1,116)
----- ======== ---------
BALANCE, DECEMBER 31, 1997........ (295) (17,784)
Issuance of Series F redeemable
convertible preferred stock upon
conversion of bridge loan
including accrued interest....... --
Issuance of Series G redeemable
convertible preferred stock for
cash............................. --
Exercise of stock options......... 4
Accretion to redemption value of
redeemable convertible preferred
stock............................ (1,031)
Comprehensive loss:
Net loss......................... (3,963) (3,963)
Other comprehensive income, net
of tax:
Foreign currency translation
adjustments.................. 15 15 15
--------
Total comprehensive loss... (3,948)
----- ======== ---------
BALANCE, DECEMBER 31, 1998........ (280) (22,759)
Issuance of Exchangeable Preferred
Stock, Exchangeable Common Stock
and stock options in connection
with the acquisition of Balisoft
Technologies Inc................. 4,555
Accretion to redemption value of
Series F and Series G redeemable
convertible preferred stock...... (161)
Exchange of Series F and Series G
redeemable convertible preferred
stock for Series H redeemable
convertible preferred stock......
Issuance of Series I redeemable
convertible preferred stock for
cash, including issue costs...... (207)
Accretion to redemption value of
Series H and Series I redeemable
convertible preferred stock...... (2,564)
Sale of common stock.............. 10
Exercise of stock options and
warrants......................... 123
Stock compensation expense for
stock option modifications....... 1,253
Issuance of restricted common
stock and related deferred stock
compensation..................... 25
Interest on notes receivable from
stockholders..................... (13)
Deferred stock compensation
related to grants of stock
options.......................... --
Amortization of deferred stock
compensation to expense.......... 647
Issuance of common stock and stock
options in connection with the
acquisition of Internet Business
Advantages, Inc.................. 11,701
Comprehensive loss:
Net loss......................... (23,553) (23,553)
Other comprehensive income, net
of tax:
Foreign currency translation
adjustments.................. 168 168 168
--------
Total comprehensive loss... $(23,385)
----- ======== ---------
BALANCE, DECEMBER 31, 1999........ $(112) $ (30,775)
===== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 75
SERVICESOFT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,104) $(3,963) $(23,553)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 57 102 3,195
Provision for doubtful accounts........................ -- 50 120
Loss on disposal of property and equipment............. -- 18 20
Compensation expense for stock options and grants...... -- -- 1,900
Interest income on notes from stockholders............. -- -- (13)
Interest expense associated with conversion of bridge
loans to Series F redeemable convertible preferred
stock................................................ -- 530 --
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable.................................. (604) (695) (4,156)
Prepaid expenses, other current assets and other
assets............................................ 4 (83) (586)
Accounts payable..................................... 101 (3) (211)
Accrued expenses, compensation and benefits.......... 252 (95) 4,028
Deferred revenue..................................... 117 496 5,434
------- ------- --------
Net cash used in operating activities............. (1,177) (3,643) (13,822)
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (25) (337) (2,255)
Cash of businesses acquired, net of acquisition
expenses............................................... -- -- 3,411
(Increase) decrease in restricted cash.................... -- (200) 13
------- ------- --------
Net cash provided by (used in) investing
activities...................................... (25) (537) 1,169
------- ------- --------
Cash flows from financing activities:
Proceeds from bridge loans................................ 782 -- --
Proceeds from line of credit.............................. -- -- 1,000
Payments of capital lease obligations..................... -- -- (102)
Proceeds from issuance of redeemable convertible preferred
stock, net of issue costs.............................. -- 5,975 16,120
Proceeds from issuance of common stock.................... -- -- 35
Proceeds from exercise of stock options................... 35 4 123
------- ------- --------
Net cash provided by financing activities......... 817 5,979 17,176
------- ------- --------
Effects of exchange rate changes on cash and cash
equivalents............................................... (13) 11 91
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ (398) 1,810 4,614
Cash and cash equivalents, beginning of year................ 604 206 2,016
------- ------- --------
Cash and cash equivalents, end of year...................... $ 206 $ 2,016 $ 6,630
======= ======= ========
See supplemental cash flow information in Note 13.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 76
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION:
Servicesoft Technologies, Inc. ("Servicesoft") was originally incorporated
as Rosh Intelligent Systems in 1987, was renamed ServiceSoft Corporation in 1993
and was subsequently renamed Servicesoft Technologies, Inc. in 1999. Servicesoft
develops, markets and delivers software products and professional services that
help businesses provide Internet-based services to their customers, employees
and business partners. To date, Servicesoft's revenue has been reported and
managed through one operating segment and has resulted from the sale of its
products and services to major corporations in the United States and Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Servicesoft
and its wholly owned subsidiaries. Intercompany transactions and balances have
been eliminated.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of Servicesoft's foreign subsidiaries is the local
currency, except for a subsidiary in Israel, whose functional currency is the
U.S. dollar. Assets and liabilities of the Servicesoft's foreign operations
whose functional currencies are other than the U.S. dollar are translated into
U.S. dollars at the exchange rate in effect at the balance sheet date; revenues
and expenses are translated using the average exchange rates in effect during
the period. The resultant cumulative translation adjustments are included in
accumulated other comprehensive income or loss, which is a separate component of
stockholders' equity (deficit). Foreign currency transaction gains and losses
are included in the determination of net income or loss for the period.
REVENUE RECOGNITION
Revenue from software license sales and related implementation services are
recognized using the percentage-of-completion method over the implementation
period, assuming the contract price is fixed and determinable, binding evidence
of the arrangement has been received and collection is probable. Percentage-
of-completion is measured by the percentage of implementation hours incurred to
date compared to the estimated total required implementation hours. The total
amount of revenue to be earned under these contracts is generally fixed by
contractual terms. Servicesoft regularly reviews its progress on these contracts
and revises the estimated time for completing its implementations. Anticipated
losses, if any, on contracts in progress are recognized when identified. When
Servicesoft is not engaged to complete the software implementation, Servicesoft
recognizes revenue upon delivery of the software to the end user, provided all
other revenue recognition criteria are met. Revenue from software support and
maintenance agreements is deferred and recognized ratably over the term of the
agreements, generally twelve months.
CASH AND CASH EQUIVALENTS
Servicesoft considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist of overnight certificates of deposit. Restricted cash
represents required collateral on certain capital leases. The restricted cash is
released to Servicesoft after one year.
FINANCIAL AND CREDIT RISK
Financial instruments which expose Servicesoft to concentrations of credit
risk consist primarily of cash equivalents and accounts receivable. Servicesoft
invests primarily in money market accounts with large commercial banks with
strong credit ratings. Servicesoft provides credit to customers in the normal
course of
F-9
<PAGE> 77
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
business. Collateral is not required for accounts receivable, but evaluation of
customers' credit and financial condition is performed periodically. Servicesoft
maintains reserves for potential credit losses and such losses have been within
management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash, cash equivalents, accounts
receivable, accounts payable and redeemable convertible preferred stock, are
carried in the consolidated financial statements at amounts that approximated
fair value as of December 31, 1997, 1998 and 1999. Fair values are based on
quoted market prices and assumptions concerning the amount and timing of
estimated future cash flows and assumed discount rates, reflecting varying
degrees of perceived risk.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method, over the estimated useful lives of the assets,
typically three to five years.
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets result from Servicesoft's mergers or acquisitions of
businesses (Note 3) accounted for under the purchase method and consist of
identifiable assets, including completed technology, non-compete agreements and
workforce, as well as goodwill. Intangible assets are recorded at cost, net of
accumulated amortization. Identifiable intangible assets and goodwill are
amortized on a straight-line basis over their estimated useful lives of three
years. Servicesoft periodically evaluates intangible assets for potential
impairment. Recoverability of these assets is assessed based on undiscounted
expected cash flows, considering a number of factors including past operating
results, budgets and economic projections, market trends and product development
cycles. An impairment in the carrying value of each asset is assessed when the
undiscounted expected cash flows derived from the asset are less than its
carrying value.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Research and development expenditures, except for certain software
development expenditures, are expensed as incurred. Software development costs
incurred after technological feasibility has been achieved and until the
products are available for sale are capitalized and amortized over the life of
the product. Costs of internally developed software which qualify for
capitalization have not been material to date.
STOCK COMPENSATION
Stock options and restricted stock issued to employees and members of
Servicesoft's Board of Directors are accounted for in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations ("APB 25"); accordingly, compensation expense is
recorded for options and restricted stock awarded to employees and directors to
the extent that the exercise/purchase prices are less than the common stock's
fair market value, for financial reporting purposes, on the date of grant, where
the number of shares and exercise/purchase price are fixed. The difference
between the fair value of Servicesoft's common stock and the exercise/purchase
price of the stock option or restricted stock awards is recorded as deferred
stock compensation. Deferred stock compensation is amortized to compensation
expense over the vesting period of the underlying stock option or restricted
stock. Servicesoft follows the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") (Note 7). All stock-based awards to non-employees are accounted for at
their fair value in accordance with SFAS 123.
F-10
<PAGE> 78
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ADVERTISING COSTS
Advertising costs are included in sales and marketing expenses and are
expensed as incurred. Advertising costs were $2,000, $140,000 and $298,000 for
the years ended December 31, 1997, 1998 and 1999, respectively.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. A valuation allowance against deferred tax assets is recorded if,
based upon the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. Servicesoft does
not provide for U.S. income taxes on the undistributed earnings of its foreign
subsidiaries, which Servicesoft considers to be permanent investments.
NET LOSS PER COMMON SHARE--HISTORICAL
Servicesoft computes net loss per common share in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS 128").
Under the provisions of SFAS 128, basic net loss per common share is computed by
dividing net loss attributable to common stockholders by the weighted average
number of common shares outstanding. There is no difference between basic and
diluted net loss per share since potential common shares from the conversion of
redeemable convertible preferred stock and the exercises of options and warrants
are anti-dilutive for all periods presented. The calculations of diluted net
loss per common share for the years ended December 31, 1997, 1998 and 1999 do
not include 3,437,000, 10,955,000 and 14,700,000 potential shares of common
stock equivalents, including common stock options, common and preferred stock
warrants, and redeemable convertible preferred stock, respectively.
NET LOSS PER COMMON SHARE--PRO FORMA
The unaudited pro forma net loss per common share for the year ended
December 31, 1999 is calculated assuming the automatic conversion of all
preferred stock outstanding had occurred as of the beginning of the year or as
of the date of issuance of the preferred stock, if later. Therefore, accretion
on the redeemable convertible preferred stock is excluded from the calculation
of pro forma net loss per common share. The redeemable convertible preferred
stock automatically converts into 11,587,344 shares of common stock upon the
completion of Servicesoft's initial public offering (Note 5). The calculation of
pro forma diluted net loss per common share for the year ended December 31, 1999
does not include 3,113,000 potential shares of common stock equivalents as their
inclusion would be anti-dilutive.
UNAUDITED PRO FORMA BALANCE SHEET
Under the terms of Servicesoft's redeemable convertible preferred stock
(Note 5), all shares of such preferred stock will automatically convert into
common stock upon completion of Servicesoft's initial public offering of common
stock. The unaudited pro forma balance sheet reflects the conversion of the
outstanding shares of redeemable convertible preferred stock into 11,587,344
shares of common stock, as if the conversions had occurred on December 31, 1999.
In addition, the unaudited pro forma balance sheet reflects the filing of an
amended certificate of incorporation upon the effectiveness of the registration
statement for Servicesoft's initial public offering, wherein the total
authorized shares of common stock will be increased to 100,000,000. The amended
certificate of incorporation also will authorize 5,000,001 shares of preferred
stock.
F-11
<PAGE> 79
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended by SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," is effective for fiscal years beginning after June 15, 2000.
Because Servicesoft does not currently hold any derivative instruments and does
not currently engage in hedging activities, Servicesoft does not expect the
adoption of SFAS No. 133 will not have a material impact on its financial
position or operating results.
3. ACQUISITIONS
BALISOFT TECHNOLOGIES INC.
On February 12, 1999, Servicesoft completed its merger with Balisoft
Technologies Inc. ("Balisoft"), a company that develops e-mail management and
real-time internet collaboration applications. In connection with the
acquisition, Servicesoft issued 2,205,915 shares of exchangeable common stock
(Note 6) valued at $3,750,000, issued 2,281,653 shares of exchangeable preferred
stock (exchangeable into Series H redeemable convertible preferred stock) (Note
5) valued at $7,758,000, and issued options and warrants to purchase 670,829
shares of Servicesoft common stock valued at $805,000. The total consideration
of $12,313,000 represented by the Servicesoft stock and options was determined
based on an independent appraisal. In connection with this merger, Servicesoft
incurred costs of $273,000, which are included in the total purchase price for
accounting purposes.
The merger was accounted for under the purchase method of accounting.
Accordingly, the fair market values of the acquired assets and assumed
liabilities have been included in the consolidated financial statements of
Servicesoft as of the merger date and the results of operations of Balisoft have
been included thereafter. The purchase price was allocated to the acquired
assets and assumed liabilities as follows (in thousands):
<TABLE>
<S> <C>
Working capital, net........................................ $ 3,834
Property and equipment...................................... 198
Completed technologies...................................... 1,512
Workforce................................................... 473
Non-competition covenant.................................... 180
Goodwill.................................................... 6,389
-------
$12,586
=======
</TABLE>
The amounts allocated to identifiable tangible and intangible assets were
based on the results of an independent appraisal. Goodwill represents the amount
by which the total purchase price exceeded the fair values of the acquired net
assets on the merger date.
F-12
<PAGE> 80
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INTERNET BUSINESS ADVANTAGES, INC.
On December 17, 1999, Servicesoft completed its acquisition of Internet
Business Advantages, Inc. ("IBA"), a company that provides consulting services
primarily focused on using Internet and Intranet technologies. In connection
with the acquisition, Servicesoft paid $1,156,000, issued 1,124,010 shares of
common stock valued at $8,992,000, and issued options and warrants to purchase
470,332 shares of Servicesoft common stock valued at $2,709,000. The total
consideration of $12,857,000 represented by the Servicesoft stock and options
was determined by an independent appraisal. In connection with this acquisition,
Servicesoft incurred costs of $295,000, which are included in the total purchase
price for accounting purposes.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the fair market values of the acquired assets and assumed
liabilities have been included in the consolidated financial statements of
Servicesoft as of the acquisition date and the results of operations of IBA have
been included thereafter. The purchase price was allocated to the acquired
assets and assumed liabilities as follows (in thousands):
<TABLE>
<S> <C>
Working capital, net........................................ $ 233
Property and equipment...................................... 487
Workforce................................................... 1,071
Goodwill.................................................... 11,361
-------
$13,152
=======
</TABLE>
The amounts allocated to identifiable tangible and intangible assets were
based on the results of an independent appraisal. Goodwill represents the amount
by which the total purchase price exceeded the fair values of the net assets on
the date of purchase.
Accumulated amortization associated with identifiable intangible assets and
goodwill related to the Balisoft merger and IBA acquisition was $2,496,000 and
$175,000 at December 31, 1999, respectively.
PRO FORMA PRESENTATION
The following table presents unaudited pro forma information as if
Servicesoft, Balisoft and IBA had been combined as of January 1, 1998. The pro
forma data are presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of operations of future
periods or the results that actually would have resulted had Servicesoft,
Balisoft and IBA been a combined company during the specified periods. The pro
forma data gives effect to actual operating results prior to the transactions
and adjustments to reflect amortization of goodwill and other intangible assets.
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net revenue................................................. $ 6,113 $ 10,479
Net loss attributable to common stockholders................ $(13,474) $(35,309)
Net loss per common share -- basic and diluted.............. $ (4.02) $ (9.45)
Weighted average common shares -- basic and diluted......... 3,349 3,738
</TABLE>
F-13
<PAGE> 81
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of December 31, 1998
and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
----- -------
<S> <C> <C>
Computer and office equipment............................. $ 567 $ 3,589
Furniture and fixtures.................................... 137 744
Leasehold improvements.................................... -- 116
----- -------
704 4,449
Accumulated depreciation.................................. (340) (1,081)
----- -------
$ 364 $ 3,368
===== =======
</TABLE>
As of December 31, 1998 and 1999, fixed assets held under capital leases
included computer and office equipment with a cost of $120,000 and $1,959,000
and accumulated amortization of $0 and $497,000, respectively.
Depreciation expense for the years ended December 31, 1997, 1998 and 1999
was $57,000, $102,000 and $524,000, respectively.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred stock consisted of the following as of
December 31, 1998 and 1999 (in thousands, except share data):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Series I, $0.01 par value; 0 and 4,450,000 shares
authorized; 0 and 3,982,271 shares issued and outstanding,
as of December 31, 1998 and 1999, respectively............ $ -- $17,211
Series H, $0.01 par value; 0 and 8,000,000 shares
authorized; 0 and 7,605,073 shares issued and outstanding,
as of December 31, 1998 and 1999, respectively............ -- 35,040
Series G, $0.01 par value; 4,900,000 and 0 shares
authorized; 4,667,969 and 0 shares issued and outstanding,
as of December 31, 1998 and 1999, respectively............ 6,473 --
Series F, $0.01 par value; 5,300,000 and 0 shares
authorized; 5,230,652 and 0 shares issued and outstanding,
as of December 31, 1998 and 1999, respectively............ 18,968 --
------- -------
Total redeemable convertible preferred stock...... $25,441 $52,251
======= =======
</TABLE>
On February 12, 1999, all outstanding shares of Series F and Series G
preferred stock were converted into 5,323,420 shares of Series H preferred
stock. On the date of the conversion, Servicesoft reclassified the book value of
the Series F and Series G preferred stock of $25,602,000 to Series H preferred
stock. As part of the Balisoft merger, Servicesoft issued 2,281,653 shares of
exchangeable preferred stock. The exchangeable preferred stock has rights
identical to the outstanding Series H preferred stock and is exchangeable into
shares of Series H preferred stock at any time at the option of the holder;
accordingly, the exchangeable preferred stock has been included within the
balance of outstanding Series H preferred stock. During 1999, Servicesoft
recorded $1,680,000 of accretion to reflect cumulative amounts payable to the
Series H preferred stockholders upon redemption.
On June 18, 1999, Servicesoft issued 3,982,271 shares of Series I preferred
stock for proceeds to Servicesoft of $16,327,000, prior to any fees or offering
costs. During 1999, Servicesoft recorded $884,000 of accretion to reflect
cumulative amounts payable to the Series I preferred stockholders upon
redemption.
F-14
<PAGE> 82
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Series H preferred stock and the Series I preferred stock
(collectively, the "preferred stock") have the following characteristics:
CONVERSION
Each share of preferred stock is convertible at any time, at the option of
the holder based on specified formula (one-for-one as of December 31, 1999),
subject to anti-dilution adjustments, as defined. All shares of preferred stock
will automatically convert into common stock upon the vote of the holders of
two-thirds of the outstanding shares of preferred stock or upon an initial
public offering of common stock with gross proceeds to Servicesoft of at least
$30,000,000 and an offering which places the value of Servicesoft at not less
than $150,000,000.
VOTING AND DIVIDENDS
Holders of the preferred stock are entitled to votes equaling the number of
shares of common stock into which their shares may be converted. The holders of
preferred stock are entitled to annual, noncumulative dividends of 6% of the
original issue price, as defined, when and if declared by Servicesoft's Board of
Directors.
LIQUIDATION
In the event of liquidation, dissolution or winding up of Servicesoft, the
holders of Series I preferred stock are entitled to a liquidation preference of
$4.10 per share plus all declared and unpaid dividends thereon, prior to any
distribution to holders of Series H preferred stock or common stock. Upon the
satisfaction of the Series I preferred stock liquidation preference, the holders
of Series H preferred stock are entitled to an aggregate liquidation preference
of $19,203,186, prior to any distribution to holders of common stock. Any
remaining assets after the liquidation preference payments made to the preferred
stock will be shared ratably by the common stockholders until the holders
receive the per share liquidation amount that the Series H preferred
stockholders received. After that point, the remaining assets will be shared
ratably by the Series H stockholders, on an as-converted basis, and the common
stockholders until the Series H stockholders and the common stockholders receive
the per share liquidation amount that the Series I preferred stockholders
received. Any remaining assets will be shared ratably among the Series I and
Series H stockholders, on an as-converted basis, and the common stockholders.
REDEMPTION
On each of February 10, 2004, 2005 and 2006, Servicesoft, upon the written
election of at least a majority of the holders of preferred stock, at the option
of any holder, is obligated to redeem one-third of the shares of the preferred
stock outstanding on February 10, 2004. The redemption price for each share of
Series H and Series I preferred stock will be $2.53 and $4.10 per share,
respectively, plus 10% per year compounded on each anniversary date of the
issuance of each series of preferred stock, plus declared and unpaid dividends
on each series of preferred stock.
PREFERRED STOCK WARRANT
In January 1998, Servicesoft issued a warrant to purchase 117,188 shares of
Series G preferred stock. This warrant, which was issued in connection with a
software development and license agreement, was immediately exercisable at a
price of $2.56 per share and expires in 2003. In connection with the conversion
of the Series G preferred stock to Series H preferred stock, this warrant was
amended to provide for the purchase of 63,025 shares of Series H preferred stock
at an exercise price of $4.76 per share. This warrant was determined to have an
immaterial value on the date of issue.
F-15
<PAGE> 83
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1999, Servicesoft had 11,650,369 shares of common stock
reserved for issuance upon the conversion and exchange of preferred stock and
the exercise of the outstanding preferred stock warrant.
6. STOCKHOLDERS' DEFICIT
STOCK SPLIT
On February 12, 1999, the Board of Directors approved a 1-for-0.53781
reverse stock split. All share data have been restated in these consolidated
financial statement to reflect this stock split.
EXCHANGEABLE COMMON STOCK
As part of the Balisoft acquisition, Servicesoft issued 2,205,915 shares of
exchangeable common stock. The exchangeable common stock has rights identical to
Servicesoft's outstanding common stock and is exchangeable into shares of common
stock at any time at the option of the holder; accordingly, the exchangeable
common stock has been included within the balance of outstanding common stock.
SERIES X AND Y PREFERRED STOCK
As of December 31, 1999, Servicesoft had one share of Series X preferred
stock outstanding and one share of Series Y preferred stock outstanding which
were issued in connection with the Balisoft merger to a trustee of the former
Balisoft stockholders pursuant to a Voting and Exchange Trust Agreement. Under
this agreement, the holders of exchangeable common stock are entitled to
exercise voting rights equivalent to voting rights attaching to the same number
of Servicesoft's common stock by and through the trustee of the share of Series
X preferred stock. The holders of exchangeable preferred stock are entitled to
exercise voting rights equivalent to voting rights attaching to the same number
of shares of Series H preferred stock through the trustee of the share of Series
Y preferred stock. The share of Series X preferred stock will be automatically
redeemed at such time that no shares of exchangeable common stock are
outstanding and the share of Series Y preferred stock will be automatically
redeemed, at such time that no shares of exchangeable preferred stock are
outstanding.
RESTRICTED STOCK
During October and November 1999, Servicesoft granted 1,060,502 shares of
$.01 par value restricted common stock to certain employees and members of its
Board of Directors. These shares vest annually over a four-year term for those
shares issued to employees and annually over a three-year term for those shares
issued to Board of Directors members. Unvested restricted shares are subject to
forfeiture in the event that an employee ceases to be employed by Servicesoft or
a Board of Director member ceases to be on the Board of Directors. Servicesoft
recorded deferred stock compensation of $4,710,000, which represents the excess
of the fair value of the restricted shares at the date of the award, for
financial reporting purposes, over the purchase price. Compensation expense will
be recognized ratably over the vesting period of the restricted stock. For the
year ended December 31, 1999, Servicesoft recognized $323,000 of related stock
compensation expense.
In connection with the issuance of the restricted stock, Servicesoft
accepted notes payable from two officers in the total amount of $1,013,000.
These notes have an interest rate of 7% compounded annually; interest is payable
annually on the anniversary date of the notes. The principal and any accrued but
unpaid interest is payable on the earlier of the sale or other disposition of
the underlying stock or on the tenth anniversary of the notes. The principal and
interest may not be prepaid. Interest earned during the year ended December 31,
1999 was $11,000 and is included in interest income. These notes are secured by
the underlying shares of stock and have recourse to the officers' personal
assets of up to 30% of the principal amount and 100% of any outstanding
interest.
F-16
<PAGE> 84
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK OPTION MODIFICATIONS
In August 1999, a former employee of Servicesoft exercised stock options to
purchase 368,122 shares of common stock, through the issuance of a non-recourse
note payable to Servicesoft in the amount of $68,000. This note has an interest
rate of 6% and is due on the earlier of (i) the third anniversary of issuance,
(ii) one year after completion of an initial public offering of common stock or
(iii) upon the sale or disposition of the underlying stock. Interest earned
during the year ended December 31, 1999 was $2,000 and is included in interest
income. As a result of modifying these options, Servicesoft recorded stock
compensation expense of $1,036,000 during the year ended December 31, 1999.
During 1999, Servicesoft also authorized other stock option modifications,
such as extended exercise periods, which resulted in the recording of $217,000
of additional stock compensation expense during the year ended December 31,
1999.
COMMON STOCK PURCHASE WARRANTS
As of December 31, 1999, Servicesoft had warrants outstanding for the
purchase of 2,797 shares of common stock. These warrants, which were issued in
connection with services rendered, were immediately exercisable and expire in
the year 2003. The holder of these warrants may purchase 2,634 shares of common
stock at $0.18 per share and 163 shares of common stock at $7.36 per share.
These warrants were determined to have an immaterial value on the date of issue.
As part of the Balisoft acquisition, Servicesoft issued warrants for the
purchase of 77,855 shares of exchangeable common stock at a price of $3.53 per
share. These warrants were immediately exercisable and expire in June 2000.
As part of the IBA acquisition, Servicesoft issued warrants for the
purchase of 17,985 shares of common stock. These warrants were immediately
exercisable at a price of $4.10 per share and expire on December 17, 2004. The
value of these warrants has been included in the purchase price of IBA (Note 3).
As of December 31, 1999, Servicesoft had 2,304,552 shares of common stock
reserved for issuance upon the exchange of the exchangeable common stock and the
exercise of outstanding common stock warrants.
BRIDGE LOAN CONVERSION
During 1996 and 1997, Servicesoft received proceeds of approximately
$724,000 and $782,000, respectively, from the issuance of bridge loans. As of
December 31, 1997, accrued interest related to these loans was $83,000. The
terms of the bridge loans included an interest rate of 8% and an original
maturity date of November 14, 1997. On February 18, 1998, Servicesoft converted
all amounts outstanding under the bridge loan, including accrued interest, into
2,118,735 shares of Series F preferred stock at a value of $0.75 per share.
Associated with this conversion, Servicesoft recorded an additional $530,000 of
interest expense to reflect the issuance of Series F preferred stock at below
fair market value.
7. STOCK OPTION PLAN:
In accordance with Servicesoft's 1994 Stock Option Plan (the "94 Plan"), as
amended, incentive stock options ("ISOs") and nonqualified stock options to
purchase a maximum of 2,200,000 shares of common stock may be granted to
qualified individuals by Servicesoft's Board of Directors. On November 1, 1999,
Servicesoft adopted the 1999 Stock Option and Grant Plan (the "99 Plan"). The 99
Plan provides for the granting of ISOs and nonqualified stock options,
restricted stock awards and unrestricted stock awards to officers, employees,
directors, consultants, advisors and other key persons, for up to 1,876,498
shares of common stock. The 99 Plan provides that upon an initial public
offering of Servicesoft's common stock and on each January 1 beginning on
January 1, 2001, the number of reserved shares authorized under the 99 Plan will
F-17
<PAGE> 85
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
automatically increase to equal the greater of 4% of the issued and outstanding
capital stock on a fully-diluted basis or that number of shares as would be
necessary to maintain the reserved number of shares at 20% of the issued and
outstanding capital stock on a fully-diluted basis. ISOs are granted to
employees of Servicesoft with exercise prices not less than the fair market
value of Servicesoft's common shares on the date of grant, as determined by
Servicesoft's Board of Directors, typically vest over a four-year period, and
are exercisable over a period not to exceed ten years from the date of grant.
Nonqualified options may be granted to employees, directors, consultants and
other advisors to Servicesoft on terms set forth by the Board of Directors on an
individual case basis.
The following table summarizes activity of the 94 Plan and the 99 Plan
since January 1, 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1996..................... 279,043 $1.34
Granted............................................ 66,675 0.19
Exercised.......................................... (9,628) 3.24
Canceled........................................... (13,789) 0.22
---------
Outstanding at December 31, 1997..................... 322,301 0.84
Granted............................................ 819,031 0.19
Exercised.......................................... (16,774) 0.19
Canceled........................................... (93,936) 0.32
---------
Outstanding at December 31, 1998..................... 1,030,622 0.37
Granted............................................ 2,899,651 1.35
Exercised.......................................... (717,137) 0.27
Canceled........................................... (261,456) 0.53
---------
Outstanding at December 31, 1999..................... 2,951,680 $1.24
=========
</TABLE>
As of December 31, 1997, 1998 and 1999, options to purchase 131,335,
192,071 and 281,942 shares of common stock were exercisable, respectively with
weighted-average exercise prices of $1.73, $1.19 and $0.41, respectively. The
weighted average fair value per share of options granted during 1997, 1998 and
1999 was $0.03, $0.12 and $5.18, respectively.
As of December 31, 1999, 100,215 and 797,603 shares were available for
future grants under the 94 Plan and the 99 Plan, respectively.
Summarized information about stock options outstanding at December 31, 1999
is as follows:
<TABLE>
<CAPTION>
REMAINING
NUMBER OF CONTRACTUAL NUMBER OF
EXERCISE OPTIONS LIFE OPTIONS
PRICE OUTSTANDING (IN YEARS) EXERCISABLE
- -------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.18 1,035,327 8.29 263,483
0.50 120,000 9.67 --
1.00 1,277,582 9.88 3,768
3.08 53,760 9.27 3,804
3.53 4,673 8.83 4,154
4.10 398,587 10.00 --
5.14 60,728 8.88 5,710
7.36 1,023 4.35 1,023
--------- -------
2,951,680 9.17 281,942
========= =======
</TABLE>
F-18
<PAGE> 86
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under APB 25, prior to 1999, no compensation expense had been recognized
for stock option grants made by Servicesoft. For the year ended December 31,
1999, compensation expense recognized for stock option and restricted stock
grants totaled $1,900,000. Had compensation cost for Servicesoft's stock option
plans been determined based on the fair value at the date of grant for awards
granted in 1999 and all prior periods (excluding those common stock options
converted and issued in connection with the Balisoft and IBA transactions),
consistent with the provisions of SFAS 123, Servicesoft's net loss attributable
to common stockholders and net loss per common share for the years ended
December 31, 1997, 1998 and 1999 would have increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ------------------------ ------------------------
NET LOSS NET NET LOSS NET NET LOSS NET
ATTRIBUTABLE LOSS PER ATTRIBUTABLE LOSS PER ATTRIBUTABLE LOSS PER
TO COMMON COMMON TO COMMON COMMON TO COMMON COMMON
STOCKHOLDERS SHARE STOCKHOLDERS SHARE STOCKHOLDERS SHARE
------------ -------- ------------ -------- ------------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
As reported.......... $(1,444) $(144.40) $(4,994) $(262.84) $(26,278) $(11.02)
Pro forma............ $(1,447) $(144.70) $(5,005) $(263.42) $(26,297) $(11.03)
</TABLE>
For this purpose, the fair value of options at the date of grant was
estimated using the minimum value method with the following weighted-average
assumptions for 1997, 1998 and 1999: risk-free interest rates of 6.5%, 5.0% and
5.25%, respectively; no dividend yields or volatility factors; and
weighted-average expected life of the options of five years However, because the
determination of the fair value of all options granted after Servicesoft becomes
a publicly-traded entity will include an expected volatility factor, because
most options vest over periods of up to four years and because additional option
grants are expected to be made subsequent to December 31, 1999, the pro forma
effects of applying the fair value method may be materially different in future
years.
8. LINES OF CREDIT:
REVOLVING LINE OF CREDIT
On June 3, 1999, Servicesoft entered into a revolving credit facility with
a bank which provides up to $2,000,000 in revolving credit. Under the terms of
this agreement, Servicesoft paid a non-refundable facility fee of $3,750 and
must pay on the first date of each calendar quarter thereafter a non-refundable
facility fee in the amount of $2,500. The interest rate assessed on outstanding
borrowings is equal to the bank's prime rate plus 0.5% per year (9.0% at
December 31, 1999). Additionally, Servicesoft is required to maintain certain
financial ratios and is bound by covenants over the life of the agreement. As of
December 31, 1999, Servicesoft had $1,000,000 outstanding under this facility
and $1,000,000 remained available.
EQUIPMENT LINE
On June 3, 1999, Servicesoft entered into equipment financing arrangements
with a bank for aggregate borrowings of $750,000 with an interest rate of the
bank's prime rate plus 0.75% per year (9.25% at December 31, 1999). Borrowings
are collateralized by certain assets of Servicesoft. Servicesoft had no
borrowings against this facility as of December 31, 1999.
9. COMMITMENTS:
OPERATING LEASES
Servicesoft has entered into operating leases for its office facilities and
certain equipment, which expire at various dates through 2005. Total rent
expense for the years ended December 31, 1997, 1998 and 1999 was $162,000,
$157,000 and $818,000, respectively.
F-19
<PAGE> 87
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CAPITAL LEASES
Servicesoft has entered into various lease agreements for computer and
office equipment and software that have been recorded as capital leases. Certain
of these leases required Servicesoft to deposit restricted cash on account of
$187,000 as of December 31, 1999; other capital leases required Servicesoft to
obtain $400,000 of standby letters of credit. Servicesoft would be required to
reimburse the bank for any amounts paid under these letters of credit.
Future minimum lease payments under all noncancelable operating and capital
leases as of December 31, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDED DECEMBER 31, LEASES LEASES
- ----------------------- --------- -------
<S> <C> <C>
2000...................................................... $1,505 $404
2001...................................................... 1,361 368
2002...................................................... 1,345 170
2003...................................................... 1,270 33
2004...................................................... 1,255 17
Thereafter................................................ 673 4
------ ----
$7,409 996
======
Less: amounts representing interest......................... 140
----
Present value of future minimum payments.................... 856
Less: amounts due within one year........................... 334
----
Long-term portion........................................... $522
====
</TABLE>
10. SEGMENT REPORTING
Servicesoft operates in a single segment and has no organizational
structure dictated by product lines, geography or customer type.
The following table presents revenue and long-lived asset information by
geographic area as of and for the years ended December 31, 1997, 1998 and 1999
(in thousands):
<TABLE>
<CAPTION>
TOTAL REVENUE LONG-LIVED ASSETS
-------------------------- -----------------------
1997 1998 1999 1997 1998 1999
------ ------ ------ ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
United States.......................... $2,423 $3,858 $5,362 $19 $363 $15,312
United Kingdom......................... -- -- 704 -- -- 56
Belgium................................ 103 432 944 -- 1 13
Canada................................. -- -- 134 -- -- 6,409
Other countries........................ -- -- -- -- -- 93
------ ------ ------ --- ---- -------
$2,526 $4,290 $7,144 $19 $364 $21,883
====== ====== ====== === ==== =======
</TABLE>
International revenue is based on the country in which the sale originates.
During 1997 and 1998, three and two customers accounted for a total of 44% and
32% of Servicesoft's total revenue, respectively. During 1999, no customer
accounted for more than 10% of Servicesoft's total revenue.
F-20
<PAGE> 88
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES:
As a result of taxable losses generated, Servicesoft has not recorded any
provisions for income taxes for the years ended December 31, 1997, 1998 and
1999. The following is a reconciliation between the amount of Servicesoft's
income taxes utilizing the U.S. federal statutory rate and Servicesoft's actual
provision for income taxes for the years ended December 31 1997, 1998 and 1999
(in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
----- ------- -------
<S> <C> <C> <C>
At U.S. federal statutory rate........................ $(379) $(1,393) $(8,008)
Non-deductible stock option compensation charges...... -- -- 646
Non-deductible amortization and other charges......... 26 11 909
State taxes, net of federal effect.................... (65) (178) (1,188)
Effect of change in valuation allowance............... 506 1,636 7,777
Research and development credits...................... (88) (76) (136)
----- ------- -------
Provision for income taxes............................ $ -- $ -- $ --
===== ======= =======
</TABLE>
Deferred taxes reflect the net effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. As of December 31 1998 and 1999, net
deferred tax assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Net operating loss carryforwards............................ $ 6,933 $ 16,310
R&D credits and investment tax credits...................... 446 384
Capitalized development costs............................... 212 399
Differences in accounting for intangible assets............. -- (944)
Other....................................................... 24 32
------- --------
Total deferred tax assets......................... 7,615 16,181
Valuation allowance......................................... (7,615) (16,181)
------- --------
Net deferred tax assets........................... $ -- $ --
======= ========
</TABLE>
As of December 31, 1999, Servicesoft had net operating loss carryforwards
of $37,500,000, $29,100,000 and $5,100,000 for federal, state and foreign income
tax purposes, respectively. These carryforwards expire in the years 2000 through
2019, and are subject to additional annual limitations as a result of changes in
Servicesoft's ownership.
Management of Servicesoft has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets. Through December 31,
1999, management was unable to conclude that it is more likely than not that
Servicesoft will realize the benefit of the deferred tax assets and,
accordingly, Servicesoft has recorded a valuation allowance for the full amount
of the net deferred tax assets.
12. SAVINGS PLAN:
Servicesoft sponsors a savings plan for its employees which is designed to
be qualified under section 401(k) of the Internal Revenue Code. Eligible
employees are permitted to contribute to the 401(k) plan through payroll
deductions within statutory and plan limits. Servicesoft does not contribute to
the plan.
F-21
<PAGE> 89
SERVICESOFT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUPPLEMENTAL CASH FLOW INFORMATION:
The following table reflects supplemental cash flow investing and financing
activities (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash paid for interest..................................... $ 14 $ 8 $ 35
======== ======== ========
Noncash investing and financing activities:
Conversion of bridge loans and accrued interest into
Series F redeemable convertible preferred stock....... $ -- $ 1,589 $ --
Property and equipment acquired under capital lease
obligations........................................... $ -- $ 120 $ 559
Common stock issued in exchange for notes receivable from
stockholders.......................................... $ -- $ -- $ 1,104
Merger with Balisoft Technologies Inc., liabilities were
assumed as follows:
Fair value of assets acquired and goodwill............ $ -- $ -- $ 13,273
Common stock, preferred stock, common stock options
and warrants issued................................. -- -- (12,313)
-------- -------- --------
Liabilities assumed................................. $ -- $ -- $ 960
======== ======== ========
Acquisition of Internet Business Advantages, Inc.,
liabilities were assumed as follows:
Fair value of assets acquired and goodwill............ $ -- $ -- $ 13,978
Common stock, preferred stock, common stock options
and warrants issued................................. -- -- (11,631)
Cash paid............................................. -- -- (1,156)
-------- -------- --------
Liabilities assumed................................. $ -- $ -- $ 1,191
======== ======== ========
</TABLE>
14. SUBSEQUENT EVENTS:
SERIES J PREFERRED STOCK OFFERING
On January 13, 2000, Servicesoft completed an offering of 3,481,478 shares
of its Series J redeemable convertible preferred stock (the "Series J preferred
stock") for proceeds to the Company of $31,438,000, prior to any fees or
offering costs. The Series J preferred stock has substantially identical voting,
dividend, redemption and conversion rights as the Series H and Series I
preferred stock, except the redemption amount per share (Note 5). In the event
of any liquidation, dissolution or winding-up of Servicesoft, the holders of
Series J preferred stock have a liquidation preference above Series H and Series
I preferred stock and are entitled to receive $9.03 per share prior to any
distributions to holders of Series H and Series I preferred stock and common
stock.
F-22
<PAGE> 90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors of
Balisoft Technologies Inc.
We have audited the consolidated balance sheets of Balisoft Technologies
Inc. as at December 31, 1998 and 1997 and the consolidated statements of loss
and deficit and changes in financial position for the year ended December 31,
1998 and for the period from the date of incorporation, June 5, 1997, to
December 31, 1997. 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 auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and 1997 and the results of its operations and the changes in its financial
position for the year ended December 31, 1998 and for the period from the date
of incorporation, June 5, 1997, to December 31, 1997 in accordance with
accounting principles generally accepted in Canada.
ERNST & YOUNG LLP
Chartered Accountants
Toronto, Canada,
March 12, 1999.
F-23
<PAGE> 91
BALISOFT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
-----------------------
1998 1997
$ $
---------- ---------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents [note 2].......................... 8,435,790 1,375,534
Accounts receivable......................................... 170,304 48,873
Prepaid expenses............................................ 176,846 5,037
---------- ---------
TOTAL CURRENT ASSETS........................................ 8,782,940 1,429,444
---------- ---------
Capital assets, net [note 3]................................ 481,876 245,799
---------- ---------
9,264,816 1,675,243
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities.................... 1,267,274 410,396
Current portion of obligations under capital leases [note
8]........................................................ 102,228 --
Current portion of long-term debt [note 4].................. 5,272 6,689
---------- ---------
TOTAL CURRENT LIABILITIES................................... 1,374,774 417,085
---------- ---------
Long-term debt [note 4]..................................... 218,256 221,863
Obligations under capital leases [note 8]................... 225,516 --
---------- ---------
TOTAL LIABILITIES........................................... 1,818,546 638,948
---------- ---------
Commitments and contingencies [notes 8 and 11]
SHAREHOLDERS' EQUITY
Share capital [note 5]...................................... 5,927,404 2,032,163
Special warrants [note 5]................................... 8,631,439 --
Deficit..................................................... (7,112,573) (995,868)
---------- ---------
TOTAL SHAREHOLDERS' EQUITY.................................. 7,446,270 1,036,295
---------- ---------
9,264,816 1,675,243
========== =========
</TABLE>
See accompanying notes
F-24
<PAGE> 92
BALISOFT TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF
LOSS AND DEFICIT
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
DATE OF
INCORPORATION,
JUNE 5, 1997,
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
------------ --------------
<S> <C> <C>
REVENUE
Interest income............................................. 299,715 --
---------- --------
EXPENSES
Research and development.................................... 1,742,473 436,739
General and administrative.................................. 1,669,432 453,491
Marketing................................................... 1,369,249 105,638
Sales....................................................... 1,184,693 --
Restructuring [note 9]...................................... 450,573 --
---------- --------
6,416,420 995,868
---------- --------
NET LOSS FOR THE PERIOD..................................... (6,116,705) (995,868)
Deficit, beginning of period................................ (995,868) --
---------- --------
DEFICIT, END OF PERIOD...................................... (7,112,573) (995,868)
========== ========
</TABLE>
See accompanying notes
F-25
<PAGE> 93
BALISOFT TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF
CHANGES IN FINANCIAL POSITION
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
DATE OF
INCORPORATION,
JUNE 5, 1997,
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
------------ --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss for the period..................................... (6,116,705) (995,868)
Add item not affecting cash
Amortization.............................................. 162,436 11,708
---------- ---------
(5,954,269) (984,160)
Net change in non-cash working capital balances related
to operations [note 6].................................... 563,638 356,486
---------- ---------
CASH USED IN OPERATING ACTIVITIES........................... (5,390,631) (627,674)
---------- ---------
INVESTING ACTIVITIES
Purchase of capital assets.................................. (398,513) (257,507)
---------- ---------
CASH USED IN INVESTING ACTIVITIES........................... (398,513) (257,507)
---------- ---------
FINANCING ACTIVITIES
Issuance of common shares [note 5].......................... 1,093,117 2,032,163
Issuance of exchangeable preferred shares, net of costs
[note 5].................................................. 2,802,124 --
Issuance of special warrants, net of costs [note 5]......... 8,631,439 --
Increase (decrease) in long-term debt....................... (5,024) 228,552
Obligations under capital leases, net....................... 327,744 --
---------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES....................... 12,849,400 2,260,715
---------- ---------
NET INCREASE IN CASH DURING THE PERIOD...................... 7,060,256 1,375,534
Cash and cash equivalents, beginning of period.............. 1,375,534 --
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... 8,435,790 1,375,534
========== =========
REPRESENTED BY
Cash........................................................ 2,058,666 379,574
Cash equivalents [note 2]................................... 6,377,124 995,960
---------- ---------
8,435,790 1,375,534
========== =========
</TABLE>
See accompanying notes
F-26
<PAGE> 94
BALISOFT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN CANADIAN DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Balisoft Technologies Inc. [the
"Company"] have been prepared by management in accordance with generally
accepted accounting principles in Canada. The significant accounting policies
are as follows:
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Balisoft Ltd., incorporated under the laws of
Israel. These consolidated financial statements are expressed in Canadian
dollars, the operating currency of the Company.
USE OF ESTIMATES
In preparing the Company's consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and reported amounts of
revenue and expenses during the period. Actual results may differ from these
estimates.
CASH AND CASH EQUIVALENTS
Cash includes cash equivalents, which are investments that are generally
held to maturity and have terms of three months or less at the time of
acquisition. Cash equivalents typically consist of discounted and short-term
notes. Cash equivalents are stated at fair value, which approximates cost.
CAPITAL ASSETS
Capital assets are recorded at cost less accumulated amortization.
Amortization is provided on a straight-line basis over the following periods:
<TABLE>
<S> <C>
Office equipment..................................... 5 years
Computer hardware and software....................... 3 years
Furniture and fixtures............................... 6 to 15 years
Motor vehicles....................................... 6.67 years
Leasehold improvements............................... 5 years
Equipment under capital leases....................... 3 years
</TABLE>
LEASES
A lease that transfers substantially all the benefits and risks incidental
to the ownership of the property is accounted for as if it were an acquisition
of an asset and the incurrence of an obligation at the inception of the lease.
All other leases are accounted for as operating leases with rental payments
being expensed as incurred.
REVENUE RECOGNITION
Revenue from software sales is recognized on delivery of the software.
FOREIGN EXCHANGE TRANSLATION
The Company's subsidiary is considered to be an integrated operation.
Accordingly, monetary assets and liabilities denominated in foreign currencies
are translated into Canadian dollars at the rates of exchange
F-27
<PAGE> 95
BALISOFT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
prevailing at period end while other consolidated balance sheet items are
translated at historic rates. Revenue and expenses are translated at the rates
of exchange in effect on the transaction dates. Realized and unrealized foreign
exchange gains and losses are included in income in the period in which they
occur, except where they arise from translation of non-current monetary items.
Such gains and losses are deferred and amortized to income on a straight-line
basis over the remaining life of the underlying non-current monetary items.
RESEARCH AND DEVELOPMENT
Research costs are expensed in the period incurred. Development costs are
expensed in the period incurred unless a development project meets generally
accepted accounting criteria for deferral and amortization. No development costs
have been deferred to date.
INCOME TAXES
The Company follows the deferral method of income tax allocation. Deferred
income taxes result from claiming deductions for income tax purposes in amounts
which differ from those charged in the accounts.
2. CASH EQUIVALENTS
As at December 31, 1998, cash equivalents consist of bankers' acceptances
of U.S. $2,604,090 and $2,372,496 [$995,960 at December 31, 1997], which mature
on January 15, 1999 and January 20, 1999, respectively [January 21, 1998 for
December 31, 1997], and bear interest at rates ranging from 4.3% to 4.4%.
3. CAPITAL ASSETS
Capital assets consist of the following:
<TABLE>
<CAPTION>
1998
----------------------------------
NET
ACCUMULATED BOOK
COST AMORTIZATION VALUE
$ $ $
------- ------------ -------
<S> <C> <C> <C>
Office equipment................................. 4,622 818 3,804
Computer hardware and software................... 122,714 33,465 89,249
Furniture and fixtures........................... 36,927 3,258 33,669
Motor vehicles................................... 50,023 7,084 42,939
Leasehold improvements........................... 18,650 3,730 14,920
Equipment under capital leases................... 272,269 45,374 226,895
Leasehold improvements under capital leases...... 88,000 17,600 70,400
------- ------- -------
593,205 111,329 481,876
======= ======= =======
</TABLE>
F-28
<PAGE> 96
BALISOFT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997
----------------------------------
NET
ACCUMULATED BOOK
COST AMORTIZATION VALUE
$ $ $
------- ------------ -------
<S> <C> <C> <C>
Office equipment................................. 2,808 94 2,714
Computer hardware and software................... 160,914 9,317 151,597
Furniture and fixtures........................... 41,408 900 40,508
Motor vehicles................................... 46,494 1,354 45,140
Leasehold improvements........................... 5,883 43 5,840
------- ------- -------
257,507 11,708 245,799
======= ======= =======
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
$ $
------- -------
<S> <C> <C>
Canada Israel Industrial Research and
Development Foundation................................. 200,000 200,000
Bank Leumi............................................... 23,528 28,552
------- -------
223,528 228,552
Less current portion..................................... 5,272 6,689
------- -------
218,256 221,863
======= =======
</TABLE>
The Canada Israel Industrial Research and Development Foundation ["CIIRDF"]
has advanced $200,000 of a total $600,000 due under the terms of an agreement
with the Company and its subsidiary, dated November 24, 1997. The balance of the
monies was due in two equal annual tranches on November 24, 1998 and 1999,
however, owing to the discontinuance of operations of the subsidiary, no further
amounts will be advanced. The provisions of the agreement require repayment of
the loan at 2.5% of gross sales, calculated semi-annually commencing at the date
of the first commercial transaction. The loan will be forgiven in the event that
no commercial sales of the products funded by CIIRDF are made. No interest is
charged on this loan.
The U.S. dollar loan from Bank Leumi is collateralized against certain
assets of the subsidiary, bears interest at 8.5% per annum and is repayable in
monthly installments of U.S. $331.
5. SHARE CAPITAL
Share capital consists of the following:
AUTHORIZED
Unlimited common shares
Unlimited voting, non-cumulative, convertible Class A preferred shares
F-29
<PAGE> 97
BALISOFT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ISSUED
A summary of changes to issued share capital is as follows:
<TABLE>
<CAPTION>
1998
COMMON SHARES
---------------------
# $
------- ----------
<S> <C> <C>
Issued and outstanding, December 31, 1997............. 121,162 2,032,163
Issue of common shares for cash [a]................... 250.... 14,300
Issue of common shares for cash upon exercise of
warrants............................................ 8,271 500,395
Conversion of short-term debt to common shares
pursuant to convertible loan agreements............. 2,375 187,500
Issue of common shares for cash pursuant to employee
share purchase plan................................. 4,941 390,665
Employee stock options exercised for cash............. 167 257
------- ----------
ISSUED AND OUTSTANDING, DECEMBER 31, 1998............. 137,166 3,125,280
======= ==========
</TABLE>
<TABLE>
<CAPTION>
1998
SPECIAL WARRANTS
---------------------
# $
------- ----------
<S> <C> <C>
Issued and outstanding, December 31, 1997............. -- --
Issue of special warrants for cash [b]................ 112,013 8,631,439
------- ----------
ISSUED AND OUTSTANDING, DECEMBER 31, 1998............. 112,013 8,631,439
======= ==========
</TABLE>
<TABLE>
<CAPTION>
1998
EXCHANGEABLE
PREFERRED SHARES
---------------------
# $
------- ----------
<S> <C> <C>
Issued and outstanding, December 31, 1997............. -- --
Issue of exchangeable preferred shares for cash [c]... -- 2,802,124
------- ----------
ISSUED AND OUTSTANDING, DECEMBER 31, 1998............. -- 2,802,124
------- ----------
14,558,843
==========
</TABLE>
<TABLE>
<CAPTION>
1997
COMMON SHARES
---------------------
# $
------- ----------
<S> <C> <C>
Issued and outstanding, June 5, 1997.................. 90,000 343,753
Issue of common shares for cash....................... 31,162 1,688,410
------- ----------
Issued and outstanding, December 31, 1997............. 121,162 2,032,163
======= ==========
</TABLE>
<TABLE>
<CAPTION>
1997
SPECIAL WARRANTS
---------------------
# $
------- ----------
<S> <C> <C>
Issued and outstanding, June 5, 1997.................. -- --
------- ----------
Issued and outstanding, December 31, 1997............. -- --
------- ----------
</TABLE>
F-30
<PAGE> 98
BALISOFT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997
EXCHANGEABLE
PREFERRED SHARES
---------------------
# $
------- ----------
<S> <C> <C>
Issued and outstanding, June 5, 1997.................. -- --
Issued and outstanding, December 31, 1997............. -- --
------- ----------
2,032,163
==========
</TABLE>
The common shares and preferred shares participate equally with respect to
voting rights. Any preferred shares which may be issued shall rank prior to the
common shares with respect to dividends and with respect to the return of
property or assets upon the liquidation, dissolution or winding-up of the
Company. After the payment of preferred share dividends, the preferred shares
participate equally with the common shares in any further dividends.
The preferred shares may be converted pro rata, at any time, at the option
of the holder, into fully paid, non-accessible common shares of the Company on a
one-for-one basis. Each outstanding preferred share shall be automatically
converted into one common share at the earlier of June 1, 2002, any initial
public offering of common shares of the Company, or the closing date of a change
of control transaction.
[a] Warrants. On April 9, 1998, 250 common shares were issued for
aggregate proceeds of approximately $14,300 [U.S. $10,000]. In connection with
this issue of common shares, the Company granted 5,000 warrants that are
exercisable at any time up to June 3, 2000, at an exercise price of U.S. $54.92.
[b] Special warrants. Pursuant to an agreement dated June 3, 1998, the
Company completed the issuance, by way of a private placement, of 112,013
special warrants for gross proceeds of $8,851,000 [U.S. $5,700,000 and Cdn.
$650,000]. The net proceeds of the offering totalled approximately $8,631,439.
Each special warrant [other than 1,898 special warrants that are
convertible into common shares only] is exercisable without additional
consideration for one preferred share or, at the election of the holder, such a
number of common shares as would be issuable upon conversion of one preferred
share into common shares in accordance with the Articles of Incorporation.
In the event that a final prospectus is not issued and the Company fails to
complete an initial public offering on or before the 3rd anniversary date of the
agreement, any special warrants exercised after this date shall entitle the
holders to receive 1.15 shares, without payment of additional consideration. Any
outstanding warrants shall be deemed to have been exercised by the holder on the
expiry date, being the 4th anniversary of the closing date.
[c] Exchangeable preferred shares. On June 3, 1998, the Company issued
100 exchangeable preferred shares in its subsidiary for aggregate proceeds of
approximately $2,877,600 [U.S. $2,000,000], to be used specifically to fund
research and development. The associated costs of the exchangeable preferred
share issue were approximately $75,500.
These exchangeable preferred shares are exchangeable on the basis of
364.16605 preferred shares or 364.16605 common shares of the Company at the
holder's option for each exchangeable preferred share subject to adjustment as
set forth in the Articles of Incorporation and share exchange agreement. The
exchangeable preferred shares rank equally with the common shares of the Company
in respect of voting rights and entitlement to dividends. Upon liquidation,
proceeds will be allocated U.S. $54.92 plus 8% interest from June 1, 1998 to
each issued preferred share and then U.S. $54.92 to each common share. The
common and preferred shares then share equally in any remaining liquidation
surplus.
F-31
<PAGE> 99
BALISOFT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An automatic exchange of the exchangeable preferred shares into either
common or preferred shares may occur if any of the following transactions takes
place:
[i] Upon insolvency of the Company or the subsidiary;
[ii] Upon the proposed sale of all or substantially all, or the proposed
amalgamation, merger or other business combination of the
subsidiary;
[iii] From June 3, 2003, after a resolution of the board of directors of
the subsidiary; or
[iv] Upon a mandatory conversion event defined in the Articles of
Amendment as either the closing date of any initial public offering
by the Company or the closing date of any transaction approved by
the board of directors of the Company in a resolution designating
such transaction as a "change in control transaction" for the
purposes of the Articles of Amendment and resulting in the
acquisition of control of the Company, the sale of all or
substantially all of the business or assets of the Company, or the
amalgamation, merger or other business combination of the Company.
Accordingly, the preferred shares of the subsidiary held by non-controlling
interests is regarded in substance as a residual equity interest of the Company
and has been presented as equity in these consolidated financial statements.
[d] Stock options. As at December 31, 1998, 10,000 founder's options are
outstanding to acquire 10,000 common shares at an exercise price per common
share of $0.01 which expire on April 6, 2007.
The Company has established two stock option plans [Option Plan A and
Option Plan B] to encourage ownership in the Company's common shares by
executives, directors and employees of the Company and its subsidiary. As at
December 31, 1998, under these plans there were options granted to purchase
32,525 common shares exercisable at various prices which range from Cdn. $0.10
to $55.00 and U.S. $1.00 to $40.00. These options expire on various dates to
April 29, 2001.
6. CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
The net change in non-cash working capital balances related to operations
consists of the following:
<TABLE>
<CAPTION>
1998 1997
$ $
-------- -------
<S> <C> <C>
Accounts receivable..................................... (121,431) (48,873)
Prepaid expenses........................................ (171,809) (5,037)
Accounts payable and accrued liabilities................ 856,878 410,396
-------- -------
563,638 356,486
======== =======
</TABLE>
7. INCOME TAXES LOSS CARRYFORWARDS
The Company has non-capital losses available for carryforward from December
31, 1998 of approximately $4,060,000 and $460,000 [1997--$460,000] that will
expire in 2005 and 2004, respectively. The Company's subsidiary has a taxable
loss allowance at December 31, 1998 of approximately $2,660,000
[1997--$480,000]. The potential income tax benefits of these losses have not
been recorded in the consolidated financial statements.
F-32
<PAGE> 100
BALISOFT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LEASE COMMITMENTS
[a] CAPITAL LEASES
Future minimum annual lease payments under capital leases for the next five
years are as follows:
<TABLE>
<CAPTION>
$
-------
<S> <C>
1999..................................................... 124,650
2000..................................................... 123,385
2001..................................................... 90,690
2002..................................................... 21,346
2003..................................................... 12,453
-------
Total minimum capital lease payments..................... 372,524
Less imputed interest.................................... 44,780
-------
Present value of net minimum capital lease payments...... 327,744
Less current portion..................................... 102,228
-------
225,516
=======
</TABLE>
The Company has entered into an agreement with Dell Financial Services Ltd.
to provide a line of credit totaling $250,000 for leasing of capital assets. As
at December 31, 1998, the Company has utilized approximately $246,000 of this
facility. The nominal interest rate on the obligation is 8.1% per annum.
A letter of credit of $125,000 has been issued by the Company in favour of
Dell Financial Services Ltd. that expires on December 22, 1999.
The Company entered into an agreement with its real estate lessor whereby
the lessor paid for leasehold improvements totaling $88,000 to be repaid by the
Company over the term of the lease of five years ending July 1, 2003 with a
nominal interest rate of 8.2% per annum.
[b] OPERATING LEASES
Future minimum annual lease payments under operating leases for the next
five years are approximately as follows:
<TABLE>
<CAPTION>
$
-------
<S> <C>
1999..................................................... 209,000
2000..................................................... 202,000
2001..................................................... 195,000
2002..................................................... 194,000
2003..................................................... 113,000
-------
913,000
=======
</TABLE>
9. RESTRUCTURING EXPENSES
Prior to the year end, management adopted a formal plan to close the
subsidiary's operations. This closure was substantially completed on January 4,
1999. Restructuring expenses consist of loss on capital assets of $111,904 and
closure related costs of $338,669.
F-33
<PAGE> 101
BALISOFT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Company prepares its consolidated financial statements in accordance
with accounting principles generally accepted in Canada ["Canadian GAAP"],
which, as applied in these consolidated financial statements, conform in all
material respects to those accounting principles generally accepted in the
United States ["U.S. GAAP"], except as follows:
Under Canadian GAAP, the accompanying consolidated statements of changes in
financial position report the changes in financial position of each major
balance sheet item, reconciling to the net change in cash. Under U.S. GAAP, the
consolidated statements of cash flow report the actual cash flow activities.
Accordingly, certain non-cash changes reported in the accompanying consolidated
statements of changes in financial position would not be reported in the
consolidated statements of cash flow under U.S. GAAP as follows:
<TABLE>
<CAPTION>
PERIOD FROM
DATE OF
INCORPORATION,
JUNE 5, 1997,
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
------------ --------------
<S> <C> <C>
OPERATING ACTIVITIES
Cash used in operating activities, Canadian
and U.S. GAAP............................... (5,390,631) (627,674)
---------- ---------
INVESTING ACTIVITIES
Cash used in investing activities, Canadian
GAAP........................................ (398,513) (257,507)
Assets acquired by capital lease.............. 327,744 --
---------- ---------
Cash used in investing activities, U.S.
GAAP........................................ (70,769) (257,507)
---------- ---------
FINANCING ACTIVITIES
Cash provided by financing activities,
Canadian GAAP............................... 12,849,400 2,260,715
Common shares issued for non-cash
consideration............................... (187,500) (343,750)
Obligations under capital lease............... (327,744) --
Debt issued................................... 187,500 343,750
---------- ---------
Cash provided by financing activities, U.S.
GAAP........................................ 12,521,656 2,260,715
---------- ---------
Net increase in cash and cash equivalents,
U.S. GAAP................................... 7,060,256 1,375,534
Cash and cash equivalents, beginning of
period...................................... 1,375,534 --
---------- ---------
Cash and cash equivalents, end of period...... 8,435,790 1,375,534
========== =========
</TABLE>
11. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the
F-34
<PAGE> 102
BALISOFT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Year 2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
12. SUBSEQUENT EVENT
Subsequent to December 31, 1998, in February 1999, the Company entered into
a combination transaction with a U.S. based company, ServiceSoft Corporation.
The shareholders of the Company received 45% of the common and preferred share
equity in the new combined entity. As part of the transaction, the Company
merged with Servicesoft Technologies (Canada) Inc., a wholly-owned subsidiary of
ServiceSoft Corporation. As part of the terms, 20% of the exchangeable shares of
Servicesoft Technologies (Canada) Inc. and 20% of ServiceSoft Corporation's
shares have been placed in escrow until the earlier of completion of an initial
public offering or 60 days after the completion of the fiscal 1999 audit.
F-35
<PAGE> 103
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Internet Business Advantages, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Internet Business Advantages, Inc.
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States 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
Boston, Massachusetts
July 1, 1999
F-36
<PAGE> 104
INTERNET BUSINESS ADVANTAGES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 242,722 $ 855,681 $ 605,123
Accounts receivable, net of allowance for doubtful
accounts of $40,000, $2,500 and $2,500 at December 31,
1997 and 1998 and September 30, 1999 (unaudited),
respectively............................................ 200,400 252,550 308,744
Unbilled accounts receivable.............................. 11,500 90,817 241,054
Prepaid expenses and other current assets................. 17,100 14,953 61,316
---------- ---------- -----------
Total current assets.................................... 471,722 1,214,001 1,216,237
Fixed assets, net........................................... 100,340 295,988 376,017
Other assets................................................ -- 158,321 150,000
---------- ---------- -----------
Total assets....................................... $ 572,062 $1,668,310 $ 1,742,254
========== ========== ===========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Convertible demand note................................... $ -- $ -- $ 2,200,000
Current portion of capital lease obligations.............. -- 28,349 38,073
Current portion of long-term debt......................... -- 18,523 246,626
Accounts payable.......................................... 46,100 106,523 209,372
Accrued expenses.......................................... 121,500 318,338 467,285
Deferred revenue.......................................... 108,978 18,082 185,186
Accumulated losses in excess of investment in affiliate... 47,993 260,859 --
---------- ---------- -----------
Total current liabilities............................... 324,571 750,674 3,346,542
Capital lease obligations................................... -- 47,288 42,545
Long-term debt.............................................. -- 114,840 457,152
---------- ---------- -----------
Total liabilities....................................... 324,571 912,802 3,846,239
---------- ---------- -----------
Commitments (Note 9)
Redeemable convertible preferred stock:
Series A redeemable convertible preferred stock, $0.001
par value; 928,394 shares authorized, issued and
outstanding............................................. 1,021,233 1,021,233 1,021,233
Series B redeemable convertible preferred stock, $0.001
par value; 1,071,606 shares authorized, issued and
outstanding............................................. 978,767 978,767 978,767
Series C redeemable convertible preferred stock, $0.001
par value; no shares authorized, issued and outstanding
at December 31, 1997; 914,667 shares authorized, issued
and outstanding at December 31, 1998 and September 30,
1999 (unaudited)........................................ -- 2,999,998 2,999,998
---------- ---------- -----------
Total redeemable convertible preferred stock............ 2,000,000 4,999,998 4,999,998
---------- ---------- -----------
Stockholders' deficit:
Common stock, $0.001 par value; 5,000,000 shares
authorized; 1,062,667, 1,088,667 and 1,088,667 shares
issued at December 31, 1997 and 1998 and September 30,
1999 (unaudited), respectively; 1,062,667, 909,792 and
854,459 shares outstanding at December 31, 1997 and 1998
and September 30, 1999 (unaudited), respectively........ 1,063 1,089 1,089
Additional paid-in capital................................ 2,624 2,858 2,858
Treasury stock, at cost................................... -- (859) (1,267)
Accumulated deficit....................................... (1,756,196) (4,247,578) (7,106,663)
---------- ---------- -----------
Total stockholders' deficit............................. (1,752,509) (4,244,490) (7,103,983)
---------- ---------- -----------
Total liabilities, redeemable convertible preferred
stock and stockholders' deficit.................. $ 572,062 $1,668,310 $ 1,742,254
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 105
INTERNET BUSINESS ADVANTAGES, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue............................... $ 1,069,551 $ 1,822,833 $ 1,015,468 $ 2,221,904
=========== =========== =========== ===========
Operating expenses:
Professional services............... 935,404 1,834,923 1,140,314 2,673,165
Sales and marketing................. 607,450 1,086,671 738,353 1,229,364
General and administrative.......... 686,250 1,259,071 827,759 1,450,014
----------- ----------- ----------- -----------
Total operating expenses......... 2,229,104 4,180,665 2,706,426 5,352,543
----------- ----------- ----------- -----------
Loss from operations.................. (1,159,553) (2,357,832) (1,690,958) (3,130,639)
Loss from equity investment........... (47,993) (212,866) (145,729) (221,120)
Gain on disposal of subsidiary........ -- -- -- 544,135
Interest income....................... 37,600 90,481 69,522 20,139
Interest expense...................... -- (2,065) -- (99,481)
Other income, net..................... -- -- -- 27,881
----------- ----------- ----------- -----------
Net loss......................... $(1,169,946) $(2,482,282) $(1,767,165) $(2,859,085)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 106
INTERNET BUSINESS ADVANTAGES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL TOTAL
NUMBER $0.001 PAID-IN TREASURY ACCUMULATED STOCKHOLDERS'
OF SHARES PAR VALUE CAPITAL STOCK DEFICIT DEFICIT
--------- --------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........ 888,167 $ 888 $1,054 $ -- $ (586,250) $ (584,308)
Issuance of restricted stock to
employees......................... 174,500 175 1,570 1,745
Net loss............................ (1,169,946) (1,169,946)
--------- ------ ------ ------- ----------- -----------
Balance at December 31, 1997........ 1,062,667 1,063 2,624 -- (1,756,196) (1,752,509)
Issuance costs related to Series C
redeemable convertible preferred
stock............................. (9,100) (9,100)
Issuance of restricted stock to
employees......................... 26,000 26 234 260
Purchase of common stock held in
treasury.......................... (859) (859)
Net loss............................ (2,482,282) (2,482,282)
--------- ------ ------ ------- ----------- -----------
Balance at December 31, 1998........ 1,088,667 1,089 2,858 (859) (4,247,578) (4,244,490)
Purchase of common stock held in
treasury (unaudited).............. (408) (408)
Net loss (unaudited)................ (2,859,085) (2,859,085)
--------- ------ ------ ------- ----------- -----------
Balance at September 30, 1999
(unaudited)....................... 1,088,667 $1,089 $2,858 $(1,267) $(7,106,663) $(7,103,983)
========= ====== ====== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 107
INTERNET BUSINESS ADVANTAGES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net loss......................................... $(1,169,946) $(2,482,282) $(1,767,165) $(2,859,085)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 33,900 79,901 47,458 108,089
Loss from equity investment.................... 47,993 212,866 145,729 221,120
Gain on disposal of subsidiary................. -- -- -- (544,135)
Changes in assets and liabilities, net of
effects from acquisition:
Accounts receivable.......................... (200,400) (52,150) (201,639) 10,804
Unbilled accounts receivable................. (11,500) (79,317) -- (150,237)
Loans to affiliate........................... -- -- -- (151,120)
Prepaid expenses and other current assets.... (9,801) 2,147 -- (46,363)
Other assets................................. 15,517 (158,321) 8,779 8,321
Accounts payable............................. 37,059 60,423 2,393 90,599
Accrued expenses............................. 38,589 196,838 13,162 117,014
Deferred revenue............................. 108,978 (90,896) 90,637 167,104
----------- ----------- ----------- -----------
Net cash used in operating activities..... (1,109,611) (2,310,791) (1,660,646) (3,027,889)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of fixed assets........................ (95,871) (176,248) (146,586) (148,905)
Investment in equity method company.............. -- -- -- (32,153)
Proceeds from disposal of subsidiary............. -- -- -- 600,000
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities.............................. (95,871) (176,248) (146,586) 418,942
----------- ----------- ----------- -----------
Cash flows from financing activities:
Principal payments on capital lease
obligations.................................... -- (23,664) (17,254) (24,307)
Borrowings from line of credit................... -- 133,363 -- 85,122
Borrowings from term loan........................ -- -- -- 500,000
Repayments on term loan.......................... -- -- -- (14,707)
Repayment on debt assumed with acquisition of
subsidiary..................................... -- -- -- (387,311)
Proceeds from convertible demand note............ -- -- -- 2,200,000
Proceeds from issuance of Series C redeemable
convertible preferred stock, net of issuance
costs.......................................... -- 2,990,898 2,990,898 --
Proceeds from issuance of common stock........... 1,745 260 201 --
Purchase of common stock held in treasury........ -- (859) (859) (408)
----------- ----------- ----------- -----------
Net cash provided by financing
activities.............................. 1,745 3,099,998 2,972,986 2,358,389
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... (1,203,737) 612,959 1,165,754 (250,558)
Cash and cash equivalents, beginning of period..... 1,446,459 242,722 242,722 855,681
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period........... $ 242,722 $ 855,681 $ 1,408,476 $ 605,123
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest......... $ -- $ 5,041 $ -- $ 14,103
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
In November 1997, the Company contributed Know-how in exchange for 950,000
shares of common stock, or 95% ownership, in Internet Security Advantages, Inc.
(Note 3).
In the year ended December 31, 1998 and the nine months ended September 30,
1999, the Company incurred $99,301 and $29,288 (unaudited), respectively, in
capital lease obligations for fixed assets.
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE> 108
INTERNET BUSINESS ADVANTAGES, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION
Internet Business Advantages, Inc. ("IBA") is a professional service
consulting and systems firm. IBA's principal market is domestic businesses. IBA
manages its business as a single segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
IBA invests its excess cash primarily in money market funds of major
financial institutions. These investments are subject to minimal credit and
market risk. IBA considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalent
investments are classified as available-for-sale and carried at cost, which
approximates fair market value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of IBA's financial instruments, which include cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses and
long-term debt, approximate their fair values at December 31, 1997 and 1998.
REVENUE RECOGNITION
IBA receives fees for application development and consulting which
constitute the majority of IBA's revenue. Revenue is recognized using the
percentage-of-completion method based on the ratio that the hours expended to
date bears to the estimated total hours at completion. Losses, if any, are
provided for at the time that management determines costs will exceed fees.
Maintenance contract revenue is deferred and recognized ratably over the
contract period, generally six months or less. Unbilled accounts receivable
represents revenue recognized in excess of amounts billed. Deferred revenue
represents the unrecognized portion of maintenance contract revenue and amounts
billed in excess of revenue recognized on application development and consulting
contracts.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially expose IBA to concentrations of
credit risk consist primarily of trade accounts receivable. Management believes
its credit policies are prudent and reflect normal industry terms and business
risk. IBA performs ongoing credit evaluations of customers' financial condition
but does not require collateral. IBA maintains reserves for potential credit
losses and such losses, in the aggregate, have not exceeded management's
expectations.
At December 31, 1997, four customers accounted for 27%, 22%, 16% and 12% of
total accounts receivable. At December 31, 1998, four customers accounted for
27%, 24%, 19% and 14% of total accounts receivable.
Revenue from three customers accounted for 28%, 19% and 15% of total
revenue for the year ended December 31, 1997. Revenue from one customer
accounted for 32% of total revenue for the year ended December 31, 1998.
FIXED ASSETS
Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the assets. Repair and maintenance
costs are expensed as incurred.
STOCK-BASED COMPENSATION
IBA accounts for stock-based awards to employees in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. IBA has adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," through footnote disclosure only.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs were $33,000
and $17,000 in the years ended December 31, 1997 and 1998.
F-41
<PAGE> 109
INTERNET BUSINESS ADVANTAGES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 amount of revenues and expenses during the reporting
period. Actual amounts could differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SoP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SoP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. SoP 98-1 will be effective
for IBA beginning in 1999, and IBA does not expect adoption of this SoP to have
a material effect on its financial position or results of operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities related to the opening of a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer, commencing some new operation or organizing a new entity.
SoP 98-5 requires that the cost of start-up activities be expensed as incurred.
SoP 98-5 is effective for IBA beginning in 1999 and IBA does not expect adoption
of this SoP to have a material effect on its financial position or results of
operations.
3. INVESTMENT IN INTERNET SECURITY ADVANTAGES, INC. AND GAIN ON DISPOSAL OF
SUBSIDIARY
In November 1997, IBA and Axent Technologies, Inc. ("Axent") established
Internet Security Advantages, Inc. ("ISA"), a joint venture, to provide Internet
network security consulting services. Axent contributed $50,000 for the purchase
of 50,000 shares of common stock, or 5% ownership. IBA contributed its
capability to manage consulting services ("Know-how") in exchange for 950,000
shares of common stock, or 95% ownership. In addition, ISA entered into a term
loan agreement with Axent which enabled ISA to borrow up to $950,000 through
November 1998. At December 31, 1998, ISA had borrowed $350,000. Axent may
convert all or any portion of the principal at any time into shares of ISA
common stock in accordance with a formula in the term loan agreement. The joint
venture also authorized 600,000 shares of common stock for issuance under
restricted stock and stock option plans and 100,000 shares of preferred stock.
At December 31, 1998, no shares of restricted stock, stock options or preferred
stock had been issued. IBA accounts for such investment in accordance with the
equity method as Axent holds certain participating rights over operating and
capital decisions.
IBA's initial investment in ISA was recorded at zero. The difference
between the carrying amount of the investment and IBA's share of the underlying
equity in net assets of ISA represents a deferred gain, which is being amortized
to equity income (loss) over seven years, the estimated life of the Know-how
contributed to ISA at the inception of the joint venture. The amount of the
deferred gain at the inception of ISA was $47,500, and at December 31, 1997 and
1998, the unamortized portion of the deferred gain is approximately $46,400 and
$39,600, respectively. At December 31, 1997 and 1998, IBA recognized a liability
for its proportionate share of ISA's losses, net of amortization of the deferred
gain, in excess of the carrying amount of the investment as ISA's losses are
primarily attributable to start-up costs and profitable operations are expected.
The equity loss from investment in affiliate and the accumulated losses
from investment in affiliate would not have been materially different from the
reported amounts at December 31, 1997 and 1998 and for the years then ended, if
Axent had converted the term loan into ISA common stock.
F-42
<PAGE> 110
INTERNET BUSINESS ADVANTAGES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Condensed financial information of ISA at December 31, 1997 and 1998 and
for the period from inception (November 10, 1997) through December 31, 1997 and
the year ended December 31, 1998 is summarized below:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Total assets.......................................... $200,000 $ 230,500
Total liabilities..................................... 201,700 463,450
Stockholders' deficit................................. (1,700) (232,950)
Revenue............................................... -- 373,900
Net loss.............................................. (51,700) (231,250)
</TABLE>
Unaudited--In May 1999, IBA acquired Axent's 5% interest in the assets and
liabilities of ISA for total cash consideration of $50,000. IBA accounted for
the acquisition of Axent's interest under the purchase method of accounting and
allocated the purchase price to the assets acquired and liabilities assumed
based on their fair values at the date of acquisition. Following the acquisition
of Axent's interest, IBA has accounted for ISA as a 100% owned and consolidated
subsidiary.
Unaudited--In August 1999, IBA disposed of ISA for $600,000 in cash. The
difference between the total cash consideration received and the net book value
of the assets disposed was recorded as gain on disposal of ISA in the nine
months ended September 30, 1999.
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE --------------------
IN YEARS 1997 1998
----------- -------- --------
<S> <C> <C> <C>
Computer equipment and software................... 3 $135,836 $232,529
Furniture and fixtures............................ 5 13,500 160,999
Leasehold improvements............................ lease term -- 31,357
-------- --------
149,336 424,885
Less--accumulated depreciation and amortization... 48,996 128,897
-------- --------
$100,340 $295,988
======== ========
</TABLE>
At December 31, 1998, furniture and fixtures held under capital leases
totaled $99,301. Accumulated depreciation of furniture and fixtures held under
capital leases was $7,800 at December 31, 1998.
5. LINES OF CREDIT
In October 1998, IBA entered into an agreement with a bank under which IBA
has the ability to borrow up to $750,000 for working capital purposes ("Working
Capital Facility") and $500,000 for purchases of equipment and software
("Equipment Facility"), subject to certain limitations. All borrowings under
this agreement are collateralized by substantially all of IBA's assets and bear
interest at the bank's prime rate plus 0.50% (8.25% at December 31, 1998).
Borrowings against the Working Capital Facility and accrued interest are due and
payable by November 1, 1999. As of December 31, 1998, no borrowings had been
made against the Working Capital Facility. Accrued interest on Equipment
Facility advances will be payable monthly through August 1, 1999. Equipment
Facility advances outstanding on August 1, 1999 will convert to a term loan to
be repaid in 36 equal monthly installments of principal, plus accrued interest.
Borrowings against the Equipment Facility totaled $133,363 at December 31, 1998.
In addition, IBA is required to comply with certain restrictive covenants,
including the maintenance of specific financial ratios. As of December 31, 1998,
IBA was in compliance with all financial and nonfinancial covenants.
In May 1999, IBA entered into a $500,000 term note agreement bearing
interest at the bank's prime rate plus 1.0%. The term note is due in May 2002
and is secured by substantially all of IBA's assets and requires IBA to comply
with certain financial and nonfinancial covenants.
F-43
<PAGE> 111
INTERNET BUSINESS ADVANTAGES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CONVERTIBLE DEMAND NOTE
In March 1999, IBA obtained debt financing in the form of convertible
demand notes ("Demand Notes") totaling $2,200,000 from shareholders of IBA. The
Demand Notes bear interest at an annual interest rate of 6.5% and are
convertible into Series D redeemable convertible preferred stock ("Series D
Preferred Stock") at the issuance price. If the Series D Preferred Stock is not
issued within nine months of the Demand Notes, the principal and accrued
interest balances will be payable in full. In connection with the Demand Notes,
IBA issued warrants to investors for the purchase of $550,000 in shares of
Series D Preferred Stock at the issuance price. Should the Series D Preferred
Stock not be issued within nine months of the debt financing, the warrants will
become convertible into 167,683 shares of Series C redeemable convertible
preferred stock at $3.28 per share. The warrants are exercisable for a period of
four years.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (collectively, the "Redeemable Convertible Preferred Stock")
have the following characteristics:
Conversion. Each share of the Redeemable Convertible Preferred Stock
is convertible at any time at the option of the holder into one share of
common stock, subject to certain anti-dilution adjustments, except that
holders of the Series B Preferred Stock may only opt for conversion upon
either (i) the closing of an initial public offering of IBA's common stock
or (ii) the sale of all or substantially all of the assets of IBA. All
shares of the Redeemable Convertible Preferred Stock automatically convert
into common stock upon the closing of a public offering of IBA's common
stock involving aggregate proceeds to IBA of at least $15 million and a
price of not less than $9.00 per share.
At December 31, 1998, IBA has reserved 4,999,998 shares of its common
stock for issuance upon conversion of the Redeemable Convertible Preferred
Stock.
Dividend Rights. Holders of the Redeemable Convertible Preferred
Stock are entitled to receive dividends when and if declared by the Board
of Directors. Any dividends declared must be distributed to the holders of
each series of the Redeemable Convertible Preferred Stock equally and no
dividends may be paid on the common stock until any and all dividends
declared on the Redeemable Convertible Preferred Stock have been paid in
full. Through December 31, 1998, no dividends have been declared or paid by
IBA.
Redemption. At the request of the holders of a majority of the Series
A Preferred Stock, on December 31, 2003 and each anniversary thereafter,
IBA shall redeem the then outstanding shares of Series A Preferred Stock
held by the requesting shareholders at a per share price of $1.10 plus all
declared but unpaid dividends, subject to certain anti-dilution
adjustments. The Series B Preferred Stock and Series C Preferred Stock are
redeemable under the same terms as the Series A Preferred Stock except that
they are redeemable at a per share price of $0.91 and $3.28, respectively,
plus all declared but unpaid dividends, subject to certain anti-dilution
adjustments.
Liquidation, Dissolution or Winding-Up. In the event of any
liquidation, dissolution or winding-up of the affairs of IBA, the holders
of the then outstanding Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock will be entitled to receive, in preference to
the holders of the common stock, a payment of $1.10, $0.91 and $3.28 per
share, respectively, plus any declared but unpaid dividends. Any assets
remaining following the distributions to the holders of the Redeemable
Convertible Preferred Stock will be distributed ratably among the common
stockholders.
Voting Rights. Each holder of the Series A Preferred Stock and Series
C Preferred Stock is entitled to the number of votes equal to the number of
shares of common stock into which such holder's shares are convertible at
the record date for such vote. Holders of the Series B Preferred Stock are
not entitled to vote on the affairs of IBA.
F-44
<PAGE> 112
INTERNET BUSINESS ADVANTAGES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
STOCK RESTRICTION AGREEMENTS
At December 31, 1997 and 1998, all of IBA's outstanding shares of common
stock are subject to stock restriction agreements. Under these agreements, IBA
has the option to repurchase any or all unvested shares of common stock held by
a given stockholder in the event of voluntary resignation or termination of
their employment by IBA. The number of shares that may be repurchased by IBA
upon termination is reduced over a four-year period. At December 31, 1998,
125,000, 7,000 and 120,000 shares of common stock are subject to repurchase at a
price of $0.001, $0.05 and $0.01 per share, respectively.
TREASURY STOCK
During 1998, IBA repurchased 178,875 shares of common stock at cost.
7. 1996 STOCK PLAN
During 1996, IBA adopted the 1996 Stock Incentive Plan (the "1996 Plan").
The 1996 Plan provides for the granting of incentive and non-qualified stock
options, performance shares, restricted stock and other stock-based awards to
management, other key employees, consultants and directors of IBA. The total
number of shares of common stock that may be issued pursuant to awards granted
under the 1996 Plan is 466,667. The exercise price under each stock option shall
be specified by the Board of Directors at the time of grant. However, incentive
stock options may not be granted at less than the fair market value of IBA's
common stock at the date of grant or for a term in excess of ten years. For
holders of more than 10% of IBA's total combined voting power of all classes of
stock, incentive stock options may not be granted at less than 110% of the fair
market value of IBA's common stock at the date of grant and for a term not to
exceed five years.
Transactions under the 1996 Plan during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
1998
----------------------------
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C>
Outstanding at beginning of year.......................... -- $ --
Granted................................................... 172,250 0.33
Canceled.................................................. (25,250) 0.33
--------
Outstanding at end of year................................ 147,000 0.33
========
Weighted-average fair value of options granted during the
year.................................................... $ 0.07
========
</TABLE>
At December 31, 1998, no options were exercisable. The weighted average
remaining contractual life of options granted in 1998 is 9.63 years.
FAIR VALUE DISCLOSURES
No compensation cost has been recognized under APB Opinion No. 25 for
options granted to employees during the year ended December 31, 1998. Had
compensation costs for these awards been determined based on the fair value at
the date of grant consistent with the method prescribed by SFAS No. 123, IBA's
net loss for the year ended December 31, 1998 would not have differed
significantly from the amount reported. However, because options vest over
several years and because additional option grants are expected to be made
subsequent to December 31, 1998, the pro forma effects of applying the fair
value method may be material to reported net income or loss in future years.
The fair value of each option grant is estimated on the date of grant using
the minimum value option-pricing method with the following assumptions used for
option grants made in 1998: no dividend yield, risk-free interest rate of 5.0%,
no volatility and an expected option term of five years.
F-45
<PAGE> 113
INTERNET BUSINESS ADVANTAGES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
-------- ----------
<S> <C> <C>
Net operating loss carryforwards............................ $664,000 $1,588,000
Research and development tax credit carryforwards........... 28,000 35,000
Other....................................................... 15,000 16,000
-------- ----------
Gross deferred tax assets................................... 707,000 1,639,000
Deferred tax asset valuation allowance...................... (707,000) (1,639,000)
-------- ----------
Net deferred tax assets..................................... $ -- $ --
======== ==========
</TABLE>
At December 31, 1997 and 1998, IBA has provided a valuation allowance for
the full amount of the deferred tax assets since realization of any future
benefit from deductible temporary differences and net operating loss and tax
credit carryforwards cannot be sufficiently assured.
At December 31, 1998, IBA has net operating loss carryforwards for federal
and state tax purposes of approximately $3,940,000 which are available to reduce
future taxable income and expire at various dates through 2018. IBA also has
federal and state investment tax credit carryforwards of $19,000 and $25,000,
respectively, available to reduce future tax liabilities. These tax credit
carryforwards expire at various dates between 2011 and 2013.
Under the provisions of the Internal Revenue Code, certain substantial
changes in IBA's ownership may limit the amount of net operating loss and tax
credit carryforwards which could be utilized annually to offset future taxable
income and taxes payable. The amount of this annual limitation is determined
based, in part, upon IBA's value prior to an ownership change.
9. COMMITMENTS
LEASES
IBA leases office space and certain fixed assets under noncancelable
operating and capital leases. Future minimum lease payments due under these
leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ---------- -------
<S> <C> <C>
1999...................................................... $ 298,000 $33,690
2000...................................................... 300,000 33,690
2001...................................................... 222,000 16,845
2002...................................................... 196,000 --
2003...................................................... 196,000 --
---------- -------
Total minimum lease payments................................ $1,212,000 84,225
==========
Less--amount representing interest.......................... 8,588
-------
Present value of obligations under capital leases........... $75,637
=======
</TABLE>
Total rent expense under these noncancelable operating leases was $95,000
and $244,000 for the years ended December 31, 1997 and 1998, respectively.
10. SUBSEQUENT EVENT (UNAUDITED)
On December 17, 1999, IBA entered into a Merger Agreement with Servicesoft
Technologies, Inc. ("Servicesoft"). In connection with the transaction, all IBA
stock was exchanged for Servicesoft common stock. Additionally, all convertible
note holders were issued Servicesoft common stock as consideration for the
cancellation of the notes. Outstanding options and warrants were also converted
into equivalent Servicesoft options and warrants.
F-46
<PAGE> 114
SERVICESOFT TECHNOLOGIES, INC.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On February 12, 1999, Servicesoft Technologies, Inc. ("Servicesoft") merged
with Balisoft Technologies Inc. ("Balisoft"). At the close of the transaction,
Balisoft became a wholly-owned subsidiary of Servicesoft. All of the outstanding
capital stock of Balisoft was converted into 2,205,915 shares of Servicesoft
exchangeable common stock and 2,281,653 shares of Servicesoft exchangeable
Series H redeemable convertible preferred stock. Additionally, in connection
with the acquisition, Servicesoft issued options to purchase 670,829 shares of
Servicesoft common stock.
On December 17, 1999, Servicesoft acquired all of the outstanding preferred
and common stock of Internet Business Advantages, Inc. ("IBA"). At the close of
the transaction, IBA became a wholly-owned subsidiary of Servicesoft. All of the
outstanding capital stock of IBA was converted into 1,124,010 shares of
Servicesoft common stock. Additionally, in connection with the acquisition,
Servicesoft issued options to purchase 470,332 shares of Servicesoft common
stock.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1999 presents the results of operations of Servicesoft, Balisoft
and IBA on a combined basis assuming the acquisitions had occurred on January 1,
1999. The transactions were accounted for under the purchase method;
accordingly, the results of operations of Balisoft and IBA were included in the
results of Servicesoft as reported from the applicable closing dates. The pro
forma columns for Balisoft and IBA represent their results of operations in 1999
prior to the transactions. All material adjustments to reflect the effects of
the transactions are set forth in the Adjustments column. An unaudited pro forma
combined balance sheet is not presented here since all effects of the
transactions are reflected in the consolidated balance sheet of Servicesoft as
of December 31, 1999, which is presented elsewhere herein.
The pro forma data is for informational purposes only and does not
necessarily reflect future results of operations or what the results of
operations would have been had Servicesoft, Balisoft, and IBA been operating as
a combined entity for the specified period. The unaudited pro forma combined
financial statements should be read in conjunction with the historical
consolidated financial statements of Servicesoft, including the notes thereto.
F-47
<PAGE> 115
SERVICESOFT TECHNOLOGIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SERVICESOFT INTERNET
TECHNOLOGIES, BALISOFT BUSINESS
INC. (AS TECHNOLOGIES ADVANTAGES, PRO FORMA
REPORTED) INC. INC. ADJUSTMENTS COMBINED
------------- ------------ ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license......... $ 4,210 $ -- $ -- $ -- $ 4,210
Services................. 2,934 -- 3,335 -- 6,269
-------- ----- ------- -------- --------
Total revenue......... 7,144 -- 3,335 -- 10,479
-------- ----- ------- -------- --------
Cost of revenue:
Cost of software
license............... 406 -- -- -- 406
Cost of services......... 3,375 -- 3,775 -- 7,150
-------- ----- ------- -------- --------
Total cost of
revenue............. 3,781 -- 3,775 -- 7,556
-------- ----- ------- -------- --------
Gross profit............... 3,363 -- (440) -- 2,923
-------- ----- ------- -------- --------
Operating expenses:
Research and
development........... 4,205 197 18 -- 4,420
Sales and marketing...... 13,310 259 1,550 -- 15,119
General and
administrative........ 5,044 339 2,223 -- 7,606
Amortization of goodwill
and other intangible
assets................ 2,671 -- -- 4,324(a) 6,995
Stock compensation....... 1,900 -- -- -- 1,900
-------- ----- ------- -------- --------
Total operating
expenses............ 27,130 795 3,791 4,324 36,040
-------- ----- ------- -------- --------
Loss from operations....... (23,767) (795) (4,231) (4,324) (33,117)
Interest and other income
(expense), net........... 214 20 371 -- 605
-------- ----- ------- -------- --------
Net loss................... (23,553) (775) (3,860) (4,324) (32,512)
Accretion on redeemable
convertible preferred
stock.................... (2,725) -- -- (72)(b) (2,797)
-------- ----- ------- -------- --------
Net loss attributable to
common stockholders...... $(26,278) $(775) $(3,860) $ (4,396) $(35,309)
======== ===== ======= ======== ========
Basic and diluted net loss
per common share......... $ (11.02) $ (9.45)
Shares used in computing
basic and diluted net
loss per common share.... 2,385 1,353(c) 3,738
</TABLE>
- ---------------
(a) To reflect the amortization of the goodwill and other intangible assets
acquired totaling $20,986,000 as if the acquisitions had occurred on January
1, 1999, over their expected useful lives of three years.
(b) To reflect accretion on the exchangeable Series H redeemable convertible
preferred stock as if such shares had been outstanding since January 1,
1999.
(c) The calculation of pro forma weighted-average number of shares outstanding
includes the weighted-average number of common shares outstanding of
Servicesoft for the year ended December 31, 1999, adjusted to give effect to
the issuance of 2,205,915 shares of Servicesoft's common stock in connection
with the Balisoft merger and the issuance of 1,124,010 shares of
Servicesoft's common stock in connection with the IBA acquisition, as if
such shares had been outstanding since January 1, 1999. The calculation does
not include the effect of common stock equivalents as their inclusion would
be anti-dilutive.
F-48
<PAGE> 116
The art work will consist of screen shots of our products. Descriptive captions
will be used for the screen shots. In addition, we plan to use the our
corporate logo which contains the word "Servicesoft."
<PAGE> 117
SERVICESOFT LOGO
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- -------
<S> <C>
SEC Registration Fee........................................ $19,800
NASD Filing Fee............................................. 8,000
Nasdaq National Market Listing Fee.......................... *
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing Expenses........................................... *
Blue Sky Qualification Fees and Expenses.................... *
Transfer Agent's Fee........................................ *
Miscellaneous............................................... *
-------
Total............................................. *
</TABLE>
- ------------
* To be completed by amendment.
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq National
Market fees, are in each case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the Delaware General Corporation Law,
Article VI of our Ninth Amended and Restated Certificate of Incorporation
provides that no director of Servicesoft be personally liable to Servicesoft or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (1) for any breach of the director's duty of
loyalty to Servicesoft or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) in respect of unlawful dividend payments or stock redemptions or
repurchases, or (4) for any transaction from which the director derived an
improper personal benefit. In addition, the Ninth Amended and Restated
Certificate of Incorporation provides that if the Delaware General Corporation
Law is amended to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Article VI of our By-laws, as amended, provides for indemnification by
Servicesoft of its officers and certain non-officer employees under certain
circumstances against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceeding in which
any such person is involved by reason of the fact that such person is or was an
officer or employee of the registrant if such person acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of Servicesoft, and, with respect to criminal actions or proceedings,
if such person had no reasonable cause to believe his or her conduct was
unlawful.
Under Section of the underwriting agreement to be filed as Exhibit 1.1
hereto, the underwriters have agreed to indemnify, under certain conditions,
Servicesoft, its directors, certain officers and persons who control Servicesoft
within the meaning of the Securities Act against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of capital stock issued by the Registrant during the past three years.
Further included is the consideration, if any, received by the Registrant for
such shares, and information relating to the section of the Securities Act or
rule of the
II-1
<PAGE> 119
Securities and Exchange Commission under which exemption from registration was
claimed. The numbers below reflect a one-to-five reverse stock split of the
Registrant's stock effected in March 1998 and a .53781-to-1 reverse stock split
of the Registrant's stock effected in February 1999.
(a) CERTAIN ISSUANCES AND SALES OF SECURITIES
1. From November 1996 to September 1997, the Registrant granted an
aggregate of 40,000 shares of Series F preferred stock to one holder
as compensation for services rendered.
2. In February 1998, the Registrant issued an aggregate of 4,667,969
shares of Series G preferred stock to 10 investors for $1.28 per share
or an aggregate purchase price of $5,975,000.
3. In February 1998, the Registrant issued an aggregate of 2,097,908
shares of Series F preferred stock in exchange for cancellation of
convertible promissory notes held by 10 investors with an aggregate
outstanding principal amount at that time of $1,573,430.78 plus
interest due.
4. In February 1999, in connection with the Registrant's merger with of
Balisoft Technologies Inc., the Registrant's wholly-owned subsidiary
Servicesoft Technologies (Canada) Inc. issued an aggregate of
1,714,603 shares of its exchangeable preferred stock and 2,205,915
shares of its exchangeable common stock to the former shareholders of
Balisoft Technologies Inc. and reserved 567,050 shares of exchangeable
preferred stock for issuance on the conversion of the Series A
preferred stock of Balisoft Technologies, Ltd. Exchangeable common
stock is exchangeable into shares of common stock of the Registrant,
and exchangeable preferred stock is exchangeable into shares of Series
H preferred stock of the Registrant.
5. In February 1999, the Registrant issued an aggregate of 5,323,420
shares of Series H preferred stock to the holders of Series F and
Series G preferred stock in connection with a recapitalization of the
Registrant.
6. In February 1999, in connection with its merger with Balisoft, the
Registrant issued one share of each of its Series X special preferred
voting stock and Series Y special preferred voting stock to a voting
trustee of the holders of exchangeable shares of Servicesoft
Technologies Canada.
8. In June 1999, the Registrant issued an aggregate of 3,945,686 shares
of its Series I preferred stock to 18 investors for $4.10 per share or
an aggregate purchase price of $16,177,312.
9. In August 1999, the Registrant issued an aggregate of 36,585 shares of
its Series I preferred stock to one investor for an aggregate purchase
price of $149,999.
10. In October 1999, the Registrant issued 833,502 shares of restricted
common stock to Chris M. Butler, its President and Chief Executive
Officer, for $1.00 per share, or an aggregate purchase price of
$833,502.
11. In November 1999, the Registrant issued an aggregate of 227,000 shares
of restricted common stock to three outside directors and its Chief
Financial Officer for $1.00 per share, or an aggregate purchase price
of $227,000.
12. In December 1999, the Registrant issued an aggregate of 1,124,010
shares of its common stock to former stock and note holders of
Internet Business Advantages, Inc. as consideration for the
acquisition of Internet Business Advantages.
13. In January 2000, the Registrant issued and sold an aggregate of
3,481,478 shares of Series J Preferred Stock to 37 investors for $9.03
per share, or an aggregate purchase price of $31,437,989.
(b) STOCK OPTION GRANTS
1. In February 1999, the Registrant assumed options of former option
holders of Balisoft purchase an aggregate of 453,977 shares of its
common stock at a per share exercise price of $.18.
2. In December 1999, the Registrant granted options to purchase an
aggregate of 398,587 shares of common stock at a per share exercise
price of $4.10 to former employees of Internet Business Advantages.
II-2
<PAGE> 120
3. In December 1999, the Registrant assumed options of former
optionholders of Internet Business Advantages to purchase an aggregate
of 53,760 shares of common stock at a per share exercise price of
$3.08.
4. Through January 31, 2000, the Registrant granted options to purchase
an aggregate of 3,304,116 shares of its common stock, net of
cancellations of 163,324 options, exercises of 157,968 options and the
options described in paragraphs (b)(1) and (b)(2) above, at a per
share weighted average exercise price of $1.24, to employees of the
Registrant.
GRANTS OF OTHER SECURITIES
1. From April 1994 to September 1996, the Registrant issued to J. Stuart
Lemle warrants to purchase an aggregate of 2,797 shares of the
Registrant's common stock at a weighted average per share purchase
price of $.60.
2. In February 1998, the Registrant issued to Intel Corporation a warrant
to purchase 117,188 shares of Series G preferred stock at a per share
purchase price of $2.56. Under the terms of the warrant, the warrant
became exerciseable for an aggregate of 63,025 shares of the
Registrant's Series H preferred stock, following the conversion of all
Series G preferred stock into Series H preferred stock in February
1999. This warrant expires upon the completion of this offering.
3. In February 1999, the Registrant assumed a warrant to purchase 5,000
shares of common stock of Balisoft. As a result of the merger of the
Registrant with Balisoft in February 1999, this warrant became
exercisable for 77,855 shares of the Registrant's common stock at a
per share exercise price of $9.87.
4. In December 1999, in connection with the acquisition of Internet
Business Advantages, the Registrant issued warrants to purchase an
aggregate of 17,985 shares of its common stock at per share purchase
prices of $4.10.
No underwriters were used in connection with these sales and issuances. The
sales and issuances of these securities were exempt from registration under the
Securities Act pursuant to Rule 701 promulgated thereunder on the basis that
these securities were offered and sold either pursuant to a written compensatory
benefit plan or pursuant to written contracts relating to compensation, as
provided by Rule 701, or pursuant to Section 4(2) of the Securities Act and the
rules and regulations thereunder on the basis that the transactions did not
involve a public offering. All of the foregoing securities are deemed restricted
securities for the purposes of the Securities Act.
II-3
<PAGE> 121
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Combination Agreement by and among Balisoft Technologies
Inc., ServiceSoft Corporation and Servicesoft Canada Inc.,
dated as of February 1, 1999.
2.2 Merger Agreement by and among the Registrant, Servicesoft
Acquisition Corp. and Internet Business Advantages, Inc.,
dated as of December 17, 1999.
3.1* Form of Tenth Restated Certificate of Incorporation of the
Registrant (to be effective upon the effectiveness of this
Registration Statement).
3.2* Form of Eleventh Restated Certificate of Incorporation of
the Registrant (to be effective upon completion of this
offering).
3.3 By-laws of the Registrant, as amended.
3.4 Form of Amended and Restated By-laws of the Registrant (to
be effective upon the effectiveness of this Registration
Statement).
4.1* Specimen certificate for shares of common stock, $.01 par
value, of the Registrant.
5.1* Opinion of McDermott, Will & Emery as to the validity of the
securities being offered.
9.1 Voting and Exchange Trust Agreement, dated as of February
12, 1999, by and among the Registrant, Servicesoft Canada
Inc. and CIBC Mellon Trust Company.
10.1 Second Amended and Restated Shareholders' Agreement, dated
January 13, 2000, between the Registrant and the
Shareholders named therein.
10.2 Seventh Amended and Restated Registration Rights Agreement,
dated January 13, 2000, between the Registrant and the
Shareholders named therein.
10.3 Amended and Restated 1994 Stock Option Plan of the
Registrant.
10.4 1999 Stock Option and Grant Plan of the Registrant, as
amended.
10.5* 2000 Employee Stock Purchase Plan.
10.6 Letter Agreement, dated October 11, 1999, by and between the
Registrant and Mark S. Skapinker.
10.7 Letter Agreement, dated August 9, 1999, by and between the
Registrant and Christopher M. Butler.
10.8 Stock Restriction Agreement, Promissory Note and Pledge
Agreement, dated October 25, 1999, by and between the
Registrant and Christopher M. Butler.
10.9 Letter Agreement, dated November 23, 1999, by and between
the Registrant and Daniel J. Kossmann.
10.10 Restricted Stock Agreement, Promissory Note and Pledge
Agreement, dated November 23, 1999, by and between the
Registrant and Daniel J. Kossmann.
10.11 Letter Agreement, dated June 9, 1999, by and between the
Registrant and Massood Zarrabian.
10.12 Letter Agreement, dated August 30, 1998, by and between the
Registrant and Jeffrey L. Whitney.
10.13 Letter Agreement, dated January 20, 1999, by and between the
Registrant and Paul R. Maguire.
10.14 Letter Agreement, dated July 16, 1999, by and between the
Registrant and David P. Tarrant.
10.15 Letter Agreement, dated November 30, 1999, by and between
the Registrant and Stephen M. Harrison.
10.16 Form of Restricted Stock Agreement of the Registrant.
10.17 Form of Incentive Stock Option Agreement under the 1999
Stock Option and Grant Plan of the Registrant, as amended.
10.18 Form of Non-Qualified Stock Option Agreement under the 1999
Stock Option and Grant Plan of the Registrant, as amended.
10.19 Lease Agreement dated April 9, 1999, by and between the
Registrant and Metropolitan Life Insurance Company, as
amended by First Amendment, dated October 8, 1999.
21.1* Schedule of Subsidiaries of the Registrant.
23.1* Consent of McDermott, Will & Emery (included in Exhibit 5.1
hereto).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of PricewaterhouseCoopers LLP.
</TABLE>
II-4
<PAGE> 122
<TABLE>
<S> <C>
24.1 Power of Attorney (included on page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment to this Registration Statement.
(b) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Consolidated Financial Statements or
Notes to those statements.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Natick, Commonwealth of
Massachusetts, on February 15, 2000.
SERVICESOFT TECHNOLOGIES, INC.
By: /s/ CHRISTOPHER M. BUTLER
------------------------------------
Christopher M. Butler
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints each of Christopher M. Butler and Daniel
J. Kossmann such person's true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or to any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that any said attorney-in-fact and agent, or any
substitute or substitutes of any of them, 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 below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CHRISTOPHER M. BUTLER President, Chief Executive February 15, 2000
- --------------------------------------------------- Officer and Director
Christopher M. Butler
(Principal Executive Officer)
/s/ DANIEL J. KOSSMANN Chief Financial Officer February 15, 2000
- ---------------------------------------------------
Daniel J. Kossmann
(Principal Financial Officer and Principal
Accounting Officer)
/s/ MARK S. SKAPINKER Chairman of the Board of February 15, 2000
- --------------------------------------------------- Directors
Mark S. Skapinker
/s/ ROBERT E. DAVOLI Director February 15, 2000
- ---------------------------------------------------
Robert E. Davoli
/s/ SOPHIE FOREST Director February 15, 2000
- ---------------------------------------------------
Sophie Forest
/s/ CHRISTOPHER H. GREENDALE Director February 15, 2000
- ---------------------------------------------------
Christopher H. Greendale
/s/ GARY RUBINOFF Director February 15, 2000
- ---------------------------------------------------
Gary Rubinoff
</TABLE>
II-6
<PAGE> 124
EXHIBIT INDEX
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Combination Agreement by and among Balisoft Technologies
Inc., ServiceSoft Corporation and Servicesoft Canada Inc.,
dated as of February 1, 1999.
2.2 Merger Agreement by and among the Registrant, Servicesoft
Acquisition Corp. and Internet Business Advantages, Inc.,
dated as of December 17, 1999.
3.1* Form of Tenth Restated Certificate of Incorporation of the
Registrant (to be effective upon the effectiveness of this
Registration Statement).
3.2* Form of Eleventh Restated Certificate of Incorporation of
the Registrant (to be effective upon completion of this
offering).
3.3 By-laws of the Registrant, as amended.
3.4 Form of Amended and Restated By-laws of the Registrant (to
be effective upon the effectiveness of this Registration
Statement).
4.1* Specimen certificate for shares of common stock, $.01 par
value, of the Registrant.
5.1* Opinion of McDermott, Will & Emery as to the validity of the
securities being offered.
9.1 Voting and Exchange Trust Agreement, dated as of February
12, 1999, by and among the Registrant, Servicesoft Canada
Inc. and CIBC Mellon Trust Company.
10.1 Second Amended and Restated Shareholders' Agreement, dated
January 13, 2000, between the Registrant and the
Shareholders named therein.
10.2 Seventh Amended and Restated Registration Rights Agreement,
dated January 13, 2000, between the Registrant and the
Shareholders named therein.
10.3 Amended and Restated 1994 Stock Option Plan of the
Registrant.
10.4 1999 Stock Option and Grant Plan of the Registrant, as
amended.
10.5* 2000 Employee Stock Purchase Plan.
10.6 Letter Agreement, dated October 11, 1999, by and between the
Registrant and Mark S. Skapinker.
10.7 Letter Agreement, dated August 9, 1999, by and between the
Registrant and Christopher M. Butler.
10.8 Stock Restriction Agreement, Promissory Note and Pledge
Agreement, dated October 25, 1999, by and between the
Registrant and Christopher M. Butler.
10.9 Letter Agreement, dated November 23, 1999, by and between
the Registrant and Daniel J. Kossmann.
10.10 Restricted Stock Agreement, Promissory Note and Pledge
Agreement, dated November 23, 1999, by and between the
Registrant and Daniel J. Kossmann.
10.11 Letter Agreement, dated June 9, 1999, by and between the
Registrant and Massood Zarrabian.
10.12 Letter Agreement, dated August 30, 1998, by and between the
Registrant and Jeffrey L. Whitney.
10.13 Letter Agreement, dated January 20, 1999, by and between the
Registrant and Paul R. Maguire.
10.14 Letter Agreement, dated July 16, 1999, by and between the
Registrant and David P. Tarrant.
10.15 Letter Agreement, dated November 30, 1999, by and between
the Registrant and Stephen M. Harrison.
10.16 Form of Restricted Stock Agreement of the Registrant.
10.17 Form of Incentive Stock Option Agreement under the 1999
Stock Option and Grant Plan of the Registrant, as amended.
10.18 Form of Non-Qualified Stock Option Agreement under the 1999
Stock Option and Grant Plan of the Registrant, as amended.
10.19 Lease Agreement dated April 9, 1999, by and between the
Registrant and Metropolitan Life Insurance Company, as
amended by First Amendment, dated October 8, 1999.
21.1* Schedule of Subsidiaries of the Registrant.
23.1* Consent of McDermott, Will & Emery (included in Exhibit 5.1
hereto).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment to this Registration Statement.
<PAGE> 1
EXHIBIT 2.1
COMBINATION AGREEMENT
BY AND AMONG
BALISOFT TECHNOLOGIES INC.,
SERVICESOFT CORPORATION
AND
SERVICESOFT CANADA INC.
DATED AS OF FEBRUARY 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
ARTICLE 1
DEFINITIONS AND PRINCIPLES OF INTERPRETATION...........................................................2
1.1 Definitions...................................................................................2
1.2 Certain Rules of Interpretation...............................................................6
1.3 Entire Agreement..............................................................................7
1.4 Exhibits and Schedules........................................................................7
ARTICLE 2
THE COMBINATION........................................................................................8
2.1 Balisoft Recapitalization.....................................................................8
2.2 ServiceSoft Recapitalization..................................................................8
2.3 The Amalgamation..............................................................................9
2.4 Closing Time..................................................................................9
2.5 Effect of the Amalgamation....................................................................9
2.6 Directors and Officers........................................................................9
2.7 Effect on Balisoft Shares.....................................................................9
2.8 Dissenting Shares.............................................................................12
2.9 ServiceSoft Special Voting Share..............................................................12
2.10 Support Agreement between ServiceSoft and Amalco..............................................13
2.11 Voting and Exchange Trust Agreement...........................................................13
2.12 ServiceSoft Shareholders Agreement............................................................13
2.13 Appointment of Directors to ServiceSoft Board of Directors....................................13
2.14 Registration Rights...........................................................................13
2.15 Surrender of Certificates.....................................................................14
2.16 No Further Ownership Rights in Balisoft Common Shares or Balisoft Preferred
Shares........................................................................................15
2.17 Lost, Stolen or Destroyed Certificates........................................................15
2.18 Taking of Necessary Action: Further Action...................................................15
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BALISOFT.............................................................16
3.1 Organization, Standing and Power..............................................................16
3.2 Capital Structure of Balisoft and the Balisoft Subsidiaries...................................16
3.3 Authority, Conflicts, Consents................................................................18
3.4 Balisoft Financial Statements.................................................................19
3.5 Absence of Undisclosed Liabilities............................................................19
3.6 Absence of Certain Changes....................................................................19
3.7 Tax Matters...................................................................................20
3.8 Title to Properties; Absence of Liens and Encumbrances; Condition of
Equipment.....................................................................................22
3.9 Intellectual Property.........................................................................22
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
3.10 Material Contracts............................................................................24
3.11 Interested Party Transactions.................................................................24
3.12 Litigation....................................................................................25
3.13 Environmental and Safety Laws.................................................................25
3.14 Brokers' and Finders' Fees....................................................................25
3.15 Employee Benefit Plans and Compensation.......................................................25
3.16 Insurance.....................................................................................27
3.17 Compliance with Laws..........................................................................27
3.18 Complete Copies of Materials..................................................................27
3.19 Representations Complete......................................................................27
3.20 Disclosure Schedule...........................................................................27
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SERVICESOFT
AND SERVICESOFT CANADA.................................................................................28
4.1 Organization, Standing and Power..............................................................28
4.2 Capital Structure of ServiceSoft and the ServiceSoft Subsidiaries.............................28
4.3 Authority, Conflicts, Consents................................................................29
4.4 ServiceSoft Financial Statements..............................................................30
4.5 Absence of Undisclosed Liabilities............................................................31
4.6 Absence of Certain Changes....................................................................31
4.7 Tax Matters...................................................................................31
4.8 Title to Properties; Absence of Liens and Encumbrances; Condition of
Equipment.....................................................................................33
4.9 Intellectual Property.........................................................................34
4.10 Material Contracts............................................................................36
4.11 Interested Party Transaction..................................................................36
4.12 Litigation....................................................................................37
4.13 Environmental and Safety Laws.................................................................37
4.14 Brokers' and Finders' Fees....................................................................37
4.15 Employee Benefit Plans and Compensation.......................................................40
4.16 Insurance.....................................................................................41
4.17 Compliance with Laws..........................................................................41
4.18 Complete Copies of Materials..................................................................41
4.19 Representations Complete......................................................................41
4.20 Disclosure Schedule...........................................................................41
ARTICLE 5
CONDUCT PRIOR TO THE EFFECTIVE TIME....................................................................41
5.1 Conduct of Business of Balisoft...............................................................41
5.2 Conduct of Business of ServiceSoft............................................................44
5.3 No Solicitation...............................................................................46
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 6
ADDITIONAL AGREEMENTS..................................................................................48
6.1 Access to Information.........................................................................48
6.2 Confidentiality...............................................................................48
6.3 Expenses......................................................................................49
6.4 Public Disclosure.............................................................................49
6.5 Consents......................................................................................49
6.6 Legal Requirements............................................................................49
6.7 Notification of Certain Matters...............................................................49
6.8 Employee Benefit Arrangement..................................................................49
6.9 Further Assurances............................................................................50
ARTICLE 7
CONDITIONS TO THE AMALGAMATION.........................................................................50
7.1 Conditions to Obligations of Each Party to Effect the Amalgamation............................50
7.2 Additional Conditions to Obligations of Balisoft..............................................51
7.3 Additional Conditions to the Obligations of ServiceSoft.......................................52
ARTICLE 8
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW.....................................................53
8.1 Survival of Representations and Warranties....................................................53
8.2 Escrow Arrangements...........................................................................54
ARTICLE 9
CERTAIN RIGHTS OF SERVICESOFT TO ACQUIRE
EXCHANGEABLE SHARES....................................................................................68
9.1 ServiceSoft Liquidation Call Right............................................................68
9.2 ServiceSoft Redemption Call Right.............................................................70
9.3 Withholding Rights............................................................................72
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER......................................................................72
10.1 Termination...................................................................................72
10.2 Effect of Termination.........................................................................73
10.3 Amendment.....................................................................................73
10.4 Extension, Waiver.............................................................................74
ARTICLE 11
GENERAL PROVISIONS.....................................................................................74
11.1 Notices.......................................................................................74
11.2 Severability..................................................................................75
11.3 Other Remedies................................................................................76
11.4 Governing Law; Consent to Jurisdiction........................................................76
11.5 Rules of Construction.........................................................................76
11.6 Counterparts..................................................................................77
</TABLE>
<PAGE> 5
COMBINATION AGREEMENT
This COMBINATION AGREEMENT (the "AGREEMENT") is made and entered into as of
February 1, 1999 by and among (i) Balisoft Technologies Inc., a corporation
incorporated under the laws of Ontario ("BALISOFT") (ii) ServiceSoft
Corporation, a corporation incorporated under the laws of Delaware (the
"SERVICESOFT"), and (iii) ServiceSoft Canada, Inc., a corporation incorporated
under the laws of Ontario ("SERVICESOFT CANADA").
RECITALS
A. The Boards of Directors of each of Balisoft, ServiceSoft and ServiceSoft
Canada believe it is in the best interests of each company and their respective
shareholders that Balisoft and ServiceSoft combine their business operations
through the amalgamation of ServiceSoft Canada and Balisoft (the "AMALGAMATION";
the corporation continuing from such Amalgamation shall be referred to herein as
"AMALCO") and, in furtherance thereof, have approved the Amalgamation.
B. Pursuant to the Amalgamation, among other things, (i) all of the issued and
outstanding common shares of Balisoft ("BALISOFT COMMON SHARES ") shall be
exchanged for Class A Shares of Amalco ("CLASS A SHARES"), which Class A Shares
will immediately thereafter be changed into exchangeable non-voting shares of
Amalco ("EXCHANGEABLE COMMON SHARES") pursuant to articles of amendment to be
filed by Amalco (the "ARTICLES OF AMENDMENT") and that each Exchangeable Common
Share shall thereafter be exchangeable in accordance with its terms and the
terms and conditions set forth in a Voting and Exchange Trust Agreement (as
defined in Section 2.11 herein) to be entered into pursuant hereto, for one
common share of ServiceSoft (a "SERVICESOFT COMMON SHARE"); (ii) all of the
issued and outstanding preferred shares of Balisoft and all other securities of
Balisoft or its affiliates representing rights to acquire preferred shares of
Balisoft (collectively, "BALISOFT PREFERRED SHARES") shall be exchanged for
Class B Shares of Amalco ("CLASS B SHARES") (or rights to acquire Class B
Shares), which Class B Shares will immediately thereafter be changed into
exchangeable non-voting shares of Amalco ("EXCHANGEABLE PREFERRED SHARES") (or
rights to acquire Exchangeable Preferred Shares) pursuant to the Articles of
Amendment and that each Exchangeable Preferred Share shall thereafter be
exchangeable in accordance with its terms and the terms and conditions set forth
in the Voting and Exchange Trust Agreement for one Series H Preferred Share of
ServiceSoft ("SERIES H PREFERRED SHARE") and (iii) all of the options issued by
Balisoft to its employees ("BALISOFT EMPLOYEE OPTIONS") to acquire Balisoft
Common Shares shall be replaced by options of equivalent value to acquire
ServiceSoft Common Shares; and (iv) to the extent that Balisoft has other
outstanding securities at the Closing Time (as defined below) representing
rights to acquire Balisoft Common Shares or other Balisoft voting securities
("BALISOFT OTHER SECURITIES"), all such rights under such Balisoft Other
Securities shall become rights to acquire Class A Shares or Class B Shares (as
applicable) and, subsequently, Exchangeable Common Shares or Exchangeable
Preferred Shares (collectively, "EXCHANGEABLE SHARES"), in each case in
accordance with the terms and subject to the conditions set forth in this
Agreement.
<PAGE> 6
-2-
C. A portion of the Exchangeable Shares otherwise deliverable by Amalco to the
holders of Balisoft Common Shares, Balisoft Preferred Shares and Balisoft Other
Securities (collectively "BALISOFT SHARES") in connection with the transactions
contemplated hereunder shall be placed in escrow, the release of which shall be
contingent upon certain events and conditions.
D. In accordance with the terms of this Agreement, ServiceSoft will create a
pool of ServiceSoft Common Shares and ServiceSoft Series H Preferred Shares
(collectively "SERVICESOFT SHARES") beneficially owned by all current
shareholders of ServiceSoft to be placed in escrow, the release of which shall
be contingent upon certain events and conditions.
E. Balisoft, ServiceSoft and ServiceSoft Canada desire to make certain
representations and warranties and other agreements in connection with the
Amalgamation.
NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and valuable
consideration, the parties to this Agreement hereby agree as follows:
ARTICLE 1
DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1.1 DEFINITIONS - Whenever used in this Agreement, the following words and
terms shall have the meanings set out below:
"ACCELERATION TRANSACTION" has the meaning as defined in Section 8.2(i);
"AGREEMENT" means this combination agreement, including the Exhibits and
Schedules, and all instruments supplementing or amending or confirming this
Agreement "ARTICLE" or "SECTION" means and refers to the specified article or
section of this Agreement;
"AMALGAMATION AGREEMENT" has the meaning as defined in Section 2.4;
"ARTICLES OF AMALGAMATION" has the meaning as defined in Section 2.4;
"BALISOFT ADJUSTMENT NUMBER" has the meaning as defined in Section 8.2(h);
"BALISOFT AGENT" has the meaning as defined in Section 8.2(k);
"BALISOFT BALANCE SHEET" has the meaning as defined in Section 3.5;
"BALISOFT COMMON NUMBER" means the total number of 149,601 outstanding Balisoft
Common Shares following completion of the Balisoft Reorganization;
<PAGE> 7
-3-
"BALISOFT COMMON RATIO" means the portion of Balisoft's total outstanding
securities represented by Balisoft Common Shares, Balisoft Other Securities and
Balisoft Employee Options and is equal to 0.575, representing the quotient
obtained when the Balisoft Pre Total Common is divided by the Balisoft Pre Fully
Diluted Common;
"BALISOFT DISCLOSURE SCHEDULE" has the meaning as defined in Article 3;
"BALISOFT EMPLOYEE OPTIONS NUMBER" means the total number of 41,805 Balisoft
Common Shares which may be issued upon exercise of outstanding Balisoft Employee
Options following completion of the Balisoft Reorganization;
"BALISOFT ESCROW AMOUNT" means 465,877 Exchangeable Common Shares and 456,319
Exchangeable Preferred Shares (collectively representing 20% of the Balisoft
Post Fully Diluted Common);
"BALISOFT ESCROW FUND" has the meaning as defined in Section 8.2(a);
"BALISOFT EXCHANGE RATIO" means 15.571, subject to adjustment in accordance with
Article 8;
"BALISOFT FINANCIAL STATEMENTS" has the meaning as defined in Section 3.4;
"BALISOFT ISRAEL" has the meaning as defined in Section 3.1;
"BALISOFT OTHER SECURITIES NUMBER" means the total number of 6,898 Balisoft
Common Shares which may be issued upon conversion, exchange or exercise of all
outstanding Balisoft Other Securities following completion of the Balisoft
Recapitalization;
"BALISOFT POST TOTAL COMMON" means the total number of Exchangeable Common
Shares provided to holders of Balisoft Common Shares, Balisoft Other Securities
and Balisoft Employee Options upon the Amalgamation and the filing of Articles
of Amendment and is equal to the product of the Balisoft Common Ratio multiplied
by the Balisoft Post Fully Diluted Common;
"BALISOFT POST TOTAL PREFERRED" means the total number of Exchangeable Preferred
Shares provided to holders of Balisoft Preferred Shares upon the Amalgamation
and the filing of Articles of Amendment and is equal to the product of the
Balisoft Preferred Ratio multiplied by the Balisoft Post Fully Diluted Common;
"BALISOFT PREFERRED NUMBER" means the total number of 146,532 outstanding
Balisoft Preferred Shares following completion of the Balisoft Recapitalization;
"BALISOFT PREFERRED RATIO" means the portion of Balisoft's total outstanding
securities represented by Balisoft Preferred Shares and is equal to 0.425,
representing the quotient obtained when the Balisoft Preferred Number is divided
by the Balisoft Pre Fully Diluted Common;
<PAGE> 8
-4-
"BALISOFT POST FULLY DILUTED COMMON" means the aggregate number of ServiceSoft
Common Shares issuable in respect of all Exchangeable Common Shares,
Exchangeable Preferred Shares and all other securities convertible or
exchangeable for ServiceSoft Common Shares provided to holders of all Balisoft
securities upon the Amalgamation and the filing of Articles of Amendment and is
equal to the product obtained when the Balisoft Pre Fully Diluted Common is
multiplied by the Balisoft Exchange Ratio;
"BALISOFT PRE FULLY DILUTED COMMON" means 344,836, representing the sum of the
Balisoft Pre Total Common plus the Balisoft Preferred Number;
"BALISOFT PRE TOTAL COMMON" means 198,304, representing the sum of the Balisoft
Common Number plus the Balisoft Other Securities Number plus the Balisoft
Employee Options Number;
"BALISOFT RECAPITALIZATION" means the reorganization of the capital structure of
Balisoft to be completed prior to Closing in accordance with Section 2.1;
"BALISOFT SUBSIDIARIES" has the meaning set out in Section 3.1;
"BALISOFT VALUE" means $10,738,636, subject to adjustment in accordance with
Section 8.2;
"BUSINESS DAY" means a day, other than a Saturday or Sunday, on which the
principal commercial banks located in Toronto and Boston are open for business
during normal banking hours;
"CERTIFICATES" has the meaning as defined in Section 2.15(c);
"CLOSING DATE" has the meaning as defined in Section 2.4;
"CLOSING TIME" has the meaning as defined in Section 2.4;
"CONFIRMATION CERTIFICATE" has the meaning as defined in Section 8.2(e);
"CONFIRMED LOSSES" has the meaning as defined in Section 8.2(h);
"DISSENTING SHARES" has the meaning as defined in Section 2.8;
"ESCROW ACCELERATION NOTICE" has the meaning as defined in Section 8.2(i);
"ESCROW AGENT" has the meaning as defined in Section 8.2(a);
"ESCROW CLAIM CERTIFICATE" has the meaning as defined in Section 8.2(e);
"ESCROW RELEASE DATE" has the meaning as defined in Section 8.2(i);
<PAGE> 9
-5-
"EXCHANGE AGENT" has the meaning as defined in Section 2.15;
"FINAL BALISOFT ADJUSTMENT" has the meaning as defined in Section 8.2(h);
"FINAL SERVICESOFT ADJUSTMENT" has the meaning as defined in Section 8.2(h);
"KNOWLEDGE" of a party means (a) in the case of Balisoft, the actual knowledge
of Mark Skapinker, Chief Executive Officer of Balisoft, or any member of the
Balisoft board of directors, and (b) in the case of ServiceSoft, the actual
knowledge of David Tarrant, President of ServiceSoft, or any member of the
ServiceSoft board of directors.
"LOSSES" has the meaning as defined in Section 8.2(c);
"OBJECTION NOTICE" has the meaning ascribed to it in Section 8.2(e);
"REGISTRATION RIGHTS AGREEMENT" has the meaning as defined in Section 2.14;
"SERVICESOFT ADJUSTMENT NUMBER" has the meaning as defined in Section 8.2(h);
"SERVICESOFT AGENT" has the meaning as defined in Section 8.2(l);
"SERVICESOFT BALANCE SHEET" has the meaning as defined in Section 4.5;
"SERVICESOFT COMMON NUMBER" means the total number of 34,742 issued and
outstanding ServiceSoft Common Shares following completion of the ServiceSoft
Recapitalization but prior to the Amalgamation;
"SERVICESOFT DISCLOSURE SCHEDULE" has the meaning as defined in Article 4;
"SERVICESOFT EMPLOYEE OPTIONS NUMBER" means the total number of 1,225,150
ServiceSoft Common Shares which may be issued upon exercise of all outstanding
ServiceSoft Employee Options following completion of the ServiceSoft
Recapitalization but prior to the Amalgamation;
"SERVICESOFT ESCROW AMOUNT" means 1,060,522 ServiceSoft Series H Preferred
Shares representing, 20% of the total number of ServiceSoft Series H Preferred
Shares following completion of all steps in the ServiceSoft Recapitalization and
prior to the Closing Time;
"SERVICESOFT ESCROW FUND" has the meaning as defined in Section 8.2(b);
"SERVICESOFT FINANCIAL STATEMENTS" has the meaning as defined in Section 4.4;
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"SERVICESOFT FULLY DILUTED COMMON" means 6,562,500, representing the sum of the
ServiceSoft Common Number plus the ServiceSoft Preferred Number plus the
ServiceSoft Employee Options Number;
"SERVICESOFT PREFERRED NUMBER" means the total number of 5,302,608 outstanding
Series H Preferred Shares of ServiceSoft following completion of the ServiceSoft
Recapitalization but prior to the Amalgamation;
"SERVICESOFT RECAPITALIZATION" means the reorganization of ServiceSoft's capital
structure to be completed prior to Closing in accordance with Section 2.2;
"SERVICESOFT SHAREHOLDERS AGREEMENT" has the meaning as defined in Section 2.12;
"SERVICESOFT VALUE" means $13,125,000, subject to adjustment in accordance with
Section 8.2;
"SPECIAL COMMON VOTING SHARE" has the meaning as defined in Section 2.9;
"SPECIAL PREFERRED VOTING SHARE" has the meaning as defined in Section 2.9;
"TAX" and "TAXES" have the meanings as defined in Section 3.7(a);
"TOTAL BALISOFT CLAIM" has the meaning as defined in Section 8.2(h);
"TOTAL SERVICESOFT CLAIM" has the meaning as defined in Section 8.2(h); and
"VOTING AND EXCHANGE TRUST AGREEMENT" has the meaning as defined in
Section 2.11.
1.2 CERTAIN RULES OF INTERPRETATION - In this Agreement:
(a) TIME - time is of the essence in the performance of the parties'
respective obligations;
(b) CURRENCY - unless otherwise specified, all references to money amounts
are to United States dollars;
(c) HEADINGS - the descriptive headings of Articles and Sections are
inserted solely for convenience of reference and are not intended as
complete or accurate descriptions of content;
(d) SINGULAR, ETC. - the use of words in the singular or plural, or with a
particular gender, shall not limit the scope or exclude the
application of any provision of this Agreement to such person or
persons or circumstances as the context otherwise permits;
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(e) CONSENTS - whenever a provision of this Agreement requires an approval
or consent by a party to this Agreement and notification of such
approval or consent is not delivered within the applicable time
limited, then, unless otherwise specified, the party whose consent or
approval is required shall be conclusively deemed to have withheld its
consent or approval;
(f) CALCULATION OF TIME - unless otherwise specified, time periods within
or following which any payment is to be made or act is to be done
shall be calculated by excluding the day on which the period commences
and including the day which ends the period and by extending the
period to the next Business Day following if the last day of the
period is not a Business Day; and
(g) BUSINESS DAY - whenever any payment is to be made or action to be
taken under this Agreement is required to be made or taken on a day
other than a Business Day, such payment shall be made or action taken
on the next Business Day following.
1.3 ENTIRE AGREEMENT - This Agreement (including the Schedules and Exhibits
hereto) together with the agreements and other documents to be delivered
pursuant to this Agreement, constitutes the entire agreement between the parties
pertaining to the subject matter of this Agreement and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties including, without limitation, the Letter of Intent
dated December 17, 1998, and there are no warranties, representations or other
agreements between any of them in connection with the subject matter of this
Agreement except as specifically set forth in this Agreement and any document
delivered pursuant to this Agreement. No supplement, modification or waiver or
termination of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions (whether or
not similar) nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
1.4 EXHIBITS AND SCHEDULES - The exhibits and schedules to this Agreement, as
listed below, are an integral part of this Agreement:
Balisoft Disclosure Schedule
ServiceSoft Disclosure Schedule
Exhibit A - Form of Amalgamation Agreement
Exhibit B - Form of Articles of Amalgamation
Exhibit C - Provisions for the Special Voting Share
Exhibit D - Form of Support Agreement
Exhibit E - Form of Voting and Exchange Trust Agreement
Exhibit F - Form of ServiceSoft Shareholders Agreement
Exhibit G - Form of Registration Rights Agreement
Exhibit H - Form of Skapinker Employment Agreement
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Exhibit I - Form of Tarrant Employment Agreement Amendment
Exhibit J - Terms of ServiceSoft Series H Preferred Shares
ARTICLE 2
THE COMBINATION
2.1 BALISOFT RECAPITALIZATION - Prior to the Closing, Balisoft shall complete
the Balisoft Recapitalization consisting of:
(a) the exercise of all outstanding Special Warrants for 110,115 Balisoft
Preferred Shares; and
(b) in the discretion of their holders, the exchange of all Gemini Shares
for 36,417 Balisoft Preferred Shares.
2.2 SERVICESOFT RECAPITALIZATION - Prior to the Closing, ServiceSoft shall
complete a reorganization of its capital structure consisting of:
(a) the creation of the ServiceSoft Series H Preferred Shares having the
terms set out in EXHIBIT J;
(b) a consolidation of and amendment to ServiceSoft's capital changing:
(i) each outstanding ServiceSoft Common Share and ServiceSoft
Employee Option into 0.53781 ServiceSoft Common Shares and ServiceSoft
Employee Options, as applicable; and
(ii) changing each outstanding ServiceSoft Series F Preferred Share
into 0.43025 ServiceSoft Series H Preferred Shares resulting in an
aggregate of 2,250,489 ServiceSoft Series H Preferred Shares; and
(iii) changing each outstanding ServiceSoft Series G Preferred Share
into 0.43025 ServiceSoft Series H Preferred Shares resulting in an
aggregate of 1,991,587 ServiceSoft Series H Preferred Shares; and
(c) following the consolidation of ServiceSoft's capital specified in
paragraph (b) above, and prior to Closing, ServiceSoft shall declare a
stock dividend on the ServiceSoft Series H Preferred Shares equal to
an aggregate of 1,060,522 ServiceSoft Series H Preferred Shares
representing 20% of the total number of ServiceSoft Series H Preferred
Shares outstanding following the issuance thereof, all of which
ServiceSoft Series H Preferred Shares shall be delivered to the Escrow
Agent at the Closing in accordance with subsection 2.7(d)(ii).
Following distribution of this stock dividend,
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the total issued and outstanding ServiceSoft Shares shall consist of
34,741 ServiceSoft Common Shares and 5,302,598 ServiceSoft Series H
Preferred Shares.
2.3 THE AMALGAMATION - At the Closing Time (as defined in Section 2.4 below)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Business Corporations Act (Ontario) (the "Act")
Balisoft and ServiceSoft Canada shall be amalgamated in order to create Amalco.
2.4 CLOSING TIME - Unless this Agreement is earlier terminated pursuant to
Section 10.1, the closing of the Amalgamation (the "Closing") will take place as
promptly as practicable, but (except as may otherwise be agreed by Balisoft and
ServiceSoft) no later than 3 Business Days following the later of (a)
satisfaction or waiver of the conditions set forth in Article 7, and (b) 10
Business Days following the date of this Agreement at the offices of Osler,
Hoskin & Harcourt, Suite 6600, P.O. Box 50, 1 First Canadian Place, Toronto,
Ontario M5X I B8, unless another place or time is expressly agreed to in writing
by Balisoft and ServiceSoft. The date upon which the Closing actually occurs is
herein referred to as the "CLOSING DATE". On the Closing Date, the parties
hereto shall cause the Amalgamation to be consummated by (i) executing and
delivering an agreement (the "AMALGAMATION AGREEMENT") substantially in the form
attached hereto as EXHIBIT A, duly completed in accordance with this Agreement,
and (ii) filing Articles of Amalgamation with the Director under the Act in the
form attached as EXHIBIT B hereto (the "ARTICLES OF AMALGAMATION"), in
accordance with the relevant provisions of the Act (the time that such Articles
of Amalgamation become effective under the Act being referred to herein as the
"CLOSING TIME").
2.5 EFFECT OF THE AMALGAMATION - At the Closing Time, the effect of the
Amalgamation shall be as provided under Section 179 of the Act. Without limiting
the generality of the foregoing, and subject thereto, at the Closing Time, the
separate corporate existence of each of Balisoft and ServiceSoft Canada shall
cease, all the property, rights, privileges, powers and franchises of Balisoft
and ServiceSoft Canada shall vest in Amalco, and all debts, liabilities,
obligations and duties of ServiceSoft Canada and Balisoft shall become the
debts, liabilities, obligations and duties of Amalco. The name of Amalco shall
be "ServiceSoft Canada Inc."
2.6 DIRECTORS AND OFFICERS - The directors of Amalco immediately after the
Closing Time shall be the individuals identified as directors of Amalco in the
Amalgamation Agreement.
2.7 EFFECT ON BALISOFT SHARES - Subject to the terms and conditions of this
Agreement, as of the Closing Time, by virtue of the Amalgamation and without any
action on the part of Balisoft and ServiceSoft Canada or the holder of any
Balisoft shares, and immediately thereafter, upon the filing of the Articles of
Amendment by Amalco, in each case as more fully described below, the following
shall occur:
(a) EXCHANGE OF BALISOFT COMMON SHARES FOR CLASS A SHARES - Upon the
Amalgamation each Balisoft Common Share issued and outstanding
following the Balisoft Recapitalization and immediately prior to the
Closing Time (other than any
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Dissenting Shares (as defined in and to the extent provided in Section
2.8)) will automatically be exchanged for that number of Class A
Shares equal to the Balisoft Exchange Ratio.
(b) EXCHANGE OF BALISOFT PREFERRED SHARES FOR CLASS B SHARES - Upon the
Amalgamation each Balisoft Preferred Share issued and outstanding
following the Balisoft Recapitalization and immediately prior to the
Closing Time (other than any Dissenting Shares) will automatically be
exchanged for that number of Class B Shares equal to the Balisoft
Exchange Ratio (and, for greater certainty, this exchange shall
automatically result in all securities representing rights to acquire
Balisoft Preferred Shares becoming rights to acquire that number of
Class B Shares equal to the number of Balisoft Preferred Shares which
could previously be acquired thereunder multiplied by the Balisoft
Exchange Ratio).
(c) CHANGE OF CLASS A SHARES AND CLASS B SHARES INTO EXCHANGEABLE SHARES -
Immediately following the Amalgamation and the exchange of Balisoft
Common Shares for Class A Shares pursuant to paragraph (a) above and
the exchange of Balisoft Preferred Shares for Class B Shares pursuant
to paragraph (b) above, Amalco shall file the Articles of Amendment
and, pursuant thereto, each Class A Share issued upon the Amalgamation
shall immediately be changed into one Exchangeable Common Share and
each Class B Share issued upon the Amalgamation shall immediately be
changed into one Exchangeable Preferred Share (and, for greater
certainty, all securities representing rights to acquire Class B
Shares shall automatically become rights to acquire Exchangeable
Preferred Shares), in each case, without any further action on the
part of any holders thereof.
(d) DELIVERY OF EXCHANGEABLE SHARES: ESCROW -
(i) Upon the issuance of the Exchangeable Shares in accordance with
paragraph (c) above, that number of Exchangeable Shares (which may
include Gemini Shares having rights to acquire Exchangeable Shares)
equal to the Balisoft Escrow Amount shall be placed in escrow in the
Balisoft Escrow Fund in accordance with subsection 8.2(a), and all
other Exchangeable Shares issued in accordance with paragraph (c)
above shall be distributed to the registered holders thereof (being
the registered holders of the Balisoft Common Shares exchanged for
Class A Shares upon the Amalgamation which were changed into the
Exchangeable Common Shares upon the filing of the Articles of
Amendment and the registered holders of the Balisoft Preferred Shares
exchanged for Class B Shares upon the Amalgamation which were changed
into the Exchangeable Preferred Shares upon the filing of the Articles
of Amendment).
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(ii) Upon the Closing, all of the ServiceSoft Common Shares and
ServiceSoft Series H Preferred Shares distributed pursuant to the
stock dividend declared by ServiceSoft in accordance with subsection
2.2(d) shall be placed in escrow in the ServiceSoft Escrow Fund in
accordance with subsection 8.2(b).
(iii) Promptly following the Closing, certificates representing all
Exchangeable Shares comprising the Balisoft Escrow Fund and all
ServiceSoft Shares comprising the ServiceSoft Escrow Fund shall be
delivered to the Escrow Agent and certificates representing all
Exchangeable Shares which are not required to be held in escrow in
accordance with this Agreement shall be delivered to the registered
holders thereof in accordance with Section 2.15.
(e) BALISOFT OTHER SECURITIES - At the Closing Time, all Balisoft Other
Securities shall continue to have, and be subject to, the same terms
and conditions of such Balisoft Other Securities immediately prior to
the Closing Time, except that (A) each Balisoft Other Security shall
be exercisable for that whole number of Class A Shares equal to the
product of the number of Balisoft Common Shares that were issuable
upon exercise of such Balisoft Other Security immediately prior to the
Closing Time multiplied by the Balisoft Exchange Ratio, rounded up to
the nearest whole number of Class A Shares held by any particular
holder, (B) the per share exercise price for Class A Shares issuable
upon exercise of such Balisoft Other Security shall be equal to the
quotient determined by dividing the exercise price per Balisoft Common
Share at which such Balisoft Other Security was exercisable
immediately prior to the Closing Time by the Balisoft Exchange Ratio,
rounded down to the nearest whole cent. Immediately following the
Closing Time and upon the filing of the Articles of Amendment, the
right to receive Class A Shares upon exercise of such Balisoft Other
Securities shall become a right to receive the same number of
Exchangeable Common Shares, and Amalco will issue to each holder of
outstanding Balisoft Other Securities a document evidencing the
foregoing changes to such Balisoft Other Securities.
(f) BALISOFT EMPLOYEE OPTIONS - At the Closing Time, all outstanding
Balisoft Employee Options shall become that number of ServiceSoft
Employee Options equal to the product of the number of Balisoft Common
Shares that were issuable upon exercise of such Balisoft Employee
Options immediately prior to the Closing Time multiplied by the
Balisoft Exchange Ratio, rounded down to the nearest whole number, and
each such ServiceSoft Employee Option shall have an exercise price
equal to the Quotient determined by dividing the exercise price per
Balisoft Common Share at which such Balisoft Employee Options were
exercisable immediately prior to the Closing Time by the Balisoft
Exchange Ratio, rounded up to the nearest whole cent. Promptly
following the Closing, ServiceSoft will issue to each current holder
of Balisoft Employee Options a new document evidencing the replacement
of their
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Balisoft Employee Options with ServiceSoft Employee Options in
accordance with this subparagraph 2.7(f).
(g) FRACTIONAL SHARES - No fraction of a Class A Share or Class B Share
shall be issued, but in lieu thereof, the number of Class A Shares or
Class B Shares issuable to any holder of Balisoft Common Shares shall
be rounded up to the nearest whole number, after aggregating all
fractional Class A Shares or Class B Shares to be received by such
holder.
2.8 DISSENTING SHARES -
(a) Notwithstanding any provision of this Agreement to the contrary, any
Balisoft Common Shares or Balisoft Preferred Shares held by a holder
who has exercised dissent rights for such shares in accordance with
Section 185 of the Act and who, as of the Closing Time, has not
effectively withdrawn or lost such dissent rights ("DISSENTING
SHARES"), shall not be exchanged for Class A Shares or Class B Shares
pursuant to Section 2.7, but the holder thereof shall only be entitled
to such rights as are granted by Section 185 of the Act.
(b) Notwithstanding the provisions of subsection (a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) his or her dissent rights, then, as of the
later of the Closing Time and the occurrence of such event, such
holder's shares shall automatically be converted into and represent
only the right to receive Class A Shares as provided in subsection
2.7(a) or Class B Shares as provided in subsection 2.7(b) (and, upon
the filing of Articles of Amendment under subsection 2.7(c),
Exchangeable Common Shares or Exchangeable Preferred Shares, as
applicable), without interest thereon, upon surrender of the
certificate representing such shares, subject to the conditions set
forth below and throughout this Agreement, including without
limitation the escrow provisions set forth in Section 8.2.
2.9 SERVICESOFT SPECIAL VOTING SHARE -
(a) Prior to the Closing Time, ServiceSoft shall amend its Certificate of
Incorporation to create the ServiceSoft Series X Special Preferred
Share (the "SPECIAL COMMON VOTING SHARE") and the ServiceSoft Series Y
Special Preferred Shares (the "SPECIAL PREFERRED VOTING SHARE"), each
having the terms and conditions set out in EXHIBIT C.
(b) Immediately following the Amalgamation and contemporaneously with the
filing of the Articles of Amendment in accordance with subsection
2.7(c), ServiceSoft shall issue one Special Common Voting Share and
one Special Preferred Voting Share to an independent trust company in
Toronto as trustee (the "TRUSTEE") to be held by it
<PAGE> 17
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in trust for the benefit of the holders from time to time of
Exchangeable Common Shares and Exchangeable Preferred Shares,
respectively (in each case other than ServiceSoft) in accordance with
the provisions of the Voting and Exchange Trust Agreement (as defined
in Section 2.11 hereof).
2.10 SUPPORT AGREEMENT BETWEEN SERVICESOFT AND AMALCO - Immediately following
the Amalgamation, ServiceSoft and Amalco shall enter into a Support Agreement
substantially in the form attached hereto as EXHIBIT D (the "SUPPORT
AGREEMENT"), pursuant to which ServiceSoft shall agree, among other things and
subject to certain conditions, to issue one ServiceSoft Common Share in exchange
for each Exchangeable Common Share and to issue one ServiceSoft Series H
Preferred Share in exchange for each Exchangeable Preferred Share. For so long
as any Exchangeable Shares remain outstanding, the parties agree to comply with
all of the terms of the Support Agreement and not to amend the Support Agreement
without the written consent of the Balisoft Agent (as defined in Section 8.2).
2.11 VOTING AND EXCHANGE TRUST AGREEMENT - Immediately following the
Amalgamation, ServiceSoft, Amalco and the Trustee shall enter into a Voting and
Exchange Trust Agreement substantially in the form attached hereto as Exhibit E
(the "VOTING AND EXCHANGE TRUST AGREEMENT"), providing for the exercise of
voting rights in ServiceSoft by holders of Exchangeable Shares and certain other
matters.
2.12 SERVICESOFT SHAREHOLDERS AGREEMENT - Immediately following the
Amalgamation, ServiceSoft shall, and shall use its best efforts to cause all
ServiceSoft major shareholders and all major holders of Exchangeable Common
Shares and Exchangeable Preferred Shares to, enter into the ServiceSoft
Shareholders Agreement substantially in the form attached hereto as EXHIBIT F
(the "SERVICESOFT SHAREHOLDERS AGREEMENT"), pursuant to which all such parties
shall agree on the composition of the ServiceSoft board of directors, certain
rights and restrictions regarding issuances of new securities of ServiceSoft and
transfers of outstanding ServiceSoft securities and certain other matters.
2.13 APPOINTMENT OF DIRECTORS TO SERVICESOFT BOARD OF DIRECTORS - ServiceSoft
shall use its best efforts to cause Mark Skapinker and the nominee of the
holders of Exchangeable Shares who are Major Shareholders (as defined in the
ServiceSoft Shareholders Agreement) to be elected to the ServiceSoft board of
directors, and to take all steps necessary to ensure that the ServiceSoft board
of directors is composed of the nominees specified in the ServiceSoft
Shareholders Agreement, effective upon the Closing and thereafter in accordance
with the terms of the ServiceSoft Shareholders Agreement.
2.14 REGISTRATION RIGHTS - Immediately following the Amalgamation, ServiceSoft
shall and shall use its best efforts to cause the ServiceSoft shareholders
currently holding registration rights to enter into a Registration Rights
Agreement substantially in the form attached hereto as EXHIBIT G (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which certain shareholders of
ServiceSoft
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(including certain holders of Exchangeable Common Shares or Exchangeable
Preferred Shares) shall be provided with registration rights upon the terms and
conditions specified therein.
2.15 SURRENDER OF CERTIFICATES -
(a) EXCHANGE AGENT - Amalco or such other party mutually agreed by the
parties shall act as exchange agent in the Amalgamation (the "EXCHANGE
AGENT")
(b) AMALCO TO PROVIDE EXCHANGEABLE SHARES - Promptly after the Closing
Time, Amalco shall make available to the Exchange Agent, for exchange
in accordance with this Article 2, the aggregate number of
Exchangeable Common Shares outstanding following the change (pursuant
to the Articles of Amendment) of the Class A Shares issuable pursuant
to subsection 2.7(a) in exchange for outstanding Balisoft Common
Shares and the aggregate number of Exchangeable Preferred Shares
outstanding following the change (pursuant to the Articles of
Amendment) of the Class B Shares issuable pursuant to subsection
2.7(b) in exchange for outstanding Balisoft Preferred Shares; provided
that (i) no Exchangeable Common Shares shall be deposited in respect
of Balisoft Common Shares as to which dissent rights have been
exercised and not withdrawn under Section 2.8 and (ii) Amalco shall
deposit into escrow on behalf of the holders of Balisoft Common Shares
and Balisoft Preferred Shares the number of Exchangeable Shares
comprising the Balisoft Escrow Fund in accordance with subsections
2.7(d) and 8.2(a).
(c) EXCHANGE PROCEDURES - As soon as reasonably practicable after the
Closing Time, Amalco shall cause to be delivered, to each holder of
record of a certificate or certificates (the "CERTIFICATES") which
immediately prior to the Closing Time represented outstanding Balisoft
Common Shares exchanged for Class A Shares upon the Amalgamation and
changed into Exchangeable Common Shares pursuant to the Articles of
Amendment or, Balisoft Preferred Shares exchanged for Class B Shares
upon the Amalgamation and changed into Exchangeable Preferred Shares
pursuant to the Articles of Amendment, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for
certificates representing Exchangeable Shares. No certificates shall
be issued by Amalco in respect of any Class A Shares or Class B
Shares. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive
in exchange therefor a certificate representing the number of whole
Exchangeable Shares issued to such holder pursuant to Section 2.7
(subject to the escrow provisions of Section 8.2) and the Certificate
so surrendered shall forthwith be cancelled. Until so surrendered,
each outstanding Certificate that, prior to the Closing Time,
represented Balisoft Common
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Shares, will be deemed from and after the Closing Time, to evidence
only the right to receive Exchangeable Common Shares in respect of
each such share and each outstanding Certificate that, prior to the
Closing Time, represented Balisoft Preferred Shares, will be deemed
from and after the Closing Time, to evidence only the right to receive
Exchangeable Preferred Shares in respect of each such share (in each
case subject to the escrow provisions of Section 8.2).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES - No dividends or
other distributions with respect to Exchangeable Shares declared or
made after the Closing Time and with a record date after the Closing
Time will be paid to the holder of any unsurrendered Certificate with
respect to the Exchangeable Shares represented thereby until the
holder of record of such Certificate shall surrender such Certificate
Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the
certificates representing whole Exchangeable Shares issued in exchange
therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the
Closing Time theretofore payable with respect to such whole number of
Exchangeable Shares.
2.16 NO FURTHER OWNERSHIP RIGHTS IN BALISOFT COMMON SHARES OR BALISOFT PREFERRED
SHARES - All Class A Shares issued upon the Amalgamation in exchange for
Balisoft Common Shares in accordance with the terms hereof shall be deemed to
have been issued in fall satisfaction of all rights pertaining to such Balisoft
Common Shares and all Class B Shares issued upon the Amalgamation in exchange
for Balisoft Preferred Shares in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
Balisoft Preferred Shares, and there shall be no further registration of
transfers on the records of Amalco of Balisoft Common Shares or Balisoft
Preferred Shares which were outstanding immediately prior to the Closing Time.
If, after the Closing Time, Certificates are presented to Amalco for any reason,
they shall be canceled and exchanged as provided in this Article 2 (subject to
the escrow provisions of Section 8.2).
2.17 LOST, STOLEN OR DESTROYED CERTIFICATES - In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall make payment
in exchange for such lost, stolen or destroyed Certificates, upon the making of
an affidavit in a form satisfactory to the Exchange Agent of that fact by the
holder thereof, of such amount as may be required pursuant to Section 2.7;
PROVIDED, HOWEVER, that ServiceSoft may, in its sole discretion and as a
condition precedent to the issuance thereof, require the owner of any such lost,
stolen or destroyed Certificates to deliver a bond in such sum as ServiceSoft
may reasonably direct as indemnity against any claim that may be made against
ServiceSoft, Amalco or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
2.18 TAKING OF NECESSARY ACTION: Further Action - If, at any time after the
Closing Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Amalco with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
Balisoft and ServiceSoft Canada or to vest ServiceSoft with control in Amalco,
the
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officers and directors of Amalco are fully authorized in the name of Amalco or
otherwise to take, and will take, all such lawful and necessary and/or desirable
action so long as such action is consistent with this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BALISOFT
Except as disclosed in a document of even date herewith and delivered by
Balisoft to ServiceSoft prior to the execution and delivery of this Agreement
and referring to the representations and warranties in this Agreement (the
"BALISOFT DISCLOSURE SCHEDULE"), Balisoft represents and warrants to ServiceSoft
as follows:
3.1 ORGANIZATION, STANDING AND POWER - Each of Balisoft, Balisoft Ltd., a
company organized under the laws of Israel ("BALISOFT ISRAEL"), and Balisoft
Technologies (US) Inc., a Delaware corporation ("BALISOFT US" and together with
Balisoft Israel, the "BALISOFT SUBSIDIARIES"), is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. Balisoft and each of the Balisoft Subsidiaries has the corporate
power to own its properties and to carry on its business as now being conducted
and as proposed to be conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which it is required to be so qualified.
Balisoft has delivered a true and correct copy of the Articles and Bylaws or
other charter documents, as applicable, of Balisoft and each of the Balisoft
Subsidiaries, each as amended to date, to ServiceSoft. Neither Balisoft nor any
of the Balisoft Subsidiaries is in violation of any of the provisions of its
Articles or Bylaws (or equivalent organizational documents).
3.2 CAPITAL STRUCTURE OF BALISOFT AND THE BALISOFT SUBSIDIARIES -
(a) BALISOFT -
(i) The authorized capital of Balisoft consists of an unlimited
number of Balisoft Common Shares, of which 149,601 are issued and
outstanding, and an unlimited number of Class A Preferred Shares, none
of which are issued or outstanding. There are no other outstanding
shares of capital stock or voting securities of Balisoft. Special
Warrants to purchase an aggregate of 110,115 Balisoft Preferred Shares
(the "SPECIAL WARRANTS") are outstanding; Common Share Warrants to
purchase an aggregate of 6,898 Balisoft Common Shares (collectively,
the "BALISOFT COMMON WARRANTS") are outstanding; 100 Series A
Preferred Shares of Balisoft Israel exchangeable for 36,417 Balisoft
Common Shares (the "GEMINI SHARES") are outstanding; Balisoft has
reserved an aggregate of 45,455 Balisoft Common Shares for issuance to
employees pursuant to its stock option plans (the "BALISOFT OPTION
PLANS"), and options to purchase an aggregate of 41,805 Balisoft
Common Shares are outstanding pursuant to such Balisoft Option Plans
(the "BALISOFT EMPLOYEE OPTIONS"). There are currently no other
Balisoft securities outstanding. All
<PAGE> 21
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outstanding Balisoft Common Shares and all outstanding Special
Warrants, Balisoft Common Warrants, Gemini Shares and Balisoft
Employee Options (collectively, the "BALISOFT WARRANTS") are duly
authorized, validly issued, fully paid and nonassessable and are free
of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof, and are not subject to
preemptive rights or rights of first refusal created by statute, the
Articles or Bylaws of Balisoft or any agreement to which Balisoft is a
party or by which it is bound other than the Balisoft Stakeholders
Agreement dated June 3, 1998. Balisoft has reserved an aggregate of
not less than 198,885 Common Shares for issuance upon the exercise of
all outstanding Balisoft Warrants.
(ii) Except for the Balisoft Warrants, there are no other options,
warrants, calls, rights, commitments or agreements of any character to
which Balisoft is a party or by which it is bound obligating Balisoft
to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of Balisoft or
obligating Balisoft to grant, extend, accelerate the vesting of,
change the price of, or otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. The terms of each of
the Balisoft Warrants will permit the assumption or substitution of
options or warrants, as applicable, to purchase Class A Shares or
Class B Shares, as applicable, upon the Amalgamation and Exchangeable
Common Shares or Exchangeable Preferred Shares, as applicable, upon
the filing of the Articles of Amendment as provided in this Agreement,
without the consent or approval of the holders of such securities,
holders of Balisoft Common Shares, or otherwise as follows: the
Special Warrants and the Gemini Shares will either be exercised by
their holders for Balisoft Preferred Shares prior to the Closing Time
or will become exercisable for Class B Shares upon the Amalgamation
and Exchangeable Preferred Shares upon the Filing of Articles of
Amendment, the Balisoft Common Warrants will become exercisable for
Class A Shares upon the Amalgamation and Exchangeable Common Shares
upon the filing of Articles of Amendment, and the Balisoft Employee
Options will become with ServiceSoft Employee Options. True and
complete copies of all agreements and instruments relating to or
issued under the Balisoft Option Plans have been made available to
ServiceSoft and its counsel and such agreements and instruments have
not been amended, modified or supplemented, and there are no
agreements to amend, modify or supplement such agreements or
instruments in any case from the form made available to ServiceSoft
and its counsel.
(iii) As of or prior to the Closing Time, Balisoft shall undertake the
Balisoft Recapitalization in accordance with Section 2.1.
(b) BALISOFT ISRAEL - The authorized capital stock of Balisoft Israel
consists of 1,000 Ordinary Shares, of which 1,000 shares are issued
and outstanding, 999 of which are owned by Balisoft and 1 of which is
owned by Mr. Les Abelson in trust for Balisoft
<PAGE> 22
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and 100 Series A Preferred Shares of which 100 are issued and
outstanding as the Gemini Shares.
(c) BALISOFT US - The authorized capital stock of Balisoft US consists of
100 shares of Common Stock, par value US $0.01 per share, and 10,000
shares of Preferred Stock, par value US $0.01 per share of which 100
shares of Common Stock are issued and outstanding, all of which are
owned by Balisoft and no shares of Preferred Stock are issued and
outstanding.
3.3 AUTHORITY, CONFLICTS, CONSENTS -
(a) Balisoft 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 Balisoft, except for the
formal approval of this Agreement and the Amalgamation by holders of
Balisoft Common Shares and Balisoft Preferred Shares, which approval
is a closing condition to the Amalgamation as set forth in subsection
7.1 (a) of this Agreement. This Agreement has been duly executed and
delivered by Balisoft and constitutes the valid and binding obligation
of Balisoft, enforceable in accordance with its terms.
(b) Except as described in Section 3.3 of the Balisoft Disclosure
Schedule, to the Knowledge of Balisoft the execution and delivery of
this Agreement by Balisoft does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in
any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any benefit under (any
such event, a "CONFLICT") (i) any provision of the Articles or Bylaws
of Balisoft, as amended, or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Balisoft or any of the Balisoft
Subsidiaries or any of their properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality (each, a
"GOVERNMENTAL ENTITY") is required by or in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the
Articles of Amalgamation as provided in Section 2.3; (ii) the filing
of the Articles of Amendment as provided in subsection 2.7(c); and
(iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable
provincial securities laws and the securities laws of any foreign
county;
<PAGE> 23
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and (iv) the notification filing required under the provisions of the
Investment Canada Act (Canada). Section 3.3 of the Balisoft Disclosure
Schedule sets forth a full and complete list of all necessary
consents, waivers and approvals of third parties applicable to the
operations of Balisoft or any of the Balisoft Subsidiaries that are
required to be obtained by Balisoft in connection with the execution
and delivery of this Agreement by Balisoft or the consummation by
Balisoft of the transactions contemplated hereby. Prior to the Closing
Date, Balisoft will use reasonable efforts to obtain, and to cause the
Balisoft Subsidiaries to obtain, all such consents.
3.4 BALISOFT FINANCIAL STATEMENTS -
(a) Balisoft has furnished to ServiceSoft its unaudited consolidated
balance sheet, consolidated statements of loss and deficit and changes
in financial position (together with notes thereto) as of and for the
period ended September 30, 1998 and its unaudited balance sheet and
statements of operations as of and for the period ended November 30,
1998 (collectively, the "BALISOFT FINANCIAL STATEMENTS"). The Balisoft
Financial Statements are included as Section 3.4 of the Balisoft
Disclosure Schedule. The Balisoft Financial Statements, including the
notes thereto, were complete and correct in all material respects as
of their respective dates, complied as to form in all material
respects with applicable accounting requirements as of their
respective dates, and have been prepared in accordance with Canadian
GAAP applied on a basis consistent throughout the periods indicated
and consistent with each other. The Balisoft Financial Statements are
in accordance with the books and records of Balisoft and fairly
present the consolidated financial condition and operating results of
Balisoft at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, recurring
year-end adjustments). There has been no change in Balisoft accounting
policies.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES - Balisoft and the Balisoft Subsidiaries
have no obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balisoft Balance Sheet dated December 31, 1998, a true, correct and complete
copy of which is included in the Balisoft Financial Statements (the "BALISOFT
BALANCE SHEET"), (ii) those incurred in the ordinary course of business and not
required to be set forth in the footnotes to audited financial statements
prepared in accordance with Canadian GAAP, (iii) those incurred in the ordinary
course of business since the Balisoft Balance Sheet date and consistent with
past practice, which do not in any event exceed $25,000 in the aggregate, and
(iv) those set forth in Section 3.5 of the Balisoft Disclosure Schedule.
3.6 ABSENCE OF CERTAIN CHANGES - Since the date of the Balisoft Balance Sheet,
except as set forth in Section 3.6 of the Balisoft Disclosure Schedule, Balisoft
and each of the Balisoft Subsidiaries has conducted its business in the ordinary
course consistent with past practice and there has not occurred: (a) any change,
event or condition that has resulted in, or might reasonably be expected to
result in, a material adverse effect to Balisoft and the Balisoft Subsidiaries,
taken as a
<PAGE> 24
-20-
whole; (b) any acquisition, sale or transfer of any material asset of Balisoft
or any Balisoft Subsidiaries other than in the ordinary course of business and
consistent with past practice; (c) any change in accounting methods or practices
by Balisoft or any Balisoft Subsidiaries or any revaluation by Balisoft or any
Balisoft Subsidiaries of any of their respective assets; (d) any issuance or
agreement to issue or any commitment to issue any equity, security, bond, note
or other security of Balisoft or any Balisoft Subsidiaries (except for the
issuance of employee options to purchase Balisoft Common Shares issued in the
ordinary course of business); (e) any declaration, setting aside, or payment of
a dividend or other distribution with respect to the shares of Balisoft or any
Balisoft Subsidiaries, or any direct or indirect redemption, purchase or other
acquisition by Balisoft or any Balisoft Subsidiaries of any of its or the
Balisoft Subsidiaries' shares of capital stock; or (f) any negotiation or
agreement by Balisoft or any Balisoft Subsidiaries to do any of the things
described in the preceding clauses (a) through (e).
3.7 TAX MATTERS -
(a) DEFINITION OF TAXES - For the purposes of this Agreement, "TAX" or,
collectively, "TAXES", means; (i) any and all federal, provincial,
state and local Canadian, United States and other foreign taxes, and
similar assessments and other governmental charges, duties,
impositions, fees, royalties, withholdings, contributions and
liabilities, including taxes based upon or measured by gross receipts,
gross income, gross profits, sales (including goods and services), use
and occupation, and value added, ad valorem, transfer, franchise,
stamp, documentary, severance, net income, capital, employer health,
workers compensation, pension, withholding, payroll, recapture,
employment, excise and property taxes, assessments, charges, duties,
impositions, fees, royalties, withholdings, contributions and
liabilities, together with all interest, penalties and additions
imposed with respect to such amounts and any expenses incurred in
connection with the determination, settlement or litigation of any Tax
liability; (ii) any liability for the payment of any amounts of the
type described in clause (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any period;
and (iii) any liability for the payment of any amounts of the type
described in clause (i) or (ii) as a result of any express or implied
obligation to indemnify any other person or as a result of any
obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for Taxes of
a predecessor entity.
(b) TAX RETURNS AND AUDITS -
(i) Balisoft and the Balisoft Subsidiaries as of the Closing Time
will have prepared and timely filed all required federal, provincial,
state and local Canadian, United States and other foreign returns,
declarations, remittances, estimates, information statements and
reports ("RETURNS') relating to any and all Taxes imposed on or
assessed with respect to or measured by or charged against or
attributable to Balisoft or any of the Balisoft Subsidiaries, to the
Knowledge of
<PAGE> 25
-21-
Balisoft all such Returns are true, complete and correct in all
respects and have been completed in accordance with applicable law and
no material fact or facts have been omitted from such Returns which
would make any of them misleading.
(ii) Balisoft and the Balisoft Subsidiaries as of the Closing Time:
(A) will have paid all Taxes shown on the Returns, all Taxes due and
payable by them and all Taxes assessed or reassessed against them and
(B) will have withheld/collected and remitted in a timely manner any
Taxes required to be withheld/collected and remitted.
(iii) Neither Balisoft nor any of the Balisoft Subsidiaries have been
delinquent in the payment of any Tax. There is no Tax deficiency
assessed or proposed against Balisoft or any of the Balisoft
Subsidiaries, nor have Balisoft or any of the Balisoft Subsidiaries
executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax that is still in
effect.
(iv) Neither Balisoft nor any of the Balisoft Subsidiaries have
received notice of any audit or other examination relating to Taxes or
any request for such an audit or examination and there are no claims,
actions, suits, litigation, arbitrations, proceedings or appeals
pending, proposed or threatened in respect of Taxes imposed on or
assessed with respect to or measured by or charged against or
attributable to Balisoft or any of the Balisoft Subsidiaries.
(v) Balisoft and the Balisoft Subsidiaries are accrual basis taxpayers
and do not have any liabilities for unpaid Taxes not yet due which
have not been accrued or reserved against in accordance with Canadian
GAAP on the Balisoft Balance Sheet, whether asserted or unasserted,
contingent or otherwise.
(vi) There are no liens, pledges, charges, claims, security interests
or other encumbrances of any sort ("LIENS") on the assets of Balisoft
or any of the Balisoft Subsidiaries relating to or attributable to
Taxes other than Liens for taxes not yet due and payable.
(vii) Neither Balisoft nor any of the Balisoft Subsidiaries are a
party to a tax sharing, indemnification or allocation agreement (other
than this Agreement) nor does Balisoft or any of the Balisoft
Subsidiaries owe any amount under any such agreement.
(viii) Balisoft and the Balisoft Subsidiaries have charged, collected
and remitted on a timely basis all Taxes as required under applicable
law on any sale, supply or delivery whatsoever made by each of them.
<PAGE> 26
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3.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT -
(a) Subsection 3.8(a) of the Balisoft Disclosure Schedule sets forth a
list of all real property currently owned or leased by Balisoft and
the Balisoft Subsidiaries and, in the case of leased property, the
name of the lessor, the date of the lease and each amendment thereto
and the aggregate annual rental and/or other fees payable under any
such lease. All such leases are in full force and effect, are valid
and effective in accordance with their respective terms, and there is
not, under any of such leases, any existing default or event of
default (or event which with notice or lapse of time, or both, would
constitute a default) of Balisoft.
(b) Balisoft and the Balisoft Subsidiaries have good and valid title to,
or, in the case of leased properties and assets, valid leasehold
interests in, all of their tangible properties and assets free and
clear of any Liens, except as reflected in the Balisoft Financial
Statements and except for Liens for Taxes not yet due and payable.
(c) The equipment owned or leased by Balisoft and the Balisoft
Subsidiaries, taken as a whole, is (i) adequate for the conduct of the
business of Balisoft and the Balisoft Subsidiaries as currently
conducted (ii) generally in good operating condition, subject to
normal wear and tear, and (iii) reasonably maintained.
3.9 INTELLECTUAL PROPERTY -
(a) Except as set forth in subsection 3.9(a) of the Balisoft Disclosure
Schedule, Balisoft and the Balisoft Subsidiaries own, or are licensed
or otherwise possess legally enforceable and irrevocable rights to
use, all patents, industrial designs, trademarks, trade names, service
marks, copyrights, Internet domain names, and any applications
therefor, net lists, schematics, technology, know-how, computer
software programs or applications (in both source code and object code
form as to software programs and applications owned by Balisoft or the
Balisoft Subsidiaries and in object code form as to software programs
and applications licensed by Balisoft or the Balisoft Subsidiaries),
and tangible or intangible proprietary information or material
(collectively, "BALISOFT INTELLECTUAL PROPERTY") that are used or
proposed to be used in the business of Balisoft or the Balisoft
Subsidiaries as currently conducted or as currently proposed to be
conducted by Balisoft or the Balisoft Subsidiaries.
(b) Subsection 3.9(b) of the Balisoft Disclosure Schedule sets forth a
complete list of all patents, industrial designs, registered and
material unregistered trademarks, registered copyrights, trade names
and service marks, Internet domain names, and any applications
therefor in respect of any of the foregoing, included in the Balisoft
Intellectual Property, and specifies, where applicable, the
jurisdictions in which the rights to such Balisoft Intellectual
Property have been issued or registered or in which an application for
such issuance and registration has been filed, including the
<PAGE> 27
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respective registration or application numbers and the names of all
registered owners. All registered patents, industrial designs,
trademarks, service marks and copyrights held by Balisoft and the
Balisoft Subsidiaries are valid and subsisting.
(c) Subsection 3.9(c) of the Balisoft Disclosure Schedule sets forth a
complete list of all licenses, sublicenses and other agreements
(including all amendments and supplements thereto) to which Balisoft
or any of the Balisoft Subsidiaries are a party and pursuant to which
Balisoft or any of the Balisoft Subsidiaries are entitled to use
intellectual property of a third party or any other person is
authorized to use Balisoft Intellectual Property that is material to
Balisoft and the Balisoft Subsidiaries, taken as a whole, and includes
the identity of all parties thereto. To the Knowledge of Balisoft,
neither Balisoft nor any of the Balisoft Subsidiaries are in violation
of any license, sublicense or agreement described on such list and
neither Balisoft nor any of the Balisoft Subsidiaries has infringed,
and the business of each of Balisoft or the Balisoft Subsidiaries as
currently conducted, or as currently proposed by Balisoft or the
Balisoft Subsidiaries to be conducted, does not infringe any
copyright, patent, trademark, service mark, industrial design, trade
search or other proprietary right of any third party. The execution
and delivery of this Agreement by Balisoft, and the consummation of
the transactions contemplated hereby, will not (i) cause Balisoft or
any of the Balisoft Subsidiaries to be in violation or default under
any such license, sublicense or agreement, (ii) entitle any other
party to any such license, sublicense or agreement to terminate or
modify such license, sublicense or agreement or (iii) require Balisoft
or any of the Balisoft Subsidiaries to repay any funds already
received by it from a third party or make to a third party any
incremental payment. Except for rights granted in agreements, licenses
or sublicenses described in subsections 3.9(b) and (c) of the Balisoft
Disclosure Schedule, to the Knowledge of Balisoft, Balisoft or one of
the Balisoft Subsidiaries is the sole and exclusive owner or licensee
of, with all right, title and interest in and to (free and clear of
any Liens), the Balisoft Intellectual Property, and has sole and
exclusive rights (and is not contractually obligated to pay any
compensation to any third party in respect thereof) to the use thereof
or the material covered thereby in connection with the services or
products in respect of which the Balisoft Intellectual Property is
being used.
(d) No claims contesting Balisoft's ownership of or right to use Balisoft
Intellectual Property, or asserting any right of a third party to use
any Balisoft Intellectual Property, have been asserted or threatened
to Balisoft or any of the Balisoft Subsidiaries or their agents, nor
to the Knowledge of Balisoft are there any valid grounds for any bona
fide claims (i) against the use by Balisoft or any of the Balisoft
Subsidiaries of any Balisoft Intellectual Property used in the
business of Balisoft or any of the Balisoft Subsidiaries as currently
conducted or as currently proposed to be conducted by Balisoft or any
of the Balisoft Subsidiaries, or (ii) challenging the validity,
effectiveness, or ownership by Balisoft of any of the Balisoft
Intellectual Property.
<PAGE> 28
-24-
(e) To the Knowledge of Balisoft (i) there is no material unauthorized
use, infringement or misappropriation of any of the Balisoft
Intellectual Property by any third party, including any employee or
former employee of Balisoft or the Balisoft Subsidiaries, and (ii) no
Balisoft Intellectual Property or product of Balisoft or any of the
Balisoft Subsidiaries is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the licensing
thereof by Balisoft or any of the Balisoft Subsidiaries.
(f) Balisoft and each of the Balisoft Subsidiaries has a policy requiring
each employee and contractor materially involved in proprietary
aspects of the business to execute ownership and nondisclosure of
proprietary information and confidentiality agreements in the standard
forms, and all current and former employees, consultants and
contractors of Balisoft and the Balisoft Subsidiaries involved in
proprietary aspects of the business of Balisoft or any of the Balisoft
Subsidiaries have executed such an agreement.
3.10 MATERIAL CONTRACTS -
(a) Section 3.10 of the Balisoft Disclosure Schedule lists all written
contracts or commitments involving any annual payment or receipt in
excess of $50,000 ("BALISOFT MATERIAL CONTRACTS") to which Balisoft or
any of the Balisoft Subsidiaries is a party. Balisoft has made
available to ServiceSoft true and complete copies of all written
Balisoft Material Contracts in effect on the date hereof.
(b) To the Knowledge of Balisoft, each of the Balisoft Material Contracts
is in full force and effect and unamended, (except for such amendments
as are disclosed on Section 3.10 of the Balisoft Disclosure Schedule)
and is valid, binding and enforceable in accordance with its terms. To
the Knowledge of Balisoft, no party to any Balisoft Material Contract
or successor or assignee thereof, is in default of any material
provision thereof and there exists no event or condition which does or
would, by itself or with giving of notice or the passage of time or
both, constitute a breach of or default under any Balisoft Material
Contract or results in the acceleration of any obligation thereunder.
3.11 INTERESTED PARTY TRANSACTIONS - Except as disclosed in Section 3.11 of the
Balisoft Disclosure Schedule, to the Knowledge of Balisoft no officer, director,
employee or shareholder of more than 5% of the Balisoft Common Shares
(calculated on a fully diluted basis), nor any parent, sibling, child or spouse
of any of such persons, or any trust, partnership or corporation in which any of
such persons has or has had an interest, has or has had, directly or indirectly,
(i) an interest in any entity which furnished or sold, or furnishes or sells,
services or products that Balisoft or any of the Balisoft Subsidiaries furnish
or sell, or propose to furnish or sell, or (ii) any interest in any entity that
purchases from or sells or furnishes to, Balisoft or any of the Balisoft
Subsidiaries, any goods or
<PAGE> 29
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services or (iii) a beneficial interest in any Balisoft Material Contract;
PROVIDED, HOWEVER, that passive ownership of no more than five percent (5%) of
the outstanding voting stock of a corporation shall not be deemed an "interest
in any entity" for purposes of this Section 3.11.
3.12 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 Balisoft threatened,
against Balisoft or any Balisoft Subsidiaries or any of their properties or
their officers or directors (in their capacities as such). There is no judgment,
decree or order against Balisoft or any Balisoft Subsidiaries any of their
respective directors or officers (in their capacities as such), that could
prevent, enjoin, alter or delay any of the transactions contemplated by this
Agreement or that has a reasonable risk of having a material adverse effect on
Balisoft and the Balisoft Subsidiaries, taken as a whole.
3.13 ENVIRONMENTAL AND SAFETY LAWS -To the Knowledge of Balisoft, Balisoft and
the Balisoft Subsidiaries are not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, except
to the extent such violation would not have a material adverse effect on the
assets, properties, financial condition, operating results or business of
Balisoft and the Balisoft Subsidiaries (taken as a whole), and no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
3.14 BROKERS' AND FINDERS' FEES - Neither Balisoft nor any of the Balisoft
Subsidiaries have incurred, nor will they incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.15 EMPLOYEE BENEFIT PLANS AND COMPENSATION -
(a) PLANS - Subsection 3.15(a) of the Balisoft Disclosure Schedule
contains a true and complete list of each employee benefit plan or
arrangement, and any plan, agreement or program providing for
pensions, retirement income, deferred compensation, profit sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation that (i) is entered into, maintained or contributed to,
as the case may be, by Balisoft or any Balisoft Subsidiaries and (ii)
covers any employee or former employee of Balisoft or any Balisoft
Subsidiaries (collectively "BALISOFT BENEFIT ARRANGEMENTS'). Each
Balisoft Benefit Arrangement has been maintained and administered in
material compliance with its terms and with the requirements
prescribed by any and all statutes, laws, ordinances and regulations
which are applicable thereto. No Balisoft Benefit Arrangement has
unfunded liabilities that, as of the Closing, will not be offset by
insurance or fully accrued or reserved against in the Balisoft Balance
Sheet. Except as required by law or by the provisions of such Balisoft
Benefit Arrangement, no condition exists that would prevent Balisoft
or any of the Balisoft Subsidiaries from amending or terminating any
Balisoft Benefit Arrangement.
<PAGE> 30
-26-
(b) NO POST-EMPLOYMENT OBLIGATIONS - Except as set forth in subsection
3.15(b) of the Balisoft Disclosure Schedule, no Balisoft Benefit
Arrangement provides, or has any liability to provide, life insurance,
medical or other employee benefits to any employee upon his or her
retirement or termination of employment for any reason, except as may
be required by law, and neither Balisoft nor any of the Balisoft
Subsidiaries have ever represented, promised or contracted (whether in
oral or written form) to any employee (either individually or to
employees as a group) that such employee(s) would be provided with
life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required
by law.
(c) EMPLOYMENT MATTERS - Balisoft has delivered to ServiceSoft a complete
list of all current employees of Balisoft and the Balisoft
Subsidiaries and their position, gross remuneration and length of
employment. To the Knowledge of Balisoft, Balisoft and the Balisoft
Subsidiaries: (i) are in compliance in all material respects with all
applicable foreign, federal and provincial laws, rules and regulations
respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to
employees; (ii) have withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments
to employees; (iii) are not liable for any arrears of wages or any
Taxes or any penalty for failure to comply with any of the foregoing;
and (iv) except as required by applicable law, are not liable for any
payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation
benefits, social security or other benefits for employees (other than
routine payments to be made in the normal course of business and
consistent with past practice).
(d) LABOR - Except as set forth in subsection 3.15(d) of the Balisoft
Disclosure Schedule, neither Balisoft nor any of the Balisoft
Subsidiaries are involved in or threatened with any labor dispute,
grievance, litigation or claim relating to labor, occupational health
and safety or human rights matters involving any employee, including,
without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in liability having a
material adverse effect on Balisoft and the Balisoft Subsidiaries,
taken as a whole. Neither Balisoft nor any of the Balisoft
Subsidiaries have engaged in any unfair labor practices which would,
individually or in the aggregate, directly or indirectly result in
liability to Balisoft or any of the Balisoft Subsidiaries. Except as
set forth in subsection 3.15(d) of the Balisoft Disclosure Schedule,
neither Balisoft nor any of the Balisoft Subsidiaries are presently,
nor have they been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to
employees and no collective bargaining agreement is being negotiated
by
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Balisoft or any of the Balisoft Subsidiaries or, to the Knowledge of
Balisoft, is being organized or is threatened.
3.16 INSURANCE - Section 3.16 of the Balisoft Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of Balisoft and the
Balisoft Subsidiaries. Except as disclosed in Section 3.16 of the Balisoft
Disclosure Schedule such policies and bonds are sufficient in amount to allow
Balisoft or the Balisoft Subsidiaries (as applicable) to replace any of its
properties that might be damaged or destroyed. There is no claim by Balisoft or
any of the Balisoft Subsidiaries pending under any of such policies or bonds as
to which Balisoft or any of the Balisoft Subsidiaries have received notice that
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Balisoft or the applicable Balisoft Subsidiary are
otherwise in material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
There is no threatened termination of, or material premium increase with respect
to, any of such policies.
3.17 COMPLIANCE WITH LAWS - To the Knowledge of Balisoft, Balisoft and each of
the Balisoft Subsidiaries has complied with, are not in violation of, and have
not received any notices of violation with respect to, any foreign, federal,
provincial or local statute, law or regulation with respect to the conduct of
its business, or the ownership or operation of their business, assets or
properties.
3.18 COMPLETE COPIES OF MATERIALS - Balisoft has delivered or made available to
ServiceSoft true and complete copies of each agreement, contract, commitment or
other document (or summaries of same) that is referred to in the Balisoft
Disclosure Schedule or that has been requested in writing by ServiceSoft or its
counsel.
3.19 REPRESENTATIONS COMPLETE - To the Knowledge of Balisoft, none of the
representations or warranties made herein by Balisoft (as modified by the
Balisoft Disclosure Schedule), nor any statement made in any Schedule or
certificate furnished by Balisoft pursuant to this Agreement, contains or will
contain at the Closing Time, any untrue statement of a material fact, or omits
or will omit at the Closing Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which they were made, not misleading.
3.20 DISCLOSURE SCHEDULE - The Balisoft Disclosure Schedule has been prepared
and executed by Balisoft and dated and delivered on the date of this Agreement.
Balisoft shall endeavor to disclose in the Balisoft Disclosure Schedule each
item of information in each separate section in which such item may reasonably
be required to be disclosed, PROVIDED, HOWEVER that any item of information
disclosed in any one section of the Balisoft Disclosure Schedule may be
cross-referenced in other relevant sections thereof for purposes of disclosure
under this Agreement.
<PAGE> 32
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SERVICESOFT
AND SERVICESOFT CANADA
Except as disclosed in a document of even date herewith and delivered by
ServiceSoft and ServiceSoft Canada to Balisoft prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "SERVICESOFT DISCLOSURE SCHEDULE ") but subject to the
overriding agreements specified in this Article 4, ServiceSoft and ServiceSoft
Canada jointly represent and warrant to Balisoft as follows:
4.1 ORGANIZATION, STANDING AND POWER - Each of ServiceSoft and ServiceSoft
Canada, ServiceSoft (Europe) NV ("ServiceSoft Belgium"), ServiceSoft Ltd.
("SeviceSoft Israel") and ServiceSoft Deustchland GmbH ("ServiceSoft Germany")
(collectively, the "SERVICESOFT SUBSIDIARIES"), is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and there are no other subsidiaries of ServiceSoft. ServiceSoft
and each of the ServiceSoft Subsidiaries has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which it is required to be so qualified. ServiceSoft has
delivered a true and correct copy of the Articles of Association or other
charter documents, as applicable, of ServiceSoft and each of the ServiceSoft
Subsidiaries, each as amended to date, to Balisoft. Notwithstanding the
disclosure provided in Section 4.1 of the ServiceSoft Disclosure Schedule,
ServiceSoft and ServiceSoft Canada agree as an overriding agreement of this
Article 4 that any Losses arising from non-compliance by any of the ServiceSoft
Subsidiaries with the terms of this Section 4.1 shall be for the account of
ServiceSoft and its shareholders and that, accordingly, this Agreement
(including in particular Section 8.2) shall be interpreted as if no disclosure
was contained on Section 4.1 of the ServiceSoft Disclosure Schedule.
4.2 CAPITAL STRUCTURE OF SERVICESOFT AND THE SERVICESOFT SUBSIDIARIES -
(a) SERVICESOFT - The authorized capital stock of ServiceSoft consists of
13,000,000 Common Shares, par value $0.01 each (the "SERVICESOFT
COMMON SHARES"), of which 64,598 are issued and outstanding and
10,200,000 Preferred Shares, par value $0.01 each, consisting of (a)
5,300,000 Series F Preferred Shares (the "SERIES F PREFERRED"), of
which 5,230,654 shares are issued and outstanding, (b) 4,900,000
Series G Preferred Shares (the "SERIES G PREFERRED"), and collectively
with the Series F Preferred, the "SERVICESOFT PREFERRED SHARES"), of
which 4,628,907 shares are issued and outstanding. ServiceSoft has
issued warrants (the "SERVICESOFT WARRANTS") to purchase an aggregate
of up to 117,188 shares of Series G Preferred and up to 2,098 Common
Shares. There are no other outstanding shares of ServiceSoft capital
stock or voting securities. Each outstanding ServiceSoft Series F
Preferred Share and Series G Preferred Share issuable upon exercise of
the ServiceSoft Warrants is convertible into one ServiceSoft Common
Share. There are currently a total of 9,924,159 ServiceSoft Common
Shares outstanding, on a fully
<PAGE> 33
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diluted basis. All outstanding ServiceSoft Common Shares and
ServiceSoft Preferred Shares are duly authorized, validly issued,
fully paid and non-assessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and, except as set forth in Section
4.2(a) of the ServiceSoft Disclosure Schedule, are not subject to
preemptive rights or rights of first refusal created by statute, or
any agreement to which ServiceSoft is a party or by which it is bound.
ServiceSoft has reserved 2,533,422 ServiceSoft Common Shares for
issuance to employees and consultants pursuant to the ServiceSoft
Stock Option Plan (the "SERVICESOFT OPTION PLAN") of which 2,275,921
shares are subject to outstanding, unexercised options. Other than as
set forth in Section 4.2(a) of the ServiceSoft Disclosure Schedule,
there are no other options, warrants, calls, rights, commitments or
agreements of any character to which ServiceSoft is a party or by
which it is bound obligating ServiceSoft to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of capital stock of ServiceSoft.
(b) SERVICESOFT CANADA - The authorized capital of ServiceSoft Canada
consists of an unlimited number of common shares, of which one common
share is issued and outstanding and is owned by ServiceSoft.
(c) SERVICESOFT BELGIUM - The authorized capital of ServiceSoft Belgium
consists of 10,000 shares of which all are issued and outstanding and
owned by ServiceSoft.
(d) SERVICESOFT ISRAEL - The authorized capital of ServiceSoft Israel
consists of 881,453 shares of which all are issued and outstanding and
are all owned by ServiceSoft, except for five Ordinary Shares held by
Israeli individuals and one Ordinary Share held by Ebron Electronic
Industries Ltd.
(e) SERVICESOFT GERMANY - All of the authorized capital of ServiceSoft
Germany is owned by ServiceSoft, except for one Common Share held by
an individual.
4.3 AUTHORITY, CONFLICTS, CONSENTS -
(a) Each of ServiceSoft and ServiceSoft Canada 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 each of ServiceSoft and ServiceSoft Canada. This Agreement has
been duly executed and delivered by ServiceSoft and ServiceSoft Canada
and constitutes the valid and binding obligation of each of them,
enforceable in accordance with its terms.
<PAGE> 34
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(b) To the Knowledge of ServiceSoft, the execution and delivery of this
Agreement by ServiceSoft and ServiceSoft Canada does not, and the
consummation of the transactions contemplated hereby will not,
Conflict with (i) any provision of the Articles of Association of
ServiceSoft or the Articles or Bylaws of ServiceSoft Canada, or the
relevant charter documents of any other ServiceSoft Subsidiary, each
as amended, or (ii) any mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to ServiceSoft or any of its Subsidiaries or any of their
properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or
with respect to ServiceSoft or ServiceSoft Canada or any other
ServiceSoft Subsidiary in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Articles of Amalgamation as
provided in Section 2.3; (ii) the filing of the Articles of Amendment
as provided in subsection 2.7(c); (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may
be required under applicable provincial securities laws and the
securities laws of any foreign country; and (iv) such filings as may
be required under the notification provisions of the Investment Canada
Act (Canada). Section 4.3(c) of the ServiceSoft Disclosure Schedule
sets forth a full and complete list of all necessary consents, waivers
and approvals of third parties applicable to the operations of
ServiceSoft or the ServiceSoft Subsidiaries that are required to be
obtained by ServiceSoft or the ServiceSoft Subsidiaries in connection
with the execution and delivery of this Agreement by ServiceSoft and
ServiceSoft Canada or the consummation by ServiceSoft and ServiceSoft
Canada of the transactions contemplated hereby. Prior to the Closing
Date, ServiceSoft will use reasonable efforts to obtain, and to cause
the ServiceSoft Subsidiaries to obtain, all such consents.
4.4 SERVICESOFT FINANCIAL STATEMENTS - ServiceSoft has furnished to Balisoft
its consolidated unaudited financial statements dated September 30, 1998 and its
unconsolidated unaudited draft balance sheet, statement of operations and
statements of stockholders equity and cash flows dated November 1998
(collectively, the "SERVICESOFT FINANCIAL STATEMENTS"). The ServiceSoft
Financial Statements are included as Section 4.4 of the ServiceSoft Disclosure
Schedule. The ServiceSoft Financial Statements were complete and correct in all
material respects as of their respective dates, complied as to form in all
material respects with applicable accounting requirements as of their respective
dates, and have been prepared in accordance with US GAAP applied on a basis
consistent throughout the periods indicated and consistent with each other. The
ServiceSoft Financial Statements are in accordance with the books and records of
ServiceSoft and fairly present the consolidated financial condition and
operating results of ServiceSoft at the dates and during the periods indicated
therein (subject, in the case of unaudited statements, to normal, recurring
year-end adjustments). There has been no change in ServiceSoft accounting
policies.
<PAGE> 35
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4.5 ABSENCE OF UNDISCLOSED LIABILITIES - ServiceSoft and the ServiceSoft
Subsidiaries have no obligations or liabilities of any nature (matured or
unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the ServiceSoft Balance Sheet dated December 1998, a true,
correct and complete copy of which is included in the ServiceSoft Financial
Statements (the "SERVICESOFT BALANCE SHEET"), (ii) those incurred in the
ordinary course of business and not required to be set forth in the footnotes to
audited financial statements prepared in accordance with US GAAP, and (iii)
those incurred in the ordinary course of business since the ServiceSoft Balance
Sheet Date and consistent with past practice, which do not in any event exceed
$25,000 in the aggregate, and (iv) those set forth in Section 4.5 of the
ServiceSoft Disclosure Schedule.
4.6 ABSENCE OF CERTAIN CHANGES - Since the date of the ServiceSoft Balance
Sheet, except as set forth in Section 4.6 of the ServiceSoft Disclosure
Schedule, ServiceSoft and each of the ServiceSoft Subsidiaries has conducted its
business in the ordinary course consistent with past practice and there has not
occurred: (a) any change, event or condition that has resulted in, or might
reasonably be expected to result in, a material adverse effect to ServiceSoft
and the ServiceSoft Subsidiaries, taken as a whole; (b) any acquisition, sale or
transfer of any material asset of the ServiceSoft or any ServiceSoft
Subsidiaries other than in the ordinary course of business and consistent with
past practice; (c) any change in accounting methods or practices by ServiceSoft
or any ServiceSoft Subsidiaries or any revaluation by ServiceSoft or any
ServiceSoft Subsidiaries of any of their respective assets; (d) any issuance or
agreement to issue or any commitment to issue any equity security, bond, note or
other security of ServiceSoft or any ServiceSoft Subsidiaries (except for the
issuance of employee options to purchase ServiceSoft Common Shares issued in the
ordinary course of business); (e) any declaration, setting aside, or payment of
a dividend or other distribution with respect to the shares of ServiceSoft or
any ServiceSoft Subsidiaries, or any direct or indirect redemption, purchase or
other acquisition by the ServiceSoft or any ServiceSoft Subsidiaries of any of
its or the ServiceSoft Subsidiaries' shares of capital stock; or (f) any
negotiation or agreement by ServiceSoft or any ServiceSoft Subsidiaries to do
any of the things described in the preceding clauses (a) through (e).
4.7 TAX MATTERS -
(a) TAX RETURNS AND AUDITS -
(i) ServiceSoft and the ServiceSoft Subsidiaries as of the Closing
Time will have prepared and timely filed all required federal,
provincial, state and local Canadian, United States and other foreign
Returns relating to any and all Taxes imposed on or assessed with
respect to or measured by or charged against or attributable to
ServiceSoft or any of the ServiceSoft Subsidiaries, to the Knowledge
of ServiceSoft all such Returns are true, complete and correct in all
respects and have been completed in accordance with applicable law and
no material fact or facts have been omitted from such Returns which
would make any of them misleading.
<PAGE> 36
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(ii) ServiceSoft and the ServiceSoft Subsidiaries as of the Closing
Time: (A) will have paid all Taxes shown on the Returns, all Taxes due
and payable by them and all Taxes assessed or reassessed against them
and (B) will have withheld/collected and remitted in a timely manner
any Taxes required to be withheld/collected and remitted.
(iii) Neither ServiceSoft nor any of the ServiceSoft Subsidiaries have
been delinquent in the payment of any Tax. There is no Tax deficiency
assessed or proposed against ServiceSoft or any of the ServiceSoft
Subsidiaries, nor have ServiceSoft or any of the ServiceSoft
Subsidiaries executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax that
is still in effect.
(iv) Neither ServiceSoft nor any of the ServiceSoft Subsidiaries have
received notice of any audit or other examination relating to Taxes or
any request for such an audit or examination and there are no claims,
actions, suits, litigation, arbitrations, proceedings or appeals
pending, proposed or threatened in respect of Taxes imposed on or
assessed with respect to or measured by or charged against or
attributable to ServiceSoft or any of the ServiceSoft Subsidiaries.
(v) ServiceSoft and the ServiceSoft Subsidiaries are accrual basis
taxpayers and do not have any liabilities for unpaid Taxes not yet due
which have not been accrued or reserved against in accordance with US
GAAP on the ServiceSoft Balance Sheet, whether asserted or unasserted,
contingent or otherwise.
(vi) There are no Liens on the assets of ServiceSoft or any of the
ServiceSoft Subsidiaries relating to or attributable to Taxes other
than Liens for taxes not yet due and payable.
(vii) Neither ServiceSoft nor any of the ServiceSoft Subsidiaries are
a party to a tax sharing, indemnification or allocation agreement
(other than this Agreement) nor does ServiceSoft or any of the
ServiceSoft Subsidiaries owe any amount under any such agreement.
(viii) ServiceSoft and the ServiceSoft Subsidiaries have charged,
collected and remitted on a timely basis all Taxes as required under
applicable law on any sale, supply or delivery whatsoever made by each
of them.
(ix) No power of attorney currently in force has been granted by
either ServiceSoft or any of the ServiceSoft Subsidiaries concerning
any Tax matter.
<PAGE> 37
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(x) No property of ServiceSoft or the ServiceSoft Subsidiaries is
"tax-exempt use property" within the meaning of Section 168 of the
Internal Revenue Code of 1986 (as amended, the "Code").
(xi) Neither ServiceSoft nor any of the ServiceSoft Subsidiaries are
required to include in income any adjustment pursuant to Section 481
(a) of the Code by reason of a voluntary change in accounting method
initiated by ServiceSoft or the ServiceSoft Subsidiaries, and the
Internal Revenue Service has not proposed an adjustment or change in
accounting method.
(xii) ServiceSoft and the ServiceSoft Subsidiaries are not affiliated
(within the meaning of Section 1504(a) of the Code or any similar
provision of state, local or foreign law) with any entities other than
themselves, and have no liability for Taxes of any person (other than
each other) under Section 1.1502-6 of the Treas. Reg. (or any similar
provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise.
(xiii) ServiceSoft and the ServiceSoft Subsidiaries are not a party to
any agreement, contract, or arrangement that would result, separately
or in the aggregate, in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code.
(xiv) All transactions that could give rise to an understatement of
federal income tax (within the meaning of Section 6662 of the Code) by
ServiceSoft and the ServiceSoft Subsidiaries have been adequately
disclosed (or, with respect to Tax Returns filed following the Closing
will be adequately disclosed) on ServiceSoft and the ServiceSoft
Subsidiaries' Tax Returns in accordance with Section 6662(d)(2)(B) of
the Code.
4.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT -
(a) Subsection 3.8(a) of the ServiceSoft Disclosure Schedule sets forth a
list of all real property currently owned or leased by ServiceSoft and
the ServiceSoft Subsidiaries and, in the case of leased property, the
name of the lessor, the date of the lease and each amendment thereto
and the aggregate annual rental and/or other fees payable under any
such lease. All such leases are in full force and effect, are valid
and effective in accordance with their respective terms, and there is
not, under any of such leases, any existing default or event of
default (or event which with notice or lapse of time, or both, would
constitute a default) of ServiceSoft.
(b) ServiceSoft and the ServiceSoft Subsidiaries have good and valid title
to, or, in the case of leased properties and assets, valid leasehold
interests in, all of their tangible properties and assets free and
clear of any Liens, except as reflected in the
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ServiceSoft Financial Statements and except for Liens for Taxes not
yet due and payable.
(c) The equipment owned or leased by ServiceSoft and the ServiceSoft
Subsidiaries, taken as a whole, is (i) adequate for the conduct of the
business of ServiceSoft and the ServiceSoft Subsidiaries as currently
conducted (ii) generally in good operating condition, subject to
normal wear and tear, and (iii) reasonably maintained.
4.9 INTELLECTUAL PROPERTY -
(a) Except as set forth in subsection 4.9(a) of the ServiceSoft Disclosure
Schedule, ServiceSoft and the ServiceSoft Subsidiaries own, or are
licensed or otherwise possess legally enforceable rights to use, all
patents, industrial designs, trademarks, trade names, service marks,
copyrights, Internet domain names, and any applications therefor, net
lists, schematics, technology, know-how, computer software programs or
applications (in both source code and object code form as to software
programs and applications owned by ServiceSoft and the ServiceSoft
Subsidiaries and in object code form as to software programs and
applications licensed by ServiceSoft and the ServiceSoft
Subsidiaries), and tangible or intangible proprietary information or
material (collectively, "SERVICESOFT INTELLECTUAL PROPERTY') that are
used or proposed to be used in the business of ServiceSoft and the
ServiceSoft Subsidiaries as currently conducted or as proposed to be
conducted by ServiceSoft and the ServiceSoft Subsidiaries.
(b) Subsection 4.9(b) of the ServiceSoft Disclosure Schedule sets forth a
complete list of all patents, industrial designs, registered and
material unregistered trademarks, registered copyrights, trade names
and service marks, Internet domain names, and any applications
therefor in respect of any of the foregoing, included in the
ServiceSoft Intellectual Property, and specifies, where applicable,
the jurisdictions in which the rights to such ServiceSoft Intellectual
Property have been issued or registered or in which an application for
such issuance and registration has been filed, including the
respective registration or application numbers and the names of all
registered owners. All registered patents, industrial designs,
trademarks, service marks and copyrights held by ServiceSoft and the
ServiceSoft Subsidiaries are valid and subsisting.
(c) Subsection 4.9(c) of the ServiceSoft Disclosure Schedule sets forth a
complete list of all licenses, sublicenses and other agreements
(including all amendments and supplements thereto) to which
ServiceSoft or any of the ServiceSoft Subsidiaries are a party and
pursuant to which ServiceSoft or any of the ServiceSoft Subsidiaries
are entitled to use intellectual property of a third party or any
other person is authorized to use ServiceSoft Intellectual Property
that is material to ServiceSoft and the ServiceSoft Subsidiaries,
taken as a whole, and includes the identity of all parties
<PAGE> 39
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thereto. To the Knowledge of ServiceSoft, neither ServiceSoft nor any
of the ServiceSoft Subsidiaries are in violation of any license,
sublicense or agreement described on such list and neither ServiceSoft
nor any of the ServiceSoft Subsidiaries has infringed and the business
of each of ServiceSoft or the ServiceSoft Subsidiaries as currently
conducted, or as currently proposed by ServiceSoft or the ServiceSoft
Subsidiaries to be conducted, does not infringe any copyright, patent,
trademark, service mark, industrial design, trade search or other
proprietary right of any third party. The execution and delivery of
this Agreement by ServiceSoft, and the consummation of the
transactions contemplated hereby, will not (i) cause ServiceSoft or
any of the ServiceSoft Subsidiaries to be in violation or default
under any such license, sublicense or agreement, (ii) entitle any
other party to any such license, sublicense or agreement to terminate
or modify such license, sublicense or agreement or (iii) require
ServiceSoft or any of the ServiceSoft Subsidiaries to repay any funds
already received by it from a third party or make to a third party any
incremental payment. Except for rights granted in agreements, licenses
or sublicenses described in subsections 4.9(b) and (c) of the
ServiceSoft Disclosure Schedule, to the Knowledge of ServiceSoft,
ServiceSoft or one of the ServiceSoft Subsidiaries is the sole and
exclusive owner or licensee of, with all right, title and interest in
and to (free and clear of any Liens), the ServiceSoft Intellectual
Property, and has sole and exclusive rights (and is not contractually
obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in
connection with the services or products in respect of which the
ServiceSoft Intellectual Property is being used.
(d) No claims contesting ServiceSoft's ownership of or right to use
ServiceSoft Intellectual Property, or asserting any right of a third
party to use any ServiceSoft Intellectual Property, have been asserted
or threatened to ServiceSoft or any of the ServiceSoft Subsidiaries or
their agents, nor to the Knowledge of ServiceSoft are there any valid
grounds for any bona fide claims (i) against the use by ServiceSoft or
any of the ServiceSoft Subsidiaries of any ServiceSoft Intellectual
Property used in the business of ServiceSoft or any of the ServiceSoft
Subsidiaries as currently conducted or as currently proposed to be
conducted by ServiceSoft or any of the ServiceSoft Subsidiaries, or
(ii) challenging the validity, effectiveness, or ownership by
ServiceSoft of any of the ServiceSoft Intellectual Property.
(e) To the Knowledge of ServiceSoft (i) there is no material unauthorized
use, infringement or misappropriation of any of the ServiceSoft
Intellectual Property by any third party, including any employee or
former employee of ServiceSoft or the ServiceSoft Subsidiaries, and
(ii) no ServiceSoft Intellectual Property or product of ServiceSoft or
any of the ServiceSoft Subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the
licensing thereof by ServiceSoft or any of the ServiceSoft
Subsidiaries.
<PAGE> 40
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(f) ServiceSoft and each of the ServiceSoft Subsidiaries has a policy
requiring each employee and contractor materially involved in
proprietary aspects of the business to execute ownership and
nondisclosure of proprietary information and confidentiality
agreements in the standard forms, and all current and former
employees, consultants and contractors of ServiceSoft and the
ServiceSoft Subsidiaries involved in proprietary aspects of the
business of ServiceSoft or any of the ServiceSoft Subsidiaries have
executed such an agreement.
(g) ServiceSoft and the ServiceSoft Subsidiaries have been and are in
compliance with the Export Administration Act of 1979, as amended, and
all regulations promulgated thereunder.
4.10 MATERIAL CONTRACTS
(a) Section 4.10 of the ServiceSoft Disclosure Schedule lists all written
contracts or commitments: (i) involving any annual payment in excess
of $50,000, (ii) in respect of any sales made in the ordinary course
of business, involving annual receipts in excess of $100,000, and
(iii) in respect of any other matters, involving annual receipts in
excess of $50,000; (collectively, "SERVICESOFT MATERIAL CONTRACTS") to
which ServiceSoft or any of the ServiceSoft Subsidiaries is a party.
ServiceSoft has made available to Balisoft true and complete copies of
all written ServiceSoft Material Contracts in effect on the date
hereof.
(b) To the Knowledge of ServiceSoft, each of the ServiceSoft Material
Contracts is in full force and effect and unamended, (except for such
amendments as are disclosed on Section 4.10 of the ServiceSoft
Disclosure Schedule) and is valid, binding and enforceable in
accordance with its terms. To the Knowledge of ServiceSoft, no party
to any ServiceSoft Material Contract or successor or assignee thereof,
is in default of any material provision thereof and there exists no
event or condition which does or would, by itself or with giving of
notice or the passage of time or both, constitute a breach of or
default under any ServiceSoft Material Contract or results in the
acceleration of any obligation thereunder.
4.11 INTERESTED PARTY TRANSACTIONS - Except as disclosed in Section 4.11 of the
ServiceSoft Disclosure Schedule, to the Knowledge of ServiceSoft no officer,
director, employee or shareholder of more than 5% of the ServiceSoft Common
Shares (calculated on a fully diluted basis), nor any parent, sibling, child or
spouse of any of such persons, or any trust, partnership or corporation in which
any of such persons has or has had an interest, has or has had, directly or
indirectly, (i) an interest in any entity which furnished or sold, or furnishes
or sells, services or products that ServiceSoft or any of the ServiceSoft
Subsidiaries furnish or sell, or propose to furnish or sell, or (ii) any
interest in any entity that purchases from or sells or furnishes to, ServiceSoft
or any of the ServiceSoft Subsidiaries, any goods or services or (iii) a
beneficial interest in any ServiceSoft Material Contract; PROVIDED, HOWEVER,
that passive ownership of no more than five percent (5%) of
<PAGE> 41
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the outstanding voting stock of a corporation shall not be deemed an "interest
in any entity" for purposes of this Section 4.11.
4.12 LITIGATION - There is no private or governmental action, suit, proceeding,
claim, arbitration or investigation pending before any agency, court or
tribunal, foreign or domestic, to the Knowledge of ServiceSoft threatened
against ServiceSoft or any ServiceSoft Subsidiaries or any of their properties
or any of their officers or directors (in their capacities as such). There is no
judgment, decree or order against, ServiceSoft or any ServiceSoft Subsidiaries,
or any of their respective directors or officers (in their capacities as such),
that could prevent, enjoin, alter or delay any of the transactions contemplated
by this Agreement or that has a reasonable risk of having a material adverse
effect on ServiceSoft and the ServiceSoft Subsidiaries, taken as a whole.
4.13 ENVIRONMENTAL AND SAFETY LAWS - To the Knowledge of ServiceSoft,
ServiceSoft and the ServiceSoft Subsidiaries are not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, except to the extent such violation would not
have a material adverse effect on the assets, properties, financial condition,
operating results or business of ServiceSoft and the ServiceSoft Subsidiaries
(taken as a whole), and no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation.
4.14 BROKERS' AND FINDERS' FEES -Neither of ServiceSoft nor any of the
ServiceSoft Subsidiaries have incurred, nor will they incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
4.15 EMPLOYEE BENEFIT PLANS AND COMPENSATION
(a) PLANS - Subsection 4.15(a) of the ServiceSoft Disclosure Schedule
contains a true and complete list of each "employee pension benefit
plan" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), employee welfare benefit
plan" (as defined in Section 3(l) of ERISA), and any plan, agreement
or program providing for pensions, retirement income, deferred
compensation, profit-sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation that (i) is
entered into, maintained or contributed to, as the case may be, by
ServiceSoft or any ServiceSoft Subsidiaries and (ii) covers any
employee or former employee of ServiceSoft or any ServiceSoft
Subsidiaries (collectively "SERVICESOFT BENEFIT ARRANGEMENTS"). Each
ServiceSoft Benefit Arrangement (and each related trust insurance
contract or fund) has been maintained and administered in material
compliance with its terms and with the requirements prescribed by
ERISA, the Code and all other statutes, laws, ordinances and
regulations which are applicable thereto. The requirements of the
consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA") have been met with respect to each ServiceSoft Benefit
Arrangement which is an employee
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welfare benefit plan under Section 3(l) of ERISA. All required reports
and descriptions (including Form 5500 Annual Reports, summary annual
reports, PBGCI's and summary plan descriptions) have been timely filed
and distributed appropriately with respect to each such ServiceSoft
Benefit Arrangement. No ServiceSoft Benefit Arrangement has unfunded
liabilities that, as of the Closing, will not be offset by insurance
or fully accrued or reserved against in the ServiceSoft Balance Sheet.
Except to the extent required under COBRA, ServiceSoft and the
ServiceSoft Subsidiaries does not maintain, contribute to, or have any
liability or obligation to contribute to any funded or unfunded
medical, health or life insurance plan or similar arrangement for
present or future retirees, their spouses or dependents or present or
future terminated employees, their spouses or dependents. No
ServiceSoft Benefit Arrangement has applied for or received a waiver
of the minimum funding standards imposed by Section 412 of the Code,
and no ServiceSoft Benefit Arrangement has an "accumulated funding
deficiency" within the meaning of Section 412(a) of the Code as of the
most recent plan year. Each ServiceSoft Benefit Arrangement subject to
Title IV of ERISA has paid all premiums when due to the Pension
Benefit Guaranty Corporation. ("PBGC"). ServiceSoft and the
ServiceSoft Subsidiaries have not incurred, and none of the directors
and officers (and employees with responsibility for employee benefits
matters) of ServiceSoft and the ServiceSoft Subsidiaries have any
reason to expect that they will incur, any liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal liability as defined in Section 4201
of ERISA) or under the Code with respect to any such ServiceSoft
Benefit Arrangement which is an employee pension benefit plan under
Section 3(2) of ERISA. Except as required by law or by the provisions
of such ServiceSoft Benefit Arrangement, no condition exists that
would prevent ServiceSoft or any ServiceSoft Subsidiaries from
amending or terminating any ServiceSoft Benefit Arrangement.
(b) Except as disclosed in subsection 4.15(b) of the ServiceSoft
Disclosure Schedule, there are no investigations by any governmental
agency, termination proceedings or other claims (except claims for
benefits payable in the normal operation of the ServiceSoft Benefit
Arrangements), suits or proceedings against or involving any
ServiceSoft Benefit Arrangement that would result in material
liability against ServiceSoft and the ServiceSoft Subsidiaries or any
ServiceSoft Benefit Arrangement. Except as disclosed in subsection
4.15(b) of the ServiceSoft Disclosure Schedule, the ServiceSoft
Benefit Arrangements that are pension benefit plans have received
determination letters from the Internal Revenue Service to the reflect
that such ServiceSoft Benefit Arrangements are qualified and exempt
from Federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has been
revoked nor, to the knowledge of Sellers, has revocation been
threatened, nor are there any facts that could result in any such
revocation, nor has any such ServiceSoft Benefit Arrangement been
amended since the date of its most recent determination letter or
application therefor in any respect
<PAGE> 43
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that would adversely affect its qualification. No "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of
ERISA) has occurred which involves the assets of any ServiceSoft
Benefit Arrangement and which could subject any employees of
ServiceSoft and the ServiceSoft Subsidiaries, a trustee, administrator
or other fiduciary of any trusts created under any ServiceSoft Benefit
Arrangement to the tax or penalty on prohibited transactions imposed
by Section 4975 of the Code or the sanctions imposed under Title I of
ERISA. No fiduciary has any liability for breach of fiduciary duty or
any other failure to at or comply in connection with the
administration or investment of the assets of any ServiceSoft Benefit
Arrangement. Except as disclosed in subsection 4.15(b) of the
ServiceSoft Disclosure Schedule, none of the ServiceSoft Benefit
Arrangements have been terminated nor have there been any "reportable
events" (as defined in Section 4043 of ERISA and the regulations
thereunder) with respect thereto. The execution of this Agreement and
the consummation of the transaction contemplated hereby will not
result in the acceleration or early vesting of any payments or
benefits under any ServiceSoft Benefit Arrangement or in the payment
of any "excess parachute payments" within the meaning of Section 280G
of the Code.
(c) ServiceSoft and the ServiceSoft Subsidiaries are not a members of a
controlled group of corporations, within the meaning of Section 414(b)
of the Code, are not members of a group of trades or businesses under
common control, within the meaning of Section 414(c) of the Code, and
are not members of an affiliated service group, within the meaning of
Section 414(m) and (o) of the Code. ServiceSoft and the ServiceSoft
Subsidiaries do not contribute to, never have contributed to, and
never have been required to contribute to any multiemployer plan (as
defined in Section 3(37) of ERISA) and none of them has any liability
(including withdrawal liability as defined in Section 4201 of ERISA)
under any multiemployer plan.
(d) NO POST-EMPLOYMENT OBLIGATIONS - Except as set forth in subsection
4.15(d) of the ServiceSoft Disclosure Schedule, no ServiceSoft Benefit
Arrangement provides, or has any liability to provide, life insurance,
medical or other employee benefits to any employee upon his or her
retirement or termination of employment for any reason, except as may
be required by law, and neither ServiceSoft nor any of the ServiceSoft
Subsidiaries have ever represented, promised or contracted (whether in
oral or written form) to any employee (either individually or to
employees as a group) that such employee(s) would be provided with
life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required
by law.
(e) EMPLOYMENT MATTERS - ServiceSoft has delivered to Balisoft a complete
list of all current employees of ServiceSoft and the ServiceSoft
Subsidiaries and their position, gross remuneration and length of
employment. To the Knowledge of ServiceSoft, ServiceSoft and the
ServiceSoft Subsidiaries: (i) are in compliance in all material
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respects with all applicable foreign, federal and provincial laws,
rules and regulations respecting employment, employment practices,
terms and conditions of employment and wages and hours, in each case,
with respect to employees; (ii) have withheld all amounts required by
law or by agreement to be withheld from the wages, salaries and other
payments to employees; (iii) are not liable for any arrears of wages
or any Taxes or any penalty for failure to comply with any of the
foregoing; and (iv) except as required by applicable law, are not
liable for any payment to any trust or other fund or `to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for employees
(other than routine payments to be made in the normal course of
business and consistent with past practice).
(f) LABOR - Except as set forth in subsection 4.15(f) of the ServiceSoft
Disclosure Schedule, neither ServiceSoft nor any of the ServiceSoft
Subsidiaries are involved in or threatened with any labor dispute,
grievance, litigation or claim relating to labor, occupational health
and safety or human rights matters involving any employee, including,
without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in liability having a
material adverse effect on ServiceSoft and the ServiceSoft
Subsidiaries, taken as a whole. Neither ServiceSoft nor any of the
ServiceSoft Subsidiaries have engaged in any unfair labor practices
which would, individually or in the aggregate, directly or indirectly
result in liability to ServiceSoft or any of the ServiceSoft
Subsidiaries. Except as set forth in subsection 4.15(f) of the
ServiceSoft Disclosure Schedule, neither ServiceSoft nor any of the
ServiceSoft Subsidiaries are presently, nor have they been in the
past, a party to, or bound by, any collective bargaining agreement or
union contract with respect to employees and no collective bargaining
agreement is being negotiated by ServiceSoft or any of the ServiceSoft
Subsidiaries or, to the Knowledge of ServiceSoft, is being organized
or is threatened.
4.16 INSURANCE - Section 4.16 of the ServiceSoft Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of ServiceSoft and the
ServiceSoft Subsidiaries. Except as disclosed in Section 4.16 of the ServiceSoft
Disclosure Schedule such policies and bonds are sufficient in amount to allow
ServiceSoft or the ServiceSoft Subsidiaries (as applicable) to replace any of
its properties that might be damaged or destroyed. There is no claim by
ServiceSoft or any of the ServiceSoft Subsidiaries pending under any of such
policies or bonds as to which ServiceSoft or any of the ServiceSoft Subsidiaries
have received notice that coverage has been questioned, denied or disputed by
the underwriters of such policies or bonds. All premiums due and payable under
all such policies and bonds have been paid and ServiceSoft or the applicable
ServiceSoft Subsidiary are otherwise in material compliance with the terms of
such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). There is no threatened termination of, or material
premium increase with respect to, any of such policies.
<PAGE> 45
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4.17 COMPLIANCE WITH LAWS - To the Knowledge of ServiceSoft, ServiceSoft and
each of the ServiceSoft Subsidiaries has complied with, are not in violation of,
and have not received any notices of violation with respect to, any foreign,
federal, provincial or local statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of their business, assets
or properties.
4.18 COMPLETE COPIES OF MATERIALS - ServiceSoft has delivered or made available
to Balisoft true and complete copies of each agreement, contract, commitment or
other document (or summaries of same) that is referred to in the ServiceSoft
Disclosure Schedule or that has been requested in writing by Balisoft or its
counsel.
4.19 REPRESENTATIONS COMPLETE - To the Knowledge of ServiceSoft, none of the
representations or warranties made herein by ServiceSoft or ServiceSoft Canada
(as modified by the ServiceSoft Disclosure Schedule), nor any statement made in
any Schedule or certificate furnished by ServiceSoft or ServiceSoft Canada
pursuant to this Agreement contains or will contain at the Closing Time, any
untrue statement of a material fact, or omits or will omit at the Closing Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which they were made,
not misleading.
4.20 DISCLOSURE SCHEDULE - The ServiceSoft Disclosure Schedule has been prepared
and executed by ServiceSoft and dated and delivered on the date of this
Agreement. ServiceSoft shall endeavor to disclose in the ServiceSoft Disclosure
Schedule each item of information in each separate section in which such item
may reasonably be required to be disclosed, provided, however, that any item of
information disclosed in any one section of the ServiceSoft Disclosure Schedule
may be cross-referenced in other relevant sections thereof for purposes of
disclosure under this Agreement.
ARTICLE 5
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 CONDUCT OF BUSINESS OF BALISOFT - During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Closing Time, Balisoft agrees (except to the extent that ServiceSoft
shall otherwise consent in writing), to carry on its business and the business
of the Balisoft Subsidiaries in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay its debts and
Taxes when due unless validly withheld, to pay or perform other obligations when
due, and, to the extent consistent with such business and except as agreed to by
ServiceSoft and Balisoft, use all reasonable efforts consistent with past
practice and policies to preserve intact the present business organization, keep
available the services of its present officers and key employees and preserve
their relationships with customers and others having business dealings with it,
all with the goal of preserving unimpaired Balisoft and the Balisoft
Subsidiaries' goodwill and ongoing businesses at the Closing Time. Balisoft
shall promptly notify ServiceSoft of any event or occurrence or emergency not in
the ordinary course of business of
<PAGE> 46
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Balisoft or the Balisoft Subsidiaries, and any material event involving Balisoft
or the Balisoft Subsidiaries. Except as expressly contemplated by this
Agreement, Balisoft and the Balisoft Subsidiaries shall not, without the prior
written consent of ServiceSoft:
(a) Enter into any commitment or transaction not in the ordinary course of
business or any commitment or transaction of the type described in
Section o hereof;
(b) Transfer to any person or entity any rights to the Balisoft
Intellectual Property (other than such transfers effectuated in the
ordinary course of business);
(c) Enter into or amend any agreements not cancelable by Balisoft without
penalty on 90 days notice or less pursuant to which any other party is
granted exclusive marketing, distribution or similar rights with
respect to any products of Balisoft or any of the Balisoft
Subsidiaries;
(d) Amend, terminate or violate any distribution agreement or material
contract, agreement or license which Balisoft or any of the Balisoft
Subsidiaries are a party or by which either is bound other than
termination by Balisoft or any of the Balisoft Subsidiaries pursuant
to the terms thereof in the ordinary course of business and without
financial penalty to Balisoft or any of the Balisoft Subsidiaries;
(e) Commence any material litigation;
(f) Except as contemplated by the Balisoft Recapitalization, declare, set
aside or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any Balisoft Common Shares
or Balisoft Preferred Shares, or split, combine or reclassify any
Balisoft Common Shares or Balisoft Preferred Shares;
(g) Except for the issuance of Balisoft Common Shares or Balisoft
Preferred Shares upon exercise or conversion of presently outstanding
securities of Balisoft or the Balisoft Subsidiaries or otherwise in
connection with the Balisoft Recapitalization, issue, deliver or sell
or authorize or propose the issuance, delivery or sale of, or
purchase, propose the purchase of, repurchase, redeem or otherwise
acquire, directly or indirectly, any shares of capital stock or
securities convertible into, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, including those of any of the Balisoft Subsidiaries;
(h) Except in connection with the Balisoft Recapitalization or to
facilitate the closing of the transactions contemplated by this
Agreement, cause or permit any amendments to its or any of the
Balisoft Subsidiaries' Articles of Incorporation or Bylaws (or
comparable organizational documents);
<PAGE> 47
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(i) Acquire or agree to acquire by merging, amalgamating or consolidating
with, or by purchasing any of the assets or equity securities of, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of Balisoft and the
Balisoft Subsidiaries, taken as a whole;
(j) Sell, lease, license or otherwise dispose of any of its or the
Balisoft Subsidiaries' properties or assets except in the ordinary
course of business;
(k) Incur any indebtedness for borrowed money (except with respect to
indebtedness incurred by Balisoft or any of the Balisoft Subsidiaries
in the ordinary course of business and under existing term loans or
revolving credit lines in an amount not more than $50,000) or
guarantee any such indebtedness or issue or sell any debt securities
of Balisoft or any of the Balisoft Subsidiaries or guarantee any debt
securities of others;
(l) Grant any severance or termination pay to, or accelerate any benefits
of, (i) any director or officer or (ii) any other employee except
payments made pursuant to written agreements outstanding on the date
hereof and disclosed in the Balisoft Disclosure Schedule;
(m) Adopt or amend any employee benefit plan, or enter into any employment
contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or
wage rates of its employees other than hirings and terminations in the
ordinary course of business and other than customary increases
associated with annual reviews scheduled during such period;
(n) Revalue any of its assets including, without limitation, writing down
the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $10,000 (in any
one case) or $50,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of
liabilities in the ordinary course of business or liabilities
reflected or reserved against in the Balisoft Financial Statements (or
the notes thereto) or in connection with the Balisoft
Recapitalization;
(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes,
or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
<PAGE> 48
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(q) Enter into any development, joint marketing or other strategic
arrangement or agreement except for such marketing agreements that are
(i) entered into in the ordinary course of business, (ii) do not
provide for the exclusive grant of any rights and (iii) terminable at
Balisoft's or the applicable Balisoft Subsidiary's option at any time
without the payment of any termination fees; or
(r) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1 (a) through (q) above, or any other action
that would prevent Balisoft from performing or cause Balisoft not to
perform the transactions contemplated herein or its covenants
hereunder.
5.2 CONDUCT OF BUSINESS OF SERVICESOFT - During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Time, ServiceSoft agrees (except to the extent that
Balisoft shall otherwise consent in writing), to carry on its business and the
business of the ServiceSoft Subsidiaries in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, to pay its
debts and Taxes when due unless validly withheld, to pay or perform other
obligations when due, and, to the extent consistent with such business and
except as agreed to by Balisoft and ServiceSoft, use all reasonable efforts
consistent with past practice and policies to preserve intact the present
business organization, keep available the services of its present officers and
key employees and preserve their relationships with customers and others having
business dealings with it, all with the goal of preserving unimpaired
ServiceSoft and the ServiceSoft Subsidiaries' goodwill and ongoing businesses at
the Closing Time. ServiceSoft shall promptly notify Balisoft of any event or
occurrence or emergency not in the ordinary course of business of ServiceSoft or
the ServiceSoft Subsidiaries, and any material event involving ServiceSoft or
the ServiceSoft Subsidiaries. Except as expressly contemplated by this
Agreement, ServiceSoft and the ServiceSoft Subsidiaries shall not, without the
prior written consent of Balisoft:
(a) Enter into any commitment or transaction not in the ordinary course of
business or any commitment or transaction of the type described in
Section __ hereof;
(b) Transfer to any person or entity any rights to the ServiceSoft
Intellectual Property (other than such transfers effectuated in the
ordinary course of business);
(c) Enter into or amend any agreements not cancelable by ServiceSoft
without penalty on 90 days notice or less pursuant to which any other
party is granted exclusive marketing, distribution or similar rights
with respect to any products of ServiceSoft or any of the ServiceSoft
Subsidiaries;
(d) Amend, terminate or violate any distribution agreement or material
contract, agreement or license which ServiceSoft or any of the
ServiceSoft Subsidiaries are a party or by which either is bound other
than termination by ServiceSoft or any of the
<PAGE> 49
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ServiceSoft Subsidiaries pursuant to the terms thereof in the ordinary
course of business and without financial penalty to ServiceSoft or any
of the ServiceSoft Subsidiaries;
(e) Commence any material litigation;
(f) Except as contemplated by the ServiceSoft Recapitalization, declare,
set aside or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any ServiceSoft
Common Shares or ServiceSoft Preferred Shares, or split, combine or
reclassify any ServiceSoft Common Shares or ServiceSoft Preferred
Shares;
(g) Except for the issuance of ServiceSoft Common Shares or ServiceSoft
Preferred Shares upon exercise or conversion of presently outstanding
securities of ServiceSoft or the ServiceSoft Subsidiaries or otherwise
in connection with the ServiceSoft Recapitalization, issue, deliver or
sell or authorize or propose the issuance, delivery or sale of, or
purchase, propose the purchase of, repurchase, redeem or otherwise
acquire, directly or indirectly, any shares of capital stock or
securities convertible into, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, including those of any of the ServiceSoft Subsidiaries;
(h) Except in connection with the ServiceSoft Recapitalization or to
facilitate the closing of the transactions contemplated by this
Agreement, cause or permit any amendments to its or any of the
ServiceSoft Subsidiaries' Articles of Incorporation or Bylaws (or
comparable organizational documents);
(i) Acquire or agree to acquire by merging, amalgamating or consolidating
with, or by purchasing any of the assets or equity securities of, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of ServiceSoft and
the ServiceSoft Subsidiaries, taken as a whole;
(j) Sell, lease, license or otherwise dispose of any of its or the
ServiceSoft Subsidiaries' properties or assets except in the ordinary
course of business;
(k) Incur any indebtedness for borrowed money (except with respect to
indebtedness incurred by ServiceSoft or any of the ServiceSoft
Subsidiaries in the ordinary course of business and under existing
term loans or revolving credit lines in an amount not more than
$50,000) or guarantee any such indebtedness or issue or sell any debt
securities of ServiceSoft or any of the ServiceSoft Subsidiaries or
guarantee any debt securities of others;
<PAGE> 50
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(1) Grant any severance or termination pay to, or accelerate any benefits
of, (i) any director or officer or (ii) any other employee except
payments made pursuant to written agreements outstanding on the date
hereof and disclosed in the ServiceSoft Disclosure Schedule;
(m) Adopt or amend any employee benefit plan, or enter into any employment
contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or
wage rates of its employees other than hirings and terminations in the
ordinary course of business and other than customary increases
associated with annual reviews scheduled during such period;
(n) Revalue any of its assets including, without limitation, writing down
the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $10,000 (in any
one case) or $50,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of
liabilities in the ordinary course of business or liabilities
reflected or reserved against in the ServiceSoft Financial Statements
(or the notes thereto) or in connection with the ServiceSoft
Recapitalization;
(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes,
or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(q) Enter into any development, joint marketing or other strategic
arrangement or agreement except for such marketing agreements that are
(i) entered into in the ordinary course of business, (ii) do not
provide for the exclusive grant of any rights and (iii) terminable at
ServiceSoft's or the applicable ServiceSoft Subsidiary's option at any
time without the payment of any termination fees; or
(r) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1 (a) through (q) above, or any other action
that would prevent ServiceSoft from performing or cause ServiceSoft
not to perform the transactions contemplated herein or its covenants
hereunder.
5.3 NO SOLICITATION -
(a) Until the Closing Time or the date of termination of this Agreement
pursuant to the provisions of Section 10.1 hereof, as the case may be,
except with the written consent
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of ServiceSoft, Balisoft will not (nor will Balisoft permit any of
Balisoft's officers, directors, agents, representatives or affiliates
to) directly or indirectly, take any of the following actions with any
party other than ServiceSoft or its designees: (i) solicit, conduct
discussions with or engage in negotiations with any person, relating
to the possible acquisition by any person other than ServiceSoft of
any material portion of the business of Balisoft or the Balisoft
Subsidiaries (whether by way of reorganization, merger, purchase of
outstanding capital stock, purchase of assets or otherwise) or of any
portion of the capital stock of Balisoft or the Balisoft Subsidiaries
(an "ALTERNATIVE BALISOFT TRANSACTION"), (ii) provide information with
respect to it to any person, other than ServiceSoft, relating to or in
connection with an Alternative Balisoft Transaction, (iii) enter into
an agreement with any person, other than ServiceSoft, providing for an
Alternative Balisoft Transaction or (iv) make or authorize any
statement, recommendation or solicitation in support of an Alternative
Balisoft Transaction.
(b) Until the Closing Time or the date of termination of this Agreement
pursuant to the provisions of Section 10.1 hereof, as the case may be,
except with the written consent of Balisoft, ServiceSoft will not (nor
will ServiceSoft permit any of ServiceSoft's officers, directors,
agents, representatives or affiliates to) directly or indirectly, take
any of the following actions with any party other than Balisoft or its
designees: (i) solicit, conduct discussions with or engage in
negotiations with any person, relating to the possible acquisition by
any person other than Balisoft of any material portion of the business
of ServiceSoft or the ServiceSoft Subsidiaries (whether by way of
reorganization, merger, purchase of outstanding capital stock,
purchase of assets or otherwise) or of any portion of the capital
stock of ServiceSoft or the ServiceSoft Subsidiaries (an "ALTERNATIVE
SERVICESOFT TRANSACTION"), (ii) provide information with respect to it
to any person, other than Balisoft, relating to or in connection with
an Alternative ServiceSoft Transaction, (iii) enter into an agreement
with any person, other than Balisoft, providing for an Alternative
ServiceSoft Transaction or (iv) make or authorize any statement,
recommendation or solicitation in support of an Alternative
ServiceSoft Transaction.
(c) If, prior to the Closing Time or the termination of this Agreement,
Balisoft or ServiceSoft receives any bona fide offer or proposal
relating to any of the above, such party shall immediately notify the
other party thereof, including information as to the identity of the
party making any such offer or proposal and the specific terms of such
offer or proposal, as the case may be; PROVIDED, HOWEVER, that neither
party shall be required to notify the other of any contacts with
parties who have previously made offers to them where such parties
repeat such previously made offers, such previously made offers are
declined, and the parties have no further contact.
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ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 ACCESS TO INFORMATION -
(a) Balisoft shall afford ServiceSoft and its accountants, counsel and
other representatives, reasonable access during normal business hours
upon reasonable notice during the period prior to the Closing Time or
the termination of this Agreement to (a) all of Balisoft's and
Balisoft Subsidiaries' properties, books, contracts, commitments and
records, and (b) with the consent of Balisoft, which consent shall not
be unreasonably withheld, all other information concerning the
business, properties and personnel (subject to restrictions imposed by
applicable law) of Balisoft as ServiceSoft may reasonably request
including, without limitation, access upon reasonable request to
Balisoft's and Balisoft Subsidiaries' employees, customers and vendors
for due diligence inquiry. Balisoft agrees to provide to ServiceSoft
and its accountants, counsel and other representatives copies of
internal financial statements, business plans and projections promptly
upon request.
(b) ServiceSoft shall afford Balisoft and its accountants, counsel and
other representatives, reasonable access during normal business hours
upon reasonable notice during the period prior to the Closing Time or
the termination of this Agreement to (a) all of ServiceSoft's and
ServiceSoft Subsidiaries' properties, books, contracts, commitments
and records, and (b) with the consent of ServiceSoft, which consent
shall not be unreasonably withheld, all other information concerning
the business, properties and personnel (subject to restrictions
imposed by applicable law) of ServiceSoft as Balisoft may reasonably
request including, without limitation, access upon reasonable request
to ServiceSoft's and ServiceSoft Subsidiaries' employees, customers
and vendors for due diligence inquiry. ServiceSoft agrees to provide
to Balisoft and its accountants, counsel and other representatives
copies of internal financial statements, business plans and
projections promptly upon request.
(c) No information or knowledge obtained in any investigation pursuant to
this Section 6.1 or otherwise shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Amalgamation.
6.2 CONFIDENTIALITY - Each of the parties hereto hereby agrees to keep all
information or knowledge obtained in any investigation pursuant to Section 6.1,
or pursuant to the negotiation and execution of this Agreement or the completion
of the transactions contemplated hereby, confidential in accordance with the
terms of the confidentiality agreement executed by Balisoft and ServiceSoft on
November 12, 1998, (the "CONFIDENTIALITY AGREEMENT").
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6.3 EXPENSES -
(a) If the Amalgamation is not consummated Balisoft and ServiceSoft shall
each pay 50% of the fees and expenses of each party's legal counsel up
to a maximum of $50,000 (or such other amount as may be mutually
agreed) and all other fees and expenses incurred in connection with
the transactions contemplated by this Agreement including without
limitation, all additional legal fees, all accounting, financial
advisory, consulting and all other fees and expenses of third parties
incurred by Balisoft or ServiceSoft in connection with the negotiation
and completion of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the
respective party incurring such fees and expenses.
(b) If the Amalgamation is consummated, all reasonable legal, accounting,
similar third party fees and reasonable out-of-pocket expenses
associated with the transactions contemplated by this Agreement
incurred by Balisoft and ServiceSoft shall be paid by ServiceSoft.
6.4 PUBLIC DISCLOSURE - The parties hereto agree that they shall not make any
disclosure, by means of the issuance of any reports, statements, releases or
other public disclosure, or any other third party disclosure, relating to the
terms and conditions of this Agreement and the transactions contemplated hereby,
except in such form as may be mutually agreed or as may be required by
applicable law (provided that in such circumstances the disclosing party shall
use reasonable efforts to notify the other party in advance).
6.5 CONSENTS - Each of Balisoft and ServiceSoft shall promptly apply for or
otherwise seek, and use its best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Amalgamation, and
Balisoft shall use its best efforts to obtain all consents, waivers and
approvals under any of Balisoft's agreements, contracts, licenses or leases in
order to preserve the benefits thereunder for Amalco and otherwise in connection
with the Amalgamation.
6.6 LEGAL REQUIREMENTS - Subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use its reasonable best efforts to
take promptly, or cause to be taken, all reasonable actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement.
6.7 NOTIFICATION OF CERTAIN MATTERS - Balisoft shall give prompt notice to
ServiceSoft, and ServiceSoft shall give prompt notice to Balisoft, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which may cause any representation or warranty of
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Balisoft on the one hand and ServiceSoft on the other hand contained in this
Agreement to be untrue or inaccurate at the Closing Time and (ii) any failure of
Balisoft or any of the Balisoft Subsidiaries or ServiceSoft or any of the
ServiceSoft Subsidiaries, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this
Section 6.7 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
6.8 EMPLOYEE BENEFIT ARRANGEMENTS - ServiceSoft agrees, from and after the
Closing Date, to cause Amalco to honor all obligations under the employment and
severance agreements to which Balisoft or the Balisoft Subsidiaries is presently
a party. Employees of Amalco immediately following the Closing Date who
immediately prior to the Closing Date were employees of Balisoft or the Balisoft
Subsidiaries shall be given credit for purposes of eligibility and vesting under
each employee benefit plan, program, policy or arrangement of ServiceSoft or
Amalco in which such employees participate subsequent to the Closing Date for
all service with Balisoft and the Balisoft Subsidiaries prior to the Closing
Date (to the extent such credit was given by Balisoft or the Balisoft
Subsidiaries) for purposes of eligibility and vesting.
6.9 FURTHER ASSURANCES - Each of the parties to this Agreement shall use its
best efforts to complete the transactions contemplated hereby and to fulfill or
cause to be fulfilled the conditions to closing under this Agreement. Each party
hereto, at the reasonable request of another party hereto, shall execute and
deliver such other instruments and do and perform such other acts and things as
may be necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
ARTICLE 7
CONDITIONS TO THE AMALGAMATION
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE AMALGAMATION - The
respective obligations of each party to this Agreement to effect the
Amalgamation shall be subject to the satisfaction at or prior to the Closing
Time of the following conditions:
(a) CORPORATE APPROVALS - This Agreement and the Amalgamation (including
without limitation all issuances of ServiceSoft securities issuable
upon the Amalgamation and upon the exercise, conversion or exchange of
securities of ServiceSoft and Amalco issuable upon the Amalgamation
and including in respect of the ServiceSoft Escrow Fund) shall have
been approved and adopted by the shareholders of Balisoft, ServiceSoft
and ServiceSoft Canada, as required.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY - No temporary restraining
order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the
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Amalgamation or restricting the conduct or operations of the business
of Amalco or ServiceSoft shall be in effect, nor shall any proceeding
brought by a Governmental Entity, seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to
the Amalgamation, which makes the consummation of the Amalgamation
unlawful.
(c) GOVERNMENTAL APPROVAL - Each of Balisoft and ServiceSoft shall have
timely obtained from each Governmental Entity all approvals, waivers
and consents, if any, necessary for consummation of or in connection
with the Amalgamation and the transactions contemplated hereby.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BALISOFT - The obligations of
Balisoft to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Time of each of the following conditions, any of which may be waived, in
writing, exclusively by Balisoft:
(a) ADDITIONAL SERVICESOFT AGREEMENTS - (i) Each of the agreements to be
entered into in accordance with Article 2 by ServiceSoft, ServiceSoft
Canada and the relevant shareholders of Balisoft and ServiceSoft shall
have been entered into and ServiceSoft shall have entered into an
Employment Agreement with Mark Skapinker as Chief Executive Officer of
ServiceSoft substantially in the form attached hereto as EXHIBIT H and
David Tarrant shall have executed the Employment Agreement Amendment
in the form attached hereto as EXHIBIT I (in each case effective upon
or immediately following Closing), all ServiceSoft Employee Options
issuable to the current employees of Balisoft shall have been
authorized and reserved for issuance and (conditional upon the
Closing) issued to the applicable Balisoft employees. (ii) The agreed
nominees of Balisoft shall have been appointed (effective upon the
Closing) to the ServiceSoft board of directors and all current members
of the ServiceSoft board of directors other than David Tarrant and
Robert Davoli shall have resigned (effective upon the Closing) from
the ServiceSoft board of directors. (iii) ServiceSoft shall have
created the Special Common Voting Share and the Special Preferred
Voting Share in accordance with subsection 2.9(a).
(b) REPRESENTATIONS WARRANTIES AND COVENANTS - The representations and
warranties of ServiceSoft contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Time,
with the same force and effect as if made on the Effective Date
(except the extent expressly contemplated by this Agreement) and each
of ServiceSoft and ServiceSoft Canada shall have performed and
complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied
with by it as of the Closing Time.
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(c) CERTIFICATE OF SERVICESOFT - Balisoft shall have been provided with a
certificate executed on behalf of ServiceSoft by its President and its
Chief Financial Officer to the effect that, as of the Closing Time:
(i) all representations and warranties made by ServiceSoft and
ServiceSoft Canada under this Agreement are true and correct in all
material respects; and
(ii) all covenants, obligations and conditions of this Agreement to be
performed by ServiceSoft and ServiceSoft Canada on or before such date
have been so performed in all material respects.
(d) CLAIMS - There shall not have occurred any claims (whether asserted or
unasserted in litigation) which may materially and adversely affect
the consummation of the transactions contemplated hereby or the
business, assets (including intangible assets), financial condition or
results of operations of ServiceSoft and the ServiceSoft Subsidiaries,
taken as a whole.
(e) LITIGATION - There shall be no action, suit, claim or proceeding of
any nature pending, or overtly threatened, against ServiceSoft or the
ServiceSoft Subsidiaries, their respective properties or any of their
officers or directors, arising out of, or in any way connected with,
the Amalgamation or the other transactions contemplated by the terms
of this Agreement.
(f) THIRD PARTY CONSENTS - Balisoft shall have been furnished with
evidence reasonably satisfactory to it that ServiceSoft and the
ServiceSoft Subsidiaries have obtained all consents, approvals and
waivers as set forth in subsection 4.3(c) of the ServiceSoft
Disclosure Schedule.
(g) LEGAL OPINION - Balisoft shall have received from Land & Lemle counsel
to ServiceSoft, a legal opinion, dated the Closing Date, in such form
as shall be agreed by the parties, acting reasonably.
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SERVICESOFT - The obligations
of ServiceSoft and ServiceSoft Canada to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Closing Time of each of the following conditions, any of which
may be waived, in writing, exclusively by ServiceSoft (on behalf of itself and
ServiceSoft Canada):
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS - The representations and
warranties of Balisoft contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Time as,
with the same force and effect as if made on the Effective Date
(except to the extent expressly contemplated in this Agreement) and
Balisoft shall have performed and complied in all material respects
with all
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covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Closing Time.
(b) CERTIFICATE OF BALISOFT - ServiceSoft shall have been provided with a
certificate executed on behalf of Balisoft by its Chief Executive
Officer and its President to the effect that, as of the Closing Time:
(i) all representations and warranties made by Balisoft in this
Agreement are true and correct in all material respects; and
(ii) all covenants, obligations and conditions of this Agreement to be
performed by Balisoft on or before such date have been so performed in
all material respects.
(c) CLAIMS - There shall not have occurred any claims (whether asserted or
unasserted in litigation) which may materially and adversely affect
the consummation of the transactions contemplated hereby or the
business, assets (including intangible assets), financial condition or
results of operations of Balisoft and the Balisoft Subsidiaries, taken
as a whole.
(d) LITIGATION - There shall be no action, suit, claim or proceeding of
any nature pending, or overtly threatened, against Balisoft or the
Balisoft Subsidiaries, their respective properties or any of their
officers or directors, arising out of, or in any way connected with,
the Amalgamation or the other transactions contemplated by the terms
of this Agreement.
(e) THIRD PARTY CONSENTS - ServiceSoft shall have been furnished with
evidence reasonably satisfactory to it that Balisoft has obtained all
consents, approvals and waivers as set forth in subsection 3.3(c) of
the Balisoft Disclosure Schedule.
(f) LEGAL OPINION - ServiceSoft shall have received from Osler, Hoskin &
Harcourt, counsel to Balisoft, a legal opinion, dated the Closing
Date, in such form as shall be agreed by the parties, acting
reasonably.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES - All covenants to be performed
by Balisoft, ServiceSoft and ServiceSoft Canada prior to the Closing Time, and
all representations and warranties of Balisoft, ServiceSoft and ServiceSoft
Canada set forth in this Agreement or in any instrument delivered pursuant to
this Agreement, shall survive until the Escrow Release Date (as defined below)
following which they shall expire. Notwithstanding the foregoing, nothing
contained in this Section 8.1 shall preclude a party from bringing an action for
fraud at any time.
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8.2 ESCROW ARRANGEMENTS -
(a) BALISOFT ESCROW FUND - As soon as practicable after the Closing Time,
that number of Exchangeable Shares (which may include Gemini Shares
having rights to acquire Exchangeable Shares) comprising the Balisoft
Escrow Amount will be deposited by Amalco, without any act of any
holder of Exchangeable Shares, with an independent trust company in
Toronto acceptable to the Balisoft Agent and the ServiceSoft Agent
(each as defined below) as escrow agent (the "ESCROW AGENT"), such
deposit to constitute an escrow fund (the "BALISOFT ESCROW FUND") to
be governed by the terms set forth herein. The Balisoft Escrow Amount
contributed on behalf of each registered holder of Exchangeable Shares
(or Gemini Shares having rights to acquire Exchangeable Shares) shall
be a fraction of the total Balisoft Escrow Amount equal to such
holder's proportional holdings of the total number of Exchangeable
Shares (calculated assuming the exchange of all Gemini Shares for
Exchangeable Preferred Shares) (and in respect of registered holders
of both Exchangeable Common Shares and Exchangeable Preferred Shares,
in proportion to their respective holdings of Exchangeable Shares of
each such class) and shall be deducted from the number of Exchangeable
Shares which such holder of Balisoft Common Shares or Balisoft
Preferred Shares, as applicable, would otherwise be entitled to
receive pursuant to Section 2.7. A list of the respective Balisoft
Escrow Amounts contributed by each registered holder of Exchangeable
Shares (or Gemini Shares) shall be provided to the Escrow Agent. The
Escrow Agent shall act as agent for each registered holder of
Exchangeable Shares held in the Balisoft Escrow Fund, and shall be
authorized to hold or deal with such Exchangeable Shares on behalf of
their registered holders as instructed by them, subject to the terms
of this Agreement. The Balisoft Escrow Amount deposited in the
Balisoft Escrow Fund shall be used effectively to reduce the
consideration deliverable to the Balisoft Shareholders in the event of
any reduction to the Balisoft Value as of the Closing Date determined
on or prior to the Escrow Release Date in accordance with the terms of
this Article 8.
(b) SERVICESOFT ESCROW FUND - Concurrent with the delivery of Exchangeable
Shares to the Escrow Agent to create the Balisoft Escrow Fund in
accordance with subsection 8.2(a), ServiceSoft shall deliver all of
the ServiceSoft Series H Preferred Shares distributed to shareholders
of ServiceSoft pursuant to the stock dividend referred to in
subsection 2.2(d) representing that number of ServiceSoft Series H
Preferred Shares comprising the ServiceSoft Escrow Amount to the
Escrow Agent to constitute an escrow fund (the "SERVICESOFT ESCROW
FUND") to be governed by the terms set forth herein. The ServiceSoft
Escrow Amount deposited in respect of each registered holder of
ServiceSoft Series H Preferred Shares shall be a fraction of the total
ServiceSoft Escrow Amount equal to such holder's proportional holdings
of the total number of ServiceSoft Series H Preferred Shares. A list
of the respective ServiceSoft Escrow Amounts allocated to each
registered holder of ServiceSoft Series H
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Preferred Shares shall be provided to the Escrow Agent. The Escrow
Agent shall act as agent for each registered holder of ServiceSoft
Series H Preferred Shares held in the ServiceSoft Escrow Fund, and
shall be authorized to hold or deal with such ServiceSoft Series H
Preferred Shares on behalf of their registered holders as instructed
by them, subject to the terms of this Agreement. The ServiceSoft
Escrow Amount deposited in the ServiceSoft Escrow Fund shall be used
effectively to allocate to the ServiceSoft Shareholders any reduction
to the ServiceSoft Value as of the Closing Date determined on or prior
to the Escrow Release Date in accordance with the terms of this
Article 8.
(c) LOSSES ARISING FROM BALISOFT MISREPRESENTATIONS - In the event of any
claim, loss, expense, liability or other damage, including reasonable
attorneys' fees, to the extent of the amount of such claim, loss,
expense, liability or other damage ("Losses") that ServiceSoft or any
of its affiliates have incurred prior to the Escrow Release Date by
reason of the breach by Balisoft of any representation, warranty,
covenant or agreement of Balisoft contained in this Agreement, in
respect of which Losses a Confirmation Certificate has been delivered
or deemed to have been delivered by the Balisoft Agent as provided
below, the Balisoft Value and the Balisoft Exchange Ratio shall be
reduced subject to and in accordance with the terms of subsection
8.2(h) below. ServiceSoft and Balisoft each acknowledge that such
Losses, if any, shall be deemed to relate to unresolved contingencies
existing at the Closing Time which, if resolved at the Closing Time,
would have led to a reduction in the Balisoft Value and the Balisoft
Exchange Ratio and a corresponding adjustment to the number of Class A
Shares and Class B Shares of Amalco delivered to shareholders of
Balisoft on the Amalgamation. Nothing herein shall limit the liability
of Balisoft for any breach of any covenant, or any willful breach of
any representation or warranty, if the Amalgamation does not close.
(d) LOSSES ARISING FROM SERVICESOFT MISREPRESENTATION - In the event of
any Losses that ServiceSoft or any of its affiliates have incurred
prior to the Escrow Release Date by reason of the breach by
ServiceSoft of any representation, warranty, covenant or agreement of
ServiceSoft contained in this Agreement, in respect of which Losses a
Confirmation Certificate has been delivered or deemed to have been
delivered by the ServiceSoft Agent as provided below, the ServiceSoft
Value shall be reduced, subject to and in accordance with the terms of
subsection 8.2(h) below. ServiceSoft and Balisoft each acknowledge
that such Losses, if any, shall be deemed to relate to unresolved
contingencies existing at the Closing Time which, if resolved at the
Closing Time, would have led to a reduction in the ServiceSoft Value
and an increase to the Balisoft Exchange Ratio and a corresponding
adjustment to the number of Class A Shares and Class B Shares of
Amalco delivered to shareholders of Balisoft on the Amalgamation and
for which the Balisoft Shareholders may be compensated by a
corresponding reduction in the number of ServiceSoft Series H
Preferred Shares held by the current shareholders of ServiceSoft.
Nothing herein shall limit the
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liability of ServiceSoft for any breach of any covenant, or any
willful breach of any representation or warranty, if the Amalgamation
does not close.
(e) ESCROW CLAIM FOR BALISOFT MISREPRESENTATION - At any time prior to the
Escrow Release Date, the ServiceSoft Agent may deliver to the Escrow
Agent a certificate (an "ESCROW CLAIM CERTIFICATE") signed by the
ServiceSoft Agent: (A) stating that ServiceSoft has paid or properly
accrued or reasonably anticipates that it will have to pay or accrue
Losses by reason of the breach by Balisoft of any representation,
warranty, covenant or agreement of Balisoft contained in this
Agreement, and (B) specifying in reasonable detail the individual
items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty
or claim to which such item is related. At the time of delivery of any
Escrow Claim Certificate to the Escrow Agent by the ServiceSoft Agent,
a duplicate copy of such Escrow Claim Certificate shall be delivered
to the Balisoft Agent. At any time following receipt of any such
Escrow Claim Certificate, the Balisoft Agent may sign and deliver to
the Escrow Agent and the ServiceSoft Agent a certificate confirming
such Losses (a "CONFIRMATION CERTIFICATE"). In the event that the
Balisoft Agent wishes to dispute the claim contained in the Escrow
Claim Certificate, it shall deliver a notice to the Escrow Agent and
the ServiceSoft Agent prior to the expiration of the 30 day period
beginning on the date of the Escrow Claim Certificate indicating its
objection thereto (an "OBJECTION NOTICE"). If the Escrow Agent and the
ServiceSoft Agent have not received an Objection Notice prior to the
expiration of such 30 day period, the Balisoft Agent shall be deemed
to have delivered a Confirmation Certificate on the last date of such
period in respect of the applicable Escrow Claim Certificate.
(f) ESCROW CLAIM FOR SERVICESOFT MISREPRESENTATION - At any time prior to
the Escrow Release Date, the Balisoft Agent may deliver to the Escrow
Agent an Escrow Claim Certificate signed by the Balisoft Agent: (A)
stating that ServiceSoft has paid or properly accrued or reasonably
anticipates that it will have to pay or accrue Losses by reason of the
breach by ServiceSoft of any representation, warranty, covenant or
agreement of ServiceSoft contained in this Agreement, and (B)
specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or
properly accrued, or the basis for such anticipated liability, and the
nature of the misrepresentation, breach of warranty or claim to which
such item is related. At the time of delivery of any Escrow Claim
Certificate to the Escrow Agent by the Balisoft Agent, a duplicate
copy of such Escrow Claim Certificate shall be delivered to the
ServiceSoft Agent. At any time following receipt of any such Escrow
Claim Certificate, the ServiceSoft Agent may sign and deliver to the
Escrow Agent and the Balisoft Agent a Confirmation Certificate
confirming such Losses. In the event that the ServiceSoft Agent wishes
to dispute the claim contained in the Escrow Claim Certificate, it
shall deliver an Objection Notice to the
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Escrow Agent and the Balisoft Agent prior to the expiration of the 30
day period beginning on the date of the Escrow Claim Certificate
indicating its objection thereto. If the Escrow Agent and the Balisoft
Agent have not received an Objection Notice prior to the expiration of
such 30 day period, the ServiceSoft Agent shall be deemed to have
delivered a Confirmation Certificate on the last date of such period
in respect of the applicable Escrow Claim Certificate.
(g) RESOLUTION OF CONFLICTS, ARBITRATION -
(i) In the event that any Objection Notice is delivered in response to
any Escrow Claim Certificate, the Balisoft Agent and the ServiceSoft
Agent shall attempt in good faith to resolve the dispute and agree
upon an appropriate amount to settle the outstanding claim. If such an
agreement is reached, the Balisoft Agent and the ServiceSoft Agent
shall each sign a Confirmation Certificate setting out the agreed
amount of the Loss (which may be less than the amount set out in the
Escrow Claim Certificate and may be equal to zero) and promptly
deliver a copy of such Confirmation Certificate to the Escrow Agent.
(ii) If no such agreement can be reached within 30 days of the date of
the Objection Notice, either the Balisoft Agent or the ServiceSoft
Agent may demand arbitration of the matter by written notice to the
other. Upon any such arbitration demand, the outstanding dispute shall
be settled by arbitration conducted by three arbitrators. The Balisoft
Agent and the ServiceSoft Agent shall each select one arbitrator
within 15 days of the arbitration demand notice date, and the two
arbitrators so selected shall select a third arbitrator (and any party
failing to name an arbitrator within such 15 day period shall forfeit
its right to do so). The arbitrators shall set a limited time period
and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the
sole judgement of the arbitrators, to discover relevant information
from the opposing parties about the subject matter of the dispute. The
arbitrators shall rule upon motions to compel or limit discovery and
shall have the authority to impose sanctions, including attorneys fees
and costs, to the same extent as a court of competent law or equity,
should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to
without substantial justification. Unless otherwise agreed by both the
Balisoft Agent and the ServiceSoft Agent, the arbitration proceedings
shall be conducted in such a manner so as to provide for a final
decision within not more than 60 days from the date of the arbitration
demand notice. The decision of a majority of the three arbitrators as
to the validity and amount of any claim in such arbitration award
shall be binding and conclusive upon the parties to this Agreement.
Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrators. The Balisoft
Agent and the ServiceSoft Agent shall each sign a Confirmation
Certificate setting out the
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final amount of the Loss as determined by such arbitration and
promptly provide a copy of such Confirmation Certificate to the Escrow
Agent.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration
initiated by the Balisoft Agent shall be held in Toronto, Ontario and
any such arbitration initiated by the ServiceSoft Agent shall be held
in Boston, Massachusetts and all such arbitrations shall be held in
accordance with the provisions of the Arbitration Act (Ontario). The
arbitrators may in their discretion determine whether the fees and
expenses of the arbitration, including without limitation the fees of
each arbitrator and the reasonable fees and expenses of legal counsel,
shall form part of their award (and thereby be, in effect, charged to
one side of the dispute) or be paid by ServiceSoft.
(h) ESCROW RELEASE -
(i) On the Escrow Release Date, the Escrow Agent shall calculate the
totals for all Losses for which it has received or is deemed to have
received a Confirmation Certificate ("CONFIRMED LOSSES"), as provided
below. If the Escrow Agent has received any Confirmation Certificate
signed by both the Balisoft Agent and the ServiceSoft Agent showing a
Loss amount that is different from the amount in the corresponding
Escrow Claim Certificate, the amount of the corresponding Confirmed
Loss shall be the amount of the Loss specified in such Confirmation
Certificate.
(ii) Release of Balisoft Escrow Fund -
(A) The Escrow Agent shall calculate the sum of all Confirmed
Losses arising from Escrow Claim Certificates provided by
ServiceSoft (the "TOTAL SERVICESOFT CLAIM"). The Escrow
Agent shall then subtract US $l00,000 from the Total
ServiceSoft Claim and calculate 35% of any resulting
positive balance to determine the final amount of the claim
against Balisoft up to a maximum of US $2,147,727
representing 20% of the initial Balisoft Value (the "FINAL
BALISOFT ADJUSTMENT").
(B) If the Final Balisoft Adjustment is zero (or a negative
amount), then no adjustment shall be made to the Balisoft
Value or the Balisoft Exchange Ratio and the Escrow Agent
shall promptly release all Exchangeable Shares held in the
Balisoft Escrow Fund from escrow and deliver the
certificates representing all such Exchangeable Shares to
the registered holders thereof.
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(C) If the Final Balisoft Adjustment is greater than zero, (1)
the Balisoft Value shall be deemed to be reduced by the
amount of such Final Balisoft Adjustment, and (2) the
Balisoft Exchange Ratio shall be reduced by multiplying it
by a fraction equal to the adjusted Balisoft Value in
accordance with clause (1) divided by the initial Balisoft
Value prior to such adjustment. The Escrow Agent shall
calculate the number of Exchangeable Shares (assuming the
exchange of any Gemini Shares held in the Balisoft Escrow
Fund for Exchangeable Preferred Shares) represented by the
Final Balisoft Adjustment (the "BALISOFT ADJUSTMENT NUMBER")
as the quotient obtained by dividing the Final Balisoft
Adjustment by the fair market value of the Exchangeable
Shares on the date hereof which is equal to US $2.00. The
Escrow Agent shall extract a number of Exchangeable Shares
(and any proportionate number of Gemini Shares) equal to the
Balisoft Adjustment Number from the Balisoft Escrow Fund and
return all such Exchangeable Shares to Amalco for
cancellation and all such returned Exchangeable Shares shall
promptly be canceled by Amalco (and Amalco shall cause any
such returned Gemini Shares to be cancelled by Balisoft
Israel). The Escrow Agent shall promptly release the balance
of the Exchangeable Shares (and any Gemini Shares) remaining
in the Balisoft Escrow Fund from escrow and deliver the
certificates representing all such Exchangeable Shares to
the registered holders thereof.
(iii) Release of ServiceSoft Escrow Fund -
(A) The Escrow Agent shall calculate the sum of all Confirmed
Losses arising from Escrow Claim Certificates provided by
Balisoft (the "TOTAL BALISOFT CLAIM"). The Escrow Agent
shall then subtract US $100,000 from the Total Balisoft
Claim and calculate 35% of any resulting positive balance to
determine the final amount of the claim against ServiceSoft
up to a maximum of US $3,625,000 representing 20% of the
initial ServiceSoft Value (the "FINAL SERVICESOFT
ADJUSTMENT").
(B) If the Final ServiceSoft Adjustment is zero (or a negative
amount), then no adjustment shall be made to the ServiceSoft
Value and the Escrow Agent shall promptly release all
ServiceSoft Series H Preferred Shares held in the
ServiceSoft Escrow Fund from escrow and deliver the
certificates representing all such ServiceSoft Series H
Preferred Shares to the registered holders thereof.
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(C) If the Final ServiceSoft Adjustment is greater than zero,
the ServiceSoft Value shall be deemed to be reduced by the
amount of such Final ServiceSoft Adjustment. The Escrow
Agent shall calculate the number of ServiceSoft Series H
Preferred Shares represented by the Final ServiceSoft
Adjustment (the "SERVICESOFT ADJUSTMENT NUMBER") as the
quotient obtained by dividing the Final ServiceSoft
Adjustment by the fair market value of the ServiceSoft
Series H Preferred Shares on the date hereof which is equal
to US $2.00. The Escrow Agent shall extract a number of
ServiceSoft Series H Preferred Shares equal to the
ServiceSoft Adjustment Number from the ServiceSoft Escrow
Fund and return all such ServiceSoft Series H Preferred
Shares to ServiceSoft for cancellation and all such returned
ServiceSoft Series H Preferred Shares shall promptly be
cancelled by ServiceSoft. The Escrow Agent shall promptly
release the balance of the ServiceSoft Series H Preferred
Shares remaining in the ServiceSoft Escrow Fund from escrow
and deliver the certificates representing all such
ServiceSoft Series H Preferred Shares to the registered
holders thereof.
(iv) All calculations, extractions and distributions in respect of the
Balisoft Escrow Fund and the ServiceSoft Escrow Fund shall be
determined by the Escrow Agent in respect of each individual
shareholder as nearly as possible in proportion to the number of
Exchangeable Shares registered in its name in Balisoft Escrow Fund and
the ServiceSoft Escrow Fund, as applicable, and for those shareholders
holding both Exchangeable Common Shares and Exchangeable Preferred
Shares, in proportion to their respective holdings of each such class
of Exchangeable Shares.
(i) ESCROW RELEASE DATE -
(i) Subject to the requirements set forth in this subsection 8.2(i),
the Balisoft Escrow Fund and the ServiceSoft Escrow Fund shall each
remain in existence immediately following the Closing Time and shall
terminate at 5:00 p.m., Toronto Time on the Escrow Release Date (as
defined below). As used herein "ESCROW RELEASE DATE" shall mean the
earlier of (i) the date 60 days after the date of delivery by
ServiceSoft's independent auditors to ServiceSoft of signed, audited
consolidated financial statements for the ServiceSoft fiscal year
ended December 31, 1999, (ii) April 1, 2000.
(ii) In the event that ServiceSoft proposes (as evidenced by a
resolution of the ServiceSoft board of directors) to complete an
initial public offering of ServiceSoft Common Shares, a sale of all of
the outstanding shares or all or substantially all of the assets of
ServiceSoft to, or a merger or other business combination with, an
arm's length third party (any of such proposed transactions, an
"ACCELERATION
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TRANSACTION"), ServiceSoft shall promptly provide written notice (the
"ESCROW ACCELERATION NOTICE") to the Balisoft Agent and the
ServiceSoft Agent thereof. In such circumstances, the ServiceSoft
board of directors shall have the discretion to accelerate the Escrow
Release Date to a date not less than 45 days from the date of the
Escrow Acceleration Notice. The Escrow Acceleration Notice shall
include the expected closing date of the Acceleration Transaction and
the proposed new Escrow Release Date. In the event that a binding
agreement in respect of the Acceleration Transaction (or a
substantially similar transaction) is not executed within 60 days of
the Escrow Acceleration Notice, the Escrow Acceleration Notice shall
be null and void and the Escrow Release Date shall remain unchanged
(unless otherwise agreed by the Balisoft Agent and the ServiceSoft
Agent); otherwise the Escrow Release Date shall be accelerated to the
date proposed by ServiceSoft in the Escrow Acceleration Notice.
(iii) If on any scheduled Escrow Release Date there shall remain any
unresolved claims represented by Escrow Claim Certificates which have
been delivered where no corresponding Confirmation Certificate has
been delivered or is deemed to have been delivered, the Escrow Release
Date shall be extended as required until the date of delivery or
deemed delivery of such Confirmation Certificate; provided, however,
that no new Escrow Claim Certificate shall be delivered by the
Balisoft Agent or the ServiceSoft Agent following the initially
scheduled Escrow Release Date.
(iv) ServiceSoft shall notify the Escrow Agent in writing of the
establishment of the Escrow Release Date, and of any acceleration or
extension thereof in accordance with this subsection 8.2(i). In the
event of any acceleration of the Escrow Release Date pursuant to
clause 8.2(i)(ii) above, the Escrow Agent shall not make any
deliveries of Exchangeable Share certificates until it has received
written notice from ServiceSoft of the execution of a binding
agreement by ServiceSoft in respect of the relevant Acceleration
Transaction (unless directed otherwise in a certificate signed by both
the Balisoft Agent and the ServiceSoft Agent).
(j) STATUS OF ESCROW FUNDS -
(i) The Escrow Agent shall hold and safeguard the Balisoft Escrow Fund
and the ServiceSoft Escrow Fund as agent for and on behalf of their
registered holders in accordance with the terms of this Agreement
during the period that each escrow fund remains in existence, and
shall hold and dispose of the Exchangeable Shares comprising the
Balisoft Escrow Fund and the ServiceSoft Escrow Fund only in
accordance with the terms hereof. The registered holders of the
Exchangeable Shares held in the Balisoft Escrow Fund shall be treated
as the owners of the Balisoft Escrow Fund for all purposes, subject to
the terms of this Agreement. The registered holders of the ServiceSoft
Shares held in the ServiceSoft Escrow Fund shall be
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treated as the owners of the ServiceSoft Escrow Fund for all purposes,
subject to the terms of this Agreement.
(ii) Any Exchangeable Shares or other equity securities issued or
distributed in respect of the Exchangeable Shares and any ServiceSoft
Shares or other equity securities issued or distributed in respect of
the ServiceSoft Shares (including in each case shares issued upon a
stock split) (collectively, "NEW SHARES") then held in either the
Balisoft Escrow Fund or the ServiceSoft Escrow Fund shall be added
thereto and shall remain held in escrow therein for all purposes of
this Article 8 until the Escrow Release Date. All cash dividends, if
any, paid on Exchangeable Shares or ServiceSoft Shares, shall be paid
on all Exchangeable Shares held in the Balisoft Escrow Fund or
ServiceSoft Shares held in the ServiceSoft Escrow Fund and shall
remain held in escrow therein in accordance with this Article 8 until
the Escrow Release Date.
(iii) Each registered holder of Exchangeable Shares held in the
Balisoft Escrow Fund shall have all voting and other contractual
rights with respect to such Exchangeable Shares (and any New Shares
having voting rights) for so long as such Exchangeable Shares or other
voting securities are held in the Balisoft Escrow Fund, except to the
extent that the Balisoft Agent and the ServiceSoft Agent otherwise
agree in writing.
(iv) Each registered holder of ServiceSoft Shares held in the
ServiceSoft Escrow Fund shall have all voting and other contractual
rights with respect to such ServiceSoft Shares (and any New Shares
having voting rights) for so long as such ServiceSoft Shares or other
voting securities are held in the ServiceSoft Escrow Fund, except to
the extent that the Balisoft Agent and the ServiceSoft Agent otherwise
agree in writing.
(v) None of the Exchangeable Shares held in the Balisoft Escrow Fund
shall be exchanged for ServiceSoft Common Shares or ServiceSoft
Preferred Shares prior to the Escrow Release Date, except to the
extent that the Balisoft Agent and the ServiceSoft Agent agree in
writing, in their discretion, provided that in such event the
ServiceSoft Common Shares or ServiceSoft Preferred Shares, as
applicable, issued in respect of such Exchangeable Shares shall be
placed into escrow in the Balisoft Escrow Fund, as applicable, under
the terms and conditions hereof. A copy of any such agreement shall be
delivered to the Escrow Agent directing it as to any such exchange.
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(k) BALISOFT AGENT -
(i) In the event that the Amalgamation is approved by the Balisoft
shareholders, effective upon the Closing, and without any further act
of any Balisoft shareholder, Mark Skapinker shall be appointed as
agent and attorney-in-fact (the "BALISOFT AGENT") for each registered
holder of Exchangeable Shares held in the Balisoft Escrow Fund and the
ServiceSoft Escrow Fund, to give and receive notices and
communications, to authorize delivery to Amalco of Exchangeable Shares
from the Balisoft Escrow Fund or the ServiceSoft Escrow Fund in
satisfaction of claims by ServiceSoft, 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 Balisoft Agent for the
accomplishment of the foregoing. Such agency may be changed by the
registered holders of such Exchangeable Shares from time to time upon
not less than 30 days prior written notice to ServiceSoft and the
Escrow Agent; provided that the Balisoft Agent may not be removed
unless holders of a two-thirds interest of the Balisoft Escrow Fund
agree to such removal and to the identity of the substituted agent.
The Balisoft Agent may resign from such agency at any time upon
written notice to ServiceSoft and the Escrow Agent, whereupon holders
of not less than a two-thirds interest in the Balisoft Escrow Fund
shall promptly appoint a replacement Balisoft Agent and shall notify
ServiceSoft and the Escrow Agent in writing of any replacement
Balisoft Agent. No bond shall be required of the Balisoft Agent, and
the Balisoft Agent shall not receive compensation for his or her
services. Notices or communications to or from the Balisoft Agent
shall constitute notice to or from each of the registered holders of
Exchangeable Shares held in the Balisoft Escrow Fund and the
ServiceSoft Escrow Fund.
(ii) The Balisoft Agent shall not be liable for any act done or
omitted hereunder as Balisoft Agent except to the extent the Balisoft
Agent acts in bad faith or is grossly negligent. ServiceSoft shall
indemnify the Balisoft Agent and hold the Balisoft Agent harmless
against any loss, liability or expense incurred without negligence or
bad faith on the part of the Balisoft Agent and arising out of or in
connection with the acceptance or administration of the Balisoft
Agent's duties hereunder, including the reasonable fees and expenses
of any legal counsel retained by the Balisoft Agent. The Balisoft
Agent shall be entitled to recover from ServiceSoft all expenses,
including reasonable fees and expenses of any such legal counsel,
incurred by the Balisoft Agent in connection with the acceptance or
administration of the Balisoft Agent's duties hereunder.
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(iii) A decision, act, consent or instruction of the Balisoft Agent
shall constitute a decision of all the registered holders of
Exchangeable Shares held in the Balisoft Escrow Fund and the
ServiceSoft Escrow Fund and shall be final, binding and conclusive
upon each of such shareholders, and the Escrow Agent, the ServiceSoft
Agent, ServiceSoft and Amalco may rely upon and shall be fully
protected in relying upon any such decision, act, consent or
instruction of the Balisoft Agent as being the decision, act, consent
or instruction of each and every such shareholder. The Escrow Agent,
the ServiceSoft Agent, ServiceSoft and Amalco 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 Balisoft Agent.
(1) SERVICESOFT AGENT -
(i) Effective upon the Closing, and without any further act of
ServiceSoft or Amalco, David Tarrant shall be appointed as agent and
attorney-in-fact (the "SERVICESOFT AGENT") for ServiceSoft and for
Amalco in respect of all matters relating to the disposition of
Exchangeable Shares held in the Balisoft Escrow Fund and the
ServiceSoft Escrow Fund, to give and receive notices and
communications, to authorize delivery of Exchangeable Shares held in
the Balisoft Escrow Fund or the ServiceSoft Escrow Fund to the
registered holders thereof in satisfaction of claims by Balisoft, 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 ServiceSoft Agent for the accomplishment of the
foregoing. Such agency may be changed by the ServiceSoft board of
directors from time to time upon not less than 30 days prior written
notice to the Balisoft Agent and the Escrow Agent, which notice shall
identify the replacement ServiceSoft Agent. The ServiceSoft Agent may
resign from such agency at any time upon written notice to the
Balisoft Agent and the Escrow Agent, whereupon the ServiceSoft board
of directors shall promptly appoint a replacement ServiceSoft Agent
and shall notify the Balisoft Agent and the Escrow Agent in writing of
any replacement ServiceSoft Agent. No bond shall be required of the
ServiceSoft Agent, and the ServiceSoft Agent shall not receive
compensation for his or her services. Notices or communications to or
from the ServiceSoft Agent shall constitute notice to or from
ServiceSoft and Amalco.
(ii) The ServiceSoft Agent shall not be liable for any act done or
omitted hereunder as ServiceSoft Agent except to the extent the
ServiceSoft Agent acts in bad faith or is grossly negligent.
ServiceSoft shall indemnify the ServiceSoft Agent and hold the
ServiceSoft Agent harmless against any loss, liability or expense
incurred without negligence or bad faith on the part of the
ServiceSoft Agent and arising out of or in connection with the
acceptance or administration of the
<PAGE> 69
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ServiceSoft Agent's duties hereunder, including the reasonable fees
and expenses of any legal counsel retained by the ServiceSoft Agent.
The ServiceSoft Agent shall be entitled to recover from ServiceSoft
all expenses, including reasonable fees and expenses of any such legal
counsel, incurred by the ServiceSoft Agent in connection with the
acceptance or administration of the ServiceSoft Agent's duties
hereunder.
(iii) A decision, act, consent or instruction of the ServiceSoft Agent
shall constitute a decision of ServiceSoft and Amalco and shall be
final, binding and conclusive upon each of them, and the Escrow Agent,
the Balisoft Agent ServiceSoft and Amalco may rely upon and shall be
fully protected in relying upon any such decision, act, consent or
instruction of the ServiceSoft Agent as being the decision, act,
consent or instruction of ServiceSoft and Amalco. The Escrow Agent,
the Balisoft Agent, ServiceSoft and Amalco 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 ServiceSoft
Agent.
(m) ESCROW AGENT'S DUTIES -
(i) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth in this Article 8, and as
set forth in any additional written escrow instructions which the
Escrow Agent may receive after the date of this Agreement which are
signed by the Balisoft Agent and the ServiceSoft Agent, and no implied
duties or obligations shall be read into this Agreement against the
Escrow Agent. The Escrow Agent may rely and shall be protected in
relying or refraining from acting on any instrument, instruction,
notice or other document reasonably believed to be genuine and to have
been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as
Escrow Agent while acting in good faith and in the exercise of
reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings of judicial proceedings or similar actions given by
any of the parties hereto or by any other person, excepting only
orders or process of courts of law, and is hereby expressly authorized
to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of
the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found
to have been entered without jurisdiction.
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(iii) The Escrow Agent shall not be liable in any respect on account
of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement
or any documents deposited with the Escrow Agent.
(v) In performing any duties under this Agreement, the Escrow Agent
shall not be liable to any party for damages, losses, or expenses,
except for gross negligence or willful misconduct on the part of the
Escrow Agent. The Escrow Agent shall not incur any such liability for
(A) any act or failure to act made or omitted in good faith, or (B)
any action taken or omitted in reliance upon any instrument,
instruction, notice or other document, including any written statement
of affidavit provided for in this Agreement that the Escrow Agent
shall in good faith believe to be genuine, nor will the Escrow Agent
be liable or responsible for forgeries, fraud, impersonations, or
determining the scope of any representative authority. In addition,
the Escrow Agent may consult with legal counsel in connection with the
Escrow Agent's duties under this Agreement and shall be fully
protected in any act taken, suffered, or permitted by him/her in good
faith in accordance with the advice of counsel. The Escrow Agent is
not responsible for determining and verifying the authority of any
person acting or purporting to act on behalf of any party to this
Agreement.
(vi) If any controversy arises between the parties to this Agreement,
or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be
required to determine the controversy or to take any action regarding
it. The Escrow Agent may hold all documents and certificates
representing Exchangeable Shares and may wait for settlement of any
such controversy by final appropriate legal proceedings or other means
as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement.
In such event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims
and rights among themselves. The Escrow Agent is authorized to deposit
with the clerk of the court all documents and certificates
representing Exchangeable Shares held in escrow. Upon initiating such
action, the Escrow Agent shall be fully released and discharged of and
from all obligations and liability imposed by the terms of this
Agreement.
(vii) The parties and their respective successors and assigns agree
jointly and severally to indemnify and hold the Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and
expenses, including reasonable costs of
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investigation, counsel fees, and disbursements that may be imposed on
the Escrow Agent or incurred by the Escrow Agent in connection with
the performance of his/her duties under this Agreement, including but
not limited to any litigation arising from this Agreement or involving
its subject matter, such indemnity to be satisfied by ServiceSoft.
This right of indemnification shall survive the termination of this
Agreement and the resignation or removal of the Escrow Agent. The
costs and expenses of enforcing this right of indemnification shall
also be paid by ServiceSoft.
(viii) The Escrow Agent may be removed from time to time by the
registered holders of Exchangeable Shares held in the Balisoft Escrow
Fund and the registered holders of ServiceSoft Shares held in the
ServiceSoft Escrow Fund upon not less than 30 days prior written
notice; provided that the Escrow Agent may not be removed unless
holders of a 75% interest in each of the Balisoft Escrow Fund and the
ServiceSoft Escrow Fund agree to such removal and to the identity of
the substituted agent. The Escrow Agent may resign at any time upon
giving at least 30 days written notice to the Balisoft Agent and the
ServiceSoft Agent; provided, however, that no such resignation shall
become effective until the appointment of a successor escrow agent
which shall be accomplished as follows: the Balisoft Agent and the
ServiceSoft Agent shall use their best efforts to mutually agree on a
successor escrow agent within 30 days after receiving such notice. If
the parties fail to agree upon a successor escrow agent within such
time, ServiceSoft shall have the right to appoint a successor escrow
agent authorized to do business in the Province of Ontario, Canada.
The successor escrow agent shall execute and deliver an instrument
accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of
the predecessor escrow agent as if originally named as escrow agent.
Upon such appointment of a successor escrow agent, the Escrow Agent
shall be discharged from any further duties and liability under this
Agreement.
(n) EXCLUSIVITY OF REMEDIES - Resort to the provisions of this Article 8
providing for the delivery of ServiceSoft Shares to ServiceSoft for
cancellation from the ServiceSoft Escrow Fund shall be the exclusive
remedy of Balisoft and its shareholders for any Losses arising from
any breach of any representation or warranty of ServiceSoft contained
in this Agreement, except for any Losses arising from fraud. Resort to
the provisions of this Article 8 providing for the delivery of
Exchangeable Shares to Amalco for cancellation from the Balisoft
Escrow Fund shall be the exclusive remedy of ServiceSoft, ServiceSoft
Canada and their affiliates for any Losses arising from any breach of
any representation or warranty of Balisoft contained in this
Agreement, except for any Losses arising from fraud. Nothing in this
Article 8 shall limit the liability of Balisoft or ServiceSoft for any
breach of this Agreement if the Amalgamation does not close.
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(o) FEES - All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by ServiceSoft.
ARTICLE 9
CERTAIN RIGHTS OF SERVICESOFT TO ACQUIRE EXCHANGEABLE SHARES
9.1 SERVICESOFT LIQUIDATION CALL RIGHT -
(a) ServiceSoft shall have the overriding right (the "LIQUIDATION CALL
RIGHT"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding-up of Amalco pursuant to Article 5 of the
provisions of the Exchangeable Shares (the "EXCHANGEABLE SHARE
PROVISIONS") to purchase from all but not less than all of the holders
of Exchangeable Shares on the Liquidation Date (as defined in the
Exchangeable Share Provisions) all, but not less than all of the
Exchangeable Shares held by each such holder on payment by ServiceSoft
of an amount per Exchangeable Common Share equal to (i) the Current
Market Price (as defined in the Exchangeable Share Provisions) of a
ServiceSoft Common Share on the last Business Day prior to the
Liquidation Date, which shall be satisfied in full by causing to be
delivered to such holder one ServiceSoft Common Share, plus (ii) an
additional amount equivalent to the full amount of all dividends
declared and unpaid on such Exchangeable Common Share and all
dividends declared on ServiceSoft Common Shares which have not been
declared on such Exchangeable Common Shares in accordance with Section
5.1 of the Exchangeable Share Provisions (collectively, the
"LIQUIDATION CALL COMMON PURCHASE PRICE"), and payment by ServiceSoft
of an amount per Exchangeable Preferred Share equal to (iii) the
Current Market Price (as defined in the Exchangeable Share Provisions)
of a ServiceSoft Series H Preferred Share on the last Business Day
prior to the Liquidation Date, which shall be satisfied in full by
causing to be delivered to such holder one ServiceSoft Series H
Preferred Share, plus (iv) an additional amount equivalent to the full
amount of all dividends declared and unpaid on such Exchangeable
Preferred Shares and all dividends declared on ServiceSoft Series H
Preferred Shares which have not been declared on such Exchangeable
Preferred Shares in accordance with Section 5.1 of the Exchangeable
Share Provisions (collectively, the "LIQUIDATION CALL PREFERRED
PURCHASE PRICE"), provided that if the record date for any such
declared and unpaid dividends occurs on or after the Liquidation Date,
the Liquidation Call Common Price or Liquidation Call Preferred
Purchase Price (each, a "LIQUIDATION CALL PURCHASE PRICE"), as
applicable, shall not include such additional amount equivalent to
such dividends. In the event of the exercise of the Liquidation Call
Right by ServiceSoft, each holder shall be obligated to sell all the
Exchangeable Shares held by the holder to ServiceSoft on the
Liquidation Date on payment by ServiceSoft to the holder of the
applicable Liquidation Call Purchase Price for each such Exchangeable
Share.
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(b) To exercise the Liquidation Call Right, ServiceSoft must notify
Amalco's transfer agent (the "TRANSFER AGENT"), as agent for the
holders of Exchangeable Shares, and Amalco of ServiceSoft's intention
to exercise such right at least 30 days before the Liquidation Date in
the case of a voluntary liquidation, dissolution or winding up of
Amalco and at least five Business Days before the Liquidation Date in
the case of an involuntary liquidation, dissolution or winding up of
Amalco. The Transfer Agent will notify the holders of Exchangeable
Shares as to whether or not ServiceSoft has exercised the Liquidation
Call Right forthwith after the expiry of the period during which the
same may be exercised by ServiceSoft. If ServiceSoft exercises the
Liquidation Call Right, on the Liquidation Date (i) ServiceSoft will
purchase and the holders will sell all of the Exchangeable Common
Shares then outstanding for a price per Exchangeable Common Share
equal to the Liquidation Call Common Purchase Price, and (ii)
ServiceSoft will purchase and the holders will sell all of the
Exchangeable Preferred Shares then outstanding for a price per
Exchangeable Preferred Share equal to the Liquidation Call Preferred
Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Liquidation Call Right, ServiceSoft shall deposit with
the Transfer Agent, on or before the Liquidation Date, certificates
representing the aggregate number of ServiceSoft Common Shares and
ServiceSoft Series H Preferred Shares deliverable by ServiceSoft in
payment of the total Liquidation Call Purchase Price and a cheque or
cheques in the amount of the remaining portion, if any, of the total
Liquidation Call Purchase Price. Provided that the total Liquidation
Call Purchase Price has been so deposited with the Transfer Agent, on
and after the Liquidation Date the rights of each holder of
Exchangeable Common Shares and Exchangeable Preferred Shares will be
limited to receiving such holder's proportionate part of the total
Liquidation Call Purchase Price payable by ServiceSoft upon
presentation and surrender by the holder of certificates representing
the Exchangeable Common Shares or Exchangeable Preferred Shares (as
applicable) held by such holder and the holder shall on and after the
Liquidation Date be considered and deemed for all purposes to be the
holder of the ServiceSoft Common Shares or ServiceSoft Series H
Preferred Shares (as applicable) delivered to such holder. Upon
surrender to the Transfer Agent of a certificate or certificates
representing Exchangeable Shares, together with such other documents
and instruments as may be required to effect a transfer of
Exchangeable Shares under the Act and the by-laws of Amalco and such
additional documents and instruments as the Transfer Agent may
reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and
the Transfer Agent on behalf of ServiceSoft shall deliver to such
holder, certificates representing the ServiceSoft Common Shares or
ServiceSoft Series H Preferred Shares (as applicable) to which the
holder is entitled and a cheque or cheques of ServiceSoft payable at
par and in Canadian dollars at any Canadian branch of the bankers of
ServiceSoft or of Amalco in Canada in payment of the
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remaining portion, if any, of the total Liquidation Call Purchase
Price. If ServiceSoft does not exercise the Liquidation Call Right in
the manner described above, on the Liquidation Date the holders of the
Exchangeable Shares will be entitled to receive in exchange therefor
the liquidation price otherwise payable by Amalco in connection with
the liquidation, dissolution or winding-up of Amalco pursuant to
Article 5 of the Exchangeable Share Provisions.
9.2 SERVICESOFT REDEMPTION CALL RIGHT -
(a) ServiceSoft shall have the overriding right (the "REDEMPTION CALL
RIGHT"), notwithstanding the proposed redemption of Exchangeable
Shares by Amalco pursuant to Article 7 of the Exchangeable Share
Provisions, to purchase from all but not less than all of the holders
of Exchangeable Shares to be redeemed on the Redemption Date (as
defined in the Exchangeable Share Provisions) all but not less than
all of the Exchangeable Shares held by each such holder on payment by
ServiceSoft to the holder of an amount per Exchangeable Common Share
equal to (i) the Current Market Price (as defined in the Exchangeable
Share Provisions) of a ServiceSoft Common Share on the last Business
Day prior to the Redemption Date, which shall be satisfied in full by
causing to be delivered to such holder one ServiceSoft Common Share,
plus (ii) an additional amount equivalent to the full amount of all
dividends declared and unpaid on such Exchangeable Common Share and
all dividends declared on ServiceSoft Common Shares which have not
been declared on such Exchangeable Common Shares in accordance with
Section 7.1 of the Exchangeable Share Provisions (collectively the
"REDEMPTION CALL COMMON PURCHASE PRICE"), and payment by ServiceSoft
to the holder of an amount per Exchangeable Preferred Share equal to
(iii) the Current Market Price (as defined in the Exchangeable Share
Provisions) of a ServiceSoft Series H Preferred Share on the last
Business Day prior to the Redemption Date, which shall be satisfied in
full by causing to be delivered to such holder one ServiceSoft Series
H Preferred Share, plus (iv) an additional amount equivalent to the
full amount of all dividends declared and unpaid on such Exchangeable
Preferred Shares and all dividends declared on ServiceSoft Series H
Preferred Shares which have not been declared on such Exchangeable
Preferred Shares in accordance with Section 7.1 of the Exchangeable
Share Provisions (collectively, the "REDEMPTION CALL PREFERRED
PURCHASE PRICE") provided that if the record date for any such
declared and unpaid dividend occurs on or after the Redemption Date,
the Redemption Call Common Purchase Price or Redemption Call Preferred
Purchase Price (each, a "REDEMPTION CALL PURCHASE PRICE"'), as
applicable, shall not include such additional amount equivalent to
such dividends. In the event of the exercise of the Redemption Call
Right by ServiceSoft, each holder shall be obligated to sell all the
Exchangeable Shares held by the holder to be redeemed to ServiceSoft
on the Redemption Date on payment by ServiceSoft to the holder of the
applicable Redemption Call Purchase Price for each such Exchangeable
Share.
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(b) To exercise the Redemption Call Right, ServiceSoft must notify the
Transfer Agent, as agent for the holder of Exchangeable Shares, and
Amalco of ServiceSoft's intention to exercise such right at least 20
days before the Automatic Redemption Date (as defined in the
Exchangeable Share Provisions), in the case of the Automatic
Redemption (as defined in the Exchangeable Share Provisions). The
Transfer Agent will notify the holders of the Exchangeable Shares as
to whether or not ServiceSoft has exercised the Redemption Call Right
forthwith after the expiry of the period during which the same may be
exercised by ServiceSoft. If ServiceSoft exercises the Redemption Call
Right, on the Redemption Date ServiceSoft will purchase and the
holders will sell all of the Exchangeable Shares to be redeemed for a
price per Exchangeable Common Share equal to the Redemption Call
Common Purchase Price and a price per Exchangeable Preferred Share
equal to the Redemption Call Preferred Purchase Price.
(c) For the purposes of completing this purchase of Exchangeable Shares
pursuant to the Redemption Call Right, ServiceSoft shall deposit with
the Transfer Agent, on or before the Redemption Date, certificates
representing the aggregate number of ServiceSoft Common Shares and
ServiceSoft Series H Preferred Shares deliverable by ServiceSoft in
payment of the total Redemption Call Purchase Price and a cheque or
cheques in the amount of the remaining portion, if any, of the total
Redemption Call Purchase Price. Provided that the total Redemption
Call Purchase Price has been so deposited with the Transfer Agent, on
and after the Redemption Date the rights of each holder of
Exchangeable Common Shares and Exchangeable Preferred Shares so
purchased will be limited to receiving such holder's proportionate
part of the total Redemption Call Purchase Price payable by
ServiceSoft upon presentation and surrender by the holder of
certificates representing the Exchangeable Common Shares or
Exchangeable Preferred Shares (as applicable) purchased by ServiceSoft
from such holder and the holder shall on and after the Redemption Date
be considered and deemed for all purposes to be the holder of the
ServiceSoft Common Shares or ServiceSoft Series H Preferred Shares (as
applicable) delivered to such holder. Upon surrender to the Transfer
Agent of a certificate or certificates representing Exchangeable
Shares, together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the Act and
the By-laws of Amalco and such additional documents and instruments as
the Transfer Agent may reasonably require, the holder of such
surrendered certificate or certificates shall be entitled to receive
in exchange therefor, and the Transfer Agent on behalf of ServiceSoft
shall deliver to such holder, certificates representing the
ServiceSoft Common Shares or ServiceSoft Series H Preferred Shares (as
applicable) to which the holder is entitled and a cheque or cheques of
ServiceSoft payable at par and in Canadian dollars at any branch of
the bankers of ServiceSoft or of Amalco in Canada in payment of the
remaining portion, if any, of the total Redemption Call Purchase
Price. If ServiceSoft does not exercise the Redemption
<PAGE> 76
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Call Right in the manner described above, on the Redemption Date the
holder of the Exchangeable Shares will be entitled to receive in
exchange therefor the redemption price otherwise payable by Amalco in
connection with the redemption of Exchangeable Shares pursuant to
Article 7 of the Exchangeable Share Provisions.
9.3 WITHHOLDING RIGHTS - ServiceSoft and the Transfer Agent shall be entitled
to deduct and withhold from the consideration otherwise payable to any holder of
Exchangeable Shares such amounts as ServiceSoft or the Transfer Agent is
required or permitted to deduct and withhold with respect to such payment under
the Income Tax Act (Canada) or any provision of provincial, local or foreign tax
law. To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes hereof as having been paid to the holder of shares in
respect of which such deduction and withholding was made, provided that such
withheld amounts are actually remitted to the appropriate taxing authority. To
the extent that the amount so required or permitted to be deducted or withheld
from any payment to a holder exceeds the cash portion of such consideration as
is necessary to provide sufficient funds to ServiceSoft or the Transfer Agent,
as the case may be, ServiceSoft is hereby authorized to sell or otherwise
dispose of, or direct to have sold or disposed of, at fair market value, such
portion of the Exchangeable Shares or consideration payable to the holder as is
necessary in order to enable ServiceSoft to comply with such deduction or
withholding requirement and ServiceSoft or the Transfer Agent shall give an
accounting to the holder with respect thereto and any balance of such proceeds
of sale.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION - Except as provided in Section 10.2 below, this Agreement may
be terminated and the Amalgamation abandoned at any time prior to the Closing
Time:
(a) by mutual written consent of Balisoft and ServiceSoft; or
(b) by Balisoft or ServiceSoft if there shall be a final nonappealable
order of a court in effect preventing consummation of the
Amalgamation; or there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Amalgamation by any Governmental Entity which would
make the consummation of the Amalgamation illegal; or
(c) by Balisoft or ServiceSoft if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Amalgamation by any Governmental Entity,
which would: (i) prohibit Balisoft's or ServiceSoft's ownership or
operation of all or a material portion of the business of Balisoft or
(ii) compel ServiceSoft or Balisoft to dispose of or hold separate all
or a material portion of the business or assets of Balisoft or
ServiceSoft as a result of the Amalgamation; or
<PAGE> 77
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(d) by Balisoft if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of ServiceSoft, provided that if such breach is
curable by ServiceSoft within 5 Business Days through the exercise of
its reasonable best efforts, then for so long as ServiceSoft continues
to exercise such reasonable best efforts Balisoft may not terminate
this Agreement under this Section 10.1 (e) unless such breach is not
cured within 5 Business Days following written notice of such breach
to ServiceSoft by Balisoft (with the provision that no cure period
shall be required for a breach which by its nature cannot be cured);
or
(e) by ServiceSoft if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of Balisoft provided that if such breach is
curable by Balisoft within 5 Business Days through the exercise of its
reasonable best efforts, then for so long as Balisoft continues to
exercise such reasonable best efforts ServiceSoft may not terminate
this Agreement under this Section 10.1(f) unless such breach is not
cured within 5 Business Days following written notification of such
breach to Balisoft from ServiceSoft (with the provision that no cure
period shall be required for a breach which by its nature cannot be
cured); or
(f) by Balisoft or ServiceSoft if it is not in material breach of its
obligations under this Agreement and the Closing has not been
completed by 5:00 p.m. (Toronto time) on March 31, 1999.
Where action is taken to terminate this Agreement pursuant to this Section 10.1,
such termination shall be effective upon the party terminating this Agreement
providing notice to the other party that its board of directors has authorized
such termination.
10.2 EFFECT OF TERMINATION - In the event of termination of this Agreement as
provided in Section 10.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Balisoft or ServiceSoft, or
their respective officers, directors or shareholders; PROVIDED, HOWEVER, that
each party shall remain liable for any breaches of this Agreement prior to its
termination.
10.3 AMENDMENT - Except as is otherwise required by applicable law after the
receipt of necessary shareholder and director approvals for this Agreement, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
<PAGE> 78
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10.4 EXTENSION, WAIVER - At any time prior to the Closing Time, Balisoft, on the
one hand, and ServiceSoft, on the other hand, may, to the extent legally
allowed: (i) extend the time for the performance of any of the obligations of
the other party hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE 11
GENERAL PROVISIONS
11.1 NOTICES - All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given upon receipt or, if earlier, (a) upon delivery, if
delivered by hand, (b) 5 Business Days after the Business Day of deposit with a
nationally recognized courier for overnight delivery, freight prepaid, (c) one
Business Day after the Business Day of facsimile transmission, if delivered by
facsimile transmission with copy by first class mail, postage prepaid, or (d) 5
Business Days after the Business Day of mailing by first class mail, postage
prepaid; and shall be addressed to the address set forth below (or at such other
address as a party may designate by 15 days advance written notice to the other
party pursuant to the provisions above):
(a) if to Balisoft, to:
Balisoft Technologies Inc.
970 Lawrence Avenue West, Suite 505
Toronto, Ontario
Canada M6A 3B6
ATTENTION: Mark Skapinker
Facsimile No.: 416-256-0706
Telephone No.: 416-256-1419
<PAGE> 79
-75-
with a copy to:
Osler, Hoskin & Harcourt
P.O. Box 50
1 First Canadian Place, Suite 6600
Toronto, Ontario
Canada M5X IB8
ATTENTION: Richard Nathan
Facsimile No.: 416-862-6666
Telephone No.: 416-362-2111
(b) if to ServiceSoft, ServiceSoft Canada or Amalco, to:
ServiceSoft Corporation
50 Cabot Street
Needham, Massachusetts
U.S.A. 02494
ATTENTION: David Tarrant
Facsimile No.: 617-449-0107
Telephone No.: 617-449-0049
with a copy to:
Land & Lemle
1775 EYE Street NW, Suite 950
Washington, D.C.
U.S.A. 20006-2401
ATTENTION: Stuart Lemle
Facsimile No.: 202-775-0045
Telephone No.: 202-775-0044
11.2 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
<PAGE> 80
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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.
11.3 OTHER REMEDIES - Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
11.4 GOVERNING LAW; CONSENT TO JURISDICTION - This Agreement shall be governed
by and construed in accordance with the laws the Province of Ontario and the
federal laws of Canada applicable therein, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws. Each of the
parties hereto irrevocably (i) agrees that any legal suit, action or proceeding
against the other parties to this Agreement in connection with any matter based
upon or arising out of this Agreement or the matters contemplated herein may be
instituted in any federal or provincial court in the Province of Ontario, Canada
(ii) waives to the fullest extent it may effectively do so, any objection which
it may now or hereafter have to the laying of venue of any such proceeding, and
(iii) submits to the exclusive jurisdiction of such courts in any suit, action
or proceeding.
11.5 RULES OF CONSTRUCTION - The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
<PAGE> 81
11.6 COUNTERPARTS - This Agreement may be executed in one or more counterparts
(including by means of telecopier), all of which shall be considered one and the
same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.
IN WITNESS WHEREOF Balisoft, ServiceSoft, ServiceSoft Canada have caused
this Agreement to be signed by their duly authorized respective officers, all as
of the date first written above.
BALISOFT TECHNOLOGIES INC.
By: /s/ Mark Skapinker
----------------------------------------------
Name: Mark Skapinker
Title: Chief Executive Officer
SERVICESOFT CORPORATION
By: /s/ David Tarrant
----------------------------------------------
Name: David Tarrant
Title: President
SERVICESOFT CANADA INC.
By: /s/ David Tarrant
----------------------------------------------
Name: David Tarrant
Title: President
<PAGE> 82
BALISOFT TECHNOLOGIES INC.
DISCLOSURE SCHEDULE
TO
COMBINATION AGREEMENT
BY AND AMONG
BALISOFT TECHNOLOGIES INC.,
SERVICESOFT CORPORATION
AND
SERVICESOFT CANADA INC.
DATED AS OF FEBRUARY 1, 1999
BALISOFT TECHNOLOGIES INC.
By: /s/ Mark Skapinker
----------------------------------------------
Name: Mark Skapinker
Title: Chief Executive Officer
SERVICESOFT CORPORATION
By: /s/ David Tarrant
----------------------------------------------
Name: David Tarrant
Title: President
SERVICESOFT CANADA INC.
By: /s/ David Tarrant
----------------------------------------------
Name: David Tarrant
Tilde: President
<PAGE> 83
BALISOFT TECHNOLOGIES INC.
DISCLOSURE SCHEDULE
TO
COMMUNICATION AGREEMENT
BY AND AMONG
BALISOFT TECHNOLOGIES INC,
SERVICESOFT CORPORATION
AND
SERVICESOFT CANADA INC.
DATED AS OF FEBRUARY 1, 1999
BALISOFT TECHNOLOGIES INC.
By: /s/ Mark Skapinker
----------------------------------------------
Name: Mark Skapinker
Title: Chief Executive Officer
SERVICESOFT CORPORATION
By: /s/ David Tarrant
----------------------------------------------
Name: David Tarrant
Title: President
SERVICESOFT CANADA INC.
By: /s/ David Tarrant
----------------------------------------------
Name: David Tarrant
Title: President
<PAGE> 1
EXHIBIT 2.2
-----------
- --------------------------------------------------------------------------------
MERGER AGREEMENT
BY AND AMONG
SERVICESOFT TECHNOLOGIES, INC.
SERVICESOFT ACQUISITION CORP.
AND
INTERNET BUSINESS ADVANTAGES, INC.
DATED AS OF DECEMBER 17, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
PAGE
Section 1. Definitions........................................................1
Section 2. Basic Transaction..................................................4
2.1 The Merger...................................................4
2.2 The Closing..................................................4
2.3 Actions at the Closing.......................................4
2.4 Effect of Merger.............................................4
2.5 Surrender of Certificates....................................7
2.6 No Further Ownership Rights in Company Capital Stock.........8
2.7 Lost, Stolen or Destroyed Certificates.......................9
2.8 New Purchaser Employees......................................9
2.9 Tax and Accounting Consequences..............................9
2.10 Exemption from Registration..................................9
2.11 Escrow Fund..................................................9
2.12 Taking of Necessary Action; Further Action...................9
Section 3. Representations and Warranties of the Company......................9
3.1 Organization, Qualification, and Corporate Power............10
3.2 Authorization...............................................10
3.3 Noncontravention............................................10
3.4 Capitalization..............................................10
3.5 Subsidiaries................................................11
3.6 Title to Assets.............................................11
3.7 Company Financial Statements................................11
3.8 Events Subsequent to Most Recent Fiscal Year End............12
3.9 Absence of Undisclosed Liabilities..........................13
3.10 Legal Compliance............................................13
3.11 Litigation..................................................14
3.12 Licenses and Permits........................................14
3.13 Tax Matters.................................................14
-i-
<PAGE> 3
3.14 Certain Agreements Affected by the Merger...................15
3.15 Real Property...............................................15
3.16 Intellectual Property.......................................16
3.17 Contracts...................................................18
3.18 Accounts Receivable.........................................20
3.19 Accounts Payable............................................20
3.20 Insurance...................................................20
3.21 Product and Services Warranties.............................20
3.22 Employment Matters..........................................20
3.23 Employees...................................................21
3.24 Employee Benefits...........................................21
3.25 Environmental Matters.......................................22
3.26 Related Party Transactions..................................22
3.27 Year 2000 Compliance........................................22
3.28 Brokers' Fees...............................................23
3.29 Banks.......................................................23
3.30 Restrictions on Business Activities.........................23
3.31 Accounting and Tax Matters..................................23
3.32 Company Action..............................................23
3.33 Books and Records...........................................23
3.34 Customers...................................................23
3.35 Suppliers...................................................23
3.36 Disclosure..................................................24
Section 4. Representations and Warranties of the Purchaser and the
Transitional Subsidiary..............................................24
4.1 Organization, Qualification, and Corporate Power............24
4.2 Authorization...............................................24
4.3 Noncontravention............................................24
4.4 Capitalization of the Purchaser.............................25
4.5 Purchaser Shares............................................25
4.6 Capitalization of the Transitional Subsidiary...............25
4.7 Subsidiaries................................................25
-ii-
<PAGE> 4
4.7 Subsidiaries TC "4.7 Subsidiaries" \l "2". Section
4.7 of the Purchaser Disclosure Schedule sets forth
all Subsidiaries of the Purchaser...........................25
4.8 Purchaser Financial Statements..............................25
4.9 Purchaser Action............................................26
4.10 Accounting and Tax Matters..................................26
4.11 Litigation..................................................26
4.12 Brokers' Fees...............................................26
4.13 Absence of Undisclosed Liabilities..........................26
4.14 Legal Compliance............................................27
4.15 Tax Matters.................................................27
4.16 Year 2000 Compliance........................................28
4.17 Disclosure..................................................28
Section 5. [Reserved.].......................................................29
Section 6. Conditions to Obligation to Close.................................29
6.1 Conditions to Obligation of the Purchaser and the
Transitional Subsidiary.....................................29
Section 7. [Reserved.].......................................................31
Section 8. Indemnification...................................................31
8.1 Indemnification.............................................31
8.2 Indemnification Claims......................................33
8.3 Valuation...................................................34
8.4 Stockholders' Agent.........................................35
8.5 Limitations.................................................36
Section 9. Miscellaneous.....................................................36
9.1 Expenses....................................................36
9.2 Press Releases, and Public Announcements....................36
9.3 No Third-Party Beneficiaries................................36
9.4 Entire Agreement............................................36
9.5 Succession and Assignment...................................36
9.6 Dispute Resolution..........................................36
9.7 Counterparts................................................38
9.8 Headings....................................................38
9.9 Notices.....................................................38
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<PAGE> 5
9.10 Further Assurances..........................................39
9.11 Governing Law...............................................39
9.12 Amendments and Waivers......................................39
9.13 Severability................................................39
9.14 Incorporation of Exhibits and Schedules.....................40
9.15 Indemnification of Company Directors and Officers...........40
-iv-
<PAGE> 6
EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Escrow Agreement
Exhibit C Form of Purchaser Warrant
Exhibit D Opinion of Hale & Dorr LLP
Exhibit E Opinion of McDermott, Will & Emery
SCHEDULES
Schedule 2.4(e) Note Holders
Schedule 6.1(h) Employees
-v-
<PAGE> 7
EXHIBIT 2.2
-----------
MERGER AGREEMENT
----------------
This Merger Agreement is entered into as of December 17, 1999, by and
among Internet Business Advantages, Inc., a Delaware corporation (the
"COMPANY"), Servicesoft Technologies, Inc., a Delaware corporation (the
"PURCHASER"), and Servicesoft Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of the Purchaser (the "TRANSITIONAL SUBSIDIARY"). The
Company, the Purchaser and the Transitional Subsidiary are referred to together
herein as the "PARTIES."
RECITALS
The Boards of Directors of each of the Company, the Purchaser and the
Transitional Subsidiary believe it is in the best interests of their respective
companies and the stockholders of their respective companies that the Company
and the Transitional Subsidiary combine into a single company through the
statutory merger of the Transitional Subsidiary with and into the Company (the
"MERGER") and in furtherance thereof each has approved the Merger. This
Agreement contemplates a transaction in which the Transitional Subsidiary shall
merge with and into the Company and all of the issued and outstanding capital
stock of the Company shall be converted into the right to receive shares of
capital stock of the Purchaser at the rate set forth herein.
The Parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Code, and to cause the
Merger to qualify as a reorganization under the provisions of Section 368(a) of
the Code.
NOW, THEREFORE, in consideration of the premises and the actual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
THE MERGER
Section 1. DEFINITIONS
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY PREFERRED SHARES" means the shares of Series A Convertible
Preferred Stock, par value $.001 per share (the "SERIES A PREFERRED STOCK"), the
Series B Convertible Preferred Stock, par value $.001 per share (the "SERIES B
PREFERRED STOCK"), and the Series C Convertible Preferred Stock, par value $.001
per share (the "SERIES C PREFERRED STOCK"), of the Company.
"COMPANY SHARES" means any shares of Common Stock, par value $.001 per
share, of the Company.
<PAGE> 8
"CONVERTIBLE NOTES" means (i) the Convertible Demand Note, dated as of
March 5, 1999, made to the order of Sigma Associates IV, L.P., in the principal
amount of $222,418, (ii) the Convertible Demand Note, dated as of March 5, 1999,
made to the order of Sigma Partners IV, L.P., in the principal amount of
$851,360, (iii) the Convertible Demand Note, dated as of March 5, 1999, made to
the order of Sigma Investors IV, L.P., in the principal amount of $26,222, (iv)
the Convertible Demand Note, dated as of March 12, 1999, made to the order of
Greylock Equity Limited Partnership, in the principal amount of $1,100,000, (v)
the Demand Promissory Note, dated as of November 3, 1999, made to the order of
Greylock Equity Limited Partnership, in the principal amount of $275,062.39,
(vi) the Demand Promissory Note, dated as of November 3, 1999, made to the order
of Sigma Investors IV, L.P., in the principal amount of $2,297.35, (vii) the
Demand Promissory Note, dated as of November 3, 1999, made to the order of Sigma
Associates IV, L.P., in the principal amount of $20,955.12, and (viii) the
Demand Promissory Note, dated as of November 3, 1999, made to the order of Sigma
Partners IV, L.P., dated as of November 3, 1999, in the principal amount of
$51,685.14.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan, or (e)
any bonus, incentive, severance, stock option, stock purchase, short-term
disability plan or other material fringe benefit plan, program or arrangement,
including policies concerning holidays, vacations and salary continuation during
short absences for illness or otherwise.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"INTELLECTUAL PROPERTY" means (a) all trade secrets and confidential
business information (including customer and supplier lists, ideas, research and
development, know-how, formulas, compositions, service and production
methodologies, processes and techniques, technical data, designs, drawings,
specifications, pricing and cost information, and business and marketing plans
and proposals), (b) all trademarks, service marks, trade dress, logos, trade
names, domain names and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (d) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (e) all mask works and all
applications, registrations, and renewals in connection therewith, (f) all
computer
2
<PAGE> 9
software (including data and related documentation), (g) all other proprietary
rights, and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"LIABILITY" means any liability (whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due), including any liability for
Taxes.
"MATERIAL ADVERSE EFFECT" means any change or effect that is materially
adverse to the properties, business, condition (financial or otherwise) or
results of operations of the Company.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"NOTE HOLDERS" means Sigma Associates IV, L.P., Sigma Partners IV,
L.P., Sigma Investors IV, L.P., and Greylock Equity Limited Partnership.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company or partnership,
a trust, a joint venture, an unincorporated organization, or a governmental
entity (or any department, agency, or political subdivision thereof).
"PURCHASER MATERIAL ADVERSE EFFECT" means any change or effect that is
materially adverse to the properties, business, condition (financial or
otherwise) or results of operations of the Purchaser or the Transitional
Subsidiary.
"PURCHASER SHARES" means any shares of Common Stock, par value $0.01
per share, of the Purchaser.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any lien, encumbrance, mortgage, pledge, or
other security interest, excluding liens arising by operation of law for Taxes
not yet due and payable.
"SUBSIDIARY" means any corporation more than 50% of the outstanding
voting securities of which, or any partnership, limited liability company, joint
venture or other entity more than 50% of the total equity interest of which, is
directly or indirectly owned by a specified Person (or a Subsidiary thereof) or
any other entity otherwise controlled by or under common control with such
Person.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not, and whether or not accrued on the Company
Financial Statements (as defined in Section 3.7 hereof).
3
<PAGE> 10
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
Section 2. BASIC TRANSACTION.
2.1 THE MERGER. Subject to and in accordance with the terms and
conditions of this Agreement, the Transitional Subsidiary shall merge with and
into the Company at the Closing Date (as defined in Section 2.4 hereof). The
Company shall be the corporation surviving the Merger (the "SURVIVING
CORPORATION").
2.2 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of McDermott, Will &
Emery, 28 State Street, Boston, MA 02109-1775 on the date hereof (the "CLOSING
DATE").
2.3 ACTIONS AT THE CLOSING. At the Closing, (i) the Company will
deliver to the Purchaser and the Transitional Subsidiary the various
certificates, instruments, and documents referred to in Section 6.1 below; (ii)
the Purchaser and the Transitional Subsidiary will deliver to the Company the
various certificates, instruments, and documents referred to in Section 6.2
below; (iii) the Transitional Subsidiary and the Company will file with the
Secretary of State of the State of Delaware a Certificate of Merger in the form
attached hereto as EXHIBIT A (the "CERTIFICATE OF MERGER"); (iv) the Purchaser
shall deliver the Merger Consideration in the manner provided below in this
Section 2; and (v) the Company, the Stockholders' Agent (as defined in Section
8.4(a) hereof) and the Escrow Agent (as defined in Section 2.11 hereof) shall
execute and deliver an Escrow Agreement in the form attached hereto as EXHIBIT B
(the "ESCROW AGREEMENT") and the Purchaser shall deliver to the Escrow Agent a
certificate for the Purchaser Shares being placed in escrow pursuant to Section
2.11 hereof.
2.4 EFFECT OF MERGER.
(a) GENERAL. The Merger shall become effective at the Closing
Date. The Merger shall have the effect set forth in this Agreement, the
Certificate of Merger, and the General Corporation Law of the State of Delaware
("DELAWARE LAW"). Without limiting the generality of the foregoing, and subject
thereto, at the Closing Date, all the property, rights, privileges, powers and
franchises of the Transitional Subsidiary shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Transitional
Subsidiary shall become the debts, liabilities and duties of the Surviving
Corporation. The Surviving Corporation may, at any time after the Closing Date,
take any action (including executing and delivering any document) in the name
and on behalf of either the Company or the Transitional Subsidiary in order to
carry out and effectuate the transactions contemplated by this Agreement.
(b) CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Surviving Corporation shall read, as did the Certificate of
Incorporation of the Transitional Subsidiary immediately prior to the Closing
Date, except that (i) the name of the corporation set forth therein shall be
changed to the name of the Company, and (ii) the identity of the incorporators
shall be deleted.
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(c) BY-LAWS. The By-Laws of the Surviving Corporation shall
read, as did the By-Laws of the Transitional Subsidiary immediately prior to the
Closing Date, except that the name of the corporation set forth therein shall be
changed to the name of the Company.
(d) DIRECTORS AND OFFICERS. The directors and officers of the
Transitional Subsidiary shall become the directors and officers of the Surviving
Corporation at and as of the Closing Date (retaining their respective positions
and terms of office) until their respective successors are duly elected and
qualified.
(e) EFFECT ON CAPITAL STOCK. By virtue of the Merger and
without any action on the part of the Purchaser, the Transitional Subsidiary,
the Company or the holders of any of the Company's securities:
(i) CONVERSION OF THE COMPANY CAPITAL STOCK; MERGER
CONSIDERATION. Each Company Share issued and outstanding immediately prior to
the Closing Date (other than the Dissenting Shares (as defined below)) shall be
converted into and represent the right to receive (subject to the provisions of
Section 2.11 hereof) such number of Purchaser Shares as is equal to the
Conversion Ratio (as defined below) for such share. The "CONVERSION Ratio" shall
initially be the result obtained by dividing (i) 1,195,761 (the "TOTAL PURCHASER
SHARES") by (ii) the sum of (x) the number of Company Shares issued and
outstanding, (y) the number of Company Shares issuable upon exercise of
outstanding options to purchase Company Shares, whether vested or unvested
("OPTIONS"), and warrants to purchase Company Shares, including without
limitation any warrants held by the Note Holders pursuant to the terms of the
Convertible Notes ("WARRANTS") and (z) the number of Common Shares issuable upon
conversion of the Company Preferred Shares and any other convertible or
exchangeable securities of the Company, all of which will be determined
immediately prior to the Closing Date. The Conversion Ratio shall be subject to
adjustment as follows: (i) the Total Purchaser Shares shall be reduced by the
number of Purchaser Shares issued by the Purchaser to the Note Holders pursuant
to Section 2.4(e)(iv) hereof; (ii) the Total Purchaser Shares shall be reduced
by the number of Purchaser Shares issued to Chester S. Barnard, Jr., the
Company's President and Chief Executive Officer (the "CEO"), pursuant to Section
2.4(e)(vii) hereof; and (iii) the Total Purchaser Shares shall be reduced by the
number of Purchaser Shares to be issued to Burt Rubenstein, the Company's
founder and Chief Technology Officer (the "CTO") pursuant to Section
2.4(e)(viii) hereof. Stockholders of record of the Company (the "STOCKHOLDERS")
shall be entitled to receive 90% (rounded up to the next whole share) of the
Purchaser Shares into which their Company Shares were converted pursuant to this
Section 2.4(e) (the "INITIAL SHARES"). The balance of the Purchaser Shares into
which their Company Shares were converted pursuant to this Section 2.4(e), plus
the aggregate number of Purchaser shares to be deposited under the Escrow
Agreement as set forth in Section 2.4(e)(iv) hereof (the "ESCROW SHARES"), shall
be deposited in escrow pursuant to Section 2.11 in accordance with the Escrow
Agreement. The Initial Shares and the Escrow Shares shall together be referred
to herein as the "MERGER CONSIDERATION."
(ii) CANCELLATION OF COMPANY CAPITAL STOCK OWNED BY
THE COMPANY. At the Closing Date, all shares of Company capital stock that are
owned by the Company as treasury stock immediately prior to the Closing Date
shall be cancelled and extinguished without any conversion thereof.
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(iii) CONVERSION OF CAPITAL STOCK OF TRANSITIONAL
SUBSIDIARY. At the Closing Date, each share of common stock, par value $.01 per
share, of the Transitional Subsidiary issued and outstanding immediately prior
to the Closing Date shall be converted into and thereafter evidence one hundred
(100) shares of common stock, par value $.01 per share, of the Surviving
Corporation.
(iv) ASSUMPTION OF CONVERTIBLE NOTES. At the Closing
Date, the Purchaser shall issue to each Note Holder as consideration for the
assumption and cancellation of the Convertible Notes, the number of Purchaser
Shares as set forth opposite such Note Holder's name on SCHEDULE 2.4(E) attached
hereto under the heading, "Purchaser Shares Delivered at Closing"; the number of
Purchaser shares as set forth opposite such Note Holder's name on SCHEDULE
2.4(E) attached hereto under the heading, "Purchaser Shares Held in Escrow,"
shall be deposited in escrow pursuant to SECTION 2.11 hereof in accordance with
the Escrow Agreement.
(v) ASSUMPTION OF OPTIONS. At the Closing Date, each
outstanding Option will be assumed by the Purchaser. Each such Option so assumed
by the Purchaser under this Agreement shall continue to have, and be subject to,
the same terms and conditions as were applicable under such Option immediately
prior to the Closing Date, except that (A) such Option will be exercisable for
that number of Purchaser Shares equal to the product of the number of Company
Shares that were issuable upon exercise of such Option immediately prior to the
Closing Date multiplied by the Conversion Ratio and rounded down to the nearest
whole number of Purchaser Shares, and (B) the per share exercise price for the
Purchaser Shares issuable upon exercise of such assumed Option will be equal to
the quotient determined by dividing the exercise price per Company Share at
which such Option was exercisable immediately prior to the Closing Date by the
Conversion Ratio, rounded up to the nearest whole cent. As soon as practicable
and after the Closing Date, the Purchaser will issue to each person who
immediately prior to the Closing Date was a holder of an outstanding Option, a
document in form and substance satisfactory to the Company evidencing the
foregoing assumption of such Option by the Purchaser.
(vi) REPLACEMENT OF WARRANTS. At the Closing Date,
all outstanding Warrants will be replaced by the Purchaser. Each such Warrant so
replaced by the Purchaser under this Agreement shall have, and be subject to,
the terms and conditions as set forth in the form of Purchaser Warrant attached
hereto as EXHIBIT C (the "Purchaser Warrant"), except that (A) such replaced
Warrant will be exercisable for the number of whole Purchaser Shares equal to
the product of the number of Company Shares that were issuable upon exercise of
such replaced Warrant immediately prior to the Closing Date multiplied by the
Conversion Ratio and rounded down to the nearest whole number of Purchaser
Shares, and (B) the per share exercise price for all Purchaser Shares issuable
upon exercise of such replaced Warrant will be equal to the quotient determined
by dividing the exercise price per Company Share at which such replaced Warrant
was exercisable immediately prior to the Closing Date by the Conversion Ratio,
rounded up to the nearest whole cent. As soon as practicable after the Closing
Date, the Purchaser will issue to each person who, immediately prior to the
Closing Date, was a holder of an outstanding Warrant, a new Purchaser Warrant.
(vii) ASSUMPTION OF CERTAIN OBLIGATIONS: CEO SHARES.
At the Closing Date, the Purchaser shall issue to the CEO 48,780 Purchaser
Shares as consideration in
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full for the assumption and cancellation of the $200,000 buyout set forth in
that certain Change-of-Control Agreement by and between the Company and the CEO,
dated as of April 26, 1999.
(viii) ASSUMPTION OF CERTAIN OBLIGATIONS: CTO SHARES. At the
Closing Date, the Purchaser will enter into a Letter Agreement with the CTO,
pursuant to which the Purchaser shall agree to issue twenty thousand (20,000)
Purchaser Shares to the CTO, subject to the terms and conditions set forth
therein. In the event that, the Purchaser is not obligated to issue any such
Purchaser Shares to the CTO as set forth therein, such unissued Purchaser Shares
shall be distributed by the Purchaser to certain employees and consultants
retained by the Surviving Corporation pursuant to Section 6.1(h) hereof and then
in continuing employment with the Surviving Corporation, as identified by the
CEO and Christopher Butler, President and Chief Executive Officer of the
Purchaser, acting jointly, in their sole discretion.
(ix) DISSENTERS' RIGHTS. Any holder of any of the Company
Shares who has not voted such shares for approval of the Merger (the "DISSENTING
SHARES") and with respect to which such holder shall become entitled to exercise
dissenters' rights in accordance with Delaware Law (a "DISSENTING STOCKHOLDER")
will not have the right to receive any Merger Consideration but such right 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 Delaware
Law. The Company agrees that, except with the prior written consent of the
Purchaser or as required under Delaware Law, it will not voluntarily make any
payment with respect to, or settle or offer to settle, any such purchase demand.
Each Dissenting Stockholder who, pursuant to the applicable provisions of
Delaware Law, becomes entitled to payment of the fair market value for shares of
Company 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 Closing Date any Dissenting Shares shall lose their
status as Dissenting Shares, the Purchaser shall issue and deliver, upon
surrender by such stockholder of a certificate or certificates representing
Company Shares, the number of Purchaser Shares to which such stockholder would
otherwise be entitled under this Section 2.4 less the number of shares allocable
to such stockholder that have been deposited in the Escrow Fund (as defined in
Section 2.11 hereof) in respect of such Purchaser Shares pursuant to Section
2.11 hereof.
2.5 SURRENDER OF CERTIFICATES.
(a) PURCHASER TO PROVIDE COMMON STOCK. At the Closing, (i) the
Purchaser shall deliver to the Company the Purchaser Shares issuable pursuant to
Section 2.4(e) hereof in exchange for all Company Shares outstanding immediately
prior to the Closing Date less the number of Purchaser Shares to be deposited
into the Escrow Fund pursuant to Section 2.11 hereof, and (ii) the Company will
deliver certificates representing all issued and outstanding Company Shares to
the Purchaser for cancellation.
(b) EXCHANGE PROCEDURES. Upon surrender of a certificate or
certificates which immediately prior to the Closing Date represented outstanding
Company Shares (each, a "CERTIFICATE") for cancellation at the Closing or to
such agent or agents as may be appointed by the Purchaser, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole Purchaser Shares less the number of Purchaser
Shares to be deposited in the Escrow Fund on such holder's behalf pursuant to
Section 2.11
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hereof, and the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Closing Date,
represented Company Shares will be deemed from and after the Closing Date, for
all corporate purposes, other than the payment of dividends, to evidence the
ownership of the number of full Purchaser Shares into which such shares of the
Company capital stock shall have been so converted. As soon as practicable after
the Closing Date, and subject to and in accordance with the provisions of
Section 2.11 hereof, the Purchaser shall cause to be distributed to the Escrow
Agent for purposes of the Escrow Fund a certificate or certificates representing
the Escrow Shares which shall be registered in the names of the Stockholders who
otherwise would receive them pursuant to this Agreement.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Purchaser Shares with a record
date after the Closing Date will be paid to the holder of any unsurrendered
Certificate with respect to Purchaser Shares represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole Purchaser
Shares 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 Closing Date theretofore payable (but for the provisions of this
Section 2.5) with respect to such Purchaser Shares.
(d) TRANSFERS OF OWNERSHIP. If any certificate for Purchaser
Shares is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to the Purchaser or any agent designated by it any
transfer or other taxes required by reason of the issuance of a certificate for
Purchaser Shares in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of the Purchaser or
any agent designated by it that such tax has been paid or is not payable.
(e) DISSENTING SHARES. The provisions of this Section 2.5
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of the Purchaser under this Section 2.5 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 number of Purchaser Shares to which
such holder is entitled pursuant to Section 2.4(e) hereof.
2.6 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. All Purchaser
Shares issued upon the surrender for exchange of Company Shares in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of such Company capital stock, and there
shall be no further registration of transfers on the records of the Surviving
Corporation of shares of Company capital stock which were outstanding
immediately prior to the Closing Date. Each holder of a certificate representing
any Company Shares shall cease to have any rights with respect thereto, except
the right to receive the Purchaser Shares as set forth herein.
2.7 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Company shall issue
in exchange for such lost, stolen or destroyed Certificates, upon the making of
an affidavit of that fact by the holder thereof;
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PROVIDED, HOWEVER, that the Purchaser 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
as indemnity against any claim that may be made against the Purchaser with
respect to the Certificates alleged to have been lost, stolen or destroyed.
2.8 NEW PURCHASER EMPLOYEES. The Purchaser will offer employment with
the Purchaser to such number of existing employees and consultants of the
Company as the Purchaser deems necessary or desirable. The Purchaser shall
allocate up to 398,587 Purchaser Shares or options (excluding the 20,000
Purchaser Shares to be issued to the CTO pursuant to Section 2.4(e)(viii)
hereof) to purchase Purchaser Shares for issuance to such new employees in
connection with their employment with the Purchaser.
2.9 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the Parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368 of the Code.
2.10 EXEMPTION FROM REGISTRATION. The Purchaser Shares to be issued in
connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act by reason of Section 4(2) thereof.
2.11 ESCROW FUND. At the Closing Date, the Escrow Shares registered in
the names of the Stockholders and Note Holders who otherwise would receive them
pursuant to this Agreement, shall be deposited with a banking or financial
institution or other entity selected by the Purchaser with the reasonable
consent of the Company as escrow agent (the "ESCROW AGENT"), such deposit to
constitute the "ESCROW FUND" and to be governed by the terms set forth herein
and in the Escrow Agreement. The Escrow Fund shall be available to compensate
the Purchaser and the Transitional Subsidiary pursuant to the indemnification
obligations of the Stockholders and Note Holders. The adoption of this Agreement
and the approval of the Merger by the Stockholders and Note Holders shall
constitute approval of the indemnification provisions in Section 8 hereof and of
the Escrow Agreement and all of the arrangements relating thereto, including,
without limitation, the placement of the Escrow Shares in the Escrow Fund and
the appointment of the Stockholders' Agent.
2.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any time after
the Closing Date 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 the Company and the Transitional Subsidiary, the officers and
directors of the Company, the Purchaser and the Transitional Subsidiary 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.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Purchaser and the Transitional Subsidiary that
the statements contained in this Section 3 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date,
except as set forth in the disclosure schedule accompanying this Agreement (the
"DISCLOSURE SCHEDULE"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Agreement.
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3.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing, and in good standing under
Delaware law. The Company is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction set forth in SECTION 3.1 of the
Disclosure Schedule, which constitute all jurisdictions where such qualification
is required (other than jurisdictions where the failure to be so qualified would
not have a Material Adverse Effect). The Company has full power and authority
and all licenses, permits, and authorizations necessary to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. The Company has delivered to the Purchaser and the Transitional
Subsidiary true and correct copies of the Certificate of Incorporation and
By-Laws of the Company, each as amended to date (respectively, the "CHARTER" and
"BY-LAWS"). The Company is not in violation of any material term of the Charter
or By-Laws. The Company is not in violation of any term or provision of any
agreement, instrument, judgment, license, order, statute, rule or government
regulation applicable to it and to which it is a party, except for violations
which, individually or in the aggregate, would not have a Material Adverse
Effect.
3.2 AUTHORIZATION. The Company has full power and authority to execute
and deliver this Agreement and the documents to be delivered hereunder, and to
perform its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and the documents to be delivered hereunder by the
Company have been duly authorized and approved by its Board of Directors and
stockholders and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the documents to be delivered
hereunder, and the transactions contemplated hereby and thereby. This Agreement
constitutes, and the documents to be delivered hereunder when executed and
delivered will constitute, the valid and legally binding obligation of the
Company, enforceable in accordance with its terms.
3.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement and each of the documents to be delivered hereunder, nor the
consummation of the transactions contemplated hereby or thereby will (i) violate
any provision of the Charter or By-Laws of the Company, (ii) violate any law,
statute, regulation, rule, injunction, judgment, order, decree, ruling, or other
restriction of any government, governmental agency, or court to which the
Company is subject, (iii) except as set forth in SECTION 3.3 of the Disclosure
Schedule, conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the Company
is a party or by which it is bound or to which any of its assets is subject,
other than any such conflict, breach, default or acceleration, right or
requirement that would not have a Material Adverse Effect, or (iv) result in the
imposition of any Security Interest upon any of its assets. The Company is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any governmental agency or authority in
order for the Parties to consummate the transactions contemplated by this
Agreement.
3.4 CAPITALIZATION. The entire authorized capital stock of the Company
consists of 5,000,000 shares of Company Shares, of which 851,209 shares are
issued and outstanding; 928,394 shares of Series A Preferred Stock, of which
928,394 shares are issued and outstanding; 1,071,606 shares of Series B
Preferred Stock, of which 1,071,606 shares are issued and outstanding; and
914,667 shares of Series C Preferred Stock, of which 914,667 shares are issued
and outstanding. All of the issued and outstanding Company Shares and Company
Preferred
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Shares have been duly authorized, are validly issued, fully paid, and
nonassessable and have been offered, issued, sold and delivered in compliance
with applicable federal and state securities laws and are held of record by the
stockholders of the Company as set forth in SECTION 3.4 of the Disclosure
Schedule. SECTION 3.4 of the Disclosure Schedule sets forth the name of each
holder of Options or Warrants and the number of Company Shares that such Options
or Warrants are exercisable for with respect to each holder, along with any
applicable vesting schedule (including acceleration terms thereof) and exercise
price. Except for 501,250 outstanding Options and 167,689 Warrants, as more
fully detailed in SECTION 3.4 of the Disclosure Schedule, there are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock or securities convertible into any such
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company or
restrictions on the transfer of the capital stock of the Company. The Company
has no obligation to purchase, redeem or otherwise acquire any of its capital
stock or any interests therein. There are no preemptive rights, first refusal
rights, put or call rights or obligations or anti-dilution rights with respect
to the capital stock of the Company. There are no rights to have the Company's
capital stock registered for sale to the public in connection with the laws of
any jurisdiction.
3.5 SUBSIDIARIES. Except as set forth in SECTION 3.5 of the Disclosure
Schedule, the Company has no Subsidiaries. The Company does not control directly
or indirectly and has no direct or indirect interest in any corporation,
partnership, trust, joint venture or other business association.
3.6 TITLE TO ASSETS. The Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet (as defined below) or
acquired after the date thereof, free and clear of all Security Interests,
except as set forth in SECTION 3.6 of the Disclosure Schedule and for properties
and assets disposed of in the ordinary course of business since the date of such
Most Recent Balance Sheet. Such properties and assets constitute all property
which is necessary to the business of the Company and all equipment included
therein is in good condition (ordinary wear and tear excepted).
3.7 COMPANY FINANCIAL STATEMENTS. SECTION 3.7 of the Disclosure
Schedule sets forth the following financial statements (collectively, the
"COMPANY FINANCIAL STATEMENTS"): (i) audited balance sheets and the related
statements of income, stockholders' equity and cash flow as of and for the
fiscal years ended December 31, 1996, December 31, 1997 and December 31, 1998,
certified by the independent certified public accountants of the Company (the
December 31, 1998 fiscal year end is hereafter referred to as the "MOST RECENT
FISCAL YEAR END") for the Company; and (ii) an unaudited balance sheet (the
"MOST RECENT BALANCE SHEET") and the related statements of income, stockholders'
equity and cash flow (the "MOST RECENT COMPANY FINANCIAL STATEMENTS") as of and
for the nine months ended September 30, 1999 (the "MOST RECENT FISCAL MONTH
END") for the Company. The Company Financial Statements (including the notes
thereto) (i) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, (ii) present fairly in all
material respects the financial condition of the
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Company as of such dates and the results of operations of the Company for such
periods, and (iii) are consistent with the books and records of the Company
(subject, in the case of the Most Recent Company Financial Statements, to normal
year-end adjustments, adjustments to record deferred compensation and
compensation expense associated with equity awards in 1999, and to the inclusion
of footnotes not required in interim financial statements in conformity with
GAAP).
3.8 EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
Recent Fiscal Year End, the Company has operated in the normal and ordinary
course and consistent with past practice and there have not been any events
that, individually or in the aggregate, have had or could have a Material
Adverse Effect. Without limiting the generality of the foregoing, since the Most
Recent Fiscal Year End, except as set forth on SECTION 3.8 of the Disclosure
Schedule, the Company has not:
(a) issued, sold, or otherwise disposed of any of its capital
stock, or granted any options, warrants, or other rights to purchase or obtain
(including upon conversion, exchange, or exercise) any of its capital stock;
(b) declared, set aside, or paid any dividend or made any
distribution with respect to its capital stock (whether in cash or in kind) or
redeemed, purchased, or otherwise acquired any of its capital stock;
(c) sold, leased or otherwise disposed of or agreed to sell,
lease or otherwise dispose of, any of its assets, properties, rights or claims,
except for sales of inventory in the ordinary course of business, in customary
quantities, and at prices and on terms consistent with past practice;
(d) merged or consolidated with or agreed to merge or
consolidate with, or purchased or agreed to purchase any assets of, or otherwise
acquired, any corporation, partnership, limited liability company or other
business organization or division thereof;
(e) had any Security Interest placed upon any of its assets,
tangible or intangible;
(f) failed to maintain, keep, and preserve all of its
properties (tangible and intangible) necessary or useful in the proper conduct
of its business in good working order and condition, ordinary wear and tear
excepted;
(g) terminated or agreed to terminate any Material Contract
(as defined in Section 3.17 below);
(h) failed to comply in all material respects with applicable
laws, rules, regulations, and orders relating to its business, such compliance
to include, without limitation, paying before the same become delinquent all
Taxes, assessments, and governmental charges imposed upon it or upon its
property;
(i) forgiven or canceled any debts or claims, or waived any
material rights;
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(j) made any capital expenditure (or series of related capital
expenditures) either involving more than $25,000 or outside the ordinary course
of business;
(k) entered into, amended or terminated or agreed to enter
into, amend or terminate any employment, bonus, incentive, severance or
retirement contract, plan or arrangement, or increased or agreed to increase any
salary or other form of compensation or benefits payable or to become payable to
any employee;
(l) changed or authorized any change in its Charter or By-Laws
or other governing instruments;
(m) suffered any loss of any significant independent
contractor, customer or account of the Company (other than in the ordinary
course of business or specific projects for customers);
(n) secured any obligation or liability to any of its
officers, directors, stockholders or employees or made any loans or advances to
any of its officers, directors, stockholders or employees except normal
compensation and expense allowances payable to officers and employees;
(o) suffered any labor trouble or claim of unfair labor
practices;
(p) suffered any material loss of personnel or made any change
in the officers of the Company;
(q) made any change in accounting methods or practices;
(r) had any claim or dispute with any stockholder of the
Company; or
(s) taken or omitted to take any action which could have a
Material Adverse Effect.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in SECTION
3.9 of the Disclosure Schedule, the Company has no Liability, except for (i)
Liabilities set forth on the Most Recent Balance Sheet, (ii) Liabilities which
have arisen after the Most Recent Fiscal Month End in the ordinary course of
business, and (iii) Liabilities incurred in the ordinary course of business and
not required to be set forth in the Most Recent Balance Sheet.
3.10 LEGAL COMPLIANCE. The Company conforms to and complies, and has
complied, with all applicable laws (including rules, regulations, codes,
injunctions, judgments, orders, decrees, and rulings of federal, state and local
governments and all agencies thereof). No notice from any governmental body or
other person of any violation of any applicable laws has been received by the
Company and the Company knows of no meritorious basis therefor. The Company has
submitted or filed all reports and statements required by all applicable laws in
a timely manner and all such reports and statements were true and correct when
submitted or filed.
3.11 LITIGATION. SECTION 3.11 of the Disclosure Schedule sets forth
each instance in which the Company or any of its officers, employees or
directors (in their capacity as such) (i) is
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subject to any outstanding injunction, judgment, order, decree, ruling, or
charge, or (ii) is a party, or to the knowledge of the Company is threatened to
be made a party to any action, suit, proceeding, hearing, or investigation of,
in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None of
the actions, suits, proceedings, hearings, and investigations set forth in
SECTION 3.11 of the Disclosure Schedule is likely to have a Material Adverse
Effect. SECTION 3.11 of the Disclosure Schedule sets forth a description of all
material litigation claims, proceedings or investigations involving the Company
or any of its officers, employees, directors or stockholders in connection with
the business of the Company occurring, arising or existing during the past three
(3) years. SECTION 3.11 of the Disclosure Schedule also sets forth all
litigation that the Company has pending against other parties.
3.12 LICENSES AND PERMITS. SECTION 3.12 of the Disclosure Schedule
contains an accurate, correct and complete list of each license, permit,
certificate, approval, exemption, registration or authorization, including any
pending applications therefor, used by the Company in the conduct of its
business (collectively, the "LICENSES AND PERMITS"). The Licenses and Permits
are valid and in full force and effect and there are not pending, or, to the
knowledge of the Company threatened, any proceedings which could result in the
termination, revocation, limitation or impairment of any License or Permit. The
execution of this Agreement and the consummation of the transactions
contemplated hereby will not alter or result in the termination or modification
of any License or Permit. No violations have been recorded in respect of any
Licenses and Permits, and the Company has no knowledge of any meritorious basis
therefor.
3.13 TAX MATTERS.
(a) Except where the failure to do so would not have a
Material Adverse Effect, the Company has (i) timely and properly filed all Tax
Returns it was required to file (and all such Tax Returns were correct and
complete in all material respects), (ii) paid all Taxes owed by the Company
(whether or not shown on any Tax Return), and (iii) properly made all required
Tax estimates, deposits, prepayments and similar reports or payments for current
periods. The Company is not the beneficiary of any extension of time within
which to file any Tax Return. To the knowledge of the Company, except as
disclosed in SECTION 3.13 of the Disclosure Schedule, the Company is not
delinquent in the filing of any Tax Return. To the knowledge of the Company, no
claim is currently pending by an authority in a jurisdiction where the Company
does not file Tax Returns that the Company is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of any
of the Company that arose in connection with any failure (or alleged failure) to
pay any Tax.
(b) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(c) The Company has received no notice of any adjustment of or
deficiency for any Tax or claim for additional Taxes that has been asserted or
assessed against the Company. The Company does not have any dispute with any
taxing authority as to Taxes. There are no audit examinations being conducted
or, to the knowledge of the Company threatened, and there is no deficiency or
refund litigation or controversy in progress or, to the
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knowledge of the Company threatened, with respect to any Taxes previously paid
by the Company or with respect to any Tax Returns previously filed by or on
behalf of the Company.
(d) The Company has not been a United States real property
holding Corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(e) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency. The Company has never been a member of an affiliate
group of corporations filing a combined federal income Tax Return nor does the
Company have any liability for Taxes of any other person under Treasury
Regulations ss.1.1502-6 (or any similar provision of foreign, state or local
law) or otherwise. The Company is not a party to any tax sharing or allocation
arrangement.
(f) The Company has not filed a consent under Code Section
341(f) concerning collapsible corporations. The Company has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G. The Company has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662.
(g) The unpaid accrued Taxes of the Company (a) did not, as of
the date of the Most Recent Company Financial Statements, exceed the reserve for
Tax liability set forth on the Financial Statements, and (b) do not exceed such
reserve as adjusted for the passage of time through the Closing Date in
accordance with the Company's past custom and practice in filing their Tax
Returns.
3.14 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Except as set forth in
SECTION 3.14 of the Disclosure Schedule attached hereto, neither the execution
and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of the Company, (ii)
materially increase any benefits otherwise payable by the Company or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
3.15 REAL PROPERTY.
(a) Neither the Company nor any of its predecessors own or
have owned any real property.
(b) SECTION 3.15(b) of the Disclosure Schedule lists all real
property leased to the Company. With respect to each such lease: (A) the lease
is legal, valid, binding, enforceable, and in full force and effect, (B) the
Company is not in breach or default under the lease, and no event has occurred
which, with notice or lapse of time, would constitute a breach or default or
permit termination, modification or acceleration thereunder, (C) the Company is
the owner and holder of all the leasehold estates purported to be granted by
each such lease, (D) the consummation of the transactions contemplated hereby,
without the consent or approval of any
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party to the lease, will not constitute a breach of, violation, or default under
any provision of the lease. The Company has delivered to the Purchaser true and
correct copies of each lease listed in SECTION 3.15(b) of the Disclosure
Schedule.
3.16 INTELLECTUAL PROPERTY.
(a) The Company owns or has the adequate right to use pursuant
to license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Company as presently
conducted and as presently proposed to be conducted (other than with respect to
"off-the-shelf" software which is generally commercially available to the public
at retail). SECTION 3.16(A) of the Disclosure Schedule summarizes the Company's
Intellectual Property that is material to the operation of the businesses of the
Company as presently conducted, other than off the shelf software. Each item of
Intellectual Property owned or used by the Company immediately prior to the
Closing hereunder will be owned or available for use by the Surviving
Corporation on identical terms and conditions immediately subsequent to the
Closing hereunder.
(b) To its knowledge, the Company has not interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property rights of third parties. To the knowledge of the Company,
no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of the
Company. The Company has not received notice of any such alleged infringement,
misappropriation or conflict nor is there any reasonable basis for such
assertion. To the knowledge of the Company, none of the items that are currently
being developed by the Company (either by itself or with any other Person)
infringes, misappropriates or conflicts with any Intellectual Property owned or
used by any other Person.
(c) SECTION 3.16(c) of the Disclosure Schedule identifies each
patent, copyright or trademark registration which has been issued to the Company
with respect to any of its Intellectual Property, and identifies each pending
patent, copyright or trademark application or application for registration which
the Company has made with respect to any of its Intellectual Property. True and
correct copies of such registrations or applications, and any amendments
thereto, have been delivered to the Purchaser. With respect to each item of
Intellectual Property required to be identified in SECTION 3.16(c) of the
Disclosure Schedule:
(i) the Company possesses all right, title, and
interest in and to the item, free and clear of any Security Interest, license,
or other restriction;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, or ruling; and
(iii) no action, suit, proceeding, hearing,
investigation, complaint, claim, or demand is pending or threatened which
challenges the legality, validity, enforceability, use, or ownership of the
item.
(d) SECTION 3.16(d) of the Disclosure Schedule identifies each
material license, agreement, or other permission which the Company has granted
to any third party with respect to any of its Intellectual Property. SECTION
3.16(D) of the Disclosure Schedule also
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identifies each item of Intellectual Property that any third party owns and that
the Company uses pursuant to license, sublicense, agreement, or permission in
the conduct of its business. Except as set forth in SECTION 3.16(d) of the
Disclosure Statement, the Company has not (i) licensed any Intellectual Property
to any Person on an exclusive basis, (ii) entered into any covenant not to
compete or (iii) entered into any contract limiting its ability to transact
business in any market or geographical area or with any Person. True and correct
copies of such licenses, and any amendments thereto, have been delivered to the
Purchaser. With respect to each such item of used Intellectual Property required
to be identified in SECTION 3.16(d) of the Disclosure Schedule:
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full force and
effect;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms immediately following the consummation of
the transactions contemplated hereby and the consummation of the transactions
contemplated hereby will not breach, violate or conflict with any such license,
sublicense, agreement or permission;
(iii) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order, decree, or ruling;
and
(iv) no action, suit, proceeding, hearing,
investigation, complaint, claim, or demand is pending or threatened which
challenges the legality, validity, or enforceability of the underlying item of
Intellectual Property.
(e) The Company has taken steps required in accordance with
normal business practices to establish and preserve its ownership and maintain
the confidentiality and secrecy of all material Intellectual Property. Each
current or former employee, independent contractor or consultant of the Company
who was involved in or otherwise contributed to the development or creation of
any Intellectual Property, or who had or has responsibility for coding the
Company's products or who had or has access to source code or other proprietary
product information of a similar nature has executed an agreement regarding
confidentiality, proprietary information and assignment of inventions and
copyrights to the Company, and the Company has not received notice that any
employee, consultant or independent contractor is in violation of any agreement
or in breach of any agreement or arrangement with any former or present employee
relating to proprietary information or assignment of inventions.
(f) To the knowledge of the Company, no current employee is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would materially impair the employee's
ability to perform his or her duties as an employee of the Company or that would
conflict with the Company's business as conducted or as proposed to be conducted
or that would prevent any such employee from assigning inventions to the
Company.
(g) SECTION 3.16(g) of the Disclosure Statement identifies
each contract to which the Company is a party as of the date hereof and pursuant
to which the Company has
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disclosed or delivered to any Person, or permitted the disclosure or delivery to
any escrow agent or other Person, of the source code, or any portion of the
source code of any Intellectual Property of the Company. No event has occurred
and no circumstance or condition exists, that (with or without notice or lapse
of time) will, or would reasonably be expected to, result in the required
disclosure or delivery by the Company to any Person of the source code, or any
portion or aspect of the source code, or any proprietary information or
algorithm contained in any source code, of Intellectual Property of the Company.
Neither the execution of this Agreement nor the consummation of any of the
transaction contemplated hereby would reasonably be expected to result in the
required release or disclosure by the Company of the source code, or any portion
or aspect of the source code, or any proprietary information or algorithm
contained in or relating to any source code, of any Intellectual Property of the
Company.
3.17 CONTRACTS. SECTION 3.17 of the Disclosure Schedule sets forth, as
of the date hereof, a complete list of all contracts, commitments, agreements
and understandings to which the Company is a party or is bound (with true and
correct copies delivered to the Purchaser) which involve any of the following
types of contracts (the "MATERIAL CONTRACTS"):
(a) any agreement for the purchase or sale of products or
other personal property, or for the furnishing or receipt of services, in either
case, that involves consideration in excess of $50,000;
(b) any agreement constituting a partnership, joint venture or
similar arrangement, including any joint marketing or development contract
currently in force under which the Company has continuing material obligations
to jointly market any product, technology or service which may not be cancelled
without penalty upon notice of thirty (30) days or less, or any contract
pursuant to which the Company has continuing material obligations to jointly
develop a product, technology or service that will not be owned, in whole or in
part, by the Company and which may not be cancelled without penalty upon notice
of ninety (90) days or less;
(c) any agreement under which it has created, incurred,
assumed, or guaranteed any indebtedness for borrowed money, or any capitalized
lease obligation;
(d) any agreement for the lease of personal property to or
from any Person providing for lease payments in excess of $25,000 per annum;
(e) any agreement for the lease of real property;
(f) any agreement concerning noncompetition;
(g) any agreement with any of the Company's stockholders or
their Affiliates;
(h) any contract or agreement with any employee, director,
stockholder or consultant;
(i) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers, employees or
consultants;
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(j) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, employees, stockholders or
consultants;
(k) any stock redemption or purchase agreements or other
agreements affecting or relating to the capital stock of the Company, including,
without limitation, any agreement with any stockholder of the Company which
includes, without limitation, anti-dilution rights, registration rights, voting
arrangements or operating covenants;
(l) any contract or agreement involving any royalty, potential
commitment or payment by the Company in excess of $25,000 relating to the
licensing, distribution, development, purchase, sale or servicing of its
products or services or any of its Intellectual Property;
(m) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing by the Company or any
pledge or security arrangement by the Company;
(n) any manufacturer, supply or development agreement;
(o) any agreement relating to the acquisition of assets,
businesses or companies (whether by sale of assets, sale of stock, merger or
otherwise);
(p) any customer contracts that are not made on a time and
material basis and which have wage caps or fixed price provisions;
(q) any agreement for the development of Intellectual Property
pursuant to which the Company provides services to any entities or in any areas
on an exclusive basis;
(r) any contract or agreement imposing any restriction on the
right or ability of the Company (A) to license any of the Intellectual Property
of the Company to any Person, (B) to compete or (C) to transact business in any
market or geographic area or with any Person; or
(s) any other material contract, commitment, agreement or
understanding not executed in the ordinary course of business.
All Material Contracts are valid, binding and enforceable against the Company in
accordance with their terms and are in full force and effect. The Company is
not, and to the knowledge of the Company, none of the parties to any Material
Contract are, in breach of, violation of, or in default under the terms of any
such Material Contract. No event has occurred which with notice or passage of
time or both would result in a breach of, violation of, or in default under, the
terms of any Material Contract. The consummation of the transactions
contemplated hereby, without notice to or consent or approval of any party, will
not constitute a breach of, violation of, or default under any provision of any
Material Contract. At the Closing, the Company shall deliver to the Purchaser
any consents or approvals of any parties required with respect to the Material
Contracts in connection with the transactions contemplated hereby.
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3.18 ACCOUNTS RECEIVABLE. Except as set forth in SECTION 3.18 of the
Disclosure Schedule attached hereto, all accounts receivable of the Company (i)
are reflected properly on its books and records, (ii) are valid and enforceable
claims arising from bona fide transactions in the ordinary course of business
subject to no asserted setoff or counterclaims, and (iii) are, to the Company's
knowledge, collectable in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the Most Recent Balance
Sheet. No account debtor is delinquent in its payment by more than sixty (60)
days and no account debtor has refused or threatened to refuse to pay its
obligations for any reason.
3.19 ACCOUNTS PAYABLE. All accounts payable by the Company to third
parties as of the date hereof arose, and as of the Closing will have arisen, in
the ordinary course of business.
3.20 INSURANCE. SECTION 3.20 of the Disclosure Schedule sets forth a
complete and correct list and summary description of all policies of liability,
theft, fidelity, fire, product liability, workmen's compensation,
indemnification of directors and officers and other similar forms of insurance
(including the name of the carrier, coverage, premium and expiration date) to
which the Company is a party, a named insured, or otherwise the beneficiary of
coverage. Each such insurance policy is in full force and effect and neither the
Company nor any other party to the policy is in breach or default (including
with respect to the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration, under
the policy. To the knowledge of the Company and the Stockholders, there is no
threatened termination of any such policies or arrangements.
3.21 PRODUCT AND SERVICES WARRANTIES. SECTION 3.21 of the Disclosure
Schedule sets forth a complete list of all outstanding product and service
warranties and guaranties on any of the products or services that the Company
distributes, services, markets, sells, manufactures, assembles or otherwise
produces for itself, or customers or a third party (each such product or service
shall be referred to herein as a "COMPANY PRODUCT").
3.22 EMPLOYMENT MATTERS. The Company has paid or made provision for the
payment of all salaries and wages accrued to or for the benefit of the employees
and has complied with all applicable laws, rules, and regulations relating to
the employment of labor, including those relating to wages, hours, collective
bargaining, and the payment and withholding of Taxes. The Company has withheld
and paid to the appropriate governmental authority, or is holding for the
payment not yet due to the authority, all amounts required by law or agreement
to be withheld from the salaries or wages of the employees. The Company has made
all payments and contributions required to be made on behalf of its employees,
including workers' compensation and unemployment insurance. The Company is not a
party to any collective bargaining agreement with respect to its employees. Upon
termination of the employment or any consulting arrangement of any employees or
independent consultants, the Company will not be obligated to provide advance
notice of such termination or be liable to any such employees or consultants for
so called "severance pay." No such severance pay will become due to any of the
Company's employees or independent consultants as a result of or in connection
with the transactions contemplated hereby. The Company is in compliance in all
material respects with all applicable laws and regulations respecting labor,
employment, fair employment practices, terms and conditions of employment, and
wages and hours.
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3.23 EMPLOYEES. SECTION 3.23 of the Disclosure Schedule identifies all
of the Company's current employees and consultants and their annual
compensation, including all bonuses and fringe benefits. No executive, key
employee, or group of employees has given the Company written or formal oral
notice that he or she intends to terminate employment with the Company. There is
no current, written, unresolved grievance that is likely to have a Material
Adverse Effect and no arbitration proceeding is pending or threatened and no
claim therefor has been asserted. There is no unfair labor practice charge or
complaint pending, or to the knowledge of the Company, threatened relating to
the business of the Company. No union organizing or election activities
involving any nonunion employees are in progress or threatened. There is no
labor strike, slowdown, work stoppage or lockout in effect or, to the knowledge
of the Company threatened against the Company nor has any such labor strike,
slowdown, work stoppage or lockout occurred within the past three (3) years.
3.24 EMPLOYEE BENEFITS.
(a) SECTION 3.24 of the Disclosure Schedule lists each
Employee Benefit Plan that the Company maintains or to which the Company
contributes.
(i) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
(ii) All required reports and descriptions have been
filed or distributed appropriately with respect to each such Employee Benefit
Plan.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any pay period ending on or before the
Closing Date which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice of the
Company. All premiums or other payments due for all periods ending on or before
the Closing Date have been paid with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan or accrued in accordance with past
custom and practice of the Company.
(iv) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the requirements of a "qualified plan" under
Code Sec. 401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(v) No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of the assets
of any such Employee Benefit Plan, other than routine claims for benefits, is
pending or threatened and the Company has no knowledge of any basis for any such
action, suit, proceeding, hearing, or investigation.
(b) No Employee Benefit Plan is a "multiple employer plan" or
a "multiemployer plan," within the meaning of ERISA or the Code. Neither the
Company nor any of its ERISA Affiliates (as defined below) has any direct or
indirect, actual or contingent liability
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with respect to any partial or complete withdrawal (as such terms are defined in
Sections 4203 and 4205 of ERISA) from any such multiemployer plan. For purposes
of this Agreement, "ERISA AFFILIATE" means any entity (whether or not
incorporated) which would be treated as a single employer with the Company under
Sections 414(b), (c), (m) or (o) of the Code and the regulations thereunder.
3.25 ENVIRONMENTAL MATTERS. To the best of the Company's knowledge,
other than the kinds of hazardous materials and substances ordinarily used in an
office setting, no hazardous wastes, substances or materials or oil or petroleum
products have been generated, transported, used, disposed, stored or treated by
the Company and, other than as would ordinarily be expected in an office
setting, no hazardous wastes, substances or materials, or oil or petroleum
products have been released, discharged, disposed, transported, placed or
otherwise caused to enter the soil or water in, under or upon any real property
owned, leased or operated by the Company.
3.26 RELATED PARTY TRANSACTIONS. Except for compensation to regular
employees of the Company or as set forth in SECTION 3.26 of the Disclosure
Schedule, (i) no current or former director, officer or stockholder or any
member of such director's, officer's or stockholder's immediate family or any
person controlled by such director, officer or stockholder or his or her
immediate family is presently, or during the last three fiscal years has been, a
party to any transaction with the Company (including, but not limited to, any
contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer or stockholder of the Company ), and
(ii) no current or former officer, director or stockholder or any member of such
director's, officer's or stockholder's immediate family or any person controlled
by such director, officer or stockholder or his or her immediate family is the
direct or indirect owner of an interest in any corporation, firm, association or
business organization which is a present (or potential) competitor, supplier or
customer of the Company (other than non-affiliated holdings in publicly-held
companies), nor does any such person receive income from any source other than
the Company which relates to the business of, or should properly accrue to, the
Company.
3.27 YEAR 2000 COMPLIANCE. All of Company Software is Year 2000
Compliant in all material respects. The term "COMPANY SOFTWARE" means all
material computer software programs owned by the Company or developed for or
licensed to its customers. The Company has no knowledge that any material third
party software used in its operation of its business is not Year 2000 Compliant.
The term "YEAR 2000 COMPLIANT" means, with respect to any software, such
software is designed to be used prior to, during, and after the calendar Year
2000 A.D., and such software used during each such time period will accurately
receive, provide and process date/time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, including the years 1999 and 2000, and leap year
calculations and will not malfunction, cease to function, or provide invalid or
incorrect results as a result of date/time data, to the extent that other
information technology, used in combination with such software being acquired,
properly exchanges data/time data with it, provided that all hardware,
applications and other systems used in conjunction with the Company Software
correctly exchange date data with or provide data to such Company Software.
3.28 BROKERS' FEES. The Company has no Liability to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
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3.29 BANKS. The Company has delivered to the Purchaser a complete and
correct list of each bank in which it has an account or safe deposit box, and
the names of all persons authorized to draw thereon or to have access thereto.
3.30 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon the Company which has or
could reasonably be expected to have the effect of prohibiting any current or
future business practice of the Company or any acquisition of property by the
Company or the conduct of business by the Company as currently conducted or as
currently proposed to be conducted by the Company.
3.31 ACCOUNTING AND TAX MATTERS. Neither the Company, nor, to the
knowledge of the Company, any of its Affiliates has taken any action which would
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368 of the Code.
3.32 COMPANY ACTION. The Board of Directors of the Company, by special
meeting of the Company's Board of Directors duly held and called, has (a)
determined that the Merger is fair and in the best interests of the Company and
its stockholders, (b) adopted this Agreement in accordance with the provisions
of Delaware Law, and (c) directed that this Agreement and the Merger be
submitted to the Company's stockholders for their adoption and approval and
resolved to recommend that Company's stockholders vote in favor of the adoption
of this Agreement and the approval of the Merger.
3.33 BOOKS AND RECORDS. The minute books and other similar records of
the Company contain complete and accurate records of all actions taken at any
meetings of the Company's stockholders, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company accurately reflect in all material
respects the assets, liabilities, business, financial condition and results of
operations of the Company and have been maintained in accordance with good
business and bookkeeping practices.
3.34 CUSTOMERS. Except as set forth in SECTION 3.34 of the Disclosure
Schedule, there are no customers that accounted for more than five percent (5%)
of the revenues of the Company taken as a whole, for the fiscal year ended
December 31, 1998 and the nine-month period ended September 30, 1999.
3.35 SUPPLIERS. SECTION 3.35 of the Disclosure Schedule sets forth a
true, correct and complete list of (i) the names and addresses of each of the
suppliers of the Company which accounted for a dollar volume of purchases by the
Company in excess of $50,000 for the fiscal year ended December 31, 1998 and the
nine-month period ended September 30, 1999, and (ii) the present sole source
suppliers of significant goods or services, other than utilities, for any
product or service with respect to which practical alternative sources of supply
are not available on comparable terms and conditions, indicating the contractual
arrangements for continued supply from each such supplier. The Company believes
it has good relations with all of its suppliers.
3.36 DISCLOSURE. Neither this Agreement, the Disclosure Schedule nor
any other document, certificate or written statement furnished to the Purchaser
by or on behalf of the
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Company in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading in
the light of the circumstances under which they were made.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE
TRANSITIONAL SUBSIDIARY. Each of the Purchaser and the Transitional Subsidiary
represents and warrants to the Company that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date, except as set forth in the
disclosure schedule accompanying this Agreement (the "PURCHASER DISCLOSURE
SCHEDULE").
4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of the
Purchaser and the Transitional Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
Each of the Purchaser and the Transitional Subsidiary is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Each of the Purchaser and the Transitional
Subsidiary has full power and authority and all licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged and
to own and use the properties owned and used by it. Neither the Purchaser nor
the Transitional Subsidiary is in violation of any material term of its
respective Certificates of Incorporation or By-Laws, each as amended to date.
4.2 AUTHORIZATION. Each of the Purchaser and the Transitional
Subsidiary has full power and authority to execute and deliver this Agreement
and the documents to be delivered hereunder, and to perform its obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and the documents to be delivered hereunder by the Purchaser and the
Transitional Subsidiary have been duly authorized and approved by each such
company's Board of Directors and stockholders, as applicable, and no other
corporate proceedings on the part of the Purchaser or the Transitional
Subsidiary are necessary to authorize this Agreement and the documents to be
delivered hereunder, and the transactions contemplated hereby or thereby. This
Agreement constitutes, and the documents to be delivered hereunder when executed
and delivered will constitute, the valid and legally binding obligation of the
Purchaser and the Traditional Subsidiary, enforceable in accordance with its
terms.
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement and each of the documents to be delivered hereunder, nor the
consummation of the transactions contemplated hereby or thereby will (i) violate
any provision of the Purchaser's or the Transitional Subsidiary's respective
Certificates of Incorporation, Charters or By-Laws, (ii) violate any law,
statute, regulation, rule, injunction, judgment, order, decree, ruling, or other
restriction of any government, governmental agency, or court to which the
Purchaser or the Transitional Subsidiary is subject, (iii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Purchaser or the Transitional Subsidiary is a
party or by which it is bound or to which any of its assets is subject, other
than any such conflict, breach, default or acceleration, right or requirement
that would not have a Purchaser Material Adverse Effect, or (iv) result in the
imposition of any Security Interest upon either such company's assets. Neither
the Purchaser nor the Transitional Subsidiary is required to give any notice to,
make any filing
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with, or obtain any authorization, consent, or approval of any governmental
agency or authority or other third party in order for the Parties to consummate
the transactions contemplated by this Agreement, other than those which have
been obtained or will have been obtained prior to the Effective Date.
4.4 CAPITALIZATION OF THE PURCHASER. The entire authorized capital
stock of the Purchaser consists of (i) 17,450,000 Purchaser Shares, of which
3,017,729 shares are issued and outstanding, (ii) 8,000,000 shares of Series H
Convertible Preferred Stock, par value $.01 per share ("SERIES H PREFERRED"), of
which 5,379,845 shares are issued and outstanding, (iii) 4,450,000 shares of
Series I Convertible Preferred Stock, par value $.01 per share ("SERIES I
PREFERRED"), of which 3,982,271 shares are issued and outstanding, (iv) one
share of Series X Special Preferred Voting Stock, par value $.01 per share
("SERIES X PREFERRED"), which share is issued and outstanding, and (v) one share
of Series Y Special Preferred Voting Stock, par value $.01 per share ("SERIES Y
PREFERRED"), which share is issued and outstanding (the Series H Preferred,
Series I Preferred, Series X Preferred and Series Y Preferred are herein
collectively referred to as the "PURCHASER PREFERRED STOCK"). All of the issued
and outstanding Purchaser Shares and shares of Purchaser Preferred Stock have
been duly authorized, are validly issued, fully paid, and nonassessable. Other
than set forth in the respective Certificates of Incorporation of the Purchaser
and the Transitional Subsidiary and except as set forth in SECTION 4.4 of the
Purchaser Disclosure Schedule, there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require the Purchaser to
issue, sell, or otherwise cause to become outstanding any of its capital stock
or securities convertible into any such capital stock. There are no outstanding
or authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to the Purchaser.
4.5 PURCHASER SHARES. The Purchaser Shares to be issued to the
Stockholders hereunder will, at the time of their issuance, be duly authorized
and validly issued, fully paid and nonassessable and free and clear of any
Security Interests.
4.6 CAPITALIZATION OF THE TRANSITIONAL SUBSIDIARY. The entire
authorized capital stock of the Transitional Subsidiary consists of 100 shares
of common stock, par value $.01 per share, of which 100 shares are issued and
outstanding and held by the Purchaser. The common stock of the Transitional
Subsidiary represents the only class or series of capital stock of the
Transitional Subsidiary entitled to vote on the adoption of this Agreement.
Since the date of its incorporation, the Transitional Subsidiary has not engaged
in any activity of any nature except in connection with or as contemplated by
this Agreement.
4.7 SUBSIDIARIES. SECTION 4.7 of the Purchaser Disclosure Schedule sets
forth all Subsidiaries of the Purchaser. The Transitional Subsidiary has no
Subsidiaries.
4.8 PURCHASER FINANCIAL STATEMENTS. SECTION 4.8 of the Purchaser
Disclosure Schedule sets forth the following financial statements (collectively,
the "PURCHASER FINANCIAL STATEMENTS"): (i) an unaudited consolidated balance
sheet, and the related statements of operations, stockholders equity and cash
flows as of and for the nine months ended September 30, 1999 (the "MOST RECENT
PURCHASER FISCAL MONTH END") (the "INTERIM FINANCIALS"); and (ii) an audited
balance sheet and the related statements of income, stockholders equity and cash
flows as of and
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for the fiscal year ended December 31, 1998, certified by the independent
certified public accountants of the Purchaser. The Purchaser Financial
Statements (including the notes thereto) (i) have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby,
(ii) present fairly the financial condition of the Purchaser as of such dates
and the results of operations of the Purchaser for such periods, and (iii) are
consistent with the books and records of the Purchaser (subject, in the case of
the Interim Financials, to normal year-end adjustments and to the inclusion of
footnotes not required in interim financial statements in conformity with GAAP).
4.9 PURCHASER ACTION. The Boards of Directors of each of the Purchaser
and the Transitional Subsidiary, by special meeting of each such Board of
Directors duly held and called, has (a) determined that the Merger is fair and
in the best interests of the Purchaser, the Transitional Subsidiary and the
respective stockholders of each and (b) adopted this Agreement in accordance
with the provisions of Delaware Law, and the Purchaser's Board of Directors has
directed that this Agreement and the Merger be submitted to the Purchaser's
stockholders for their adoption and approval and resolved to recommend that the
Purchaser's stockholders vote in favor of the adoption of this Agreement and the
approval of the Merger.
4.10 ACCOUNTING AND TAX MATTERS. Neither the Purchaser, the
Transitional Subsidiary nor, to the knowledge of the Purchaser and the
Transitional Subsidiary, any of their respective Affiliates have taken any
action which would prevent the Merger from qualifying as a reorganization within
the meaning of Section 368 of the Code.
4.11 LITIGATION. SECTION 4.11 of the Purchaser Disclosure Schedule sets
forth each instance in which the Purchaser, the Transitional Subsidiary, or any
of their respective officers, employees or directors (in their capacity as such)
(i) is subject to any outstanding injunction, judgment, order, decree, ruling,
or charge, or (ii) is a party, or to the knowledge of the Purchaser or the
Transitional Subsidiary, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in SECTION 4.11 of the Purchaser
Disclosure Schedule is likely to have a Purchaser Material Adverse Effect.
SECTION 4.11 of the Purchaser Disclosure Schedule sets forth a description of
all material litigation claims, proceedings or investigations involving the
Purchaser, the Transitional Subsidiary, or any of their respective officers,
employees, directors or stockholders in connection with the business of the
Purchaser or the Transitional Subsidiary occurring, arising or existing during
the past three (3) years. SECTION 4.11 of the Purchaser Disclosure Schedule also
sets forth all litigation that each of the Purchaser and the Transitional
Subsidiary has pending against other parties.
4.12 BROKERS' FEES. Neither the Purchaser nor the Transitional
Subsidiary has any Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement.
4.13 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in SECTION
4.13 of the Purchaser Disclosure Schedule, neither the Purchaser nor the
Transitional Subsidiary has any Liability, except for (i) Liabilities set forth
in the Interim Financials, (ii) Liabilities which have arisen after the Most
Recent Purchaser Fiscal Month End in the ordinary course of business, and
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(iii) Liabilities incurred in the ordinary course of business and not required
to be set forth in the Interim Financials.
4.14 LEGAL COMPLIANCE. Each of the Purchaser and the Transitional
Subsidiary conforms to and complies, and has complied, with all applicable laws
(including rules, regulations, codes, injunctions, judgments, orders, decrees,
and rulings of federal, state and local governments and all agencies thereof).
No notice from any governmental body or other person of any violation of any
applicable laws has been received by either the Purchaser or the Transitional
Subsidiary and neither the Purchaser nor the Transitional Subsidiary knows of
any meritorious basis therefor. Each of the Purchaser and the Transitional
Subsidiary have submitted or filed all reports and statements required by all
applicable laws in a timely manner and all such reports and statements were true
and correct when submitted or filed.
4.15 TAX MATTERS.
(a) Except where the failure to do so would not have a
Purchaser Material Adverse Effect, the Purchaser has (i) timely and properly
filed all Tax Returns it was required to file (and all such Tax Returns were
correct and complete in all material respects), (ii) paid all Taxes owed by the
Purchaser (whether or not shown on any Tax Return), and (iii) properly made all
required Tax estimates, deposits, prepayments and similar reports or payments
for current periods. The Purchaser is not the beneficiary of any extension of
time within which to file any Tax Return. To the Purchaser's knowledge, except
as disclosed in SECTION 4.15 of the Purchaser Disclosure Schedule, the Purchaser
is not delinquent in the filing of any Tax Return. To the Purchaser's knowledge,
no claim is currently pending by an authority in a jurisdiction where the
Purchaser does not file Tax Returns that the Purchaser is or may be subject to
taxation by that jurisdiction. There are no Security Interests on any of the
assets of any of the Purchaser that arose in connection with any failure (or
alleged failure) to pay any Tax.
(b) The Purchaser has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(c) The Purchaser has received no notice of any adjustment of
or deficiency for any Tax or claim for additional Taxes that has been asserted
or assessed against the Purchaser. The Purchaser does not have any dispute with
any taxing authority as to Taxes. There are no audit examinations being
conducted or, to the knowledge of the Purchaser threatened, and there is no
deficiency or refund litigation or controversy in progress or, to the knowledge
of the Purchaser threatened, with respect to any Taxes previously paid by the
Purchaser or with respect to any Tax Returns previously filed by or on behalf of
the Purchaser.
(d) The Purchaser has not been a United States real property
holding Corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(e) The Purchaser has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency. The Purchaser has never been a member of an affiliate
group of corporations filing a combined federal income
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Tax Return nor does the Purchaser have any liability for Taxes of any other
person under Treasury Regulations ss.1.1502-6 (or any similar provision of
foreign, state or local law) or otherwise. The Purchaser is not a party to any
tax sharing or allocation arrangement.
(f) The Purchaser has not made any payment, is not obligated
to make any payment, and is not a party to any agreement that could obligate it
to make any payment that will be an "excess parachute payment" under Section
280G of the Code.
(g) The Purchaser has not filed a consent under Code Section
341(f) concerning collapsible corporations. The Purchaser has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G. The Purchaser has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662.
(h) The unpaid accrued Taxes of the Purchaser (a) did not, as
of the date of the Purchaser's Interim Financial Statements, exceed the reserve
for Tax liability set forth on the Financial Statements, and (b) do not exceed
such reserve as adjusted for the passage of time through the Closing Date in
accordance with the Purchaser's past custom and practice in filing their Tax
Returns.
4.16 YEAR 2000 COMPLIANCE. All of Purchaser Software is Year 2000
Compliant in all material respects. The term "PURCHASER SOFTWARE" means all
material computer software programs, owned by the Purchaser or the Transitional
Subsidiary or developed for or licensed to the customers of either company.
Neither the Purchaser nor the Transitional Subsidiary has any knowledge that any
material third party software used in its operation of its business is not Year
2000 Compliant. The term "YEAR 2000 COMPLIANT" means, with respect to any
software, such software is designed to be used prior to, during, and after the
calendar Year 2000 A.D., and such software used during each such time period
will accurately receive, provide and process date/time data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, including the years 1999 and 2000, and
leap year calculations and will not malfunction, cease to function, or provide
invalid or incorrect results as a result of date/time data, to the extent that
other information technology, used in combination with such software being
acquired, properly exchanges data/time data with it, provided that all hardware,
applications and other systems used in conjunction with the Purchaser Software
currently exchange date data with or provide data to such Purchaser Software.
4.17 DISCLOSURE. None of this Agreement, the Purchaser Disclosure
Schedule or any other document, certificate or written statement furnished to
the Company by or on behalf of the Purchaser or the Transitional Subsidiary in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading in the
light of the circumstances in which they were made.
Section 5. [Reserved.]
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Section 6. CONDITIONS TO OBLIGATION TO CLOSE.
6.1 CONDITIONS TO OBLIGATION OF THE PURCHASER AND THE TRANSITIONAL
SUBSIDIARY. The obligation of the Purchaser and the Transitional Subsidiary to
consummate the transactions to be performed by each in connection with the
Closing is subject to satisfaction of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Section 3 above shall be true and correct in all
respects at and as of the Closing Date;
(b) COMPANY CONSENTS AND MATERIAL CONTRACTS. The Company shall
have obtained all required third party consents shown on Section 6.1(b) of the
Disclosure Schedule to the consummation of Merger, and no Material Contract
shall have been terminated or be subject to termination in connection with the
transactions contemplated hereby;
(c) GOVERNMENT APPROVAL. Each of the Purchaser and the
Transitional Subsidiary shall have received all authorizations, consents, and
approvals of governments and governmental agencies which shall include all
consents required under applicable federal and state securities laws;
(d) NO ACTION. No action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction wherein an unfavorable injunction,
judgment, order, decree, or ruling would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect materially and adversely the right of the Transitional Subsidiary to
merge into the Company, or (D) affect adversely and materially the right of the
Company to own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, or ruling shall be in effect);
(e) LIENS. All of the assets used in the conduct of the
business of the Company shall be free and clear of all Security Interests;
(f) CLOSING CERTIFICATE. The Company shall have delivered to
the Purchaser and the Transitional Subsidiary a certificate, executed on its
behalf by the President of the Company, to the effect that each of the
conditions specified in this Section 6.1 is satisfied;
(g) GOOD STANDING CERTIFICATES. The Company shall have
delivered to the Purchaser and the Transitional Subsidiary good standing
certificates, certified as of a recent date, of the Secretary of State of the
State of Delaware and each jurisdiction in which the Company is qualified to do
business;
(h) RETAINMENT OF EMPLOYEES AND CONSULTANTS. The Surviving
Company shall have retained (1) at least twenty-five (25) of those employees and
consultants of the Company under the heading "Professional Services/Engineering
Employees and Consultants" in SCHEDULE 6.1(h) attached hereto and, (2) those
employees and consultants of the Company listed under the heading "The
Identified Employees and Consultants" in SCHEDULE 6.1(h) attached hereto;
PROVIDED, HOWEVER, that such employees and consultants identified in clause (2)
shall be included in the aggregate twenty-five (25) employees pursuant to clause
(1) hereof. Each such employee
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and consultant shall have entered into a standard form employee or consultant
agreement of the Purchaser, as the case may be, containing confidentiality,
inventions assignment and noncompetition provisions, as furnished to the
Company;
(i) CONVERTIBLE SECURITIES. All securities convertible into or
exchangeable or exercisable for Company Shares, including without limitation the
Company Preferred Shares, shall have been converted into Company Shares (other
than the Options and Warrants which shall have been assumed by the Purchaser
pursuant to Sections 2.4(e)(v) and (vi) hereof);
(j) ACCRUED BENEFITS. The Company shall have fully paid any
and all accrued but unpaid deferred compensation;
(k) ESCROW AGREEMENT. The Escrow Agreement shall have been
executed by the parties thereto and the Escrow Agreement shall be in full force
and effect on the Closing Date in accordance with its terms;
(l) OPINION. The Purchaser and the Transitional Subsidiary
shall have received the opinion of Hale and Dorr LLP, addressed to the Purchaser
and the Transitional Subsidiary and dated the Closing Date in the form attached
to this Agreement as EXHIBIT C;
(m) DISSENTING SHARES. The number of Dissenting Shares shall
not exceed five percent (5%) of the number of outstanding Company Shares as of
the Closing Date;
(n) STOCKHOLDER APPROVAL. The Company shall have obtained the
requisite approval of its stockholders of this Agreement and the Merger;
(o) GENERAL. All actions to be taken by the Company in
connection with consummation of each of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be satisfactory in form and substance
to the Purchaser.
6.2 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Section 4 above shall be true and correct in all
respects at and as of the Closing Date;
(b) THIRD PARTY CONSENTS. The Purchaser and the Transitional
Subsidiary shall have obtained all required third party consents to the
consummation of Merger;
(c) NO ACTION. No action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction wherein an unfavorable injunction,
judgment, order, decree, or ruling would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect materially and adversely the right of the Transitional Subsidiary to
merge into the Company, or
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(D) affect adversely and materially the right of the Company to own its assets
and to operate its businesses (and no such injunction, judgment, order, decree,
or ruling shall be in effect);
(d) CLOSING CERTIFICATE. The Purchaser shall have delivered to
the Company a certificate, executed on its behalf by the President of the
Purchaser, to the effect that each of the conditions specified in this Section
6.2 is satisfied;
(e) GOOD STANDING CERTIFICATES. Each of the Purchaser and the
Transitional Subsidiary shall have delivered to the Company good standing
certificates, certified as of a recent date, of the Secretary of State of
Delaware and each jurisdiction in which each of the Purchaser and the
Transitional Subsidiary is qualified to do business;
(f) GOVERNMENT APPROVAL. The Company shall have received all
authorizations, consents, and approvals of governments and governmental
agencies, which shall include all consents required under applicable federal and
state securities laws;
(g) ESCROW AGREEMENT. The Escrow Agreement shall have executed
by the parties thereto and the Escrow Agreement shall be in full force and
effect on the Closing Date in accordance with its terms;
(h) OPINION. The Company shall have received the opinion of
McDermott, Will & Emery, addressed to the Company and dated the Closing Date in
the form attached to this Agreement as EXHIBIT E;
(i) STOCKHOLDER APPROVAL. The Purchaser shall have obtained
the requisite approval of its stockholders of this Agreement and the Merger; and
(j) GENERAL. All actions to be taken by the Purchaser and the
Transitional Subsidiary in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will be
satisfactory in form and substance to the Company.
Section 7. [Reserved.]
Section 8. INDEMNIFICATION.
8.1 INDEMNIFICATION.
(a) Each of the Stockholders and Note Holders severally on
his, her or its behalf and on behalf of its successors, executors,
administrators, estate, heirs and assigns (collectively, the "INDEMNIFYING
HOLDERS") shall defend, indemnify and hold harmless the Purchaser, the
Transitional Subsidiary, and each of their respective officers, directors,
agents, representatives and employees, and such person who controls or may
control the Purchaser or the Transitional Subsidiary within the meaning of the
Securities Act (collectively, the "INDEMNIFIED PARTIES") in respect of, and
against, any and all debts, obligations and other liabilities (whether absolute,
accrued, contingent, fixed or otherwise, or whether known or unknown, or due or
to become due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including, without limitation,
amounts paid in settlement,
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interest, court costs, costs of investigators, fees and expenses of attorneys,
accountants, financial advisors and other experts, and other expenses of
litigation) (collectively, "DAMAGES") incurred or suffered by the Indemnified
Parties (i) resulting from, relating to or constituting any breach or default in
connection with any representation, warranty, covenant or agreement of the
Company contained in this Agreement, the Disclosure Schedule or any certificate,
exhibit or schedule to this Agreement, (ii) for those expenses of the Company
incurred in connection with the transactions contemplated hereby in excess of
$150,000 that are not paid by the Stockholders (as described in Section 9.1
hereof) or (iii) for any failure by the Company or its wholly-owned subsidiary,
Internet Security Advantages, Inc. ("ISA") to file with the Internal Revenue
Service Form 5500 for the Company's and ISA's Code Section 125 "Cafeteria
Plans." The Escrow Fund shall be security for this indemnity obligation subject
to the limitations in this Agreement. Except with respect to claims based on
fraud, after the Closing, the rights of the Indemnified Parties under the Escrow
Agreement shall be the exclusive remedy of the Indemnified Parties with respect
to claims resulting from or relating to any breach or default in connection with
any representation, warranty, covenant, agreement or other term contained in
this Agreement, the Disclosure Schedule or any certificate, exhibit or schedule
to this Agreement, and in no event shall any of the Indemnified Parties have any
recourse against any of the assets of the Stockholders or Note Holders, other
than the Escrow Shares, as a result of any breach or default under this
Agreement, Disclosure Schedule or any certificate, exhibit or schedule to this
Agreement.
(b) No Indemnifying Holder shall have any right of
contribution against the Company or the Surviving Corporation with respect to
any breach or default by the Company of any of its representations, warranties,
covenants or agreements.
No investigation made by or on behalf of the Purchaser and the
Transitional Subsidiary with respect to the Company shall be deemed to affect
the reliance by the Purchaser or the Transitional Subsidiary on the
representations, warranties, covenants and agreements made by the Company
contained in this Agreement and shall not be a waiver of the rights of the
Purchaser or the Transitional Subsidiary to indemnity as herein provided for the
breach or inaccuracy of, or failure to perform or comply with, any of the
Company's representations, warranties, covenants or agreements under this
Agreement; PROVIDED, HOWEVER, if any representations or warranty of the Company
hereunder fails to be true and correct as of the Closing Date as a result of
events that occur after the date of this Agreement and if such failure causes a
condition to the Closing not to be satisfied, any election by the Purchaser and
the Transitional Subsidiary to close notwithstanding such failure, PROVIDED that
the Purchaser has knowledge that such representation or warranty is not true and
correct, shall constitute a waiver of the applicable breach of representation or
warranty. All representations and warranties set forth in this Agreement shall
be deemed to have been made again by the Company at and as of the Closing. No
performance or execution of this Agreement in whole or in part by any party
hereto, no course of dealing between or among the Parties hereto or any delay or
failure on the part of any party in exercising any rights hereunder or at law or
in equity, and no investigation by any party hereto shall operate as a waiver of
any rights of such party.
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8.2 INDEMNIFICATION CLAIMS.
(a) In order to seek indemnification under this Section 8, an
Indemnified Party shall give written notification (a "CLAIM NOTICE") to the
Indemnifying Party, with a copy to the Escrow Agent, which contains (i) a
description and the amount (the "CLAIMED AMOUNT") of any Damages incurred or
reasonably expected to be incurred by the Indemnified Party, (ii) a statement
that the Indemnified Party is entitled to indemnification under this Section 8
for such Damages and a reasonable explanation of the basis therefor, and (iii) a
demand for payment (in the manner provided in paragraph (b) below) in the amount
of such Damages. If the matter involves a third party claim and within twenty
(20) days after receiving such notice the Indemnifying Party gives written
notice to the Indemnified Party stating that (a) it would be liable under the
provisions hereof for indemnity in the amount of such claim if such claim were
successful and (b) that it disputes and intends to defend against such claim,
liability or expense at its own cost and expense, then counsel for the defense
shall be selected by the Indemnified Party (subject to the consent of the
Indemnified Party which consent shall not be unreasonably withheld) and the
Indemnified Party shall not be required to make any payment with respect to such
claim, liability or expense as long as the Indemnifying Party is conducting a
good faith and diligent defense at its own expense; PROVIDED, HOWEVER, that the
assumption of defense of any such matters by the Indemnified Party shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification; and PROVIDED FURTHER that the defense of any claim,
liability or expense that may result in liability of both the Indemnified Party
and Indemnifying Party shall be conducted jointly. The Indemnifying Party shall
have the right, with the consent of the Indemnified Party, which consent shall
not be unreasonably withheld, to settle all indemnifiable matters related to
claims by third parties which are susceptible to being settled provided its
obligation to indemnify the Indemnified Party therefor will be fully satisfied.
The Indemnifying Party shall keep the Indemnified Party apprised of the status
of the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the Indemnified Party with all documents and
information that the Indemnified Party shall reasonably request and shall
consult with the Indemnified Party prior to acting on major matters, including
settlement discussions. Notwithstanding anything herein stated to the contrary,
the Indemnified Party shall at all times have the right to fully participate in
such defense at its own expense directly or through counsel; PROVIDED, HOWEVER,
if the named parties to the action or proceeding include both the Indemnifying
Party and the Indemnified Party and representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for the Indemnified Party shall be paid
by the Indemnifying Party; and PROVIDED FURTHER that the parties shall fully
defend claims, liabilities and expenses under the circumstances described above.
If no such notice of intent to dispute and defend is given by the Indemnifying
Party, or if such diligent good faith defense is not being or ceases to be
conducted, the Indemnified Party shall, at the expense of the Indemnifying
Party, undertake the defense of (with counsel selected by the Indemnified
Party), and shall have the right to compromise or settle (exercising reasonable
business judgement), such claim, liability or expense, PROVIDED that, if such
claim, liability or expense is one that by its nature cannot be defended solely
by the Indemnified Party, the Indemnifying Party shall make available all
information and assistance that the Indemnified Party may reasonably request and
shall cooperate with the Indemnified Party in such defense.
(b) Within 20 days after delivery of a Claim Notice, the
Indemnifying Party
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shall deliver to the Indemnified Party a written response (the "RESPONSE") in
which the Indemnifying Party shall: (i) agree that the Indemnified Party is
entitled to receive all of the Claimed Amount (in which case the Indemnifying
Party and the Indemnified Party shall deliver to the Escrow Agent, within three
days following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to distribute to the Indemnified Party such
number of Escrow Shares as have an aggregate Value (as defined below) equal to
the Claimed Amount); (ii) agree that the Indemnified Party is entitled to
receive part, but not all, of the Claimed Amount (the "AGREED AMOUNT") (in which
case the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to
distribute to the Indemnified Party such number of Escrow Shares as have an
aggregate Value equal to the Agreed Amount); or (iii) dispute that the
Indemnified Party is entitled to receive any of the Claimed Amount. If the
Indemnifying Party in the Response disputes its liability for all or part of the
Claimed Amount, the Indemnifying Party and the Indemnified Party shall follow
the procedures set forth in Section 9.6 of this Agreement for the resolution of
disputes.
(c) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement, the Disclosure
Schedule, the Purchaser Disclosure Schedule or any certificates, exhibits or
schedules to this Agreement shall (a) survive the Closing and (b) shall, absent
fraud, expire on the earlier of (i) the date one year following the Closing Date
or (ii) the Purchaser's initial public offering of Purchaser Shares pursuant to
an effective registration statement under the Securities Act or an acquisition
of the Purchaser. If an Indemnified Party delivers to an Indemnifying Party,
before expiration of a representation or warranty, either a Claim Notice based
upon a breach of such representation or warranty, or a notice that, as a result
a legal proceeding instituted by or written claim made by a third party, the
Indemnified Party reasonably expects to incur Damages as a result of a breach of
such representation or warranty (an "EXPECTED CLAIM NOTICE"), then such
representation or warranty shall survive until, but only for purposes of, the
resolution of the matter covered by such notice. If the legal proceeding or
written claim with respect to which an Expected Claim Notice has been given is
definitely withdrawn or resolved in favor of the Indemnified Party, the
Indemnified Party shall promptly so notify the Indemnifying Party; and if the
Indemnified Party has delivered a copy of the Expected Claim Notice to the
Escrow Agent and Escrow Shares have been so retained in escrow with respect to
such Expected Claim Notice, the Indemnifying Party and the Indemnified Party
shall promptly deliver to the Escrow Agent a written notice executed by both
parties instructing the Escrow Agent to distribute such retained Escrow Shares
to the Indemnifying Stockholders in accordance with the terms of the Escrow
Agreement.
8.3 VALUATION. For purposes of determining the number of Escrow Shares
which may be applied to satisfy an indemnification obligation pursuant to this
Section 8, the "VALUE" of one Escrow Share as of a particular date shall be the
fair market value thereof (assuming the conversion into Common Stock of all
shares of Preferred Stock of the Purchaser), as determined by mutual agreement
of the Purchaser and the Stockholders' Agent (or, absent such agreement, by an
independent investment banker selected by the Purchaser and the Stockholder's
Agent); PROVIDED, that (i) if Purchaser Shares are admitted to quotation on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the Value on such date shall be equal to the average of the highest
bid and lowest asked prices of such shares reported for the ten (10) days
preceding such date for which such prices were reported, or (ii) if such shares
are
34
<PAGE> 41
admitted to trading on a national securities exchange or the NASDAQ National
Market System, the Value on such date shall be equal to the average of the last
reported closing prices for such shares for the ten (10) days preceding such
date for which such prices were reported on such exchange or system.
8.4 STOCKHOLDERS' AGENT.
(a) For purposes of this Section 8 and the Escrow Agreement,
in view of the fact that successful claims for indemnification will ultimately
have the effect of reducing the number of shares issuable to the Stockholders
and Note Holders, the Stockholders and Note Holders shall, prior to the Closing,
appoint an agent (the "STOCKHOLDERS' AGENT") to serve as the representative and
attorney-in-fact for and on behalf of the Stockholders and Note Holders, subject
to the provisions of Sections 8.5(b), (c) and (d), below. The Stockholders'
Agent shall be authorized to, for and on behalf of the Stockholders and Note
Holders, give and receive notices and communications, authorize delivery to the
Purchaser of Purchaser Shares or other property from the Escrow Fund in
satisfaction of claims by the Purchaser, object to such deliveries, 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 take all actions necessary or appropriate in the judgment of the
Stockholders' 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 fewer than ten (10) days' prior written notice to the Purchaser.
No bond shall be required of the Stockholders' Agent. Notices or communications
to or from the Stockholders' Agent shall constitute notice to or from each of
the Stockholders and Note Holders.
(b) The Stockholders' Agent shall not be liable for any act
done or omitted hereunder as Stockholders' 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
Stockholders shall severally indemnify the Stockholders' Agent and hold it
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agent and arising out
of or in connection with the acceptance or administration of its duties
hereunder.
(c) The Stockholders' Agent shall have reasonable access to
information about the Company and the reasonable assistance of the Company's
officers and employees for purposes of performing its duties and exercising its
rights hereunder, provided that the Stockholders' Agent shall treat
confidentially and not disclose any nonpublic information from or about the
Company to anyone (except on a need to know basis to individuals who agree to
treat such information confidentially).
(d) A decision, act, consent or instruction of the
Stockholders' Agent shall constitute a decision of all Stockholders for whom
Purchaser Shares otherwise issuable to them are deposited in the Escrow Fund and
shall be final, binding and conclusive upon each such Stockholder and Note
Holder, and the Escrow Agent and the Purchaser may rely upon any decision, act,
consent or instruction of the Stockholders' Agent as being the decision, act,
consent or instruction of each and every such Stockholder and Note Holder. The
Escrow Agent and the Purchaser are hereby relieved from any liability to any
person for any acts done by them
35
<PAGE> 42
in accordance with such decision, act, consent or instruction of the
Stockholders' Agent.
8.5 LIMITATIONS. Notwithstanding anything to the contrary herein, the
Indemnified Parties should not be entitled to make any claims under this Section
8 or the Escrow Agreement unless, and to the extent that, the aggregate claims
against the Indemnified Parties under this Section 8 exceed $100,000, whereupon
the full amount of such claims shall be recoverable in accordance with the terms
hereof.
Section 9. MISCELLANEOUS.
9.1 EXPENSES. Each of the Company, the Purchaser and the Transitional
Subsidiary shall bear its own fees and expenses in connection with the
negotiation, preparation and consummation of the transactions contemplated
hereby; PROVIDED that to the extent that any fees or expenses incurred by the
Company in connection with this transaction exceed $150,000, such excess amount
shall be paid by the Stockholders.
9.2 PRESS RELEASES, AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Parties.
9.3 NO THIRD-PARTY BENEFICIARIES. Except as set forth in Section 5.8
hereof, this Agreement shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and permitted assigns.
9.4 ENTIRE AGREEMENT. This Agreement (including the exhibits and
schedules hereto and the documents referred to herein) constitutes the entire
agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to
the extent they related in any way to the subject matter hereof.
9.5 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors, assigns and heirs. No Party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
approval of the other Party; PROVIDED, HOWEVER, that the Purchaser may (i)
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Purchaser nonetheless
shall remain responsible for the performance of all of its obligations
hereunder).
9.6 DISPUTE RESOLUTION.
(a) All disputes, claims, or controversies arising out of or
relating to this Agreement or any other agreement executed and delivered
pursuant to this Agreement or the negotiation, validity or performance hereof
and thereof or the transactions contemplated hereby and thereby that are not
resolved by mutual agreement shall be resolved solely and exclusively by binding
arbitration to be conducted before the American Arbitration Association ("AAA").
If AAA ceases operation, then the Parties shall select a comparable organization
that provides qualified arbitration services. The arbitration shall be held in
Boston, Massachusetts
36
<PAGE> 43
before a single arbitrator and shall be conducted in accordance with the rules
and regulations promulgated by AAA unless specifically modified herein.
The Parties covenant and agree that the arbitration hearing shall
commence within ninety (90) days of the date on which a written demand for
arbitration is filed by any party hereto. In connection with the arbitration
proceeding, the arbitrator shall have the power to order the production of
documents by each party and any third-party witnesses. In addition, each party
may take up to three depositions as of right, and the arbitrator may in his or
her discretion allow additional depositions upon good cause shown by the moving
party. However, the arbitrator shall not have the power to order the answering
of interrogatories or the response to requests for admission. In connection with
any arbitration, each party shall provide to the other, no later than seven (7)
business days before the date of the arbitration hearing, the identity of all
persons that may testify at the arbitration and a copy of all documents that may
be introduced at the arbitration hearing or considered or used by a party's
witness or expert. The arbitrator's decision and award shall be made and
delivered within three (3) months of the selection of the arbitrator. The
arbitrator's decision shall set forth a reasoned basis for any finding of
liability or award of damages. The arbitrator shall not have power to award
damages in excess of actual compensatory damages and shall not multiply actual
damages or award punitive damages or any other damages that are specifically
excluded under this Agreement, and each party hereby irrevocably waives any
claim to such damages.
The Parties covenant and agree that they will participate in the
arbitration in good faith and that they will share equally its costs, except as
otherwise provided herein. The arbitrator may in his or her discretion assess
costs and expenses (including the reasonable legal fees and expenses of the
prevailing party whether claimant or respondent) against any party to a
proceeding. Any party failing or refusing to comply with an order of the
arbitrators shall be liable for costs and expenses, including attorneys' fees,
incurred by the other party in enforcing the award. Nothing in this Section 9.6
shall prohibit any party from proceeding in court without prior arbitration for
the limited purpose of seeking a temporary or preliminary injunction to avoid
immediate and irreparable harm. The provisions of this Section 9.6 shall be
enforceable in any court of competent jurisdiction.
Unless otherwise ordered, the Parties shall bear their own attorneys'
fees, costs and expenses in connection with the arbitration. The Parties will
share equally in the fees and expenses charged by AAA.
(b) Each of the Parties hereto irrevocably and unconditionally
consents to the exclusive use of AAA to resolve all disputes, claims or
controversies arising out of or relating to this Agreement or any other
agreement executed and delivered pursuant to this Agreement or the negotiation,
validity or performance hereof and thereof or the transactions contemplated
hereby and thereby and further consents to the jurisdiction of the courts of the
Commonwealth of Massachusetts for the purposes of enforcing the arbitration
provisions of Section 9.6(a) of this Agreement. Each party further irrevocably
waives any objection to proceeding before AAA based upon lack of personal
jurisdiction or to the laying of venue and further irrevocably and
unconditionally waives and agrees not to make a claim in any court that
arbitration before AAA has been brought in an inconvenient forum. Each of the
Parties
37
<PAGE> 44
hereto hereby consents to service of process by registered mail at the address
to which notices are to be given. Each of the Parties hereto agrees that its or
his submission to jurisdiction and its or his consent to service of process by
mail is made for the express benefit of the other Parties hereto.
9.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
9.8 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.9 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered in person or sent by
registered or certified mail, postage prepaid, commercial overnight courier
(such as Express Mail, Federal Express, etc.) with written verification of
receipt or by telecopy. A notice shall be deemed given: (a) when delivered by
personal delivery (as evidenced by the receipt); (b) five (5) days after deposit
in the mail if sent by registered or certified mail; (c) one (1) business day
after having been sent by commercial overnight courier as evidenced by the
written verification of receipt; or (d) on the date of confirmation if
telecopied.
If to the Company:
Chester S. Barnard, Jr.
President and Chief Executive Officer
Internet Business Advantages, Inc.
300 Baker Avenue, Suite 203
Concord, MA 01742
Facsimile: (978) 402-2099
Copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Mark G. Borden
Facsimile: (617) 526-5000
38
<PAGE> 45
If to the Purchaser and the Transitional Subsidiary:
Christopher Butler
President and Chief Executive Officer
Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Facsimile: (508) 655-0473
Copy to:
McDermott, Will & Emery
28 State Street
Boston, MA 02109-1775
Facsimile: (617) 535-3800
Attention: John J. Egan III, P.C.
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient using any other means, but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any party may change the address or facsimile number to which
notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
9.10 FURTHER ASSURANCES. Each party shall, upon request by the other
and without further consideration, periodically execute and deliver such
document and/or take such further action as reasonably may be requested in order
to conclude fully the transactions and undertakings expressed in this Agreement.
9.11 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
9.12 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Purchaser, the Transitional Subsidiary and the Company. No waiver by any party
of any default, misrepresentation, or breach of representation, warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of representation,
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
9.13 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
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<PAGE> 46
9.14 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules (including the Disclosure Schedule and the Purchaser Disclosure
Schedule) identified in this Agreement are incorporated herein by reference and
made a part hereof.
9.15 INDEMNIFICATION OF COMPANY DIRECTORS AND OFFICERS. The Purchaser
agrees that all rights to indemnification and exculpation from liabilities for
acts and omissions occurring at or prior to the Effective Date in favor of the
current or former directors or officers of the Company, as such rights exist
prior to the Closing Date pursuant to the Charter and/or By-Laws of the Company,
shall be assumed by the Purchaser without further action as of the Closing Date,
and shall continue in full force and effect in accordance with their terms, and
the Purchaser shall honor all such rights. The provisions of this Section 9.15
are intended to be for the benefit of, and will be enforceable by, such
directors or officers, and the heirs and representatives of each such director
or officer.
[SIGNATURE PAGE FOLLOWS]
40
<PAGE> 47
EXHIBIT 2.2
-----------
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SERVICESOFT TECHNOLOGIES, INC.
By: /s/ Christopher Butler
---------------------------------------
Christopher Butler, President and Chief
Executive Officer
SERVICESOFT ACQUISITION CORP.
By: /s/ Christopher Butler
---------------------------------------
Christopher Butler
President and Chief Executive Officer
INTERNET BUSINESS ADVANTAGES, INC.
By: /s/ Chester S. Barnard, Jr.
---------------------------------------
Chester S. Barnard, Jr.
President and Chief Executive Officer
<PAGE> 48
EXHIBIT 2.2
-----------
SCHEDULE 2.4(e)
NOTE HOLDERS
------------
PURCHASER SHARES PURCHASER SHARES
NAME DELIVERED AT CLOSING HELD IN ESCROW
Sigma Associates IV, L.P. 56,044 6,227
Sigma Partners IV, L.P. 208,100 23,112
Sigma Investors IV, L.P. 6,569 730
Greylock Equity Limited Partnership 315,481 35,052
<PAGE> 49
EXHIBIT 2.2
-----------
SCHEDULE 6.1(h)
EMPLOYEES
---------
Chester S. Barnard, Jr.
Ed Boyajian
Marc Linster
Marchai Bruchey
[Professionals and Engineers]
<PAGE> 1
EXHIBIT 3.3
AMENDED
BY-LAWS
OF
SERVICESOFT CORPORATION
ARTICLE I
OFFICES
Section 1. The registered office of ServiceSoft Corporation (the
"Corporation") shall be in the city of Wilmington, State of Delaware.
Section 2. The Corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held at such place either within or without the State of Delaware as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1987,
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which time
they shall elect a Board of Directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the
<PAGE> 2
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by the laws of the State of Delaware,
shall be called by (a) the President or (b) the Secretary at the request in
writing of (i) any two (2) directors, (ii) stockholders owning ten percent (10%)
or more of the entire capital stock of the Corporation issued and outstanding
and entitled to vote, or (iii) any holder or holders of twenty-five percent
(25%) or more, in the aggregate, of the Series H Convertible Preferred Stock,
Series I Convertible Preferred Stock and Series J Convertible Preferred Stock
of the Corporation issued and outstanding and entitled to vote. Such request
shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than ten nor more than sixty days before the date of the
meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. X however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 9. When a quorum is present at any meeting, any question brought to
a vote shall be determined by the vote of the holders of a majority of the stock
having voting power and being present in person or represented by proxy or by
such other vote as may be required by applicable law or by the Certificate of
Incorporation.
Section 10. Unless otherwise provided in the Certificate of Incorporation
each stockholder shall, at every meeting of the stockholders, be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
-2-
<PAGE> 3
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the Board of
Directors shall be eight. The directors shall be elected at the annual meeting
of the stockholders, except as provided in Section 2 of this Article, and each
director elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in authorized number of directors may be filled by a majority of the
directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the applicable court may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the Corporation shall be managed by or under the
direction of its Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by applicable law
or by the Certificate of Incorporation or by these By-Laws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors,
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board
-3-
<PAGE> 4
of Directors. The Board of Directors may from time to time elect a chairman from
among its members, and may provide that he shall preside at the meeting at which
he was elected or that he shall serve as Chairman of the Board for such time as
the Board of Directors may determine and until his successor has been elected
and qualified.
Section 7. Unless otherwise prescribed by the laws of the State of
Delaware, special meetings of the Board of Directors may be called on five (5)
days' notice to each director, either personally or by mail or telefax, by (a)
the Chairman of the Board of Directors, (b) any two (2) directors, or (c) any
holder or holders of twenty-five percent (25%) or more, in the aggregate, of
the Series H Convertible Preferred Stock, Series I Convertible Preferred Stock
and Series J Convertible Preferred Stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 8. At all meetings of the Board of Directors, a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the Certificate of Incorporation
or these By. Laws, any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 10. Unless otherwise restricted by the Certificate of Incorporation
or these By-Laws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. The board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and
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authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-Laws of the Corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provide, no such committee, shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the Certificate of Incorporate
or these By. Laws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the Certificate of Incorporation
or By-Laws, any director or the entire Board of Director may be removed, with or
without cause, by the holders of a majority of shares entitled to vote at an
election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under applicable law or the Certificate of
Incorporation or these By-Laws, notice is required to be given to any director
or stockholder, it shall not be construed to mean personal notice, but such
notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the Corporation,
with postage prepaid, and such notice shall be deemed to be given at the time
when the same shall be duly deposited in the mail. Notice to directors may also
be even by telegram, telex or telecopier.
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Section 2. Whenever any notice is required to be given under applicable law
or the Certificate of Incorporation or these By-Laws, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the Board of
Directors and shall be a president, a vice-president, a secretary and a
treasurer. The Board of Directors may also choose additional vice presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these By-Laws otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a president, one or more vice presidents, a
secretary and a treasurer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the Corporation shall
be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office for such term
or terms as the Board of Directors shall provide and until their successors are
chosen and qualify. Any officer elected or appointed by the Board of Directors
may be removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors.
THE PRESIDENT
Section 6. The President shall be the chief executive office of the
Corporation, shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 7. The President shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
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THE VICE-PRESIDENT
Section 8. In the absence of the President or in the event of his inability
or refusal to act, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by the directors, or
in the absence of any designation, then in the order of their election) shall
perform the duties of the President, and whom so acting shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
President shall such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record a the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
Section 10. The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The Treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
Section 12. The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking, proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation.
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Section 13. If required by the Board of Directors, he shall give the
Corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in the case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 14. The Assistant Treasurer, or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the Treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND OTHER AGENTS
Section 1. The Corporation shall indemnify its directors to the fullest
extent permitted by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of alleged occurrences of actions or
omissions preceding any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said Law
permitted the Corporation to provide prior to such amendment).
Section 2. The Corporation shall have power to indemnify its officers,
employees and other agents as set forth in the Delaware General Corporation Law.
Section 3. (a) For purposes of any determination under this Article VI, a
director or officer shall be deemed to have acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe that his conduct was unlawful, if his action is
based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him by the officers of the Corporation
or another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise.
(b) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and,
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with respect to any criminal proceeding, that he had reasonable cause to believe
that his conduct was unlawful.
(c) The provisions of this paragraph shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
Section 4. The Corporation shall advance, prior to the final disposition of
any proceeding, promptly following request therefor, all expenses incurred by
any director or officer in connection with such proceeding upon receipt of an
understanding by or on behalf of such person to repay said amounts if it should
be determined ultimately that such person is not entitled to be indemnified
under this Article VI or otherwise.
Section 5. Without the necessity of entering into an express contract, all
rights to indemnification and advances under this Article VI shall be deemed to
be contractual rights and be effective to the same extent and as if provided for
in a contract between the Corporation and the director or officer who serves in
such capacity at any time while this Article VI and other relevant provisions of
the Delaware General Corporation Law and other applicable law, if any, are in
effect. Any right to indemnification or advances granted by this Article VI to a
director or officer shall be enforceable by or on behalf of the person holding
such right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in pan, shall
be entitled to be paid also the expenses of prosecuting his claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in connection with any proceeding in advance of its final
disposition when the required undertaking has been tendered to the Corporation)
that the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor any
actual determination by the Corporation ( including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Section 6. The rights conferred on any person by this Article VI shall not
be exclusive of any other right which such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, By-Laws,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding office. The Corporation is specifically authorized to enter into
individual contracts with any or all of its directors,
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officers, employees or agents respecting indemnification and advances, to the
fullest extent permitted by the Delaware General Corporation Law.
Section 7. The rights conferred on any person by this Article VI shall
continue as to a person who has ceased to be a director, officer, employee or
other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 8. To the fullest extent permitted by the Delaware General
Corporation Law, the Corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Article VI.
Section 9. Any repeal of this Article VI shall only be prospective. Any
modification of this Article VI shall not adversely affect the rights under this
Article VI in effect at the time of the alleged occurrence of any action or
omission to act that is the cause of any proceeding against any agent of the
Corporation.
Section 10. If this Article VI or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each agent to the full extent permitted by any applicable
portion of this Article VI that shall not have been invalidated, or by any other
applicable law.
Section 11. For the purposes of this Article VI the following definitions
shall apply:
(a) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(c) The term "the Corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(d) References to a "director," "officer," "employee,' or
"agent" of the Corporation shall include, without limitation, situations where
such person is serving
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at the request of the Corporation as a director, office, employee, trustee or
agent of another corporation, partnership, joint venture, trust or other
enterprise.
(e) References to mother enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties oil, or
involves services by, such director, officer, employee, or agent With respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VI.
ARTICLE VII
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled to
have a certificate, signed by, or in the name of the Corporation by the Chairman
or Vice Chairman of the Board of Directors, or the President or a Vice President
and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
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TRANSFERS OF STOCK
Section 4. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transactions upon its books.
FIXING RECORD DATE
Section 5. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to Corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meetings, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares. and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereto, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cask in property, or in shares of capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet
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contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
think conducive to the interest of the Corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each annual meeting, and
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
CHECKS
Section 4. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the Corporation shall be fixed by resolution
of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE IX
AMENDMENTS
Section 1. These By-Laws may be altered, amended or repealed or new by-laws
may be adopted by the stockholders or by the Board of Directors, when such power
is conferred upon the Board of Directors by the Certificate of Incorporation at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new By-Laws be contained in
the notice of such special meeting. If the power to adopt, amend or repeal
by-laws is conferred upon the Board of Directors by the Certificate of
Incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal by-laws.
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EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS
OF
SERVICESOFT TECHNOLOGIES, INC.
(the "Corporation")
ARTICLE I
STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of stockholders (any such
meeting being referred to in these By-laws as an "Annual Meeting") shall be held
at the hour, date and place within or without the United States which is fixed
by the majority of the Board of Directors, the Chairman of the Board, if one is
elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors.
Section 2. SPECIAL MEETINGS. Except as otherwise required by law and
subject to the rights, if any, of the holders of any series of preferred stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the directors then in office.
Section 3. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an Annual Meeting (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this By-law, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this By-law.
(2) For nominations or other business to be properly
brought before an Annual Meeting by a stockholder pursuant to clause (c) of
paragraph (a)(1) of this By-law, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must be a proper matter for stockholder action. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's Annual Meeting; PROVIDED, HOWEVER, that in the event that
the date of the Annual Meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 120th day prior to such
Annual Meeting and not later than the close of business on the later of the 90th
day prior to such Annual
<PAGE> 2
Meeting or the 10th day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an Annual Meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, and (ii) the class and number of shares of the Corporation which are
owned beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this By-law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least 100 days prior to the first anniversary of the preceding
year's Annual Meeting, a stockholder's notice required by this By-law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this By-law, who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-law. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Corporation's
notice of meeting, if the stockholder's notice required by paragraph (a)(2) of
this By-law shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the close of business on the 120th
day prior to such special meeting and not later than the close of business on
the later of the 90th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public
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announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
(c) General.
(1) Only such persons who are nominated in accordance with
the procedures set forth in this By-law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this By-law. If the Board of Directors or a designated committee thereof
determines that any stockholder proposal or nomination was not made in a timely
fashion in accordance with the provisions of this By-law or that the information
provided in a stockholder's notice does not satisfy the information requirements
of this By-law in any material respect, such proposal or nomination shall not be
presented for action at the Annual Meeting in question. If neither the Board of
Directors nor such committee makes a determination as to the validity of any
stockholder proposal or nomination in the manner set forth above, the presiding
officer of the Annual Meeting shall determine whether the stockholder proposal
or nomination was made in accordance with the terms of this By-law. If the
presiding officer determines that any stockholder proposal or nomination was not
made in a timely fashion in accordance with the provisions of this By-law or
that the information provided in a stockholder's notice does not satisfy the
information requirements of this By-law in any material respect, such proposal
or nomination shall not be presented for action at the Annual Meeting in
question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a stockholder proposal or nomination was made
in accordance with the requirements of this By-law, the presiding officer shall
so declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such proposal or nomination.
(2) For purposes of this By-law, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission (including,
without limitation, a Form 8-K) pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this
By-law, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-law. Nothing in this By-law shall be deemed to
affect any rights of (i) stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) the holders of any series of preferred stock to elect directors under
specified circumstances.
Section 4. MATTERS TO BE CONSIDERED AT SPECIAL MEETING. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
Section 5. NOTICE OF MEETINGS: ADJOURNMENTS. A written notice of each
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given not less than 10 days nor more than 60 days before the Annual Meeting, to
each stockholder entitled to vote thereat by delivering such notice to him or by
mailing it, postage prepaid, addressed to such
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stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be given when
hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for Annual Meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an Annual Meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any Annual Meeting or special meeting of stockholders need be
specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
Annual Meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 3 of this
Article I of these By-laws or otherwise. In no event shall the public
announcement of an adjournment, postponement or rescheduling of any previously
scheduled meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 3 of this Article I of these By-laws.
When any meeting is convened, the presiding officer may adjourn the meeting
if (a) no quorum is present for the transaction of business, (b) the Board of
Directors determines that adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders,
or (c) the Board of Directors determines that adjournment is otherwise in the
best interests of the Corporation. When any Annual Meeting or special meeting of
stockholders is adjourned to another hour, date or place, notice need not be
given of the adjourned meeting other than an announcement at the meeting at
which the adjournment is taken of the hour, date and place to which the meeting
is adjourned; PROVIDED, HOWEVER, that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat and each stockholder who, by law or under the
Certificate or these By-laws, is entitled to such notice.
Section 6. QUORUM. A majority of the shares entitled to vote, present
in person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly constituted
meeting may continue to transact business until
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adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 7. VOTING AND PROXIES. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by written proxy, but no
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. Proxies shall be filed with the Secretary of
the meeting before being voted. Except as otherwise limited therein or as
otherwise provided by law, proxies shall entitle the persons authorized thereby
to vote at any adjournment of such meeting, but they shall not be valid after
final adjournment of such meeting. A proxy with respect to stock held in the
name of two or more persons shall be valid if executed by or on behalf of any
one of them unless at or prior to the exercise of the proxy the Corporation
receives a specific written notice to the contrary from any one of them.
Section 8. ACTION AT MEETING. When a quorum is present, any matter
before any meeting of stockholders shall be decided by a majority of the votes
properly cast for and against such matter, except where a larger vote is
required by law, by the Certificate or by these By-laws. Any election by
stockholders shall be determined by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. The Corporation shall not directly or indirectly vote
any shares of its own stock; provided, however, that the Corporation may vote
shares which it holds in a fiduciary capacity to the extent permitted by law.
Section 9. STOCKHOLDER LISTS. The Secretary or an Assistant Secretary
(or the Corporation's transfer agent or other person authorized by these By-laws
or by law) shall prepare and make, at least 10 days before every Annual Meeting
or special meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 10. PRESIDING OFFICER. The Chairman of the Board, if one is
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Sections 5 and 6 of this Article I. The order of
business and all other matters of procedure at any meeting of the stockholders
shall be determined by the presiding officer.
Section 11. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS. The
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
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meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspectors, and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspectors. All determinations by the inspectors and, if applicable, the
presiding officer, shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
Section 2. NUMBER AND TERMS. The number of directors of the Corporation
shall be fixed exclusively by resolution duly adopted from time to time by the
Board of Directors. The directors shall hold office in the manner provided in
the Certificate.
Section 3. QUALIFICATION. No director need be a stockholder of the
Corporation.
Section 4. VACANCIES. Subject to the rights, if any, of the holders of
any series of preferred stock to elect directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a director, shall be filled pursuant to the terms
of and in accordance with the Certificate of Incorporation of the Corporation.
Section 5. REMOVAL. Directors may be removed from office in the manner
provided in the Certificate.
Section 6. RESIGNATION. A director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
Section 7. REGULAR MEETINGS. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Section 7, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine and publicize among all directors.
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Section 8. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
Section 9. NOTICE OF MEETINGS. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each director in person, by telephone,
or by facsimile, telex, telecopy, telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his or her business or
home address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if faxed, telexed or telecopied, or
when delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
A written waiver of notice signed before or after a meeting by a director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because such meeting is not lawfully called or
convened. Except as otherwise required by law, by the Certificate or by these
By-laws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
Section 10. QUORUM. At any meeting of the Board of Directors, a majority
of the total number of directors shall constitute a quorum for the transaction
of business, but if less than a quorum is present at a meeting, a majority of
the directors present may adjourn the meeting from time to time, and the meeting
may be held as adjourned without further notice, except as provided in Section 9
of this Article II. Any business which might have been transacted at the meeting
as originally noticed may be transacted at such adjourned meeting at which a
quorum is present.
Section 11. ACTION AT MEETING. At any meeting of the Board of Directors
at which a quorum is present, the vote of a majority of the directors shall
constitute action by the Board of Directors, unless otherwise required by law,
by the Certificate or by these By-laws.
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Section 12. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
Section 13. MANNER OF PARTICIPATION. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
Section 14. COMMITTEES. The Board of Directors, by vote of a majority of
the directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, a Compensation Committee,
a Stock Option Committee and an Audit Committee, and may delegate thereto some
or all of its powers except those which by law, by the Certificate or by these
By-laws may not be delegated. Except as the Board of Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Board of Directors or in such rules, its
business shall be conducted so far as possible in the same manner as is provided
by these By-laws for the Board of Directors. All members of such committees
shall hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, to the extent
permitted by law, but no such rescission shall have retroactive effect.
Section 15. COMPENSATION OF DIRECTOR. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as directors of the
Corporation.
ARTICLE III
OFFICERS
Section 1. ENUMERATION. The officers of the Corporation shall consist
of a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a Chairman of the Board of Directors, a Chief Executive
Officer and one or more Vice Presidents (including Executive Vice Presidents or
Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and
Assistant Secretaries, as the Board of Directors may determine.
Section 2. ELECTION. At the regular annual meeting of the Board
following the Annual Meeting, the Board of Directors shall elect the President,
the Treasurer and the Secretary. Other officers may be elected by the Board of
Directors at such regular annual meeting of the Board of Directors or at any
other regular or special meeting.
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Section 3. QUALIFICATION. No officer need be a stockholder or a
director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his or her duties in such amount and with such sureties
as the Board of Directors may determine.
Section 4. TENURE. Except as otherwise provided by the Certificate or
by these By-laws, each of the officers of the Corporation shall hold office
until the regular annual meeting of the Board of Directors following the next
Annual Meeting and until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
Section 5. RESIGNATION. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
Section 6. REMOVAL. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
Section 7. ABSENCE OR DISABILITY. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
Section 8. VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
Section 9. PRESIDENT. The President shall, subject to the direction of
the Board of Directors, have general supervision and control of the
Corporation's business. If there is no Chairman of the Board or if he or she is
absent, the President shall preside, when present, at all meetings of
stockholders and of the Board of Directors. The President shall have such other
powers and perform such other duties as the Board of Directors may from time to
time designate.
Section 10. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
Section 11. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if one
is elected, shall have such powers and shall perform such duties as the Board of
Directors may from time to time designate.
Section 12. VICE PRESIDENTS AND ASSISTANT VICE PRESIDENT. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
Section 13. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive
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Officer may otherwise provide, have general charge of the financial affairs of
the Corporation and shall cause to be kept accurate books of account. The
Treasurer shall have custody of all funds, securities, and valuable documents of
the Corporation. He or she shall have such other duties and powers as may be
designated from time to time by the Board of Directors or the Chief Executive
Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
Section 14. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
Section 15. OTHER POWERS AND DUTIES. Subject to these By-laws and to
such limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
CAPITAL STOCK
Section 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every certificate
for shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
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Section 2. TRANSFERS. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
Section 3. RECORD HOLDERS. Except as may otherwise be required by law,
by the Certificate or by these By-laws, the Corporation shall be entitled to
treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock, until the shares have been transferred on the books of the
Corporation in accordance with the requirements of these By-laws.
Section 4. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than sixty nor less than
ten days before the date of such meeting and (b) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (i) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held and (ii) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
INDEMNIFICATION
Section 1. DEFINITIONS. For purposes of this Article:
(a) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors of the Corporation.
(b) "Officer" means any person who serves or has served the
Corporation as an officer appointed by the Board of Directors of the
Corporation;
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(c) "Non-Officer Employee" means any person who serves or has
served as an employee of the Corporation, but who is not or was not a Director
or Officer;
(d) "Proceeding" means any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of expert witnesses, private investigators
and professional advisors (including, without limitation, accountants and
investment bankers), travel expenses, duplicating costs, printing and binding
costs, costs of preparation of demonstrative evidence and other courtroom
presentation aids and devices, costs incurred in connection with document
review, organization, imaging and computerization, telephone charges, postage,
delivery service fees, and all other disbursements, costs or expenses of the
type customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, being or preparing to be a witness in,
settling or otherwise participating in, a Proceeding;
(f) "Corporate Status" describes the status of a person who (i)
in the case of a Director, is or was a director of the Corporation and is or was
acting in such capacity, (ii) in the case of an Officer, is or was an officer,
employee or agent of the Corporation or is or was a director, officer, employee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such Officer is or was serving at the
request of the Corporation, and (iii) in the case of a Non-Officer Employee, is
or was an employee of the Corporation or is or was a director, officer, employee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such Non-Officer Employee is or was
serving at the request of the Corporation. For purposes of subsection (ii) of
this Article V, Section 1(f), an officer or director of the Company who is
serving as a director, partner, trustee, officer, employee or agent of a
Subsidiary shall be deemed to be serving at the request of the Company;
(g) "Disinterested Director" means, with respect to each
Proceeding in respect of which indemnification is sought hereunder, a Director
of the Corporation who is not and was not a party to such Proceeding; and
(h) "Subsidiary" shall mean any corporation, partnership,
limited liability company, joint venture, trust or other entity of which the
Corporation owns (either directly or through or together with another Subsidiary
of the Corporation) either (i) a general partner, managing member or other
similar interest or (ii) (A) 50% or more of the voting power of the voting
capital equity interests of such corporation, partnership, limited liability
company, joint venture or other entity, or (B) 50% or more of the outstanding
voting capital stock or other voting equity interests of such corporation,
partnership, limited liability company, joint venture or other entity.
Section 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Subject to the
operation of Article V, Section 4 of these By-laws, each Director and Officer
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such
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amendment permits the Corporation to provide broader indemnification rights than
such law permitted the Corporation to provide prior to such amendment) against
any and all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director's
or Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Article V, Section 2
shall continue as to a Director or Officer after he or she has ceased to be a
Director or Officer and shall inure to the benefit of his or her heirs,
executors, administrators and personal representatives. Notwithstanding the
foregoing, the Corporation shall indemnify any Director or Officer seeking
indemnification in connection with a Proceeding initiated by such Director or
Officer only if such Proceeding was authorized by the Board of Directors of the
Corporation, unless such Proceeding was brought to enforce an Officer or
Director's rights to Indemnification under these By-laws.
Section 3. INDEMNIFICATION OF NON-OFFICER EMPLOYEES. Subject to the
operation of Article V, Section 4 of these By-laws, each Non-Officer Employee
may, in the discretion of the Board of Directors of the Corporation, be
indemnified by the Corporation to the fullest extent authorized by the DGCL, as
the same exists or may hereafter be amended, against any or all Expenses,
judgments, penalties, fines and amounts reasonably paid in settlement that are
incurred by such Non-Officer Employee or on such Non-Officer Employee's behalf
in connection with any threatened, pending or completed Proceeding, or any
claim, issue or matter therein, which such Non-Officer Employee is, or is
threatened to be made, a party to or participant in by reason of such
Non-Officer Employee's Corporate Status, if such Non-Officer Employee acted in
good faith and in a manner such Non-Officer Employee reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The rights of indemnification provided by this Article V, Section
3 shall exist as to a Non-Officer Employee after he or she has ceased to be a
Non-Officer Employee and shall inure to the benefit of his or her heirs,
personal representatives, executors and administrators. Notwithstanding the
foregoing, the Corporation may indemnify any Non-Officer Employee seeking
indemnification in connection with a Proceeding initiated by such Non-Officer
Employee only if such Proceeding was authorized by the Board of Directors of the
Corporation.
Section 4. GOOD FAITH. Unless ordered by a court, no indemnification
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) a committee comprised of Disinterested Directors, such
committee having been designated by a majority vote of the Disinterested
Directors (even though less than a quorum), (c) if there are no
13
<PAGE> 14
such Disinterested Directors, or if a majority of Disinterested Directors so
directs, by independent legal counsel in a written opinion, or (d) by the
stockholders of the Corporation.
Section 5. ADVANCEMENT OF EXPENSES TO DIRECTORS PRIOR TO FINAL
DISPOSITION. The Corporation shall advance all Expenses incurred by or on behalf
of any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within 10 days after the
receipt by the Corporation of a written statement from such Director requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
Section 6. ADVANCEMENT OF EXPENSES TO OFFICERS AND NON-OFFICER
EMPLOYEES PRIOR TO FINAL DISPOSITION.
(a) ADVANCEMENT TO OFFICERS. The Corporation may, at the
discretion of the Board of Directors of the Corporation, advance any or all
Expenses incurred by or on behalf of any Officer in connection with any
Proceeding in which such is involved by reason of such Officer's Corporate
Status upon the receipt by the Corporation of a statement or statements from
such Officer requesting such advance or advances from time to time, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by such Officer and
shall be preceded or accompanied by an undertaking by or on behalf of such to
repay any Expenses so advanced if it shall ultimately be determined that such
Officer is not entitled to be indemnified against such Expenses.
(b) ADVANCEMENT TO NON-OFFICER EMPLOYEES. The Corporation may,
at the discretion of the Board of Directors or of any Officer who is authorized
to act on behalf of the Corporation, advance any or all Expenses incurred by or
on behalf of any Non-Officer Employee in connection with any Proceeding in which
such Non-Officer Employee is involved by reason of such Non-Officer Employee's
Corporate Status upon the receipt by the Corporation of a statement or
statements from such Non-Officer Employee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by such Non-Officer Employee and shall be preceded or accompanied by an
undertaking by or on behalf of such Non-Officer Employee to repay any Expenses
so advanced if it shall ultimately be determined that such Non-Officer Employee
is not entitled to be indemnified against such Expenses.
Section 7. CONTRACTUAL NATURE OF RIGHTS. The foregoing provisions of
this Article V shall be deemed to be a contract between the Corporation and each
Director and Officer entitled to the benefits hereof at any time while this
Article V is in effect, and any repeal or modification thereof shall not affect
any rights or obligations then existing with respect to any state of facts then
or theretofore existing or any Proceeding theretofore or thereafter brought
based in whole or in part upon any such state of facts. If a claim for
indemnification or advancement of Expenses hereunder by a Director or Officer is
not paid in full by the Corporation within (a) 60 days after receipt by the
Corporation's of a written claim for indemnification, or (b) in the case of a
Director, 10 days after receipt by the Corporation of documentation of Expenses
and the required
14
<PAGE> 15
undertaking, such Director or Officer may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, such Director or Officer shall also be entitled
to be paid the expenses of prosecuting such claim. The failure of the
Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
Section 8. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer, or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these
By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
Section 9. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 1. FISCAL YEAR. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall end on the last day of
October of each year.
Section 2. SEAL. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
Section 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
Section 4. VOTING OF SECURITIES. Unless the Board of Directors
otherwise provides, the Chairman of the Board, if one is elected, the President
or the Treasurer may waive notice of and act on behalf of this Corporation, or
appoint another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
Section 5. RESIDENT AGENT. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
15
<PAGE> 16
Section 6. CORPORATE RECORDS. The original or attested copies of the
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
Section 7. AMENDMENT OF BY-LAWS.
(a) AMENDMENT BY DIRECTORS. Except as provided otherwise by law,
these By-laws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
(b) AMENDMENT BY STOCKHOLDERS. These By-laws may be amended or
repealed at any Annual Meeting, or special meeting of stockholders called for
such purpose, by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class. Notwithstanding
the foregoing, stockholder approval shall not be required unless mandated by the
Articles of Organization, these By-laws, or other applicable law.
16
<PAGE> 1
EXHIBIT 9.1
VOTING AND EXCHANGE TRUST AGREEMENT
MEMORANDUM OF AGREEMENT (the "Agreement") made as of the 12th day of
February, 1999.
BETWEEN:
SERVICESOFT TECHNOLOGIES, INC., a
corporation organized under the laws of
the State of Delaware ("ServiceSoft")
- and -
SERVICESOFT CANADA INC., a corporation
amalgamated under the laws of the Province
of Ontario ("ServiceSoft Canada")
- and -
CIBC MELLON TRUST COMPANY, a trust company
incorporated under the laws of Canada (the
"Trustee")
WHEREAS pursuant to a Combination Agreement dated as of February 1,
1999, by and among ServiceSoft, ServiceSoft Canada Inc. ("Old ServiceSoft
Canada"), and Balisoft Technologies Inc. ("Balisoft") (the "Combination
Agreement"), the parties agreed that on the Closing Date (as such term is
defined in the Combination Agreement), ServiceSoft, ServiceSoft Canada and the
Trustee would execute and deliver a Voting and Exchange Trust Agreement
substantially in the form set forth in Exhibit E to the Combination Agreement
together with such other terms and conditions as may be agreed to by the parties
to the Combination Agreement acting reasonably;
AND WHEREAS pursuant to the amalgamation effected by articles of
amalgamation dated the date hereof (the "Amalgamation") filed pursuant to the
Business Corporations Act (Ontario), Balisoft and Old ServiceSoft Canada
amalgamated to continue as ServiceSoft Canada;
AND WHEREAS pursuant to the amalgamation, (i) the issued and
outstanding common shares of Balisoft were changed into Class A Preferred shares
of ServiceSoft Canada (in the manner set out in the Combination Agreement) ;
(ii) the issued and outstanding preferred shares
<PAGE> 2
-2-
of Balisoft were changed into Class B Preferred shares of ServiceSoft Canada (in
the manner set out in the Combination Agreement); and (iii) and each issued and
outstanding common share of Old ServiceSoft Canada was changed into one common
share of ServiceSoft Canada.
AND WHEREAS pursuant to and immediately following the above-mentioned
Amalgamation, articles of amendment were filed pursuant to the Business
Corporations Act (Ontario) on February 11, 1999 pursuant to which each issued
and outstanding Class A Preferred share of ServiceSoft Canada was exchanged for
one issued and outstanding Series C Exchangeable share of ServiceSoft Canada
(collectively, the "Exchangeable Common Shares"), and each issued and
outstanding Class B Preferred share was exchanged for one issued and outstanding
Series D Exchangeable share of ServiceSoft Canada (collectively, the
"Exchangeable Preferred Shares", and, together with the Exchangeable Common
Shares, the "Exchangeable Shares");
AND WHEREAS the above-mentioned articles of amendment set forth the
rights, privileges, restrictions and conditions (collectively, the "Exchangeable
Share Provisions") attaching to the Exchangeable Shares;
AND WHEREAS ServiceSoft is the registered and beneficial owner of all
of the issued and outstanding common shares of ServiceSoft Canada;
AND WHEREAS pursuant to the Combination Agreement and the Exchangeable
Share Provisions, ServiceSoft is to provide voting rights in ServiceSoft to each
holder (other than ServiceSoft and its Affiliates) from time to time of
Exchangeable Shares, such voting rights per Exchangeable Common Share and
Exchangeable Preferred Share to be equivalent to the voting rights per share of
Common Shares of ServiceSoft ("ServiceSoft Common Shares") and Series H
Preferred Shares ("ServiceSoft Series H Shares", and together with the
ServiceSoft Common Shares, the "ServiceSoft Shares"), respectively;
AND WHEREAS pursuant to the Combination Agreement and the terms and
conditions of the Exchangeable Shares, ServiceSoft is to grant to and in favour
of the holders (other than its Affiliates) from time to time of Exchangeable
Shares the right, in the circumstances set forth herein, to require ServiceSoft
to purchase from each such holder all or any part of the Exchangeable Shares
held by the holder;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in ServiceSoft shall be exercisable
by holders (other than ServiceSoft and its Affiliates) from time to time of
Exchangeable Shares by and through the Trustee, which will hold legal title to
one share of ServiceSoft Special Non-Equity Preferred Stock to which voting
rights attach for the benefit of the holders of the Exchangeable Common Shares,
and to one share of ServiceSoft Special NON-EQUITY Preferred Stock to which
voting rights attach for the benefit of the holders of the Exchangeable
Preferred Shares and whereby the right to require ServiceSoft to
<PAGE> 3
-3-
purchase Exchangeable Shares from the holders thereof (other than its
Affiliates) shall be exercisable by such holders from time to time of
Exchangeable Shares by and through the Trustee, which will hold legal title to
such right for the benefit of such holders;
AND WHEREAS these recitals and any statements of fact in this Agreement
are made by ServiceSoft and ServiceSoft Canada and not by the Trustee;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this Agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1. DEFINITIONS. In this Agreement, the following terms shall have the
following meanings:
"AFFILIATE" of any person means any other person directly or
indirectly controlled by, or under common control of, that
person. For the purposes of this definition, control"
(including, with correlative meanings, the terms "controlled
by" and "under common control of"), as applied to any person,
means the possession by another person, directly or
indirectly, of the power to direct or cause the direction of
the management and policies of that first mentioned person,
whether through the ownership of voting securities, by
contract or otherwise.
"AGREEMENT" means this Voting and Exchange Trust Agreement
dated -, 1999.
"AMALGAMATION AGREEMENT" means the amalgamation agreement
dated the date hereof providing for the Amalgamation.
"APPLICABLE LAWS" has the meaning given to such term in
section 5.10 of this Agreement.
"AUTOMATIC EXCHANGE RIGHTS" means the benefit of the
obligation of ServiceSoft to effect the automatic exchange of
Exchangeable Common Shares and Exchangeable Preferred Shares
for ServiceSoft Common Shares and ServiceSoft Series H Shares,
respectively, pursuant to section 5.12 of this Agreement.
"BENEFICIARIES" means the registered holders from time to time
of Exchangeable Shares, other than ServiceSoft and its
Affiliates.
<PAGE> 4
-4-
"BENEFICIARY VOTES" has the meaning given to such term in
section 4.2 of this Agreement.
"BOARD OF DIRECTORS" means the board of directors of
ServiceSoft Canada.
"BUSINESS DAY" means a day other than a Saturday, Sunday or a
day when banks are not open for business in Toronto, Ontario.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount
expressed in a foreign currency (the "FOREIGN CURRENCY
AMOUNT") at any date the product obtained by multiplying (a)
the Foreign Currency Amount by (b) the noon spot exchange rate
on such date for such foreign currency expressed in Canadian
dollars as reported by the Bank of Canada or, in the event
such spot exchange rate is not available, such exchange rate
on such date for such foreign currency expressed in Canadian
dollars as may be deemed by the Board of Directors to be
appropriate for such purpose.
"CORRESPONDING BENEFICIARIES" means, with respect to the
ServiceSoft Common Shares, the Beneficiaries of the
Exchangeable Common Shares, and with respect to the
ServiceSoft Series H Shares, the Beneficiaries of the
Exchangeable Preferred Shares.
"CURRENT MARKET PRICE" means, in respect of a ServiceSoft
Common Share or a ServiceSoft Series H Share on any date: (a)
if the relevant class of ServiceSoft Shares are listed or
quoted on a stock exchange or automated quotation system, the
Canadian Dollar Equivalent of the average of the closing
prices of that class of ServiceSoft Shares on each of the 30
consecutive trading days ending not more than five trading
days before such date, or (b) if there is no public market for
the relevant class of ServiceSoft Shares, then the Current
Market Price of a ServiceSoft Common Share or ServiceSoft
Series H Share on such date shall be determined by the
independent auditors of ServiceSoft, and any such
determination shall be conclusive and binding.
"EXCHANGE RIGHT" has the meaning given to such term in section
5.1 of this Agreement.
"INDEMNIFIED PARTIES" has the meaning given to such term in
section 9. 1.
"INSOLVENCY EVENT" means the institution by ServiceSoft Canada
of any proceeding to be adjudicated a bankrupt or insolvent or
to be dissolved or wound up, or the consent of ServiceSoft
Canada to the institution of bankruptcy, insolvency,
<PAGE> 5
-5-
dissolution or winding up proceedings against it, or the
filing of a petition, answer or consent seeking dissolution or
winding up under any bankruptcy, insolvency or analogous laws,
including without limitation the Companies Creditors'
Arrangement Act (Canada) and the Bankruptcy and Insolvency Act
(Canada), and the failure by ServiceSoft Canada to contest in
good faith any such proceedings commenced in respect of
ServiceSoft Canada within 15 days of becoming aware of such
proceedings, or the consent by ServiceSoft Canada to the
filing of any such petition or to the appointment of a
receiver, or the making by ServiceSoft Canada of a general
assignment for the benefit of creditors, or the admission in
writing by ServiceSoft Canada of its inability to pay its
debts generally as they become due, or ServiceSoft Canada not
being permitted, pursuant to solvency requirements of
applicable law, to redeem any Retracted Shares pursuant to
Section 6.6 of the Exchangeable Share Provisions.
"LIQUIDATION CALL RIGHT" has the meaning given to such term in
the Combination Agreement.
"LIQUIDATION EVENT" has the meaning given to such term in
section 5 12(b) of this Agreement.
"LIQUIDATION EVENT EFFECTIVE DATE" has the meaning given to
such term in section 5.12(c) of this Agreement.
"LIST" has the meaning given to such term in section 4.6 of
this Agreement.
"NOTICE EVENT" has the meaning given to such term in section
7.17 of this Agreement.
"OFFICER'S CERTIFICATE" means, with respect to ServiceSoft or
ServiceSoft Canada, as the case may be, a certificate signed
by any one of the Chairman of the Board, any Vice-Chairman of
the Board, the President, any Vice-President or any other
senior officer of ServiceSoft or ServiceSoft Canada, as the
case may be.
"PERSON" includes an individual, partnership, corporation,
company, unincorporated syndicate or organization, trust,
trustee, executor, administrator and other legal
representative.
"REDEMPTION CALL RIGHT" has the meaning given to such term in
the Combination Agreement.
<PAGE> 6
-6-
"RETRACTED SHARES" has the meaning given to such term in
section 5.7 of this Agreement.
"RETRACTION CALL RIGHT" has the meaning given to such term in
the Exchangeable Share Provisions.
"SERVICESOFT CONSENT" has the meaning given to such term in
section 4.2 of this Agreement.
"SERVICESOFT MEETING" has the meaning given to such term in
section 4.2 of this Agreement.
"SERVICESOFT SUCCESSOR" has the meaning given to such term in
section 11. 1 (a) of this Agreement.
"SUPPORT AGREEMENT" means the support agreement made as of the
date hereof between ServiceSoft Canada and ServiceSoft.
"TRUST" means the trust created by this Agreement.
"TRUST ESTATE" means the Voting Shares, the Exchange Right,
the Automatic Exchange Rights and any money other securities
or other property which may be held by the Trustee from time
to time pursuant to this Agreement.
"TRUSTEE" means the CIBC Mellon Trust Company and, subject to
the provisions of Article 10 of this Agreement, includes any
successor trustee.
"VOTING RIGHTS" means the voting rights attached to each of
the Voting Shares.
"VOTING SHARE (COMMON)" means the one share of ServiceSoft
Special Non-Equity Voting Stock with a par value of $.01,
issued by ServiceSoft to and deposited with the Trustee, which
entitles the holder of record to a number of votes at meetings
of holders of ServiceSoft Common Shares equal to that number
of votes that holders of the Exchangeable Common Shares
outstanding from time to time (other than Exchangeable Common
Shares held by ServiceSoft and its Affiliates) would be
entitled to if such Exchangeable Common Shares were all
exchanged for ServiceSoft Common Shares.
"VOTING SHARE (PREFERRED)" means the one share of ServiceSoft
Special Non-Equity Voting Stock with a par value of $.01,
issued by ServiceSoft to and deposited with the Trustee, which
entitles the holder of record to a number of votes at all
meetings
<PAGE> 7
-7-
of ServiceSoft shareholders at which holders of ServiceSoft
Series H Shares are entitled to vote equal to that number of
votes that holders of the Exchangeable Preferred Shares
outstanding from time to time (other than Exchangeable
Preferred Shares held by ServiceSoft and its Affiliates) would
be entitled to if such Exchangeable Preferred Shares were all
exchanged for ServiceSoft Series H Shares.
[DRAFT NOTE: UNDER THE PROPOSED ESCROW ARRANGEMENTS, SHARES
HELD IN THE BALISOFT ESCROW FUND COULD BE VOTED BUT SHARES
HELD IN THE SERVICESOFT ESCROW FUND COULD NOT BE VOTED (UNLESS
AND UNTIL RELEASED TO SHAREHOLDERS).]
"VOTING SHARES" means collectively, each of the Voting Share
(Common) and the Voting Share (Preferred).
1.2. INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
Agreement into articles, sections and paragraphs and the insertion of
headings are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement.
1.3. DATE FOR ANY ACTION. If any date on which any action is required to be
taken under this Agreement is not a Business Day, such action shall be
required to be taken on the next succeeding Business Day.
ARTICLE 2
PURPOSE OF AGREEMENT
2.1. ESTABLISHMENT OF TRUST. The Trust is hereby created and constituted for
the benefit of the Beneficiaries, as provided in this Agreement. The
Trustee will hold the Voting Shares in order to enable the Trustee to
exercise the Voting Rights and will hold the Exchange Right and the
Automatic Exchange Rights in order to enable the Trustee to exercise
such rights, in each case as trustee for and on behalf of the
Beneficiaries as provided in this Agreement.
ARTICLE 3
VOTING SHARES
3.1. ISSUE AND OWNERSHIP OF THE VOTING SHARES. ServiceSoft hereby issues to
and deposits with the Trustee certificates representing each of the
Voting Shares to be held by the Trustee as trustee for and on behalf
of, and for the use and benefit of, the Beneficiaries and in accordance
with the provisions of this Agreement. ServiceSoft hereby acknowledges
receipt from the Trustee, as trustee for and on behalf of the
Beneficiaries, of good and valuable consideration (and the adequacy
thereof) for the issuance of each of the Voting Shares by ServiceSoft
to the Trustee. During the term of the Trust and subject to the terms
and conditions of this Agreement, the Trustee shall possess and be
vested with full legal
<PAGE> 8
-8-
ownership of each of the Voting Shares and shall be entitled to
exercise all of the rights and powers of an owner with respect to each
of the Voting Shares, provided that the Trustee shall:
(a) hold each of the Voting Shares and the legal title
thereto as trustee solely for the use and benefit of
the Beneficiaries in accordance with the provisions
of this Agreement; and
(b) except as specifically authorized by this Agreement,
have no power or authority to sell, transfer, vote or
otherwise deal in or with each of the Voting Shares
and neither of the Voting Shares shall be used or
disposed of by the Trustee for any purpose other than
the purposes for which this Trust is created pursuant
to this Agreement.
3.2. LEGENDED SHARE CERTIFICATES. ServiceSoft Canada will cause each
certificate representing Exchangeable Shares to bear an appropriate
legend notifying the Beneficiaries of their right to instruct the
Trustee with respect to the exercise of the Beneficiary Votes.
3.3. SAFEKEEPING OF CERTIFICATES. The certificates representing each of the
Voting Shares shall at all times be held in safekeeping by the Trustee
or its agent, which may be an Affiliate of the Trustee.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1. VOTING RIGHTS. The Trustee, as the holder of record of each of the
Voting Shares, shall be entitled to all of the Voting Rights, including
the right to consent to or to vote in person or by proxy the Voting
Share, on any matter, question or proposition whatsoever that may
properly come before the shareholders of ServiceSoft at a ServiceSoft
Meeting or in connection with a ServiceSoft Consent (in each case, as
defined in section 4.2 of this Agreement). The Voting Rights shall be
and remain vested in and exercised by the Trustee. Subject to section
7.15 of this Agreement, the Trustee shall exercise the Voting Rights
only on the basis of instructions received pursuant to this Article 4
from Beneficiaries entitled to instruct the Trustee as to the voting
thereof at the time at which the ServiceSoft Consent is sought or the
ServiceSoft Meeting is held. To the extent that no instructions are
received from a Beneficiary with respect to the Voting Rights to which
such Beneficiary is entitled, the Trustee shall not exercise or permit
the exercise of such Beneficiary's Voting Rights.
4.2. NUMBER OF VOTES. With respect to all meetings of shareholders of
ServiceSoft at which holders of any class of ServiceSoft Shares arc
entitled to vote (a "SERVICESOFT MEETING") and with respect to all
written consents sought by ServiceSoft from its shareholders including
the
<PAGE> 9
-9-
holders of any class of ServiceSoft Shares (a "SERVICESOFT CONSENT"),
each Corresponding Beneficiary shall be entitled to instruct the
Trustee to cast and exercise one of the votes comprised in the Voting
Rights for each Exchangeable Share of a class possessed of Voting
Rights for such meeting owned of record by such Corresponding
Beneficiary on the record date established by ServiceSoft or by
applicable law for such ServiceSoft Meeting or ServiceSoft Consent, as
the case may be (the "BENEFICIARY VOTES") in respect of each matter,
question or proposition to be voted on at such ServiceSoft Meeting or
to be consented to in connection with such ServiceSoft Consent.
4.3. MAILINGS TO SHAREHOLDERS. With respect to each ServiceSoft Meeting and
ServiceSoft Consent, the Trustee will mail or cause to be mailed (or
otherwise communicate in the same manner as ServiceSoft utilizes in
communications to holders of ServiceSoft Shares of the relevant class,
subject to the Trustee being advised in writing of such method and its
ability to provide this method of communication) to each of the
Corresponding Beneficiaries named in the List on the same day as the
initial mailing of notice (or other communication) with respect to such
ServiceSoft Meeting or ServiceSoft Consent is given by ServiceSoft to
its shareholders:
(a) a copy of such notice, together with any related
materials to be provided to shareholders of
ServiceSoft;
(b) a statement that such Corresponding Beneficiary is
entitled to instruct the Trustee as to the exercise
of the Beneficiary Votes with respect to such
ServiceSoft Meeting or ServiceSoft Consent, as the
case may be, or, pursuant to section 4.7 of this
Agreement, to attend such ServiceSoft Meeting and to
exercise personally the Beneficiary Votes at such
meeting;
(c) a statement as to the manner in which such
instructions may be given to the Trustee, including
an express indication that instructions may be given
to the Trustee to give:
(i) a proxy to such Corresponding Beneficiary or
such Beneficiary's designee to exercise
personally the Beneficiary Votes; or
(ii) a proxy to a designated agent or other
representative of the management of
ServiceSoft to exercise such Beneficiary
Votes;
(d) a statement that if no such instructions are received
from the Corresponding Beneficiary, the Beneficiary
Votes to which such Corresponding Beneficiary is
entitled will not be exercised;
<PAGE> 10
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(e) a form of direction whereby the Corresponding
Beneficiary may so direct and instruct the Trustee as
contemplated herein; and
(f) a statement of the time and date by which such
instructions must be received by the Trustee in order
to be binding upon it, which in the case of a
ServiceSoft Meeting shall not be earlier than the
close of business on the second Business Day prior to
such meeting, and of the method for revoking or
amending such instructions.
The materials referred to above are to be provided to the Trustee by
ServiceSoft, but shall be subject to review and comment by the Trustee.
For the purpose of determining the Beneficiary Votes to which a
Beneficiary is entitled in respect of any such ServiceSoft Meeting or
ServiceSoft Consent, the number of Exchangeable Shares of the relevant
class owned of record by the Beneficiary shall be determined by
ServiceSoft Canada at the close of business on the record date
established by ServiceSoft or by applicable law for purposes of
determining shareholders entitled to vote at such ServiceSoft Meeting
or to give written consent in connection with such ServiceSoft Consent.
ServiceSoft will notify the Trustee of any decision of the Board of
Directors of ServiceSoft with respect to the calling of any such
ServiceSoft Meeting or the seeking of any such ServiceSoft Consent and
shall provide all necessary information and materials to the Trustee in
each case promptly and in any event in sufficient time to enable the
Trustee to perform its obligations contemplated by this section 4.3.
4.4. COPIES OF SHAREHOLDER INFORMATION. ServiceSoft will deliver to the
Trustee copies of all proxy materials, (including notices of
ServiceSoft Meetings but excluding proxies to vote ServiceSoft Common
Shares or ServiceSoft Series H Shares), information statements, reports
(including without limitation all interim and annual financial
statements) and other written communications that are to be distributed
from time to time to holders of ServiceSoft Common Shares or
ServiceSoft Series H Shares in sufficient quantities and in sufficient
time so as to enable the Trustee to send or cause to be sent those
materials to each Corresponding Beneficiary at the same time as such
materials are first sent to holders of ServiceSoft Shares of the
relevant class (but in any event, no later than 3 Business Days before
the day on which materials are first sent to holders of ServiceSoft
Shares of the relevant class). The Trustee will mail or cause to be
mailed or otherwise send or cause to be sent to each Corresponding
Beneficiary, at the expense of ServiceSoft, copies of all such
materials (and all materials specifically directed to the Beneficiaries
or to the Trustee for the benefit of the Beneficiaries by ServiceSoft)
received by the Trustee from ServiceSoft at the same time as such
materials are first sent to holders of a class of ServiceSoft Shares.
The Trustee will also make available for inspection by any
Corresponding Beneficiary at the Trustee's principal office in the city
of Toronto all proxy materials, information statements, reports and
other written communications that are:
<PAGE> 11
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(a) received by the Trustee as the registered holder of
each of the Voting Shares and made available by
ServiceSoft to the holders of the ServiceSoft Common
Shares or ServiceSoft Series H Shares; or
(b) specifically directed to either or both classes of
Beneficiaries or to the Trustee for the benefit of
either or both classes of Beneficiaries by
ServiceSoft.
4.5. OTHER MATERIALS. Immediately after receipt by ServiceSoft or any
shareholder of ServiceSoft of any material sent or given to the holders
of either the ServiceSoft Common Shares or the ServiceSoft Series H
Shares by or on behalf of a third party, including without limitation
dissident proxy and information circulars (and related information and
material) and tender and exchange offer circulars (and related
information and material), ServiceSoft shall use its best efforts to
obtain and deliver to the Trustee copies thereof in sufficient
quantities so as to enable the Trustee to forward such material (unless
the same has been provided directly to the Corresponding Beneficiaries
by such third party) to each Corresponding Beneficiary as soon as
possible thereafter. As soon as practicable after receipt of such
material, the Trustee will mail or cause to be mailed or otherwise send
or cause to be sent to each Corresponding Beneficiary, at the expense
of ServiceSoft, copies of all such materials received by the Trustee
from ServiceSoft. The Trustee will also make available for inspection
by any Corresponding Beneficiary at the Trustee's principal office in
the city of Toronto copies of all such materials. It shall be a
condition precedent to the Trustee's obligations under this Agreement
including, in particular, under sections 4.3, 4.4, 4.9, 5.9 and 5.12,
that ServiceSoft Canada or ServiceSoft, as the case may be, prepare the
applicable material, List and mailing labels and to provide the Trustee
with a sufficient quantity thereof in a timely fashion.
4.6. LIST OF PERSONS ENTITLED TO VOTE. ServiceSoft Canada shall, (a) prior
to each annual, general and special ServiceSoft Meeting or the seeking
of any ServiceSoft Consent and (b) forthwith upon each request made at
any time by the Trustee in writing, prepare or cause to be prepared
through the registrar and transfer agent a list (a "List") of the names
and addresses of the Beneficiaries of both classes arranged in
alphabetical order and showing the number of Exchangeable Shares of
each class held of record by each such Beneficiary, in each case at the
close of business on the date specified by the Trustee in such request
or, in the case of a List prepared in connection with a ServiceSoft
Meeting or a ServiceSoft Consent, at the close of business on the
record date established by ServiceSoft or pursuant to applicable law
for determining the holders of ServiceSoft Shares entitled to receive
notice of and/or to vote at such ServiceSoft Meeting or to give consent
in connection with such ServiceSoft Consent. Each such List shall be
delivered to the Trustee promptly after receipt by ServiceSoft Canada
of such request or the record date for such meeting or seeking of
consent, as the case may be, and in any event within sufficient time as
to enable the Trustee to perform its obligations under this Agreement.
ServiceSoft agrees to give ServiceSoft Canada notice (with a copy
<PAGE> 12
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to the Trustee) of the calling of any ServiceSoft Meeting or the
seeking of any ServiceSoft Consent, together with the record dates
therefor, sufficiently prior to the date of the calling of such meeting
or seeking of such consent so as to enable ServiceSoft Canada to
perform its obligations under this section 4.6.
4.7. ENTITLEMENT TO DIRECT VOTES. Any Corresponding Beneficiary named in a
List prepared in connection with any ServiceSoft Meeting or any
ServiceSoft Consent where the relevant class of ServiceSoft Shares are
to be voted will be entitled (a) to instruct the Trustee in the manner
described in section 4.3 of this Agreement with respect to the exercise
of the Beneficiary Votes to which such Beneficiary is entitled or (b)
to attend such meeting and to personally exercise (or to exercise with
respect to any written consent), as the proxy of the Trustee, the
Beneficiary Votes to which such Beneficiary is entitled except, in each
case, to the extent that such Beneficiary has transferred the ownership
of any Exchangeable Shares in respect of which such Beneficiary is
entitled to Beneficiary Votes after the close of business on the record
date for such meeting or seeking of consent.
4.8. VOTING RIGHTS DELIVERED BY PROXY AT MEETING.
(a) In connection with each ServiceSoft Meeting and
ServiceSoft Consent, the Trustee shall exercise in
accordance with the instructions received from a
Corresponding Beneficiary pursuant to section 4.3 of
this Agreement, the Beneficiary Votes as to which
such Corresponding Beneficiary is entitled to direct
the vote (or any lesser number thereof as may be set
forth in the instructions); provided, however, that
such written instructions are received by the Trustee
from the Corresponding Beneficiary prior to the time
and date fixed by it for receipt of such instructions
in the notice given by the Trustee to the
Corresponding Beneficiary pursuant to section 4.3 of
this Agreement.
(b) For each ServiceSoft Meeting, the Trustee shall sign
and deliver to ServiceSoft proxies for the relevant
Voting Rights to be exercised at such meeting. At a
Corresponding Beneficiary's request, the Trustee
shall sign and deliver to such Corresponding
Beneficiary (or such person as it designates in
writing) a proxy to exercise personally (at such
Corresponding Beneficiary's expense) the Beneficiary
Votes as to which such Corresponding Beneficiary is
otherwise entitled hereunder to direct the vote, if
such Corresponding Beneficiary either (i) has not
previously given the Trustee instructions pursuant to
section 4.3 of this Agreement in respect of such
meeting, or (ii) submits to the Trustee written
revocation of any such previous instructions. At such
meeting, the Corresponding Beneficiary exercising
such Beneficiary Votes shall have the same rights as
a shareholder of the relevant class of ServiceSoft
Shares to speak at the meeting in respect
<PAGE> 13
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of any matter, question or proposition, to vote by
way of ballot at the meeting in respect of any
matter, question or proposition and to vote at such
meeting by way of a show of hands in respect of any
matter, question or proposition.
4.9. DISTRIBUTION OF WRITTEN MATERIALS. Any written materials distributed by
the Trustee pursuant to this Agreement shall be delivered or sent by
mail to each Corresponding Beneficiary at its address as shown on the
books of ServiceSoft Canada. ServiceSoft Canada shall provide or cause
to be provided to the Trustee for this purpose, on a timely basis and
without charge or other expense:
(a) current Lists of the Beneficiaries; and
(b) mailing labels to enable the Trustee to carry out its
duties under this Agreement.
4.10. TERMINATION OF VOTING RIGHTS. All of the rights of a Beneficiary with
respect to the Beneficiary Votes exercisable in respect of the
Exchangeable Shares held by such Beneficiary, including the right to
instruct the Trustee as to the voting of or to vote personally such
Beneficiary Votes, shall be deemed to be surrendered by the Beneficiary
to ServiceSoft and such Beneficiary Votes and the Voting Rights
represented thereby shall cease immediately upon the delivery by such
holder to ServiceSoft Canada (and ServiceSoft Canada shall forthwith
notify the Trustee in writing of such delivery) of the certificates
representing such Exchangeable Shares in connection with the exercise
by the Beneficiary of the Exchange Right or the occurrence of the
automatic exchange of Exchangeable Shares for the relevant class of
ServiceSoft Shares, as specified in Article 5 hereof (unless in either
case ServiceSoft shall not have delivered the requisite ServiceSoft
Shares of the relevant class issuable in exchange therefor, or any cash
consideration payable in lieu thereof shall not have been paid, to the
Trustee for delivery to the Beneficiaries), or upon the retraction,
redemption or purchase for cancellation of Exchangeable Shares pursuant
to [ARTICLE 6, ARTICLE 7 OR ARTICLE 8] of the Exchangeable Share
Provisions, respectively, or upon the effective date of the
liquidation, dissolution or winding-up of ServiceSoft Canada pursuant
to [ARTICLE 5] of the Exchangeable Share Provisions, or upon the
purchase of Exchangeable Shares from the holder thereof by ServiceSoft
pursuant to the exercise by ServiceSoft of the Retraction Call Right,
the Redemption Call Right or the Liquidation Call Right.
ARTICLE 5
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1. GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT. ServiceSoft hereby grants to
the Trustee as trustee for and on behalf of, and for the use and
benefit of, each of the classes of Beneficiaries the right (the
"EXCHANGE RIGHTS"), upon the occurrence and during the
<PAGE> 14
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continuance of an Insolvency Event, to require ServiceSoft (subject to
compliance with applicable securities laws) to purchase from each or
any Beneficiary all or any part of each class of the Exchangeable
Shares held by the Beneficiary and the Automatic Exchange Rights, all
in accordance with the provisions of this Agreement. ServiceSoft hereby
acknowledges receipt from the Trustee, as trustee for and on behalf of
the Beneficiaries, of good and valuable consideration (and the adequacy
thereof) for the issuance of the Exchange Rights and the Automatic
Exchange Rights to the Trustee. During the term of the Trust and
subject to the terms and conditions of this Agreement, the Trustee
shall possess and be vested with full legal ownership of the Exchange
Rights and the Automatic Exchange Rights and shall be entitled to
exercise all of the rights and powers of an owner with respect to the
Exchange Rights and the Automatic Exchange Rights, provided that the
Trustee shall:
(a) hold the Exchange Rights and the Automatic Exchange
Rights and the legal title thereto as trustee solely
for the use and benefit of the Beneficiaries in
accordance with the provisions of this Agreement; and
(b) except as specifically authorized by this Agreement,
have no power or authority to exercise or otherwise
deal in or with the Exchange Rights or the Automatic
Exchange Rights, and the Trustee shall not exercise
any such rights for any purpose other than the
purposes for which this Trust is created pursuant to
this Agreement.
5.2. LEGENDED SHARE CERTIFICATES. ServiceSoft Canada will cause each
certificate representing Exchangeable Shares to bear an appropriate
legend notifying the Beneficiaries of:
(a) their right to instruct the Trustee with respect to
the exercise of the Exchange Rights in respect of the
Exchangeable Shares held by a Beneficiary; and
(b) the Automatic Exchange Rights.
5.3. GENERAL EXERCISE OF EXCHANGE RIGHTS. The Exchange Rights shall be and
remain vested in and exercisable by the Trustee. Subject to section
7.15 of this Agreement, the Trustee shall exercise the Exchange Rights
only on the basis of written instructions received pursuant to this
Article 5 from Beneficiaries entitled to instruct the Trustee as to the
exercise thereof. If requested by ServiceSoft, the Trustee shall
provide a copy of such instructions to ServiceSoft. To the extent that
no instructions are received from a Beneficiary with respect to the
Exchange Rights, the Trustee shall not exercise or permit the exercise
of the Exchange Rights.
5.4. PURCHASE PRICE. The purchase price payable by ServiceSoft for each
Exchangeable Common Share or Exchangeable Preferred Share to be
purchased by ServiceSoft under the
<PAGE> 15
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Exchange Right shall be an amount per share equal to (a) the Current
Market Price of a ServiceSoft Common Share or ServiceSoft Series H
Share, as the case may be, on the last Business Day prior to the day of
closing of the purchase and sale of such Exchangeable Share under the
Exchange Right plus (b) an additional amount equivalent to the full
amount of all dividends declared and unpaid on each such Exchangeable
Share of the relevant class and all dividends declared on ServiceSoft
Shares of the relevant class which have not been declared on the
corresponding class of Exchangeable Shares in accordance with [SECTION
3.1] of the Exchangeable Share Provisions (provided that if the record
date for any such declared and unpaid dividends occurs on or after the
day of closing of such purchase and sale the purchase price shall not
include such additional amount equivalent to such declared and unpaid
dividends). In connection with each exercise of the Exchange Rights,
ServiceSoft will provide to the Trustee an Officer's Certificate
setting forth the calculation of the purchase price for each class of
Exchangeable Share. The purchase price for each such Exchangeable Share
so purchased may be satisfied only by ServiceSoft delivering or causing
to be delivered to the Trustee, on behalf of the relevant Beneficiary,
(subject to compliance with applicable securities laws), one
ServiceSoft Share of the relevant class and a cheque for the amount of
the purchase price (less any part thereof satisfied by the issuance of
a ServiceSoft Share of the relevant class) without interest. The
Trustee shall be entitled to rely and be fully protected in so relying
and acting upon such Officer's Certificate.
5.5. EXERCISE INSTRUCTIONS. Subject to the terms and conditions herein set
forth, a Beneficiary shall be entitled, upon the occurrence and during
the continuance of an Insolvency Event, to instruct the Trustee to
exercise the Exchange Rights with respect to all or any part of the
Exchangeable Shares of either class registered in the name of such
Beneficiary on the books of ServiceSoft Canada. To cause the exercise
of the Exchange Right by the Trustee, the Beneficiary shall deliver to
the Trustee, in person or by certified or registered mail, at its
principal office in Toronto, Ontario or at such other places in Canada
as the Trustee may from time to time designate by written notice to the
Beneficiaries, the certificates representing the Exchangeable Shares of
the relevant class or classes which such Beneficiary desires
ServiceSoft to purchase, duly endorsed in blank, and accompanied by
such other documents and instruments as may be required to effect a
transfer of Exchangeable Shares under the Business Corporations Act
(Ontario) and the by-laws of ServiceSoft Canada and such additional
documents and instruments as the Trustee, ServiceSoft and ServiceSoft
Canada may reasonably require together with (a) a duly completed form
of notice of exercise of the Exchange Right (in the form attached as
Schedule "A" to this Agreement), contained on the reverse of or
attached to the Exchangeable Share certificates, stating (i) that the
Beneficiary thereby instructs the Trustee to exercise the Exchange
Right so as to require ServiceSoft to purchase from the Beneficiary the
number and class of Exchangeable Shares specified therein, (ii) that
such Beneficiary has good title to and owns all such Exchangeable
Shares to be acquired by ServiceSoft free and clear of all liens,
claims, security interests, adverse claims and encumbrances, (iii) the
names in which the certificates representing
<PAGE> 16
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ServiceSoft Shares of the relevant class deliverable in connection with
the exercise of the Exchange Right and cheques for the balance of the
purchase price, if any, are to be issued, and (iv) the names and
addresses of the persons to whom such new certificates and cheques for
the balance of the purchase price, if any, should be delivered and (b)
payment (or evidence satisfactory to the Trustee, ServiceSoft Canada
and ServiceSoft of payment) of the taxes (if any) payable as
contemplated by section 5.8 of this Agreement. If only a part of the
Exchangeable Shares represented by any certificate or certificates
delivered to the Trustee are to be purchased by ServiceSoft under the
Exchange Right, a new certificate for the balance of such Exchangeable
Shares shall be issued by ServiceSoft Canada to the holder at the
expense of ServiceSoft Canada.
5.6. DELIVERY OF SERVICESOFT SHARES; EFFECT OF EXERCISE.
(a) Promptly after receipt of the certificates representing the
Exchangeable Shares which the Beneficiary desires ServiceSoft
to purchase under the Exchange Right together with such
documents and instruments of transfer and a duly completed
form of notice of exercise of the Exchange Rights (and payment
of taxes, if any, or evidence thereof), duly endorsed for
transfer to ServiceSoft, the Trustee shall provide notice
(substantially in the form of Schedule "B" to this Agreement)
to ServiceSoft and ServiceSoft Canada of its receipt of the
same, which notice to ServiceSoft and ServiceSoft Canada shall
constitute exercise of the Exchange Right by the Trustee on
behalf of the holder of such Exchangeable Shares, and
ServiceSoft shall immediately thereafter deliver or cause to
be delivered to the Trustee, for delivery to the Beneficiary
of such Exchangeable Shares (or to such other persons, if any,
properly designated by such Beneficiary), (subject to
compliance with applicable securities laws) the certificates
for the number of ServiceSoft Shares of the relevant class
deliverable in connection with the exercise of the Exchange
Rights, which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim
or encumbrance, and cheques for the total purchase price
therefor (less any part thereof satisfied by the issuance of
ServiceSoft Shares of the relevant class) without interest.
(b) Immediately upon the giving of notice by the Trustee to
ServiceSoft and ServiceSoft Canada of the exercise of the
Exchange Right, as provided in this section 5.6 but subject to
section 5.13 of this Agreement regarding withholding tax, the
closing of the transaction of purchase and sale contemplated
by the Exchange Right shall be deemed to have occurred, and
the Beneficiary of such Exchangeable Shares shall be deemed to
have transferred to ServiceSoft all of its right, title and
interest in and to such Exchangeable Shares and in the related
interest in the Trust Estate and shall cease to be a holder of
such Exchangeable Shares and shall not be entitled to exercise
any of the rights of a holder in respect thereof, other than
the right to receive his
<PAGE> 17
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proportionate part of the total purchase price therefor,
provided that if the requisite number of ServiceSoft Shares of
the relevant class (together with a cheque for the total
purchase price therefor (less any part thereof satisfied by
the issuance of ServiceSoft Shares) is not allotted, issued
and delivered by ServiceSoft to the Trustee for delivery to
such Beneficiary (or to such other persons, if any, properly
designated by such Beneficiary), within five Business Days of
the date of the giving of such notice by the Trustee, the
rights of the Beneficiary shall remain unaffected until such
ServiceSoft Shares of the relevant class are so allotted,
issued and delivered by ServiceSoft and/or any such cheque is
so delivered and paid, as applicable. Concurrently with such
Beneficiary ceasing to be a holder of Exchangeable Shares, the
Beneficiary shall be considered and deemed for all purposes to
be the holder of ServiceSoft Shares delivered to it pursuant
to the Exchange Rights.
5.7. EXERCISE OF EXCHANGE RIGHTS SUBSEQUENT TO RETRACTION. In the event that
a Beneficiary has exercised its right under Article 6 of the
Exchangeable Share Provisions to require ServiceSoft Canada to redeem
any or all of the Exchangeable Shares held by the Beneficiary (the
"RETRACTED SHARES") and is notified by ServiceSoft Canada pursuant to
Section 6.6 of the Exchangeable Shares Provisions that ServiceSoft
Canada will not be permitted as a result of solvency requirements of
applicable law to redeem all such Retracted Shares, subject to receipt
by the Trustee of written notice to that effect from ServiceSoft
Canada, and provided that ServiceSoft shall not have exercised the
Retraction Call Right with respect to the Retracted Shares and that the
Beneficiary has not revoked the retraction request delivered by the
Beneficiary to ServiceSoft Canada pursuant to [SECTION 6.1] of the
Exchangeable Share Provisions, the retraction request will constitute
and will be deemed to constitute notice from the Beneficiary to the
Trustee instructing the Trustee to exercise the Exchange Right with
respect to those Retracted Shares which ServiceSoft Canada is unable to
redeem. In any such event, ServiceSoft Canada hereby agrees with the
Trustee and in favour of the Beneficiary immediately to notify the
Trustee of such prohibition against ServiceSoft Canada redeeming all of
the Retracted Shares and immediately to forward or cause to be
forwarded to the Trustee all relevant materials delivered by the
Beneficiary to ServiceSoft Canada (including without limitation a copy
of the retraction request delivered pursuant to [SECTION 6.1] of the
Exchangeable Share Provisions) in connection with such proposed
redemption of the Retracted Shares and the Trustee will thereupon
exercise the Exchange Right with respect to the Retracted Shares that
ServiceSoft Canada is not permitted to redeem and will require
ServiceSoft to purchase such shares in accordance with the provisions
of this Article 5.
5.8. STAMP OR OTHER TRANSFER TAXES. Upon any sale of Exchangeable Shares to
ServiceSoft pursuant to the Exchange Right or the Automatic Exchange
Rights, the share certificate or certificates representing ServiceSoft
Shares of the relevant class to be delivered in connection with the
payment of the total purchase price therefor shall be issued in the
name
<PAGE> 18
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of the Beneficiary of the Exchangeable Shares so sold or in such name
as such Beneficiary may otherwise direct in writing without charge to
the holder of the Exchangeable Shares so sold; provided, however, that
such Beneficiary (a) shall pay (and neither ServiceSoft, ServiceSoft
Canada nor the Trustee shall be required to pay) any documentary,
stamp, transfer or other taxes that may be payable in respect of any
transfer involved in the issuance or delivery of such shares to a
person other than such Beneficiary or (b) shall have established to the
satisfaction of the Trustee, ServiceSoft and ServiceSoft Canada that
such taxes, if any, have been paid.
5.9. NOTICE OF INSOLVENCY EVENT. Immediately upon the occurrence of an
Insolvency Event or any event which with the giving of notice or the
passage of time or both would be an Insolvency Event, ServiceSoft
Canada and ServiceSoft shall give written notice thereof to the
Trustee. As soon as practicable after receiving notice from ServiceSoft
Canada and ServiceSoft or from any other person of the occurrence of an
Insolvency Event, the Trustee will mail or cause to be mailed to each
Beneficiary, at the expense of ServiceSoft, a notice of such Insolvency
Event in the form provided by ServiceSoft, which notice shall contain a
brief statement of the right of the Beneficiaries with respect to the
Exchange Rights. It shall be a condition precedent to the Trustee's
obligation to mail a Beneficiary a notice of Insolvency Event that
ServiceSoft Canada prepare such notice and provide the Trustee with a
sufficient quantity in a timely fashion.
5.10. QUALIFICATION OF SERVICESOFT SHARES. ServiceSoft represents and
warrants that it has taken all actions and done all things as are
necessary or desirable under any Canadian or United States federal,
provincial or state law or regulation or pursuant to the rules and
regulations of any regulatory authority or any other legal requirement
(collectively, the "APPLICABLE LAWS") as they exist on the date hereof
and will in good faith expeditiously take all such actions and do all
such things as are necessary or desirable under Applicable Laws as they
may exist in the future to cause the ServiceSoft Common Shares and the
ServiceSoft Series H Shares to be issued and delivered pursuant to the
Exchangeable Share Provisions, the Exchange Rights or the Automatic
Exchange Rights (other than compliance with Applicable Laws relating to
the ability of holders to freely trade the ServiceSoft Shares, as to
which no representation is given). To the extent that holders of
Exchangeable Shares have exercised registration rights in respect of
ServiceSoft Shares issuable in accordance with the Exchangeable Share
Provisions, ServiceSoft will in good faith expeditiously take all such
actions and do all things as are necessary or desirable to cause all
ServiceSoft Shares of the relevant class to be delivered pursuant to
the Exchangeable Share Provisions, the Exchange Right or the Automatic
Exchange Rights to be listed, quoted or posted for trading on all stock
exchanges and quotation systems, if any, on which outstanding
ServiceSoft Shares of that class are listed, quoted or posted for
trading at such time.
5.11. RESERVATION OF SERVICESOFT SHARES.
<PAGE> 19
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(a) ServiceSoft hereby represents, warrants and covenants that it
has irrevocably reserved for issuance and will at all times
keep available, free from pre-emptive and other rights, out of
its authorized and unissued capital stock such number of
ServiceSoft Common Shares (a) as is equal to the sum of (i)
the number of Exchangeable Shares issued and outstanding from
time to time and (ii) the number of Exchangeable Shares
issuable upon the exercise of all rights to acquire
Exchangeable Shares outstanding from time to time and (b) as
are now and may hereafter be required to enable and permit
ServiceSoft Canada and ServiceSoft to meet their respective
obligations hereunder, under the Support Agreement, under the
Exchangeable Share Provisions and under any other security or
commitment pursuant to which ServiceSoft may now or hereafter
be required to issue ServiceSoft Common Shares.
(b) ServiceSoft hereby represents, warrants and covenants that it
has irrevocably reserved for issuance and will at all times
keep available, free from pre-emptive and other rights, out of
its authorized and unissued capital stock such number of
ServiceSoft Series H Shares (a) as is equal to the sum of (i)
the number of Exchangeable Preferred Shares issued and
outstanding from time to time and (ii) the number of
Exchangeable Preferred Shares issuable upon the exercise of
all rights to acquire Exchangeable Preferred Shares
outstanding from time to time and (b) as are now and may
hereafter be required to enable and permit ServiceSoft Canada
and ServiceSoft to meet their respective obligations
hereunder, under the Support Agreement, under the Exchangeable
Share Provisions and under any other security or commitment
pursuant to which ServiceSoft may now or hereafter be required
to issue ServiceSoft Series H Shares.
5.12. AUTOMATIC EXCHANGE ON LIQUIDATION OF SERVICESOFT.
(a) ServiceSoft will give the Trustee notice of each of
the following events at the time set forth below:
(i) in the event of any determination by the
Board of Directors of ServiceSoft to
institute voluntary liquidation, dissolution
or winding up proceedings with respect to
ServiceSoft or to effect any other
distribution of assets of ServiceSoft among
its shareholders for the purpose of winding
up its affairs, at least 60 days prior to
the proposed effective date of such
liquidation, dissolution, winding up or
other distribution; and
<PAGE> 20
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(ii) immediately, upon the earlier of (A) receipt
by ServiceSoft of notice of and (B)
ServiceSoft otherwise becoming aware of any
threatened or instituted claim, suit,
petition or other proceedings with respect
to the involuntary liquidation, dissolution
or winding-up of ServiceSoft or to effect
any other distribution of assets of
ServiceSoft among its shareholders for the
purpose of winding up its affairs.
(b) immediately following receipt by the Trustee from
ServiceSoft of notice of any event (a "LIQUIDATION
EVENT") contemplated by section 5.12(a)(i) or
5.12(a)(ii) above, the Trustee will give notice
thereof to the Beneficiaries. Such notice shall be
provided by ServiceSoft to the Trustee and shall
include a brief description of the automatic exchange
of Exchangeable Shares for ServiceSoft Common Shares
and ServiceSoft Series H Shares provided for in
section 5.12(c).
(c) In order that the Beneficiaries will be able to
participate on a pro rata basis with the holders of
ServiceSoft Shares in the distribution of assets of
ServiceSoft in connection with a Liquidation Event,
on the fifth Business Day prior to the effective date
(the "LIQUIDATION EVENT EFFECTIVE DATE") of a
Liquidation Event all of the then outstanding
Exchangeable Shares shall be automatically exchanged
for the relevant ServiceSoft Shares. To effect such
automatic exchange, ServiceSoft shall purchase each
Exchangeable Share outstanding on the fifth Business
Day prior to the Liquidation Event Effective Date and
held by Beneficiaries, and each Beneficiary shall
sell the Exchangeable Shares held by it at such time,
for a purchase price per Exchangeable Share equal to
(a) the Current Market Price of a ServiceSoft Common
Share or ServiceSoft Series H Share, as the case may
be, on the fifth Business Day prior to the
Liquidation Event Effective Date, which shall be
satisfied in full by ServiceSoft delivering or
causing to be delivered to the Beneficiary one
ServiceSoft Common Share or ServiceSoft Series H
Share, as the case may be, plus (b) an additional
amount equivalent to the full amount of all dividends
declared and unpaid on each such Exchangeable Share
and all dividends declared on the relevant class of
ServiceSoft Shares which have not been declared on
such Exchangeable Shares in accordance with Section
3.1 of the Exchangeable Share Provisions (provided
that if the record date for any such declared and
unpaid dividends occurs on or after the day of
closing of such purchase and sale the purchase price
shall not include such additional amount equivalent
to such declared and unpaid dividends). In connection
with such automatic exchange, ServiceSoft will
provide to the Trustee an Officer's Certificate
setting forth the calculation of the purchase
<PAGE> 21
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price for each Exchangeable Share. The Trustee shall
be entitled to rely and be fully protected in so
relying and acting upon such Officer's Certificate.
(d) On the fifth Business Day prior to the Liquidation
Event Effective Date, the closing of the transaction
of purchase and sale contemplated by the automatic
exchange of Exchangeable Common Shares for
ServiceSoft Common Shares and the automatic exchange
of Exchangeable Preferred Shares for ServiceSoft
Series H Shares shall be deemed to have occurred, and
each Beneficiary shall be deemed to have transferred
to ServiceSoft all of the Beneficiary's right, title
and interest in and to its Exchangeable Shares and
the related interest in the Trust Estate and shall
cease to be a holder of such Exchangeable Shares and
ServiceSoft shall deliver or cause to be delivered to
the Beneficiary ServiceSoft Shares of the relevant
class deliverable upon the automatic exchange of
Exchangeable Shares for ServiceSoft Shares and shall
deliver to the Trustee for delivery to the
Beneficiary a cheque for the balance, if any, of the
total purchase price for such Exchangeable Shares
without interest. Concurrently with such Beneficiary
ceasing to be a holder of Exchangeable Shares, the
Beneficiary shall be considered and deemed for all
purposes to be the holder of ServiceSoft Shares of
the relevant class issued to it pursuant to the
automatic exchange of Exchangeable Shares for
ServiceSoft Shares and the certificates held by the
Beneficiary previously representing the Exchangeable
Shares exchanged by the Beneficiary with ServiceSoft
pursuant to such automatic exchange shall thereafter
be deemed to represent ServiceSoft Common Shares or
ServiceSoft Series H Shares, as the case may be,
delivered to the Beneficiary by ServiceSoft pursuant
to such automatic exchange. Upon the request of a
Beneficiary and the surrender by the Beneficiary of
Exchangeable Share certificates deemed to represent
ServiceSoft Shares, duly endorsed in blank and
accompanied by such instruments of transfer as
ServiceSoft may reasonably require, ServiceSoft shall
deliver or cause to be delivered to the Beneficiary
certificates representing ServiceSoft Shares of the
relevant class of which the Beneficiary is the
holder.
5.13. WITHHOLDING RIGHTS. ServiceSoft and the Trustee shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant
to this Agreement to any holder of Exchangeable Shares such amounts as
ServiceSoft or the Trustee is required or permitted to deduct and
withhold with respect to the making of such payment under the Income
Tax Act (Canada) or any provision of provincial tax law. To the extent
that amounts are so withheld, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of
the shares in respect of which such deduction and withholding was made,
provided that such withheld amounts are actually remitted to the
appropriate taxing
<PAGE> 22
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authority. To the extent that the amount so required or permitted to be
deducted or withheld from any payment to a holder exceeds the cash
portion of the consideration otherwise payable to the holder,
ServiceSoft is hereby authorized to sell or otherwise dispose of at
fair market value such portion of the consideration as is necessary to
provide sufficient funds to ServiceSoft or the Trustee, as the case may
be, in order to enable it to comply with such deduction or withholding
requirement and shall account to the relevant holder for any balance of
such sale proceeds.
If, upon the occurrence of an Insolvency Event, a non-Canadian resident
Beneficiary instructs the Trustee to exercise the Exchange Right,
ServiceSoft shall provide the Trustee, in cash, with sufficient funds
to satisfy any withholding taxes applicable in connection with the sale
of such Beneficiary's Exchangeable Shares to ServiceSoft otherwise such
exchange shall not have occurred or be deemed to have occurred. The
"fair market value" of any class of ServiceSoft Shares at a particular
date shall, for the purposes of calculating any such applicable
withholding taxes, shall be the Current Market Price of that class of
ServiceSoft Shares or shall be determined by such other method of
valuation which has been recommended or suggested by Revenue Canada as
providing a satisfactory assessment of such fair market value. Prior to
making any distribution to holders of Exchangeable Shares, ServiceSoft
or ServiceSoft Canada, as the case may be, shall ensure that the
Trustee has access to sufficient funds (by directly providing, if
necessary, such funds to the Trustee) to enable the Trustee to comply
with any applicable withholding taxes in connection with such
distribution.
ARTICLE 6
RESTRICTIONS ON ISSUE OR AMENDMENT
OF SERVICESOFT SPECIAL VOTING STOCK
6.1. AMENDMENT/ISSUE OF ADDITIONAL SHARES. During the term of this
Agreement, ServiceSoft will not issue any shares of ServiceSoft Special
Non-Equity Voting Stock in addition to the Voting Shares, and, for
greater certainty will not amend the terms of either class of Voting
Shares without obtaining the prior written consent of the Trustee.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1. POWERS AND DUTIES OF THE TRUSTEE. The rights, powers and authorities of
the Trustee under this Agreement, in its capacity as trustee of the
Trust, shall include:
(a) the receipt and holding of the Voting Shares from
ServiceSoft as trustee for and on behalf of the
Beneficiaries in accordance with the provisions of
this Agreement;
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(b) granting proxies and distributing materials to
Beneficiaries as provided in this Agreement;
(c) voting the Beneficiary Votes in accordance with the
provisions of this Agreement;
(d) receiving the grant of the Exchange Rights and the
Automatic Exchange Rights from ServiceSoft as trustee
for and on behalf of the Beneficiaries in accordance
with the provisions of this Agreement;
(e) exercising the Exchange Rights and enforcing the
benefit of the Automatic Exchange Rights, in each
case in accordance with the provisions of this
Agreement, and in connection therewith receiving from
Beneficiaries Exchangeable Shares and other requisite
documents and distributing to such Beneficiaries
ServiceSoft Shares and cheques, if any, to which such
Beneficiaries are entitled upon the exercise of the
Exchange Right or pursuant to the Automatic Exchange
Rights, as the case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a
part of the Trust Estate as provided in section 7.11
of this Agreement;
(h) taking action at the direction of a Beneficiary or
Beneficiaries to enforce the obligations of
ServiceSoft under this Agreement; and
(i) taking such other actions and doing such other things
as are specifically provided in this Agreement.
In the exercise of such rights, powers and authorities, the Trustee
shall have (and is granted) such incidental and additional rights,
powers and authority not in conflict with any of the provisions of this
Agreement as may be necessary, appropriate or desirable to effect the
purpose of the Trust. Any exercise of such rights, powers and
authorities by the Trustee shall be final, conclusive and binding upon
all persons affected thereby including the parties to this Agreement
and the Beneficiaries. For greater certainty, the Trustee shall have no
duties or liabilities except those which are expressly set forth in
this Agreement. In particular, the Trustee will have no liability or
responsibility arising under any agreement or instrument, including the
Combination Agreement, the Exchangeable Share Provisions or any other
agreement or instrument referred to in this Agreement, to which the
Trustee is not a party and shall not be bound by any notice of a claim
or demand with respect thereto.
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The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith with a view to the best
interests of the Beneficiaries and shall exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable
circumstances.
7.2. NO CONFLICT OF INTEREST. The Trustee represents to ServiceSoft Canada
and ServiceSoft that at the date of execution and delivery of this
Agreement there exists no material conflict of interest between its
role as Trustee under this Agreement and its role in any other
capacity. The Trustee shall, within 90 days after it becomes aware that
such a material conflict of interest exists, either eliminate such
material conflict of interest or resign in the manner and with the
effect specified in Article 10 of this Agreement. If, notwithstanding
the foregoing provisions of this section 7.2, the Trustee has such a
material conflict of interest, the validity and enforceability of this
Agreement shall not be affected in any manner whatsoever by reason only
of the existence of such material conflict of interest. If the Trustee
contravenes the foregoing provisions of this section 7.2, any
interested party may apply to the Ontario Court for an order that the
Trustee be replaced as trustee under this Agreement.
7.3. DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC. ServiceSoft Canada and
ServiceSoft irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the
respective registrars and transfer agents, and with
any such subsequent registrar or transfer agent, of
the Exchangeable Common Shares, Exchangeable
Preferred Shares, ServiceSoft Common Shares and the
ServiceSoft Series H Shares; and
(b) requisition, from time to time, (i) from any such
registrar or transfer agent any information readily
available from the records maintained by it which the
Trustee may reasonably require for the discharge of
its duties and responsibilities under this Agreement,
and (ii) from the registrar or transfer agent of
ServiceSoft Common Shares and ServiceSoft Series H
Shares, and any subsequent registrar or transfer
agent of such shares, the share certificates issuable
upon the exercise from time to time of the Exchange
Right and pursuant to the Automatic Exchange Rights
in the manner specified in Article 5 of this
Agreement.
ServiceSoft Canada and ServiceSoft irrevocably authorize their
respective registrars and transfer agents to comply with all such
requests. ServiceSoft covenants that it will supply ServiceSoft's
transfer agent with duly executed share certificates for the purpose of
completing the exercise from time to time of the Exchange Right and the
Automatic Exchange Rights, in each case pursuant to Article 5 of this
Agreement.
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7.4. BOOKS AND RECORDS. The Trustee shall keep available for inspection by
ServiceSoft and ServiceSoft Canada, at the Trustee's principal office
in Toronto, Ontario, correct and complete books and records of account
relating to the Trustee's actions under this Agreement, including
without limitation all information relating to mailings and
instructions to and from Beneficiaries and all transactions pursuant to
the Exchange Right and the Automatic Exchange Rights on or before
February 12, 2000, and on or before February 12 in every year
thereafter, so long as the Voting Shares are on deposit with the
Trustee, the Trustee shall transmit to ServiceSoft and ServiceSoft
Canada a brief report, dated as of the preceding December 31, with
respect to:
(a) the property and funds comprising the Trust Estate as
of that date;
(b) the number of exercises of the Exchange Rights, if
any, and the aggregate number of Exchangeable Shares
of each class received by the Trustee on behalf of
the Beneficiaries in consideration of the issue and
delivery by ServiceSoft of ServiceSoft Shares of each
class in connection with the Exchange Rights, during
the calendar year ended on such date; and
(c) all other actions taken by the Trustee in the
performance of its duties under this Agreement which
it had not previously reported.
7.5. INCOME TAX RETURNS AND REPORTS. The Trustee shall, if required under
the Income Tax Act (Canada) or any provincial law or if advised by
ServiceSoft or ServiceSoft Canada, prepare and file on behalf of the
Trust the appropriate income tax returns and any other returns or
reports as may be required by applicable law or pursuant to the rules
and regulations of any securities exchange or other trading system
through which the Exchangeable Shares are traded and, in connection
therewith and, without limiting the generality of section 7.10 of this
Agreement, may obtain the advice and assistance of such experts as the
Trustee may consider necessary or advisable. If requested by the
Trustee, ServiceSoft shall retain such experts for purposes of
providing such advice and assistance.
7.6. INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE. The Trustee shall
exercise any or all of the rights, duties, powers or authorities vested
in it by this Agreement at the request, order or direction of any
Beneficiary upon such Beneficiary furnishing to the Trustee reasonable
funding, security and indemnity against the costs, expenses and
liabilities which may be incurred by the Trustee, provided that no
Beneficiary shall be obligated to furnish to the Trustee any such
funding, security or indemnity in connection with the exercise by the
Trustee of any of its rights, duties, powers and authorities with
respect to the Voting Shares pursuant to Article 4 of this Agreement,
subject to section 7.15 of this Agreement, and with respect to the
Exchange Rights pursuant to Article 5 of this Agreement, subject to
section 7.15 of this Agreement, and with respect to the Automatic
Exchange Rights pursuant to
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Article 5 of this Agreement. None of the provisions contained in this
Agreement shall require the Trustee to expend or risk its own funds or
otherwise incur financial liability in the exercise of any of its
rights, powers, duties or authorities unless funded, given security and
indemnified as provided in this Agreement.
7.7. ACTIONS BY BENEFICIARIES. No Beneficiary shall have the right to
institute any action, suit or proceeding or to exercise any other
remedy authorized by this Agreement for the purpose of enforcing any of
its rights or for the execution of any trust or power hereunder unless
the Beneficiary has requested the Trustee to take or institute such
action, suit or proceeding and furnished the Trustee with the funding,
security and indemnity referred to in section 7.6 of this Agreement and
the Trustee shall have failed to act within a reasonable time
thereafter. In such case, but not otherwise, the Beneficiary shall be
entitled to take proceedings in any court of competent jurisdiction
such as the Trustee might have taken; it being understood and intended
that no one or more Beneficiaries shall have any right in any manner
whatsoever to affect, disturb or prejudice the rights hereby created by
any such action, or to enforce any right hereunder or under the Voting
Rights, the Exchange Rights or the Automatic Exchange Rights except
subject to the conditions and in the manner provided of this Agreement,
and that all powers and trusts under this Agreement shall be exercised
and all proceedings at law shall be instituted, had and maintained by
the Trustee, except only as provided of this Agreement, and in any
event for the equal benefit of all Beneficiaries.
7.8. RELIANCE UPON DECLARATIONS. The Trustee shall not be considered to be
in contravention of any of its rights, powers, duties and authorities
hereunder if it acts and relies in good faith upon lists, mailing
labels, notices, statutory declarations, certificates, opinions,
reports or other papers or documents furnished pursuant to the
provisions hereof or required by the Trustee to be furnished to it in
the exercise of its rights, powers, duties and authorities hereunder.
7.9. EVIDENCE AND AUTHORITY TO TRUSTEE. To the extent ServiceSoft Canada
and/or ServiceSoft are required to furnish to the Trustee evidence of
compliance with the conditions provided for in this Agreement relating
to any action or step required or permitted to be taken by ServiceSoft
Canada and/or ServiceSoft or the Trustee under this Agreement or as a
result of any obligation imposed under this Agreement, including,
without limitation, in respect of the Voting Rights or the Exchange
Right or the Automatic Exchange Rights, and the taking of any other
action to be taken by the Trustee at the request of or on the
application of ServiceSoft Canada and/or ServiceSoft, such evidence
shall consist of an Officer's Certificate of ServiceSoft Canada and/or
ServiceSoft, as the case may be, or a statutory declaration or a
certificate made by persons entitled to sign an Officer's Certificate
stating that any such condition has been complied with in accordance
with the terms of this Agreement.
<PAGE> 27
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Whenever such evidence relates to a matter other than the Voting Rights
or the Exchange Rights or the Automatic Exchange Rights and except as
otherwise specifically provided herein, such evidence may consist of a
report or opinion of any solicitor, auditor, accountant, appraiser,
valuer, engineer or other expert or any other person whose
qualifications give authority to a statement made by him, provided that
if such report or opinion is furnished by a director, officer or
employee of ServiceSoft Canada and/or ServiceSoft it shall be in the
form of an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to
the Trustee as evidence of compliance with a condition provided for in
this Agreement or as the Trustee may otherwise request shall include a
statement by the person giving the evidence:
(a) declaring that he has read and understands the
provisions of this Agreement relating to the
condition in question;
(b) describing the nature and scope of the examination or
investigation upon which he based the statutory
declaration, certificate, statement or opinion; and
(c) declaring the he has made such examination or
investigation as he believes is necessary to enable
him to make the statements or give the opinions
contained or expressed therein.
7.10. EXPERTS, ADVISORS AND AGENTS. The Trustee may:
(a) in relation to these presents, act and rely on the
opinion or advice of or information obtained from any
solicitor, auditor, accountant, appraiser, valuer,
engineer or other expert, whether retained by the
Trustee or by ServiceSoft Canada and/or ServiceSoft
or otherwise, and may retain or employ such
assistants as may be necessary to the proper
discharge of its powers and duties and determination
of its rights under this Agreement and may pay proper
and reasonable compensation for all such legal and
other advice or assistance; and
(b) retain or employ such agents and other assistants as
it may reasonably require for the proper
determination and discharge of its powers and duties
under this Agreement, and may pay reasonable
remuneration for all services performed for it (and
shall be entitled to receive reasonable remuneration
for all services performed by it) and compensation
for all disbursements, costs and expenses made or
incurred by it in the discharge of its duties under
this Agreement and in the management of the Trust.
<PAGE> 28
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7.11. INVESTMENT OF MONEYS HELD BY TRUSTEE. Unless otherwise provided in this
Agreement, any moneys held by or on behalf of the Trustee shall, unless
otherwise directed in writing by ServiceSoft Canada, be deposited in an
interest bearing account at any chartered bank in Canada. At the end of
each calendar year during which the Trustee shall have held monies in
trust in accordance with this section 7.11, the Trustee shall file on
behalf of the Trust or, if required by law, shall issue to the
Beneficiaries of the Trust, all appropriate forms under the Income Tax
Act (Canada) in respect of any interest earned on such monies and to
the extent such income is allocated to the Beneficiaries, it shall be
allocated in proportions equivalent to the Beneficiaries' respective
percentage ownership of the Exchangeable Shares (treated as a single
class) outstanding at the relevant allocation date. ServiceSoft Canada
shall provide or cause to be provided such information as the Trustee
may require in respect of the Beneficiaries' ownership of Exchangeable
Shares.
7.12. TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee shall not be
required to give any bond or security in respect of the execution of
the trusts, rights, duties, powers and authorities of this Agreement or
otherwise in respect of the premises.
7.13. TRUSTEE NOT BOUND TO ACT ON CORPORATION'S REQUEST. Except as in this
Agreement otherwise specifically provided, the Trustee shall not be
bound to act in accordance with any direction or request of ServiceSoft
Canada and/or ServiceSoft or of the directors thereof until a duly
authenticated copy of the instrument or resolution containing such
direction or request shall have been delivered to the Trustee, and the
Trustee shall be empowered to act and rely upon and be protected in so
acting and relying upon any such copy purporting to be authenticated
and believed by the Trustee to be genuine.
7.14. AUTHORITY TO CARRY ON BUSINESS. The Trustee represents to ServiceSoft
Canada and ServiceSoft that at the date of execution and delivery by it
of this Agreement it is authorized to carry on the business of a trust
company in the Province of Ontario but if, notwithstanding the
provisions of this section 7.14, it ceases to be so authorized to carry
on business, the validity and enforceability of this Agreement and the
Voting Rights, the Exchange Rights and the Automatic Exchange Rights
shall not be affected in any manner whatsoever by reason only of such
event but the Trustee shall, within 90 days after ceasing to be
authorized to carry on the business of a trust company in the Province
of Ontario, either become so authorized or resign in the manner and
with the effect specified in Article 10 of this Agreement.
7.15. CONFLICTING CLAIMS. If conflicting claims or demands are made or
asserted with respect to any interest of any Beneficiary in any
Exchangeable Shares, including any disagreement between the heirs,
representatives, successors or assigns succeeding to all or any part of
the interest of any Beneficiary in any Exchangeable Shares resulting in
conflicting claims or demands being made in connection with such
interest, then the Trustee shall be entitled, a
<PAGE> 29
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its sole discretion, to refuse to recognize or to comply with any such
claim or demand. In so refusing, the Trustee may elect not to exercise
any Voting Rights, Exchange Rights or Automatic Exchange Rights subject
to such conflicting claims or demands and, in so doing, the Trustee
shall not be or become liable to any person on account of such election
or its failure or refusal to comply with any such conflicting claims or
demands. The Trustee shall be entitled to continue to refrain from
acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to
the Voting Rights, Exchange Right or Automatic
Exchange Rights subject to such conflicting claims or
demands have been adjudicated by a final judgment of
a court of competent jurisdiction and all rights of
appeal have expired; or
(b) all differences with respect to the Voting Rights,
Exchange Rights or Automatic Exchange Rights subject
to such conflicting claims or demands have been
conclusively settled by a valid written agreement
binding on all such adverse claimants, and the
Trustee shall have been furnished with an executed
copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand
made by any such adverse claimant, it may in its discretion require
such claimant to furnish such surety bond or other security
satisfactory to the Trustee as it shall deem appropriate fully to
indemnify it as between all conflicting claims or demands.
7.16. ACCEPTANCE OF TRUST. The Trustee hereby accepts the Trust created and
provided for by and in this Agreement and agrees to perform the same
upon the terms and conditions herein set forth and to hold all rights,
privileges and benefits conferred hereby and by law in trust for the
various persons who shall from time to time be Beneficiaries, subject
to all the terms and conditions set forth in this Agreement.
7.17. NOTICE TO TRUSTEE. The Trustee shall not be bound to give any notice or
do or take any act, action or proceeding by virtue of the powers
conferred on it hereby unless and until it shall have been required so
to do under the terms of this Agreement; nor shall the Trustee be
required to take notice of, be deemed to have actual or constructive
notice or knowledge of any matter under this Agreement, or take any
action in connection with any notice of any ServiceSoft Meeting or the
seeking of any ServiceSoft Consent or any prohibition of ServiceSoft
Canada against redeeming any Retracted Shares as set out in section 5.7
of this Agreement or of any Insolvency Event or Liquidation Event as
set out in sections 5.9 and 5.12 of this Agreement, respectively,
(collectively, a "NOTICE EVENT"), unless and until notified in writing
of such Notice Event in accordance with section 14.3, which notice
shall distinctly specify the Notice Event desired to be brought to the
attention of the Trustee and
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in the absence of any such notice the Trustee may for all purposes of
this Agreement conclusively assume that no such Notice Event has
occurred.
7.18. MERGER OR CONSOLIDATION OF TRUSTEE. Any corporation into or with which
the Trustee may be merged or consolidated or amalgamated, or any
corporation resulting therefrom to which the Trustee shall be a party,
or any corporation succeeding to the trust business of the Trustee
shall be the successor to the Trustee under this Agreement without any
further act on its part or any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor
trustee under the provisions of this Agreement.
7.19. NO PERSONAL LIABILITY. In the exercise of the powers, authorities or
discretion conferred upon the Trustee under this Agreement, the Trustee
is and shall be conclusively deemed to be acting as trustee of the
Trust and shall not be subject to any personal liability for any of the
liabilities, obligations, claims, demands, judgements, costs or
expenses against or with respect to the Trust.
7.20. INCUMBENCY CERTIFICATE. Each of ServiceSoft Canada and ServiceSoft
shall file with the Trustee a certificate of incumbency setting forth
the names of the individuals authorized to give instructions,
directions or other instruments to the Trustee ("AUTHORIZED PERSONS"),
together with specimen signatures of such persons, and the Trustee
shall be entitled to rely on the latest certificate of incumbency filed
with it unless it receives notice, in accordance with section 7.11, of
a change in Authorized Persons with updated specimen signatures.
ARTICLE 8
COMPENSATION
8.1. FEES AND EXPENSES OF THE TRUSTEE. ServiceSoft and ServiceSoft Canada
jointly and severally agree to pay to the Trustee reasonable
compensation for all of the services rendered by it under this
Agreement and will reimburse the Trustee for all reasonable expenses
(including but not limited to taxes and the fees paid or to be paid by
the Trustee pursuant to section 7.10) and disbursements, including
counsel fees and disbursements, the cost and expense of any suit or
litigation of any character and any proceedings before any governmental
agency reasonably incurred by the Trustee in connection with its rights
and duties under this Agreement; provided that ServiceSoft and
ServiceSoft Canada shall have no obligation to reimburse the Trustee
for any expenses or disbursements paid, incurred or suffered by the
Trustee in any suit or litigation in which the Trustee is determined to
have acted fraudulently or with gross negligence or wilful misconduct.
<PAGE> 31
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ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1. INDEMNIFICATION OF THE TRUSTEE. ServiceSoft and ServiceSoft Canada
jointly and severally agree to indemnify and hold harmless the Trustee
and each of its directors, officers, employees and agents appointed and
acting in accordance with this Agreement (collectively, the
"INDEMNIFIED PARTIES") against all claims, losses, damages, costs,
taxes, penalties, interest, fines and reasonable expenses (including
expenses of the Trustee's legal counsel on a solicitor and its own
client basis) which, without fraud, gross negligence or wilful
misconduct on the part of such Indemnified Party, may be paid, incurred
or suffered by the Indemnified Party by reason of or as a result of the
Trustee's acceptance or administration of the Trust, any act, error or
omission by the Trustee in carrying out its duties and responsibilities
set forth in this Agreement, the exercise or any power, authority or
discretion pertaining thereto, or any written or oral instructions
delivered to the Trustee by ServiceSoft or ServiceSoft Canada (such
authorization not to be unreasonably withheld) pursuant hereto
including, for greater certainty, any obligations or liability under
applicable income tax legislation arising as a result of the Trustee
being the owner of the Voting Share, Exchange Right and Automatic
Exchange Right. In no case shall ServiceSoft or ServiceSoft Canada be
liable under this indemnity for any claim against any of the
Indemnified Parties unless ServiceSoft and ServiceSoft Canada shall be
notified by the Trustee of the written assertion of a claim or of any
action commenced against the Indemnified Parties, promptly after any of
the Indemnified Parties shall have received any such written assertion
of a claim or shall have been served with a summons or other first
legal process giving information as to the nature and basis of the
claim. Subject to (ii), below, ServiceSoft and ServiceSoft Canada shall
be entitled to participate at their own expense in the defence and, if
ServiceSoft or ServiceSoft Canada so elect at any time after receipt of
such notice, either of them may assume the defence of any suit brought
to enforce any such claim. The Trustee shall have the right to employ
separate counsel in any such suit and participate in the defence
thereof but the fees and expenses of such counsel shall be at the
expense of the Trustee unless: (i) the employment of such counsel has
been authorized by ServiceSoft or ServiceSoft Canada; or (ii) the named
parties to any such suit include both the Trustee and ServiceSoft or
ServiceSoft Canada and the Trustee shall have been advised by counsel
acceptable to ServiceSoft or ServiceSoft Canada that there may be one
or more legal defences available to the Trustee which are different
from or in addition to those available to ServiceSoft or ServiceSoft
Canada (in which case ServiceSoft and ServiceSoft Canada shall not have
the right to assume the defence of such suit on behalf of the Trustee
but shall be liable to pay the reasonable fees and expenses of counsel
for the Trustee). This indemnity shall survive the termination of this
Agreement or the resignation or replacement of the Trustee.
9.2. LIMITATION OF LIABILITY. The Trustee shall not be held liable for any
loss which may occur by reason of depreciation of the value of any part
of the Trust Estate or any loss incurred as
<PAGE> 32
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an investment of funds pursuant to this Agreement, except to the
extent that such loss is attributable to the fraud, gross negligence or
wilful misconduct on the part of the Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1. RESIGNATION. The Trustee, or any trustee hereafter appointed, may at
any time resign by giving written notice of such resignation to
ServiceSoft and ServiceSoft Canada specifying the date on which it
desires to resign, provided that such notice shall never be given less
than 30 days before such desired resignation date unless ServiceSoft
and ServiceSoft Canada otherwise agree and provided further that such
resignation shall not take effect until the date of the appointment of
a successor trustee and the acceptance of such appointment by the
successor trustee. Upon receiving such notice of resignation,
ServiceSoft and ServiceSoft Canada shall promptly appoint a successor
trustee by written instrument in duplicate, one copy of which shall be
delivered to the resigning trustee and one copy to the successor
trustee.
10.2. REMOVAL. The Trustee, or any trustee hereafter appointed, may be
removed at any time on 30 days' prior notice by written instrument
executed by ServiceSoft and ServiceSoft Canada, in duplicate, one copy
of which shall be delivered to the trustee so removed and one copy to
the successor trustee.
In the event that a successor trustee has not been appointed at the
time the notice period for the Trustee's resignation or removal
expires, the Trustee, ServiceSoft Canada, ServiceSoft or any
Beneficiary may apply to a court of competent jurisdiction for the
appointment of a successor to the Trustee and such appointment of a
successor by such court shall not require the approval of the
Beneficiaries. Should the retiring Trustee apply for the appointment of
a successor trustee by order of a court of competent jurisdiction it
shall be at the joint and several expense of ServiceSoft and
ServiceSoft Canada.
10.3. SUCCESSOR TRUSTEE. Any successor trustee appointed as provided under
this Agreement shall execute, acknowledge and deliver to ServiceSoft
and ServiceSoft Canada and to its predecessor trustee an instrument
accepting such appointment. Thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee,
without any further act, deed or conveyance, shall become vested with
all the rights, powers, duties and obligations of its predecessor under
this Agreement, with like effect as if originally named as trustee in
this Agreement. However, on the written request of ServiceSoft and
ServiceSoft Canada or of the successor trustee, the trustee ceasing to
act shall, upon payment of any amounts then due it pursuant to the
provisions of this Agreement, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the
trustee ceasing to act. Upon the request of any such successor trustee,
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ServiceSoft, ServiceSoft Canada and such predecessor trustee shall
execute any and all instruments in writing for more fully and certainly
vesting in and confirming to such successor trustee all such rights and
powers.
10.4. NOTICE OF SUCCESSOR TRUSTEE. Upon acceptance of appointment by a
successor trustee as provided in this Agreement, ServiceSoft and
ServiceSoft Canada shall cause to be mailed notice of the succession of
such trustee under this Agreement to each Beneficiary specified in the
List. If ServiceSoft or ServiceSoft Canada shall fail to cause such
notice to be mailed within 10 days after acceptance of appointment by
the successor trustee, the successor trustee shall cause such notice to
be mailed at the expense of ServiceSoft and ServiceSoft Canada.
ARTICLE 11
SERVICESOFT SUCCESSORS
11.1. CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC. ServiceSoft shall
not enter into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or
otherwise) whereby all or substantially all of its undertaking,
property and assets would become the property of any other person or,
in the case of a merger, of the continuing corporation resulting
therefrom unless, but may do so if.
(a) such other person or continuing corporation is a duly
incorporated corporation (a "SERVICESOFT SUCCESSOR");
(b) ServiceSoft Successor, by operation of law, becomes,
without more, bound by the terms and provisions of
this Agreement or, if not so bound, executes, prior
to or contemporaneously with the consummation of such
transaction an Agreement supplemental to this
Agreement and such other instruments (if any) as are
satisfactory in the opinion of legal counsel to the
Trustee are necessary or advisable to evidence the
assumption by ServiceSoft Successor of liability for
all moneys payable and property deliverable under
this Agreement and the covenant of such ServiceSoft
Successor to pay and deliver or cause to be delivered
the same and its agreement to observe and perform all
the covenants and obligations of ServiceSoft under
this perform Agreement; and
(c) such transaction shall, in the opinion of legal
counsel to the Trustee, be upon such terms as
substantially to preserve and not to impair in any
material respect any of the rights, duties, powers
and authorities of the Trustee or of the
Beneficiaries under this Agreement.
<PAGE> 34
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11.2. VESTING OF POWERS IN SUCCESSOR. Whenever the conditions of section 11.1
of this Agreement have been duly observed and performed, the Trustee,
if required, by section 11.1 of this Agreement, ServiceSoft Successor
and ServiceSoft Canada shall execute and deliver the supplemental
Agreement provided for in Article 12 and thereupon ServiceSoft
Successor shall possess and from time to time may exercise each and
every right and power of ServiceSoft under this Agreement in the name
of ServiceSoft or otherwise and any act or proceeding by any provision
of this Agreement required to be done or performed by the board of
directors of ServiceSoft or any officers of ServiceSoft may be done and
performed with like force and effect by the directors or officers of
such ServiceSoft Successor.
11.3. WHOLLY-OWNED SUBSIDIARIES. Nothing in this Agreement shall be construed
as preventing the amalgamation or merger of any wholly-owned subsidiary
of ServiceSoft with or into ServiceSoft or the winding-up, liquidation
or dissolution of any wholly-owned subsidiary of ServiceSoft provided
that all of the assets of such subsidiary are transferred to
ServiceSoft or another wholly owned subsidiary of ServiceSoft and any
such transactions are expressly permitted by this Article 11.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
12.1. AMENDMENTS, MODIFICATIONS, ETC. This Agreement may not be amended or
modified except by an agreement in writing executed by ServiceSoft
Canada, ServiceSoft and the Trustee and approved by the Beneficiaries
in accordance with section 10.2 of the Exchangeable Share Provisions.
12.2. MINISTERIAL AMENDMENTS. Notwithstanding the provisions of section 12.1
of this Agreement, the parties to this Agreement may in writing, at any
time and from time to time, without the approval of the Beneficiaries,
amend or modify this Agreement for the purposes of:
(a) adding to the covenants of the parties to this
Agreement for the protection of the Beneficiaries
hereunder;
(b) making such amendments or modifications not
inconsistent with this Agreement as may be necessary
or desirable with respect to matters or questions
which, in the opinion of the board of directors of
each of ServiceSoft and Corporation and in the
opinion of the Trustee and its counsel, having in
mind the best interests of the Beneficiaries as a
whole, it may be expedient to make, provided that
such boards of directors and the Trustee and its
counsel shall be of the opinion that such amendments
and modifications
<PAGE> 35
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will not be prejudicial to the rights of the Trustee
or interests of the Beneficiaries as a whole; or
(c) making such changes or corrections which, on the
advice of counsel to ServiceSoft Canada, ServiceSoft
and the Trustee, are required for the purpose of
curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or
mistake or manifest error, provided that the Trustee
and its counsel and the Board of Directors of each of
ServiceSoft Canada and ServiceSoft shall be of the
opinion that such changes or corrections will not be
prejudicial to the rights of the Trustee or interests
of the Beneficiaries as a whole.
12.3. MEETING TO CONSIDER AMENDMENTS. ServiceSoft Canada, at the request of
ServiceSoft, shall call a meeting or meetings of the Beneficiaries for
the purpose of considering any proposed amendment or modification
requiring approval pursuant to this Agreement. Any such meeting or
meetings shall be called and held in accordance with the by-laws of
ServiceSoft Canada, the Exchangeable Share Provisions and all
applicable laws.
12.4. CHANGES IN CAPITAL OF SERVICESOFT AND SERVICESOFT CANADA. At all times
after the occurrence of any event, as a result of which either
ServiceSoft Shares or the Exchangeable Shares or both are in any way
changed, this Agreement shall forthwith be amended and modified as
necessary in order that it shall apply with full force and effect,
mutatis mutandis, to all new securities into which any class of
ServiceSoft Shares or of the Exchangeable Shares or both are so changed
and the parties hereto shall execute and deliver a supplemental
Agreement giving effect to and evidencing such necessary amendments and
modifications.
12.5. EXECUTION OF SUPPLEMENTAL TRUST AGREEMENTS. No amendment to or
modification or waiver of any of the provisions of this Agreement
otherwise permitted hereunder shall be effective unless made in writing
and signed by all of the parties hereto. From time to time ServiceSoft
Canada (when authorized by a resolution of the Board of Directors),
ServiceSoft (when authorized by a resolution of its board of directors)
and the Trustee may, subject to the provisions of these presents, and
they shall, when so directed by these presents, execute and deliver by
their proper officers, Agreements or other instruments supplemental
hereto, which thereafter shall form part hereof, for any one or more of
the following purposes:
(a) evidencing the succession of ServiceSoft Successors
to ServiceSoft and the covenants of and obligations
assumed by each such ServiceSoft Successor in
accordance with the provisions of Article 11 and the
successor of any successor trustee in accordance with
the provisions of Article 10;
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(b) making any additions to, deletions from or
alterations of the provisions of this Agreement or
the Voting Rights, the Exchange Rights or the
Automatic Exchange Rights which, in the opinion of
the Trustee and its counsel, will not be prejudicial
to the rights of the Trustee or interests of the
Beneficiaries as a whole or are in the opinion of
counsel to the Trustee necessary or advisable in
order to incorporate, reflect or comply with any
legislation the provisions of which apply to
ServiceSoft, ServiceSoft Canada, the Trustee or this
Agreement; and
(c) for any other purposes not inconsistent with the
provisions of this Agreement, including without
limitation to make or evidence any amendment or
modification to this agreement as contemplated
hereby, provided that, in the opinion of the Trustee
and its counsel, the rights of the Trustee and the
Beneficiaries as a whole will not be prejudiced
thereby.
ARTICLE 13
TERMINATION
13.1. TERM. The Trust created by this Agreement shall continue until the
earliest to occur of the following events:
(a) no outstanding Exchangeable Shares of any class are held by a
Beneficiary;
(b) each of ServiceSoft Canada and ServiceSoft send the Trustee a
notice confirming that it elects in writing to terminate the
Trust and such termination has been approved by the
Beneficiaries of Exchangeable Shares voting together as a
single class in accordance with section 10.2 of the
Exchangeable Share Provisions; and
(c) the agreement between the CIBC Mellon Trust Company and
ServiceSoft Canada in respect to registrar and transfer agency
services for ServiceSoft Canada is terminated.
13.2. SURVIVAL OF AGREEMENT. The provisions of Articles 8 and 9 shall survive
any termination of this Agreement or the resignation or removal of the
Trustee.
ARTICLE 14
GENERAL
14.1. SEVERABILITY. If any provision of this Agreement is held to be invalid,
illegal or unenforceable, the validity, legality or enforceability of
the remainder of this Agreement shall not in any way be affected or
impaired thereby and this Agreement shall be carried out as nearly as
possible in accordance with its original terms and conditions;
provided, however,
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that if the provision or provisions so held to be invalid, illegal or
unenforceable, in the reasonable judgment of the parties to this
Agreement, is or are so fundamental to the intent of the parties to
this Agreement and the operation of this Agreement that the enforcement
of the other provisions hereof, in the absence of such invalid, illegal
or unenforceable provision or provisions, would damage irreparably the
intent of the parties in entering into this Agreement, the parties
hereto shall agree (i) to terminate this Agreement, or (ii) to amend or
otherwise modify this Agreement so as to carry out the intent and
purposes hereof and the transactions contemplated hereby.
14.2. ENUREMENT. This Agreement shall be binding upon and enure to the
benefit of the parties to this Agreement and their respective
successors and permitted assigns and to the benefit of the
Beneficiaries.
14.3. NOTICES TO PARTIES. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been
given if delivered personally or by confirmed telecopy to the parties
at the following addresses (or at such other address for such party as
shall be specified in like notice):
(a) if to ServiceSoft or ServiceSoft Canada at:
ServiceSoft Technologies, Inc.
5050 Cabot Street
Needham, Massachusetts
U.S.A. 02494
ATTENTION: President
Facsimile No.: 617-449-0107
Telephone No. 617-449-0049
with a copy to:
Land & Lemle
1775 EYE Street NW, Suite 950
Washington, D.C.
U.S.A. 20006-2401
ATTENTION: Stuart Lemle
Facsimile No.: 202-775-0045
Telephone No.: 202-775-0044
<PAGE> 38
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and a copy to:
Osler, Hoskin & Harcourt
P.O. Box 50
1 First Canadian Place, Suite 6600
Toronto, Ontario
Canada M5X IB8
ATTENTION: Richard Nathan
Facsimile No.: 416-862-6666
Telephone No.: 416-362-2111
(b) if to the Trustee at:
CIBC Mellon Trust Company
320 Bay Street
Ground Level
Toronto, Ontario
M5H 4A6
Attn: Regional Manager, Ontario
Facsimile No: 416-643-5570
Telephone No.:416-643-5500
Any notice or other communication given personally shall be deemed to
have been given and received upon delivery thereof (provided the day
upon which delivery is made is a Business Day, otherwise on the next
Business Day) and if given by telecopy shall be deemed to have been
given and received on the date of receipt thereof provided it is
received by 3:00 p.m. (local time in the jurisdiction of the recipient)
on a Business Day, otherwise it shall be deemed to have been given and
received at 10:00 a.m. (local time in the jurisdiction of the
recipient) upon the immediately following Business Day.
14.4. NOTICE OF BENEFICIARIES. Any and all notices to be given and any
documents to be sent to any Beneficiaries may be given or sent to the
address of such Beneficiary shown on the register of holders of
Exchangeable Shares in any manner permitted by the by-laws of
ServiceSoft Canada from time to time in force in respect of notices to
shareholders and shall be deemed to be received (if given or sent in
such manner) at the time specified in such by-
<PAGE> 39
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laws, the provisions of which by-laws shall apply mutatis mutandis to
notices or documents sent to such holders.
14.5. RISK OF PAYMENTS BY POST. Whenever payments are to be made or documents
are to be sent to any Beneficiary by the Trustee or by ServiceSoft
Canada, or by such Beneficiary to the Trustee or to ServiceSoft or
ServiceSoft Canada, the making of such payment or sending of such
document sent through the post shall be at the risk of ServiceSoft
Canada, in the case of payments made or documents sent by the Trustee
or ServiceSoft Canada, and the Beneficiary, in the case of payments
made or documents sent by the Beneficiary.
14.6. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
14.7. JURISDICTION. This Agreement shall be governed by and construed in
accordance with the laws of Ontario, Canada, and the laws of Canada
applicable in Ontario, regardless of the laws that might otherwise
govern under applicable conflicts of laws thereof.
14.8. ATTORNMENT. ServiceSoft agrees that any action or proceeding arising
out of or relating to this Agreement may be instituted in the courts of
Ontario, waives any objection which it may have now or hereafter to the
venue of any such action or proceeding, irrevocably submits to the
non-exclusive jurisdiction of the said courts in any such action or
proceeding, agrees to be bound by any judgment of the said courts and
not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints
ServiceSoft Canada at its registered office in the Province of Ontario
as ServiceSoft's attorney for service of process.
<PAGE> 40
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SERVICESOFT TECHNOLOGIES, INC.
By: /s/ Signature Illegible
--------------------------------------
By: /s/ Signature Illegible
--------------------------------------
SERVICESOFT CANADA INC.
By: /s/ Signature Illegible
--------------------------------------
By: /s/ Signature Illegible
--------------------------------------
CIBC MELLON TRUST COMPANY
By: /s/ Laurel Savoy
--------------------------------------
Laurel Savoy
Authorized Signature
By: /s/ Wesley J. Hall
--------------------------------------
Wesley J. Hall
Authorized Signature
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
This Second Amended and Restated Shareholders Agreement (this "AGREEMENT")
is entered into as of the 13th day of January, 2000 between Servicesoft
Technologies Inc., a Delaware corporation ("SERVICESOFT") and those shareholders
whose names are set forth on Schedule A. Except as otherwise indicated herein,
capitalized terms used herein are defined in Section 1 hereof.
WHEREAS, the Company, certain of the Major Shareholders (the "Original
Major Shareholders") and certain other parties entered into an Amended and
Restated Shareholders Agreement dated June 18, 1999 (the "Amended and Restated
Shareholders Agreement") which amended and restated a previous Stockholders
Agreement dated February 12, 1998;
WHEREAS, the Original Major Shareholders are holders of Common Stock, par
value $.01 per share ("Common Stock"), Series H Convertible Preferred Stock, par
value $.01 per share (the "Series H Preferred"), Series I Convertible Preferred
Stock, par value $.01 per share (the "Series I Preferred"), of the Company
and/or Exchangeable Shares, which are exchangeable into Common Stock as Series H
Preferred, as the case may be;
WHEREAS, the holders of Exchangeable Shares possess certain rights,
including the right to vote as a stockholder of the Company as if such
Exchangeable Shares were Common Stock or Series H Preferred;
WHEREAS, the Company and the holders (the "SERIES J HOLDERS") of shares of
its Series J Convertible Preferred Stock, par value $.01 per share (the "SERIES
J PREFERRED"; and collectively with the Series H Preferred and the Series I
Preferred, the "Preferred Stock"), identified on Schedule A have entered into a
Series J Convertible Preferred Stock Purchase Agreement dated as of the date
hereof (the "SERIES J PURCHASE AGREEMENT");
WHEREAS, as a condition to closing under the Series J Purchase Agreement
and as an inducement to the Series J Holders to consummate the transactions
contemplated by the Series J Purchase Agreement, the Company and the undersigned
parties desire to amend and restate the Amended and Restated Agreement and to
execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties to
this Agreement agree to amend and restate the Amended and Restated Agreement as
follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"BOARD" means the Board of Directors of the Company.
<PAGE> 2
"BUSINESS DAY" means a day, other than a Saturday or Sunday, on which
the principal commercial banks located in New York and Toronto are open for
business during normal banking hours.
"CERTIFICATE" means the Company's Certificate of Incorporation, as
amended.
"COMBINATION AGREEMENT" means that certain Combination Agreement dated
February 12, 1999, whereby the Company completed a transaction with Balisoft and
the shareholders of Balisoft received Exchangeable Shares.
"COMMISSION" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"EXCHANGEABLE SHARES" means the Exchangeable Common Shares and
Exchangeable Preferred Shares of Servicesoft Technologies (Canada), Inc.
"INITIAL PUBLIC OFFERING" means the initial offering to the public of
the Company's Securities pursuant to a firm commitment underwriting pursuant to
the Securities Act.
"MAJOR SHAREHOLDER" means (i) each shareholder listed on Schedule A and
(ii) a Permitted Transferee (as defined in Section 5) of any Major Shareholder.
"PERSON" includes any individual, legal or personal representative,
partnership, company, corporation, incorporated syndicate, unincorporated or
incorporated association, trust or governmental agency, howsoever designated or
constituted.
"QUALIFIED PUBLIC OFFERING" means a firm commitment, underwritten
public offering pursuant to an effective registration statement under the
Securities Act of the Company's Common Stock to the public with aggregate gross
proceeds to the Company of not less than $30,000,000 and which places a value on
the Company of not less than $250,000,000.
"REGISTRATION RIGHTS AGREEMENT" means the Seventh Amended and Restated
Registration Rights Agreement between the Company and certain of the Major
Shareholders of even date herewith.
"SECURITIES" means, with respect to any Person, such Person's
"securities" as defined in Section 2(1) of the Securities Act and includes such
Person's capital stock or other equity interests or any options, warrants or
other securities or rights that are directly or indirectly convertible into, or
exercisable or exchangeable for, such Person's capital stock or other equity
interests.
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at this time.
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<PAGE> 3
"SERIES I PURCHASE AGREEMENT" means that certain Series I Purchase
Agreement dated as of June 18, 1999 by and among the Company and the holders of
Series I Preferred.
"SUBSIDIARY," or collectively, "SUBSIDIARIES," of any Person
means any corporation or other entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the Board of
Directors or other Persons performing similar functions are directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person.
2. Prohibited Transfer.
(a) None of the Major Shareholders shall sell, assign, transfer,
pledge, hypothecate, mortgage or dispose of, by gift or otherwise, or in any way
encumber, all or any part of the Servicesoft Shares (as hereinafter defined)
owned by it except in compliance with the terms of this Agreement.
(b) None of the Major Shareholders shall sell or dispose of all or any
part of the Servicesoft Shares for any consideration other than cash or publicly
traded securities without the approval of the Board of Directors of the Company
(the "BOARD"), such approval to be provided or withheld on a consistent basis
among Major Shareholders.
(c) For purposes of this Agreement, the term "SERVICESOFT SHARES" shall
mean and include all shares of capital stock of the Company and all Exchangeable
Shares owned by a Major Shareholder, whether now owned or hereafter acquired and
whether owned by a Major Shareholder or a transferee thereof. For purposes of
calculating the number of Servicesoft Shares owned by a Major Shareholder under
this Agreement, all Exchangeable Shares held by them shall be deemed to have
been exchanged for the Servicesoft Shares for which they may be exchanged and
all other shares of Common Stock which a Major Shareholder has the right to
acquire from the Company upon the conversion, exercise or exchange of any of the
Securities of the Company or its Subsidiaries then owned by such Major
Shareholder shall be deemed to be Servicesoft Shares then owned by such Major
Shareholder.
3. Pre-Emptive Rights on Issues.
(a) If any additional New Securities (as defined below) are to be
issued by the Company other than pursuant to (i) the Company's 1994 Stock Option
Plan, the Company's 1999 Stock Option and Grant Plan or any other stock option
or grant plan approved by the Board, (ii) an exercise of the exchange rights of
any of the Exchangeable Shares, (iii) any stock splits or stock dividends, (iv)
bank and leasing warrants (not to exceed 5% of the total fully diluted equity of
the Company), (v) any business combination transactions, provided, that such
Securities are issued at fair market value, (vi) the exercise, conversion or
exchange of Securities of the Company outstanding from time to time, the Company
shall first offer such New Securities to the Major Shareholders by a written
invitation to subscribe for the New Securities (the "INVITATION"). "NEW
SECURITIES" means (i) shares of Common Stock, (ii) any other equity security of
the Company (other than any shares of Series J Preferred issued and sold
pursuant to the Series J Purchase Agreement), (iii) any debt security that is a
combination of debt and equity,
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<PAGE> 4
(iv) any debt security of the Company that by its terms is convertible into or
exchangeable for any equity security of the Company, or (v) any option, warrant
or other right to subscribe for or purchase or otherwise acquire any equity
security or any debt security of the Company.
(b) Upon receiving an Invitation, each of the Major Shareholders shall
have the right to purchase that number of New Securities as shall be equal to
the number of New Securities multiplied by a fraction, the numerator of which
shall be the number of Servicesoft Shares (on an as-if converted basis) then
owned by such Major Shareholder and the denominator of which shall be the total
number of shares of Common Stock determined on a fully diluted, as-if converted
or exercised basis. The Major Shareholders shall have ten days from their
receipt of the Invitation in which to give a notice to the Company of such Major
Shareholder's intention to purchase all or any of the New Securities to which it
is entitled and shall indicate in such notice the maximum number of New
Securities which such Major Shareholder is willing to purchase (which number may
be greater than its pro rata entitlement set out above). If any Major
Shareholder does not accept its full pro rata entitlement as set out in this
Section 3(b), such unaccepted New Securities shall be deemed to have been
offered to the Major Shareholders who indicated that they would accept greater
than their pro rata entitlement and each such Major Shareholder is entitled to
acquire such unaccepted New Securities pro rata based upon the number of
Servicesoft Shares owned by all such Major Shareholders.
(c) In the event that after the Invitation has been issued and the ten
day period referred to above has elapsed, there remain some of the New
Securities which have not been taken up and paid for by the Major Shareholders,
then the New Securities not so taken up (for the purposes of this Section 3, the
"REMAINING NEW SECURITIES") may be issued to such Persons as the directors in
their discretion determine, provided, that such Persons agree to be bound by
this Agreement and to become parties hereto, and provided, further that any such
issue of the Remaining New Securities must be completed within 60 days of the
Invitation given with respect to the said New Securities.
4. Rights of First Refusal and Co-Sale on Dispositions.
(a) If at any time any Major Shareholder desires to sell or transfer
all or any part of the Servicesoft Shares owned by such Major Shareholder, such
Major Shareholder (the "OFFEROR"), shall submit, prior to consummating any such
sale or transfer, a written offer (the "OFFER") concurrently to the Company and
to each of the Major Shareholders to sell such Servicesoft Shares (for purposes
of this Section 4, the "OFFERED SHARES").
(b) Such Offer shall be at least as favorable to the Company and the
Major Shareholders as those on which the Offeror proposes to sell the Offered
Shares to the prospective purchaser or transferee (the "PROPOSED TRANSFEREE").
The Offer shall disclose the name and address of the Proposed Transferee, the
number of Offered Shares proposed to be sold, the total number of Servicesoft
Shares owned by the Offeror, the terms and conditions, including price, of the
proposed sale and any other material facts relating to the proposed sale. The
Offer shall further state that either the Company or the Major Shareholders may
acquire, in accordance with the provisions of this Agreement, all (but not less
than all) of the Offered Shares for the price and upon the other terms and
conditions, including deferred payment (if applicable), set forth therein.
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<PAGE> 5
(c) The Company shall communicate in writing its election to either
purchase all (but no less than all) or none of the Offered Shares to the Offeror
and to the Major Shareholders, which communication shall be delivered in person
or mailed to the Offeror and the Major Shareholders at the address set forth in
accordance with Section 10 below within seven days of the date the Offer is
made. Such communication shall, when taken in conjunction with the Offer, be
deemed to constitute a valid, legally binding and enforceable agreement for the
sale and purchase of such Offered Shares. Sale of the Offered Shares to be sold
to the Company pursuant to this Section 4 shall be made at the offices of the
Company on the 20th day following the date the Offer is made (or if such 20th
day is not a business day, then on the next succeeding business day). Such sale
shall be effected by the Offeror's delivery to the Company of a certificate or
certificates evidencing the Offered Shares to be purchased by it, duly endorsed
for transfer to the Company against payment to the Offeror of the purchase price
therefor by the Company.
(d) In the event that the Company elects not to purchase the Offered
Shares, each Major Shareholder shall have the absolute right to purchase that
number of Offered Shares as shall be equal to the number of Offered Shares
multiplied by a fraction, the numerator of which shall be the number of
Servicesoft Shares then owned by such Major Shareholder and the denominator of
which shall be the aggregate number of Servicesoft Shares then owned by all of
the non-selling Major Shareholders. The amount of Offered Shares that each Major
Shareholder is entitled to purchase under this Section 4(d) shall be referred to
as its "PERCENTAGE."
(e) The non-selling Major Shareholders shall have a right of
oversubscription such that if any Major Shareholder fails to accept the Offer as
to its Percentage, the other non-selling Major Shareholders shall, among them,
have the right to purchase up to the balance of the Offered Shares not so
purchased. Such right of oversubscription may be exercised by a Major
Shareholder by accepting the Offer as to more than its Percentage. If, as a
result thereof, such oversubscriptions exceed the total number of Offered Shares
available in respect of such oversubscription privilege, the oversubscribing
Major Shareholders shall be cut back with respect to their oversubscriptions on
a pro rata basis in accordance with their respective Percentages or as they may
otherwise agree among themselves.
(f) If a Major Shareholder desires to purchase all or any part of the
Offered Shares, said Major Shareholder shall communicate in writing its election
to purchase to the Offeror, which communication shall state the number of
Offered Shares said Major Shareholder desires to purchase and shall be delivered
in person or mailed to the Offeror at the address set forth in accordance with
Section 12 below within 14 days of the date of the Offer in Section 4(b) above
is made. Such communication shall, when taken in conjunction with the Offer, be
deemed to constitute a valid, legally binding and enforceable agreement for sale
and purchase of such Offered Shares (subject to the aforesaid limitations as to
a Major Shareholder's right to purchase more than its Percentage).
(g) If the Company and/or the Major Shareholders fail to exercise their
respective rights to purchase all of the shares of Offered Shares described in
the Offer following the exercise or expiration of the rights of purchase
described above, then each Major Shareholder shall then have the right,
exercisable upon written notice to the Offeror within 21 days after
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<PAGE> 6
delivery of the Offer, to participate as provided below in this Section 4(g) in
such sale of Offered Shares on the same terms and conditions; provided, however,
that the Series I Holders and Series J Holders shall not be eligible to
participate in such sale or transfer in accordance with the provisions of this
Section 4(g); and provided further, however, that the co-sale provisions of this
Section 4(g) shall not apply to sales or transfers of shares of Series I
Preferred (or any Common Stock issued upon conversion thereof) made by the
Series I Holders or to sales or transfers of shares of Series J Preferred (or
any Common Stock issued upon conversion thereof) made by the Series J Holders.
Such notice shall indicate the number of Servicesoft Shares such Major
Shareholder wishes to sell under such Major Shareholder's right to participate.
To the extent one or more of the Major Shareholders exercises such right of
participation in accordance with the terms and conditions set forth below, the
number of Servicesoft Shares that the Offeror may sell in the transaction shall
be correspondingly reduced.
(h) Each Major Shareholder may sell all or any part of that number of
Servicesoft Shares equal to the product obtained by multiplying (x) the
aggregate number of shares of Offered Shares covered by the Offer (less shares
purchased by the Company or the Major Shareholders pursuant to Sections 4(c) and
4(d)) by (y) a fraction the numerator of which is the number of Servicesoft
Shares held by the Major Shareholder at the time of the sale or transfer and the
denominator of which the aggregate number of Servicesoft Shares then owned by
all non-selling Major Shareholders on the date of the Offer.
(i) Each Major Shareholder who elects to participate in the sale
pursuant to this Section 4(g) (a "PARTICIPANT") shall effect its participation
in the sale by promptly delivering to the Company as escrow agent (the "ESCROW
AGENT") for transfer to the Proposed Transferee one or more certificates,
properly endorsed for transfer which represent:
(i) the type and number of shares of Common Stock which such
Participant elects to sell; or
(ii) that number of shares of Series H Preferred or Exchangeable
Shares which is at such time convertible into the number of shares of Common
Stock which such Participant elects to sell; provided, however, that if the
Proposed Transferee objects to the delivery of such Series H Preferred,
Exchangeable Shares, Series I Preferred or Series J Preferred in lieu of Common
Stock, such Participant shall convert such Series H Preferred, Exchangeable
Shares, Series I Preferred or Series J Preferred into Common Stock and deliver
Common Stock as provided above. The Company agrees to make any such conversion
concurrent with the actual transfer of such shares to the purchaser and
contingent on such transfer.
(j) The stock certificate or certificates that the Participant delivers
to the Escrow Agent shall be transferred to the Proposed Transferee in
consummation of the sale of Servicesoft Shares pursuant to the terms and
conditions specified in the Offer, and the Escrow Agent shall concurrently
therewith remit to such Participant that portion of the sale proceeds to which
such Participant is entitled by reason of its participation in such sale. To the
extent that any Proposed Transferee prohibits such assignment or otherwise
refuses to purchase shares or other Securities from a Participant exercising its
rights of co-sale hereunder, such Offeror shall not sell to such Proposed
Transferee any Servicesoft Shares unless and until, simultaneously with
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<PAGE> 7
such sale, such Offeror shall purchase such shares or other Securities from such
Participant on the same terms and conditions specified in the Offer.
(k) The exercise or non-exercise of the rights of the Participants
hereunder to participate in one or more transfers of Servicesoft Shares made by
other Major Shareholders shall not adversely affect their rights to participate
in subsequent sales of Servicesoft Shares.
(l) If none of the Major Shareholders elect to participate in the sale
of the Offered Shares, such Offeror may, not later than 120 days following
delivery to the Company of the original Offer, enter into an agreement providing
for the closing of the sale or transfer of the Offered Shares covered by the
Offer on terms and conditions materially no more favorable to the Proposed
Transferee than those described in the Offer; provided, however, that no Major
Shareholder shall be permitted to transfer the Offered Shares to a competitor of
the Company. Any proposed transfer on terms and conditions materially more
favorable to the Proposed Transferee than those described in the Offer, as well
as any subsequent proposed transfer of any of the Servicesoft Shares held by the
Offeror, shall again be subject to the co-sale rights and right of first refusal
of the Major Shareholders and shall require compliance by a Offeror with the
procedures described in this Section 4.
(m) Sales of the Offered Shares to be sold to the purchasing Major
Shareholders pursuant to this Section 4 shall be made at the offices of the
Company on the 20th day following the date the Offer is made (or if such 20th
day is not a business day, then on the next succeeding business day). Such sales
shall be effected by the Offeror's delivery to each purchasing Major Shareholder
of a certificate or certificates evidencing the Offered Shares to be purchased
by it, duly endorsed for transfer to such purchasing Major Shareholder against
payment to the Offeror of the purchase price therefor by such purchasing Major
Shareholder.
(n) At the Company's option, it can require that a conveyance of
Servicesoft Shares to a person other than a Major Shareholder be conditioned
upon the receipt by the Company of either (i) an opinion of legal counsel
reasonably satisfactory to it that no violation of any securities laws or loss
of exemption from registration under any such laws will result from such a
conveyance, or (ii) a "no action" letter from the Commission to the same effect
covering such conveyance and an equivalent ruling from each applicable state
authority.
(o) The Certificate provides that all of the Company's stockholders
(including those who are not Major Shareholders) except the Series I Holders and
Series J Holders are prohibited from selling or transferring any shares of
Common Stock of the Company without first offering the Company a first right of
refusal, as more fully specified in the Certificate.
(p) Nothing in the foregoing subsections of this Section 4 shall be
construed to alter the fact that the Exchangeable Shares are not transferrable
by their holders except according to their terms as set out in the articles of
incorporation of Servicesoft Canada.
5. Permitted Transfers. Anything herein to the contrary notwithstanding,
the provisions of Section 4 shall not apply to transfers to (i) a Related Person
(as defined below) or (ii) a trust for the benefit of any individual Major
Shareholder, provided, that the trust instrument
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<PAGE> 8
governing said trust shall provide that such Major Shareholder, as trustee,
shall retain sole and exclusive control over the voting and disposition of said
Servicesoft Shares until the termination of this Agreement, provided, that such
transferee is not competitor of the Company and that such transfer does not
violate any applicable federal or state securities laws (each, a "Permitted
Transferee"). A "Related Person" means with respect to any Major Shareholder (x)
any Person which is controlled by, controls or is under common control with such
Holder, (y) any partner, shareholder or similar equity holder of such Major
Shareholder or such Person described in clause (x) above which receives
securities in connection with a windup, liquidation or similar dissolution of
such Major Shareholder or such Person, or (z) any individual, charitable trust
or similar organization which receives Servicesoft Shares from a Major
Shareholder as part of a testamentary transfer by such Major Shareholder. For
purposes hereof, "control" and its derivatives shall mean, with respect to any
Person, the power to direct and control the management or policies of such
Person, whether through the beneficial ownership of voting securities or
interests, by contract or agreement or otherwise. In the event of any such
transfer, other than pursuant to clause (ii) of this Section 5, such Permitted
Transferee of the Servicesoft Shares shall hold the Servicesoft Shares so
acquired with all the rights conferred by, and subject to all the restrictions
imposed by, this Agreement and shall deemed a Major Shareholder for all purposes
hereof.
6. Board of Directors.
(a) Election of Directors. Each Major Shareholder agrees to vote all
of its Servicesoft Shares at all elections of directors of the Company so that
the Board shall consist of up to eight members. Pursuant to the foregoing, each
Major Shareholder agrees to vote its Servicesoft Shares in order to elect the
following persons to the Board:
(i) the Chief Executive Officer of the Company, who shall
initially be Chris Butler,
(ii) one nominee designated by a majority-in-interest of the
Major Shareholders holding more than 500,000 Exchangeable Shares exchangeable
for Series H Preferred as of the date hereof, acting collectively,
(iii) one nominee designated by a majority-in-interest of the
Major Shareholders holding Series H Preferred as of the date hereof, acting
collectively,
(iv) one nominee of CIBC WMV Inc. ("CIBC"),
(v) one nominee of Sofinov, Societe Financiere D'Innovation Inc.,
unless such nominee is the nominee of the Exchangeable Shares pursuant to clause
(ii) above, and
(vi) one nominee to be agreed upon by the Board, who shall
initially be Mark Skapinker, and
(vii) two independent nominees to be agreed upon by the Board.
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<PAGE> 9
Each Major Shareholder further agrees to vote its Servicesoft Shares to
remove any member of the Board (a "DIRECTOR") whose removal is requested by the
Person or Persons who nominated such Director. Additionally, the Board shall
have the discretion to appoint additional persons to attend all regularly
scheduled Board meetings as observers, subject to Board approval as to the
specific individuals who can attend meetings. CIBC, FT Ventures and Goldman
Sachs shall each have the right to appoint one such observer (together, the
"PERMITTED OBSERVERS"), and such Permitted Observers shall have the right to
attend any board meeting at which the Director nominated by such entity is not
present unless to do so would, in the opinion of the Company, unreasonably
disrupt the conduct of the meeting. If and when the Board conducts such meetings
by telephone, the Permitted Observers will be invited to participate. The
Permitted Observers will be sent notices of such Board meetings and a copy of
all Board meeting materials in the same manner as and when Directors are sent
such notices and materials, which materials are to be treated as strictly
confidential by such Permitted Observers and are not to be made available or
distributed to any other person. Directors and any observers are expected to
recuse themselves from any meetings or portions of meetings regarding subjects
that involve a potential or actual conflict of interest for the Major
Shareholder represented by that person and the Board can exclude a Director or
observer from a meeting under such circumstances.
(b) Meeting; Expenses. The Company shall use its best efforts to ensure
that meetings of its Board are held at least four times each year and at least
once each calendar quarter. The Company shall also provide to each Director and
each Permitted Observer upon request copies of all notices, reports, minutes and
consents with respect to any committee. Directors shall be reimbursed for their
reasonable expenses in attending Board meetings. The reasonable expenses of the
Permitted Observers shall also be reimbursed.
(c) Committees. In the event the Directors delegate any of their powers
which may be so delegated to any committee of the Board, for so long as CIBC is
entitled to nominate a Director to the Board, the members of the Board will
nominate and elect to each such committee the Director nominated by CIBC.
(d) Information. The Company acknowledges that a Major Shareholder may
have, from time to time, information that may be of interest to the Company
regarding a wide variety of matters including, by way of example only, (1) the
Major Shareholder's technologies, plans and services, and plans and strategies
relating thereto, (2) current and future investments the Major Shareholder has
made, may make, may consider, or may become aware of with respect to other
companies and other technologies, products and services, including, without
limitation, technologies, products and services that may be competitive with the
Company's, and (3) developments with respect to the technologies, products and
services, and plans and strategies relating thereto, of other companies,
including, without limitation, companies that may be competitive with the
Company ("INFORMATION"). Such Information may or may not be known by the
Director or observer appointed by the Major Shareholder. The Company, as a
material part of the consideration for this Agreement, agrees that the Major
Shareholder and its Director or observer (as applicable) shall have no duty to
disclose any Information to the Company or permit the Company to participate in
any projects or investments based on any Information, or to otherwise take
advantage of any opportunity that may be of interest to the Company if it were
aware of such Information, and hereby waives, to the extent permitted by law,
any claim based
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<PAGE> 10
on the corporate opportunity doctrine or otherwise that could limit the Major
Shareholder's ability to pursue the opportunities based on such Information or
that would require the Major Shareholder or observer to disclose any such
Information to the Company or offer any opportunity relating thereto to the
Company.
7. Rights in Corporate Events.
(a) Corporate Event. A "CORPORATE EVENT" shall mean any of the
following, whether accomplished through one or a series of related transactions:
(i) the acquisition of all or substantially all the assets of the Company, (ii)
an acquisition of the Company by consolidation, merger, share purchase or
exchange, or other reorganization or transaction in which the holders of all of
the outstanding Servicesoft Shares immediately prior to such transaction own,
immediately after such transaction, Securities representing less than 50% of the
voting power of the corporation or any entity surviving such transaction, and
(iii) any other transaction or series of related transactions (excluding any
exercise or exercises of stock options and the warrant issued to Intel
Corporation ("INTEL") to purchase Series H Preferred) that would result in a
greater than 25% change in the total outstanding number of shares of Series H
Preferred or any other class of voting Securities of the Company. The Company
agrees that it will provide Intel with written notice (by telefax and regular
mail) of any written offer from another Major Shareholder for a proposed
Corporate Event no less than 30 days prior to the date the Company accepts such
offer or proposed Corporate Event unless, in the Board's reasonable judgement,
the Company has less than 30 days to act on an offer in which event it will
provide notice to Intel within one business day of when it first receives such
offer for a proposed Corporate Event. In addition, the Company agrees that it
will provide Intel, within one business day of the Company's becoming aware
thereof, with written notice of any written offer from another Major Shareholder
to acquire 20% or more of the Company's outstanding voting Securities.
(b) Unsolicited Offer/Solicited Offer. An "UNSOLICITED OFFER" means
(i) any offer for a proposed Corporate Event received from another Major
Shareholder in the absence of any act taken by any officer or Director of the
Company with the intent of soliciting such offer, and (ii) any proposal or offer
by the Company to such third Major Shareholder or from such third Major
Shareholder for a proposed Corporate Event arising from negotiations that
followed the receipt of an offer described in Section 7(b)(i). Any offer for a
proposed Corporate Event that is not an Unsolicited Offer shall be deemed a
Solicited Offer.
(c) Solicitation of Offers for Corporate Events.
(i) Solicitation Notice. The Company agrees that prior to
soliciting any offers (other than an offer described in Section 7(a)(ii) above)
for a proposed Corporate Event (a "PROPOSED EVENT"), the Company will provide
Intel with written notice of such intent to solicit offers (a "SOLICITATION
NOTICE"), including such terms and conditions of the Proposed Event as are
provided to other prospective offerors for the Corporate Event.
(ii) Different Terms and Conditions. In the event that the
Company proposes to accept a Solicited Offer for the consummation of a Proposed
Event on terms and conditions that are not at least as favorable as the terms
and conditions specified in the last
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<PAGE> 11
Solicitation Notice, the Company agrees to provide Intel with Solicitation
Notice pursuant to Section 7(c)(i). Without limiting the generality of the
foregoing, a purchase price that is 95% or less of the purchase price in the
last Solicitation Notice received by Intel shall be deemed not to be at least as
favorable as the terms and conditions as specified in the last Solicitation
Notice and shall require the Company to deliver to Intel a new Solicitation
Notice.
(d) Unsolicited Offers for Corporate Event. If the Company receives a
written Unsolicited Offer from another Major Shareholder for a proposed
Corporate Event (an "OFFERED EVENT"), the Company agrees that it will provide
Intel with written notice of the Offered Event including such terms and
conditions of the Offered Event as are provided to prospective offerors for the
Offered Event other than the Major Shareholder making the Unsolicited Offer. If
the Company proposes to accept the Offered Event or recommend that its
shareholders approve the Offered Event, the Company agrees that it will provide
Intel with written notice of its intention.
(e) Confidentiality and Fiduciary Obligations. No action of the Company
(including of the Board) shall be prohibited by or be deemed a breach of this
Section 7 if the Board determines in good faith, upon the advice of outside
legal counsel, that such action would be required by reasons of a
confidentiality agreement with another Major Shareholder offeror or the
fiduciary duties of the Board to the Company's stockholders under applicable
law, provided, however, that in the event that the Company takes an action
pursuant to this Section 7 and such action involves the solicitation of, or the
proposal by the Company to accept, an offer for a proposed Corporate Event, the
parties agree, notwithstanding any other provision herein, that such proposed
Corporate Event will be treated as an Offered Event pursuant to the terms of
Section 7(d).
(f) Termination of Rights. The rights of Intel under Sections 7(b)
through 7(e) shall terminate on February 10, 2003; provided, however, that
Intel's rights under such sections of this Section 7 shall remain in full force
and effect with respect to any Corporate Event, Unsolicited Offer, Solicited
Offer and Offered Event for which Intel has received, or been entitled to
receive, notice from the Company prior to such date.
8. Liquidation Preference. In the event of a Liquidation Event (as defined
in the Certificate), the Certificate provides that the holders of Series H
Preferred (including the holders of Exchangeable Shares exchangeable for Series
H Preferred) shall be entitled to receive the Series H Preference Amount (as
defined therein). Such holders agree that the Series H Preference Amount shall
be distributed among them based on their prior status as shareholders of the
Company or Balisoft Technologies, Inc. as Ontario, Canada corporation
("BALISOFT") on the basis specified in Schedule B (the "INDIVIDUAL PREFERENCE
AMOUNTS"). If the assets or surplus funds to be distributed to the holders of
Series H Preferred (including the holders of Exchangeable Shares exchangeable
for Series H Preferred), the Series I Preferred and the Series J Preferred in
accordance with the Certificate are insufficient to permit the payment to such
holders of their full Individual Preference Amounts, the assets and surplus
funds legally available for distribution shall be distributed ratably among such
holders in proportion to the full Individual Preference Amounts each such holder
would otherwise be entitled to receive as between the holders of the Series H
Preferred (collectively), the Series I Preferred (collectively)
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<PAGE> 12
and the Series J Preferred (collectively) in accordance with the Certificate,
and as between each individual holder of Series H Preferred in accordance with
this Agreement.
9. Drag Along. In the event that the Company's shareholders that
beneficially own on a collective basis at least 65% of the issued and
outstanding Securities of the Company (the "Approving Shareholders") determine
to approve any transaction between the Company and a third party that
contemplates the acquisition of 100% of the Company's outstanding Securities by
the third party or determines to tender or exchange their Securities in a
transaction proposed by any third party in which such third party would acquire
100% of the Company's outstanding Securities directly from the shareholders of
the Company, then in such event the Approving Shareholders shall have the right,
exercisable upon ten days' prior written notice (the "Transaction Notice"), to
require each of the Major Shareholders and the Executive to approve such
transaction and tender or exchange the Securities of the Company currently held
by them to such third party offeror on the same terms and conditions, including
the per share price and date of sale, as are received by the Approving
Shareholders and stated in the Transaction Notice.
10. Restrictions.
(a) So long as any Series I Preferred is outstanding (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like), the
Company shall not, without first obtaining the affirmative vote or written
consent of the holders of more 50% of the Series I Preferred then outstanding:
(i) amend or repeal any provision of, or add any provision to,
the Certificate or the By-Laws of the Company that changes the voting
powers, preferences, or other special rights or privileges, or restrictions
of the Series I Preferred;
(ii) authorize or designate, whether by reclassification or
otherwise, any new class or series of stock or any other securities
convertible into equity securities of the Company ranking senior to the
Series I Preferred in rights of redemption, liquidation preference, voting
or dividends;
(b) So long as any Series J Preferred is outstanding (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like), the
Company shall not, without first obtaining the affirmative vote or written
consent of the holders of more 50% of the Series J Preferred then outstanding:
(i) amend or repeal any provision of, or add any provision to,
the Certificate or the By-Laws of the Company that adversely affects the
voting powers, preferences, or other special rights or privileges, or
restrictions of the Series J Preferred;
(ii) authorize or designate, whether by reclassification or
otherwise, any new class or series of stock or any other securities
convertible into equity securities of the Company ranking senior or pari
passu to the Series J Preferred in rights of redemption, liquidation
preference, voting or dividends;
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<PAGE> 13
(c) So long as any Series I Preferred or Series J Preferred is
outstanding (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like), the Company shall not, without first obtaining
the affirmative vote or written consent of the holders of more 50% of the Series
I Preferred and Series J Preferred (voting as a single class) then outstanding:
(i) amend or repeal any provision of, or add any provision to
either Sections 10(c) or (e) or increase or grant any additional rights to
the holders of the Series H Preferred under Section 10(d); or
(ii) redeem, purchase or otherwise acquire for value (or pay into
or set aside for a sinking fund for such purpose) any share or shares of
Common Stock or Preferred Stock otherwise than by redemption in accordance
with Article IV, Section B(5) of the Certificate; provided, that this
restriction shall not apply to the repurchase of shares of Common Stock
from employees, officers, directors, consultants or other persons
performing services for the Company or any of its Subsidiaries pursuant to
agreements under which the Company has the option to repurchase such shares
at cost or the repurchase of shares of Common Stock or Preferred Stock upon
exercise of the Company's right of first refusal in accordance with Article
V of the Certificate or Section 4 of this Agreement.
(d) So long as any Series H Preferred is outstanding, the Company shall
not, without first obtaining the affirmative vote or written consent of the
holders of more than 50% of the Series H Preferred (including the Exchangeable
Shares exchangeable for the Series H Preferred (voting as a separate class) then
outstanding:
(i) amend or repeal any provision of, or add any provision to,
the Certificate or the By-Laws of the Company that changes the voting powers,
preferences, or other special rights or privileges, or restrictions of the
Series H Preferred; or
(ii) authorize or designate, whether by reclassification or
otherwise, any new class or series of stock or any other securities convertible
into equity securities of the Company ranking senior to the Series H Preferred
in rights of redemption, liquidation preference, voting or dividends;
(e) So long as any Series H, Series I and/or Series J Preferred are
outstanding, the Company shall not, without first obtaining the affirmative vote
or written consent of more than 50% of the Series H (including the Exchangeable
Shares for the Series H Preferred), Series I Preferred and Series J Preferred
(voting together as a single class) then outstanding:
(i) reclassify any Common Stock into shares having any preference
or priority as to dividends or assets superior to or on a par with such
preference or priority of any Preferred Stock;
(ii) issue or pay or declare any dividend or distribution on any
shares of its capital stock or other equity securities (other than shares of
Common Stock) or apply any of its assets to the redemption, retirement, purchase
or other acquisition directly or indirectly,
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<PAGE> 14
through subsidiaries or otherwise, of any shares of its capital stock or other
equity securities other than (A) the Series H, Series I and Series J Preferred
except pursuant to and in accordance with the terms of the Certificate, (B) the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Company or any of its
Subsidiaries pursuant to agreements under which the Company has the option to
repurchase such shares at cost or (C) the repurchase of shares of Common Stock
or Preferred Stock upon exercise of the Company's right of first refusal in
accordance with Article V of the Certificate or Section 4 of this Agreement;
(iii) authorize or designate, whether by reclassification or
otherwise, any new class or series of stock or any other securities convertible
into equity securities of the Company ranking on parity with any Preferred Stock
in rights of redemption, liquidation preference, voting or dividends or any
increase in the authorized or designated number of any such new class or series;
(iv) consolidate or merge into or with any other entity or
entities (except a consolidation or merger in which the beneficial owners of the
Company's capital stock immediately prior to such transaction continue to hold
directly or indirectly not less than 51% of the voting power in the resulting
entity), or sell, mortgage or transfer all or substantially all its assets, or
enter into any other transaction or series of transactions the effect of which
would be the transfer in a single or series of related transactions of all or
substantially all of the assets of Company;
(v) permit any Subsidiary to consolidate or merge into or with
any other entity or entities (except a consolidation or merger in which either
the Company or the beneficial owners of the Company's capital stock immediately
prior to such transaction continue to hold directly or indirectly not less than
51% of the voting power in the resulting entity), or sell, mortgage or transfer
all or substantially all the assets of any Subsidiary, or enter into any other
transaction or series of transactions the effect of which would be the transfer
in a single or series of related transactions of all or substantially all of the
assets of any Subsidiary, except that any Subsidiary may (A) consolidate or
merge into or with any other Subsidiary or the Company, or (B) sell or transfer
all or substantially all of its assets to any other Subsidiary or the Company;
(vi) authorize any increase or decrease (other than by redemption
or conversion) in the authorized number of shares of Common Stock or Preferred
Stock;
(vii) increase the number of shares of Common Stock reserved for
issuance under the Corporation's stock option and grant plans without the
approval of a majority of the members of the Board of Directors who are not
employees of the Company;
(viii) approve any voluntary dissolution, liquidation or winding
up of the affairs of the Company;
(ix) make, or permit any Subsidiary to make, any material change
in the nature of its business as set forth in its current operating plan; or
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<PAGE> 15
(x) increase the authorized size of the Board above eight
members.
11. Additional Covenants.
(a) Financial Statements, Reports, Etc. The Company shall furnish the
following information to each Major Shareholder based upon the understanding of
such Major Shareholder that such information may be used solely for evaluating
the Company, and that it shall not be disclosed to any third party, except as
provided in this Agreement:
(i) within 90 days after the end of each fiscal year of the
Company a consolidated balance sheet of the Company and its Subsidiaries, if
any, as of the end of such fiscal year and the related consolidated statements
of income and cash flows for the fiscal year then ended, prepared in accordance
with generally accepted accounting principles consistently applied and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail. Such financial statements shall be certified by a firm
of independent public accountants of recognized national standing selected by
the Board, with the approval of the Company's stockholders;
(ii) within 30 days after the end of each calendar quarter in
each fiscal year (other than the last month in each fiscal year) a consolidated
balance sheet of the Company and its Subsidiaries, if any, and the related
consolidated statements of income and cash flows, unaudited but prepared in
accordance with generally accepted accounting principles and certified by the
Chief Financial Officer of the Company, such consolidated balance sheet to be as
of the end of such quarter and such consolidated statements of income and cash
flows to be for such quarter and for the period from the beginning of the fiscal
year to the end of such quarter, in each case with such statements as requested
by the Board;
(iii) (x) within 30 days after the beginning of each fiscal year
an annual budget and operating plan for such fiscal year (and as soon as
available, any subsequent revisions thereto); and (y) as soon as practicable
after the end of each month, and in any event within 30 days thereafter, a
balance sheet of the Company as of the end of each such month, and a statement
of income and statement of cash flows of the Company for such month and for the
current fiscal year to date, including a comparison to budget and plan figures
for such period, prepared in accordance with generally accepted accounting
principles consistently applied, with the exception that no notes need be
attached to such statements and year-end audit adjustments need not have been
made;
(iv) at the time of delivery of each annual financial statement
pursuant to Section 10(a)(ii), a certificate executed by the Chief Financial
Officer of the Company stating that such officer has caused this Agreement and
the terms of the Series H, Series I and Series J Preferred to be reviewed and
has no knowledge of any default by the Company in the performance or observance
of any of the provisions of this Agreement or the Series H, Series I and Series
J Preferred or, if such officer has such knowledge, specifying such default and
the nature thereof;
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<PAGE> 16
(v) at the time of delivery of each quarterly statement pursuant
to Section 10(a)(ii), a management narrative report explaining all significant
variances from forecasts and all significant current developments in staffing,
marketing, sales and operations;
(vi) promptly following receipt by the Company, each audit
response letter, accountant's management letter and other written report
submitted to the Company by its independent public accountants in connection
with an annual or interim audit of the books of the Company or any of its
Subsidiaries; and
(vii) promptly, from time to time, such other information
regarding the business, financial condition, operations, property or affairs of
the Company and its Subsidiaries as such Major Shareholder reasonably may
request.
(b) Reserve for Conversion Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of the Series H, Series I and
Series J Preferred (including all of the Series H Preferred issuable upon
exchange of the Exchangeable Shares) and the Exchangeable Shares exchangeable
only for Common Stock from time to time outstanding, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the
conversion of such shares. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of such
shares, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes; provided, however,
that nothing in this Section 11(b) shall supersede Sections 10(c)(vi) above, and
the Company shall not issue any shares of Common Stock if, after giving effect
thereto, there would not be a sufficient amount of authorized but unissued
Common Stock necessary to affect the conversion of the Series H, Series I and
Series J Preferred (including all of the Series H Preferred issuable upon
exchange of the Exchangeable Shares) and the Exchangeable Shares exchangeable
only for Common Stock as of such time of issuance. The Company will use all
reasonable best efforts to obtain any authorization, consent, approval or other
action by or make any filing with any court or administrative body that may be
required under applicable state securities laws in connection with the issuance
of shares of Common Stock upon conversion of the Series H, Series I and Series J
Preferred (including all of the Series H Preferred issuable upon exchange of the
Exchangeable Shares) and the Exchangeable Shares exchangeable only for Common
Stock.
(c) Properties, Business and Insurance. The Company shall maintain and
cause each of its Subsidiaries to maintain as to their respective properties and
business, with financially sound and reputable insurers, insurance against such
casualties and contingencies and of such types and in such amounts as it, in the
Company's best judgment after due injury, customary for companies similarly
situated, which insurance shall be deemed by the Company to be sufficient. The
Company shall not cause or permit any assignment or change in beneficiary and
shall not borrow against any such policies. If requested by Major Shareholders
holding at least a majority of the outstanding Series H Preferred (including the
holders of Exchangeable Shares on an as-converted basis), Series I Preferred and
Series J Preferred, the Company will add one designee of such Major Shareholders
as a notice party for each such policy and shall request that the issuer of each
policy provide such designee with ten days' notice before such policy is
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<PAGE> 17
terminated (for failure to pay premiums or otherwise) or assigned or before any
change is made in the beneficiary thereof.
(d) Directors and Officers Insurance. At such time as the Board
determines that it is in the best interests of the Company to obtain directors
and officers insurance, the Company will use its best efforts to obtain and
maintain in good standing comprehensive directors and officers insurance for the
directors and officers of the Company.
(e) Inspection and Consultation. The Company shall permit and cause
each of its Subsidiaries to permit each Major Shareholder and such Persons as it
may designate, provided that such Persons sign the Company's standard
confidentiality agreement, at such Major Shareholder's expense, to visit and
inspect any of the properties of the Company and its Subsidiaries, examine their
books and take copies and extracts therefrom, discuss the affairs, finances and
accounts of the Company and its Subsidiaries with their officers, employees and
public accountants (and the Company hereby authorizes said accountants to
discuss with such Major Shareholder and such designees such affairs, finances
and accounts) and consult with the management of the Company and its
Subsidiaries as to their affairs, finances and accounts, all at reasonable times
and upon reasonable notice.
(f) Restrictive Agreements Prohibited. Neither the Company nor any of
its Subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of this Agreement, the Combination Agreement
(including all agreements and instruments entered into by the Company pursuant
thereto), the Series I Purchase Agreement, the Series J Purchase Agreement, the
Registration Rights Agreement or the Certificate.
(g) Transactions with Affiliates. Except for transactions contemplated
by this Agreement or as otherwise approved by the Board, neither the Company nor
any of its Subsidiaries shall enter into any transaction with (1) any Person
who, directly or indirectly, owns or controls, is under common ownership or
control with, or is owned or controlled by, the Company, (2) any Person who is a
director, officer or partner or is, directly or indirectly, the beneficial owner
of 10% or more of any class of equity Securities of the Company or a Person
described in clause (1) above, (3) any Person of whom the Company is a partner
or is, directly or indirectly, the beneficial owner of 10% or more of any class
of equity Securities, (4) any Person in whom the Company has a substantial
beneficial interest, or (5) any relative or spouse of any of the foregoing
Persons described in clause (1), (2), (3) or (4) above, except for transactions
on customary terms related to a person's employment with the Company or any of
its Subsidiaries.
(h) Compensation. The compensation to be paid to each future officer of
the Company employed after the date hereof and any change in compensation of any
current officer of the Company shall be recommended by the Compensation
Committee of the Board and approved by a majority of the Directors.
(i) By-laws. The Company shall at all times cause its By-laws to
provide that, unless otherwise required by the laws of the State of Delaware,
(a) any two Directors or (b) any holder or holders of at least 25% of the
outstanding shares of Series H Preferred (including the holders of Exchangeable
Shares on an as-converted basis), Series I Preferred and Series J
-17-
<PAGE> 18
Preferred (voting together as a single class), shall have the right to call a
meeting of the Board or stockholders. The Company shall at all times maintain
provisions in its By-laws and/or Certificate indemnifying all Directors against
liability and absolving all directors from liability to the Company and its
stockholders to the maximum extent permitted under the laws of the State of
Delaware.
(j) Employee Nondisclosure and Developments Agreements. The Company
shall obtain, and shall cause its Subsidiaries to obtain, employee nondisclosure
and developments agreements from all future officers, key employees and other
employees who will have access to confidential information of the Company or any
of its Subsidiaries, upon their employment by the Company or any of its
Subsidiaries.
(k) Maintenance of Ownership of Subsidiaries. Except with the approval
of the Board, the Company shall not sell or otherwise transfer any shares of
capital stock of any Subsidiary, except to the Company or another Subsidiary, or
permit any Subsidiary to issue, sell or otherwise transfer any shares of its
capital stock or the capital stock of any Subsidiary, except to the Company or
another Subsidiary.
(l) Distribution by Subsidiaries. The Company shall not permit any
Subsidiary to purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution or, any shares of its stock, except for
dividends or other distributions payable to the Company or another Subsidiary.
(m) Compliance with Laws. The Company shall comply, and cause each
Subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could materially adversely affect is business or
condition, financial or otherwise.
(n) Keeping of Records and Books of Account. The Company shall keep,
and cause each Subsidiary to keep, adequate records and books of account, in
which complete entities will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company and such Subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
(o) U.S. Real Property Interest Statement. Upon a written request by
any Major Shareholder who is, or in whom a partner is, a "foreign person" for
purposes of Section 897 of the Internal Revenue Code, the Company shall provide
such Major Shareholder with a written statement informing the Major Shareholder
whether such Major Shareholder's interest in the Company constitutes a U.S. real
property interest. The Company's determination shall comply with the
requirements of Treasury Regulation Section 1.897-2(h)(1) or any successor
regulation, and the Company shall provide timely notice to the Internal Revenue
Service, in accordance with and to the extent required by Treasury Regulation
Section 1.897-2(h)(2) or any successor regulation, that such statement has been
made. The Company's written statement to any Major Shareholder shall be
delivered to such Major Shareholder within 30 days of such Major Shareholder's
written request therefor.
<PAGE> 19
(p) Debt, Etc. The Company shall not, without the approval of the
Board, incur any debt or pledge or grant a security interest in its assets,
other than for working capital purposes in the ordinary course of the Company's
business, or issue any guarantee.
(q) Small Business Investment Act Regulations. Each of the Major
Shareholders agrees to vote its securities in favor of any amendment or action
set forth in Section 6.3 of the Series J Purchase Agreement in order to
effectuate compliance with the Small Business Investment Act of 1958 and the
regulations issued thereunder as set forth in 13 CFR 107 and 121, as amended.
12. Termination. This Agreement, and the respective rights and obligations
of the Major Shareholders, shall terminate on the closing of a Qualified Public
Offering.
13. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered personally or
mailed by first class, registered or certified mail, postage prepaid, or if
transmitted by fax or other form of recorded communication tested prior to
transmission to such party, to (i) in the case of notice to a Major Shareholder,
each Major Shareholder at its respective address specified on Schedule A, or to
such other address as the addressee shall have furnished to the other Major
Shareholders hereto in the manner prescribed by this Section 13 or (ii) in the
case of the Company at Two Apple Hill Drive, Natick, MA 01760, Attention: Chris
Butler, Fax: (508)-655-0473.
14. Failure to Deliver Shares. If a Major Shareholder becomes obligated to
sell any Servicesoft Shares to another Major Shareholder under this Agreement
and fails to deliver such Servicesoft Shares in accordance with the terms of
this Agreement (the "Non-delivering Major Shareholder"), such other Major
Shareholder may, at its option, in addition to all other remedies it may have,
send to the Non-delivering Major Shareholder the purchase price for such
Servicesoft Shares as is herein specified. Thereupon, the Company upon written
notice to the Non-delivering Major Shareholder, (a) shall cancel on its books
the certificate or certificates representing the Servicesoft Shares to be sold
and (b) shall issue, in lieu thereof, in the name of such other Major
Shareholder a new certificate or certificates representing such Servicesoft
Shares, and thereupon all of the Non-delivering Major Shareholders' rights in
and to such Servicesoft Shares shall terminate.
15. Specific Performance. The rights of the Major Shareholders under this
Agreement are unique and, accordingly, the Major Shareholders shall, in addition
to such other remedies as may be available to any of them at law or in equity,
have the right to enforce their rights hereunder by actions for specific
performance to the extent permitted by law.
16. Stock Certificate Legends. Each certificate evidencing the Servicesoft
Shares issued on or after the date hereof, and each certificate issued on or
after the date hereof for any such securities issued to subsequent transferees
of any such certificate shall be stamped or otherwise imprinted with a legend in
substantially the following form (in additional to any legend required under
applicable state securities laws):
-19-
<PAGE> 20
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OFFERED
FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
UNDER APPLICABLE STATE SECURITIES LAW, UNLESS THE ISSUER SHALL
HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUER THAT THE SECURITIES REPRESENTED BY THIS CERTIFICATE
MAY BE LEGALLY SOLD OR DISTRIBUTED PURSUANT TO EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
WITHOUT REGISTRATION UNDER THEN APPLICABLE STATE AND FEDERAL
LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT
TO CERTAIN RESTRICTION ON TRANSFER CONTAINED IN AN AGREEMENT
BETWEEN THE ISSUER AND THE STOCKHOLDER, COPIES OF WHICH MAY BE
OBTAINED FROM THE ISSUER OR FROM THE HOLDER OF THIS CERTIFICATE.
NO TRANSFER OF SUCH SECURITIES SHALL BE MADE ON THE BOOKS OF THE
ISSUER UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE
TERMS OF SUCH AGREEMENT.
Upon request of a holder of such a certificate, the Company shall
remove the foregoing legends from the certificate or issue to such Holder a new
certificate therefor free of any transfer legend, provided, that the Company
receives either an opinion or a "no-action" letter to the effect that any
transfer by such Holder of the securities evidenced by such certificate shall
not violate the Securities Act and applicable state securities laws, unless any
such transfer legend may be removed pursuant to Rule 144(k), in which case no
such opinion or "no-action" letter shall be required. Notwithstanding the
foregoing, upon request of a holder of such a certificate, the Company shall
remove the second paragraph of the legend from the certificate or issue to such
holder a new certificate therefor free of such second paragraph at any time
after this Agreement and the Registration Rights Agreement have terminated or
the holder of the certificate is no longer subject to the provisions of this
Agreement.
17. Entire Agreement. This Agreement constitutes the entire agreement
among the Major Shareholders with respect to the subject matter hereof with
regard to the Servicesoft Shares (or their predecessor securities) and supersede
all prior agreements and understandings between them or any of them as to such
subject matter including the Amended and Restated Shareholders Agreement.
18. Waivers and Further Agreements. Any of the provisions of this
Agreement may be waived with the written consent of Major Shareholders owning
67% of the Servicesoft Shares then owned by all Major Shareholders (calculated
on an as-converted basis), provided, however, that no Major Shareholder (or
group of Major Shareholders) shall lose their entitlement to representation on
the Board under Section 6(a) as a result of this paragraph without their
consent. Any waiver by any Major Shareholder of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of that provision or of any other
-20-
<PAGE> 21
provision hereof. Each of the Major Shareholders agrees to execute all such
further instruments and documents and to take all such further action as any
other Major Shareholder may reasonably require in order to give effect to the
terms and purposes of this Agreement and, in particular, each of the Major
Shareholders agrees to exercise the voting rights attached to the Securities of
the Company (or its Subsidiaries) held by it in order to give effect to the
terms and purposes of this Agreement.
19. Amendments. Except as otherwise expressly provided herein, this
Agreement may not be amended except by an instrument in writing executed by
Major Shareholders owning 67% of the Servicesoft Shares then owned by all Major
Shareholders (calculated on an as-converted basis), provided, however, that no
Major Shareholder (or group of Major Shareholders) shall lose their entitlement
to representation on the Board under Section 6(a) as a result of this Section 19
without their consent; provided further, however, that Section 10(b) of this
Agreement may not be amended except by an instrument in writing executed by the
holders of a majority of the Series J Preferred then outstanding; provided
further, however, that any subsequent purchaser of the Series J Preferred may
become party to this Agreement by executing a signature page hereto and shall be
a Major Shareholder for purposes of this Agreement. The Company shall amend
Schedule A to reflect such subsequent purchasers and shall deliver a copy
thereof to the other parties to this Agreement.
20. Assignment; Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the Major Shareholders and their
respective heirs, executors, legal representatives, successors and permitted
transferees, except as may be expressly provided otherwise herein.
21. Severability. In case any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
22. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. Facsimile counterpart signatures to this Agreement
shall be acceptable and binding.
23. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware.
[SIGNATURE PAGE FOLLOWS]
-21-
<PAGE> 22
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
"COMPANY" SERVICESOFT TECHNOLOGIES, INC.
By: /s/ Chris Butler
------------------
Chris Butler
President and Chief Executive Officer
"MAJOR SHAREHOLDERS"
/s/ Les Abelson
------------------------
LES ABELSON
/s/ Frederick R. Adler
------------------------
FREDERICK R. ADLER
AMERICAN FARM INVESTMENT CORPORATION
By:
Name:
Its:
/s/ Richard M. Bogoroch
------------------------
RICHARD M. BOGOROCH
CIBC WMV INC.
By: /s/ T. Rosenberg
--------------------
Name: T. Rosenberg
Its: Managing Director
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 23
ELRON ELECTRONICS INDUSTRIES LTD.
By: /s/ Illegible
--------------------
Name:
Its:
FINANCIAL TECHNOLOGIES VENTURES L.P
By: /s/ Initials
--------------------
Name: Scott Wu
Its: Managing Member
FINANCIAL TECHNOLOGIES VENTURES (Q) L.P.
By: /s/ Initials
--------------------
Name: Scott Wu
Its: Managing Member
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 24
GEMINI ISRAEL II L.P.
By: /s/ Illegible
--------------------
Name:
Its:
GEMINI ISRAEL II PARALLEL FUND L.P.
By: /s/ Illegible
--------------------
Name:
Its:
ADVENT PGGM GEMINI L.P.
By: /s/ Illegible
--------------------
Name:
Its:
GEMINI PARTNER INVESTORS L.P.
By: /s/ Illegible
--------------------
Name:
Its:
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 25
/s/ Tony Graci
------------------------
TONY GRACI, IN TRUST
GREY ADVERTISING LTD.
By: /s/ Illegible
--------------------
Name:
Its:
INTERNET CAPITAL GROUP, INC.
By: /s/ C. Greendale
--------------------
Name: C. Greendale
Its: M. Director
INTEL CORPORATION
By:
Name:
Its:
J.L. ALBRIGHT II VENTURE FUND
By: /s/ Gary Rubinoff
--------------------
Name: Gary Rubinoff
Its:
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 26
LRJ TECHNOLOGIES INC.
By:
Name:
Its:
NETMANAGE INC.
By: /s/ Z. Alon
--------------------
Name: Zvi Alon
Its: Chairman and CEO
ORIEN II, L.P.
By: Orien II Partners, L.P.
Its: General Partner
By: Orien Ventures Partners, L.P.
Its: General Partner
By: /s/ George R. Kalan
--------------------
Name: George R. Kalan
Its: Managing General Partner
SAMJANK INC.
By: /s/ Christopher Eaton
--------------------
Name: Christopher Eaton
Its:
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 27
/s/ Gerald Segal
------------------------------
GERALD SEGAL
SIGMA PARTNERS IV, L.P.
By: Sigma Management, IV, L.L.C.
Its: General Partner
By: /s/ Wade Woodson
------------------------------
Name: Wade Woodson
Its: Managing Director
SIGMA ASSOCIATES IV, L.P.
By: Sigma Management IV, L.L.C.
Its: General Partner
By: /s/ Wade Woodson
------------------------------
Name: Wade Woodson
Its: Managing Director
SIGMA INVESTORS IV, L.L.C.
By: Sigma Management IV, L.L.C.
Its:
By: /s/ Wade Woodson
------------------------------
Name: Wade Woodson
Its: Managing Director
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 28
SIGMA PARTNERS IV, L.P.
By: Sigma Management, IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Davoli
------------------------------
Name: Robert E. Davoli
Its:
SIGMA ASSOCIATES IV, L.P.
By: Sigma Management IV, L.L.C.
Its: General Partner
By: /s/ Robert E. Davoli
------------------------------
Name: Robert E. Davoli
Its:
SIGMA INVESTORS IV, L.L.C.
By: Sigma Management IV, L.L.C.
Its:
By: /s/ Robert E. Davoli
------------------------------
Name: Robert E. Davoli
Its:
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 29
SIGMA PARTNERS V, L.P.
By: Sigma Management, IV, L.L.C.
Its: General Partner
By: /s/ C. Haas
---------------------------
Name: Clifford L. Haas
Its: Managing Director
SIGMA ASSOCIATES V, L.P.
By: Sigma Management V, L.L.C.
Its: General Partner
By: /s/ C. Haas
---------------------------
Name: Clifford L. Haas
Its: Managing Director
SIGMA INVESTORS V, L.L.C.
By: Sigma Management IV, L.L.C.
Its:
By: /s/ C. Haas
---------------------------
Name: Clifford L. Haas
Its: Managing Director
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 30
SOFINOV, SOCIETE FINANCIERE D'INNOVATION
INC., FILIALE DE LA CAISSE DE DEPOT ET
PLACEMENTS DU QUEBEC
By: /s/ Illegible
---------------------------
Name:
Its:
<PAGE> 31
/s/ F. Mark D'Annolfo
---------------------------
MARK D'ANNOLFO
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 32
THE GOLDMAN SACHS GROUP, INC.
By: /s/ Illegible
-------------------------------
Name:
Its:
STONE STREET FUND 2000, LLC
By: /s/ Katherine L. Nissenbaum
-------------------------------
Name: Katherine L. Nissenbaum
Its: Vice President
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 33
MORGAN STANLEY DEAN
WITTER EQUITY FUNDING, INC.
(Print name of shareholder)
By: /s/ David Powers
------------------------------
Name: David Powers
Its: Vice President
ITOCHU TECHNO-SCIENCE
CORPORATION
(Print name of shareholder)
By: H. Satake
------------------------------
Name: H. Satake
Its: President
ITOCHU TECHNOLOGY, INC.
------------------------------
(Print name of shareholder)
By: /s/ Takahiro Susaki
---------------------------
Name: Takahiro Susaki
Its: President
ITOCHU CORPORATION
------------------------------
(Print name of shareholder)
By: /s/ Eizo Kobayashi
------------------------------
Name: Eizo Kobayashi
Its: Chief Operating Officer, Information
Technology and Telecommunications Division
<PAGE> 34
Alf Saggese
--------------------------
(Print name of shareholder)
By: /s/ Alf Saggese
--------------------------
Name: MD Servicesoft EMEA
Its:
THE REEZ TRUST
(Print name of shareholder)
By: /S/ Illegible
--------------------------
Name:
Its:
ROBERT J. GALIUS
(Print name of shareholder)
By: /s/ Robert J. Galius
---------------------
Name: Robert J. Galius
Its:
ED BOYAJIAN
--------------------------
(Print name of shareholder)
By: /s/ E. Boyajian
--------------------------
Name: Ed Boyajian
Its:
DANIEL KOSSMANN
(Print name of shareholder)
By: /s/ Daniel Kossmann
--------------------------
Name: Daniel Kossmann
Its:
<PAGE> 35
Massood Zarrabian
------------------------------------------
(Print name of shareholder)
By: /s/ Massood Zarrabian
----------------------------------------
Name: Massood Zarrabian
Its:
CHET BARNARD
------------------------------------------
(Print name of shareholder)
By: /s/ Chet Barnard
----------------------------------------
Name:
Its:
PAUL MAGUIRE
------------------------------------------
(Print name of shareholder)
By: /s/ Paul R. Maguire
----------------------------------------
Name:
Its:
JEFF WHITNEY
------------------------------------------
(Print name of shareholder)
By: /s/ J. Whitney
----------------------------------------
Name:
Its:
<PAGE> 36
JIM KELLER
------------------------------------------
(Print name of shareholder)
By: /s/ Jim Keller
----------------------------------------
Name:
Its: SVP, Strategic Alliances
DALE KENNEDY
------------------------------------------
(Print name of shareholder)
By: /s/ Dale Kennedy
----------------------------------------
Name:
Its:
/s/ Initials
MARK SKAPINKER
[SIGNATURE PAGE TO SECOND AMENDED SHAREHOLDERS AGREEMENT]
<PAGE> 37
SCHEDULE A
MAJOR SHAREHOLDERS
<TABLE>
<CAPTION>
MAJOR SHAREHOLDERS EXCHANGEABLE EXCHANGEABLE SERIES H SERIES I SERIES J
COMMON PREFERRED PREFERRED PREFERRED PREFERRED
<S> <C> <C> <C> <C> <C>
Frederick R. Adler 528,426 30,488 103,211
c/o Jay Nickse
Venad Administrative Services, Inc.
342 Madison Avenue, #807
New York, NY 10173
Fax: 212-599-2526
American Farm Investment Corporation 98,518
BCE Place, 161 Bay Street, 49th Floor
Toronto, Ontario M5J 2S1
Attn: Gerry Schwartz
Fax: 416-362-5765
Richard M. Bogoroch 17,315 9,756 4,651
15 Caravan Drive
Don Mills, Ontario, M3B 1M9
Fax: 416-868-3134
CIBC WMV Inc. 1,219,512 350,831
161 Bay Street, 8th Floor
BCE Place
Toronto, Ontario M5J 2F8
Attn: Teddy Rosenberg
Fax: 416-594-8037
Elron Electronics Industries Ltd. 804,653
P.O. Box 1573
Haifa, Israel 31015
Attn: Doron Birger
Fax: 972-4-855-0248
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Financial Technologies Ventures, L.P. 33,659 280,731
Financial Technologies Ventures (Q), L.P. 941,951 (aggregate)
601 California Street, Suite 2200
San Francisco, CA 94108
Attn: Scott Wu
Fax: 415-229-3005
Gemini Israel II L.P. 226,820 193,804 121,703
Advent PGGM Gemini L.P. 306,207* 29,071 18,256
Gemini Israel II Parallel Fund L.P. 34,023* 261,637 164,299
Gemini Partner Investors L.P. 3,293 2,165
c/o Gemini Capital Fund
Management Ltd.
11 Galgalei Haplada Street
P.O. Box 12548
Industrial Zone
Herzlyia 46733 Israel
Attn: Tali Aben
Fax: 011-972-9-958-8442
Tony Graci, in trust 24,390
c/o Graci & Associates
350 Bay Street, 9th Floor
Toronto, Ontario M5H 2SE
Fax: 416-367-4098
Grey Advertising Ltd. 141,759 20,889
1881 Yonge Street
Toronto, Ontario M4S 3C4
Attn: Tony Russell
Fax: 416-488-7071
Intel Corporation 840,329
2200 Mission College Boulevard 63,025(1)
#SC4-210
Santa Clara, CA 95052
Attn: Tamiko Hutchinson
Fax: 408-765-6038
Internet Capital Group, Inc. 630,247 92,868 208,084
45 Milk Street
Boston, MA 02109
Attn: Chris Greendale
Fax: 617-338-7117
J.L. Albright II Venture Fund, L.P. 708,808 104,445 147,287
Canada Trust Tower
BCE Place, Suite 440
161 Bay Street
Toronto, Ontario,
CANADA M5J 2S1
Attn: Gary Rubinoff
Fax: 416-943-6160
</TABLE>
- --------
*Represents options exerciseable for Exchangeable Preferred Shares of Balisoft
Ltd. which are exchangeable for Exchangeable Preferred.
1 Represents warrants to purchase Series H Preferred Stock.
<PAGE> 39
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
George R. Kalan 12,238 9,976
One Post Road
Fairfield, CT 06430
Fax: 203-259-5288
LRJ Technologies Inc. 1,206,753(2) 56,710
c/o Brightspark
20 Eglinton Avenue West
Suite 600
Toronto, Ontario M4R 1K8
CANADA
Attn: Mark Skapinker
Fax: 416-488-1988
NetManage Inc. 269,038
10725 N. De Anza Boulevard
Cupertino, CA 95014
Attn: Zvi Alon
Fax: 408-257-1101
Orien II, L.P. 778,640
c/o Orien Ventures, Inc.
One Post Road
Fairfield, CT 06430
Attn: George Kalan
Fax: 203-259-5288
Gerald Segal 2,439
c/o Robertson Stephens Evergreen Ltd.
96 Rothschild Blvd.
65224 Tel-Aviv Israel
Fax: 011-9723-710-8220
Sigma Partners V, L.P. 385,271
Sigma Partners IV, L.P. 649,555 85,666
Sigma Associates IV, L.P. 169,697 34,732
Sigma Investors IV, L.P. 21,078 3,427
20 Custom House Street, Suite 830
Boston, MA 02110
Attn: Bob Davoli
Fax: 617-330-7975
Sofinov, Societe Financiere D'Innovation Inc., 708,808 853,659 449,502
Filiale de la Caisse de Depot et Placements du
Quebec
1981avenue, McGill College, 7th Floor
Montreal, Quebec H3A 3C7
Attn: Sophie Forest
Fax: 514-847-2628
Samjank Inc. 97,319 16,833
c/o I.L.S. (Corporate Services) Ltd.
Second Floor, Atlantic House
Circular Road
Douglas, 1M1 1S2 Isle of Man
Fax: 44-171-287-4243
</TABLE>
- --------
2 Exchanged into Common Stock of the Company.
<PAGE> 40
<TABLE>
<CAPTION>
<S> <C>
Les Abelson 97,318 16,833
PO Box 352
Kochav Yair
4486 Israel
Mark Skapinker 27,685
c/o Brightspark
20 Eglinton Avenue West
Suite 600
Toronto, Ontario M4R 1K8
CANADA
Fax: 416-488-1988
Morgan Stanley 110,742
2 International Place
Boston, MA 02109
Attn: Charles Sansbury
Fax: 617-856-8017
Mark D'Annolfo 11,074
95 Suffolk Road
Chestnut Hill, MA 02467
The Goldman Sachs Group, Inc. 664,452
Stone Street Fund 2000, LLC 110,742
Goldman Sachs
85 Broad Street
New York, NY 10004
FAX: 212-357-5505
Bob Gailus 16,661
50 Riverside Drive #2B
New York, NY 10024
Washington Mall Partners 7,420
c/o John Egan
120 Fulton St., 3D
Boston, MA 02109
ITOCHU Techno-Science Corporation 44,297
ITOCHU Corporation 44,297
ITOCHU Technology, Inc. 22,148
3100 Patrick Henry Drive
Santa Clara, CA 95054
Attn: Takayuki Fukuhara
Fax: 408-727-4619
Chris Butler 55,371
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
Ed Boyajian 5,537
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
<S> <C>
Fax: (508) 655-0473
Daniel Kossmann 16,611
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
Massood Zarrabian 22,148
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
Chet Barnard 2,769
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
Alf Saggese 9,967
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
Paul Maguire 5,537
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
Jeff Whitney 5,537
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
Jim Keller 9,967
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
Dale Kennedy 5,537
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
The Reez Trust 9,967
c/o Kaplan Talkins
2900 John Street
Suite 1A
Markham, Ontario L3R 5G3
CANADA
</TABLE>
<PAGE> 42
SCHEDULE B
PREFERENCE AMOUNTS
<TABLE>
<CAPTION>
Securities Previously owned by Series H Preferred Holder Individual Preference Amounts
<S> <C>
Series F Convertible Stock of the Company $5,230,654
Series G Convertible Stock of the Company $5,925,000
Preferred Shares of Balisoft Technologies Inc. $8,047,532
Total Preference Amount $19,203,186
</TABLE>
<PAGE> 1
EXHIBIT 10.2
SEVENTH AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Seventh Amended and Restated Registration Rights Agreement (this
"AGREEMENT") is entered into as of the 13th day of January, 2000 between
Servicesoft Technologies, Inc., a Delaware corporation (the "COMPANY"), and the
holders of Eligible Shares (as defined below) listed on SCHEDULE I hereto.
WITNESSETH:
WHEREAS, the Company and certain holders of Eligible Shares (as defined
herein) are parties to a Sixth Amended and Restated Registration Rights
Agreement dated June 18, 1999 (the "SIXTH AMENDED AND RESTATED AGREEMENT") with
respect to the registration of Registrable Securities (as defined herein) under
the Securities Act (as defined herein);
WHEREAS, the Company and certain holders of Eligible Shares (the
"SERIES J HOLDERS") have entered into the Series J Convertible Preferred Stock
Purchase Agreement dated as of the date hereof (the "SERIES J PURCHASE
AGREEMENT");
WHEREAS, as a condition to closing under the Series J Purchase
Agreement and as an inducement to the Series J Holders to consummate the
transactions contemplated by the Series J Purchase Agreement, the Company and
the undersigned parties desire to amend and restate the Sixth Amended and
Restated Agreement and to execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
to this Agreement agree to amend and restate the Sixth Amended and Restated
Agreement as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"BUSINESS DAY" means a day, other than a Saturday or Sunday,
on which the principal commercial banks located in New York and Toronto are open
for business during normal banking hours.
"COMMISSION" means the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
"CONVERSION SHARES" means shares of Common Stock of the
Company issued upon conversion or exchange of the Eligible Shares.
"ELIGIBLE SHARES" means (i) shares of Series H Convertible
Preferred Stock of the Company held by the holders listed on SCHEDULE I, (ii)
the Series C Exchangeable Shares of
<PAGE> 2
Servicesoft Technologies (Canada), Inc. ("Servicesoft Canada") (or any Common
Stock issued in exchange thereof), (iii) the Series D Exchangeable Shares of
Servicesoft Canada (and any Series H Convertible Preferred Stock issued in
exchange therefor), (iv) shares of Series I Convertible Preferred Stock, par
value $.01 per share of the Company; and (v) shares of Series J Convertible
Preferred Stock, par value $.01 per share, of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" means any holder of Eligible Shares or Conversion
Shares.
"INITIAL PUBLIC OFFERING" means the initial offering to the
public of the Company's securities pursuant to a firm commitment underwriting
pursuant to the Securities Act.
"INITIATING HOLDERS" means any Holders who in the aggregate
are Holders of 15% or more of the Registrable Securities (determined on an
as-exchanged and as-converted basis), PROVIDED, that with respect to any request
pursuant to Section 3(a) to initiate a registration that would constitute the
Initial Public Offering of the Company's Common Stock, such percentage shall be
increased to 30%.
"PERSON" includes any individual, legal or personal
representative, partnership, company, corporation, incorporated syndicate,
unincorporated or incorporated association, trust or governmental agency,
howsoever designated or constituted.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
"REGISTRABLE SECURITIES" means the Conversion Shares,
excluding Conversion Shares which (a) have been registered under the Securities
Act pursuant to an effective registration statement filed thereunder and
disposed of in accordance with the registration statement covering them, or (b)
with respect to any particular Holder, can all be publicly sold within a
three-month period, without regard to volume limitation, pursuant to Rule 144
under the Securities Act.
"REGISTRATION EXPENSES" means all expenses relating to a
registration for which the Company is responsible hereunder, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company,
blue sky fees and expenses, fees of any exchange or market on which the
Company's Common Stock is to be listed or quoted, transfer taxes, fees of
transfer agents and registrars, reasonable fees and disbursements of one legal
counsel for all the selling Holders and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company).
2
<PAGE> 3
"RESTRICTED SECURITIES" means the securities of the Company
required to bear or bearing the legend set forth in Section 2 hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at this time.
"SELLING EXPENSES" means all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities.
2. RESTRICTIONS ON TRANSFER. Restricted Securities may not be
transferred except upon the conditions specified in this Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and, in the case of Section 16 hereof, to assist in an orderly
distribution. Each Holder of the Restricted Securities agrees that any
transferee of Restricted Securities held by that Holder shall take and hold
those securities subject to the provisions and upon the conditions specified in
this Agreement and each Holder shall cause any transferee to be bound by this
Agreement as a condition to completing any such transfer.
(a) STOCK CERTIFICATE LEGENDS. Each certificate delivered on
or after the date hereof evidencing the Eligible Shares and the Conversion
Shares, and each certificate for any such securities issued to subsequent
transferees of any such certificate shall be stamped or otherwise imprinted with
a legend in substantially the following form (in additional to any legend
required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND UNDER APPLICABLE STATE SECURITIES LAW, UNLESS THE
ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER THAT THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY BE LEGALLY SOLD OR DISTRIBUTED PURSUANT
TO EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND WITHOUT REGISTRATION UNDER THEN
APPLICABLE STATE AND FEDERAL LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO CERTAIN RESTRICTION ON TRANSFER CONTAINED IN AN
AGREEMENT BETWEEN THE ISSUER AND THE STOCKHOLDER, COPIES OF
WHICH MAY BE OBTAINED FROM THE ISSUER OR FROM THE HOLDER OF
THIS CERTIFICATE. NO TRANSFER OF SUCH SECURITIES SHALL BE MADE
ON THE BOOKS OF THE ISSUER UNLESS ACCOMPANIED BY EVIDENCE OF
COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT.
3
<PAGE> 4
Upon request of a Holder of such a certificate, the Company shall
remove the foregoing legend from the certificate or issue to such Holder a new
certificate therefor free of any transfer legend, PROVIDED, that the Company
receives either the opinion referred to in Section 2(b)(i) or the "no-action"
letter referred to in Section 2(b)(ii) to the effect that any transfer by such
Holder of the securities evidenced by such certificate shall not violate the
Securities Act and applicable state securities laws, unless any such transfer
legend may be removed pursuant to Rule 144(k), in which case no such opinion or
"no-action" letter shall be required. Notwithstanding the foregoing, upon
request of a Holder of such a certificate, the Company shall remove the second
paragraph of the legend from the certificate or issue to such Holder a new
certificate therefor free of such second paragraph at any time after this
Agreement has terminated or the Holder of the certificate is no longer subject
to the provisions of this Agreement and the Second Amended and Restated
Shareholders Rights Agreement of even date herewith.
(b) NOTICE OF PROPOSED TRANSFERS. Prior to any proposed
transfer of any Restricted Securities (other than under circumstances described
in Sections 3, 4, 5 and 8 hereof), the Holder thereof shall give written notice
to the Company of such Holder's intention to effect such transfer. Each such
notice shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144), by either (i) a written opinion of legal counsel who
shall be reasonably satisfactory to the Company, addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of the Registrable Securities may be effected
without registration under the Securities Act, or (ii) a "no action" letter from
the Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto; PROVIDED, HOWEVER, that no such
opinion of counsel or "no action" letter shall be required for transfers to (i)
transfers to a Related Person (as defined below), or (ii) a trust for the
benefit of any individual Holder, PROVIDED, that the trust instrument governing
said trust shall provide that such Holder, as trustee, shall retain sole and
exclusive control over the voting and disposition of said Restricted Securities
until the termination of this Agreement; PROVIDED, that such transferee is not a
competitor of the Company and that such transfer does not violate any applicable
federal or state securities laws (each, a "PERMITTED TRANSFEREE"). A "RELATED
PERSON" means with respect to any Holder (x) any Person which is controlled by,
controls or is under common control with such Holder, (y) any partner,
shareholder or similar equity holder of such Holder or such Person described in
clause (x) above which receives securities in connection with a windup,
liquidation or similar dissolution of such Holder or such Person, or (z) any
individual, charitable trust or similar organization which receives Restricted
Securities from a Holder as part of a testamentary transfer by such Holder. For
purposes hereof, "control" and its derivatives shall mean, with respect to any
Person, the power to direct and control the management or policies of such
Person, whether through the beneficial ownership of voting securities or
interests, by contract or agreement or otherwise. In the event of any such
transfer, other than pursuant to clause (ii) of this Section 2(b), such
Permitted Transferee of the Restricted Securities shall hold the Restricted
Securities so acquired with all the rights conferred by, and subject to all the
restrictions imposed by, this Agreement and shall be deemed a Holder for all
purposes hereof. Thereafter the Holder of such Registrable Securities shall be
entitled to transfer such Registrable Securities in accordance with the terms of
the notice delivered by the Holder to the Company.
4
<PAGE> 5
(c) TRANSFER PURSUANT TO RULE 144 OR RULE 144A. The
Company agrees to provide to the Holders or to any prospective purchasers
designated by the Holder, upon such a Holder's request the financial and other
information specified in Rule 144 or 144A under the Securities Act and to take
any other action or to execute any certificates necessary to permit a transfer
by any Holder to qualify for the exemption set forth in Rule 144 or 144A.
3. REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company receives
from Initiating Holders at any time after the earlier of 180 days following the
effective date of the Company's Initial Public Offering and February 17, 2002, a
written request that the Company effect any registration with respect to all or
a part of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent
best efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issues under the Securities
Act) as may be so requested and would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
written request given within 30 days after receipt of such written notice from
the Company; PROVIDED, that, except to the extent the Company receives an
instruction to the contrary from a particular Holder within such 30 day period,
the Company shall include in such registration all Registrable Securities
beneficially owned by holders who are not signatories to this Agreement it being
understood that any such non-signatories who do not join in any underwriting
agreement related to such registration may be removed from such registration at
the election of the Company or the managing underwriter, and PROVIDED FURTHER,
that the Company shall not be obligated to effect, or take any action to effect,
any such registration pursuant to this Section 3:
(1) in any particular jurisdiction in which
the Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless the Company
is already subject to service in such jurisdiction and except as may be required
by the Securities Act or applicable rules or regulations thereunder; or
(2) after the Company has effected three
such registrations pursuant to this Section 3(a) and such registrations have
been declared or ordered effective and the sales of such Registrable Securities
shall have closed.
Subject to the foregoing clauses (1) and (2), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of the request
of the Initiating Holders. Regardless of which Initiating Holders makes a
request for registration pursuant to this Section 3(a), each Holder will have
the right to participate ratably with the others.
5
<PAGE> 6
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 3(b) below,
include other securities of the Company which are held by persons who, by virtue
of agreements with the Company, are entitled to include their securities in any
such registration, but the Company shall have no right to include any of its
securities in any such registration; PROVIDED, HOWEVER, that, in any
underwritten public offering contemplated by Sections 3, 5 and 8, the Holders of
Eligible Shares shall be entitled to sell such Eligible Shares to the
underwriters for conversion and sale of the shares of Common Stock issued upon
conversion thereof, subject to agreement of the underwriters.
The Company shall be entitled to postpone for a reasonable
period of time not to exceed three months the filing of a registration statement
otherwise required to be filed by it pursuant to this Section 3(a) if the
Company determines, in its reasonable judgment, that such registration would
materially interfere with any financing, acquisition, corporate reorganization
or other material transaction involving the Company and the Company promptly
gives written notice to the Holders who have initiated or elected to participate
in such registration including an explanation thereof. The Company shall not
exercise its right to defer a registration more than once in any 12-month period
or in any event if the effect would be to permit a registration of securities
(other than a registration that was pending at the time of the initial demand or
a registration on Form S-4, Form S-8 or any successor or similar form) to the
exclusion of such number of Registrable Securities as would otherwise have been
included in the registration statement the filing of which was deferred.
The Initiating Holders shall be entitled to withdraw any
registration request made pursuant to this Section 3(a), PROVIDED, that such
registration request shall nevertheless be counted toward the number of
registrations the Company is required to file pursuant to this Section 3(a)
unless the Holders reimburse the Company for all reasonable out-of-pocket costs
incurred by the Company prior to such withdrawal.
For purposes of provisions of Sections 3(a) and 7,
registrations relative to which less than 50% of the offered securities are in
fact sold shall not be included.
(b) UNDERWRITING.
If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 3
and the Company shall include such information in the written notice referred to
in Section 3(a) above. The right of any Holder to registration pursuant to
Section 3(a) shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting. A Holder may elect to include in such underwriting all or a part
of the Registrable Securities he holds.
The Company (together with all Holders proposing to distribute their
securities through such underwriting) shall enter into an underwriting agreement
in customary form with the representative of the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. If any Holder of Registrable Securities who has requested inclusion in
such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter
6
<PAGE> 7
and the Initiating Holders. The securities so withdrawn shall also be withdrawn
from registration. If the underwriter has not limited the number of Registrable
Securities or other securities to be underwritten, the Company may include its
securities for its own account in such registration if the underwriter so agrees
and if the number of Registrable Securities and other securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited or adversely affected.
Notwithstanding the provisions of this Section 3(b), if the underwriter
determines that marketing factors require a limitation of the total number of
shares of Common Stock to be underwritten or a limitation of the total number of
shares of Common Stock to be sold by the Company, then the number of shares to
be included in the registration and the underwriting shall be allocated among
all Holders of such Registrable Securities on a pro rata basis based on the
number of Registrable Securities held by all such Holders (including Initiating
Holders), but excluding for such purpose the Reserved Portion (as hereinafter
defined); PROVIDED, that Registrable Securities held by holders who (i) are not
signatories to this Agreement, (ii) received, or have the right to receive,
Registrable Securities (A) in exchange for Exchangeable Common Shares or (B)
upon conversion of Series H Convertible Preferred Stock of the Company received,
or receivable, in exchange for Exchangeable Preferred Shares and (iii) who are
not entitled to sell all of their Registrable Securities within a three-month
period, without regard to volume limitation, pursuant to Rule 144 under the
Securities Act ("SPECIAL HOLDERS") shall not be subject to such "cut-back"
allocation, except to the extent that the Registrable Securities beneficially
owned by Special Holders that are to be included in the registration exceeds in
the aggregate 10% of the total number of Registrable Securities to be included
in such registration (the "RESERVED PORTION") (it being understood that
availability within the Reserved Portion shall be allocated among the Special
Holders on a pro-rata basis); and PROVIDED FURTHER, that the number of shares of
Registrable Securities to be included in such underwriting and registration
shall not be reduced unless all other securities of the Company are first
entirely excluded from the underwriting and registration. No stock excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If the Company determines not to participate in
any such underwriting, it may elect to withdraw therefrom by written notice to
the Holders of Registrable Securities and the underwriter. The securities so
withdrawn from such underwriting shall also be withdrawn from such registration.
4. RESALE SHELF REGISTRATION. As soon as practicable after the
first anniversary of the closing date of a Qualified Public Offering (as that
term is defined below), the Company will file a shelf registration statement
(the "Shelf Registration Statement") with the Commission and shall effect such
registrations, qualifications or compliances (including, without limitation, the
execution of any required undertaking to file post-effective amendments,
appropriate compliance with securities laws, requirements or regulations, and
subject to clauses (A) and (B) of the provisos to the first sentence of Section
3(a), appropriate qualifications under applicable blue sky or other state
securities laws) as are necessary in connection with the sale and distribution
of all Registrable Securities held by Holders who are not signatories to this
Agreement (and any other Holders who request inclusion in such registration
within 30 days of notice thereof by the Company, which notice shall be given to
all such other Holders not less than 30 days prior to the effectiveness of the
Shelf Registration Statement). The Company shall use its best efforts to
maintain the effectiveness of the Shelf Registration Statement (and such other
qualifications and compliances) for a period ending on the earlier of (i) three
years from the date of effectiveness of
7
<PAGE> 8
the Shelf Registration Statement, (ii) the date all Registrable Securities
beneficially owned by Holders who are not signatories to this Agreement have
been disposed of pursuant to the Shelf Registration Statement, another
registration effected pursuant to the provisions of this Agreement or Rule 144
under the Securities Act and (iii) the date all Holders may dispose of their
Registrable Securities pursuant to Rule 144 within a three-month period without
regard to volume limitation. Notwithstanding the foregoing, the Company shall be
permitted to suspend the effectiveness of the Shelf Registration Statement for
such periods as may be reasonably necessary to amend the Shelf Registration
Statement so that it will not contain a misstatement of a material fact required
to be stated therein or omit to state a material fact necessary to be stated
therein to make the statements contained therein, in light of the circumstances
under which they are made, not misleading. The Company will use its best efforts
to file the Shelf Registration Statement on Form S-3 (or any successor form then
in effect) or, if it is not initially eligible to use Form S-3, to amend the
Shelf Registration Statement on Form S-3 at the earliest practical time. The
Company will not be obligated to enter into any underwriting agreement with
respect to the Shelf Registration Statement. Any Holders including Registrable
Securities in the Shelf Registration Statement shall comply with any blackout
periods (not to exceed 60 days) reasonably required by the managing underwriter
of another registration of Common Stock that becomes effective while the Shelf
Registration Statement is effective (or would be effective but for the third
preceding sentence). For purposes of this Section 4, a "Qualified Public
Offering" means a firm commitment, underwritten public offering pursuant to an
effective registration statement under the Securities Act of the Company's
Common Stock to the public with aggregate gross proceeds to the Company of not
less than $30,000,000 and which places a value on the Company of not less than
$250,000,000.
5. COMPANY REGISTRATION.
(a) If the Company elects to register any of its
securities for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company), other than a registration relating
solely to employee benefit plans, a registration relating solely to a
transaction under Rule 145 of the Securities Act, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky or
other state securities laws) at least 30 days prior to the filing of any
registration statement; and
(ii) include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder within 30 days after receipt of
the written notice from the Company described in clause (i) above, except as set
forth in Section 5(b) below. Such written request may specify all or a part of a
Holder's Registrable Securities. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within 30 days after the above-described notice from
8
<PAGE> 9
the Company, so notify the Company in writing.
(b) UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 5(a)(i). In such event the right of any Holder
to registration pursuant to Section 5(a) shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of the Registrable
Securities such Holder elects to register in such underwriting to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected by the
Company. Notwithstanding the provisions of Section 5, if the underwriter
determines that marketing factors require a limitation of the total number of
shares to be underwritten or a limitation of the total number of shares of
Registrable Securities to be underwritten, the number of shares that may be
included in the underwriting shall be allocated, first, to the Company; second,
on a pro rata basis to all Holders based on the total number of Registrable
Securities held by each Holder; and third, to any shareholder of the Company
(other than a Holder) on a pro rata basis. No such reduction shall reduce the
amount of securities of the selling Holders included in the registration below
25% of the total amount of securities included in such registration, unless such
offering is the Initial Public Offering of the Company's Common Stock under the
Securities Act and such registration does not include shares of any other
selling shareholders, in which event any or all of the Registrable Securities of
the Holders may be excluded in accordance with the immediately preceding
sentence. In the event of such a "cut back" allocation to the Holders,
Registrable Securities held by Special Holders shall be allocated in the
aggregate (i) 10% of the allocation to all Holders as a group and (ii) a portion
of the remaining 90% of such allocation equal to the ratio of the number of
Registrable Securities sought to be included in such registration by Special
Holders to the number of Registrable Securities sought to be included in such
registration by all Holders. In no event will shares of any other selling
shareholder be included in such registration which would reduce the number of
shares which may be included by Holders without the written consent of Holders
of not less than 80% of the Registrable Securities proposed to be sold in the
offering. No stock excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Holder of
Registrable Securities determines not to participate in any such underwriting,
such person may elect to withdraw therefrom by written notice to the Company and
the underwriter. The securities so withdrawn from such underwriting shall also
be withdrawn from such registration. Notwithstanding the foregoing provisions,
the Company may withdraw any registration statement referred to in this Section
5 without thereby incurring any liability to the holders of Registrable
Securities.
6. EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
this Agreement shall be borne by the Company, and all Selling Expenses shall be
borne by the Holders of the securities so registered pro rata on the basis of
the number of their shares so registered. Fees of counsel retained by any
selling Holders shall, except to the extent they are Registration Expenses, be
borne by such Holder.
7. REGISTRATION ON FORM S-3. The Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms. After the Company has
9
<PAGE> 10
qualified for the use of Form S-3 in addition to the rights contained in the
foregoing provisions of this Agreement, the Holders of Registrable Securities
shall have the right to request registrations on Form S-3 at the expense of the
Company (such requests shall be in writing and shall state the number of shares
of Registrable Securities to be disposed of and the intended methods of
disposition of such shares by such Holder or Holders). The Company shall not be
required to effect more than two registrations on Form S-3 in any 12 month
period and the Company shall not be obligated to effect registrations on Form
S-3 for Holders proposing to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public of less than $500,000.
The Company shall cause each registration on Form S-3 to remain effective for a
period of not less than four months at the expense of the Company.
8. REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. At its expense, the Company will:
(a) prepare and file with the Commission a registration
statement (which, in the case of an underwritten public offering pursuant to
Section 3, shall be on Form S-1 or other form of general applicability
satisfactory to the managing underwriter selected as therein provided) with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for a period of up to 120 days;
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the period specified in paragraph (a) above and comply with the
provisions of the Securities Act with respect to the disposition of all
Restricted Stock covered by such registration statement in accordance with the
sellers' intended method of disposition set forth in such registration statement
for such period;
(c) furnish to each seller of Registrable Securities and
to each underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Registrable Securities covered by such registration
statement;
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the sellers of
Registrable Securities or, in the case of an underwritten public offering, the
managing underwriter reasonably shall request; PROVIDED, HOWEVER, that the
Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;
(e) use its best efforts to list the Registrable
Securities covered by such registration statement with any securities exchange
on which the Common Stock of the Company is then listed;
10
<PAGE> 11
(f) immediately notify each seller of Registrable
Securities and each underwriter under such registration statement, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has knowledge
as a result of which the prospectus contained in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing
and the Company will prepare a supplement or amendment to such prospectus in
order that such prospectus will not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(g) if the offering is underwritten and at the request of
any seller of Registrable Securities, use its best efforts to furnish in the
date that Registrable Securities are delivered to the underwriters for sale
pursuant to such registration: (i) an opinion dated such date of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters and to such seller, stating that such registration statement has
become effective under the Securities Act and that (A) to the best knowledge of
such counsel, no stop order suspending the effectiveness thereof has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration statement, the
related prospectus and each amendment or supplement thereof comply as to form in
all material respects with the requirements of the Securities Act (except that
such counsel need not express any opinion as to financial statements contained
therein) and (C) to such other effects as reasonably may be requested by counsel
for the underwriters or by such seller or its counsel and (ii) a letter dated
such date from the independent public accountants retained by the Company,
addressed to the underwriters and to such seller, stating that they are
independent public accountants within the meaning of the Securities Act and
that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including information as
to the period ending no more than five Business Days prior to the date of such
letter) with respect to such registration as such underwriters reasonably may
request;
(h) make available for inspection by each seller of
Registrable Securities, any underwriter participating in any distribution
pursuant to such registration statement, and any attorney, accountant or other
agent retained by such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(i) cause all Registrable Securities covered by the
registration statement to be listed on each securities exchange on which the
Company's Common Stock is then listed, and unless the same already exists,
provide a transfer agent, registrar and CUSIP number for all such Registrable
Securities not later than the effective date of the registration statement; and
(j) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an
11
<PAGE> 12
earnings statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 8(f), such Holder
will, as soon as is practical, discontinue disposition of its Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus covering such Registrable Securities.
In connection with each registration hereunder, the sellers of
Registrable Securities will furnish to the Company in writing such information
with respect to themselves and the proposed distribution by them as reasonably
shall be necessary in order to assure compliance with federal and applicable
state securities laws.
In connection with each registration pursuant to Sections 3, 5 or 7
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
9. INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers, directors and partners, and each person controlling such Holder, with
respect to which registration, qualification or compliance has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter, against all claims, losses, damages and liabilities
(or action in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state thereto a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act, the Exchange Act, any rule or regulation thereunder, or any
other federal or state securities laws applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
including any of the foregoing incurred in settlement of any litigation
commenced or threatened as such expenses are incurred; PROVIDED, HOWEVER, that
the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein; and PROVIDED FURTHER, HOWEVER, that the indemnity agreement contained
in this Section 9(a) will not apply to amounts paid in settlement if such
settlement is effected without the consent of the Company (which consent will
not be unreasonably withheld).
12
<PAGE> 13
(b) Each Holder will, if Registrable Securities held by
him are included in the securities as to which such registration, qualifications
or compliance is being effected, severally and not jointly, indemnify the
Company, each of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act, the Exchange Act, any rule or regulation thereunder, or any other federal
or state securities laws, each such other Holder and each of their officers,
directors and partners, and each person controlling such Holder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
Holder, directors, officers, partners, persons, underwriters or control persons
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
including any of the foregoing incurred in settlement of any litigation
commenced or threatened, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein; PROVIDED, HOWEVER, that the obligations of such Holders hereunder
(together with any other amounts payable under Section 9(d)) shall be limited to
an amount equal to the net proceeds to each such Holder of securities sold as
contemplated herein; and PROVIDED FURTHER, HOWEVER, that the indemnity agreement
contained in this Section 9(b) will not apply to amounts paid in settlement if
such settlement is effected without the consent of the majority of the Holders
against whom indemnity is sought (which consent will not be unreasonably
withheld), provided that it shall in no event be unreasonable for a Holder to
withhold such consent if any judgment or settlement (i) does not include as an
unconditional term thereof, the giving by the plaintiff or claimant to such
Holder of a release from all liability in respect of such violation or (ii)
which includes an admission of guilt on behalf of such Holder.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 9 and shall only relieve it from any liability which it may have to such
indemnified party under this Section 9 if and to the extent the indemnifying
part is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 9 for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation and of liaison with counsel so selected
as incurred; PROVIDED, HOWEVER, that, if the defendants in any such action
include both the indemnified party and the
13
<PAGE> 14
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
9; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; PROVIDED, HOWEVER, that, in any such case, (A) no such Holder will be
required to contribute any amount in excess (together with any amounts payable
under Section 9(b)) of the price to the underwriters of all such Registrable
Securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
10. CHANGES IN ELIGIBLE SHARES. If, and as often as, there is any
change in the Eligible Shares by way of a stock split, stock dividend,
combination or reclassification, or through a merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges granted hereby shall continue with respect to the Eligible Shares as
so changed.
11. INFORMATION BY HOLDER. Each Holder of Registrable Securities
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
12. LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of Holders of two-thirds of the Registrable Securities then
outstanding held by Holders who are signatories to this Agreement, enter into
any agreement with any holder or prospective holder of any securities of the
Company giving such holder or prospective holder equity registration rights
which are superior to, or which in any manner limit, the rights of the Holder's
hereunder.
14
<PAGE> 15
13. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of the Restricted Securities to the public without registration, the
Company agrees to:
(a) Make and keep public information available as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times from and after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a purchaser of Eligible Shares owns any
Restricted Securities, furnish to the purchaser of Eligible Shares forthwith
upon request a written statement by the Company as to its compliance with
reporting requirements of Rule 144 (at any time from and after 90 days following
the effective date of the first registration statement filed by the Company for
an offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as a purchaser of
Eligible Shares may reasonably request in availing itself of any rule or
regulation of the Commission allowing a purchaser of Eligible Shares to sell any
such securities without registration.
14. REPRESENTATION AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the undersigned holders of Eligible Shares as
follows:
(a) The execution, delivery and performance of this
Agreement by the Company have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Charter or By-laws of the Company or any
provision of any material indenture, agreement or other instrument to which it
or any of its properties or assets is bound, conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under any
such indenture, agreement or other instrument or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms (subject to equitable
principles and to applicable bankruptcy, reorganization, insolvency, moratorium
and other similar laws affecting the enforceability of creditors' rights
generally and to applicable laws affecting the enforceability of indemnification
and contribution).
15. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register a Holder's securities granted to each Holder by
the Company under Sections 3, 4, 5 and 7 may be transferred or assigned by a
Holder (in compliance with Section 2) to a transferee or assignee of any of such
Holder's Restricted Securities if (i) there is transferred to such
15
<PAGE> 16
transferee at least 40% of the total shares of Restricted Securities originally
issued to the direct or indirect transferor of such transferee (as adjusted for
stock splits and combinations) or (ii) such transferee or assignee is a
Permitted Transferee; PROVIDED, that the Company is given written notice by such
Holder at the time of or within a reasonable time after said transfer or
assignment, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned; and PROVIDED FURTHER, that the transferee or
assignee of such rights assumes the obligations of such Holder under this
Agreement.
16. "MARKET STAND-OFF" AGREEMENT. Each Holder agrees, if requested
by the Company and an underwriter of Common Stock (or other securities) of the
Company, not to directly or indirectly sell, offer to sell, contract to sell
(including without limitation, short sell), grant any option to purchase or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by such Holder during the 180 day period following the effective
date of a registration statement (other than a Shelf Registration Statement) of
the Company filed under the Securities Act, PROVIDED, that:
(a) such agreement only applies to the first such
registration statement of the Company including securities to be sold on its
behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company enter into
similar agreements.
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said 180 day period.
17. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
Company and each of the Holders (including without limitation transferees of any
Eligible Shares or Restricted Stock), whether so expressed or not.
(b) NOTICES. Any notice or other writing required or
permitted to be given under this Agreement or for the purposes of this Agreement
(referred to in this Section as a "NOTICE") to any party shall be sufficiently
given if delivered personally, or if sent by prepaid registered mail or if
transmitted by fax or other form of recorded communication tested prior to
transmission to such party:
(i) in the case of a notice to the Holders at
the address listed below each Holder's name on SCHEDULE I,
(ii) in the case of a notice to the Company at:
Servicesoft Technologies, Inc.
Two Apple Hill Drive
16
<PAGE> 17
Natick, MA 01760
Attention: Chris Butler
Fax: (508)-655-0473
with a copy to:
McDermott, Will & Emery
28 State Street
Boston, MA 02109-1775
Attention: John J. Egan III, P.C.
Fax: (617) 535-3800
or at such other address as the party to whom such writing is to be given shall
have last notified to the party giving the same in the manner provided in this
Section. Any notice personally delivered to the party to whom it is addressed as
provided in this Section shall be deemed to have been given and received on the
day it is so delivered at such address, PROVIDED, that if such day is not a
Business Day then the notice shall be deemed to have been given and received on
the Business Day next following such day. Any notice mailed to the address and
in the manner provided for in this Section shall be deemed to have been given
and received on the fifth Business Day next following the date of its mailing.
Any notice transmitted by fax or other form of recorded communication shall be
deemed given and received on the first Business Day after its transmission.
(c) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Delaware without
regard to conflicts of law principles thereof.
(d) AMENDMENT. This Agreement may not be amended or
modified, and no provision hereof may be waived, without the written consent of
the Company and the holders of at least two-thirds of the outstanding shares of
Restricted Securities held by Holders who are signatories to this Agreement;
PROVIDED, HOWEVER, that any subsequent purchaser of the Series J Preferred may
become party to this Agreement by executing a signature page hereto and shall be
a Holder for purposes of this Agreement. The Company shall amend SCHEDULE I to
reflect such subsequent purchasers and shall deliver a copy thereof to the other
parties to this Agreement.
(e) SEVERABILITY. If any provision of this Agreement
shall be held to be illegal, invalid or unenforceable, such illegality,
invalidity or unenforceability shall attach only to such provision and shall not
in any manner affect or render illegal, invalid or unenforceable any other
provision of this Agreement, and this Agreement shall be carried out as if any
such illegal, invalid or unenforceable provision where not contained herein.
(f) ENTIRE AGREEMENT. This Agreement, as restated herein,
and the other instruments referred to herein contain the entire agreement among
the parties with respect to the registration rights of holders of Eligible
Shares and supersede all prior and contemporaneous arrangements or
understandings with respect thereto, including the Sixth Amended and Restated
Agreement. Each Holder who is not a signatory to this Agreement shall be deemed
to be an
17
<PAGE> 18
intended third party beneficiary hereof and shall be entitled to enforce all
rights, preferences and privileges afforded to such Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Facsimile counterpart
signatures to this Agreement shall be acceptable and binding.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 19
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
"COMPANY" SERVICESOFT TECHNOLOGIES, INC.
By: /s/ Chris Butler
----------------------------------------
Chris Butler
President and Chief Executive Officer
"HOLDERS"
/s/ Les Abelson
--------------------------------------------
LES ABELSON
/s/ Illegible Designated Signatory Pursuant
to Power of Attorney
--------------------------------------------
FREDERICK R. ADLER
--------------------------------------------
JAMES R. ADLER
AMERICAN FARM INVESTMENT CORPORATION
By: ________________________________________
Name:
Its:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 20
BANQUE EDOUARD CONSTANT
For Delrina Holdings SA
By: ______________________________________
Name:
Its:
/s/ Richard M. Bogoroch
------------------------------------------
RICHARD M. BOGOROCH
CIBC WMV INC.
By: /s/ T. Rosenberg
------------------------------------------
Name: T. Rosenberg
Its: Managing Director
COMPAGNIE FINANCIERE CODELIS SA
By: ______________________________________
Name:
Its:
------------------------------------------
STEPHEN I. D'AGOSTINO
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 21
DR CAPITAL I L.P.
By: ______________________________________
Name:
Its:
DR CAPITAL II ATHENA
By: ______________________________________
Name:
Its:
EDN EQUITIES
By: Wolfson Equities, General Partner
By: ______________________________________
Name: Aaron Wolfson, General Partner
------------------------------------------
PHILIP L. ELKYS
ELRON ELECTRONICS INDUSTRIES LTD.
By: /s/ Illegibile and /s/ Illegible
--------------------------------------
Name:
Its: CEO and CFO
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 22
------------------------------------------
HEINZ EPPLER
------------------------------------------
K. JANE FANKHANEL
------------------------------------------
RAYMOND FORTUNE
/s/ Robert J. Gailus
------------------------------------------
ROBERT J. GAILUS
FINANCIAL TECHNOLOGIES VENTURES LIMITED
PARTNERS
By: /s/ Scott Wu
------------------------------------------
Name: Scott Wu
Its: Managing Member
FINANCIAL TECHNOLOGIES VENTURES
(Q) LIMITED PARTNERS
By: /s/ Scott Wu
------------------------------------------
Name: Scott Wu
Its: Managing Member
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 23
GEISCO INTERNATIONAL S.A.
By: ______________________________________
Name:
Its:
By: ______________________________________
Name:
Its:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 24
GEMINI ISRAEL II L.P.
By: /s/ Illegible
-------------------------------------
Name:
Its:
GEMINI ISRAEL II PARALLEL FUND L.P.
By: /s/ Illegible
-------------------------------------
Name:
Its:
ADVENT PGGM GEMINI L.P.
By: /s/ Illegible
-------------------------------------
Name:
Its:
GEMINI PARTNER INVESTORS L.P.
By: /s/ Illegible
-------------------------------------
Name:
Its:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 25
GENERAL MOTORS HOURLY-RATE EMPLOYEES
PENSION TRUST
By: The Chase Manhattan Bank, Trustee
By: ______________________________________
Name:
Its:
GENERAL MOTORS SALARIED EMPLOYEES PENSION
TRUST
By: The Chase Manhattan Bank, Trustee
By: ______________________________________
Name:
Its:
/s/ Illegible
------------------------------------------
TONY GRACI, IN TRUST
FRANCIS L. GREENBERG LIVING TRUST
By: ______________________________________
Name: Francis L. Greenberg, Trustee
------------------------------------------
MICHAEL GREENBERG
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 26
/s/ Christopher H. Greendale
------------------------------------------
CHRISTOPHER H. GREENDALE
GREY ADVERTISING LTD.
By: /s/ Illegible
-------------------------------------
Name:
Its:
------------------------------------------
HO SIM GUAN
------------------------------------------
YAACOB HANNES
INDRA 4
By: Soma 3 L.P., as Partnership Manager
By: Zimmerman Capital Associates, Inc.,
as its General Partner
By: ______________________________________
Name:
Its:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 27
INTERNET CAPITAL GROUP, INC.
By: /s/ Christopher H. Greendale
--------------------------------------
Name: Christopher H. Greendale
Its: Managing Director
INTEL CORPORATION
By: ______________________________________
Name:
Its:
J.L. ALBRIGHT II VENTURE FUND
By: /s/ Gary Rubinoff
--------------------------------------
Name: Gary Rubinoff
Its:
JONES LIVING TRUST
By: ______________________________________
Name: Harvey Jones, Co-trustee
/s/ George R. Kalan
------------------------------------------
GEORGE R. KALAN
------------------------------------------
SANFORD KAPLAN
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 28
------------------------------------------
BERRY W. KEATING
JEAN-CLAUDE LANDAU, TRUSTEE UNDER
DECLARATION DATED 12/1/83
By: ______________________________________
Name:
Its:
LANDMARK EQUITY PARTNERS II, L.P.
By: Landmark Partners II, L.P.
Its: General Partner
By: Landmark Advisors Inc.
Its: Managing General Partner
By: ______________________________________
Name:
Its:
------------------------------------------
J. STUART LEMLE
ELLIOT & RHODA LEVINTHAL, REVOCABLE
TRUST U/T 10/9/80
By: ______________________________________
Name:
Its:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 29
LRJ TECHNOLOGIES INC.
By: /s/ Illegible
--------------------------------------
Name:
Its:
LUBAR NOMINEES
By: ______________________________________
Name:
Its:
JOHN T. LUPTON TRUST U/W THOMAS CARTTER
LUPTON
By: ______________________________________
David S. Gonzales, Trustee
By: ______________________________________
John T. Lupton, Trustee
By: ______________________________________
Joel W. Richardson, Jr., Trustee
------------------------------------------
CLIFFORD L. MICHEL
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 30
W. JOST MICHAELSON REVOCABLE TRUST
By: ______________________________________
Name:
Its:
------------------------------------------
ALAN B. MILLER
------------------------------------------
MARSHALL G. MINTZ
------------------------------------------
NETMANAGE INC.
By: /s/ Zvi Alon
--------------------------------------
Name: Zvi Alon
Its: Chairman & CEO
NORTHEAST VENTURES, INC.
By: ______________________________________
Name:
Its:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 31
ORIEN II, L.P.
By: Orien II Partners, L.P.
Its: General Partner
By: Orien Ventures Partners, L.P.
Its: General Partner
By: /s/ George R. Kalan
--------------------------------------
Name: George R. Kalan, Managing General
Partner
------------------------------------------
MAX PALEVSKY
------------------------------------------
SHIELA H. PEETERS
PHILIPS VENTURE PARTNERS, I
By: Vista Ventures Partners, II
Its: General Partner
By: ______________________________________
Name:
Its:
------------------------------------------
JEAN RENAULT
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 32
------------------------------------------
PETER J. REPETTI
------------------------------------------
SEYMOUR ROTHCHILD
SAMJANK INC.
By: /s/ Christopher Eaton
--------------------------------------
Name: Christopher Eaton
Its:
/s/ F. Mark D'Annolfo
------------------------------------------
FREDERICK MARK D'ANNOLFO
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 33
SIGMA PARTNERS IV, L.P.
By: Sigma Management, IV, L.L.C.
Its: General Partner
By: /s/ Wade Woodson
--------------------------------------
Name: Wade Woodson
Its: Managing Director
SIGMA ASSOCIATES IV, L.P.
By: Sigma Management IV, L.L.C.
Its: General Partner
By: /s/ Wade Woodson
--------------------------------------
Name: Wade Woodson
Its: Managing Director
SIGMA INVESTORS IV, L.L.C.
By: Sigma Management IV, L.L.C.
Its: General Partner
By: /s/ Wade Woodson
--------------------------------------
Name: Wade Woodson
Its: Managing Director
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 34
------------------------------------------
JODEY SILLS
------------------------------------------
PENNY M. SILLS
------------------------------------------
HAROLD SIMON
------------------------------------------
ROY B. SIMPSON, JR.
SOFINOV, SOCIETE FINANCIERE
D'INNOVATION INC., FILIALE DE LA CAISSE
DE DEPOT ET PLACEMENTS DU QUEBEC
By: /s/ Denis Pionne and /s/ Sophie Forest
--------------------------------------
Name: Denis Pionne and Sophie Forest
Its: President and Director
SOUTH FERRY #2 L.P.
By: ______________________________________
Name:
Its:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 35
------------------------------------------
JOEL STONE
SWIG INVESTMENT COMPANY
By: ______________________________________
Name:
Its:
------------------------------------------
HENRY TAUB
------------------------------------------
GLEN A. TOBIAS
------------------------------------------
GIDEON TOLKOWSKY
------------------------------------------
ETHEL R. WELLS
WERNER INVESTMENT CO.
By: ______________________________________
Name:
Its:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 36
------------------------------------------
MOSHE WEISEL
ROBERT WARNE WILSON AND RICHARD GILDER,
AS TRUSTEES U/A/O 3/31/93 BETWEEN ROBERT
WARNE WILSON, AS GRANTOR, AND ROBERT WARNE
WILSON AND RICHARD GILDER, AS TRUSTEES
By: ______________________________________
Name: Robert W. Wilson, Trustee
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 37
/s/ Gerald Segal
-----------------------------------------
GERALD SEGAL
<PAGE> 38
THE GOLDMAN SACHS GROUP, INC.
By: /s/ Illegible
--------------------------------------
Name:
Its:
STONE STREET FUND 2000, LLC
By: /s/ Katherine L. Nissenbaum
--------------------------------------
Name: Katherine L. Nissenbaum
Its: Vice President
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 39
Christopher Butler
------------------------------------------
(Print name of Holder)
By: /s/ Christopher Butler
--------------------------------------
Name: Christopher Butler
Title:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 40
Ed Boyajian
------------------------------------------
(Print name of Holder)
By: /s/ Ed Boyajian
--------------------------------------
Name: Ed Boyajian
Title:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 41
Daniel Kossmann
------------------------------------------
(Print name of Holder)
By: /s/ Daniel Kossmann
--------------------------------------
Name: Daniel Kossmann
Title:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 42
Massood Zarrabian
------------------------------------------
(Print name of Holder)
By: /s/ Massood Zarrabian
--------------------------------------
Name: Massood Zarrabian
Title:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 43
Chet Barnard
------------------------------------------
(Print name of Holder)
By: /s/ Chester Barnard, Jr.
--------------------------------------
Name: Chester Barnard, Jr.
Title:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 44
Paul Maguire
------------------------------------------
(Print name of Holder)
By: /s/ Paul R. Maguire
--------------------------------------
Name: Paul R. Maguire
Title:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 45
Jeff Whitney
------------------------------------------
(Print name of Holder)
By: /s/ Jeff Whitney
--------------------------------------
Name: Jeff Whitney
Title:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 46
Jim Keller
------------------------------------------
(Print name of Holder)
By: /s/ Jim Keller
--------------------------------------
Name: Jim Keller
Title: SVP, Strategic Alliances
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 47
Dale Kennedy
------------------------------------------
(Print name of Holder)
By: /s/ Dale Kennedy
--------------------------------------
Name: Dale Kennedy
Title:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 48
ITOCHU Techno-Science Corporation
------------------------------------------
(Print name of Holder)
By: /s/ H. Satake
--------------------------------------
Name: H. Satake
Title: President
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 49
ITOCHU Technology, Inc.
------------------------------------------
(Print name of Holder)
By: /s/ Takahiro Susaki
--------------------------------------
Name: Takahiro Susaki
Title: President
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 50
ITOCHU Corporation
------------------------------------------
(Print name of Holder)
By: /s/ Eizo Kobayashi
--------------------------------------
Name: Eizo Kobayashi
Title: Chief Operating Officer,
Information Technology & Telecommunication
Division
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 51
Morgan Stanley Dean Witter Equity
Funding, Inc.
------------------------------------------
(Print name of Holder)
By: /s/ David Powers
--------------------------------------
Name: David Powers
Title: Vice President
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 52
Alf Saggese
------------------------------------------
(Print name of Holder)
By: /s/ Alf Saggese
--------------------------------------
Name: Alf Saggese
Title: MD Servicesoft EMEA
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 53
The Reez Trust
------------------------------------------
(Print name of Holder)
By: /s/ Illegible
--------------------------------------
Name:
Title:
[SIGNATURE PAGE TO SEVENTH AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE> 54
Schedule 1
HOLDERS OF ELIGIBLE SHARES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HOLDER EXCHANGEABLE EXCHANGEABLE SERIES H SERIES I SERIES J
COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Frederick R. Adler 528,426 30,488 103,211
c/o Jay Nickse
Venad Administrative Services, Inc.
342 Madison Avenue, #807
New York, NY 10173
Fax: 212-599-2526
- ------------------------------------------------------------------------------------------------------------------------------------
James R. Adler 2,496
- ------------------------------------------------------------------------------------------------------------------------------------
American Farm Investment Corporation 98,518
BCE Place, 161 Bay Street
49th Floor
Toronto, Ontario M5J 2S1
Attn: Gerry Schwartz
Fax: 416-362-5765
- ------------------------------------------------------------------------------------------------------------------------------------
Banque Edouard Constant
(formerly Banque Scandinave en
Suisse, Geneva) 69
- ------------------------------------------------------------------------------------------------------------------------------------
Richard M. Bogoroch 17,315 9,756 4,651
15 Caravan Drive
Don Mills, Ontario, M3B 1M9
Fax: 416-868-3134
- ------------------------------------------------------------------------------------------------------------------------------------
CIBC WMV Inc. 1,219,512 350,831
161 Bay Street, 8th Floor
BCE Place
Toronto, Ontario M5J 2F8
Attn: Teddy Rosenberg
Fax: 416-594-8037
- ------------------------------------------------------------------------------------------------------------------------------------
Compagnie Financiere Codelis S.A. 443
44, chemin Frank Thomas
1211 Geneva 29 Suisse,
Switzerland
Attn: Edgard Mizahi
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
i
<PAGE> 55
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HOLDER EXCHANGEABLE EXCHANGEABLE SERIES H SERIES I SERIES J
COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stephan I. D'Agostino 521
Drakesmith Lane
Rye, NY 10580
- ------------------------------------------------------------------------------------------------------------------------------------
DR Capital I L.P. 694
825 Third Avenue, 40th Floor
New York, NY 10022
Attn: Joseph Cohen
- ------------------------------------------------------------------------------------------------------------------------------------
DR Capital II L.P. 2,780
825 Third Avenue, 40th Floor
New York, NY 10022
Attn: Joseph Cohen
- ------------------------------------------------------------------------------------------------------------------------------------
EDN Equities 142
One State Street Plaza
New York, NY 10004
Attn: Aaron Wolfson
- ------------------------------------------------------------------------------------------------------------------------------------
Elron Electronic Industries Ltd. 804,653
Ahuva Goren Advance Tech Center
P.O. Box 1573
Haifa 31015 Israel
Attn: Doron Birger
Fax: 972-4-855-0248
- ------------------------------------------------------------------------------------------------------------------------------------
Heinz Eppler 1,404
45 Rockefeller Plaza, Ste. 2500
New York, NY 10020
- ------------------------------------------------------------------------------------------------------------------------------------
K. Jane Fankhanel 21
666 Fifth Avenue
New York, NY 10103
- ------------------------------------------------------------------------------------------------------------------------------------
Raymond Fortune 209
18 Windingwood Lane
Acton, MA 01720
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Technologies Ventures, L.P. 33,659 280,731
Financial Technologies Ventures (Q), L.P. 941,951 (aggregate)
601 California Street, Suite 2200
San Francisco, CA 94108
Attn: Scott Wu
Fax: 415-229-3005
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. Gailus 163,048 16,611
50 Riverside Drive #2B
New York, NY 10024
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ii
<PAGE> 56
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HOLDER EXCHANGEABLE EXCHANGEABLE SERIES H SERIES I SERIES J
COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Geisco International S.A. 213
PO Box CH 8027
Zurich, Switzerland
Attn: Beat Brechbuhler
- ------------------------------------------------------------------------------------------------------------------------------------
Gemini Israel II L.P. 226,820 193,804 121,703
Advent PGGM Gemini L.P. 306,207* 29,071 18,256
Gemini Israel II Parallel Fund L.P. 34,023* 261,637 164,299
Gemini Partner Investors L.P. 3,293 2,165
c/o Gemini Capital Fund
Management Ltd.
11 Galgalei Haplada Street
P.O. Box 12548
Industrial Zone
Herzlyia 46733 Israel
Attn: Tali Aben
Fax: 011-972-9-958-8442
- ------------------------------------------------------------------------------------------------------------------------------------
Tony Graci, in trust 24,390
c/o Graci & Associates
350 Bay Street, 9th Floor
Toronto, Ontario M5H 2SE
Fax: 416-367-4098
- ------------------------------------------------------------------------------------------------------------------------------------
Frances L. Greenberg Living Trust 355
2100 South Ocean Blvd. Apt. 407
Palm Beach, FL 33480
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Greenberg 87
920 Suffield Terrace
Northbrook, IL 60062
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher H. Greendale 52,521
29 Radcliffe Road
Weston, MA 02193
- ------------------------------------------------------------------------------------------------------------------------------------
Grey Advertising Ltd. 141,759 20,889
1881 Yonge Street, 5th Floor
Toronto, Ontario M4S 3C4
Attn: Tony Russell
Fax: 416-488-7071
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
*Represents options exerciseable for Exhchangeable Preferred Shares of Balisoft
Ltd. which are exchangeable for Exchangeable Preferred.
iii
<PAGE> 57
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HOLDER EXCHANGEABLE EXCHANGEABLE SERIES H SERIES I SERIES J
COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ho Sim Guan 69
80 Raffles Place Unit 28-01UOB.
Singapore 0104
Attn: Calvin Ho Han Leong
- ------------------------------------------------------------------------------------------------------------------------------------
Yaacov Hannes 94
148 Aba Houshi Street
Haffa 34988 Israel
- ------------------------------------------------------------------------------------------------------------------------------------
Indra 4 L.P. 2,716
PO Box 948 Pleasant Plain Rd. RR2
Fairfield, IA 52556
Attn: David Johnson
- ------------------------------------------------------------------------------------------------------------------------------------
Intel Corporation 840,329
2200 Mission College Blvd. 63,025**
#SC4-210
Santa Clara, CA 95052
Attn: Tamiko Hutchinson
Fax: 408-765-6038
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Group, Inc. 630,247 92,868 208,084
45 Milk Street
Boston, MA 02109
Attn: Chris Greendale
Fax: 617-338-7117
- ------------------------------------------------------------------------------------------------------------------------------------
J.L. Albright II Venture Fund, L.P. 708,808 104,445 147,287
Canada Trust Tower
BCE Place, Suite 440
161 Bay Street
Toronto, Ontario,
CANADA M5J 2S1
Attn: Gary Rubinoff
Fax: 416-943-6160
- ------------------------------------------------------------------------------------------------------------------------------------
Harvey C. and Barbara E. Jones 878
2121 Waverley Street
Palo Alto, CA 94301
- ------------------------------------------------------------------------------------------------------------------------------------
George R. Kalan 12,238 9,976
One Post Road
Fairfield, CT 06430
Fax: 203-259-5288
- ------------------------------------------------------------------------------------------------------------------------------------
Kane & Company 6,796
- ------------------------------------------------------------------------------------------------------------------------------------
Sanford Kaplan 878
10128 Empyrean Way #303
Los Angeles, CA 90067
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
** Represents warrants to purchase Series H Preferred Stock.
iv
<PAGE> 58
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HOLDER EXCHANGEABLE EXCHANGEABLE SERIES H SERIES I SERIES J
COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Betty W. Keating 42
- ------------------------------------------------------------------------------------------------------------------------------------
Jean-Claude Landau, Trustee Under Declaration 841
Dated 12/1/83
589 Fifth Avenue, Ste. 1102
New York, NY 10017
Attn: Jean-Claude Landau
- ------------------------------------------------------------------------------------------------------------------------------------
Landmark Equity Partners II, L.P. 8,781
760 Hopmeadow Street, PO Box 188
Simsbury, CT 06070-0188
Attn: James P. McConnell
- ------------------------------------------------------------------------------------------------------------------------------------
J. Stuart Lemle 660
c/o Land & Lemle
1775 Eye Street, N.W., Suite 950
Washington, DC 20006
- ------------------------------------------------------------------------------------------------------------------------------------
Elliot & Rhoda Levinthal Revocable Trust U/T 790
dated 10/9/80
59 Sutherland Drive
Atherton, CA 94025
Attn: Elliot & Rhoda Levinthal
- ------------------------------------------------------------------------------------------------------------------------------------
LRJ Technologies Inc. 1,206,753*** 56,710
c/o Brightspark
20 Eglinton Avenue West
Suite 600
Toronto, Ontario M4R 1K8
CANADA
Attn: Mark Skapinker
Fax: 416-488-1988
- ------------------------------------------------------------------------------------------------------------------------------------
Lubar Nominees 878
700 North Water Street, Ste. 1200
Milwaukee, WI 53202
Attn: Sheldon Lubar
- ------------------------------------------------------------------------------------------------------------------------------------
The Trust Created Under the Will of Thomas 2,081
Cartter Lupton F/B/O John T. Lupton and Issue
- ------------------------------------------------------------------------------------------------------------------------------------
Clifford L. Michel, Esq. 878
- ------------------------------------------------------------------------------------------------------------------------------------
W. Jost Michelsen Revocable Trust 53
135 Bow Street, Apt. 15
Portsmouth, NH 03801-3885
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
***Exchanged into Common Stock of the Company.
v
<PAGE> 59
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HOLDER EXCHANGEABLE EXCHANGEABLE SERIES H SERIES I SERIES J
COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alan B. Miller 105
57 Crosby Brown Road
Gladwyne, PA 19035
- ------------------------------------------------------------------------------------------------------------------------------------
Marshall G. Mintz 11
1900 Avenue of the Stars Ste. 1450
Los Angeles, CA 90067
- ------------------------------------------------------------------------------------------------------------------------------------
NetManage, Inc. 269,038
10725 N. De Anza Blvd.
Cupertino, CA 95014
Attn: Zvi Alon
Fax: 408-257-1101
- ------------------------------------------------------------------------------------------------------------------------------------
NorthEast Venture, Inc. 4,303
One State Street Suite 1720
Hartford, CT 06103-3195
Attn: Ed Cheney
- ------------------------------------------------------------------------------------------------------------------------------------
Orien II, L.P. 778,640
c/o Orien Ventures, Inc.
One Post Road
Fairfield, CT 06430
Fax: 203-259-5288
- ------------------------------------------------------------------------------------------------------------------------------------
Max Palevsky 878
924 Westwood Blvd. #700
Los Angeles, CA 90024
- ------------------------------------------------------------------------------------------------------------------------------------
Shiela H. Peeters 18
98-19 64th Avenue
Forest Hills, NY 11374
- ------------------------------------------------------------------------------------------------------------------------------------
Philips Venture Fund I, L.P. 24,834
PO Box 673
Livingston, MT 59047
- ------------------------------------------------------------------------------------------------------------------------------------
Jean Renault 14
- ------------------------------------------------------------------------------------------------------------------------------------
Peter J. Repetti 1,114
666 Fifth Avenue, 31st Floor
New York, NY 10103
- ------------------------------------------------------------------------------------------------------------------------------------
Les Ableson 97,319 16,833
PO Box 352
Kochav Yair
4486 Israel
- ------------------------------------------------------------------------------------------------------------------------------------
Samjank Inc. 97,319 16,833
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
vi
<PAGE> 60
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HOLDER EXCHANGEABLE EXCHANGEABLE SERIES H SERIES I SERIES J
COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gerald Segal 2,439
c/o Robertson Stephens Evergreen Ltd.
96 Rothschild Blvd.
Tel-Aviv 65224 Israel
Fax: 011-972-3-710-8220
- ------------------------------------------------------------------------------------------------------------------------------------
Seymour Rothchild 878
19 Hilltop Road
Chestnut Hill, MA 02167
- ------------------------------------------------------------------------------------------------------------------------------------
Sigma Partners V, L.P. 385,271
Sigma Partners IV, L.P. 649,555 85,666
Sigma Associates IV, L.P. 169,697 34,732
Sigma Investors IV, L.P. 21,078 3,427
2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
Attn: Marilyn Stallings
Fax: 650-854-1323
with a copy to:
20 Custom House Street, Suite 830
Boston, MA 02110
Attn: Bob Davoli
Fax: 617-330-7975
- ------------------------------------------------------------------------------------------------------------------------------------
Jodey Sills 2,165
11 Riverside Drive Apt. 12TE
New York, NY 10023
- ------------------------------------------------------------------------------------------------------------------------------------
Penny M. Sills 2,165
20 West Neck Road
Southampton, NY 11958-2229
- ------------------------------------------------------------------------------------------------------------------------------------
Harold Simon 440
El-Al Bldg. 10th Floor
Tel-Aviv 63805 Israel
- ------------------------------------------------------------------------------------------------------------------------------------
Roy B. Simpson, Jr. 31
163 Taconic Rd.
Greenwich, CT 06831
- ------------------------------------------------------------------------------------------------------------------------------------
Sofinov, Societe Financiere D'Innovation Inc., 708,808 853,659 442,967
Filiale de la Caisse de Depot et Placements du
Quebec
1981 avenue, McGill College, 7th Floor
Montreal, Quebec H3A 3C7
Attn: Sophie Forest
Fax: 514-847-2628
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
vii
<PAGE> 61
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HOLDER EXCHANGEABLE EXCHANGEABLE SERIES H SERIES I SERIES J
COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
South Ferry #2, L.P. 142
One State Street Plaza
New York, NY 10004
Attn: Zev Wolfson
- ------------------------------------------------------------------------------------------------------------------------------------
Joel Stone 439
630 Dundee Road Ste. 220
Northbrook, IL 60062
- ------------------------------------------------------------------------------------------------------------------------------------
The Swig Investment Company 878
- ------------------------------------------------------------------------------------------------------------------------------------
Henry Taub 878
11 DeVriese Court
Tenafly, NJ 07670
- ------------------------------------------------------------------------------------------------------------------------------------
THC Inc. 204
520 West Eleven Mile Road
Royal Oak, MI 48067-2294
Attn: Phillip L. Elkus
- ------------------------------------------------------------------------------------------------------------------------------------
Glen A. Tobias 355
22 Hampton Road
Scarsdale, NY 10583
- ------------------------------------------------------------------------------------------------------------------------------------
Gideon Tolkowsky 6,585
511 Fifth Avenue
New York, NY 10017
- ------------------------------------------------------------------------------------------------------------------------------------
Ethel R. Wells 2,813
4085 Lago Drive
Santa Barbara, CA 93110
- ------------------------------------------------------------------------------------------------------------------------------------
Werner Investment Co. 70
PO Box 5831 TA
Denver, CO 80217
Attn: Hildegard Messenbaugh
- ------------------------------------------------------------------------------------------------------------------------------------
Moshe Wiesel 440
El-Al Bldg. 10th Floor
Tel-Aviv 63805 Israel
- ------------------------------------------------------------------------------------------------------------------------------------
Robert Warne Wilson and Richard Gilder as 1,041
Trustees U/A/O 3/31/93 between Robert Warne
Wilson, as Grantor, and Robert Warne Wilson and
Richard Gilder, as Trustees
520 83rd Street Suite 3R
Brooklyn, NY 11209
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
viii
<PAGE> 62
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HOLDER EXCHANGEABLE EXCHANGEABLE SERIES H SERIES I SERIES J
COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mark Skapinker 27,685
c/o Brightspark
20 Eglinton Avenue West
Suite 600
Toronto, Ontario M4R 1K8
CANADA
Fax: 416-488-1988
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley 110,742
2 International Place
Boston, MA 02109
Attn: Charles Sansbury
Fax: 617-856-8017
- ------------------------------------------------------------------------------------------------------------------------------------
Mark D'Annolfo 11,074
95 Suffolk Road
Chestnut Hill, MA 02467
- ------------------------------------------------------------------------------------------------------------------------------------
The Goldman Sachs Group, Inc. 664,452
Stone Street Fund 2000, LLC 110,742
Goldman Sachs
85 Broad Street
New York, NY 10004
FAX: 212-357-5505
- ------------------------------------------------------------------------------------------------------------------------------------
Bob Gailus 16,661
50 Riverside Drive #2B
New York, NY 10024
- ------------------------------------------------------------------------------------------------------------------------------------
Washington Mall Partners 7,420
c/o John Egan
120 Fulton St., 3D
Boston, MA 02109
- ------------------------------------------------------------------------------------------------------------------------------------
ITOCHU Techno-Science Corporation 44,297
ITOCHU Corporation 44,297
ITOCHU Technology, Inc. 22,148
3100 Patrick Henry Drive
Santa Clara, CA 95054
Attn: Takayuki Fukuhara
Fax: 408-727-4619
- ------------------------------------------------------------------------------------------------------------------------------------
Chris Butler 55,371
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
- ------------------------------------------------------------------------------------------------------------------------------------
Ed Boyajian 5,537
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ix
<PAGE> 63
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel Kossmann 16,611
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
- ------------------------------------------------------------------------------------------------------------------------------------
Massood Zarrabian 22,148
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
- ------------------------------------------------------------------------------------------------------------------------------------
Chet Barnard 2,769
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
- ------------------------------------------------------------------------------------------------------------------------------------
Alf Saggese 9,967
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
- ------------------------------------------------------------------------------------------------------------------------------------
Paul Maguire 5,537
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
- ------------------------------------------------------------------------------------------------------------------------------------
Jeff Whitney 5,537
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
x
<PAGE> 64
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Jim Keller 9,967
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
- ------------------------------------------------------------------------------------------------------------------------------------
Dale Kennedy 5,537
c/o Servicesoft Technologies, Inc.
Two Apple Hill Drive
Natick, MA 01760
Fax: (508) 655-0473
- ------------------------------------------------------------------------------------------------------------------------------------
The Reez Trust 9,967
c/o Kaplan Talkins
2900 John Street
Suite 1A
Markham, Ontario L3R 5G3
CANADA
- ------------------------------------------------------------------------------------------------------------------------------------
3,481,478
TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
xi
<PAGE> 1
EXHIBIT 10.3
SERVICESOFT TECHNOLOGIES, INC.
AMENDED AND RESTATED
1994 STOCK OPTION PLAN
1. PURPOSE. The Servicesoft Technologies, Inc. Stock Option Plan (the "Plan")
is intended to provide a method whereby employees and other associated persons
(including officers and directors) of Servicesoft Technologies, Inc. (the
"Company") and its subsidiaries who are making, and are expected to continue
making, substantial contributions to the successful management and growth of the
Company and its subsidiaries may be offered an opportunity to acquire Common
Stock, par value $0.01 per share (the "Common Stock"), of the Company. The
intention is to increase the proprietary interest of those persons in the
Company and their incentive to remain in and advance in the service of the
Company and its subsidiaries and to attract and retain personnel of experience
and ability by granting such persons an opportunity to acquire a proprietary
interest in the Company. Accordingly, the Company may, from time to time, grant
to such employees as may be selected in the manner hereinafter provided,
incentive stock options ("Incentive Stock Options"), as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory
stock options ("Nonstatutory Stock Options") to purchase shares of Common Stock
of the Company on the terms and conditions hereinafter established. The
Incentive Stock Options and Nonstatutory Stock Options sometimes are referred to
herein individually as an "Option" and collectively as the "Options".
2. ADMINISTRATION. The Plan shall be administered by a Compensation Committee
(the "Committee") appointed by the Board of Directors of the Company. The
Committee shall consist of no fewer than three members who may also be members
of the Board of Directors of the Company and participate in the Plan. Should the
Company become subject to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Committee shall consist of not fewer than three
"disinterested persons", as that term is defined in subparagraph (d)(3) of Rule
16b-3 ("Rule 16b-3") under the Exchange Act. Members of the Committee then will
not be able to participate in the Plan or become members if one year prior to an
occurrence whereby the Company becomes subject to Rule 16b-3 they received an
option under any plan of the Company. Subject to the terms and conditions of the
Plan and relevant commitments of the Company, the Committee shall have full
authority in its discretion, from time to time, and at any time, to select the
persons to whom Options shall be granted, to determine the number of shares to
be covered by each option, the time at which the Option shall be granted, the
terms and conditions of Option Agreements (as hereinafter defined) and, except
as hereinafter provided, the option exercise price and the term during which the
Options may be exercised.
The Board of Directors may at any time appoint or remove members of the
Committee and may fill vacancies, however caused, in the Committee. The
Committee shall select one of its members as its Chairman, and shall hold its
meetings at such times
<PAGE> 2
and places as it shall deem advisable. A majority of its members shall
constitute a quorum. All actions of the Committee shall be taken by a majority
of its members and can be taken by written consent in lieu of a meeting. The
Committee shall make such rules and regulations for the conduct of its business
as it shall deem advisable.
3. INTERPRETATION AND AMENDMENT. The interpretation, construction or
determination of any provisions of the Plan by the Committee shall be final and
conclusive. No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan.
The Board of Directors may, at any time, amend, alter, suspend or terminate
the Plan; PROVIDED, HOWEVER, that any such action shall not impair any Options
theretofore granted under the Plan, and provided further that no amendment of
the Plan may be effected with regard to the following actions without the
approval of the holders of at least the majority of the voting stock of the
Company: (i) the total number of shares of Common Stock that may be purchased
under the Plan shall not be increased (except as permitted by Paragraph 11);
(ii) the option period during which outstanding Options granted under the Plan
may be exercised shall not be extended; and (iii) the class of individuals
eligible to receive options under the Plan cannot be changed.
4. PARTICIPANTS. Incentive Stock Options may be granted under the Plan to all
employees of the Company and its subsidiaries (including employees who are also
directors or officers of the Company or its subsidiaries). The term "subsidiary"
shall mean "subsidiary corporation" as defined in Section 425 of the Code. No
Incentive Stock Option shall be granted to an employee who, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of capital stock of the
Company or any subsidiary of the Company; PROVIDED, HOWEVER, that an Incentive
Stock Option may be granted to such an employee if, at the time such Incentive
Stock Option is granted, the option exercise price is at least one hundred and
ten percent (110%) of the fair market value of the Common Stock subject to the
Incentive Stock Option, and such Incentive Stock Option is by its terms not
exercisable after the expiration of five (5) years from the date such Incentive
Stock Option is granted. Nonstatutory Stock Options may be granted to any person
who has provided services to the Company, as determined is appropriate by the
Committee.
Subject to the preceding paragraph, receipt of stock options under any
other stock option plan maintained by the Company or any subsidiary shall not,
for that reason, preclude a person from receiving Options under the Plan.
5. COMMON STOCK. The Common Stock which may be issued and sold pursuant to
Options granted under the Plan from time to time shall not exceed in the
aggregate 2,200,000 shares of the Common Stock of the Company. The number of
shares issuable under the Plan may be increased to allow for the reissuance or
disposition of shares that have been issued upon the exercise of options granted
under the Plan and reacquired by the Company. The shares of Common Stock
reissued and sold under the Plan may be the Company's authorized but unissued
shares, or shares held in the Company's treasury.
<PAGE> 3
6. TERMS AND CONDITIONS OF OPTIONS. Options granted pursuant to the Plan shall
be in such form and on such terms as the Committee shall, from time to time,
approve, but subject, nevertheless, to the following terms and conditions:
(a) The Option shall state the total number of shares of Common Stock to
which it relates and no fractional shares of Common Stock shall be issued.
(b) The Option exercise price per share of Common Stock issuable upon the
exercise of an Incentive Stock Option shall be not less than one hundred percent
(100%) of the fair market value of the Common Stock covered by such Option at
the date such Option is granted, or, in the case of an employee who at the time
the Incentive Stock Option is granted owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of capital stock
of the Company or any subsidiary of the Company, the Option exercise price for
any Incentive Stock Option shall be not less than one hundred and ten percent
(110%) of the fair market value of the Common Stock covered by such Option.
(c) Notwithstanding any other provision of the Plan, the term of an Option
shall be for a period of not more than ten (10) years from the date such Option
is granted.
(d) An Option must be granted within ten (10) years of the earlier of the
date the Plan is adopted or the date this Plan is approved by the Company's
stockholders in accordance with Paragraph 22.
(e) No individual shall be given the opportunity under this Plan to
exercise Incentive Stock Options for the purchase of Common Shares valued (at
the time of grant of the Incentive Stock Options) in excess of $100,000, in any
calendar year, unless and to the extent that said Options shall have first
become exercisable in the preceding year. No Incentive Stock Option shall be
granted hereunder in such a manner as would cause the foregoing restrictions to
be violated.
7. RESTRICTIONS ON DISPOSITION AND OBLIGATION OF RESALE. Shares of Common
Stock acquired by an employee pursuant to the exercise of a Nonstatutory Stock
Option under the Plan shall not be sold, transferred, or otherwise disposed of
and shall not be pledged or otherwise hypothecated, except as provided in
Section 12 and in this Section 7. (Any such sale, transfer or other disposition,
or any pledge or other hypothecation shall hereinafter be referred to as a
"disposition"). In the event of the termination of employment for any reason
except retirement with the consent of the Company or death, such shares shall,
except as provided below, be offered for resale to the Company at the original
exercise price of the Nonstatutory Stock Option the exercise of which resulted
in the subject shares. Shares as to which the restrictions against disposition
and the obligations of resale to the Company have lapsed in accordance with the
provisions set forth below shall be referred to as "free shares". Shares as to
which the restrictions against disposition and the obligation of resale to the
Company have not lapsed as provided below shall be referred to as "restricted
shares". Holders of restricted shares may vote their shares at any meeting of
holders of shares of Common Stock. The Committee may provide for the issuance of
restricted shares subject to this paragraph to a Trustee in exchange for payment
of par
<PAGE> 4
value only and direct said Trustee to issue an appropriate proxy authorizing the
Optionee to vote said restricted shares.
(a) The restrictions against disposition and the obligation of resale to
the Company of shares acquired pursuant to the Plan shall lapse as the Board of
Directors or Committee shall determine, and such terms shall be incorporated
into and be made a part of the option Agreement between the Company and the
employee. Any provision for the lapse of the restrictions against disposition
and the obligation of resale shall apply with respect to shares subject to an
option and/or shares issued upon the exercise of any related stock appreciation
rights whether or not the Option has been exercised in whole or part on the date
of lapse.
(b) In the event of the termination of employment for any reason, shares
issued to the employee pursuant to the exercise of a Nonstatutory Stock Option
under the Plan, which shares have not as of the date of termination of
employment, become free shares as defined above, shall become subject to an
obligation of immediate resale to the Company. The obligation of resale in the
case of disability, termination of employment due to retirement with the consent
of the Company or death shall be terminated to the same extent as an unexercised
Option may be exercised under similar circumstances as set forth in Sections 9
and 11. Shares subject to such obligation of resale shall be delivered to the
Company within thirty (30) days following the termination of employment. Within
sixty (60) days following a timely delivery of such shares, the Company will
compensate the employee (at the original acquisition price) for such number of
shares as the Company elects to purchase and will return to the employee any
shares not so purchased. Nothing in this Paragraph 7 shall require the Company
to repurchase shares issued to employees under the Plan. In the event the
Company exercises its rights under this Plan, restricted shares that are not
delivered to the Company within thirty (30) days following the termination of
employment shall remain subject to the restrictions against disposition, and
such restrictions shall not lapse as otherwise provided in this Paragraph 7 and
in the employee's Option Agreement.
(c) Notwithstanding any of the foregoing restrictions, any restricted
shares acquired under the Plan may at any time be pledged or otherwise
hypothecated to secure borrowing by the employee to obtain the acquisition price
to be paid by the employee for such shares, provided, however, that the amount
of such borrowing may not exceed the acquisition price of such shares.
(d) The provisions of this Paragraph 7 and the provisions of any Option
Agreement between the Company and an employee relating to the restrictions
against disposition and the obligation of resale to the Company shall be applied
according to their terms or according to such other terms and conditions, or at
such other times and dates, as the Board of Directors or the Committee may from
time to time establish.
8. STOCK APPRECIATION RIGHTS.
(a) A "stock appreciation right" is the right of an Optionee, without
payment to the Company (except for applicable withholding taxes), to receive the
excess of the Fair
<PAGE> 5
Market Value per share on the date on which a stock appreciation right is
exercised over the option price per share as provided in the related underlying
Option. A stock appreciation right shall pertain to, and be granted only in
conjunction with, a related underlying Option granted under this Plan and shall
be exercisable and exercised only to the extent that the related option is
exercisable. The number of shares of Common Stock subject to the stock
appreciation right shall be all or part of the shares subject to the related
Option, as determined by the Committee. The stock appreciation right shall
either become all or partially non-exercisable and shall be all or partially
forfeited if the exercisable portion, or any part thereof, of the related option
is exercised and vice versa.
(b) At the discretion of the Committee, any Option granted under this Plan
may, at the time of such grant, include a stock appreciation right. The
Committee may impose conditions upon the grant or exercise of the stock
appreciation right which conditions may include a condition that the stock
appreciation right may only be exercised in accordance with the rules and
regulations adopted by the Committee from time to time. Such rules and
regulations may govern the right to exercise the stock appreciation right
granted prior to the adoption or amendment of such rules and regulations as well
as stock appreciation rights granted thereafter.
(c) Subject to any restrictions or conditions imposed by the Committee, a
stock appreciation right may be exercised by the Optionee as to a number of
shares of Common Stock under its related Option only upon the surrender of a
like number of shares of Common Stock available to the exercisable portion of
the related Option. Upon the exercise of a stock appreciation right and the
surrender of the exercisable portion of the related Option, the Optionee shall
be awarded cash, shares of Common Stock or a combination of shares and cash at
the discretion of the Committee. The award shall have a total value equal to the
product obtained by multiplying (1) the excess of the Fair Market Value per
share on the date on which the stock appreciation right is exercised over the
option price per share by (2) the number of shares subject to the exercisable
portion of the related Option so surrendered. The Committee may from time to
time, determine a limit as to the payment of the share value of a stock
appreciation right. In the event loans by the Company to the Optionee are
outstanding at the time of termination of his employment, the limit shall be no
less than the then-outstanding loan amount as specified in Paragraph 8(a).
(d) The portion of the stock appreciation right which may be awarded in
cash shall be determined by the Committee from time to time. Cash awards will be
subject to the disposition limitations specified in Paragraph 7 hereof The
number of shares awardable to an Optionee with respect to the noncash portion of
a stock appreciation right shall be determined by dividing such noncash portion
by the Fair Market Value per share on the exercisable date. No fractional shares
shall be issued.
9. TERMINATION OF EMPLOYMENT. Subject to the provision of Section 10, the
Option Agreement may provide that if the holder of an Option is an employee of
the Company or any subsidiary and ceases to be so employed for any reason, then
any options that are exercisable by him at the time he ceases to be employed by
the Company or its subsidiaries, and only to the extent such options are
exercisable as of such time, may be exercised by him only within ninety (90)
days after the date he ceases to be employed by
<PAGE> 6
the Company or its subsidiary. Notwithstanding the foregoing, if the holder of
an Option is an employee of the Company or any subsidiary and ceases to be so
employed as a result of his dismissal for cause (as determined by the Board of
Directors in its sole discretion or as otherwise defined in an employment
agreement with the Optionholder in effect at that time), the Option Agreement
may provide for the immediate termination of any Options granted to such
employee. The ninety (90) day limit referred to in this paragraph may be
extended on a case-by-case basis at the sole discretion of the Committee.
Solely for the purposes of the Plan, the transfer of an employee from the
employ of the Company to a subsidiary of the Company, or vice-versa, shall not
be deemed a termination of employment.
10. TERMINATION AS A RESULT OF CHANGE OF CONTROL.
(a) In the event that an Optionholder who is an employee of the Company is
terminated by the Company upon or within the twelve month period following a
Change of Control, and such termination is not a dismissal for cause, fifty
percent (50%) of the remaining unvested portion of the total number of Options
held by such Option holder issued previously under this Plan shall vest
immediately upon such termination and become exercisable, while the remaining
Options shall be governed by the provisions of Section 9 of this Plan and the
terms of the Option Agreement; PROVIDED, HOWEVER, that the Board of Directors of
the Company shall have the discretion to alter such arrangements with respect to
a Change of Control in the terms of any particular Option Agreement, and may in
particular provide for a different percentage of unvested Options to vest
immediately in the event of a Change of Control regardless of whether the
employment of the holder of such Options is subsequently terminated.
(b) In the event of a Change of Control, fifty percent (50%) of the
remaining unvested portion of the total number of Options held by each director
of the Company who is not an employee of the Company, issued previously under
this Plan shall vest immediately upon such Change of Control and become
exercisable, while the remaining Options shall be governed by the provisions of
Section 9 of this Plan and the terms of the Option Agreement; PROVIDED, HOWEVER,
that the Board of Directors of the Company shall have the discretion to alter
such arrangements with respect to a Change of Control in the terms of any
particular Option Agreement, and may in particular provide for a different
percentage of unvested Options to vest immediately in the event of a Change of
Control.
(c) For purposes of this Section 10, a "Change of Control" shall mean any
of the following events: (i) the dissolution or liquidation of the Company, (ii)
the sale of all or substantially all of the assets of the Company on a
consolidated basis to an unrelated person or entity, (iii) a merger,
reorganization or consolidation in which the holders of the Company's
outstanding voting power immediately prior to such transaction do not own a
majority of the outstanding voting power of the surviving or resulting entity
immediately upon completion of such transaction, (iv) the sale of all of the
stock of the Company to an unrelated person or entity or (v) any other
transaction (other than a public offering or private placement) in which the
owners of the Company's outstanding voting power prior to such transaction do
not own at least a majority of the outstanding voting power of the
<PAGE> 7
relevant entity after the transaction, in each case, regardless of the form
thereof.
11. DEATH. The Option Agreement may provide that if a holder of an Option shall
die while in the employ of the Company or any subsidiary of the Company, his
estate, personal representative or beneficiary shall have the right to exercise
any Options granted to the Optionholder pursuant to the Plan at any time within
two years from the date of his death (or within such shorter period as may be
specified by the Company in the Option Agreement), in respect of the total
number of shares as to which he would have been entitled to exercise an option
at the date of his death.
12. STOCK SPLITS MERGERS, ETC. In case of any stock split, stock dividend or
similar transaction which increases or decreases the number of outstanding
shares of Common Stock, appropriate adjustment shall be made by the Board of
Directors, whose determination shall be final, to the number of shares of Common
Stock which may be purchased under the Plan and the number and option exercise
price per share of Common Stock which may be purchased under any outstanding
Options. In the case of a merger, sale of assets or similar transaction which
results in a replacement of the Company's Common Stock with stock of another
corporation, the Company will be required to replace any outstanding Options
granted under the Plan with comparable options to purchase the stock of such
other corporation. The Company may provide for immediate maturity of all
outstanding Options prior to the effectiveness of such merger, sale of assets or
similar transaction, with all Options not being exercised within the time period
specified by the Board of Directors being terminated.
13. TRANSFERABILITY. Options are not assignable or transferable, except by will
or the laws of descent and distribution to the extent set forth in Paragraph 11
and, during an Optionholder's lifetime, may be exercised only by him.
14. EXERCISE OF OPTIONS. An Optionholder electing to exercise an option shall
give written notice to the Company of such election and of the number of shares
of Common Stock that he has elected to acquire and/or, as the case may be, the
number of shares of Common Stock as to which stock appreciation rights are being
claimed. A holder of Options shall have no rights of a stockholder with respect
to shares of Common Stock covered by the Option until after the date of issuance
of a stock certificate to him upon partial or complete exercise of his Option.
15. WRITTEN OPTION AGREEMENT. Agreements granting Options under the Plan
("Option Agreements") shall be in writing, duly executed and delivered by or on
behalf of the Company and the Optionholder, and shall contain such terms and
conditions as the committee deems advisable. If there is any conflict between
the terms and conditions of any option Agreement and of the Plan, the terms and
conditions of the Plan shall control.
16. PAYMENT. The Option exercise price shall be payable upon the exercise of
the Option in cash, by certified check or by the tender of shares of Common
Stock or, at the discretion of the Board of Directors, by paying in cash, at the
minimum, the par value of the shares of Common Stock being acquired and
executing a promissory note for the balance of the option exercise price,
provided that said note shall bear interest at a rate
<PAGE> 8
which is no less than the lowest applicable U.S. federal rate required to be
charged to preclude the recharacterization of any amount of stated principal as
interest for U.S. federal tax purposes. If the shares of Common Stock are
tendered as payment of the option exercise price, the value of such shares shall
be their fair market value as of the date of exercise. If such tender would
result in the issuance of fractional shares of Common Stock, the Company shall
instead return the difference in cash or by check to the employee.
17. RESTRICTIONS ON ISSUING SHARES. The exercise of each Option shall be
subject to the condition that if at any time the Company shall determine in its
discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise in the delivery or purchase of shares pursuant thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company. The
Company shall use its best efforts to effect or secure the necessary
withholding, listing, registration, qualification, consent or approval so as to
effect the exercise of each Option and issue and deliver the shares purchased
thereunder.
18. TERM OF PLAN. The Plan shall terminate ten (10) years after the Plan is
adopted by the Board of Directors, and no Option shall be granted pursuant to
the Plan after that date.
19. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of
Common Stock pursuant to the exercise of Options granted under the Plan will be
used for general corporate purposes.
20. OBLIGATION TO EXERCISE OPTION. The granting of an Option shall impose no
obligation on the Optionholder to exercise such option.
21. CONTINUANCE OF EMPLOYMENT. Neither the Plan nor any Option Agreement shall
impose any obligation on the Company or on any subsidiary of the Company to
continue the employment of an Optionholder, and nothing in the Plan or in any
Option Agreement shall confer upon any Optionholder any right to continue in the
employ of the Company or the subsidiary of the Company or conflict with the
right of either to terminate such employment at any time.
22. EFFECTIVENESS OF THE PLAN. The Plan shall become effective on the date of
its adoption by the Board of Directors, but subject, nevertheless, to (a)
approval, within twelve (12) months thereof, by the stockholders representing at
least a majority of the voting stock of the Company or by such greater
percentage as may from time to time be required under the laws of the State of
Delaware, and (b) such approvals as may be required by any other public
authorities. Options under this Plan may be granted but not exercised until it
is approved by the Company's shareholders. In the event the Plan is not
approved, the Plan shall terminate and all Options granted shall be void and
have no force or effect.
<PAGE> 9
As amended and restated through July 7, 1999.
<PAGE> 1
EXHIBIT 10.4
SERVICESOFT TECHNOLOGIES, INC.
1999 STOCK OPTION AND GRANT PLAN
Section 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Servicesoft Technologies, Inc. 1999 Stock
Option and Grant Plan (the "Plan"). The purpose of the Plan is to encourage and
enable the officers, employees, directors, consultants, advisors and other key
persons of Servicesoft Technologies, Inc. (the "Company") and its Subsidiaries
(as defined below) upon whose judgment, initiative and efforts the Company
largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company. It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, and Unrestricted Stock Awards.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" has the meaning specified in Section 2.
"Effective Date" means the date on which the Plan is approved by Board of
Directors as set forth in Section 13.
<PAGE> 2
"Fair Market Value" of the Stock on any given date means (i) if the Stock
is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall not be less than the average of the highest bid and lowest asked prices of
the Stock reported for such date or, if no bid and asked prices were reported
for such date, for the last day preceding such date for which such prices were
reported; or (ii) if the Stock is admitted to trading on a national securities
exchange or the NASDAQ National Market System, then clause (i) shall not apply
and the Fair Market Value on any date shall not be less than the closing price
reported for the Stock on such exchange or system for such date or, if no sales
were reported for such date, for the last date preceding such date for which a
sale was reported; or (iii) if the Stock is not publicly traded on a securities
exchange or traded in the over-the-counter market or, if traded or quoted, there
are no transactions or quotations within the last ten trading days or trading
has been halted for extraordinary reasons, the Fair Market Value on any given
date shall be determined in good faith by the Committee with reference to the
rules and principles of valuation set forth in Section 20.2031-2 of the Treasury
Regulations; and (iv) notwithstanding the foregoing, the Fair Market Value of
the Stock on the effective date of the Initial Public Offering shall be the
offering price to the public of the Stock on such date.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is neither an
employee or officer of the Company or any Subsidiary.
"Initial Public Offering" means the first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Stock to the public.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Restricted Stock Award" means any Award granted pursuant to Section 6.
"Service Relationship" means any relationship as an employee, part-time
employee or consultant of the Company or any Subsidiary of the Company such
that, for example, a Service Relationship shall be deemed to continue without
interruption in the event the participant's status changes from full-time
employee to part-time employee or consultant.
"Stock" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 3.
<PAGE> 3
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities, beginning with the
Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section 7.
Section 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS.
(a) COMMITTEE. The Plan shall be administered by the Board of
Directors of the Company, or at the discretion of the Board, by a committee of
the Board consisting of not less than two Directors; PROVIDED, HOWEVER, that if
each member of the Committee is not (i) a "Non-Employee Director" within the
meaning of Rule 16b-3(a)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and (ii) an "Outside Director" within the meaning of
Section 162(m) of the Code and the regulations promulgated thereunder, any
Awards granted to individuals subject to the reporting requirements of Section
16 of the Exchange Act shall be approved by the Board of Directors. All
references herein to the Committee shall be deemed to refer to the entity then
responsible for administration of the Plan at the relevant time (i.e., either
the Board of Directors or a committee of the Board, as applicable).
(b) POWERS OF COMMITTEE. The Committee shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(1) to select the officers, employees, Independent Directors,
consultants, advisers and key persons of the Company and its Subsidiaries to
whom Awards may from time to time be granted;
(2) to determine the time or times of grant, and the extent, if
any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock
Awards and Unrestricted Stock Awards, or any combination of the foregoing,
granted to any one or more participants;
(3) to determine the number of shares of Stock to be covered by
any Award;
(4) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the Plan,
of any Award, which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing the
Awards;
(5) to accelerate at any time the exercisability or vesting of
all or any portion of any Award and/or to include provisions in Awards providing
for such acceleration,
<PAGE> 4
(6) to impose any limitations on Awards granted under the Plan,
including limitations on transfers repurchase provisions and the like and to
exercise repurchase rights or obligations;
(7) subject to the provisions of Section 5(a)(3), to extend at
any time the period in which Stock Options may be exercised;
(8) to determine at any time whether, to what extent, and under
what circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the participant and
whether and to what extent the Company shall pay or credit amounts constituting
interest (at rates determined by the Committee) or dividends or deemed dividends
on such deferrals; and
(9) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable, to interpret the terms and provisions of
the Plan and any Award (including related written instruments); to make all
determinations it deems advisable for the administration of the Plan; to decide
all disputes arising in connection with the Plan; and to otherwise supervise the
administration of the plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.
(c) DELEGATION OF AUTHORITY TO GRANT AWARDS. The Committee, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Committee's authority and duties with respect to Awards, including
the granting thereof, to individuals who are not subject to the reporting and
other provisions of Section 16 of the Act or "covered employees" within the
meaning of Section 162(m) of the Code. Any such delegation by the Committee
shall include a limitation as to the amount of Awards that may be granted during
the period of delegation and shall contain guidelines as to the determination of
the exercise price of any Option, the price of other Awards and the vesting
criteria. The Committee may revoke or amend the terms of a delegation at any
time but such action shall not invalidate any prior actions of the Committee's
delegate or delegates that were consistent with the terms of the Plan.
Section 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) STOCK ISSUABLE. The maximum number of shares of Stock reserved
and available for issuance under the Plan shall initially be 1,876,498 shares of
Stock; PROVIDED THAT, on the consummation of the Company's initial public
offering of its Common Stock and on each January 1 during the term of the Plan,
commencing on January 1, 2001, unless the Board determines otherwise, the
maximum number of shares of Stock for which Awards may be granted under the Plan
shall be automatically increased (i) to the number which maintains the number of
shares reserved for issuance under the Plan and any other stock and/or option
plan of the Company at twenty percent (20%) of the issued and outstanding
capital stock of the Company calculated on an as-converted, fully-diluted basis
(the "Diluted Capital Stock") (after
<PAGE> 5
such increase) or (ii) by a number of shares of Stock equal to four percent (4%)
of the Diluted Capital Stock, whichever is greater; PROVIDED FURTHER THAT, in no
event shall the number of shares reserved for issuance under the Plan exceed
10,000,000. For purposes of the foregoing limitations, the shares of Stock
underlying any Awards which are forfeited, canceled, reacquired by the Company,
satisfied without the issuance of Stock or otherwise terminated (other than by
exercise) shall be added back to the shares of stock available for issuance
under the Plan. Subject to such overall limitation, shares of Stock may be
issued up to such maximum number pursuant to any type or types of Award;
PROVIDED, HOWEVER, that from and after the date the Plan is subject to Section
162(m) of the Code, Awards with respect to no more than 1,000,000 shares of
Stock may be granted to any one individual participant during any one calendar
year period. The shares available for issuance under the Plan may be authorized
but unissued shares of Stock or shares of Stock reacquired by the Company.
(b) RECAPITALIZATIONS. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction in the capital structure of the
Company without consideration, the outstanding shares of Stock are increased or
decreased or are exchanged for a different number or kind of shares or other
securities of the Company or any successor company, or additional shares or new
or different shares or other securities of the Company or other non-cash assets
are distributed with respect to such shares of Stock or other securities, the
Committee shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
of Stock Options or other Awards that can be granted to any one individual
participant, (iii) the number and kind of shares or other securities subject to
any then outstanding Awards under the Plan, and (iv) the price for each share
subject to any then outstanding Stock Options or other Awards under the Plan,
without changing the aggregate exercise price (i.e., the exercise price
multiplied by the number of shares) as to which such Stock Options remain
exercisable and the repurchase price for shares subject to repurchase. No
fractional shares of Stock shall be issued under the Plan resulting from any
such adjustment, but will either be replaced by a cash payment equal to the fair
market value of such fraction of a share or will be rounded up to the nearest
whole share, as reasonably determined by the Committee. Any adjustment or
determination by the Committee shall be final, binding and conclusive.
(c) MERGERS AND OTHER CORPORATE TRANSACTIONS. In the case of (i) a
merger, reorganization or consolidation between the Company in which the Company
is not the surviving corporation and in which entity the holders of the
Company's outstanding voting stock immediately prior to the transaction hold
less than a majority of the outstanding voting stock of the surviving entity
immediately after the transaction, (ii) the sale of all or substantially all of
the assets of the Company to an unrelated person or entity, (iii) the sale of
all of the Stock of the Company to an unrelated person or entity, or (iv) the
acquisition, sale or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction (in each case, a "Corporate
Transaction"), unless provision is made in connection with the Corporate
Transaction for the assumption of Awards heretofore granted, or the substitution
of such Awards with new Awards of the successor entity or parent thereof, with
appropriate adjustment to the number and kind of shares, and if appropriate, the
per share exercise price as provided in Section 3(b) above, fifty percent (50%)
of the remaining unvested portion of the total Awards held by
<PAGE> 6
such participant issued previously under the Plan shall vest immediately and
become exercisable, except with respect to such Awards as the Committee
otherwise determines at the time of grant of such Awards. If provision is made
in connection with the Corporate Transaction for the assumption of the Awards
heretofore granted, or the substitution of such Awards with new Awards of the
successor entity or parent thereof, and a participant's Service Relationship
with such successor entity or parent thereof is, on or within twelve (12) months
after such Corporate Transaction, terminated by such successor entity or parent
thereof, then fifty percent (50%) of the remaining outstanding Awards held by
such participant, to the extent not fully vested and exercisable, shall become
fully vested and exercisable. Notwithstanding the foregoing , in the event of a
Corporate Transaction, fifty percent (50%) of the remaining unvested portion of
the total number of Awards held by each director of the Company who is not an
employee of the Company, issued previously under the Plan shall vest immediately
upon such Corporate Transaction and become exercisable, whether or not provision
is made for the assumption of such Awards or the substitution of such Awards
with new Awards of the successor entity or parent thereof. Upon the
effectiveness of the Corporate Transaction, the Plan and all Awards granted
hereunder shall, unless assumed by the successor entity, terminate. In the event
of such termination, each optionee shall be permitted to exercise for a period
of at least 15 days prior to the date of such termination all outstanding Awards
held by such optionee which are then exercisable.
(d) SUBSTITUTE AWARDS. The Committee may grant Awards under the Plan
in substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Committee may direct that the substitute
awards be granted on such terms and conditions as the Committee considers
appropriate in the circumstances.
Section 4. ELIGIBILITY.
Participants in the Plan will be such officers and other employees,
Independent Directors, consultants, advisors and other key persons of the
Company and its Subsidiaries who are responsible for or contribute to the
management, growth or profitability of the Company and its Subsidiaries as are
selected from time to time by the Committee, in its sole discretion.
Section 5. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be pursuant to a stock
option agreement which shall be in such form as the Committee may from time to
time approve. Option agreements need not be identical.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. Non-Qualified
Stock Options may be granted to officers, employees, Independent Directors,
advisors, consultants and other key persons of the Company and its
<PAGE> 7
Subsidiaries. To the extent that any Option does not qualify as an Incentive
Stock Option, it shall be deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after
November 1, 2009.
(a) TERMS OF STOCK OPTIONS. Stock Options granted under the plan
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan as
the Committee shall deem desirable:
(1) EXERCISE PRICE. The exercise price per share for the Stock
covered by a Stock Option shall be determined by the Committee at the time of
grant but shall not be less than 100% of the Fair Market Value in the case of
Incentive Stock Options. If an employee owns or is deemed to own (by reason of
the attribution rules applicable under Section 424(d) of the Code) more than 10%
of the combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation and an Incentive Stock Option is granted to
such employee, the option price of such Incentive Stock Option shall be not less
than 110% of the Fair Market Value on the grant date.
(2) OPTION TERM. The term of each Stock Option shall be fixed by
the Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the Option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of Stock of the Company or any
parent or subsidiary corporation and an Incentive Stock Option is granted to
such employee, the term of such Option shall be no more than five years from the
date of grant.
(3) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Committee at or after the grant
date; PROVIDED, HOWEVER, that Stock Options granted in lieu of cash compensation
shall be exercisable in full as of the grant date. The Committee may at any time
accelerate the exercisability of all or any portion of any Stock Option. An
optionee shall have the rights of a stockholder only as to shares acquired upon
the exercise of a Stock Option and not as to unexercised Stock Options.
(4) METHOD OF EXERCISE. Stock Options may be exercised in whole
or in part, by giving written notice of exercise to the Company, specifying the
number of shares to be purchased. Payment of the purchase price may be made by
one or more of the following methods; provided, however, that the methods set
forth in subsections (ii) and (iii) below shall become available only after the
closing of the Initial Public Offering:
(i) In cash by certified or bank check or other instrument
acceptable to the Committee;
(ii) In the form of shares of Stock that are not then
subject to restrictions under any Company plan and that have been held by the
optionee free of such restrictions for at least six months, if permitted by the
Committee in its discretion such surrendered shares shall be valued at Fair
Market Value on the exercise date;
<PAGE> 8
(iii) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable to the
Company to pay the purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee and the broker
shall comply with such procedures and enter into such agreements of indemnity
and other agreements as the Committee shall prescribe as a condition of such
payment procedure; or
(iv) By the optionee delivering to the Company a promissory
note if the Board has authorized the loan of funds to the optionee for the
purpose of enabling or assisting the optionee to effect the exercise of his
Stock Option; PROVIDED THAT at least so much of the exercise price as represents
the par value of the Stock shall be paid other than with a promissory note.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Stock to be purchased
pursuant to the exercise of a Stock Option will be contingent upon receipt from
the optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price for
such shares and the fulfillment of any other requirements contained in the Stock
Option or applicable provisions of laws.
(5) TERMINATION. Unless otherwise provided in the option
agreement or determined by the Committee, upon the optionee's termination of
employment (or other business relationship) with the Company and its
Subsidiaries, the optionee's rights in his Stock Options shall automatically
terminate.
(6) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent
required for "incentive stock option" treatment under Section 422 of the Code,
the aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted under this
Plan and any other plan of the Company or its parent and subsidiary corporations
become exercisable for the first time by an optionee during any calendar year
shall not exceed $100,000. To the extent that any Stock Option exceeds this
limit, it shall constitute a Non-Qualified Stock Option.
(b) NON-TRANSFERABILITY OF OPTIONS. No Stock option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee; provided, however, that an optionee
may transfer, without consideration for the transfer, the Non-Qualified Stock
Options to members of his immediate family, to trusts for the benefit of such
family members, to partnerships in which such family members are the only
partners, or to charitable organization so long as the transferee agrees in
writing to be bound by the terms and conditions of this Plan and the applicable
Option Agreement.
(c) ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a grant
of Stock, the Committee may require the recipient to deposit all certificates
representing the Stock together with stock powers or other instruments of
transfer approved by the Committee appropriately endorsed in blank, with the
Company or an agent designated by the Company to hold in escrow
<PAGE> 9
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any recipient who is permitted to execute a promissory note as
partial or full consideration for the purchase of Stock under this Plan will be
required to pledge and deposit with the Company all or part of the Stock so
purchased as collateral to secure the payment of recipient's obligation to the
Company under the promissory note; PROVIDED, HOWEVER, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the recipient under the promissory note notwithstanding any pledge of
the recipient's Stock or other collateral. In connection with any pledge of the
Stock, the recipient will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Stock purchased with the promissory not may be released from the pledge on a pro
rata basis as the promissory note is paid.
Section 6. RESTRICTED STOCK AWARDS
(a) NATURE OF RESTRICTED STOCK AWARDS. A Restricted Stock Award is an
Award entitling the recipient to acquire, at par value or such other purchase
price determined by the Committee, shares of Stock subject to such restrictions
and conditions as the Committee may determine at the time of grant ("Restricted
Stock"). Conditions may be based on continuing employment (or other business
relationship) and/or achievement or pre-established performance goals and
objectives.
(b) RIGHTS AS A STOCKHOLDER. Upon execution of a written instrument
setting forth the Restricted Stock Award and paying any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the Committee
shall otherwise determine, certificates evidencing the Restricted Stock shall
remain in the possession of the Company until such Restricted Stock is vested as
provided in Section 6(d) below.
(c) RESTRICTIONS. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument evidencing the
Restricted Stock Award. If a participant's employment (or other business
relationship) with the Company and its Subsidiaries terminates under the
conditions specified in the relevant instrument relating to the Award, or upon
such other event or events as may be stated in the instrument evidencing the
Award, the Company or its assigns shall have the right or shall agree, as may be
specified in the relevant instrument, to repurchase some or all of the shares of
Stock subject to the Award at such purchase price as is set forth in such
instrument.
(d) VESTING OF RESTRICTED STOCK. The Committee at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which Restricted Stock
shall become vested, subject to such further rights of the Company or its
assigns as may be specified in the instrument evidencing the Restricted Stock
Award.
<PAGE> 10
(e) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The written
instrument evidencing the Restricted Stock Award may require or permit the
immediate payment, waiver, deferral or investment of dividends paid on the
Restricted Stock.
Section 7. UNRESTRICTED STOCK AWARDS
(a) GRANT OR SALE OF UNRESTRICTED STOCK. The Committee may, in its
sole discretion, grant (or sell at a purchase price determined by the Committee)
an Unrestricted Stock Award to any participant, pursuant to which such
participant may receive shares of Stock free of any vesting restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
or sold as described in the preceding sentence in respect of past services or
other valid consideration, or in lieu of any cash compensation due to such
individual.
(b) ELECTIONS TO RECEIVE UNRESTRICTED STOCK IN LIEU OF COMPENSATION.
Upon the request of a participant and with the consent of the Committee, each
such participant may, pursuant to an advance written election delivered to the
Company no later than the date specified by the Committee, receive a portion of
the cash compensation otherwise due to such participant in the form of shares of
Unrestricted Stock either currently or on a deferred basis.
(c) RESTRICTIONS ON TRANSFERS. The right to receive shares of
Unrestricted Stock on a deferred basis may not be sold, assigned, transferred,
pledged or otherwise encumbered, other than by will or the laws of descent and
distribution.
Section 8. TAX WITHHOLDING
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the
date as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any federal, state, or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.
(b) PAYMENT IN STOCK. Subject to approval by the Committee, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
Section 9. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
<PAGE> 11
(a) a transfer to the employment of the Company from a subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
Section 10. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Committee
may, at any time, amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price in a manner not inconsistent with the terms of the Plan), but
such price, if any, must satisfy the requirements which would apply to the
substitute or amended Award if it were then initially granted under this Plan
for the purpose of satisfying changes in law or for any other lawful purpose,
but no such action shall adversely affect rights under any outstanding Award
without the holder's consent. If and to the extent determined by the Committee
to be required by the Act to ensure that Incentive Stock Options granted under
the Plan are qualified under Section 422 of the Code, Plan amendments shall be
subject to approval by the Company's stockholders who are eligible to vote at a
meeting of stockholders.
Section 11. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
PROVIDED THAT the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
Section 12. GENERAL PROVISIONS
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The
Committee may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Committee may require the placing of such
stop orders and restrictive legends on certificates for Stock and Awards, as it
deems appropriate.
(b) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adopting of this
Plan and the grant of Awards do not
<PAGE> 12
confer upon any employee any right to continued employment with the Company or
any Subsidiary; and any Awards shall not be considered compensation for purposes
of determining any severance benefits the participants may otherwise be entitled
to.
Section 13. EFFECTIVE DATE OF PLAN
The Plan shall become effective on the date of its adoption by the Board of
Directors, but subject, nevertheless, to (a) approval, within twelve (12) months
thereof, by the stockholders representing at least a majority of the voting
stock of the Company or by such greater percentage as may from time to time be
required under the laws of the State of Delaware, and (b) such approvals as may
be required by any other public authorities. Options under this Plan may be
granted but not exercised until it is approved by the Company's shareholders. In
the event the Plan is not approved, the Plan shall terminate and all Options
granted shall be void and have no force or effect.
Section 14. GOVERNING LAW
This Plan shall be governed by Delaware law except to the extent such law
is preempted by federal law.
Adopted by the Board of Directors and Effective: November 1, 1999
<PAGE> 13
SERVICESOFT TECHNOLOGIES, INC.
AMENDMENT NO. 1
TO
1999 STOCK OPTION AND GRANT PLAN
FEBRUARY 10, 2000
WITNESSETH:
WHEREAS, the Board of Directors and the Stockholders of Servicesoft
Technologies, Inc. (the "Company") approved and adopted the 1999 Stock Option
and Grant Plan (the "Plan") of the Company, dated November 1, 1999;
WHEREAS, the Board of Directors and the Stockholders of the Company
have determined that it is in the best interest of the Company to amend the Plan
in order to provide for the issuance of Awards under the Plan to officers and
other employees, Independent Directors, consultants, and key persons of the
Company and its Subsidiaries who are legal residents of the State of California
and to clarify certain provisions of the Plan;
NOW, THEREFORE, the Plan is amended as follows:
1. AMENDMENT TO SECTION 1. Section 1 of the Plan shall be amended to
include the following definition:
"Cause" means a vote of the Board of Directors of the Company or
the successor entity, as the case may be, resolving that the grantee should
be dismissed as a result of (i) any material breach by the grantee of any
agreement to which the grantee and the Company are parties, (ii) any act
(other than retirement) or omission to act by the grantee which would
reasonably be likely to have a material adverse effect on the business of
the Company or its Subsidiaries or successor entity, as the case may be, or
on the grantee's ability to perform services for the Company or its
Subsidiaries or successor entity, as the case may be, including, without
limitation, the conviction of any crime (other than ordinary traffic
violations), or (iii) any material misconduct or willful and deliberate
non-performance of duties by the grantee in connection with the business or
affairs of the Company or its Subsidiaries or successor entity, as the case
may be.
2. AMENDMENT TO SECTION 3(b). Clauses (i) and (ii) of Section 3(b)
of the Plan entitled "Recapitilization" shall be amended to add the underscored
language and delete the stricken language, as set forth below:
"(i) the maximum number of shares initially reserved for issuance
under the Plan and the maximum number that may subsequently be reserved for
issuance under the Plan, (ii) the number of Stock Options that can be
granted to any one individual participant,"
<PAGE> 14
3. AMENDMENT TO ADD APPENDIX A. An appendix A to the Plan in
substantially the form attached hereto as EXHIBIT A is hereby adopted and
approved.
4. CAPITALIZED TERMS. Capitalized terms used herein not otherwise
defined herein shall have the meanings set forth in the Plan.
DATE APPROVED BY THE BOARD OF DIRECTORS: February 10, 2000
<PAGE> 15
APPENDIX A
to
SERVICESOFT TECHNOLOGIES, INC.
1999 STOCK OPTION AND GRANT PLAN
FOR CALIFORNIA RESIDENTS ONLY
This Appendix to the Servicesoft Technologies, Inc. 1999 Stock Option
and Grant Plan (the "Plan") shall have application only to optionees receiving
Incentive Stock Options or Non-Qualified Stock Options under the Plan who are
residents of the State of California. Capitalized terms contained herein shall
have the same meanings given to them in the Plan, unless otherwise provided in
this Appendix. Notwithstanding any provisions contained in the Plan to the
contrary and to the extent required by applicable law, the following terms and
conditions shall apply to all Awards granted to residents of the State of
California, until such time as the Common Stock becomes a "listed security"
under the Securities Act of 1933, as amended.
1. Non-Qualified Stock Options shall have an exercise price that is
not less than 85% of the Fair Market Value of the stock at the time the Option
is granted, as determined by the Board, except that the exercise price shall be
110% of the Fair Market Value in the case of any person who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its parent or subsidiary corporation.
2. The purchase price for any Restricted Stock Awards that may be
purchased under the Plan shall be at least 85% of the Fair Market Value of the
stock at the time the optionee is granted such Award, or at the time the
purchase is consummated. Notwithstanding the foregoing, the purchase price shall
be 100% of the Fair Market Value of the stock at the time the optionee is
granted such Award or at the time the purchase is consummated in the case of any
person who owns stock possessing more than 10% of the total combined voting
power of all classes of the Company or its parent or subsidiary corporations.
3. Options shall have an exercise period of not more than ten years
from the date the Option is granted.
4. No Award shall be transferable by a participant other than by
will or the laws of descent and distribution; PROVIDED, HOWEVER, that the
Committee, in its sole discretion, may permit a participant to transfer an
Option (a) by gift to members of his immediate family, or (b) to an inter vivos
or testamentary trust pursuant to which the Option is to be passed to
beneficiaries upon the death of the settlor.
5. Options shall become exercisable at the rate of at least 20% per
year over five years from the date the Option is granted, subject to reasonable
conditions such as continued employment. However, in the case of the Option
granted to officers, directors or consultants of the Company or any of its
affiliates, the Option may become fully exercisable, subject to
<PAGE> 16
reasonable conditions such as continued employment, at any time or during any
period established by the Company or any of its affiliates.
6. Unless employment is terminated for Cause, the right to exercise
an Option in the event of termination of employment, to the extent that the
participant is otherwise entitled to exercise an Option on the date employment
terminates, shall be:
a. at least six months from the date of termination if the
participant's employment was terminated as a result of death or
disability; and
b. at least 30 days from the date of termination if the
participant's employment was terminated other than on account of
death or disability;
c. but in no event later than the remaining term of the Option.
7. No Award may be granted to a resident of California more than ten
years after the earlier of the date of adoption of the Plan and the date the
Plan is approved by the shareholders.
8. Any Award exercised before shareholder approval is obtained shall
be rescinded if shareholder approval is not obtained within 12 months before or
after the Plan is adopted. Such shares shall not be counted in determining
whether such approval is obtained.
9. The Company shall provide annual financial statements of the
Company to each California resident holding an outstanding Award under the Plan.
Such financial statements need not be audited and need not be issued to key
employees whose duties at the Company assure them access to equivalent
information.
10. Any right of repurchase on behalf of the Company in the event of
an optionee's termination of employment or other business relationship shall be
at such purchase price as is set forth in the instrument, provided that the
right to repurchase at the original purchase price lapses at the rate of at
least 20% of the shares per year over five years from the date the Award is
granted (without respect to the date the Award was exercised or became
exercisable) and the right to repurchase shall be exercised for cash or
cancellation of indebtedness for the shares within 90 days of termination of
employment (or in case of securities issued upon exercise of Options after the
date of termination, within 90 days after the date of the exercise). The
foregoing notwithstanding, the securities held by an officer, director or
consultant of the Company or an affiliate of the Company may be subject to
additional or greater restrictions.
-16-
<PAGE> 1
EXHIBIT 10.6
------------
October 11, 1999
PERSONAL & CONFIDENTIAL
- -----------------------
Mr. Mark Skapinker
407 Glencairn Avenue
Toronto, Ontario
M5N 1V4
Dear Mark:
This letter agreement (the "Agreement") confirms the understanding that
we have reached regarding transition arrangements in connection with your
resignation as a Chief Executive Officer of Servicesoft Technologies Inc. (the
"Company"). The purpose of this Agreement is to establish an amicable
arrangement pursuant to which you would remain available to serve the Company as
a Director and consultant. With that understanding and in exchange for the
promises of you and the Company set forth below, you and the Company agree as
follows:
1. EMPLOYMENT ARRANGEMENTS
Reference is hereby made to the Employment Agreement dated as of
February 12, 1999 by and between you and the Company (the "Employment
Agreement"). The Employment Agreement shall be amended and superseded as and to
the extent expressly provided by this Agreement. The Company and you acknowledge
that you resigned as CEO of the Company effective as of the date on which Mr.
Chris Butler was first employed by the Company. From that date through October
12, 1999, you have and will continue to serve as an officer and employee of the
Company. Thereafter, you shall serve as a consultant to the Company and Chairman
of its Board of Directors as provided in Paragraph 4 below.
2. COMPENSATION AND BENEFITS
The Company shall pay your current salary through October 12, 1999 (the
"Transition Date"). The Company shall also pay you: (a) for any accrued but
unused vacation days as of the Transition Date; and (b) an annual performance
bonus for calendar year 1999 as provided in the current senior management bonus
plan approved by the Company's Board of Directors in April 1999, which such
bonus shall be paid after the end
<PAGE> 2
Mr. Mark Skapinker
October 11, 1999
Page 2
of the calendar year and prorated through the Transition Date. In addition, the
Company shall pay you $15,000 for each of October and November 1999, which shall
be payable consistent with the Company's regular payroll practices.
Finally, the Company will continue to pay on your behalf all medical
and dental insurance premiums and continue your other employee benefits through
January 31, 2000. You shall also be entitled to receive $750 per day for each
day or portion thereof that you consult with the Company pursuant to Section 5
hereof. In addition, you shall be entitled to reimbursement for all reasonable
business expenses incurred by you in connection with such services.
3. STOCK AND STOCK OPTIONS
All of your currently unvested stock options will continue to vest for
so long as you serve as a Director of the Company. In addition, all of the
common shares in the Company that are beneficially owned by you and held in
escrow pursuant to Section 4.9 of the Employment Agreement are hereby released
to you or your assignees. The Company agrees to notify the escrow agent of such
release and otherwise to take such actions as you may reasonably request so as
to effect that release.
4. BOARD OF DIRECTORS; CONSULTANTCY
You hereby agree to continue to serve as Chairman of the Company's
Board of Directors through the date of any sale of the Company or such earlier
date as may be reasonably requested in writing by the Board of Directors in
connection with any other major corporate development, subject to re-election by
the Company's shareholders. Commencing on the Transition Date, you also agree to
be available for consultation with the senior management of the Company on
strategic matters for up to 3 days per week through December 31, 1999. Any
consulting services required hereunder may be provided by you from Toronto,
Canada.
5. GENERAL RELEASES OF CLAIMS
For good and valuable consideration, the sufficiency of which is hereby
acknowledged, you hereby irrevocably and unconditionally release, acquit and
forever discharge the Company, its predecessors, subsidiaries, successors,
affiliates, and assigns, and the directors, officers, employees, shareholders,
members and representatives of any of the foregoing, and all persons acting on
behalf or through any of the foregoing (any and all of whom or which are
hereinafter referred to as "Servicesoft"), from any and all charges, complaints,
claims, liabilities, obligations, promises, agreements, controversies, damages,
actions, causes of action, suits, rights, demands, costs, losses, debts and
expenses (including attorney's fees and costs actually incurred), of any nature
whatsoever, known or unknown (collectively, "Claims"), that you now have, own,
or hold, or claim to have, own, or hold, or that you at any time had, owned, or
held, or claimed to have had, owned, or held against Servicesoft, other than:
(a) claims arising under this Agreement (or the
<PAGE> 3
Mr. Mark Skapinker
October 11, 1999
Page 3
Employment Agreement as amended hereby); or (b) claims relating to rights of
indemnification to which you may be entitled under the Company's Certificate of
Incorporation or By-laws or otherwise.
For good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Company hereby irrevocably and unconditionally releases,
acquits and forever discharges you from any and all Claims that the Company now
has, owns, or holds or claims to have, own, or hold or that the Company at any
time had, owned, or held, or claimed to have had, owned, or held against you as
a result of good faith acts or omissions undertaken in the best interests of the
Company. This general release of Claims includes, without implication of
limitation, a release of all Claims related to your performance of your
responsibilities as an employee of the Company.
6. NONCOMPETE AGREEMENT
Notwithstanding anything in the Employment Agreement to the contrary,
the non-competition provisions of Section 4.4 in the Employment Agreement shall
remain in effect only through October 12, 2000 and such provisions shall not
preclude you from being a principal, shareholder and full-time employee of a
technology company incubator and venture capital fund, or serving as a director
of, or consulting with, any of their portfolio companies, so long as you are not
in breach of your other obligations under the Employment Agreement. In
furtherance of the foregoing, you acknowledge and agree that your obligations
under Sections 4.2 (non-disclosure), 4.5 (non-solicitation), 4.6 (employees),
and 4.7 (assignment of rights), remain in full force and effect without
modification or amendment, it being understood that the provisions of Sections
4.5 and 4.6 shall remain in effect only through October 12, 2000 and the
provisions of Section 4.7 relate only to the Company's property and business.
7. NONDISPARAGEMENT
The Company agrees not to make any statements that disparage you and
you agree not to make any statements that disparage the Company or any of its
products, services, employees, officers or directors. Notwithstanding the
foregoing, statements made in the course of sworn testimony in legal proceedings
or other statements required by law shall not be subject to this Section 7.
8. TAX DEDUCTIONS AND REPORTING
The Company shall reduce payments made to you pursuant to this
Agreement by deductions and withholdings that it reasonably determines to be
required for tax purposes and the Company shall make such tax-related reporting
that it reasonably determines to be required with respect to consideration
provided pursuant to this Agreement. All payments hereunder shall be in U.S.
dollars.
<PAGE> 4
Mr. Mark Skapinker
October 11, 1999
Page 4
9. NOTICES, ACKNOWLEDGMENTS AND OTHER TERMS
You are advised to consult with an attorney before signing this
Agreement. By signing this Agreement, you acknowledge that you are doing so
voluntarily. You also acknowledge that you are not relying on any
representations by any representative of the Company concerning the meaning of
any aspect of this Agreement.
In the event of any dispute, this Agreement will be construed as a
whole, will be interpreted in accordance with its fair meaning, and will not be
construed strictly for or against either you or the Company. The law of
Massachusetts will govern any dispute about this Agreement, including any
interpretation or enforcement of this Agreement, without giving effect to the
conflict of laws provisions of Massachusetts law. In the event that any
provision or portion of a provision of this Agreement shall be determined to be
unenforceable, the remainder of this Agreement shall be enforced to the fullest
extent possible as if such provision or portion of a provision were not
included. This Agreement may be modified only by a written agreement signed by
you and an authorized representative of the Company.
If you agree to these terms, please sign and date below and return this
Agreement to the Company within the time limitation set forth above.
Sincerely,
SERVICESOFT TECHNOLOGIES INC.
By: /s/ Chris Butler
-----------------------------------------
Name: Chris Butler
Title: Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Mark Skapinker October 12, 1999
- ---------------------------- -----------------------------------------
Mark Skapinker Date
<PAGE> 1
EXHIBIT 10.7
------------
August 9, 1999
Mr. Christopher Butler
83 Rice Road
Wayland, MA 01778
Dear Chris:
On behalf of Servicesoft Technologies, Inc. (the "Company"), I am
pleased to confirm our employment offer to you for the position of President and
Chief Executive Officer. Your starting annual base salary, to be paid twice
monthly, will be $200,000. You will also be eligible for an annual cash bonus of
up to $100,000, which will be paid in quarterly installments based upon the
achievement of quarterly goals to be established by the Board of Directors or
its Compensation Committee. Your salary and cash bonus will be reviewed
annually. Additionally, you will receive stock options or a restricted stock
grant for 833,502 shares of the Company's Common Stock. The shares will have an
exercise or a purchase price equal to $1.00 per share and will vest over four
years in accordance with the attached vesting schedule.
Should the Company be acquired at any time during your employment with
the Company, vesting for any unvested options then held by you that would
otherwise vest over the two year period following such acquisition will be
accelerated to time of acquisition. In addition, if the Company is acquired
prior to the first anniversary of your start date, you will receive prorated
vesting for that period. Finally, if your employment is terminated without cause
upon or within one year after an acquisition of the Company, all of your
unvested options will be subject to accelerated vesting. You will also be
eligible to participate in the Company's standard benefit programs, including
medical, dental, group life, disability insurance, vacation and Company-paid
holidays.
To indicate you acceptance of this employment offer, please sign, date
and return to my attention one copy of this offer letter by 5:00 p.m. on August
9, 1999. Please note that your written acceptance also confirms that your
employment by the Company will not conflict with the terms of any employment,
non-competition, confidentiality or similar agreements that you may have with
any third parties. Also enclosed are two copies of our Confidentiality and
Non-Competition Agreement; please review and sign this Agreement and bring both
copies with you on your first day of work. Finally, please not that this letter
does not constitute an employment contract; you retain the right to terminate
your employment at any time and the Company retains a similar right.
<PAGE> 2
I am confident that you will make a strong contribution to
Servicesoft's success and look forward to welcoming you onto our management
team. Should you have any questions, please feel free to contact me at any time.
Sincerely,
/s/ Mark Skapinker
- ----------------------------
Mark Skapinker
Chairman of the Board
Agreed and accepted:
/s/ Christopher Butler
- ----------------------------
Christopher Butler
Date: 8-9-99
----------------------
cc: Robert Davoli
<PAGE> 3
Vesting Schedule
----------------
<TABLE>
<CAPTION>
Vesting Date Number of Option Shares That Vest
- ------------ ---------------------------------
<S> <C>
August 9, 2000 208,375.5
November 9, 2000 52,093.875
February 9, 2001 52,093.875
May 9, 2001 52,093.875
August 9, 2001 52,093.875
November 9, 2001 52,093.875
February 9, 2002 52,093.875
May 9, 2002 52,093.875
August 9, 2002 52,093.875
November 9, 2002 52,093.875
February 9, 2003 52,093.875
May 9, 2003 52,093.875
August 9, 2003 52,093.875
</TABLE>
<PAGE> 1
EXHIBIT 10.8
STOCK RESTRICTION AGREEMENT
---------------------------
STOCK RESTRICTION AGREEMENT by and between SERVICESOFT TECHNOLOGIES, INC.
(the "Company") and Chris Butler (the "Executive"), dated as of October 25,
1999.
WHEREAS, simultaneous with the execution of this Agreement, the Executive
is purchasing 833,502 shares of the Company's Common Stock (the "Shares"); and
WHEREAS, the parties hereto believe that it is in the best interests of the
Company and the Executive to provide for certain rights and obligations of the
Company and the Executive with respect to the Shares under certain
circumstances.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows:
Section 1. DEFINITIONS. For the purposes of this Agreement, the following
terms shall have the following respective meanings:
(a) "ACT" shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
(b) "CAUSE" shall mean the determination by a majority of the Board
of Directors of the Company that any one or more of the following events
has occurred: (A) dishonesty, breach of fiduciary duty or breach of the
terms of this Agreement or any other agreements executed by the Executive
(including, without limitation, the Executive's Confidentiality and
Non-Competition Agreement with the Company); (B) commission by the
Executive of any act of embezzlement, fraud, larceny or theft on or from
the Company; (C) substantial and continuing neglect or inattention by the
Executive of duties of his employment which shall continue for 30 business
days following written notification by the Board of Directors; (D) willful
misconduct or gross negligence of the Executive in connection with the
performance of such duties; (E) commission by the Executive of any acts of
moral turpitude; or (F) the conviction of the Executive of a felony. A
determination by the Board of Directors, after notice to the Executive and
providing the Executive an opportunity to be heard, that the Executive has
committed an act of the sort mentioned in (A) through (F) above shall be
conclusive, whether or not there are proceedings by public authorities with
respect thereto and without regard to the outcome thereof.
(c) "COMMON STOCK" shall mean the Company's Common Stock, par value
$0.01 per share.
(d) "DISABILITY" shall mean the inability to perform the functions
ascribed to an Executive of the Company.
<PAGE> 2
(e) "EXECUTIVE" shall mean Chris Butler.
(f) "QUALIFIED PUBLIC OFFERING" shall mean the consummation of the
first fully underwritten, firm commitment public offering pursuant to an
effective registration statement under the Securities Act, other than on
Forms S-4, S-8, S-14 or S-15 or their then equivalents or any successor
form thereto, covering the offer and sale by the Company of its Common
Stock, with net proceeds to the Company equal to or in excess of
$15,000,000.
(g) "NON-VESTED SHARES" shall mean all the Shares that are not Vested
Shares.
(h) "PERMITTED TRANSFEREES" shall mean the Executive's spouse,
parents, brothers, sisters, children (natural or adopted), stepchildren or
grandchildren, a trust for their benefit or a partnership, limited
partnership, corporation or other entity of which all of the direct or
indirect beneficial owners are the Executive and/or any of the foregoing.
(i) "SALE EVENT" shall mean the occurrence of any of the following
events: (i) the Company is the subject of a merger or consolidation in
which the holders of voting securities of the Company immediately prior to
the closing of such merger or consolidation own less than fifty percent
(50%) of the voting securities of the combined entity following such merger
or consolidation; (ii) there is a sale or transfer of all of the voting
securities of the Company to a person or entity that was previously not a
shareholder of the Company; or (iii) there is a sale of substantially all
of the Company's assets.
(j) "SHARES" shall mean the 833,502 shares of Common Stock owned by
the Executive on the date hereof.
(k) "TERMINATION EVENT" shall mean the termination of Executive's
employment with the Company, whether by reason of death, Disability,
retirement, discharge or any other reason, voluntary or involuntary.
(l) "VESTED SHARES" shall mean 208,375.50 outstanding shares of the
Shares owned by the Executive on August 9, 2000, PLUS an additional
52,093.875 of the Shares on the ninth day of each third month thereafter,
commencing with November 9, 2000 and continuing through August 9, 2003, so
long as the Executive remains in the employ of the Company on each such
date; PROVIDED, HOWEVER, that if on any one occasion there shall occur a
Sale Event, then (i) 416,751 of the Non-Vested Shares (or such lesser
number of Non-Vested Shares held by the Executive immediately prior to the
closing of such Sale Event) shall vest and become fully exercisable upon
such closing and (ii) any remaining Non-Vested Shares shall continue to
vest in accordance with the foregoing schedule; PROVIDED FURTHER, that in
the event that the Executive, within one year after a Sale Event, is
terminated without Cause or voluntarily terminates his employment following
a demotion or a material reduction in his responsibilities or reporting
position, then all of the Non-Vested Shares shall vest immediately.
2
<PAGE> 3
Section 2. PURCHASE AND SALE OF SHARES.
2.1 PURCHASE AND SALE. Simultaneous with the execution of this
Agreement, the Company hereby sells to the Executive and the Executive hereby
purchases 833,502 Shares at a purchase price of $1.00 per Share, payable in cash
or a promissory note reasonably acceptable to the Board of Directors.
Section 3. REPURCHASE RIGHT.
3.1 REPURCHASE RIGHT. In the event of a Termination Event, the
Company shall have the right and obligation (the "Repurchase Right") to
repurchase all of the Non-Vested Shares at a per share repurchase price equal to
the aggregate of (i) $1.00 plus (ii) the documented, per share amount of any
taxes paid by the Executive with respect to such Non-Vested Shares on account of
Section 83 of the Internal Revenue Code of 1986, as amended, minus (iii) the
amount of any tax reduction realized by the Executive during the tax year in
which the repurchase occurs as a result of the application of the capital loss
attributable to the repurchase to offset other capital gains. The Company shall
exercise its Repurchase Right pursuant to the provision of Section 3.2 below.
3.2 EXERCISE OF REPURCHASE RIGHT AND CLOSING. The Company shall
exercise the Repurchase Right by delivering or mailing to the Executive, in
accordance with Section 6.7, written notice within 45 days after the Termination
Event. The closing of any such repurchase of Non-Vested Shares shall be held at
the principal office of the Company, or at such other location as the parties to
such repurchase may mutually determine. At any such closing, the Company shall
pay to the Executive and/or any holder of the Non-Vested Shares the aggregate
repurchase price for the Non-Vested Shares to be purchased by certified or bank
check or by set off against any amounts owned under any promissory notes
delivered by the Executive in payment for the Shares pursuant to Section 2.1
hereof. At such time, the Executive and/or any holder of the Non-Vested Shares
shall deliver to the Company the certificate or certificates representing the
Non-Vested Shares so repurchased, duly endorsed for transfer, free and clear of
any lien or encumbrances.
Section 4. RESTRICTIONS ON TRANSFER OF SHARES.
4.1 NO TRANSFERS UNLESS AUTHORIZED AND IN COMPLIANCE WITH THIS
AGREEMENT.
(a) None of the Shares now owed or hereafter acquired by the
Executive shall be sold, assigned, transferred, pledged, hypothecated, given
away or in any other manner disposed of or encumbered, whether voluntarily or by
operation of law, unless such transfer is in compliance with all foreign,
federal and state securities laws (including, without limitation, the Act), and
such disposition is in accordance with the terms and conditions of this Section
4. In connection with any transfer of Shares, the Company may require an opinion
of counsel to the transferor, satisfactory to the Company, that such transfer is
in compliance with all foreign, federal and state securities laws (including
without limitation, the Act). The Executive agrees to give the Company prompt
notice of any transfer of Shares to a Permitted Transferee. Any attempted
disposition of Shares not in accordance with the terms and conditions of this
Agreement shall be null and void, and the Company shall not reflect on its
records any change in
3
<PAGE> 4
record ownership of any Shares pursuant to any such disposition, shall otherwise
refuse to recognize any such disposition and shall not in any way give effect to
any such disposition of any Shares.
(b) Prior to making any Transfer of Shares (other than to a Permitted
Transferee), the Executive shall deliver written notice (the "Transfer Notice")
to the Company. The Transfer Notice shall disclose in reasonable detail the
identity of the prospective transferees, the number of shares to be Transferred
(the "Offered Shares") and the terms and conditions of the proposed Transfer. By
giving the Transfer Notice, the Executive shall be deemed to have granted the
Company an option to purchase the Offered Shares. The Company may purchase all,
but not less than all, of the Offered Shares upon the same terms and conditions
as those set forth in the Transfer Notice by delivering written notice of such
election to the Executive within 20 days after the Transfer Notice has been
given to the Company (the "Election Period"). If the Company has not elected to
purchase or otherwise acquire all of the Offered Shares prior to the expiration
of the Election Period, the Executive may Transfer such Shares at a price and on
terms no more favorable to the transferees thereof than specified in the
Transfer Notice during the 30-day period immediately following the expiration of
the Election Period (the "Transfer Period"). Any Offered Shares not Transferred
within the Transfer Period shall be subject to the provisions of this Section
4.1 upon any subsequent Transfer. If the Company has elected to purchase any
Offered Shares hereunder, the Transfer of such Offered Shares shall be
consummated as soon as practical after the deliver of the election notice to the
Executive, but in any event within 15 days after the expiration of the Election
Period.
4.2 TRANSFERS TO PERMITTED TRANSFEREES. Subject to the next sentence
of this Section 4.2, the Executive may sell, assign, transfer or give away any
or all of the Shares without receipt of consideration or for such consideration
as such holder shall determine to Permitted Transferees. No transfer permitted
hereby shall be effective unless the Permitted Transferee to whom the Shares are
proposed to be transferred has delivered to the Company a written acknowledgment
that the Shares to be received by it are subject to the provisions of this
Agreement (including without limitation, the provisions of this Section 4) and
that the Permitted Transferee is bound hereby and thereby.
4.3 TRANSFERS UPON DEATH. Upon the death of the Executive, the Vested
Shares held by the Executive may be transferred and distributed by will or other
instrument taking effect at his death or by the laws of descent and distribution
to the Executive's estate, executors, administrators and personal
representatives, and then to such holder's heirs, legatees or distributees
whether or not such heirs, legatees or distributees are Permitted Transferees.
No transfer permitted hereby shall be effective unless the transferee to whom
the Shares are proposed to be transferred pursuant to this provision has
delivered to the Company a written acknowledgment that the Shares to be received
by it are subject to the provisions of this Agreement (including without
limitation, the provisions of this Section 4) and that such transferee is bound
hereby and thereby.
4.4 TRANSFERS AFTER QUALIFIED PUBLIC OFFERING. Upon the consummation
of a Qualified Public Offering, the Executive may transfer any Vested Shares,
with or without
4
<PAGE> 5
consideration to a Permitted Transferee or any other person or entity without
restriction other than compliance with applicable federal and state securities
laws and payment of any amounts due by cash or promissory notes issued in
consideration for the purchase of such Vested Shares.
Section 5. LEGEND. Any certificate representing the Shares shall carry the
following legends:
"The transferability of this Certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture, repurchase and restrictions
against transfers contained in the Executive's Stock Restriction
Agreement dated October 25, 1999 between the Company and Chris
Butler (copies of which are available at the offices of the
Company for examination)."
and
"The shares represented by this Stock Certificate have not been
registered under the Securities Act of 1933 or the securities
laws of any State. The shares may not be sold or transferred in
the absence of such registration or an exemption from
registration."
Section 6. MISCELLANEOUS PROVISIONS.
6.1 INVESTMENT REPRESENTATION. The Executive represents that his
purchase hereunder is for investment and not for resale or with a view to the
distribution thereof. The Executive acknowledges that the Executive has been
informed by the Company that in the absence of an effective registration
statement under the Act and under any applicable state securities or "blue sky"
laws (or exemptions from the registration requirements thereof), the Shares may
not be sold or otherwise transferred or disposed of. The Company is not
obligated to register under the Act or under applicable state securities or
"blue sky" laws, any sale, transfer or other disposition of the Shares, and,
accordingly, the Shares must be held, and the Executive must bear the economic
risk of such investment, for an indefinite period of time unless such sale,
transfer or disposition is registered under the Act and under any applicable
state securities or "blue sky" laws or is exempt from the registration
requirements thereof.
6.2 EQUITABLE RELIEF. The parties hereto agree and declare that
legal remedies may be inadequate to enforce the provisions of this Agreement and
that equitable relief, including specific performance and injunctive relief, may
be used to enforce the provisions of this Agreement.
6.3 CHANGE AND MODIFICATIONS. This Agreement may not be orally
changed, modified or terminated, nor shall any oral waiver of any of its terms
be effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Executive.
5
<PAGE> 6
6.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
6.5 HEADINGS. The headings are intended only for convenience in
finding the subject matter and do not constitute part of the text of this
Agreement and shall not be considered in the interpretation of this Agreement.
6.6 SAVING CLAUSE. If any provision(s) of this Agreement shall be
determined to be illegal or unenforceable, such determination shall in no manner
affect the legality or enforceability of any other provision hereof.
6.7 NOTICES. All notices, requests, consents and other
communications shall be in writing and be deemed given when delivered
personally, by telex or facsimile transmission or when received if mailed by
first class registered or certified mail, postage prepaid. Notices to the
Company or the Executive shall be addressed as set forth underneath their
signatures below, or to such other address or addresses as may have been
furnished by such party in writing to the other. Notices to any holder of the
Shares other than the Executive shall be addressed to the address furnished by
such holder to the Company.
6.8 BENEFIT AND BINDING EFFECT. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto, their respective
successors, assigns, and legal representatives. The Company has the right to
assign this Agreement, and such assignee shall become entitled to all the rights
of the Company hereunder to the extent of such assignment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 7
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
SERVICESOFT TECHNOLOGIES, INC.
By: /s/ Mark Skapinker
-------------------------------
Mark Skapinker
Chairman of the Board
EXECUTIVE:
By: /s/ Chris Butler
-------------------------------
Chris Butler
83 Rice Road
Wayland, MA 01778
7
<PAGE> 8
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION FROM SUCH REGISTRATION.
PROMISSORY NOTE
---------------
Natick, Massachusetts
October 25, 1999
US$832,502
FOR VALUE RECEIVED, the undersigned ("Debtor") hereby promises to pay to
Servicesoft Technologies, Inc., a Delaware corporation, or its successor
("Payee"), at such place or places as may be specified by Payee or any holder
hereof, in legal tender of the United States of America, the principal amount of
$832,502.00 (the "Principal"), with interest at the fixed rate of 7.00% per
annum, compounded annually, on the unpaid balance. Interest shall be payable on
each anniversary of the date hereof commencing on October 25, 2000. The
Principal, with accrued interest thereon, shall become due and payable in whole
or in part upon any sale by the Debtor of shares of Common Stock, $.01 par
value, of the Payee ("Common Stock") pursuant to the terms set forth below. In
any event, any Principal then unpaid shall be due and payable, with accrued
interest thereon, on the tenth anniversary of the date hereof (the "Repayment
Date"). The Debtor shall pay to Payee, within ten (10) days after receipt
thereof, the net after-tax proceeds from any sales by the Debtor of shares of
the Common Stock of the Payee held or being acquired on the date hereof, or any
successor securities, in reduction of the Principal until such time as the
Principal has been paid in full, and in connection with each such payment shall
pay accrued but unpaid interest on the amount so paid. For purposes hereof, net
after-tax proceeds refers to the amount received upon any sale of such shares,
less brokerage commissions or underwriting discounts, other expenses of every
kind, including documentary, excise and other taxes, if any, directly relating
to the sale and an amount equal to the federal, state and local taxes on any
gain from such sale (as determined by multiplying the amount of such gain by the
combined maximum federal, state and local tax rate applicable to the sale of
such shares by the Debtor, taking into account the holding period for such
shares and any federal income tax deduction for state and local income taxes).
This Note is subject to the terms of and the payment hereof is secured by a
certain Pledge Agreement dated as of the date hereof by and between Debtor and
Payee (the "Pledge Agreement").
In case an Event of Default, as defined in the Pledge Agreement, shall
occur, the aggregate unpaid balance of Principal and accrued interest thereon
may be declared to be due and payable in the manner and with the effect provided
in the Pledge Agreement. The Payee shall have (i) full recourse against the
Collateral under the Pledge Agreement in connection with the repayment of the
Principal and accrued interest thereon, and (ii) recourse up to the Recourse
<PAGE> 9
Amount (as hereinafter defined) against any other assets of the Debtor. The
Recourse Amount as of any time shall mean (i) 30% of the Principal amount hereof
reduced by 30% of each payment of Principal made by or on behalf of the Debtor
from any source and (ii) the full amount of accrued interest under this Note (it
being understood that the Debtor shall be personally obligated for the payments
of interest hereunder). Unless otherwise directed by the Debtor, all sums paid
by the Debtor or otherwise received by Payee on account of sums owing hereunder
shall be deemed to reduce the Recourse Amount on a proportionate basis.
Debtor may not prepay any of the principal balance hereof or accrued
interest thereon.
Debtor expressly waives presentment for payment, protest and demand, notice
of protest, demand and dishonor and expressly agrees that this Note may be
extended from time to time without in any way affecting the liability of Debtor.
No delay or omission on the part of Payee in exercising any right hereunder
shall operate as a waiver of such right or of any other right under this Note.
This Note may from time to time be extended by Payee, with or without
notice to Debtor, and any related right may be waived, exchanged, surrendered or
otherwise dealt with, all without affecting the liability of Debtor, in each
case in the sole discretion of Payee.
This Note may not be changed, modified or terminated orally, but only by an
agreement in writing and signed by the Debtor and Payee. This Note shall be
governed by and construed in accordance with the laws The Commonwealth of
Massachusetts, and shall be binding upon the successors and assigns of Debtor
and inure to the benefit of Payee and its successors, endorsees and assigns.
DEBTOR:
/s/ Chris Butler
-------------------------
Chris Butler
-2-
<PAGE> 10
PLEDGE AGREEMENT
----------------
In consideration of Servicesoft Technologies, Inc., a Delaware corporation
(together with any successor thereto, the "Company"), having made a loan to
Chris Butler ("Borrower"), under the Promissory Note of even date herewith, and
any renewals or extensions thereof made in the sole discretion of the Company
(the "Note"), Borrower agrees as follows:
Section 1. PLEDGE. Borrower hereby pledges, assigns and transfers to the
Company, and grants to the Company a security interest in, the
following property ("Collateral"), to be held by the Company:
(a) The shares of Common Stock, par value $0.01 per share, of the
Company (each, together with any successor securities, a "Share")
obtained pursuant to a certain Restricted Stock Agreement dated
as of the date hereof between Borrower and the Company (the
"Restricted Stock Agreement") and held by Borrower or any
Permitted Transferee (as that term is defined in the Restricted
Stock Agreement), and any securities owned in respect thereof or
in exchange therefor.
(b) All other securities, instruments and other property issued or
accepted in substitution for or in addition to any of the
foregoing.
(c) All proceeds of any and all of the Collateral.
Section 2. OBLIGATIONS. This Agreement and the security interest granted
hereby secure the payment of all obligations of Borrower to the
Company under the Note ("Obligations"), and the Obligations of
Borrower under this Agreement, and any and all renewals or extensions
thereof. So long as any of the Obligations are outstanding, unless and
until Borrower shall be in default hereunder or there shall be any
default of any of the Obligations, Borrower shall retain all rights to
dividends and distributions and voting rights, if any, with respect to
the Collateral. In the event the Obligations shall be in default or in
the event that Borrower shall be in default under the terms hereof,
the Company may, in its discretion, vote and exercise all of the
powers of an owner with respect to any of the relevant Collateral.
Without limiting the generality of the other remedies provided herein
and in addition thereto, in the event any of the Obligations shall be
in default or upon any default by Borrower hereunder, the Company
after the occurrence of an Event of Default (as defined in Section 7
hereof) may take all steps necessary to cause the Collateral to be
transferred into the name of the Company, including but not limited to
taking steps necessary to comply with restrictions on sale or transfer
of the shares constituting such Collateral, and in connection
therewith Borrower appoints the Company such Borrower's
attorney-in-fact to execute and deliver such offers, tender offers,
certificates, documents or instruments of every nature
<PAGE> 11
or description required for the purpose of the transfer of such shares
into the name of the Company, or any other person.
If Borrower receives any cash distribution or dividend in respect of any
Collateral, Borrower may retain such cash distribution or dividend as his own
property unless prior to such receipt an Event of Default has occurred, in which
event Borrower shall accept same in trust for the Company, and shall upon
request deliver same immediately to the Company in the form received, with
Borrower's endorsement and/or assignment when necessary, to be held by the
Company as Collateral.
If Borrower receives any stock certificate or option or deferred
compensation right, whether as an addition to, in substitution of, or in
exchange for, any Collateral, or otherwise, Borrower shall accept same in trust
for the Company, and shall upon request deliver same immediately to the Company
in the form received, with Borrower's endorsement and/or assignment when
necessary, to be held by the Company as Collateral.
Borrower is herewith delivering to the Company all certificates or
instruments representing or evidencing Collateral in suitable form for transfer
or delivery, or accompanied by duly executed instruments of transfer or
assignment to be held subject to the preceding paragraph.
Section 3. RELEASE OF COLLATERAL. Upon the written request of
Borrower, the Company shall promptly release Collateral to Borrower or
to any designee of Borrower at any time and from time to time;
PROVIDED, HOWEVER, that the Company shall retain an amount of
Collateral with an Agreed Value (as defined below) at least equal to
the amount of the Obligations then outstanding.
(a) The "Agreed Value" of any Collateral consisting of Shares shall
be the original cost of such Shares as set forth in the
Restricted Stock Agreement ($1.00 per Share), equitably adjusted
for stock splits, stock dividends and like transactions. The
Agreed Value of any Collateral not consisting of Shares shall be
determined reasonably and in good faith by the mutual agreement
of Borrower and the Company.
(b) Borrower acknowledges that transfer of the Shares is subject to
certain restrictions under the Restricted Stock Agreement. The
obligation of the Company to release certificates representing
Shares to Borrower or his designee hereunder shall in any event
be subject to the requirements of the Restricted Stock Agreement.
Subject to such requirements and the terms hereof, the Company
shall release from this pledge Vested Shares or Restricted Shares
(as those terms are defined in the Restricted Stock Agreement) as
designated by Borrower, provided that such Shares shall remain
subject to the Restricted Stock Agreement to the extent
applicable.
Section 4. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to the Company as follows:
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<PAGE> 12
(a) Borrower is, and (as to any substitute or additional Collateral)
shall be, the sole owner of the Collateral pledged by Borrower,
free and clear of any lien, security interest, option or other
charge or encumbrance, except for (i) the security interest
created by this Agreement, (ii) certain restrictions under the
Restricted Stock Agreement and (iii) restrictions imposed by
applicable laws, and, subject to the same exceptions, Borrower
has and shall have the right to transfer such Collateral and to
grant a security interest therein to the Company as provided in
this Agreement.
(b) No effective financing statement or similar notice covering any
Collateral pledged by Borrower is or shall be on file in any
recording office, and no other pledge or assignment thereof has
been made, or shall have been made, other than in favor of the
Company, except as the Company may approve.
Section 5. FURTHER ACTION BY BORROWER. Borrower shall, at the expense
of Borrower, promptly execute and deliver all further notices,
instruments and documents, including, without limitation, financing
statements, and take all such further action as may be reasonably
necessary or reasonably advisable or as the Company at any time may
reasonably request, in order to perfect, preserve and protect the
security interest granted or purported to be granted hereby or to
enable the Company to exercise and enforce such rights, powers and
remedies with respect to Collateral.
Section 6. PRESERVATION OF COLLATERAL.
(a) The Company shall give to the Collateral the same degree of care
and protection which it gives to its own property, PROVIDED,
HOWEVER, that the Company shall have no liability to Borrower for
any losses, costs, expenses or damages due to any acts or
omissions of third parties, or due to any acts of God or other
causes beyond its control. The Company shall have no duty to
preserve any rights with respect to any Collateral, including,
without limitation, rights against prior parties, or to take, or
to notify Borrower of the need to take, any action respecting any
rights, privileges or options relating to any Collateral. To
replace any certificates, however, Borrower shall not be required
to supply any bond or other indemnity.
(b) Borrower shall furnish to the Company, promptly upon receipt
thereof, copies of all material notices, requests and other
documents received by Borrower relating to Collateral unless the
same were sent by the Company.
(c) Borrower shall not (i) sell, assign, transfer or otherwise
dispose of any Collateral, or create or suffer to exist any lien,
security interest,
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<PAGE> 13
assignment by operation of law or other charge or encumbrance on,
or with respect to, any Collateral, except for the security
interest created by this Agreement and the rights, remedies and
restrictions imposed by the Restricted Stock Agreement; or (ii)
attempt any action prohibited by paragraph (c)(i) of this SECTION
6. Notwithstanding the foregoing, Borrower may transfer Shares to
Permitted Transferees pursuant to the Restricted Stock Agreement
or following the vesting of such Shares provided such transfer is
in accordance with the Restricted Stock Agreement; PROVIDED,
HOWEVER, that the Shares so transferred shall remain subject to
the security interest created by this Agreement and any such
Permitted Transferee(s) shall, as a condition to any transfer,
agree to be subject to the provisions of this Agreement.
Section 7. DEFAULTS. A default (an "Event of Default") shall be deemed to
have occurred hereunder if (a) Borrower fails in any material respect
to perform any material obligation hereunder, if any material
representation or warranty hereunder was untrue in any material
respect when made, or if any default or Event of Default by Borrower
occurs under the Note or any agreement evidencing, or constituting or
granting security for, the Obligations, provided the Company is
current in its obligation to pay certain bonuses on each day interest
is due on the Note, and (b) the Company gives to Borrower written
notice thereof and such default shall not have been cured within
fourteen (14) days or such additional time as may be required to
effect such cure if diligently pursued.
Section 8. REMEDIES. Upon and after the occurrence of any Event of Default
which is then continuing or which has not been cured within the time
period given for such cure:
(a) The Company may exercise its rights with respect to the
Collateral, without regard to the existence of any other security
or source of payment for Obligations, including without
limitation the rights set forth in SECTION 2, and may demand, sue
for collection or make any other compromise or settlement with
respect to other rights and remedies provided for herein or
otherwise available to it, and the Company shall have all of the
rights and remedies of a secured party in Massachusetts under the
Uniform Commercial Code.
(b) Except as specifically reserved herein, Borrower waives all
suretyship defenses at law and in equity, including waste and
impairment of Collateral, and further waives the requirement of
any demand and presentment. Twenty-one (21) days' prior notice to
Borrower at the address provided below or at such other address
as Borrower shall provide to the Company in writing for such
purpose, of the time and place of any public sale of Collateral,
or of the time after which any private sale or any other intended
disposition is to be made, shall constitute reasonable
notification.
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<PAGE> 14
(c) The Company is authorized at any such sale (including without
limitation any sale to itself or any affiliate of the Company,
the same being expressly authorized and contemplated herein), if
the Company deems it advisable to do so, in order to comply with
any applicable securities laws, to restrict the prospective
bidders or purchasers to persons who will represent and agree
that they are purchasing the Collateral for their own account for
investment, and not with a view to the distribution or resale
thereof. Sales made subject to such restriction shall not, solely
by reason thereof, be deemed not to have been made in a
commercially reasonable manner.
(d) The Company is specifically authorized, with respect to any
Collateral that consists of Shares, to acquire such Collateral
itself or to transfer such Collateral to any affiliate of the
Company at a price equal to the Agreed Value of such Shares, as
defined in SECTION 3(A). Borrower expressly waives any
requirement that the Company conduct a public or private sale
with respect to such Shares and agrees that such a disposition is
commercially reasonable.
(e) In case of any sale of all or part of the Collateral on credit
for future delivery, the Collateral so sold shall be retained by
the Company until the purchase price is paid. The Company shall
incur no liability in case of the failure of the purchaser to pay
for the Collateral as so sold if the Collateral is recovered, or
of the failure of the Company to make any sale of Collateral
after giving notice thereof, and in case of any such failure,
such Collateral may again be sold.
(f) All cash proceeds received by the Company in respect of any sale,
collection or other enforcement or disposition of Collateral
shall be applied (after deduction of any amounts payable to the
Company for reasonable expenses of the sale, collection or
disposition of Collateral) against Obligations in such order as
the Company shall elect. Upon payment in full of all Obligations,
Borrower shall be entitled to the return of all Collateral
pledged by him and all proceeds thereof, which have not been used
or applied toward the payment of Obligations as herein
authorized.
Section 9. WAIVERS AND REMEDIES. Except as otherwise provided herein or by
law, Borrower waives presentment, demand, notice and protest, notice
of acceptance of this Agreement, and except as provided in SECTION
8(B) notice of all action by the Company in reliance hereon. No
failure by the Company to exercise, no delay by the Company in
exercising, and no single or partial exercise of, any right, remedy or
power hereunder or under any other agreement relating to the
Obligations or to Collateral shall operate as a waiver thereof, or of
any other right, remedy or power at any time. No amendment,
modification or waiver of any provision of this Agreement shall be
effective unless contained in a writing signed
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<PAGE> 15
by the Company. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
The rights, remedies and powers of the Company and Borrower, not only
hereunder, but also under any promissory note or notes of Borrower
held by the Company, any other agreements of Borrower with the Company
and applicable law, are cumulative and may be exercised successively,
concurrently or alternatively.
Section 10. TERM: BINDING EFFECT. This Agreement shall remain in full force
and effect until payment and satisfaction in full of all Obligations,
shall be binding upon Borrower and the heirs, legatees, legal
representatives and assigns of Borrower, including Permitted
Transferees, and shall inure to the benefit of the Company and its
successors and assigns. Notwithstanding the foregoing, the Company may
terminate this Agreement and release the Collateral, or may accept
substitute Collateral, at any time in its sole discretion without in
any way affecting the nonrecourse nature of a portion of the
Obligations as provided in the Note.
Section 11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts, without regard to conflict of law principles, except to
the extent that the perfection of the security interest granted hereby
in respect of any item of Collateral may be governed by the law of
another jurisdiction. Unless otherwise defined herein, all words and
terms used in this Agreement shall have the meanings provided in the
Uniform Commercial Code of the state of the jurisdiction of
incorporation of the Company (including its successor as issuer of the
Shares). If any provision of this Agreement, or the application
thereof to any person or circumstance, is held invalid, such provision
shall be deemed to be modified to comply with applicable law or if not
able to be so modified, shall be deemed to be severed from the
Agreement, the remaining provisions of which to be valid and
enforceable.
Section 12. SIGNATURES. This Agreement may be executed in counterparts.
Section 13. HEADINGS. The captions in this Agreement have been included for
reference only and shall not define or limit the provisions hereof.
[END OF TEXT]
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<PAGE> 16
EXECUTED as of the date set forth above.
BORROWER:
---------
/s/ Chris Butler
--------------------------------
Chris Butler
COMPANY:
--------
SERVICESOFT TECHNOLOGIES, INC.
/s/ Mark Skapinker
--------------------------------
By: Mark Skapinker
Its: ASO
-7-
<PAGE> 17
SCHEDULE OF COLLATERAL
TO
PLEDGE AGREEMENT
----------------
QUANTITY DESCRIPTION OF SECURITY
-------- -----------------------
833,502 shares Common Stock, par value $.01 per share, of
Servicesoft Technologies, Inc.
-8-
<PAGE> 1
EXHIBIT 10.9
[SERVICESOFT TECHNOLOGIES LETTERHEAD]
November 23, 1999
Mr. Daniel J. Kossmann
86 Whitmar Road
Cotuit, MA 02635
Dear Dan:
It gives me great pleasure to confirm our verbal offer of employment as
Chief Financial Officer that was discussed with you. We at Servicesoft believe
that you will be a key contributor to the company's success. You will report to
me, and we expect your starting date to be December 13, 1999 or sooner.
Your initial compensation as an at-will employee will be a semi-monthly base
salary of $7,500.00, which is equivalent to $180,000 annually. In addition, you
will participate in the Servicesoft Fiscal Year 2000 Management Bonus Plan.
You will be granted a stock option (or restructured stock grant) for 180,000
shares of its Common Stock at a price per share of $1.00. Included in your
option agreement will be a provision accelerating the vesting of all
outstanding options in the event of a "change of control" of Servicesoft and
you are placed into a lesser position. Any stock options will be subject to
certain restrictions and will vest over a four-year period, with 25% of the
stock vesting on the first anniversary, and 2.08% on each subsequent month
anniversary of the grant.
Our current benefits include eight paid holidays, four optional days, three
personal days and fifteen vacation days annually (accrued monthly), sick days,
life insurance, disability insurance, a 401(k) plan, and contributory health
and dental insurance. You will also be provided with an apartment or housing
allowance not to exceed $2,500.00 per month, for up to eighteen (18) months.
Your employment is contingent on your signing our customary Employee
Non-Disclosure and Inventions Agreement and your agreement to Servicesoft's
standard employee policies and procedures as adopted from time to time.
Dan, I truly believe that you will realize both the professional and personal
rewards you seek at Servicesoft. I look forward to your joining us and expect
that we will have a long and satisfying relationship. As indication of your
acceptance of this offer, please sign the enclosed copy of this letter and
return it to me.
Sincerely yours,
/s/ Chris Butler
- ----------------
Chris Butler
CEO and President
Signed: /s/ Daniel J. Kossmann Date: 11/28/99
------------------------------------- ------------
My start date will be: 12-13-99
-----------------
<PAGE> 1
EXHIBIT 10.10
SERVICESOFT TECHNOLOGIES, INC.
RESTRICTED STOCK AGREEMENT
NAME OF GRANTEE: DAN KOSSMANN
-----------------------
NO. OF SHARES: 180,000 Shares of Common Stock
-----------------------
GRANT DATE: NOVEMBER 23, 1999
-----------------------
PER SHARE PURCHASE PRICE: $1.00
-----------------------
Pursuant to the Servicesoft Technologies, Inc. 1999 Stock Option and Grant
Plan (the "1999 Plan"), Servicesoft Technologies, Inc., a Delaware corporation
(together with all successors thereto, the "Company"), hereby grants, sells and
issues to the person named above (the "Grantee"), who is an officer, employee,
director, consultant or other key person of the Company or any of the
Subsidiaries (as defined below) of the Company, the number of shares of Common
Stock, par value $0.01 per share (together with any successor securities,
including stock of any successor corporation, "Common Stock"), of the Company
indicated above (subject to the provisions below, the "Shares"), for the per
share purchase price specified above, which represents the fair market value per
share on the date of grant, subject to the terms and conditions set forth
herein. The Grantee agrees to the provisions set forth herein and acknowledges
that each such provision is a material condition of the Company's agreement to
issue and sell the Shares to him or her. The Company hereby acknowledges receipt
of $180,000.00 in full payment for the Shares. All references to share prices
and amounts herein shall be equitably adjusted to reflect stock splits, stock
dividends, recapitalizations, mergers, reorganizations and similar changes
affecting the capital stock of the Company, and any shares of capital stock of
the Company received on or in respect of Shares in connection with any such
event (including any shares of capital stock or any right, option or warrant to
receive the same or any security convertible into or exchangeable for any such
shares or received upon conversion of any such shares) shall be subject to this
Agreement on the same basis and extent at the relevant time as the Shares in
respect of which they were issued, and shall be deemed Shares as if and to the
same extent they were issued at the date hereof. All capitalized terms used
herein and not otherwise defined shall have the respective meanings set forth in
the 1999 Plan. Unless otherwise provided herein, the Restricted Shares shall be
governed by all of the terms and conditions of the 1999 Plan.
1. DEFINITIONS. For the purposes of this Agreement, the following terms
shall have the following respective meanings.
"ACT" shall mean the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
"CAUSE" shall mean the determination by a majority of the Board of
Directors of the Company that any one or more of the following events has
occurred: (A) dishonesty, breach of fiduciary duty or breach of the terms of
this Agreement or any other agreements executed by the Grantee; (B) commission
by the Grantee of any act of embezzlement, fraud, larceny or theft on or from
the Company; (C) substantial and continuing neglect or inattention by the
Grantee of duties of his employment which shall continue for 30 business days
following written
<PAGE> 2
notification by the Board of Directors; (D) willful misconduct or gross
negligence of the Grantee in connection with the performance of such duties; (E)
commission by the Grantee of any acts of moral turpitude; or (F) the conviction
of the Grantee of a felony. A determination by the Board of Directors, after
notice to the Grantee and providing the Grantee an opportunity to be heard, that
the Grantee has committed an act of the sort mentioned in (A) through (F) above
shall be conclusive, whether or not there are proceedings by public authorities
with respect thereto and without regard to the outcome thereof.
"CORPORATE TRANSACTION" shall mean any Corporate Transaction as that term
is defined in the 1999 Plan.
"LIQUIDITY EVENT" shall mean (i) a Corporate Transaction or (ii) the
consummation of the first fully underwritten, firm commitment public offering
pursuant to an effective registration statement under the Act, other than on
Form S-4 or S-8 or their then equivalents, covering the offer and sale by the
Company of its Common Stock which has become effective under the Act (an
"Initial Public Offering").
"PERMITTED TRANSFEREES" shall mean any of the following to whom the Grantee
may transfer Shares hereunder: the Grantee's spouse, children (natural or
adopted), stepchildren or a trust for their sole benefit of which the Grantor is
the settlor; PROVIDED, HOWEVER, that any such trust does not require or permit
distribution of any Shares during the term of this Agreement unless subject to
its terms.
"PERSON" shall mean any individual, corporation, partnership (limited or
general), limited liability company, limited liability partnership, association,
trust, joint venture, unincorporated organization or any similar entity.
"RESTRICTED SHARES" shall initially mean all of the Shares being purchased
by the Grantee on the date hereof, PROVIDED that on November 23, 2000, 45,000
Shares shall cease to be Restricted Shares and on each monthly anniversary of
the Grant Date thereafter, commencing on December 23, 2000, 3,750 Shares shall
cease to be Restricted Shares, such that all of the Restricted Shares shall
become Vested Shares on November 23, 2003; FURTHER PROVIDED, that in the event
that the Grantee, within one year after a Corporate Transaction, is terminated
without Cause or voluntarily terminates his employment following a demotion or a
material reduction in his responsibilities or reporting position, then all of
the Restricted Shares shall vest immediately.
"SHARES" shall mean the number of shares of Common Stock being purchased by
the Grantee on the date hereof and any additional shares of Common Stock or
other securities received as a dividend on, or otherwise on account of, the
Shares, as contemplated by the first paragraph of this Agreement.
"SUBSIDIARY" shall mean any corporation or partnership of which stock or
other equity interests possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock or other equity interests is owned
directly or indirectly by the Company.
"TERMINATION EVENT" shall mean the termination of the Grantee's Service
Relationship with the Company and its Subsidiaries for any reason whatsoever,
regardless of the circumstances thereof, and including without limitation upon
death, disability, retirement or discharge or resignation for any reason,
whether voluntary or involuntary. For purposes hereof, the Board of Director's
determination of the reason for termination of the Grantee's Service
<PAGE> 3
Relationship shall be conclusive and binding on the Grantee and the Grantee's
representatives or legatees.
"VESTED SHARES" shall mean all Shares which are not Restricted Shares.
2. PURCHASE AND SALE OF SHARES; INVESTMENT REPRESENTATIONS.
(a) PURCHASE AND SALE. On the date hereof, the Company hereby sells to the
Grantee, and the Grantee hereby purchases from the Company, the number of Shares
set forth above for the purchase price per share set forth above.
(b) INVESTMENT REPRESENTATIONS. In connection with the purchase and sale of
the Shares contemplated by SECTION 2(A) above, the Grantee hereby represents and
warrants to the Company as follows:
(i) The Grantee is purchasing the Shares for the Grantee's own
account for investment only, and not for resale or with a view to the
distribution thereof.
(ii) The Grantee has had such an opportunity as he or she has deemed
adequate to obtain from the Company such information as is necessary to permit
him or her to evaluate the merits and risks of the Grantee's investment in the
Company and has consulted with the Grantee's own advisers with respect to the
Grantee's investment in the Company.
(iii) The Grantee has sufficient experience in business, financial and
investment matters to be able to evaluate the risks involved in the purchase of
the Shares and to make an informed investment decision with respect to such
purchase.
(iv) The Grantee can afford a complete loss of the value of the Shares
and is able to bear the economic risk of holding such Shares for an indefinite
period.
(v) The Grantee understands that the Shares are not registered under
the Act or any applicable state securities or "blue sky" laws and may not be
sold or otherwise transferred or disposed of in the absence of an effective
registration statement under the Act and under any applicable state securities
or "blue sky" laws (or exemptions from the registration requirements thereof).
The Grantee further acknowledges that certificates representing the Shares will
bear restrictive legends reflecting the foregoing.
3. REPURCHASE OF RESTRICTED SHARES.
(a) REPURCHASE OF RESTRICTED SHARES. Upon the occurrence of a Termination
Event, the Company or its assigns shall have the right and option to repurchase
(the "Repurchase Right") all or any portion of the Restricted Shares held by the
Grantee or any Permitted Transferee as of the date of such Termination Event at
the per share purchase price set forth above, subject to adjustment as provided
herein. The Repurchase right specified herein shall survive and remain in effect
as to Restricted Shares following and notwithstanding any Liquidity Event or
other transaction involving the Company and certificates representing such
Restricted Shares shall bear legends to such effect.
(b) CLOSING PROCEDURE. The Company or its assigns shall effect the
Repurchase Right (if so elected) by delivering or mailing to the Grantee
(and/or, if applicable, any Permitted Transferees) written notice within six (6)
months after the Termination Event, specifying a date
<PAGE> 4
within such six-month period in which the Repurchase shall be effected. Upon
such notification, the Grantee and any Permitted Transferees shall promptly
surrender to the Company any certificates representing the Shares being
purchased, together with a duly executed stock power for the transfer of such
Shares to the Company or the Company's assignee or assignees (if applicable).
Upon the Company's or its assignee's receipt of the certificates from the
Grantee or any Permitted Transferees, the Company or its assignee or assignees
shall deliver to him, her or them a check for the purchase price of the Shares
being purchased, PROVIDED, HOWEVER, that the Company may pay the purchase price
for such shares by offsetting and canceling any indebtedness then owed by the
Grantee to the Company. At such time, the Grantee and/or any holder of the
Shares shall deliver to the Company the certificate or certificates representing
the Shares so repurchased, duly endorsed for transfer, free and clear of any
liens or encumbrances.
(c) REMEDY. Without limitation of any other provision of this Agreement or
other rights, in the event that the Grantee, any Permitted Transferees or any
other person or entity is required to sell his or her Shares pursuant to the
provisions of this SECTION 3 and in the further event that he or she refuses or
for any reason fails to deliver to the designated purchaser of such Shares the
certificate or certificates evidencing such Shares together with a related stock
power, such designated purchaser may deposit the purchase price for such Shares
with a bank designated by the Company, or with the Company's independent public
accounting firm, as agent or trustee, or in escrow, for the Grantee, any
Permitted Transferees or other person or entity, to be held by such bank or
accounting firm for the benefit of and for delivery to him, them or it, and/or,
in its discretion, pay such purchase price by offsetting any indebtedness then
owed by the Grantee as provided above. Upon any such deposit and/or offset by
the designated purchaser of such amount and upon notice to the person or entity
who was required to sell the Shares to be sold pursuant to the provisions of
this SECTION 3, such Shares shall at such time be deemed to have been sold,
assigned, transferred and conveyed to such purchaser, the holder thereof shall
have no further rights thereto (other than the right to withdraw the payment
thereof held in escrow, if applicable), and the Company shall record such
transfer in its stock transfer book or in any appropriate manner.
4. RESTRICTIONS ON TRANSFER OF SHARES.
(a) NO TRANSFERS UNLESS AUTHORIZED AND IN COMPLIANCE WITH THIS AGREEMENT.
(i) None of the Shares now owed or hereafter acquired by the Grantee
shall be sold, assigned, transferred, pledged, hypothecated, given away or in
any other manner disposed of or encumbered, whether voluntarily or by operation
of law, unless such transfer is in compliance with all foreign, federal and
state securities laws (including, without limitation, the Act), and such
disposition is in accordance with the terms and conditions of this SECTION 4. In
connection with any transfer of Shares, the Company may require an opinion of
counsel to the transferor, satisfactory to the Company, that such transfer is in
compliance with all foreign, federal and state securities laws (including
without limitation, the Act). No Restricted Shares may be transferred, sold,
assigned or given away, except as set forth in SECTIONS 4(b) OR 4(c) hereof. The
Grantee agrees to give the Company prompt notice of any transfer of Shares to a
Permitted Transferee as contemplated under SECTION 4(b) hereof. Any attempted
disposition of Shares not in accordance with the terms and conditions of this
Agreement shall be null and void, and the Company shall not reflect on its
records any change in record ownership of any Shares pursuant to any such
disposition, shall otherwise refuse to recognize any such disposition and shall
not in any way give effect to any such disposition of any Shares.
<PAGE> 5
(ii) Prior to making any transfer of Vested Shares (other than to a
Permitted Transferee for which notice shall be given as set forth in SECTION
4(A)(I) hereof), the Grantee shall deliver written notice (the "Transfer
Notice") to the Company. The Transfer Notice shall disclose in reasonable detail
the identity of the prospective transferees, the number of shares to be
transferred (the "Offered Shares") and the terms and conditions of such proposed
transfer. By giving the Transfer Notice, the Grantee shall be deemed to have
granted the Company an option to purchase the Offered Shares. The Company may
purchase all or any portion of the Offered Shares upon the same terms and
conditions as those set forth in the Transfer Notice by delivering written
notice of such election to the Grantee within 20 business days after the
Transfer Notice has been given to the Company (the "Election Period"). If the
Company has not elected to purchase or otherwise acquire all of the Offered
Shares prior to the expiration of the Election Period, the Grantee may transfer
such Vested Shares at a price and on terms no more favorable to the transferees
thereof than specified in the Transfer Notice during the 30-day period
immediately following the expiration of the Election Period (the "Transfer
Period"). Any Offered Shares not so transferred within the Transfer Period shall
be subject to the provisions of this SECTION 4(A) upon any subsequent transfer.
If the Company has elected to purchase any Offered Shares hereunder, the
transfer of such Offered Shares shall be consummated as soon as practical after
the deliver of the election notice to the Executive, but in any event within 15
days after the expiration of the Election Period.
(b) TRANSFERS TO PERMITTED TRANSFEREES. Subject to the next sentence of
this SECTION 4(b), the Grantee may sell, assign, transfer or give away any or
all of the Shares without receipt of consideration or for such consideration as
such holder shall determine to Permitted Transferees. No transfer permitted
hereby shall be effective unless the Permitted Transferee to whom the Shares are
proposed to be transferred has delivered to the Company a written acknowledgment
that the Shares to be received by it are subject to the provisions of this
Agreement (including without limitation, the provisions of this SECTION 4) and
that the Permitted Transferee is bound hereby and thereby.
(c) TRANSFERS UPON DEATH. Upon the death of the Grantee, the Vested Shares
held by the Grantee may be transferred and distributed by will or other
instrument taking effect at his death or by the laws of descent and distribution
to the Grantee's estate, executors, administrators and personal representatives,
and then to such holder's heirs, legatees or distributees whether or not such
heirs, legatees or distributees are Permitted Transferees. No transfer permitted
hereby shall be effective unless the transferee to whom the Shares are proposed
to be transferred pursuant to this provision has delivered to the Company a
written acknowledgment that the Shares to be received by it are subject to the
provisions of this Agreement (including without limitation, the provisions of
this SECTION 4) and that such transferee is bound hereby and thereby.
(d) TRANSFERS AFTER LIQUIDITY EVENT. Upon the consummation of a Liquidity
Event, the Grantee may transfer any Vested Shares, with or without consideration
to any Person without restriction other than compliance with the applicable
foreign, federal and state securities laws and payment of any amounts due by
cash or promissory notes issued in consideration for the purchase of such Vested
Shares. In connection with any such transfers, the Company may require an
opinion of counsel to this transferor, notification to the Company, that such
transfer is in compliance with all applicable foreign, federal and state
transition laws (including, without limitation, the Act).
5. EFFECT OF A CORPORATE TRANSACTION. In the event of a Corporate
Transaction, the Restricted Shares shall be subject to acceleration, assumption,
substitution, adjustment and/or
<PAGE> 6
repurchase as provided herein notwithstanding anything in Section 3 of the 1999
Plan to the contrary.
6. LEGEND. Any certificate(s) representing the Shares shall carry
substantially the following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including repurchase and restrictions against
transfers) contained in a certain Restricted Stock Agreement
between the Company and the holder of this certificate (a copy of
which is available at the offices of the Company for
examination)."
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or the securities
laws of any state. The shares may not be sold or transferred in
the absence of such registration or an exemption from
registration.
7. ESCROW. In order to carry out the provisions of SECTION 3 and SECTION
4 of this Agreement more effectively, the Company shall hold the Shares in
escrow together with separate stock powers executed by the Grantee in blank for
transfer, and any Permitted Transferee shall, as an additional condition to any
transfer of Shares, execute a like stock power as to such Shares and a joinder
agreement whereby the Permitted Transferee becomes a party to this Agreement.
The Company shall not dispose of the Shares except as otherwise provided in this
Agreement. In the event of any exercise of the Repurchase Right, the Company is
hereby authorized by the Grantee and any Permitted Transferee, as the Grantee's
and each such Permitted Transferee's attorney-in-fact, to date and complete the
stock powers necessary for the transfer of the Shares being purchased and to
transfer such Shares in accordance with the terms hereof. At such time as any
Shares are no longer Restricted Shares, the Company shall, at the written
request of the Grantee, deliver to the Grantee (or the relevant Permitted
Transferee) a certificate representing such Shares with the balance of the
Shares to be held in escrow pursuant to this SECTION 7.
8. WITHHOLDING TAXES. The Grantee acknowledges and agrees that the
Company or any of its Subsidiaries have the right to deduct from payments of any
kind otherwise due to the Grantee, or from the Shares held pursuant to SECTION 7
hereof, any federal, state or local taxes of any kind required by law to be
withheld with respect to the purchase of the Shares by the Grantee. In
furtherance of the foregoing the Grantee agrees to elect, in accordance with
Section 83(b) of the Internal Revenue Code of 1986, as amended, to recognize
ordinary income in the year of acquisition of the Shares, and to pay to the
Company all withholding taxes shown as due on his Section 83(b) election form,
or otherwise ultimately determined to be due with respect to such election,
based on the excess, if any, of the fair market value of such Shares as of the
date of the purchase of such Shares by the Grantee over the purchase price for
such Shares.
9. ASSIGNMENT. At the discretion of the Board of Directors of the
Company, the Company shall have the right to assign the right to exercise its
rights with respect to the Repurchase Right or pursuant to SECTION 4(a)(ii) to
any person or persons, in whole or in part in any particular instance, upon the
same terms and conditions applicable to the exercise thereof by the Company, and
such assignee or assignees of the Company shall then take and hold any Shares so
acquired subject to such terms as may be specified by the Company in connection
with any such assignment.
<PAGE> 7
10. MISCELLANEOUS PROVISIONS.
(a) LOCKUP PROVISION. The Grantee and each Permitted Transferee shall
agree, if requested by the Company and any underwriter engaged by the Company,
not to sell or otherwise transfer or dispose of any securities of the Company
(including, without limitation pursuant to Rule 144 under the Act (or any
successor or similar exemptive rule hereafter in effect)) held by them for such
period following the effective date of any registration statement of the Company
filed under the Act as the Company or such underwriter shall specify reasonably
and in good faith, not to exceed 180 days in the case of the Company's Initial
Public Offering or 90 days in the case of any other public offering.
(b) RECORD OWNER: DIVIDENDS. The Grantee and any Permitted Transferees,
during the duration of this Agreement, shall be considered the record owners of
and shall be entitled to vote the Shares. The Grantee and any Permitted
Transferees shall be entitled to receive all dividends and any other
distributions declared on the Shares; PROVIDED, HOWEVER, that the Company is
under no duty to declare any such dividends or to make any such distribution.
(c) EQUITABLE RELIEF. The parties hereto agree and declare that legal
remedies are inadequate to enforce the provisions of this Agreement and that
equitable relief, including specific performance and injunctive relief, may be
used to enforce the provisions of this Agreement.
(d) CHANGE AND MODIFICATIONS. This Agreement may not be orally changed,
modified or terminated, nor shall any oral waiver of any of its terms be
effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Grantee.
(e) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts without regard to
conflict of law principles.
(f) HEADINGS. The headings are intended only for convenience in finding
the subject matter and do not constitute part of the text of this Agreement and
shall not be considered in the interpretation of this Agreement.
(g) SAVING CLAUSE. If any provision(s) of this Agreement shall be
determined to be illegal or unenforceable, such determination shall in no manner
affect the legality or enforceability of any other provision hereof.
(h) NOTICES. All notices, requests, consents and other communications
shall be in writing and be deemed given when delivered personally, by telex or
facsimile transmission or when received if mailed by first class registered or
certified mail, postage prepaid. Notices to the Company or the Grantee shall be
addressed as set forth underneath their signatures below, or to such other
address or addresses as may have been furnished by such party in writing to the
other. Notices to any holder of the Shares other than the Grantee shall be
addressed to the address furnished by such holder to the Company.
(i) BENEFIT AND BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their respective successors,
assigns, and legal representatives.
<PAGE> 8
The Company has the right to assign this Agreement, and such assignee shall
become entitled to all the rights of the Company hereunder to the extent of such
assignment.
(j) COUNTERPARTS. For the convenience of the parties and to facilitate
execution, this Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same document.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 9
IN WITNESS WHEREOF, the Company and the Grantee have executed this
Restricted Stock Agreement as of the date first above written.
COMPANY
SERVICESOFT TECHNOLOGIES, INC.
By: /s/ Chris Butler
-----------------------
Chris Butler, President & Chief
Executive Officer
GRANTEE:
/s/ Dan Kossmann
-----------------------
Dan Kossmann
Address:
<PAGE> 10
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION FROM SUCH REGISTRATION.
PROMISSORY NOTE
---------------
Natick, Massachusetts
November 23, 1999
US$180,000.00
FOR VALUE RECEIVED, the undersigned ("Debtor") hereby promises to pay to
Servicesoft Technologies, Inc., a Delaware corporation, or its successor
("Payee"), at such place or places as may be specified by Payee or any holder
hereof, in legal tender of the United States of America, the principal amount of
$180,000.00 (the "Principal"), with interest at the fixed rate of 7.00% per
annum, compounded annually, on the unpaid balance. Interest shall be payable on
each anniversary of the date hereof commencing on November 23, 2000. The
Principal, with accrued interest thereon, shall become due and payable in whole
or in part upon any sale by the Debtor of shares of Common Stock, $.01 par
value, of the Payee ("Common Stock") pursuant to the terms set forth below. In
any event, any Principal then unpaid shall be due and payable, with accrued
interest thereon, on the tenth anniversary of the date hereof (the "Repayment
Date"). The Debtor shall pay to Payee, within ten (10) days after receipt
thereof, the net after-tax proceeds from any sales by the Debtor of shares of
the Common Stock of the Payee held or being acquired on the date hereof, or any
successor securities, in reduction of the Principal until such time as the
Principal has been paid in full, and in connection with each such payment shall
pay accrued but unpaid interest on the amount so paid. For purposes hereof, net
after-tax proceeds refers to the amount received upon any sale of such shares,
less brokerage commissions or underwriting discounts, other expenses of every
kind, including documentary, excise and other taxes, if any, directly relating
to the sale and an amount equal to the federal, state and local taxes on any
gain from such sale (as determined by multiplying the amount of such gain by the
combined maximum federal, state and local tax rate applicable to the sale of
such shares by the Debtor, taking into account the holding period for such
shares and any federal income tax deduction for state and local income taxes).
This Note is subject to the terms of and the payment hereof is secured by a
certain Pledge Agreement dated as of the date hereof by and between Debtor and
Payee (the "Pledge Agreement").
In case an Event of Default, as defined in the Pledge Agreement, shall
occur, the aggregate unpaid balance of Principal and accrued interest thereon
may be declared to be due and payable in the manner and with the effect provided
in the Pledge Agreement. The Payee shall have (i) full recourse against the
Collateral under the Pledge Agreement in connection with the repayment of the
Principal and accrued interest thereon, and (ii) recourse up to the Recourse
<PAGE> 11
Amount (as hereinafter defined) against any other assets of the Debtor. The
Recourse Amount as of any time shall mean (i) 30% of the Principal amount hereof
reduced by 30% of each payment of Principal made by or on behalf of the Debtor
from any source and (ii) the full amount of accrued interest under this Note (it
being understood that the Debtor shall be personally obligated for the payments
of interest hereunder). Unless otherwise directed by the Debtor, all sums paid
by the Debtor or otherwise received by Payee on account of sums owing hereunder
shall be deemed to reduce the Recourse Amount on a proportionate basis.
Debtor may not prepay any of the principal balance hereof or accrued
interest thereon.
Debtor expressly waives presentment for payment, protest and demand, notice
of protest, demand and dishonor and expressly agrees that this Note may be
extended from time to time without in any way affecting the liability of Debtor.
No delay or omission on the part of Payee in exercising any right hereunder
shall operate as a waiver of such right or of any other right under this Note.
This Note may from time to time be extended by Payee, with or without
notice to Debtor, and any related right may be waived, exchanged, surrendered or
otherwise dealt with, all without affecting the liability of Debtor, in each
case in the sole discretion of Payee.
This Note may not be changed, modified or terminated orally, but only by an
agreement in writing and signed by the Debtor and Payee. This Note shall be
governed by and construed in accordance with the laws The Commonwealth of
Massachusetts, and shall be binding upon the successors and assigns of Debtor
and inure to the benefit of Payee and its successors, endorsees and assigns.
DEBTOR:
/s/ Dan Kossmann
----------------------------
Dan Kossmann
-2-
<PAGE> 12
PLEDGE AGREEMENT
----------------
In consideration of Servicesoft Technologies, Inc., a Delaware corporation
(together with any successor thereto, the "Company"), having made a loan to Dan
Kossmann ("Borrower"), under the Promissory Note of even date herewith, and any
renewals or extensions thereof made in the sole discretion of the Company (the
"Note"), Borrower agrees as follows:
Section 1. PLEDGE. Borrower hereby pledges, assigns and transfers to the
Company, and grants to the Company a security interest in, the
following property ("Collateral"), to be held by the Company:
(a) The shares of Common Stock, par value $0.01 per share, of the
Company (each, together with any successor securities, a "Share")
obtained pursuant to a certain Restricted Stock Agreement dated
as of the date hereof between Borrower and the Company (the
"Restricted Stock Agreement") and held by Borrower or any
Permitted Transferee (as that term is defined in the Restricted
Stock Agreement), and any securities owned in respect thereof or
in exchange therefor.
(b) All other securities, instruments and other property issued or
accepted in substitution for or in addition to any of the
foregoing.
(c) All proceeds of any and all of the Collateral.
Section 2. OBLIGATIONS. This Agreement and the security interest granted
hereby secure the payment of all obligations of Borrower to the
Company under the Note ("Obligations"), and the Obligations of
Borrower under this Agreement, and any and all renewals or
extensions thereof. So long as any of the Obligations are
outstanding, unless and until Borrower shall be in default
hereunder or there shall be any default of any of the
Obligations, Borrower shall retain all rights to dividends and
distributions and voting rights, if any, with respect to the
Collateral. In the event the Obligations shall be in default or
in the event that Borrower shall be in default under the terms
hereof, the Company may, in its discretion, vote and exercise all
of the powers of an owner with respect to any of the relevant
Collateral. Without limiting the generality of the other remedies
provided herein and in addition thereto, in the event any of the
Obligations shall be in default or upon any default by Borrower
hereunder, the Company after the occurrence of an Event of
Default (as defined in Section 7 hereof) may take all steps
necessary to cause the Collateral to be transferred into the name
of the Company, including but not limited to taking steps
necessary to comply with restrictions on sale or transfer of the
shares constituting such Collateral, and in connection therewith
Borrower appoints the Company such Borrower's attorney-in-fact to
execute and deliver such offers, tender offers, certificates,
documents or instruments of every nature
<PAGE> 13
or description required for the purpose of the transfer of such
shares into the name of the Company, or any other person.
If Borrower receives any cash distribution or dividend in respect of any
Collateral, Borrower may retain such cash distribution or dividend as his own
property unless prior to such receipt an Event of Default has occurred, in which
event Borrower shall accept same in trust for the Company, and shall upon
request deliver same immediately to the Company in the form received, with
Borrower's endorsement and/or assignment when necessary, to be held by the
Company as Collateral.
If Borrower receives any stock certificate or option or deferred
compensation right, whether as an addition to, in substitution of, or in
exchange for, any Collateral, or otherwise, Borrower shall accept same in trust
for the Company, and shall upon request deliver same immediately to the Company
in the form received, with Borrower's endorsement and/or assignment when
necessary, to be held by the Company as Collateral.
Borrower is herewith delivering to the Company all certificates or
instruments representing or evidencing Collateral in suitable form for transfer
or delivery, or accompanied by duly executed instruments of transfer or
assignment to be held subject to the preceding paragraph.
Section 3. RELEASE OF COLLATERAL. Upon the written request of Borrower, the
Company shall promptly release Collateral to Borrower or to any
designee of Borrower at any time and from time to time; PROVIDED,
HOWEVER, that the Company shall retain an amount of Collateral with an
Agreed Value (as defined below) at least equal to the amount of the
Obligations then outstanding.
(a) The "Agreed Value" of any Collateral consisting of Shares shall
be the original cost of such Shares as set forth in the
Restricted Stock Agreement ($1.00 per Share), equitably adjusted
for stock splits, stock dividends and like transactions. The
Agreed Value of any Collateral not consisting of Shares shall be
determined reasonably and in good faith by the mutual agreement
of Borrower and the Company.
(b) Borrower acknowledges that transfer of the Shares is subject to
certain restrictions under the Restricted Stock Agreement. The
obligation of the Company to release certificates representing
Shares to Borrower or his designee hereunder shall in any event
be subject to the requirements of the Restricted Stock Agreement.
Subject to such requirements and the terms hereof, the Company
shall release from this pledge Vested Shares or Restricted Shares
(as those terms are defined in the Restricted Stock Agreement) as
designated by Borrower, provided that such Shares shall remain
subject to the Restricted Stock Agreement to the extent
applicable.
Section 4. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
to the Company as follows:
<PAGE> 14
(a) Borrower is, and (as to any substitute or additional Collateral)
shall be, the sole owner of the Collateral pledged by Borrower,
free and clear of any lien, security interest, option or other
charge or encumbrance, except for (i) the security interest
created by this Agreement, (ii) certain restrictions under the
Restricted Stock Agreement and (iii) restrictions imposed by
applicable laws, and, subject to the same exceptions, Borrower
has and shall have the right to transfer such Collateral and to
grant a security interest therein to the Company as provided in
this Agreement.
(b) No effective financing statement or similar notice covering any
Collateral pledged by Borrower is or shall be on file in any
recording office, and no other pledge or assignment thereof has
been made, or shall have been made, other than in favor of the
Company, except as the Company may approve.
Section 5. FURTHER ACTION BY BORROWER. Borrower shall, at the expense of
Borrower, promptly execute and deliver all further notices,
instruments and documents, including, without limitation, financing
statements, and take all such further action as may be reasonably
necessary or reasonably advisable or as the Company at any time may
reasonably request, in order to perfect, preserve and protect the
security interest granted or purported to be granted hereby or to
enable the Company to exercise and enforce such rights, powers and
remedies with respect to Collateral.
Section 6. PRESERVATION OF COLLATERAL.
(a) The Company shall give to the Collateral the same degree of care
and protection which it gives to its own property, PROVIDED,
HOWEVER, that the Company shall have no liability to Borrower for
any losses, costs, expenses or damages due to any acts or
omissions of third parties, or due to any acts of God or other
causes beyond its control. The Company shall have no duty to
preserve any rights with respect to any Collateral, including,
without limitation, rights against prior parties, or to take, or
to notify Borrower of the need to take, any action respecting any
rights, privileges or options relating to any Collateral. To
replace any certificates, however, Borrower shall not be required
to supply any bond or other indemnity.
(b) Borrower shall furnish to the Company, promptly upon receipt
thereof, copies of all material notices, requests and other
documents received by Borrower relating to Collateral unless the
same were sent by the Company.
(c) Borrower shall not (i) sell, assign, transfer or otherwise
dispose of any Collateral, or create or suffer to exist any lien,
security interest,
-3-
<PAGE> 15
assignment by operation of law or other charge or encumbrance on,
or with respect to, any Collateral, except for the security
interest created by this Agreement and the rights, remedies and
restrictions imposed by the Restricted Stock Agreement; or (ii)
attempt any action prohibited by paragraph (c)(i) of this SECTION
6. Notwithstanding the foregoing, Borrower may transfer Shares to
Permitted Transferees pursuant to the Restricted Stock Agreement
or following the vesting of such Shares provided such transfer is
in accordance with the Restricted Stock Agreement; PROVIDED,
HOWEVER, that the Shares so transferred shall remain subject to
the security interest created by this Agreement and any such
Permitted Transferee(s) shall, as a condition to any transfer,
agree to be subject to the provisions of this Agreement.
Section 7. DEFAULTS. A default (an "Event of Default") shall be deemed to
have occurred hereunder if (a) Borrower fails in any material respect
to perform any material obligation hereunder, if any material
representation or warranty hereunder was untrue in any material
respect when made, or if any default or Event of Default by Borrower
occurs under the Note or any agreement evidencing, or constituting or
granting security for, the Obligations, provided the Company is
current in its obligation to pay certain bonuses on each day interest
is due on the Note, and (b) the Company gives to Borrower written
notice thereof and such default shall not have been cured within
fourteen (14) days or such additional time as may be required to
effect such cure if diligently pursued.
Section 8. REMEDIES. Upon and after the occurrence of any Event of Default
which is then continuing or which has not been cured within the time
period given for such cure:
(a) The Company may exercise its rights with respect to the
Collateral, without regard to the existence of any other security
or source of payment for Obligations, including without
limitation the rights set forth in SECTION 2, and may demand, sue
for collection or make any other compromise or settlement with
respect to other rights and remedies provided for herein or
otherwise available to it, and the Company shall have all of the
rights and remedies of a secured party in Massachusetts under the
Uniform Commercial Code.
(b) Except as specifically reserved herein, Borrower waives all
suretyship defenses at law and in equity, including waste and
impairment of Collateral, and further waives the requirement of
any demand and presentment. Twenty-one (21) days' prior notice to
Borrower at the address provided below or at such other address
as Borrower shall provide to the Company in writing for such
purpose, of the time and place of any public sale of Collateral,
or of the time after which any private sale or any other intended
disposition is to be made, shall constitute reasonable
notification.
-4-
<PAGE> 16
(c) The Company is authorized at any such sale (including without
limitation any sale to itself or any affiliate of the Company,
the same being expressly authorized and contemplated herein), if
the Company deems it advisable to do so, in order to comply with
any applicable securities laws, to restrict the prospective
bidders or purchasers to persons who will represent and agree
that they are purchasing the Collateral for their own account for
investment, and not with a view to the distribution or resale
thereof. Sales made subject to such restriction shall not, solely
by reason thereof, be deemed not to have been made in a
commercially reasonable manner.
(d) The Company is specifically authorized, with respect to any
Collateral that consists of Shares, to acquire such Collateral
itself or to transfer such Collateral to any affiliate of the
Company at a price equal to the Agreed Value of such Shares, as
defined in SECTION 3(a). Borrower expressly waives any
requirement that the Company conduct a public or private sale
with respect to such Shares and agrees that such a disposition is
commercially reasonable.
(e) In case of any sale of all or part of the Collateral on credit
for future delivery, the Collateral so sold shall be retained by
the Company until the purchase price is paid. The Company shall
incur no liability in case of the failure of the purchaser to pay
for the Collateral as so sold if the Collateral is recovered, or
of the failure of the Company to make any sale of Collateral
after giving notice thereof, and in case of any such failure,
such Collateral may again be sold.
(f) All cash proceeds received by the Company in respect of any sale,
collection or other enforcement or disposition of Collateral
shall be applied (after deduction of any amounts payable to the
Company for reasonable expenses of the sale, collection or
disposition of Collateral) against Obligations in such order as
the Company shall elect. Upon payment in full of all Obligations,
Borrower shall be entitled to the return of all Collateral
pledged by him and all proceeds thereof, which have not been used
or applied toward the payment of Obligations as herein
authorized.
Section 9. WAIVERS AND REMEDIES. Except as otherwise provided herein or by
law, Borrower waives presentment, demand, notice and protest, notice
of acceptance of this Agreement, and except as provided in SECTION
8(b) notice of all action by the Company in reliance hereon. No
failure by the Company to exercise, no delay by the Company in
exercising, and no single or partial exercise of, any right, remedy or
power hereunder or under any other agreement relating to the
Obligations or to Collateral shall operate as a waiver thereof, or of
any other right, remedy or power at any time. No amendment,
modification or waiver of any provision of this Agreement shall be
effective unless contained in a writing signed
-5-
<PAGE> 17
by the Company. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
The rights, remedies and powers of the Company and Borrower, not only
hereunder, but also under any promissory note or notes of Borrower
held by the Company, any other agreements of Borrower with the Company
and applicable law, are cumulative and may be exercised successively,
concurrently or alternatively.
Section 10. TERM: BINDING EFFECT. This Agreement shall remain in full force
and effect until payment and satisfaction in full of all Obligations,
shall be binding upon Borrower and the heirs, legatees, legal
representatives and assigns of Borrower, including Permitted
Transferees, and shall inure to the benefit of the Company and its
successors and assigns. Notwithstanding the foregoing, the Company may
terminate this Agreement and release the Collateral, or may accept
substitute Collateral, at any time in its sole discretion without in
any way affecting the nonrecourse nature of a portion of the
Obligations as provided in the Note.
Section 11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts, without regard to conflict of law principles, except to
the extent that the perfection of the security interest granted hereby
in respect of any item of Collateral may be governed by the law of
another jurisdiction. Unless otherwise defined herein, all words and
terms used in this Agreement shall have the meanings provided in the
Uniform Commercial Code of the state of the jurisdiction of
incorporation of the Company (including its successor as issuer of the
Shares). If any provision of this Agreement, or the application
thereof to any person or circumstance, is held invalid, such provision
shall be deemed to be modified to comply with applicable law or if not
able to be so modified, shall be deemed to be severed from the
Agreement, the remaining provisions of which to be valid and
enforceable.
Section 12. SIGNATURES. This Agreement may be executed in counterparts.
Section 13. HEADINGS. The captions in this Agreement have been included for
reference only and shall not define or limit the provisions hereof.
[END OF TEXT]
-6-
<PAGE> 18
EXECUTED as of the date set forth above.
BORROWER:
---------
/s/ Dan Kossmann
-----------------------
Dan Kossmann
COMPANY:
--------
SERVICESOFT TECHNOLOGIES, INC.
By: /s/ Chris Butler
-------------------
Chris Butler, President and
Chief Executive Officer
-7-
<PAGE> 19
SCHEDULE OF COLLATERAL
TO
PLEDGE AGREEMENT
----------------
QUANTITY DESCRIPTION OF SECURITY
-------- -----------------------
180,000 shares Common Stock, par value $.01 per
share, of Servicesoft Technologies, Inc.
-8-
<PAGE> 1
EXHIBIT 10.11
-------------
[SERVICESOFT LETTERHEAD]
June 9, 1999
Mr. Massood Zarrabian
205 Bald Pate Hill Road by overnight mail
Newton, MA 02459
Dear Massood,
It gives me great pleasure to confirm our verbal offer of employment as
Executive Vice President of Product Operations that was discussed with you. We
at Servicesoft believe that you will be a key contributor to the company's
success. You will report to me, and we expect your starting date to be July 12,
1999 or sooner. This offer expires June 16, 1999.
Your initial compensation as an at-will employee will be a semi-monthly base
salary of $7,500.00, which is equivalent to $180,000 annually. In addition, you
will participate in the Servicesoft 1999 Management Bonus Plan.
In addition to your salary, we will recommend to the Board of Directors of
Servicesoft Technologies, Inc. that you be granted a stock option for 100,000
shares of its Common Stock at a price per share of $.50. In addition, you will
have the opportunity (based on your 1999 performance) to earn an additional
bonus stock option of up to 20,000 shares at a price to be set by the Board. Any
stock options will be subject to certain restrictions and will vest over a
four-year period, with 25% of the stock vesting on the first anniversary, and
2.08% on each subsequent month anniversary of the grant. Other benefits include
eight paid holidays, four optional days, three personal days and ten vacation
days annually (accrued monthly), sick days, life insurance, disability
insurance, a 401(k) plan, and contributory health and dental insurance. Your
employment is contingent on you signing our customary Employee Non-Disclosure
and Inventions Agreement and your agreement to Servicesoft's standard employee
policies and procedures as adopted from time to time.
Massood, I truly believe that you will realize both the professional and
personal rewards you seek at Servicesoft. I look forward to your joining us and
expect that we will have a long and satisfying relationship. As indication of
your
<PAGE> 2
acceptance of this offer, please sign the enclosed copy of this letter and
return it by June 14, 1999.
Sincerely yours,
/s/ David Tarrant
- -------------------------------
David Tarrant
President
Signed: /s/ Massood Zarrabian Date: June 11, 1999
--------------------------- -------------
<PAGE> 1
EXHIBIT 10.12
-------------
[SERVICESOFT LETTERHEAD]
August 30, 1998
Jeffrey Whitney
86 Dawn Road
Levittown, PA 19056
Dear Jeff,
On behalf of ServiceSoft Corp., I am pleased to offer you the position of Vice
President of Marketing reporting directly to me. This offer assumes that you
will begin work as soon as possible, but no later than September 15, 1998. This
offer expires September 10, 1998.
SALARY: Your base salary will be $140,000 per year payable in 24 semi-monthly
payments.
BONUSES: As a member of the senior management group you are eligible for a
performance bonus. The bonus pool for senior management is set on an annual
basis and is at the discretion of the board of directors based on
recommendations from the president. Based on prior bonus plans, your target
bonus is expected to be at 30% of your base salary. A pro-rated bonus program
will be proposed to cover the balance of 1998.
STOCK OPTIONS: It will be recommended at the next Board Meeting that you be
granted a stock option to purchase 170,000 shares of the Company's common stock
(according to the vestment plan). These stock options, if granted, will be
subject to the company's standard Stock Option Agreement.
RELOCATION: ServiceSoft agrees to allocate a budget of $30,000 to cover your
costs of relocation. You will be entitled to spend up to this amount to cover
relocation and temporary living and travel expenses. If actual expenses are
expected to exceed this amount ServiceSoft agrees to establish a mutually agreed
revised budget.
EMPLOYEE BENEFITS: As a full time employee of ServiceSoft, you shall be eligible
to participate in any and all employee benefit plans which are non-contributory,
and at your option, in any contributory benefit plans.
<PAGE> 2
EMPLOYEE AGREEMENT AND EMPLOYMENT VERIFICATION: As a condition of your
employment, you will be required to sign the company's standard employee
agreement (which will include a confidentiality and non-competition clause) and
Employment Verification Form, copies of which are attached hereto. The Employee
Agreement will have a job description attached in Schedule A. Additional
responsibilities may be added or deleted from time to time at the sole
discretion of the Company.
You also understand that you will be an employee "at will", and that either you
or ServiceSoft may terminate your employment in accordance with the terms stated
in Appendix C of the Employment Agreement.
If you wish to accept this offer, kindly sign the enclosed copy of this letter
and promptly return it to me. We look forward to hearing that you will accept
our offer to join ServiceSoft and work with us to build a highly successful
company.
Sincerely,
/s/ David Tarrant
- --------------------------
David Tarrant
President and CEO
Accepted:
Name: /s/ J. Whitney Date: 9-8-98
--------------- -------
<PAGE> 1
[ServiceSoft Corporation Letterhead]
Exhibit 10.13
January 20, 1999
Mr. Paul Maguire
30 Cobb Road
Ashburnham, MA 01430 by mail and fax
Dear Paul,
It gives me great pleasure to confirm our verbal offer of employment as Vice
President of Sales that was discussed with you. We at ServiceSoft believe that
you will be a key contributor to the company's success. You will report to
David Tarrant, CEO, and we expect your starting date to be February 3, 1999 or
sooner. This offer expires January 27, 1999.
Your initial compensation as an at-will employee will be a semi-monthly base
salary of $5,833.33, which is equivalent to $140,000 annually. In addition, you
will participate in the ServiceSoft 1999 Incentive Compensation Plan. Under the
Plan, you will earn a commission on 1999 revenue of .5% for revenue between
0 and $10 million, and 1% for revenue over $10 million. In addition, you will
receive a one time bonus payment of $7,500 if 1999 revenue is above $15 million.
In addition, we will pay you a monthly, recoverable draw against future
commissions of $5,000 for the first six months of your employment.
In addition to your salary, we will recommend to the Board of Directors of
ServiceSoft Corporation that you be granted a stock option for 175,000 shares
of its Common Stock at a price per share to be set by the Board. The stock
option will be subject to certain restrictions and will vest over a four-year
period, with 25% of the stock vesting on the first anniversary, and a 2.08% on
each subsequent month anniversary of the grant. Other benefits include eight
paid holidays, four optional days, three personal days and ten vacation days
annually (accrued monthly), sick days, life insurance, disability insurance, a
401(k) plan, and contributory health and dental insurance. Your employment is
contingent on you signing our customary Employee Non-Disclosure and Inventions
Agreement and your agreement to ServiceSoft's standard employee policies and
procedures as adopted from time to time.
Paul, I truly believe that you will realize both the professional and personal
rewards you seek at ServiceSoft. I look forward to your joining us and expect
that we will have a long and satisfying relationship. As indication of your
acceptance of this offer, please sign the enclosed copy of this letter and
return it by January 27, 1999.
Sincerely,
/s/ Stephen M. Harrison
- -----------------------------------
Stephen M. Harrison
CFO & VP of Operations
I understand, agree to, and accept this offer.
Signed: Date:
---------------------------------------- -------------------------
<PAGE> 1
EXHIBIT 10.14
-------------
Mr. David P. Tarrant
July 16, 1999
Page 1
July 16, 1999
PERSONAL & CONFIDENTIAL
- -----------------------
Mr. David P. Tarrant
35 Pickwick Road
West Newton, MA 02165
Dear Dave:
This letter agreement (the "Agreement") confirms the agreement that we
have reached regarding your transition and severance arrangements in connection
with the termination of your employment with Servicesoft Technologies, Inc. (the
"Company"). The purpose of this Agreement is to establish an amicable
arrangement for ending your employment relationship, including releasing the
Company from claims that you may have against it or any related companies,
releasing you from claims that the Company may have against you, and permitting
you to receive separation pay, continuation of vesting of stock options and
other benefits.
You are entering into this Agreement voluntarily. You understand that
you are giving up your right to bring all possible legal claims against the
Company, including claims relating to your employment and termination. If you
were not to enter into this Agreement and were to bring any claims against the
Company, the Company would dispute the merits of those claims and would contend
that it acted lawfully and for good business reasons with respect to you.
You understand that by entering into this Agreement, the Company is not
admitting in any way that it violated any legal obligation that it owed to you
or to any other person.
With those understandings and in exchange for the promises of you and
the Company set forth below, you and the Company agree as follows:
1. EMPLOYMENT ARRANGEMENTS
You and the Company acknowledge and agree that in lieu of the severance
benefits and other terms to which you may have been entitled under the
employment offer letter dated May 30, 1995, as amended by the letter agreements
dated February 3, 1998 and February 1, 1999 (collectively, "Employment
Agreement") by and between you and the Company, the Employment Agreement shall
be deemed terminated in its entirety and superseded by this Agreement.
Furthermore, any references to the Employment
<PAGE> 2
Mr. David P. Tarrant
July 16, 1999
Page 2
Agreement in this Agreement are made for definitional purposes only, and not
with the intention of incorporating any other part of the Employment Agreement
in this Agreement.
By entering into this Agreement, you acknowledge that your employment
with the Company as President shall continue until the earlier of (a) the hiring
of a new Chief Executive Officer by the Board of Directors of the Company or (b)
December 31, 1999 (the "Transition Period"). In that capacity, you shall report
to Mark Skapinker, the current Chief Executive Officer, and devote substantially
all of your working time and attention to the Company's business and shall
diligently and in good faith promote the interests of the Company as directed by
the Chief Executive Officer and the Board of Directors. You further acknowledge
that your employment with the Company may be terminated at any time prior to the
end of the Transition Period upon written notice from the Chief Executive
Officer and shall, in any event, terminate without any further action or notice
upon the end of the Transition Period.
2. PAY
(a) SALARY
The Company shall pay your current salary to you in twice monthly
installments of $8,333.33 through the date your employment with the Company is
terminated as provided in Section 1 (the "Termination Date"). The Company shall
also pay you for any accrued but unused vacation pay as of the Termination Date.
(b) SEVERANCE PAY
The Company shall continue your current annual salary of $200,000 for a
period of twelve (12) months commencing on the Termination Date (the "Severance
Period"), payable on the Company's regular bi-monthly payroll dates. At your
election you may accelerate the payment of any or all of these payments at any
time after the Termination Date by notifying the Company of your intent to do
so. You may elect to accelerate on no more than two occasions and on each
occasion you may accelerate up to and including all remaining payments into a
single payment.
(c) BONUS
The parties hereby acknowledge and agree that the Company shall pay you
an annual performance bonus for calendar year 1999 as provided in the current
senior management bonus plan approved by the Company's Board of Directors in
April 1999, which such bonus shall be paid after the end of the calendar year
and prorated through the Termination Date.
3. BENEFITS
By signing this Agreement, you are exercising your right to continue
receiving group medical and dental insurance benefits to the extent authorized
by and consistent with
2
<PAGE> 3
Mr. David P. Tarrant
July 16, 1999
Page 3
29 U.S.C. ss. 1161 ET SEQ. (commonly known as "COBRA") from and after the
Termination Date. Your rights and obligations under COBRA are generally
described in the Company's notice to you concerning COBRA rights and
obligations. Notwithstanding the terms of the COBRA notice, during the Severance
Period the Company will continue to pay on your behalf all medical and dental
insurance premiums, provided that you otherwise remain eligible for COBRA
coverage.
4. STOCK OPTIONS
All of your currently unvested stock options will vest in full on the
last day of the Transition Period so long as your employment with the Company
has not been terminated prior to that date for cause including substantial and
continued failure to discharge your duties which such failure continues after
written notice and an opportunity to cure. If your employment with the Company
has not been terminated for cause prior to the end of the Transition Period, the
Company agrees to loan to you, upon your written request given on or within ten
(10) days after the Termination Date, a principal amount equal to the aggregate
exercise price paid upon exercise of your stock options. Such loan will be made
available at the time you exercise your options, will be secured by the shares
issued in exchange for the exercised options and bear interest at the per annum
rate of 6%. This loan will be due and payable upon the earlier of (i) the third
anniversary of issuance, (ii) Three hundred and sixty-five (365) days after
completion of the Company's initial public offering and (iii) in any event, at
the time you sell or otherwise dispose of the secured shares.
5. BOARD OF DIRECTORS; OTHER POSITIONS
You hereby agree to resign as a Director on the Company's Board of
Directors and as a director and officer of any of the Company's subsidiaries
effective as of the Termination Date or any earlier date requested in writing by
the Board of Directors. The parties agree that such resignation shall be
effective without any further notice or action on your part. In the interim,
your continuation as a Director of the Company shall be subject to your
performing the duties of that position and your position as President with
reasonable diligence and in a good faith effort to serve the Company's
interests.
This Agreement shall not be construed to limit your ability to enter
into any mutually acceptable agreement with the Company whereby your services
are continued as an employee, consultant or Director.
6. GENERAL RELEASES OF CLAIMS
(a) GENERAL RELEASE OF CLAIMS BY YOU
For good and valuable consideration, the sufficiency of which is hereby
acknowledged, you hereby irrevocably and unconditionally release, acquit and
forever discharge the Company, its predecessors, subsidiaries, successors,
affiliates, and assigns,
3
<PAGE> 4
Mr. David P. Tarrant
July 16, 1999
Page 4
and the directors, officers, employees, shareholders, members and
representatives of any of the foregoing, and all persons acting on behalf or
through any of the foregoing (any and all of whom or which are hereinafter
referred to as "Servicesoft"), from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, controversies, damages, actions,
causes of action, suits, rights, demands, costs, losses, debts and expenses
(including attorneys' fees and costs actually incurred), of any nature
whatsoever, known or unknown (collectively, "Claims"), that you now have, own,
or hold, or claim to have, own, or hold, or that you at any time had, owned, or
held, or claimed to have had, owned, or held against Servicesoft, including
claims relating to your subsequent termination of employment contemplated
hereunder. This general release of Claims includes, without implication of
limitation, the complete release of all Claims of breach of express or implied
contract; all Claims arising under the Employment Agreement; all Claims of
wrongful termination of employment whether in contract or tort; all Claims of
intentional, reckless, or negligent infliction of emotional distress; all Claims
of breach of any express or implied covenant of employment, including the
covenant of good faith and fair dealing; all Claims of interference with
contractual or advantageous relations, whether prospective or existing; all
Claims of deceit or misrepresentation; all Claims of discrimination under state
or federal law, including, without implication of limitation, Title VII of the
Civil Rights Act of 1964, 42 U.S.C. 2000e et seq., as amended, the Age
Discrimination in Employment Act of 1967, 29 U.S.C. ss. 621 et seq., as amended,
and Chapter 151B of the Massachusetts General Laws; all Claims of defamation or
damage to reputation; all Claims for reinstatement; all Claims for punitive or
emotional distress damages; all Claims for wages, bonuses, severance, back or
front pay or other forms of compensation and all Claims for attorney's fees and
costs. This general release of Claims shall not be construed to include a
release of Claims that arise from the Company's obligations under this Agreement
or any rights of indemnification to which the Executive is entitled under the
Company's Certificate of Incorporation or By-Laws.
(b) GENERAL RELEASE OF CLAIMS BY THE COMPANY
For good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Company hereby irrevocably and unconditionally releases,
acquits and forever discharges you from any and all Claims that the Company now
has, owns, or holds or claims to have, own, or hold or that the Company at any
time had, owned, or held, or claimed to have had, owned, or held against you as
a result of good faith acts or omissions undertaken in the best interests of the
Company. This general release of Claims includes, without implication of
limitation, a release of all Claims related to your performance of your
responsibilities as an employee of the Company.
7. NONCOMPETE AGREEMENT
Notwithstanding anything in this Agreement to the contrary, you shall
continue to be subject to the agreement between you and the Company (the
"Noncompete Agreement"). Without otherwise limiting the scope of the Noncompete
Agreement, you
4
<PAGE> 5
Mr. David P. Tarrant
July 16, 1999
Page 5
acknowledge and agree that you shall be subject to the following obligations
during the period from the date hereof through the first anniversary of the
Termination Date:
(a) You will not engage, directly or indirectly
(including as an owner, manager, stockholder, consultant, director, officer or
employee) in a self-employment business or work for any enterprise which
manufactures, assembles or markets products or services which compete with those
of the Company without the express written authorization of the Company. The
Company agrees that this post-termination restriction does not pertain to work
you may engage in that does not relate to products or services being developed
or marketed to maintenance and service organizations. Notwithstanding the
foregoing, the Company agrees that you may own stock of a corporation that
provides goods or services which are competitive with goods or services provided
(or proposed to be provided) by the Company if: (i) such stock is traded on a
regular basis on regular securities exchanges or in over-the-counter markets;
(ii) you promptly provide written notice to the Company of your ownership of
such stock; and (iii) the amount of such stock owned by you does not constitute
more than two percent (2%) of the outstanding stock of any such corporation.
(b) You shall not solicit, induce, attempt to hire, or
hire any employee of the Company (or any person who may have been employed by
the Company during any portion of the six (6) month period immediately preceding
the Termination Date), or assist in such hiring by any other person or business
entity or encourage any such employee to terminate his or her employment with
the Company.
(c) Induce or attempt to induce any of the Company's
customers to reduce or curtail their business with the Company or terminate
their relationship with the Company.
8. NONDISPARAGEMENT
The Company agrees not to make any statements that disparage you and
you agree not to make any statements that disparage the Company or any of its
products, services, employees, officers or directors. Notwithstanding the
foregoing, statements made in the course of sworn testimony in legal proceedings
or other statements required by law shall not be subject to this Section 8.
9. TAX DEDUCTIONS AND REPORTING
The Company shall reduce payments made to you pursuant to this
Agreement by deductions and withholdings that it reasonably determines to be
required for tax purposes and the Company shall make such tax-related reporting
that it reasonably determines to be required with respect to consideration
provided pursuant to this Agreement.
10. NOTICES, ACKNOWLEDGEMENTS AND OTHER TERMS
5
<PAGE> 6
Mr. David P. Tarrant
July 16, 1999
Page 6
You are advised to consult with an attorney before signing this
Agreement.
This Agreement is the entire agreement between you and the Company, and
all previous agreements, or promises between you and the Company are superseded,
null, and void, except your stock option agreements (as modified by this
Agreement), and the Noncompete Agreement.
You acknowledge that you have been given the opportunity, if you so
desired, to consider this Agreement for twenty-one (21) days before executing
it. If not signed by you and returned to the Company so that it is received by
the Company within twenty-one (21) days of your receipt of this Agreement, this
Agreement will not be valid. In the event that you execute and return this
Agreement within less than twenty-one (21) days of the date of its delivery to
you, you acknowledge that such decision was entirely voluntary and that you had
the opportunity to consider this letter agreement for the entire twenty-one (21)
day period. The Company acknowledges that for a period of seven (7) days from
the date of the execution of this Agreement, you shall retain the right to
revoke this Agreement by written notice that the Company receives before the end
of such period, and that this Agreement shall not become effective or
enforceable until the expiration of such revocation period. The "Effective Date"
of this Agreement shall be the date which is seven (7) days from the date of
execution of this Agreement.
By signing this Agreement, you acknowledge that you are doing so
voluntarily. You also acknowledge that you are not relying on any
representations by any representative of the Company concerning the meaning of
any aspect of this Agreement.
In the event of any dispute, this Agreement will be construed as a
whole, will be interpreted in accordance with its fair meaning, and will not be
construed strictly for or against either you or the Company. The law of
Massachusetts will govern any dispute about this Agreement, including any
interpretation or enforcement of this Agreement, without giving effect to the
conflict of laws provisions of Massachusetts law. In the event that any
provision or portion of a provision of this Agreement shall be determined to be
unenforceable, the remainder of this Agreement shall be enforced to the fullest
extent possible as if such provision or portion of a provision was not included.
This Agreement may be modified only by a written agreement signed by you and an
authorized representative of the Company.
If you agree to these terms, please sign and date below and return this
Agreement to the Company within the time limitation set forth above.
This Agreement may be executed simultaneously in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute but one and the
same document.
6
<PAGE> 7
Mr. David P. Tarrant
July 16, 1999
Page 7
Sincerely,
SERVICESOFT TECHNOLOGIES, INC.
By: /s/ Mark Skapinker
-------------------------------
Name: Mark Skapinker
Title: Chief Executive Officer
ACCEPTED AND AGREED:
/s/ David P. Tarrant July 20, 1999
- --------------------------- -------------------------------
David P. Tarrant Date
7
<PAGE> 1
EXHIBIT 10.15
-------------
[SERVICESOFT LETTERHEAD]
November 30, 1999
PERSONAL & CONFIDENTIAL
Mr. Steve Harrison
One Berwick Road
Lexington, MA 02420
Dear Steve:
This letter agreement (the "Agreement") confirms the agreement that we
have reached regarding your transition and severance arrangements in connection
with the termination of your employment with Servicesoft Technologies, Inc. (the
"Company"). The purpose of this Agreement is to establish an amicable
arrangement for ending your employment relationship, including releasing the
Company from claims that you may have against it or any related companies,
releasing you from claims that the Company may have against you, and permitting
you to receive separation pay, continuation of vesting of stock options and
other benefits.
You are entering into this Agreement voluntarily. You understand that
you are giving up your right to bring all possible legal claims against the
Company, including claims relating to your employment and termination. If you
were not to enter into this Agreement and were to bring any claims against the
Company, the Company would dispute the merits of those claims and would contend
that it acted lawfully and for good business reasons with respect to you.
You understand that be entering into this Agreement, the Company is not
admitting in any way that it violated any legal obligation that it owed to you
or to any other person.
With those understandings and in exchange for the promises of you and
the Company set forth below, you and the Company agree as follows:
1. EMPLOYMENT ARRANGEMENTS
You and the Company acknowledge and agree that in lieu of the severance
benefits and other terms to which you may have been entitled under the
employment offer letter dated September 4, 1998 ("Employment Agreement") by and
between you and the Company, the Employment Agreement shall be deemed terminated
in its entirety and superseded by this Agreement. Furthermore, any references to
the Employment Agreement in this Agreement are made for definitional purposes
only, and not with the intention of incorporating any other part of the
Employment Agreement in this Agreement.
<PAGE> 2
By entering into this Agreement, you acknowledge that your employment
with the Company as Chief Financial Officer shall continue until December 10,
1999 (the "Transition Period"). In that capacity, you shall report to Chris
Butler, the current President and CEO, and devote substantially all of your
working time and attention to the Company's business and shall diligently and in
good faith promote the interests of the Company as directed by the President and
CEO and the Board of Directors. You further acknowledge that your employment
with the Company may be terminated at any time prior to the end of the
Transition Period upon written notice from the President and CEO and shall, in
any event, terminate without any further action or notice upon the end of the
Transition Period.
2. PAY
(a) SALARY
The Company shall pay your current salary to you in semi-monthly
installments of $5,416.67 through the date your employment with the Company is
terminated as provided in Section 1 (the "Termination Date"). The Company shall
also pay you for any accrued but unused vacation pay as of December 31, 1999.
The vacation payment will be made in mid-January.
(b) SEVERANCE PAY
The Company will pay you Severance Pay, on a semi-monthly basis, at the
rate of your current salary from the Termination Date through July 7, 2000 (the
"Severance Period").
(c) BONUS
The parties hereby acknowledge and agree that the Company shall pay you
an annual performance bonus for calendar year 1999 as provided in the current
senior management bonus plan approved by the Company's Board of Directors in
April 1999, which such bonus shall be paid after the end of the calendar year
and be calculated on a full year of service. The bonus will be a comparable
percent to that paid to the other members of the senior management team.
3. BENEFITS
By signing this Agreement, you are exercising your right to continue
receiving group medical and dental insurance benefits to the extent authorized
by and consistent with 29 U.S.C. ss. 1161 ET SEQ. (commonly known as "COBRA")
from and after the Termination Date. Your rights and obligations under COBRA are
generally described in the Company's notice to you concerning COBRA rights and
obligations. Notwithstanding the terms of the COBRA notice, during the Severance
Period the Company will continue to pay on your behalf all short and long term
disability insurance, medical and dental insurance premiums, provided that you
otherwise remain eligible for COBRA coverage. In addition, you will be eligible
to continue these short and long term disability coverages by reimbursing the
Company for the premiums for a period of time comparable to the COBRA provisions
for health and dental insurances.
2
<PAGE> 3
4. STOCK OPTIONS
We will immediately vest stock options (9,750 options) through 7/6/2000
in accordance with the Company's standard vesting schedule as outlined in your
offer letter. This additional vesting brings the number of vested shares to
35,746, which represents the total number of options available to you. You may
exercise the vested options, as outlined in the Company's Stock Option Plan,
anytime prior to 9/30/2000.
This Agreement shall not be construed to limit your ability to enter into any
mutually acceptable agreement with the Company whereby your services are
continued as an employee, consultant or Director.
5. GENERAL RELEASES OF CLAIMS
(a) GENERAL RELEASE OF CLAIMS BY YOU
For good and valuable consideration, the sufficiency of which is hereby
acknowledged, you hereby irrevocably and unconditionally release, acquit and
forever discharge the Company, its predecessors, subsidiaries, successors,
affiliates, and assigns, and the directors, officers, employees, shareholders,
members and representatives of any of the foregoing, and all persons acting on
behalf or through any of the foregoing (any and all of whom or which are
hereinafter referred to as "Servicesoft"), from any and all charges, complaints,
claims, liabilities, obligations, promises, agreements, controversies, damages,
actions, causes of action, suits, rights, demands, costs, losses, debts and
expenses (including attorneys' fees and costs actually incurred), of any nature
whatsoever, known or unknown (collectively, "Claims"), that you now have, own,
or hold, or claim to have, own, or hold, or that you at any time had, owned, or
held, or claimed to have had, owned, or held against Servicesoft, including
claims relating to your subsequent termination of employment contemplated
hereunder. This general release of Claims includes, without implication of
limitation, the complete release of all Claims of breach of express or implied
contract; all Claims arising under the Employment Agreement; all Claims of
wrongful termination of employment whether in contract or tort; all Claims of
intentional, reckless, or negligent infliction of emotional distress; all Claims
of breach of any express or implied covenant of employment, including the
covenant of good faith and fair dealing; all Claims of interference with
contractual or advantageous relations, whether prospective or existing; all
Claims of deceit or misrepresentation; all Claims of discrimination under state
or federal law, including, without implication of limitation, Title VII of the
Civil Rights Act of 1964, 42 U.S.C. 2000e et seq., as amended, the Age
Discrimination in Employment Act of 1967, 29 U.S.C. ss. 621 et seq., as amended,
and Chapter 151B of the Massachusetts General Laws; all Claims of defamation or
damage to reputation; all Claims for reinstatement; all Claims for punitive or
emotional distress damages; all Claims for wages, bonuses, severance, back or
front pay or other forms of compensation and all Claims for attorney's fees and
costs. This general release of Claims shall not be construed to include a
release of Claims that arise from the Company's obligations under this Agreement
or any rights of indemnification to which the Executive is entitled under the
Company's Certificate of Incorporation or By-Laws.
3
<PAGE> 4
(b) GENERAL RELEASE OF CLAIMS BY THE COMPANY
For good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Company hereby irrevocably and unconditionally releases,
acquits and forever discharges you from any and all Claims that the Company now
has, owns, or holds or claims to have, own, or hold or that the Company at any
time had, owned, or held, or claimed to have had, owned, or held against you as
a result of good faith acts or omissions undertaken in the best interests of the
Company. This general release of Claims includes, without implication of
limitation, a release of all Claims related to your performance of your
responsibilities as an employee of the Company.
6. NONCOMPETE AGREEMENT
Notwithstanding anything in this Agreement to the contrary, you shall
continue to be subject to the agreement between you and the Company (the
"Noncompete Agreement"). Without otherwise limiting the scope of the Noncompete
Agreement, you acknowledge and agree that you shall be subject to the following
obligations during the period from the date hereof through the first anniversary
of the Termination Date;
(a) You will not engage, directly or indirectly (including as an
owner, manager, stockholder, consultant, director, officer or employee) in a
self-employment business or work for any enterprise which manufactures,
assembles or markets products or services which compete with those of the
Company without the express written authorization of the Company. The Company
agrees that this post-termination restriction does not pertain to work you may
engage in that does not relate to products or services being developed or
marketed to maintenance and service organizations. Notwithstanding the
foregoing, the Company agrees that you may own stock of a corporation that
provides goods or services which are competitive with goods or services provided
(or proposed to be provided) by the Company if: (i) such stock is traded on a
regular basis on regular securities exchanges or in over-the-counter markets;
(ii) you promptly provide written notice to the Company of your ownership of
such stock; and (iii) the amount of such stock owned by you does not constitute
more than two percent (2%) of the outstanding stock of any such corporation.
(b) You shall not solicit, induce, attempt to hire, or hire any
employee of the Company (or any person who may have been employed by the Company
during any portion of the six (6) month period immediately preceding the
Termination Date), or assist in such hiring by any other person or business
entity or encourage any such employee to terminate his or her employment with
the Company.
(c) Induce or attempt to induce any of the Company's customers to
reduce or curtail their business with the Company or terminate their
relationship with the Company.
Notwithstanding anything in the Agreement to the contrary, the restrictions
imposed in Section 5(a) above, do not apply as long as you remain in finance and
operations (CFO, VP Operations, etc.).
7. NONDISPARAGEMENT
4
<PAGE> 5
The Company agrees not to make any statements that disparage you and
you agree not to make any statements that disparage the Company or any of its
products, services, employees, offices or directors. Notwithstanding the
foregoing, statements made in the course of sworn testimony in legal proceedings
or other statements required by law shall not be subject to this Section 6.
8. COMPANY PROPERTY
The Company agrees that you will be given the notebook computer you
currently use at work.
9. OUTPLACEMENT SERVICES
The Company agrees to provide you with an accounts payable check equal
to one month's salary ($10,833.33) to pay for counseling, legal, accounting and
tax services relative to your termination.
10. OTHER SERVICES
The Company will provide you with access to your email account and
voicemail extension through February 29, 2000.
11. TAX DEDUCTIONS AND REPORTING
The Company shall reduce payments made to you pursuant to this
Agreement by deductions and withholdings that it reasonably determines to be
required for tax purposes and the Company shall make such tax-related reporting
that it reasonably determines to be required with respect to consideration
provided pursuant to this Agreement.
12. NOTICES, ACKNOWLEDGEMENTS AND OTHER TERMS
You are advised to consult with an attorney before signing this
Agreement. This Agreement is the entire agreement between you and the Company,
and all previous agreements, or promises between you and the Company are
superseded, null, and void, except your stock option agreements (as modified by
this Agreement), and the Noncompete Agreement.
You acknowledge that you have been given the opportunity, if you so
desired, to consider this Agreement for twenty-one (21) days before executing
it. If not signed by you and returned to the Company so that it is received by
the Company within twenty-one (21) days of your receipt of this Agreement, this
Agreement will not be valid. In the event that you execute and return this
Agreement within less than twenty-one (21) days of the date of its delivery to
you, you acknowledge that such decision was entirely voluntary and that you had
the opportunity to consider this letter agreement for the entire twenty-one (21)
day period. The Company acknowledges that for a period of seven (7) days from
the date of the execution of this Agreement, you shall retain the right to
revoke this Agreement by written notice that the Company receives before the end
of such period, and that this Agreement shall not become effective or
enforceable until the expiration of such revocation period. The "Effective Date"
of this Agreement shall be the date which is seven (7) days from the date of
execution of this Agreement.
5
<PAGE> 6
By signing this Agreement, you acknowledge that you are doing so
voluntarily. You also acknowledge that you are not relying on any
representations by any representative of the Company concerning the meaning of
any aspect of this Agreement.
In the event of any dispute, this Agreement will be construed as a
whole, will be interpreted in accordance with its fair meaning, and will not be
construed strictly for or against either you or the Company. The law of
Massachusetts will govern any dispute about this Agreement, including any
interpretation or enforcement of this Agreement, without giving effect to the
conflict of laws provisions of Massachusetts law. In the event that any
provision or portion of a provision of this Agreement shall be determined to be
unenforceable, the remainder of this Agreement shall be enforced to the fullest
extent possible as if such provision or portion of a provision was not included.
This Agreement may be modified only by a written agreement signed by you and an
authorized representative of the Company.
If you agree to these terms, please sign and date below and return this
Agreement to the Company within the time limitation set forth above.
This Agreement may be executed simultaneously in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute but one and the
same document.
Sincerely,
SERVICESOFT TECHNOLOGIES, INC. ACCEPTED AND AGREED:
By: /s/ Chris Butler By: /s/ Steve Harrison
------------------------------- --------------------------
Name: Chris Butler Name: Steve Harrison
Title: President and CEO
12-14-99 12-14-99
------------------------------- --------------------------
Date Date
6
<PAGE> 1
EXHIBIT 10.16
SERVICESOFT TECHNOLOGIES, INC.
RESTRICTED STOCK AGREEMENT
NAME OF GRANTEE:
-------------------------
NO. OF SHARES: Shares of Common Stock
-------------------------
GRANT DATE:
-------------------------
PER SHARE PURCHASE PRICE: $
-------------------------
Pursuant to the Servicesoft Technologies, Inc. 1999 Stock Option and Grant
Plan (the "1999 Plan"), Servicesoft Technologies, Inc., a Delaware corporation
(together with all successors thereto, the "Company"), hereby grants, sells and
issues to the person named above (the "Grantee"), who is an officer, employee,
director, consultant or other key person of the Company or any of the
Subsidiaries (as defined below) of the Company, the number of shares of Common
Stock, par value $0.01 per share (together with any successor securities,
including stock of any successor corporation, "Common Stock"), of the Company
indicated above (subject to the provisions below, the "Shares"), for the per
share purchase price specified above, which represents the fair market value per
share on the date of grant, subject to the terms and conditions set forth
herein. The Grantee agrees to the provisions set forth herein and acknowledges
that each such provision is a material condition of the Company's agreement to
issue and sell the Shares to him or her. The Company hereby acknowledges receipt
of $________ in full payment for the Shares. All references to share prices and
amounts herein shall be equitably adjusted to reflect stock splits, stock
dividends, recapitalizations, mergers, reorganizations and similar changes
affecting the capital stock of the Company, and any shares of capital stock of
the Company received on or in respect of Shares in connection with any such
event (including any shares of capital stock or any right, option or warrant to
receive the same or any security convertible into or exchangeable for any such
shares or received upon conversion of any such shares) shall be subject to this
Agreement on the same basis and extent at the relevant time as the Shares in
respect of which they were issued, and shall be deemed Shares as if and to the
same extent they were issued at the date hereof. All capitalized terms used
herein and not otherwise defined shall have the respective meanings set forth in
the 1999 Plan. Unless otherwise provided herein, the Restricted Shares shall be
governed by all of the terms and conditions of the 1999 Plan.
1. DEFINITIONS. For the purposes of this Agreement, the following terms
shall have the following respective meanings.
"ACT" shall mean the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
"CORPORATE TRANSACTION" shall mean any Corporate Transaction as that term
is defined in the 1999 Plan.
"LIQUIDITY EVENT" shall mean (i) a Corporate Transaction or (ii) the
consummation of the first fully underwritten, firm commitment public offering
pursuant to an effective registration statement under the Act, other than on
Form S-4 or S-8 or their then equivalents, covering the
<PAGE> 2
offer and sale by the Company of its Common Stock which has become effective
under the Act (an "Initial Public Offering").
"PERMITTED TRANSFEREES" shall mean any of the following to whom the Grantee
may transfer Shares hereunder: the Grantee's spouse, children (natural or
adopted), stepchildren or a trust for their sole benefit of which the Grantor is
the settlor; PROVIDED, HOWEVER, that any such trust does not require or permit
distribution of any Shares during the term of this Agreement unless subject to
its terms.
"PERSON" shall mean any individual, corporation, partnership (limited or
general), limited liability company, limited liability partnership, association,
trust, joint venture, unincorporated organization or any similar entity.
"RESTRICTED SHARES" shall initially mean 100% of the Shares being purchased
by the Grantee on the date hereof, provided that 34% shall vest on _________ __,
200_ and 8.25% of the Shares shall become Vested Shares on the seventh day of
each third month thereafter, commencing on _________ __, 200_, such that all of
the Restricted Shares shall become Vested Shares on _________ __, 200_.
Notwithstanding the foregoing, Restricted Shares shall also become Vested Shares
in accordance with SECTION 5 hereof.
"SHARES" shall mean the number of shares of Common Stock being purchased by
the Grantee on the date hereof and any additional shares of Common Stock or
other securities received as a dividend on, or otherwise on account of, the
Shares, as contemplated by the first paragraph of this Agreement.
"SUBSIDIARY" shall mean any corporation or partnership of which stock or
other equity interests possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock or other equity interests is owned
directly or indirectly by the Company.
"TERMINATION EVENT" shall mean the termination of the Grantee's Service
Relationship with the Company and its Subsidiaries for any reason whatsoever,
regardless of the circumstances thereof, and including without limitation upon
death, disability, retirement or discharge or resignation for any reason,
whether voluntary or involuntary. For purposes hereof, the Board of Director's
determination of the reason for termination of the Grantee's Service
Relationship shall be conclusive and binding on the Grantee and the Grantee's
representatives or legatees.
"VESTED SHARES" shall mean all Shares which are not Restricted Shares.
2. PURCHASE AND SALE OF SHARES; INVESTMENT REPRESENTATIONS.
(a) PURCHASE AND SALE. On the date hereof, the Company hereby sells to the
Grantee, and the Grantee hereby purchases from the Company, the number of Shares
set forth above for the purchase price per share set forth above.
(b) INVESTMENT REPRESENTATIONS. In connection with the purchase and sale
of the Shares contemplated by SECTION 2(a) above, the Grantee hereby represents
and warrants to the Company as follows:
<PAGE> 3
(i) The Grantee is purchasing the Shares for the Grantee's own
account for investment only, and not for resale or with a view to the
distribution thereof.
(ii) The Grantee has had such an opportunity as he or she has deemed
adequate to obtain from the Company such information as is necessary to permit
him or her to evaluate the merits and risks of the Grantee's investment in the
Company and has consulted with the Grantee's own advisers with respect to the
Grantee's investment in the Company.
(iii) The Grantee has sufficient experience in business, financial and
investment matters to be able to evaluate the risks involved in the purchase of
the Shares and to make an informed investment decision with respect to such
purchase.
(iv) The Grantee can afford a complete loss of the value of the Shares
and is able to bear the economic risk of holding such Shares for an indefinite
period.
(v) The Grantee understands that the Shares are not registered under
the Act or any applicable state securities or "blue sky" laws and may not be
sold or otherwise transferred or disposed of in the absence of an effective
registration statement under the Act and under any applicable state securities
or "blue sky" laws (or exemptions from the registration requirements thereof).
The Grantee further acknowledges that certificates representing the Shares will
bear restrictive legends reflecting the foregoing.
3. REPURCHASE OF RESTRICTED SHARES.
(a) REPURCHASE OF RESTRICTED SHARES. Upon the occurrence of a Termination
Event, the Company or its assigns shall have the right and option to repurchase
(the "Repurchase Right") all or any portion of the Restricted Shares held by the
Grantee or any Permitted Transferee as of the date of such Termination Event at
the per share purchase price set forth above, subject to adjustment as provided
herein. The Repurchase right specified herein shall survive and remain in effect
as to Restricted Shares following and notwithstanding any Liquidity Event or
other transaction involving the Company and certificates representing such
Restricted Shares shall bear legends to such effect.
(b) CLOSING PROCEDURE. The Company or its assigns shall effect the
Repurchase Right (if so elected) by delivering or mailing to the Grantee
(and/or, if applicable, any Permitted Transferees) written notice within six (6)
months after the Termination Event, specifying a date within such six-month
period in which the Repurchase shall be effected. Upon such notification, the
Grantee and any Permitted Transferees shall promptly surrender to the Company
any certificates representing the Shares being purchased, together with a duly
executed stock power for the transfer of such Shares to the Company or the
Company's assignee or assignees (if applicable). Upon the Company's or its
assignee's receipt of the certificates from the Grantee or any Permitted
Transferees, the Company or its assignee or assignees shall deliver to him, her
or them a check for the purchase price of the Shares being purchased, PROVIDED,
HOWEVER, that the Company may pay the purchase price for such shares by
offsetting and canceling any indebtedness then owed by the Grantee to the
Company. At such time, the Grantee and/or any holder of the Shares shall deliver
to the Company the certificate or certificates representing the Shares so
repurchased, duly endorsed for transfer, free and clear of any liens or
encumbrances.
(c) REMEDY. Without limitation of any other provision of this Agreement or
other rights, in the event that the Grantee, any Permitted Transferees or any
other person or entity is required
<PAGE> 4
to sell his or her Shares pursuant to the provisions of this SECTION 3 and in
the further event that he or she refuses or for any reason fails to deliver to
the designated purchaser of such Shares the certificate or certificates
evidencing such Shares together with a related stock power, such designated
purchaser may deposit the purchase price for such Shares with a bank designated
by the Company, or with the Company's independent public accounting firm, as
agent or trustee, or in escrow, for the Grantee, any Permitted Transferees or
other person or entity, to be held by such bank or accounting firm for the
benefit of and for delivery to him, them or it, and/or, in its discretion, pay
such purchase price by offsetting any indebtedness then owed by the Grantee as
provided above. Upon any such deposit and/or offset by the designated purchaser
of such amount and upon notice to the person or entity who was required to sell
the Shares to be sold pursuant to the provisions of this SECTION 3, such Shares
shall at such time be deemed to have been sold, assigned, transferred and
conveyed to such purchaser, the holder thereof shall have no further rights
thereto (other than the right to withdraw the payment thereof held in escrow, if
applicable), and the Company shall record such transfer in its stock transfer
book or in any appropriate manner.
4. RESTRICTIONS ON TRANSFER OF SHARES.
(a) NO TRANSFERS UNLESS AUTHORIZED AND IN COMPLIANCE WITH THIS AGREEMENT.
(i) None of the Shares now owed or hereafter acquired by the Grantee
shall be sold, assigned, transferred, pledged, hypothecated, given away or in
any other manner disposed of or encumbered, whether voluntarily or by operation
of law, unless such transfer is in compliance with all foreign, federal and
state securities laws (including, without limitation, the Act), and such
disposition is in accordance with the terms and conditions of this SECTION 4. In
connection with any transfer of Shares, the Company may require an opinion of
counsel to the transferor, satisfactory to the Company, that such transfer is in
compliance with all foreign, federal and state securities laws (including
without limitation, the Act). No Restricted Shares may be transferred, sold,
assigned or given away, except as set forth in SECTIONS 4(b) OR 4(c) hereof. The
Grantee agrees to give the Company prompt notice of any transfer of Shares to a
Permitted Transferee as contemplated under SECTION 4(b) hereof. Any attempted
disposition of Shares not in accordance with the terms and conditions of this
Agreement shall be null and void, and the Company shall not reflect on its
records any change in record ownership of any Shares pursuant to any such
disposition, shall otherwise refuse to recognize any such disposition and shall
not in any way give effect to any such disposition of any Shares.
(ii) Prior to making any transfer of Vested Shares (other than to a
Permitted Transferee for which notice shall be given as set forth in SECTION
4(a)(i) hereof), the Grantee shall deliver written notice (the "Transfer
Notice") to the Company. The Transfer Notice shall disclose in reasonable detail
the identity of the prospective transferees, the number of shares to be
transferred (the "Offered Shares") and the terms and conditions of such proposed
transfer. By giving the Transfer Notice, the Grantee shall be deemed to have
granted the Company an option to purchase the Offered Shares. The Company may
purchase all or any portion of the Offered Shares upon the same terms and
conditions as those set forth in the Transfer Notice by delivering written
notice of such election to the Grantee within 20 business days after the
Transfer Notice has been given to the Company (the "Election Period"). If the
Company has not elected to purchase or otherwise acquire all of the Offered
Shares prior to the expiration of the Election Period, the Grantee may transfer
such Vested Shares at a price and on terms no more favorable to the transferees
thereof than specified in the Transfer Notice during the 30-day period
immediately following the expiration of the Election Period (the "Transfer
Period"). Any
<PAGE> 5
Offered Shares not so transferred within the Transfer Period shall be subject to
the provisions of this SECTION 4(a) upon any subsequent transfer. If the Company
has elected to purchase any Offered Shares hereunder, the transfer of such
Offered Shares shall be consummated as soon as practical after the deliver of
the election notice to the Executive, but in any event within 15 days after the
expiration of the Election Period.
(b) TRANSFERS TO PERMITTED TRANSFEREES. Subject to the next sentence of
this SECTION 4(b), the Grantee may sell, assign, transfer or give away any or
all of the Shares without receipt of consideration or for such consideration as
such holder shall determine to Permitted Transferees. No transfer permitted
hereby shall be effective unless the Permitted Transferee to whom the Shares are
proposed to be transferred has delivered to the Company a written acknowledgment
that the Shares to be received by it are subject to the provisions of this
Agreement (including without limitation, the provisions of this SECTION 4) and
that the Permitted Transferee is bound hereby and thereby.
(c) TRANSFERS UPON DEATH. Upon the death of the Grantee, the Vested Shares
held by the Grantee may be transferred and distributed by will or other
instrument taking effect at his death or by the laws of descent and distribution
to the Grantee's estate, executors, administrators and personal representatives,
and then to such holder's heirs, legatees or distributees whether or not such
heirs, legatees or distributees are Permitted Transferees. No transfer permitted
hereby shall be effective unless the transferee to whom the Shares are proposed
to be transferred pursuant to this provision has delivered to the Company a
written acknowledgment that the Shares to be received by it are subject to the
provisions of this Agreement (including without limitation, the provisions of
this SECTION 4) and that such transferee is bound hereby and thereby.
(d) TRANSFERS AFTER LIQUIDITY EVENT. Upon the consummation of a Liquidity
Event, the Grantee may transfer any Vested Shares, with or without consideration
to any Person without restriction other than compliance with the applicable
foreign, federal and state securities laws and payment of any amounts due by
cash or promissory notes issued in consideration for the purchase of such Vested
Shares. In connection with any such transfers, the Company may require an
opinion of counsel to this transferor, notification to the Company, that such
transfer is in compliance with all applicable foreign, federal and state
transition laws (including, without limitation, the Act).
5. EFFECT OF A CORPORATE TRANSACTION. In the event of a Corporate
Transaction, the Restricted Shares shall be subject to termination, assumption,
substitution, adjustment and/or limitation as provided in Section 3 of the 1999
Plan.
6. LEGEND. Any certificate(s) representing the Shares shall carry
substantially the following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including repurchase and restrictions against
transfers) contained in a certain Restricted Stock Agreement
between the Company and the holder of this certificate (a copy of
which is available at the offices of the Company for
examination)."
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or the securities
laws of any state. The shares may not be
<PAGE> 6
sold or transferred in the absence of such registration or an
exemption from registration.
7. WITHHOLDING TAXES. The Grantee acknowledges and agrees that the
Company or any of its Subsidiaries have the right to deduct from payments of any
kind otherwise due to the Grantee, any federal, state or local taxes of any kind
required by law to be withheld with respect to the purchase of the Shares by the
Grantee. In furtherance of the foregoing the Grantee agrees to elect, in
accordance with Section 83(b) of the Internal Revenue Code of 1986, as amended,
to recognize ordinary income in the year of acquisition of the Shares, and to
pay to the Company all withholding taxes shown as due on his Section 83(b)
election form, or otherwise ultimately determined to be due with respect to such
election, based on the excess, if any, of the fair market value of such Shares
as of the date of the purchase of such Shares by the Grantee over the purchase
price for such Shares.
8. ASSIGNMENT. At the discretion of the Board of Directors of the
Company, the Company shall have the right to assign the right to exercise its
rights with respect to the Repurchase Right or pursuant to SECTION 4(a)(ii) to
any person or persons, in whole or in part in any particular instance, upon the
same terms and conditions applicable to the exercise thereof by the Company, and
such assignee or assignees of the Company shall then take and hold any Shares so
acquired subject to such terms as may be specified by the Company in connection
with any such assignment.
9. MISCELLANEOUS PROVISIONS.
(a) LOCKUP PROVISION. The Grantee and each Permitted Transferee shall
agree, if requested by the Company and any underwriter engaged by the Company,
not to sell or otherwise transfer or dispose of any securities of the Company
(including, without limitation pursuant to Rule 144 under the Act (or any
successor or similar exemptive rule hereafter in effect)) held by them for such
period following the effective date of any registration statement of the Company
filed under the Act as the Company or such underwriter shall specify reasonably
and in good faith, not to exceed 180 days in the case of the Company's Initial
Public Offering or 90 days in the case of any other public offering.
(b) RECORD OWNER: DIVIDENDS. The Grantee and any Permitted Transferees,
during the duration of this Agreement, shall be considered the record owners of
and shall be entitled to vote the Shares. The Grantee and any Permitted
Transferees shall be entitled to receive all dividends and any other
distributions declared on the Shares; PROVIDED, HOWEVER, that the Company is
under no duty to declare any such dividends or to make any such distribution.
(c) EQUITABLE RELIEF. The parties hereto agree and declare that legal
remedies are inadequate to enforce the provisions of this Agreement and that
equitable relief, including specific performance and injunctive relief, may be
used to enforce the provisions of this Agreement.
(d) CHANGE AND MODIFICATIONS. This Agreement may not be orally changed,
modified or terminated, nor shall any oral waiver of any of its terms be
effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Grantee.
<PAGE> 7
(e) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts without regard to
conflict of law principles.
(f) HEADINGS. The headings are intended only for convenience in finding
the subject matter and do not constitute part of the text of this Agreement and
shall not be considered in the interpretation of this Agreement.
(g) SAVING CLAUSE. If any provision(s) of this Agreement shall be
determined to be illegal or unenforceable, such determination shall in no manner
affect the legality or enforceability of any other provision hereof.
(h) NOTICES. All notices, requests, consents and other communications
shall be in writing and be deemed given when delivered personally, by telex or
facsimile transmission or when received if mailed by first class registered or
certified mail, postage prepaid. Notices to the Company or the Grantee shall be
addressed as set forth underneath their signatures below, or to such other
address or addresses as may have been furnished by such party in writing to the
other. Notices to any holder of the Shares other than the Grantee shall be
addressed to the address furnished by such holder to the Company.
(i) BENEFIT AND BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their respective successors,
assigns, and legal representatives. The Company has the right to assign this
Agreement, and such assignee shall become entitled to all the rights of the
Company hereunder to the extent of such assignment.
(j) COUNTERPARTS. For the convenience of the parties and to facilitate
execution, this Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same document.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 8
IN WITNESS WHEREOF, the Company and the Grantee have executed this
Restricted Stock Agreement as of the date first above written.
COMPANY
SERVICESOFT TECHNOLOGIES, INC.
By: /s/ Chris Butler
--------------------------------
Chris Butler, President & Chief
Executive Officer
GRANTEE:
------------------------------------
Name
Address:
<PAGE> 1
Exhibit 10.17
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE SERVICESOFT TECHNOLOGIES, INC.
1999 STOCK OPTION AND GRANT PLAN
Name of Optionee: _______________________
No. of Option Shares: _______________________ Shares of Common Stock
Grant Date: _______________________
Expiration Date: _______________________
Option Exercise Price/Share: _______________________
Pursuant to the Servicesoft Technologies, Inc. 1999 Stock Option and Grant
Plan (the "1999 Plan"), Servicesoft Technologies, Inc. a Delaware corporation
(together with all successors thereto, the "Company"), hereby grants to the
person named above (the "Optionee"), who is an officer, employee, director,
consultant or other key person of the Company or any of its Subsidiaries (as
defined in the 1999 Plan), an option (the "Stock Option") to purchase on or
prior to the expiration date specified above (the "Expiration Date"), or such
earlier date as is specified herein, all or any part of the number of shares of
Common Stock, par value $.01 per share ("Common Stock"), of the Company
indicated above (the "Option Shares," and such shares once issued shall be
referred to as the "Issued Shares"), at the option exercise price per share
specified above (the "Option Exercise Price"), subject to the terms and
conditions set forth in this Incentive Stock Option Agreement (the "Agreement")
and in the 1999 Plan. This Stock Option is intended to qualify as an "incentive
stock option" as defined in Section 422(b) of the Internal Revenue Code of 1986,
as amended from time to time (the "Code"). To the extent that any portion of the
Stock Option does not so qualify, it shall be deemed a non-qualified stock
option. All capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the 1999 Plan.
1. VESTING AND EXERCISABILITY.
(a) No portion of this Stock Option may be exercised until such
portion shall have vested.
(b) Except as set forth below and in Section 6, and subject to the
determination of the Compensation Committee of the Board of Directors of the
Company or the Board of Directors of the Company, as applicable (the
"Committee"), in its sole discretion to accelerate the vesting schedule
hereunder, this Stock Option shall be vested and exercisable with respect to the
Option Shares on the respective dates as follows: (i) 25% of the Option Shares
on the first anniversary of the Grant Date (as set forth above) and (ii) 2.08 %
of the Option Shares on the monthly anniversary of the Grant Date thereafter.
<PAGE> 2
(c) Except as set forth in the 1999 Plan with regard Corporate
Transactions, in the event that the Optionee's Service Relationship with the
Company and its Subsidiaries terminates for any reason or under any
circumstances, including the Optionee's resignation, retirement or termination
by the Company, upon the Optionee's death or disability, or for any other
reason, regardless of the circumstances thereof, this Stock Option may
thereafter be exercised, to the extent it was vested and exercisable on such
date of such termination, until the date specified in Section l(d) below. Any
portion of the Stock Option that is not exercisable on the date of termination
of the Service Relationship shall immediately expire and be null and void.
(d) Subject to the provisions of Section 6 below, once any portion of
this Stock Option becomes vested and exercisable, it shall continue to be
exercisable by the Optionee or his or her successors as contemplated herein at
any time or times prior to the earliest of (i) the date which is (A) 12 months
following the date on which the Optionee's Service Relationship with the Company
and its Subsidiaries terminates due to death or disability (as defined in
Section 422(c)(6) of the Code) or (B) 90 days following the date on which the
Optionee's Service Relationship with the Company and its Subsidiaries terminates
if the termination is due to any other reason, PROVIDED HOWEVER, if the
Optionee's Service Relationship is terminated for cause, this Stock Option shall
terminate immediately upon the date of the Optionee's termination, or (ii) the
Expiration Date set forth above. For purposes of this Agreement the Committee
shall have sole discretion to determine the reason for the termination of the
Optionee's Service Relationship with the Company or any Subsidiary.
(e) It is understood and intended that this Stock Option is intended
to qualify as an "incentive stock option" as defined in Section 422 of the Code
to the extent permitted under applicable law. Accordingly, the Optionee
understands that in order to obtain the benefits of an incentive stock option
under Section 422 of the Code, no sale or other disposition may be made of
Issued Shares for which incentive stock option treatment is desired within the
one-year period beginning on the day after the day of the transfer of such
Issued Shares to him or her, nor within the two-year period beginning on the day
after the grant of this Stock Option and further that this Stock Option must be
exercised within three months after termination of employment (or twelve months
in the case of death or disability) to qualify as an incentive stock option. If
the Optionee disposes (whether by sale, gift, transfer or otherwise) of any such
Issued Shares within either of these periods, he or she will notify the Company
within thirty (30) days after such disposition. The Optionee also agrees to
provide the Company with any information concerning any such dispositions
required by the Company for tax purposes. Further, to the extent Option Shares
and any other incentive stock options of the Optionee having an aggregate fair
market value in excess of $100,000 (determined as of the Grant Date (as set
forth above)) vest in any year, such options will not qualify as incentive stock
options.
2. EXERCISE OF STOCK OPTION
(a) The Optionee may exercise this Stock Option only in the following
manner: Prior to the Expiration Date (subject to Section 6), the Optionee may
deliver a Stock Option exercise notice (an "Exercise Notice") in the form of
Appendix A hereto indicating his or her election to purchase some or all of the
Option Shares with respect to which this Stock Option has vested at the time of
such notice. Such notice shall specify the number of Option Shares to
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<PAGE> 3
be purchased. Payment of the purchase price may be made by one or more of the
following methods; provided, however, that the methods set forth in subsections
(ii) and (iii) below shall become available only after the closing of the
Initial Public Offering:
(i) In cash by certified or bank check or other instrument
acceptable to the Committee; or
(ii) In the form of shares of Stock that are not then subject to
restrictions under any Company plan and that have been held by the optionee free
of such restrictions for at least six months, if permitted by the Committee in
its discretion such surrendered shares shall be valued at Fair Market Value on
the exercise date;
(iii) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable to the
Company to pay the purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee and the broker
shall comply with such procedures and enter into such agreements of indemnity
and other agreements as the Committee shall prescribe as a condition of such
payment procedure;
(iv) By the optionee delivering to the Company a promissory note
if the Board has authorized the loan of funds to the optionee for the purpose of
enabling or assisting the optionee to effect the exercise of his Stock Option;
PROVIDED THAT at least so much of the exercise price as represents the par value
of the Stock shall be paid other than with a promissory note
(b) Certificates for the Option Shares so purchased will be issued
and delivered to the Optionee upon compliance to the satisfaction of the
Committee with all requirements under applicable laws or regulations in
connection with such issuance. Until the Optionee shall have complied with the
requirements hereof and of the 1999 Plan, the Company shall be under no
obligation to issue the Option Shares subject to this Stock Option, and the
determination of the Committee as to such compliance shall be final and binding
on the Optionee. The Optionee shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares of stock subject
to this Stock Option unless and until this Stock Option shall have been
exercised pursuant to the terms hereof, the Company shall have issued and
delivered the Option Shares to the Optionee, and the Optionee's name shall have
been entered as a stockholder of record on the books of the Company. Thereupon,
the Optionee shall have full dividend and other ownership rights with respect to
such Issued Shares, subject to the terms of this Agreement.
(c) Notwithstanding any other provision hereof or of the 1999 Plan,
no portion of this Stock Option shall be exercisable after the Expiration Date,
including such date as is contemplated by Section 6 hereof.
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<PAGE> 4
3. INCORPORATION OF 1999 PLAN.
Notwithstanding anything herein to the contrary, this Stock Option shall be
subject to and governed by all the terms and conditions of the 1999 Plan.
4. TRANSFERABILITY.
This Agreement is personal to the Optionee and is not transferable by the
Optionee in any manner other than by will or by the laws of descent and
distribution. This Stock Option may be exercised during the Optionee's lifetime
only by the Optionee (or by the Optionee's guardian or personal representative
in the event of the Optionee's incapacity). The Optionee may elect to designate
a beneficiary by providing written notice of the name of such beneficiary to the
Company, and may revoke or change such designation at any time by filing written
notice of revocation or change with the Company; such beneficiary may exercise
the Optionee's Stock Option in the event of the Optionee's death to the extent
provided herein. If the Optionee does not designate a beneficiary, or if the
designated beneficiary predeceases the Optionee, the executor of the Optionee
may exercise this Stock Option to the extent provided herein in the event of the
Optionee's death.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
The shares of stock covered by this Stock Option are shares of Common Stock
of the Company. Subject to Section 6 hereof, if the shares of Common Stock as a
whole are increased, decreased, changed or converted into or exchanged for a
different number or kind of shares or securities of the Company or any successor
entity (or a parent or Subsidiary thereof), whether through merger or
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or the
like, an appropriate and proportionate adjustment shall be made in the number
and kind of shares and in the per share exercise price of shares subject to any
unexercised portion of this Stock Option. In the event of any such adjustment in
this Stock Option, the Optionee thereafter shall have the right, subject to
Section 6, to purchase the number of shares under this Stock Option at the per
share price, as so adjusted, which the Optionee could purchase at the total
purchase price applicable to this Stock Option immediately prior to such
adjustment, all references herein to Common Stock shall be deemed to refer to
the security that is subject to acquisition upon exercise of this Stock Option
and all references to the Company shall be deemed to refer to the issuer of such
security. Adjustments under this Section 5 shall be determined by the Committee,
whose determination as to what adjustment shall be made, and the extent thereof,
shall be conclusive. No fractional shares of Common Stock shall be issued under
the 1999 Plan resulting from any such adjustment, but the Company in its
discretion may make a cash payment in lieu of fractional shares.
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<PAGE> 5
6. EFFECT OF CORPORATE TRANSACTIONS. In the event of a Corporate
Transaction, this Option shall be subject to termination, assumption,
substitution, adjustment and/or limitation as provided in Section 3(c) of the
1999 Plan.
7. WITHHOLDING TAXES. The Optionee shall, not later than the date as of
which the exercise of this Stock Option becomes a taxable event for federal
income tax purposes, pay to the Company or make arrangements satisfactory to the
Committee for payment of any federal, state and local taxes required by law to
be withheld on account of such taxable event. Subject to approval by the
Committee, the Optionee may elect to have the minimum tax withholding obligation
satisfied, in whole or in part, by authorizing the Company to withhold from
shares of Common Stock to be issued or transferring to the Company, a number of
shares of Common Stock with an aggregate Fair Market Value that would satisfy
the withholding amount due. The Optionee acknowledges and agrees that the
Company or any Subsidiary of the Company has the right to deduct from payments
of any kind otherwise due to the Optionee, or from the Option Shares to be
issued in respect of an exercise of this Stock Option, any federal, state or
local taxes of any kind required by law to be withheld with respect to the
issuance of Option Shares to the Optionee.
8. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT. If the Optionee desires to transfer all or any
part of the Issued Shares, or any other shares of Common Stock owned by the
Optionee, to any person other than the Company (an "Offeror"), the Optionee
shall: (i) obtain in writing an irrevocable and unconditional bona fide offer
(the "Offer") for the purchase thereof from the Offeror; and (ii) give written
notice (the "Option Notice") to the Company setting forth the Optionee's desire
to transfer such shares, which Option Notice shall be accompanied by a photocopy
of the Offer and shall set forth the name and address of the Offeror and the
price and terms of the Offer. Upon receipt of the Option Notice, the Company
shall have an assignable option to purchase any or all of such Issued Shares
(the "Company Option Shares") specified in the Option Notice, such option to be
exercisable by giving, within 30 days after receipt of the Option Notice, a
written counternotice to the Optionee. If the Company elects to purchase any or
all of such Company Option Shares, it shall be obligated to purchase, and the
Optionee shall be obligated to sell to the Company, such Company Option Shares
at the price and terms indicated in the Offer within 30 days from the date of
delivery by the Company of such counternotice.
(b) SALE OF COMPANY OPTION SHARES TO OFFEROR. The Optionee may, for
60 days after the expiration of the 30-day option period as set forth in Section
8(a), sell to the Offeror, pursuant to the terms of the Offer, any or all of
such Company Option Shares not purchased or agreed to be purchased by the
Company or its assignee. If any or all of such Company Option Shares are not
sold pursuant to an Offer within the time permitted above, the unsold Company
Option Shares shall remain subject to the terms of this Section 8.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there shall be
any change in the Common Stock of the Company through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the restrictions contained in this Section 9
shall apply with equal force to additional and/or substitute
-5-
<PAGE> 6
securities, if any, received by the Optionee in exchange for, or by virtue of
his or her ownership of, Issued Shares.
(d) FAILURE TO DELIVER OPTION SHARES. If the Optionee fails or
refuses to deliver on a timely basis duly endorsed certificates representing the
Company Option Shares to be sold to the Company or its assignee pursuant to this
Section 8, the Company shall have the right to deposit the purchase price for
such Company Option Shares in a special account with any bank or trust company,
giving notice of such deposit to the Optionee, whereupon such Company Option
Shares shall be deemed to have been purchased by the Company. All such monies
shall be held by the bank or trust company for the benefit of the Optionee. All
monies deposited with the bank or trust company but remaining unclaimed for two
years after the date of deposit shall be repaid by the bank or trust company to
the Company on demand, and the Optionee shall thereafter look only to the
Company for payment. The Company may place a legend on any certificate for
Issued Shares delivered to the Optionee reflecting the restrictions on transfer
provided in this Section 8.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first refusal
rights of the Company set forth above shall remain in effect until the closing
of an Initial Public Offering or such other event as a result of or following
which the Common Stock shall be publicly held.
9. LOCKUP PROVISION.
The Optionee agrees, if requested by the Company and any underwriter
engaged by the Company, not to sell or otherwise transfer or dispose of any
securities of the Company (including, without limitation pursuant to Rule 144
under the Act) held by him or her for such period following the effective date
of any registration statement of the Company filed under the Act as the Company
or such underwriter shall specify reasonably and in good faith, not to exceed
180 days in the case of the Company's Initial Public Offering or 90 days in the
case of any other public offering.
10. MISCELLANEOUS PROVISIONS.
(a) EMPLOYMENT. This Option does not confer upon the Optionee any
rights with respect to employment or continuation of employment or the Service
Relationship with the Company, nor shall it interfere with any right of the
Company to terminate such employment or Service Relationship at anytime.
(b) EQUITABLE RELIEF. The parties hereto agree and declare that legal
remedies may be inadequate to enforce the provisions of this Agreement and that
equitable relief, including specific performance and injunctive relief, may be
used to enforce the provisions of this Agreement.
(c) RELEASE. In consideration for the issuance of this Stock Option,
the Optionee hereby releases and forever discharges the Company, its employees,
directors and stockholders and their representatives and agents, from any and
all claims, demands, actions, agreements and promises whatsoever of every name,
nature and description, both in law and in equity, for shares of Common Stock or
options to purchase such shares or any other equity
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<PAGE> 7
securities of the Company other than the shares of Common Stock underlying this
Stock Option. For purposes of this Section 10, the term "Company" shall be
deemed to include its Subsidiaries.
(d) CHANGE AND MODIFICATIONS. This Agreement may not be orally
changed, modified or terminated, nor shall any oral waiver of any of its terms
be effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Optionee.
(e) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware (or the state of
incorporation of any successor corporation) without regard to conflict of law
principles.
(f) HEADINGS. The headings are intended only for convenience in
finding the subject matter and do not constitute part of the text of this
Agreement and shall not be considered in the interpretation of this Agreement.
(g) SAVING CLAUSE. If any provision(s) of this Agreement shall be
determined to be illegal or unenforceable, such determination shall in no manner
affect the legality or enforceability of any other provision hereof.
(h) NOTICES. All notices, requests, consents and other communications
shall be in writing and be deemed given when delivered personally, by telex or
facsimile transmission or when received if mailed by first class registered or
certified mail, postage prepaid. Notices to the Company or the Optionee shall be
addressed as set forth underneath their signatures below, or to such other
address or addresses as may have been furnished by such party in writing to the
other.
(i) BENEFIT AND BINDING EFFECT. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto, their respective
successors, permitted assigns, and legal representatives. The Company has the
right to assign this Agreement, and such assignee shall become entitled to all
the rights of the Company hereunder to the extent of such assignment.
(j) COUNTERPARTS. For the convenience of the parties and to
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 8
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned as of the date first above written.
Servicesoft Technologies, Inc.
By: ______________________________________
Name:
Title:
Address:
Two Apple Hill Drive
Natick, MA 01760
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned as of the date first above written.
OPTIONEE:
__________________________________________
Name:
Optionee's Address:
__________________________________________
__________________________________________
__________________________________________
DESIGNATED BENEFICIARY:
__________________________________________
Name:
Beneficiary's Address:
__________________________________________
__________________________________________
__________________________________________
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<PAGE> 9
APPENDIX A
STOCK OPTION EXERCISE NOTICE
Servicesoft Technologies, Inc.
Attention: Chief Financial Officer
Two Apple Hill Drive
Natick, MA 01760
Pursuant to the terms of my Incentive Stock Option Agreement dated [ ] (the
"Agreement") under the Servicesoft Technologies, Inc. 1999 Stock Option and
Grant Plan, I, ____________ [Insert name], hereby [Circle One] partially/fully
exercise such option by including herein payment in the amount of $_______
representing the purchase price for ______________[Fill in number of Option
Shares] _____ option shares. I have chosen the following form(s) of payment:
[ ] 1. Cash;
[ ] 2. Certified or bank check payable to Servicesoft
Technologies, Inc. or
[ ] 3. Other (as described in the Agreement (please describe)
___________________________________
Sincerely yours,
_____________________________________
Name:
Address:
_____________________________________
_____________________________________
_____________________________________
<PAGE> 1
Exhibit 10.18
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE SERVICESOFT TECHNOLOGIES, INC.
1999 STOCK OPTION AND GRANT PLAN
Name of Optionee: _________________________
No. of Option Shares: Shares of Common Stock
-------------------------
Grant Date: _________________________
Expiration Date: _________________________
Option Exercise Price/Share: _________________________
Pursuant to the Servicesoft Technologies, Inc. 1999 Stock Option and
Grant Plan (the "1999 Plan"), Servicesoft Technologies, Inc. a Delaware
corporation (together with all successors thereto, the "Company"), hereby grants
to the person named above (the "Optionee"), who is an officer, employee,
director, consultant or other key person of the Company or any of its
Subsidiaries (as defined in the 1999 Plan), an option (the "Stock Option") to
purchase on or prior to the expiration date specified above (the "Expiration
Date"), or such earlier date as is specified herein, all or any part of the
number of shares of Common Stock, par value $.01 per share ("Common Stock"), of
the Company indicated above (the "Option Shares," and such shares once issued
shall be referred to as the "Issued Shares"), at the option exercise price per
share specified above (the "Option Exercise Price"), subject to the terms and
conditions set forth in this Non-Qualified Stock Option Agreement (the
"Agreement") and in the 1999 Plan. This Stock Option is NOT intended to qualify
as an "incentive stock option" as defined in Section 422(b) of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"). All capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the 1999 Plan.
1. VESTING, EXERCISABILITY, AND TERMINATION.
(a) No portion of this Stock Option may be exercised until such
portion shall have vested.
(b) Except as set forth below and in Section 6, and subject to the
determination of the Compensation Committee of the Board of Directors of the
Company or the Board of Directors of the Company, as applicable (the
"Committee"), in its sole discretion to accelerate the vesting schedule
hereunder, this Stock Option shall be vested and exercisable with respect to the
Option Shares on the respective dates as follows: (i) 25% of the Option Shares
on the first anniversary of the Grant Date (as set forth above) and (ii) 2.08%
of the Option Shares on the monthly anniversary of the Grant Date thereafter.
(c) Except as set forth in the 1999 Plan with regard Corporate
Transactions, in the event that the Optionee's Service Relationship with the
Company and its Subsidiaries terminates for any reason or under any
circumstances, including the Optionee's resignation, retirement or termination
by the Company, upon the Optionee's death or disability, or for any other
reason, regardless of the circumstances thereof, this Stock Option may
thereafter be exercised, to the extent it was vested and exercisable on such
date of such termination, until the
<PAGE> 2
date specified in Section 1(d) below. Any portion of the Stock Option that is
not exercisable on the date of termination of the Optionee's Service
Relationship with the Company shall immediately expire and be null and void.
(d) Subject to the provisions of Section 6 below, once any portion of
this Stock Option becomes vested and exercisable, it shall continue to be
exercisable by the Optionee or his or her successors as contemplated herein at
any time or times prior to the earliest of (i) the date which is (A) 12 months
following the date on which the Optionee's Service Relationship with the Company
and its Subsidiaries terminates due to death or disability (as defined in
Section 422(c)(6) of the Code) or (B) 90 days following the date on which the
Optionee's Service Relationship with the Company terminates if the termination
is due to any other reason, provided however, if the Optionee's Service
Relationship with the Company is terminated for cause, this Stock Option shall
terminate immediately upon the date of the Optionee's termination, or (ii) the
Expiration Date set forth above. For purposes of this Agreement the Committee
shall have sole discretion to determine the reason for the termination of the
Optionee's Service Relationship with the Company or any Subsidiary.
2. EXERCISE OF STOCK OPTION.
(a) The Optionee may exercise this Stock Option only in the following
manner: Prior to the Expiration Date (subject to Section 6), the Optionee may
deliver a Stock Option exercise notice (an "Exercise Notice") in the form of
APPENDIX A hereto indicating his or her election to purchase some or all of the
Option Shares with respect to which this Stock Option has vested at the time of
such notice. Such notice shall specify the number of Option Shares to be
purchased. Payment of the purchase price may be made by one or more of the
following methods; provided, however, that the methods set forth in subsections
(ii) and (iii) below shall become available only after the closing of the
Initial Public Offering:
(i) In cash by certified or bank check or other instrument
acceptable to the Committee; or
(ii) In the form of shares of Stock that are not then subject to
restrictions under any Company plan and that have been held by the optionee free
of such restrictions for at least six months, if permitted by the Committee in
its discretion such surrendered shares shall be valued at Fair Market Value on
the exercise date;
(iii) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable to the
Company to pay the purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee and the broker
shall comply with such procedures and enter into such agreements of indemnity
and other agreements as the Committee shall prescribe as a condition of such
payment procedure;
(iv) By the optionee delivering to the Company a promissory note
if the Board has authorized the loan of funds to the optionee for the purpose of
enabling or assisting the optionee to effect the exercise of his Stock Option;
PROVIDED THAT at least so much of
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<PAGE> 3
the exercise price as represents the par value of the Stock shall be paid other
than with a promissory note
(b) Certificates for the Option Shares so purchased will be issued
and delivered to the Optionee upon compliance to the satisfaction of the
Committee with all requirements under applicable laws or regulations in
connection with such issuance. Until the Optionee shall have complied with the
requirements hereof and of the 1999 Plan, the Company shall be under no
obligation to issue the Option Shares subject to this Stock Option, and the
determination of the Committee as to such compliance shall be final and binding
on the Optionee. The Optionee shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares of stock subject
to this Stock Option unless and until this Stock Option shall have been
exercised pursuant to the terms hereof, the Company shall have issued and
delivered the Option Shares to the Optionee, and the Optionee's name shall have
been entered as a stockholder of record on the books of the Company. Thereupon,
the Optionee shall have full dividend and other ownership rights with respect to
such Issued Shares, subject to the terms of this Agreement.
(c) Notwithstanding any other provision hereof or of the 1999 Plan,
no portion of this Stock Option shall be exercisable after the Expiration Date,
including such date as is contemplated by Section 6 hereof.
3. INCORPORATION OF 1999 PLAN. Notwithstanding anything herein to the
contrary, this Stock Option shall be subject to and governed by all the terms
and conditions of the 1999 Plan.
4. TRANSFERABILITY. This Agreement is personal to the Optionee and is not
transferable by the Optionee in any manner other than by will or by the laws of
descent and distribution. This Stock Option may be exercised during the
Optionee's lifetime only by the Optionee (or by the Optionee's guardian or
personal representative in the event of the Optionee's incapacity). The Optionee
may elect to designate a beneficiary by providing written notice of the name of
such beneficiary to the Company, and may revoke or change such designation at
any time by filing written notice of revocation or change with the Company; such
beneficiary may exercise the Optionee's Stock Option in the event of the
Optionee's death to the extent provided herein. If the Optionee does not
designate a beneficiary, or if the designated beneficiary predeceases the
Optionee, the executor of the Optionee may exercise this Stock Option to the
extent provided herein in the event of the Optionee's death.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. The shares of stock covered
by this Stock Option are shares of Common Stock of the Company. Subject to
Section 6 hereof, if the shares of Common Stock as a whole are increased,
decreased, changed or converted into or exchanged for a different number or kind
of shares or securities of the Company or any successor entity (or a parent or
Subsidiary thereof), whether through merger or consolidation, sale of all or
substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, combination of
shares, exchange of shares, change in corporate structure or the like, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares and in the per share exercise price of shares subject to any unexercised
portion of this Stock Option. In the event of any such adjustment in this Stock
Option, the Optionee thereafter shall have the right, subject to Section 6, to
purchase the number of shares under this
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<PAGE> 4
Stock Option at the per share price, as so adjusted, which the Optionee could
purchase at the total purchase price applicable to this Stock Option immediately
prior to such adjustment, all references herein to Common Stock shall be deemed
to refer to the security that is subject to acquisition upon exercise of this
Stock Option and all references to the Company shall be deemed to refer to the
issuer of such security. Adjustments under this Section 5 shall be determined by
the Committee, whose determination as to what adjustment shall be made, and the
extent thereof, shall be conclusive. No fractional shares of Common Stock shall
be issued under the 1999 Plan resulting from any such adjustment, but the
Company in its discretion may make a cash payment in lieu of fractional shares.
6. EFFECT OF CORPORATE TRANSACTIONS. In the event of a Corporate
Transaction (as defined in the 1999 Plan), this Option shall be subject to
termination, assumption, substitution, adjustment and/or limitation as provided
in Section 3(c) of the 1999 Plan.
7. WITHHOLDING TAXES. The Optionee shall, not later than the date as of
which the exercise of this Stock Option becomes a taxable event for federal
income tax purposes, pay to the Company or make arrangements satisfactory to the
Committee for payment of any federal, state and local taxes required by law to
be withheld on account of such taxable event. Subject to approval by the
Committee, the Optionee may elect to have the minimum withholding obligation
satisfied, in whole or in part, by authorizing the Company to withhold from
shares of Common Stock to be issued or transferring to the Company, a number of
shares of Common Stock-with an aggregate fair market value that would satisfy
the withholding amount due. The Optionee acknowledges and agrees that the
Company or any Subsidiary of the Company has the right to deduct from payments
of any kind otherwise due to the Optionee, or from the Option Shares to be
issued in respect of an exercise of this Stock Option, any federal, state or
local taxes of any kind required by law to be withheld with respect to the
issuance of Option Shares to the Optionee.
8. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT. If the Optionee desires to transfer all or any
part of the Issued Shares, or any other shares of Common Stock owned by the
Optionee, to any person other than the Company (an "Offeror"), the Optionee
shall: (i) obtain in writing an irrevocable and unconditional bona fide offer
(the "Offer") for the purchase thereof from the Offeror; and (ii) give written
notice (the "Option Notice") to the Company setting forth the Optionee's desire
to transfer such shares, which Option Notice shall be accompanied by a photocopy
of the Offer and shall set forth the name and address of the Offeror and the
price and terms of the Offer. Upon receipt of the Option Notice, the Company
shall have an assignable option to purchase any or all of such Issued Shares
(the "Company Option Shares") specified in the Option Notice, such option to be
exercisable by giving, within 30 days after receipt of the Option Notice, a
written counternotice to the Optionee. If the Company elects to purchase any or
all of such Company Option Shares, it shall be obligated to purchase, and the
Optionee shall be obligated to sell to the Company, such Company Option Shares
at the price and terms indicated in the Offer within 30 days from the date of
delivery by the Company of such counternotice.
(b) SALE OF COMPANY OPTION SHARES TO OFFEROR. The Optionee may, for
60 days after the expiration of the 30-day option period as set forth in Section
8(a), sell to the Offeror, pursuant to the terms of the Offer, any or all of
such Company Option Shares not
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<PAGE> 5
purchased or agreed to be purchased by the Company or its assignee. If any or
all of such Company Option Shares are not sold pursuant to an Offer within the
time permitted above, the unsold Company Option Shares shall remain subject to
the terms of this Section 8.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there shall be
any change in the Common Stock of the Company through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the restrictions contained in this Section 8
shall apply with equal force to additional and/or substitute securities, if any,
received by the Optionee in exchange for, or by virtue of his or her ownership
of, Issued Shares.
(d) FAILURE TO DELIVER OPTION SHARES. If the Optionee fails or
refuses to deliver on a timely basis duly endorsed certificates representing the
Company Option Shares to be sold to the Company or its assignee pursuant to this
Section 8, the Company shall have the right to deposit the purchase price for
such Company Option Shares in a special account with any bank or trust company,
giving notice of such deposit to the Optionee, whereupon such Company Option
Shares shall be deemed to have been purchased by the Company. All such monies
shall be held by the bank or trust company for the benefit of the Optionee. All
monies deposited with the bank or trust company but remaining unclaimed for two
years after the date of deposit shall be repaid by the bank or trust company to
the Company on demand, and the Optionee shall thereafter look only to the
Company for payment. The Company may place a legend on any certificate for
Issued Shares delivered to the Optionee reflecting the restrictions on transfer
provided in this Section 8.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first refusal
rights of the Company set forth above shall remain in effect until the closing
of an Initial Public Offering or such other event as a result of or following
which the Common Stock shall be publicly held.
9. LOCKUP PROVISION. The Optionee agrees, if requested by the Company and
any underwriter engaged by the Company, not to sell or otherwise transfer or
dispose of any securities of the Company (including, without limitation pursuant
to Rule 144 under the Act) held by him or her for such period following the
effective date of any registration statement of the Company filed under the Act
as the Company or such underwriter shall specify reasonably and in good faith,
not to exceed 180 days in the case of the Company's Initial Public Offering or
90 days in the case of any other public offering.
10. MISCELLANEOUS PROVISIONS.
(a) EMPLOYMENT. This Option does not confer upon the Optionee any
rights with respect to employment or continuation of employment or the Service
Relationship with the Company, nor shall it interfere with any right of the
Company to terminate such employment or Service Relationship at anytime.
(b) EQUITABLE RELIEF. The parties hereto agree and declare that legal
remedies may be inadequate to enforce the provisions of this Agreement and that
equitable relief, including specific performance and injunctive relief, may be
used to enforce the provisions of this Agreement.
-5-
<PAGE> 6
(c) RELEASE. In consideration for the issuance of this Stock Option,
the Optionee hereby releases and forever discharges the Company, its employees,
directors and stockholders and their representatives and agents, from any and
all claims, demands, actions, agreements and promises whatsoever of every name,
nature and description, both in law and in equity, for shares of Common Stock or
options to purchase such shares or any other equity securities of the Company
other than the shares of Common Stock underlying this Stock Option. For purposes
of this Section 10, the term "Company" shall be deemed to include its
Subsidiaries.
(d) CHANGE AND MODIFICATIONS. This Agreement may not be orally
changed, modified or terminated, nor shall any oral waiver of any of its terms
be effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Optionee.
(e) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware (or the state of
incorporation of any successor corporation) without regard to conflict of law
principles.
(f) HEADINGS. The headings are intended only for convenience in
finding the subject matter and do not constitute part of the text of this
Agreement and shall not be considered in the interpretation of this Agreement.
(g) SAVING CLAUSE. If any provision(s) of this Agreement shall be
determined to be illegal or unenforceable, such determination shall in no manner
affect the legality or enforceability of any other provision hereof.
(h) NOTICES. All notices, requests, consents and other communications
shall be in writing and be deemed given when delivered personally, by telex or
facsimile transmission or when received if mailed by first class registered or
certified mail, postage prepaid. Notices to the Company or the Optionee shall be
addressed as set forth underneath their -signatures below, or to such other
address or addresses as may have been furnished by such party in writing to the
other.
(i) BENEFIT AND BINDING EFFECT. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto, their respective
successors, permitted assigns, and legal representatives. The Company has the
right to assign this Agreement, and such assignee shall become entitled to all
the rights of the Company hereunder to the extent of such assignment.
(j) COUNTERPARTS. For the convenience of the parties and to
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
[SIGNATURE PAGE FOLLOWS]
-6-
<PAGE> 7
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned as of the date first above written.
Servicesoft Technologies, Inc.
By: ____________________________________
Name:
Title:
Address:
Two Apple Hill Drive
Natick, MA 01760
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned as of the date first above written.
OPTIONEE:
________________________________________
Name:
Optionee's Address:
________________________________________
________________________________________
________________________________________
DESIGNATED BENEFICIARY:
________________________________________
Name:
Beneficiary's Address:
________________________________________
________________________________________
________________________________________
<PAGE> 8
APPENDIX A
STOCK OPTION EXERCISE NOTICE
Servicesoft Technologies, Inc.
Attention: Chief Financial Officer
Two Apple Hill Drive
Natick, MA 01760
Pursuant to the terms of my Non-Qualified Stock Option Agreement dated [ ] (the
"Agreement") under the Servicesoft Technologies, Inc. 1999 Stock Option and
Grant Plan, I, ____________ [Insert name], hereby [Circle One] partially/fully
exercise such option by including herein payment in the amount of $_______
representing the purchase price for ______________[Fill in number of Option
Shares] _____ option shares. I have chosen the following form(s) of payment:
[ ] 1. Cash;
[ ] 2. Certified or bank check payable to Servicesoft Technologies,
Inc. or
[ ] 3. Other (as described in the Agreement (please describe)
__________________________________
Sincerely yours,
_______________________________
Name:
Address:
_______________________________
_______________________________
<PAGE> 1
EXHIBIT 10.19
EXHIBIT 1, SHEET 1
Two Apple Hill
598 Worcester Street
Natick, Massachusetts
(the "Building")
Execution Date: April 9, 1999
Tenant: Servicesoft Technologies, Inc.
(name)
a Delaware corporation
(description of business organization)
50 Cabot Street, Needham,
Massachusetts 02194
(principal place of business - mailing address)
Landlord: Metropolitan Life Insurance Company. Mailing
Address: SSR Realty Advisors, Inc., One North
Broadway, Suite 500, White Plains, New York
10601, Attn: Director of Asset Management.
Additional Notice Address: SSR Realty Advisors,
Inc., One North Broadway, Suite 500, White
Plains, New York 10601, Attn: Legal Department.
Building: The Building in the Town of Natick,
Massachusetts, known as Two Apple Hill, located
at 598 Worcester Street.
Art. 2 Premises: An area on the third (3rd) floor of the
Building, substantially as shown on Lease Plan,
Exhibit 2
Art. 3.1 Specified Commencement Date: June 1, 1999
Art. 3.2 Termination Date: Five (5) years after the Term Commencement Date
Art. 4.3 Final Plans Date: April 15, 1999
Art. 5 Use of Premises: General business offices
Art. 6 Yearly Rent:
<TABLE>
<CAPTION>
Lease Year(1) Yearly Rent Monthly Payment
<S> <C> <C>
1 - 3 $662,500.08 $55,208.34
4 $687,500.04 $57,291.67
5 $700,000.08 $58,333.34
</TABLE>
- --------
1 For the purposes of this Lease, "Lease Year" shall be defined as any
twelve-(12)-month period during the term of the Lease, commencing as of
the Term Commencement Date, or as of any anniversary of the Term
Commencement Date.
<PAGE> 2
EXHIBIT 1, SHEET 2
Two Apple Hill
598 Worcester Street
Natick, Massachusetts
(the "Building")
Tenant: Servicesoft Technologies, Inc.
Execution Date: April 9, 1999
Art. 7 Total Rentable Area: Approximately 25,000 square feet
Building Total Rentable Area: 125,000 square feet
Art. 8 Electric current will be furnished by Landlord to Tenant. In
consideration of Landlord providing electric current to Tenant
during the term of the Lease, in accordance with Article 8.1,
Tenant shall pay to Landlord, as additional rent, at the same time
and in the same manner as Yearly Rent is paid under the Lease,
electricity rent ("Electricity Rent") in the initial amount of
$31,250.04 per annum (i.e., a monthly payment of $2,604.17),
subject to increase in accordance with Article 8.1(b).
Art. 9 Operating and Tax Escalation:
Operating Costs in the Base Year: The actual amount of Operating
Costs for the first Lease Year
Tax Base: The actual amount of Taxes for fiscal/tax year 2000
(i.e., July 1, 1999 - June 30, 2000)
Tenant's Proportionate Share: Approximately 20.0%
Art. 29.3 Broker: Lynch, Murphy, Walsh & Partners, Inc.
Art. 29.5 Arbitration: Massachusetts, Superior Court
Exhibit Dates: Lease Plan, Exhibit 2, dated April 9, 1999
LANDLORD: TENANT:
METROPOLITAN LIFE INSURANCE COMPANY SERVICESOFT TECHNOLOGIES, INC.
On behalf of a co-mingled separate
account
By: SSR Realty Advisors, Inc.,
its Investment Advisor
By: : /s/ ILLEGIBLE By: /s/ ILLEGIBLE
------------------------------- ---------------------------
(Name) (Title) (Name) (title)
Hereunto Duly Authorized Hereunto Duly Authorized
Date Signed: 4/23/99 Date Signed: 4/15/99
---------- ---------------
JOHN F. LOEHR
MANAGING DIRECTOR
<PAGE> 3
CONTENTS
<TABLE>
<S> <C>
1. REFERENCE DATA......................................................... 1
2. DESCRIPTION OF PREMISES .............................................. 1
2.1 Demised Premises ..................................................... 1
2.2 Appurtenant Rights ................................................... 1
2.3 Exclusions and Reservations .......................................... 1
3. TERM OF LEASE
3.1 Definitions............................................................ 2
3.2 Habendurn ............................................................ 2
3.3 Declaration Fixing Term Commencement Date ............................ 2
4. READINESS FOR OCCUPANCY - ENTRY BY TENANT
PRIOR TO TERM COMMENCEMENT DATE ...................................... 2
4.1 Completion Date - Delays ............................................. 3
4.2 When Premises Deemed Ready ........................................... 3
4.3 Plans and Specifications ............................................. 3
4.4 Preparation of Premises .............................................. 4
4.5 Quality and Cost of Materials ........................................ 4
4.6 Tenant's Delay - Additional Costs .................................... 4
4.7 Entry by Tenant Prior to Term Commencement Date ...................... 5
4.8 Conclusiveness of Landlord's Performance ............................. 5
4.9 Tenant Payments of Construction Cost ................................. 5
5. USE OF PREMISES ...................................................... 5
5.1 Permitted Use ........................................................ 5
5.2 Prohibited Uses ...................................................... 5
5.3 Licenses and Permits ................................................. 6
6. RENT: ................................................................ 6
7. RENTABLE AREA - ADJUSTMENT OF RENT ................................... 6
8. SERVICES FURNISHED BY LANDLORD ....................................... 6
8.1 Electric Current.......................................................
8.2 Water..................................................................
8.3 Elevators, Heat, Cleaning ............................................ 7
8.4 Air Conditioning ..................................................... 8
8.5 Additional Heat, Cleaning and
Air Conditioning Services ............................................ 8
8.6 Additional Air Conditioning Equipment ................................ 8
8.7 Repairs................................................................ 9
8.8 Interruption or Curtailment of Services .............................. 9
8.9 Energy Conservation .................................................. 9
8.10 Miscellaneous ........................................................ 10
9. ESCALATION ........................................................... 10
9.1 Definitions .......................................................... 10
9.2 Tax Excess ........................................................... 13
9.3 Operating Expense Excess ............................................. 13
9.4 Part Years ........................................................... 14
9.5 Effect of Taking ..................................................... 14
9.6 Adjustment of Operating Costs Base Upon Vacancy ...................... 14
9.7 Survival ............................................................. 14
10. CHANGES OR ALTERATIONS BY LANDLORD ................................... 14
11. FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY TENANT ............. 15
12. ALTERATIONS AND IMPROVEMENTS BY TENANT ............................... 15
13. TENANT'S CONTRACTORS - MECHANIC'S AND OTHER LIENS STANDARD OF
TENANT'S PERFORMANCE - COMPLIANCE WITH LAWS ........................... 16
14. REPAIRS BY TENANT - FLOOR LOAD ....................................... 17
14.1 Repairs by Tenant .................................................... 17
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
14.2 Floor Load - Heavy Machinery ......................................... 17
15. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION .............. 17
15.1 General Liability Insurance .......................................... 17
15.2 Certificates of Insurance ............................................ 17
15.3 General................................................................ 18
15.4 Property of Tenant ................................................... 18
15.5 Bursting of Pipes, etc . ............................................. 19
15.6 Repairs and Alterations - No Diminution .............................. 19
of Rental Value
16. ASSIGNMENT, MORTGAGING AND SUBLETTING ................................ 19
17. MISCELLANEOUS COVENANTS .............................................. 22
17.1 Rules and Regulations ................................................ 22
17.2 Access to Premises - Shoring ......................................... 23
17.3 Accidents to Sanitary and Other Systems .............................. 23
17.4 Signs, Blinds and Drapes ............................................. 24
17.5 Estoppel Certificate ................................................. 24
17.6 Prohibited Materials and Property .................................... 24
17.7 Requirements of Law - Fines and Penalties ............................ 25
17.8 Tenant's Acts - Effect on Insurance .................................. 25
17.9 Miscellaneous ........................................................ 25
18. DAMAGE BY FIRE, ETC .................................................. 25
19. WAIVER OF SUBROGATION ................................................ 26
20. CONDEMNATION - EMINENT DOMAIN ........................................ 27
21. DEFAULT .............................................................. 28
21.1 Conditions of Limitation - Re-entry - Termination.................... 28
21.2 Intentionally Omitted ................................................ 29
21.3 Damages - Termination ................................................ 29
21.4 Fees and Expenses .................................................... 30
21.5 Waiver of Redemption ................................................. 30
21.6 Landlord's Remedies Not Exclusive .................................... 30
21.7 Grace Period ......................................................... 30
22. END OF TERM - ABANDONED PROPERTY ..................................... 31
23. SUBORDINATION ........................................................ 32
24. QUIET ENJOYMENT ...................................................... 33
25. ENTIRE AGREEMENT - WAIVER - SURRENDER ................................ 34
25.1 Entire Agreement ...................................................... 34
25.2 Waiver by Landlord ................................................... 34
25.3 Surrender . .......................................................... 34
26. INABILITY TO PERFORM - EXCULPATORY CLAUSE ............................ 34
27. BILLS AND NOTICES .................................................... 35
28. PARTIES BOUND - SEIZING OF TITLE ..................................... 36
29. MISCELLANEOUS ........................................................ 36
29.1 Separability ......................................................... 36
29.2 Captions, etc. ....................................................... 36
29.3 Broker ............................................................... 36
29.4 Modifications ........................................................ 36
29.5 Arbitration .......................................................... 36
29.6 Governing Law ........................................................ 37
29.7 Assignment of Rents .................................................. 37
29.8 Representation of Authority .......................................... 37
29.9 Expenses Incurred by Landlord Upon Tenant Requests ................... 37
29.10 Survival ............................................................. 38
</TABLE>
<PAGE> 5
EXHIBITS
Exhibit 2 Lease Plan
Exhibit 3 Building Standard Items
Exhibit 4 Building Services
Exhibit 5 Description of Landlord's Work
Rider to Lease
<PAGE> 6
THIS INDENTURE OF LEASE made and entered into on the Execution Date as
stated in Exhibit I and between the Landlord and the Tenant named in Exhibit 1.
Landlord does hereby demise and lease to Tenant, and Tenant does hereby hire and
take from Landlord, the premises hereinafter mentioned and described
(hereinafter referred to as "premises"), upon and subject to the covenants,
agreements, terms, provisions and conditions of this Lease for the term
hereinafter stated:
1. REFERENCE DATA
Each reference in this Lease to any of the terms and titles contained
in any Exhibit attached to this Lease shall be deemed and construed to
incorporate the data stated under that term or title in such Exhibit.
2. DESCRIPTION OF DEMISED PREMISES
2.1 Demised Premises. The premises are that portion of the Building as
described in Exhibit I (as the same may from time to time be constituted after
changes therein, additions thereto and eliminations therefrom pursuant to rights
of Landlord hereinafter reserved) and is hereinafter referred to as "Building",
substantially as shown hatched or outlined on the Lease Plan (Exhibit 2) hereto
attached and incorporated by reference as a part hereof
2.2 Appurtenant Rights. Tenant shall have, as appurtenant to the
premises, rights to use in common, with others entitled thereto, subject to
reasonable rules from time to time made by Landlord of which Tenant is given
notice; (a) the common lobbies, hallways, stairways and elevators of the
Building, serving the premises in common with others, (b) common walkways
necessary for access to the Building, and (c) if the premises include less than
the entire rentable area of any floor, the common toilets and other common
facilities of such floor; and no other appurtenant rights or easements. Landlord
by the service provider of fees assessed by Landlord in its sole discretion.
As of the Execution Date of this Lease, there are 3.5 parking spaces in
the surface parking lot and in the adjacent parking garage designated for use by
the tenants of the Building for every 1,000 square feet of Building Total
Rentable Area (as defined in Exhibit 1). Nothing contained in the Lease shall
prohibit or otherwise restrict Landlord from changing, from time to time,
following notice to Tenant, the location, layout or type of such parking areas,
provided that Landlord shall not, except as required by law or by takings,
reduce the number of parking spaces available for such tenants' use by more than
five (5%) percent. Subject to reasonable rules from time to time made by
Landlord of which Tenant is given at least ten (10) days prior written notice,
Tenant shall have the right, in common with all other tenants of the Building,
to use such parking areas, without charge, on a first-come first-served basis.
The parties acknowledge that Landlord shall have no obligation to Tenant to
police the use of said parking spaces; however, Landlord may implement systems,
as Landlord deems fit, to monitor the use of the surface parking lot.
<PAGE> 7
2.3 Exclusions and Reservations. All the perimeter walls of the
premises except the inner surfaces thereof, any balconies (except to the extent
same are shown as part of the premises on the Lease Plan (Exhibit 2)), terraces
or roofs adjacent to the premises, and any space in or adjacent to the premises
used for shafts, stacks, pipes, conduits, wires and appurtenant fixtures, fan
rooms, ducts, electric or other utilities, sinks or other Building facilities,
and the use thereof, as well as the right of access through the premises for the
purposes of operation, maintenance, decoration and repair, are expressly
excluded from the premises and reserved to Landlord.
3. TERM OF LEASE
3.1 Definitions. As used in this Lease the words and terms which follow
mean and include the following:
(a) "Specified Commencement Date" - The date (as stated in Exhibit
1) on which it is estimated that the premises will be ready for Tenant's
occupancy for its use as stated in Exhibit 1.
(b) "Term Commencement Date" - The "Term Commencement Date" is the
date on which the premises are ready for Tenant's occupancy (as defined in
Article 4.2) for use as set forth in Exhibit 1. If the premises are not ready
for such occupancy but if, pursuant to permission therefor duly given by
Landlord, Tenant takes possession of the whole or any part of the premises for
use as set forth in Exhibit 1, "Term Commencement Date" shall be the date on
which Tenant takes such possession.
3.2 Habendum. TO HAVE AND TO HOLD the premises for a term of years
commencing on the Term Commencement Date and ending on the Termination Date as
stated in Exhibit I or on such earlier date upon which said term may expire or
be terminated pursuant to any of the conditions of limitation or other
provisions of this Lease or pursuant to law (which date for the termination of
the terms hereof will hereafter be called "Termination Date"). Notwithstanding
the foregoing, if the Termination Date as stated in Exhibit I shall fall on
other than the last day of a calendar month, said Termination Date shall, at the
option of Landlord, be deemed to be the last day of the calendar month in which
said Termination Date occurs.
3.3 Declaration Fixing Term Commencement Date. As soon as may be after
the execution date hereof, each of the parties hereto agrees, upon demand of the
other party to join in the execution, in recordable form, of a statutory notice,
memorandum, etc. of lease and/or written declaration in which shall be stated
such Term Commencement Date and (if need be) the Termination Date. If this Lease
is terminated before the term expires, then upon Landlord's request the parties
shall execute, deliver and record an instrument acknowledging such fact and the
date of termination of this Lease.
4. READINESS FOR OCCUPANCY - ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT
DATE
4.1 Completion Date - Delays.
<PAGE> 8
A. Subject to delay by causes beyond the reasonable control of Landlord
or caused by the action or inaction of Tenant, Landlord shall use reasonable
speed and diligence in the construction of the Building and to have the premises
ready for Tenant's occupancy on the Specified Commencement Date. The failure to
have the premises ready for Tenant's occupancy on the Specified Commencement
Date shall in no way affect the validity of this Lease or the obligations of
Tenant hereunder nor shall the same be construed in any way to extend the term
of this Lease. If the premises are not ready for Tenant's occupancy within the
meaning of Article 4.2 hereof on the Specified Commencement Date, Tenant shall
not have any claim against Landlord, and Landlord shall have no liability to
Tenant, by reason thereof.
B. Notwithstanding the foregoing, if the Term Commencement Date shall
not have occurred on or before August 1, 1999 for any reason, then Tenant shall
have the right, exercisable by a written thirty (30) day termination notice
given on or after August 1, 1999, to terminate the Lease. If the Term
Commencement Date occurs on or before the thirtieth (30th) day after Landlord
receives such termination notice, Tenant's termination notice shall be deemed to
be void and of no force or effect. If the Term Commencement Date does not occur
on or before the thirtieth (30th) day after Landlord receives such termination
notice, then Landlord shall promptly to return to Tenant any payments paid by
Tenant to Landlord pursuant to this Lease, and this Lease shall be void and
without further force or effect.
4.2 When Premises Deemed Ready. A. The premises shall be conclusively
deemed ready for Tenant's occupancy as soon as Landlord's Work, as defined in
Paragraph B of this Article 4.2 has been substantially completed by Landlord,
and the elevator, plumbing, air conditioning and electric facilities are
initially substantially available to Tenant, in accordance with the obligations
assumed by Landlord hereunder and Landlord has delivered to Tenant a certificate
of occupancy. Notwithstanding the foregoing, if Tenant engages its own
contractors to perform any portion of the work to be performed in the initial
preparation of the premises, Landlord shall be relieved of its responsibility
for obtaining such partial certificate of occupancy to the extent that
Landlord's failure to obtain such certificate of occupancy is based upon any
aspect of the work performed by Tenant's contractors. Such facilities shall not
be deemed to be unavailable if only minor or insubstantial details of
construction, decoration or mechanical adjustments remain to be done. The
premises shall not be deemed to be unready for Tenant's occupancy or incomplete
if only minor or insubstantial details of construction, decoration or mechanical
adjustments remain to be done in the premises or any part thereof, or if the
delay in the availability of the premises for occupancy could not reasonably
have been avoided by Landlord (provided however, that Landlord shall not be
required to incur additional expense in order to avoid delays caused by Tenant)
and is (i) due to special work, changes, alterations or additions required or
made by Tenant in the layout or finish of the premises or any part thereof, (ii)
caused in whole or in part by Tenant through the delay of Tenant in submitting
any plans and/or specifications, supplying information, approving plans,
specifications or estimates, giving authorizations or otherwise or (iii) caused
in whole or in part by delay and/or default on the part of Tenant or its
contractors including, without
<PAGE> 9
limitation, the utility companies and other entities furnishing communications,
data processing or other service or equipment. If the premises are deemed ready
for Tenant's occupancy, pursuant to the foregoing, (and the term shall have
commenced by reason thereof), but the premises are not in fact actually ready
for Tenant's occupancy, Tenant shall not (except with Landlord's consent) be
entitled to take possession of the premises for use as set forth in Exhibit 1
until the premises are in fact actually ready for such occupancy. Landlord's
architect's certificate of substantial completion, as hereinabove stated, given
in good faith, or of any other facts pertinent to this Article 4.2 shall be
deemed conclusive of the statements therein contained and binding upon Tenant.
Any of Landlord's work in the premises not fully completed on the Term
Commencement Date shall thereafter be so completed with reasonable diligence by
Landlord.
B. Landlord shall, at Landlord's cost, perform the work ("Landlord's
Work") necessary to construct the premises substantially in accordance with the
plans and specifications referenced on Exhibit 5 (and with Tenant's final
approved plans which shall be consistent with the plans and specifications
referenced on Exhibit 5).
C. Landlord shall contribute up to Thirty-One Thousand Two Hundred
Fifty and 00/100 ($31,250.00) Dollars ("Landlord's Contribution") towards
architectural and engineering fees in the preparation of Tenant's plans. Tenant
shall, within thirty (30) days of billing therefor, reimburse Landlord for all
costs of architectural and engineering fees in excess of Landlord's
Contribution. Tenant shall not be entitled to any unused portion of Landlord's
Contribution.
4.3 Plans and Specifications. Tenant shall be solely responsible for
the timely preparation and submission to Landlord of the final architectural,
electrical and mechanical construction drawings, plans and specifications
(called "plans") necessary to construct the premises for Tenant's occupancy,
which plans shall be subject to approval by Landlord's architect and engineers
and shall comply with their requirements to avoid aesthetic or other conflicts
with the design and function of the balance of the Building, Landlord's approval
is solely given for the benefit of Landlord and neither Tenant nor any third
party shall have the right to rely upon Landlord's approval of Tenant's plans
for any purpose whatsoever. Without limiting the foregoing, Tenant shall be
responsible for all elements of the design of Tenant's plans (including, without
limitation, compliance with law, functionality of design, the structural
integrity of the design, the configuration of the premises and the placement of
Tenant's furniture, appliances and equipment), and Landlord's approval of
Tenant's plans shall in no event relieve Tenant of the responsibility for such
design. Tenant agrees to remain solely responsible for the timely preparation
and submission of all such plans and for all elements of the design of such
plans, except for Landlord's Contribution, and for all costs related thereto.
Tenant has assured itself by direct communication with the architect and
engineers (Landlord's or its own, as the case may be) that the final approved
plans can be delivered to Landlord on or before the Final Plans Date as stated
in Exhibit 1, provided that Tenant promptly furnishes complete information
concerning its requirements to said architect and engineers as and when
requested by them; and Tenant covenants
<PAGE> 10
and agrees to cause said final, approved plans and specifications to be
delivered to Landlord on or before said Final Plans Date and to devote such time
as may be necessary in consultation with said architect and engineers to enable
them to complete and submit all plans within the required time limit. Time is of
the essence in respect of preparation and submission of plans by Tenant. (The
word "architect" as used in this Article 4 shall include an interior designer or
space planner.)
4.4 Preparation of Premises.
(a) By Landlord. Except as is otherwise herein provided or as may be
otherwise approved by the Landlord, all work necessary to prepare the premises
for Tenant's occupancy, including work to be performed at Tenant's expense,
shall be performed by contractors employed by Landlord.
(b) By Tenant. Subject always to the provisions of Articles 4.2 and
4.3, if Tenant engages any contractors in preparing the premises for Tenant's
occupancy, Landlord will give Tenant reasonable advance notice (at least two (2)
weeks) of the date on which the premises will be ready for such other
contractors and a reasonable time will be allowed from such date for doing the
work to be performed by such other contractors.
(c) If any work, including but not by way of limitation, installation
of built-in equipment by the manufacturer or distributor thereof, shall be
performed by contractors not employed by Landlord, Tenant shall take necessary
reasonable measures to the end that such contractor shall cooperate in all ways
with Landlord's contractors to avoid any delay to the work being performed by
Landlord's contractors or conflict in any other way with the performance of such
work.
4.5 Quality and Cost of Materials. Any construction or finish of
previously constructed premises, whether by Landlord or Tenant, shall equal or
exceed the specifications and quantities provided in Exhibit 3. Except for
Landlord's Contribution, Tenant shall bear all costs of preparing the premises
for its occupancy in accordance with the final plans.
4.6 Tenants Delay - Additional Costs. If Tenant fails or omits to make
timely submission to Landlord of the layout and plans referred to in Article
4.3, or other pertinent information, or delays in submitting any other plans or
specifications, or in supplying information, or in approving plans,
specifications or estimates, or in giving authorizations or fails to comply with
Section 4.4(c) hereof, or otherwise fails to honor or perform its obligations
under this Lease, any additional cost to Landlord in connection with the
completion of the premises in accordance with the terms of this Lease and
Exhibit 3 shall be promptly paid by Tenant to Landlord if such additional cost
is in whole or in part the result of such failure, omission or delay of Tenant.
For the purposes of the next preceding sentence, the expression "additional cost
to Landlord" shall mean the cost over and above such cost as would have been the
aggregate cost to Landlord of completing the premises in accordance with the
terms of this Lease and Exhibit 3 had there been no such failure, omission or
delay. Nothing contained in this Article 4.6 shall limit or qualify or prejudice
any other covenants, agreements, terms, provisions and conditions contained in
this Lease, including, but not limited to Article 4.2.
<PAGE> 11
4.7 Entry by Tenant Prior to Term Commencement Date. With Landlord's
prior written consent, which shall not be unreasonably withheld, Tenant shall
have the right to enter the premises at least two weeks prior to the Term
Commencement Date, during normal business hours and without payment of rent, to
perform such work or decoration as is to be performed by, or under the direction
or control of, Tenant and as is otherwise in compliance with the terms of this
Lease. Such right of entry shall be deemed a license from Landlord to Tenant,
and any entry thereunder shall be at the risk of Tenant.
4.8 Conclusiveness of Landlord's Performance. Tenant shall be
conclusively deemed to have agreed that Landlord has performed all of its
obligations under this Article 4 unless not later than the end of the second
calendar month next beginning after the Term Commencement Date Tenant shall give
Landlord written notice specifying the respects in which Landlord has not
performed any such obligation.
4.9 Tenant Payments of Construction Cost. Landlord shall have the same
rights and remedies which Landlord has upon the nonpayment of Yearly Rent and
other charges due under this Lease for nonpayment of any amounts which Tenant is
required to pay to Landlord or Landlord's contractor in connection with the
construction and initial preparation of the premises (including, without
limitation, any amounts which Tenant is required to pay in accordance with
Articles 4.5 and 4.6 hereof) or in connection with any construction in the
premises performed for Tenant by Landlord, Landlord's contractor or any other
person, firm or entity after the Term Commencement Date.
5. USE OF PREMISES
5.1 Permitted Use. Tenant shall continuously during the term hereof
occupy and use the premises only for the purposes as stated in Exhibit 1 and for
no other purposes. Service and utility areas (whether or not a part of the
premises) shall be used only for the particular purpose for which they were
designed. Without limiting the generality of the foregoing, Tenant agrees that
it shall not use the premises or any part thereof, or permit the premises or any
part thereof to be used for the preparation or dispensing of food, whether by
vending machines or otherwise. Notwithstanding the foregoing, but subject to the
other terms and provisions of this Lease, Tenant may, with Landlord's prior
written consent, which consent shall not be unreasonably withheld, install at
its own cost and expense so-called hot-cold water fountains, coffee makers and
so-called Dwyer refrigerator-sink-stove combinations for the preparation of
beverages and foods, provided that no cooking, frying, etc., are carried on in
the premises to such extent as requires special exhaust venting, Tenant hereby
acknowledging that the Building is not engineered to provide any such special
venting.
5.2 Prohibited Uses. Notwithstanding any other provision of this Lease,
Tenant shall not use, or suffer or permit the use or occupancy of, or suffer or
permit anything to be done in or anything to be brought into or kept in or about
the premises or the Building or any part thereof (including, without limitation,
any materials appliances or equipment used in the construction or other
preparation of the premises and furniture and
<PAGE> 12
carpeting): (i) which would violate any of the covenants, agreements, terms,
provisions and conditions of this Lease or otherwise applicable to or binding
upon the premises; (ii) for any unlawful purposes or in any unlawful manner;
(iii) which, in the reasonable judgment of Landlord shall in any way (a) impair
the appearance or reputation of the Building; or (b) impair, interfere with or
otherwise diminish the quality of any of the Building services or the proper and
economic heating, cleaning, ventilating, air conditioning or other servicing of
the Building; or premises, or with the use or occupancy of any of the other
areas of the Building, or occasion discomfort, inconvenience or annoyance, or
injury or damage to any occupants of the premises or other tenants or occupants
of the Building; or (iv) which is inconsistent with the maintenance of the
Building as an office building of the first class in the quality of its
maintenance, use, or occupancy. Tenant shall not install or use any electrical
or other equipment of any kind which, in the reasonable judgment of Landlord,
might cause any such impairment, interference, discomfort, inconvenience,
annoyance or injury.
5.3 Licenses and Permits. If any governmental license or permit shall
be required for the proper and lawful conduct of Tenant's business, and if the
failure to secure such license or permit would in any way affect Landlord, the
premises, the Building or Tenant's ability to perform any of its obligations
under this Lease, Tenant, at Tenant's expense, shall duly procure and thereafter
maintain such license and submit the same to inspection by Landlord. Tenant, at
Tenant's expense, shall at all times comply with the terms and conditions of
each such license or permit. Tenant shall furnish all data and information to
governmental authorities and Landlord as required in accordance with legal,
regulatory, licensing or other similar requirements as they relate to Tenant's
use or occupancy of the premises or the Building.
6. RENT
During the term of this Lease the Yearly Rent and other charges, at the
rate stated in Exhibit 1, shall be payable by Tenant to Landlord by monthly
payments, as stated in Exhibit 1, in advance and without demand on the first day
of each month for and in respect of such month. The rent and other charges
reserved and covenanted to be paid under this Lease shall commence on the Term
Commencement Date. Notwithstanding the provisions of the next preceding
sentence, Tenant shall pay the first monthly installment of rent on the
execution of this Lease. If, by reason of any provisions of this Lease, the rent
reserved hereunder shall commence or terminate on any day other than the first
day of a calendar month, the rent for such calendar month shall be prorated. The
rent shall be payable to Landlord or, if Landlord shall so direct in writing, to
Landlord's agent or nominee, in lawful money of the United States which shall be
legal tender for payment of all debts and dues, public and private, at the time
of payment, at the office of the Landlord or such place as Landlord may
designate, and the rent and other charges in all circumstances shall be payable
without any setoff or deduction whatsoever. Rental and any other sums due
hereunder not paid on or before the date due shall bear interest for each month
or fraction thereof from the due date until paid computed at the annual rate of
five percentage points over the so-called prime rate then currently from time to
time charged to its most favored corporate customers by the largest
<PAGE> 13
national bank (N.A.) located in the city in which the Building is located, or at
any applicable lesser maximum legally permissible rate for debts of this nature.
7. TOTAL RENTABLE AREA
Total Rentable Area of the premises and of the Building have been
agreed, by the parties, to be the amounts set forth on Exhibit 1.
8. SERVICES FURNISHED BY LANDLORD
8.1 Electric Current.
(a) As stated in Exhibit 1, Landlord will provide electric current
to the premises for the purposes of serving plugs and lights within the premises
("Premises Electric Current"). In consideration for Landlord's agreement to
provide such Premises Electric Current, Tenant shall pay to Landlord, as
additional rent, Electricity Rent, as defined on Exhibit 1. electricity Rent
shall be payable on the first day of each month in advance.
(b) If, in the reasonable judgment of either party, the cost of
Premises Electric Current differs from the amount set forth on Exhibit 1, then
the amount of Electricity Rent shall be adjusted based upon the actual cost to
Landlord of providing Premises Electric Current. Either party may exercise its
rights under this Article 8.1 (b) by giving written notice ("Electric Charge
Dispute Notice") to the other party. If the parties have not resolved such
dispute within thirty (30) days after the giving of an Electric Charge Dispute
Notice, then such dispute shall be submitted to arbitration in accordance with
Article 29.5 of the Lease. Commencing as of the date ("Electric Rent Adjustment
Date") which is the date that the parties agree in writing upon a revised amount
of Electric Rent or date that the arbitrator renders his decision, Electricity
Rent shall thereafter be adjusted until and unless either party again exercises
its rights under this Article 8.1(b). The decision of the arbitrator shall, in
no event, be deemed to adjust the amount of Electricity Rent payable prior to
the Electric Rent Adjustment Date in question.
(c) If Tenant installs any equipment in the premises which consumes
any electric current in excess of Building standard consumption, as reasonably
determined by Landlord, then Tenant shall pay for the cost of such excess
consumption. At Landlord's election, such cost may be determined by a submeter
installed and maintained by Landlord at Tenant's costs and expense or on the
basis of a reasonable engineering estimate from a reputable engineering firm.
(d) If Tenant shall require electric current for use in the
premises in excess of such reasonable quantity to be furnished for such use as
hereinabove provided and if (i) in Landlord's reasonable judgment, Landlord's
facilities are inadequate for such excess requirements or (ii) such excess use
shall result in an additional burden on the Building air conditioning system and
additional cost to Landlord on account thereof then, as the case may be, (x)
Landlord upon written request and at the sole cost and expense of Tenant, will
furnish and install such additional wire, conduits, feeders, switchboards and
appurtenances as reasonably may be
<PAGE> 14
required to supply such additional requirements of Tenant if current therefor be
available to Landlord, provided that the same shall be permitted by applicable
laws and insurance regulations and shall not cause damage to the Building or the
premises or cause or create a dangerous or hazardous condition or entail
excessive or unreasonable alterations or repairs or interfere with or disturb
other tenants or occupants of the Building or (y) Tenant shall reimburse
Landlord for such additional cost, as aforesaid.
(e) Landlord, at Tenant's expense and upon Tenant's request, shall
purchase and install all replacement lamps of types generally commercially
available (including, but not limited to, incandescent and fluorescent) used in
the premises.
(f) Subject to Article 8.8, Landlord shall not in any way be liable
or responsible to Tenant for any loss, damage or expense which Tenant may
sustain or incur if the quantity, character, or supply of electrical energy is
changed or is no longer available or suitable for Tenant's requirements.
(g) Tenant agrees that it will not make any material alteration or
material addition to the electrical equipment and/or appliances in the premises
without the prior written consent of Landlord in each instance first obtained,
which consent will not be unreasonably withheld, and will promptly advise
Landlord of any other alteration or addition to such electrical equipment and/or
appliances.
8.2 Water. Landlord shall furnish hot and cold water for ordinary
premises, cleaning, toilet, lavatory and drinking purposes. If Tenant requires,
uses or consumes water for any purpose other than for the aforementioned
purposes, Landlord may (i) assess a reasonable charge for the additional water
so used or consumed by Tenant or (ii) install a water meter and thereby measure
Tenant's water consumption for all purposes. In the latter event, Landlord shall
pay the cost of the meter and the cost of installation thereof and shall keep
said meter and installation equipment in good working order and repair. Tenant
agrees to pay for water consumed, as shown on said meter, together with the
sewer charge based on said meter charges, as and when bills are rendered, and on
default in making such payment Landlord may pay such charges and collect the
same from Tenant. All piping and other equipment and facilities for use of water
outside the building core will be installed and maintained by Landlord at
Tenant's sole cost and expense.
8.3 Elevators, Heat, Cleaning.
(a) Landlord at its expense shall: (i) provide necessary elevator
facilities (which may be manually or automatically operated, either or both, as
Landlord may from time to time elect) on Mondays through Fridays, excepting
legal holidays, from 8:00 a.m. to 6:00 p.m. and on Saturdays, excepting legal
holidays, from 8:00 a.m. to 1:00 p.m. (called "business days") and have one
elevator in operation available for Tenant's use, non-exclusively, together with
others having business in the Building, at all other times; (ii) furnish heat
(substantially equivalent to that being furnished in comparably aged similarly
equipped office buildings in the
<PAGE> 15
same city) to the premises during the normal heating season oil business days;
and (iii) cause the office areas of the premises to be cleaned on business days
(except on Saturdays) provided the same are kept in order by Tenant. Exhibit 4
shall represent substantially the extent and scope of the cleaning by Landlord
referred to in this Article 8.3.
(b) The parties agree and acknowledge that, despite reasonable
precautions in selecting cleaning and maintenance contractors and personnel, any
property or equipment in the premises of a delicate, fragile or vulnerable
nature may nevertheless be damaged in the course of cleaning and maintenance
services being performed. Accordingly, Tenant shall take reasonable protective
precautions with such property and equipment (including, without limitation,
computers or other data processing components or equipment and optical or
electronic equipment, etc.), e.g., housing the property and equipment in a
separate, locked room, so as to render it inaccessible to the Building's
cleaning personnel.
8.4 Air Conditioning. Landlord shall through the air conditioning
equipment of the Building furnish to and distribute in the premises air
conditioning as normal seasonal changes may require on business days during the
hours as aforesaid in Article 8.3 when air conditioning may reasonably be
required for the comfortable occupancy of the premises by Tenant. Tenant agrees
to lower and close the blinds or drapes when necessary because of the sun's
position, whenever the air conditioning, system is in operation, and to
cooperate fully with Landlord with regard to, and to abide by all the reasonable
regulations and requirements which Landlord may prescribe for the proper
functioning and protection of the air conditioning system. The air conditioning
system referred to in this Article 8.4 shall be capable of maintaining a
temperature range that is reasonably standard for buildings of similar class,
size, age and location.
8.5 Additional Heat, Cleaning and Air Conditioning Services.
(a) Landlord will use reasonable efforts upon reasonable advance
written notice from Tenant of its requirements in that regard, to furnish
additional heat, cleaning or air conditioning services to the premises on days
and at times other than as above provided.
(b) Tenant will pay to Landlord a reasonable charge (i) for any
such additional heat, cleaning or air conditioning service required by Tenant,
(ii) for any extra cleaning of the premises required because of the carelessness
or indifference of Tenant or because of the nature of Tenant's business, and
(iii) for any cleaning done at the request of Tenant of any portions of the
premises which may be used for storage, shipping room or other non-office
purposes. As of the Term Commencement Date, the charge for overtime heating and
air-conditioning services is Forty and 00/100 ($40.00) Dollars per hour. Such
charge may be increased by Landlord, from time to time, based upon actual
increases in the cost of providing such overtime service. Such charge may be
increased by Landlord, from time to time, based upon actual increases in the
cost of providing such overtime service. If the cost to Landlord for cleaning
the premises shall be increased due to the installation in the premises, at
Tenant's request, of any materials or finish other than those which are building
standard, Tenant shall pay to Landlord an amount equal to such increase in cost.
<PAGE> 16
8.6 Additional Air Conditioning Equipment. In the event Tenant requires
additional air conditioning for business machines, meeting rooms or other
special purposes, or because of occupancy or excess electrical loads, any
additional air conditioning units, chillers, condensers, compressors, ducts,
piping and other equipment, such additional air conditioning equipment will be
installed and maintained by Landlord at Tenant's sole cost and expense, but only
if, in Landlord's reasonable judgment, the same will not cause damage or injury
to the Building or create a dangerous or hazardous condition or entail excessive
or unreasonable alterations, repairs or expense or interfere with or disturb
other tenants; and Tenant shall reimburse Landlord in such an amount as will
compensate it for the cost incurred by it in operating, such additional air
conditioning equipment.
8.7 Repairs. Except as otherwise provided in Articles 18 and 20, and
subject to Tenant's obligations in Article 14, Landlord shall keep and maintain
the roof, exterior walls, structural floor stabs, columns, elevators, public
stairways and corridors, lavatories, equipment (including, without limitation,
sanitary, electrical, heating, air conditioning, or other systems) and other
common facilities of the Building in good condition and repair.
8.8 Interruption or Curtailment of Services.
A. When necessary by reason of accident or emergency, or for
repairs, alterations, replacements or improvements which in the reasonable
judgment of Landlord are desirable or necessary to be made, or of difficulty or
inability in securing supplies or labor, or of strikes, or of any other cause
beyond the reasonable control of Landlord, whether such other cause be similar
or dissimilar to those hereinabove specifically mentioned until said cause has
been removed, Landlord reserves the right to interrupt, curtail, stop or suspend
(i) the furnishing of heating, elevator, air conditioning, and cleaning services
and (ii) the operation of the plumbing and electric systems. Landlord shall
exercise reasonable diligence to eliminate the cause of any such interruption,
curtailment, stoppage or suspension, but there shall be no diminution or
abatement of rent or other compensation due from Landlord to Tenant hereunder,
nor shall this Lease be affected or any of the Tenant's obligations hereunder
reduced, and the Landlord shall have no responsibility or liability for any such
interruption, curtailment, stoppage, or suspension of services or systems.
Notwithstanding anything to the contrary in the Lease contained, Landlord
agrees, that, in exercising any right which Landlord has to enter the premises
and in performance of any work by Landlord in the Building, Landlord shall use
reasonable efforts to minimize any interference with Tenant's use of the
premises.
B. Notwithstanding anything to the contrary in this Lease
contained, if the premises shall lack any service including electric current
which Landlord is required to provide hereunder (thereby rendering the premises
or a portion thereof untenantable) so that, for the Landlord Service
Interruption Cure Period, as hereinafter defined, the continued operation in the
ordinary course of Tenant's business is materially adversely affected and if
Tenant ceases to use the affected portion of the premises during the period of
untenantability as the direct result of such lack of
<PAGE> 17
service, then, provided that Tenant ceases to use the affected portion of the
premises during the entirety of the Landlord Service Interruption Cure Period
and that such untenantability and Landlord's inability to cure such condition is
not caused by the fault or neglect of Tenant or Tenants agents, employees or
contractors, or as the result of other costs beyond Landlord's reasonable
control (See Article 26) Yearly Rent, Operating Expense Excess, Tax Excess, and
Electricity Rent shall thereafter be abated in proportion to such
untenantability until the day such condition is completely corrected. For the
purposes hereof, the "Landlord Service Interruption Cure Period" shall be
defined as three (3) consecutive business days after Landlord's receipt of
written notice from Tenant of the condition causing untenantability in the
premises.
C. The provisions of Paragraph B of this Article 8.8 shall not
apply in the event of untenantability caused by fire or other casualty, or
taking (see Articles 18 and 20).
8.9 Energy Conservation. Notwithstanding anything to the contrary in
this Article 8 or in this Lease contained, Landlord may institute, and Tenant
shall comply with, such policies, programs and measures as may be necessary,
required, or expedient for the conservation and/or preservation of energy or
energy services, or as may be necessary or required to comply with applicable
codes, rules regulations or standards.
8.10 Miscellaneous. Other than air conditioning, all services provided
by Landlord to Tenant are based upon an assumed maximum premises population of
one person per two hundred (200) square feet of Total Rentable Area, which limit
Tenant shall in no event exceed.
9. ESCALATION
9.1 Definitions. As used in this Article 9, the words and terms which
follow mean and include the following:
(a) "Operating Year" shall mean a calendar year in which occurs any
part of the term of this Lease.
(b) "Operating Costs in the Base Year" shall be the amount as
stated in Exhibit 1.
(c) "Tenant's Proportionate Share" shall be the figure as stated in
Exhibit 1.
(d) "Taxes" shall mean the real estate taxes and other taxes,
levies and assessments imposed upon the Building and the land on which it stands
and upon any personal property of Landlord used in the operation thereof, or
Landlord's interest in the Building or such personal property; charges, fees and
assessments for transit, housing, police, fire or other governmental services or
purported benefits to the Building; service or user payments in lieu of taxes;
and any and all other taxes, levies, betterments, assessments and charges
arising from the ownership, leasing, operating, use or occupancy of the Building
or based upon rentals derived therefrom, which are or shall be imposed by
National, State, Municipal or other authorities. As of the Execution Date,
"Taxes" shall not include any franchise, rental, income or profit tax, capital
levy or excise, provided,
<PAGE> 18
however, that any of the same and any other tax, excise, fee, levy, charge or
assessment, however described, that may in the future be levied or assessed as a
substitute for or an addition to, in whole or in part, any tax, levy or
assessment which would otherwise constitute "Taxes," whether or not now
customary or in the contemplation of the parties on the Execution Date of this
Lease, shall constitute "Taxes," but only to the extent calculated as if the
Building and the land upon which it stands is the only real estate owned by
Landlord. "Taxes" shall also include expenses of tax abatement or other
proceedings contesting assessments or levies.
(e) "Tax Base" shall be the amount stated in Exhibit 1 and shall
apply to a Tax Period of twelve (12) months. Tax Base shall be reduced pro rata
if and to the extent that the Tax Period contains fewer than twelve (12) months.
(f) "Tax Period" shall be any fiscal/tax period in respect of which
Taxes are due and payable to the appropriate governmental taxing authority, any
portion of which period occurs during the term of this Lease, the first such
Period being the one in which the Term Commencement Date occurs.
(g) "Operating Costs".
(1) Definition of Operating Costs. "Operating Costs" shall
mean all costs incurred and expenditures of whatever nature made by Landlord in
the operation and management, for repair and replacements, cleaning and
maintenance of the Building and grounds including, without limitation, vehicular
and pedestrian passageways related to the Building (but excluding those areas,
if any, outside the Building, and for which operating expenses are chargeable to
non-office (i.e., commercial) tenants), related equipment, facilities and
appurtenances, elevators, cooling and heating equipment. In the event that
Landlord or Landlord's managers or agents perform services for the benefit of
the Building off-site which would otherwise be performed on-site (e.g.,
accounting), the cost of such services shall be reasonably allocated among the
properties benefiting from such service and shall be included in Operating
Costs. Operating Costs shall include, without limitation, those categories of
"Specifically Included Operating Costs," as set forth below, but shall not
include "Excluded Costs," as hereinafter defined.
(2) Definition of Excluded Costs. "Excluded Costs" shall be
defined as mortgage charges, brokerage commissions, salaries of executives and
owners not directly employed in the management/operation of the Building, the
cost of work done by Landlord for a particular tenant for which Landlord has the
right to be reimbursed by such Tenant, and, subject to Subparagraph (3) below,
such portion of expenditures as are not property chargeable against income.
(3) Capital Expenditures.
(i) Replacements. If, during the term of this Lease,
Landlord shall replace any capital items or make any capital expenditures
(collectively called "capital expenditures") the total amount of which is not
properly includible in Operating Costs for the Operating Year in which
<PAGE> 19
they were made, there shall nevertheless be included in such Operating Costs and
in Operating Costs for each succeeding Operating Year the amount, if any, by
which the Annual Charge-Off (determined as hereinafter provided) of such capital
expenditure (less insurance proceeds, if any, collected by Landlord by reason of
damage to, or destruction of the capital item being replace) exceeds the Annual
Charge-Off of the capital expenditure for the item being replaced.
(ii) New Capital Items. If a new capital item is
acquired which does not replace another capital item which was worn out, has
become obsolete, etc., then there shall be included in Operating Costs for each
Operating Year in which and after such capital expenditure is made the Annual
Charge-Off of such capital expenditure. Notwithstanding anything to the contrary
herein contained, with respect to a new (i.e. as opposed to replacement) capital
expenditure, such capital expenditure shall be included in Operating Costs only
if:
1. the new capital item being acquired is
required by law which first becomes applicable after the Term Commencement Date,
or
2. the new capital item is reasonably
projected to reduce Operating Costs.
(iii) Annual Charge-Off. "Annual Charge-Off" shall be
defined as the annual amount of principal and interest payments which would be
required to repay a loan ("Capital Loan") in equal monthly installments over the
Useful Life, as hereinafter defined, of the capital item in question on a direct
reduction basis at an annual interest rate equal to the Capital Interest Rate,
as hereinafter defined, where the initial principal balance is the cost of the
capital item in question. Notwithstanding the foregoing, if Landlord reasonably
concludes on the basis of engineering estimates that a particular capital
expenditure will effect savings in Building operating expenses including,
without limitation, energy related costs, and that such projected savings will,
on an annual basis ("Projected Annual Savings"), exceed the Annual Charge-Off of
such capital expenditure computed as aforesaid, then and in such events, the
Annual Charge-Off shall be increased to an amount equal to the Projected Annual
Savings; and in such circumstances, the increased Annual Charge-Off (in the
amount of the Projected Annual Savings) shall be made for such period of time as
it would take to fully amortize the cost of the capital item in question,
together with interest thereon at the Capital Interest Rate as aforesaid, in
equal monthly payments, each in the amount of one-twelfth (1/12th) of the
Projected Annual Savings, with such payments being applied first to interest and
the balance to principal.
(iv) Useful Life. "Useful Life" shall be reasonably
determined by Landlord in accordance with generally accepted accounting
principles and practices in effect at the time of acquisition of the capital
item.
(v) Capital Interest Rate. "Capital Interest Rate"
shall be defined as an annual rate of either one percentage point over the AA
Bond rate (Standard & Poor's corporate composite or, if unavailable, its
equivalent) as reported in the financial press at the time the capital
<PAGE> 20
expenditure is made or, if the capital item is acquired through third-party
financing, then the actual (including fluctuating) rate paid by Landlord in
financing the acquisition of such capital item.
(4) Specifically Included Categories of Operating Costs.
Operating Costs shall include, but not be limited to, the following:
Taxes (other than real estate taxes): Sales, Federal Social
Security, Unemployment and Old Age Taxes and contributions and State
Unemployment taxes and contributions accruing to and paid by the Landlord on
account of all employees of Landlord and/or Landlord's managing agent, who are
employed in, about or on account of the Building, except that taxes levied upon
the net income of the Landlord and taxes withheld from employees, and "Taxes" as
defined in Article 9. 1 (d) shall not be included herein.
Water: All charges and rates connected with water supplied to
the Building and related sewer use charges.
Heat and Air Conditioning: All charges connected with heat and
air conditioning supplied to the Building.
Wages: Wages and cost of all employee benefits of all
employees of the Landlord and/or Landlord's managing agent who are employed in,
about or on account of the Building.
Cleaning: The cost of labor and material for cleaning the
Building, surrounding areaways and windows in the Building.
Elevator Maintenance: All expenses for or on account of the
upkeep and maintenance of all elevators in the Building.
Electricity: The cost of all electric current for the
operation of any machine, appliance or device used for the operation of the
premises and the Building, including the cost of electric current for the
elevators, lights, air conditioning and heating, but not including electric
current which is paid for directly to the utility by the user/tenant in the
Building. (If and so long as Tenant is billed directly by the electric utility
for its own consumption as determined by its separate meter, then Operating
Costs shall include only Building and public area electric current consumption
and not any demised premises electric current consumption. Wherever separate
metering is unlawful, prohibited by utility company regulation or tariff or is
otherwise impracticable, relevant consumption figures for the purposes of this
Article 9 shall be determined by fair and reasonable allocations and engineering
estimates made by Landlord. Furthermore, if and to the extent that the
Operating-Costs-in-the-Base-Year figure shall include any component representing
the cost to the Landlord of electric current supplied to any tenant's premises
under so-called "rent-inclusion" lease arrangements, then if such cost is
eliminated from Operating Costs in an Operating Year in accordance with the
foregoing provisions, the figure for Operating Costs in the Base Year for the
purposes of this Article 9 shall likewise be reduced by the amount for such cost
component.)
<PAGE> 21
Insurance, etc.: Fire, casualty, liability, rent loss and such other
insurance as may from time to time be required by lending institutions on
first-class office buildings in the City or Town wherein the Building is located
and all other expenses customarily incurred in connection with the operation and
maintenance of first-class office buildings in the City or Town wherein the
Building is located including, without limitation, insurance deductible amounts
and rental costs associated with the Building's management office.
9.2 Tax Excess. If in any Tax Period the Taxes exceed the Tax Base,
Tenant shall pay to Landlord Tenant's Proportionate Share of such excess, such
amount being hereinafter referred to as "Tax Excess". Tax Excess shall be due
when billed by Landlord. In implementation and not in limitation of the
foregoing, Tenant shall remit to Landlord pro rata monthly installments on
account of projected Tax Excess, calculated by Landlord on the basis of the most
recent Tax data or budget available. If the total of such monthly remittances on
account of any Tax Period is greater than the actual Tax Excess for such Tax
Period, Tenant may credit the difference against the next installment of rental
or other charges due to Landlord hereunder. If the total of such remittances is
less than the actual Tax Excess for such Tax Period, Tenant shall pay the
difference to Landlord when billed therefor.
If, in the exercise of Landlord's bona fide business judgment, Landlord
determines that the amount of Taxes for any Tax Period is excessive, Landlord
shall initiate and prosecute such proceedings as are necessary to obtain an
abatement or reduction of Taxes for such Tax Period. Appropriate credit against
Tax Excess shall be given for any refund obtained by reason of a reduction in
any Taxes by the Assessors or the administrative, judicial or other governmental
agency responsible therefor. The original computations, as well as reimbursement
or payments of additional charges, if any, or allowances, if any, under the
provisions of this Article 9.2 shall be based on the original assessed
valuations with adjustments to be made at a later date when the tax refund, if
any, shall be paid to Landlord by the taxing authorities. Expenditures for legal
fees and for other similar or dissimilar expenses incurred in obtaining the tax
refund may be charged against the tax refund before the adjustments are made for
the Tax Period.
9.3 Operating Expense Excess. If the Operating Costs in any Operating
Year exceed the Operating Costs in the Base Year, Tenant shall pay to Landlord
Tenant's Proportionate Share of such excess, such amount being hereinafter
referred to as "Operating Expense Excess." Operating Expense Excess shall be due
when billed by Landlord. In implementation and not in limitation of the
foregoing, Tenant shall remit to Landlord pro rata monthly installments on
account of projected Operating Expense Excess, calculated by Landlord on the
basis of the most recent Operating Costs data or budget available. If the total
of such monthly remittances on account of any Operating Year is greater than the
actual Operating Expense Excess for such Operating Year, Tenant may credit the
difference against the next installment of rent or other charges due to Landlord
hereunder. If the total of such remittances is less than actual Operating
Expense Excess for such Operating Year, Tenant shall pay the difference to
Landlord when billed therefor.
<PAGE> 22
9.4 Part Years. If the Term Commencement Date or the Termination Date
occurs in the middle of an Operating Year or Tax Period, Tenant shall be liable
for only that portion of the Operating Expense or Tax Excess, as the case may
be, in respect of such Operating Year or Tax Period represented by a fraction
the numerator of which is the number of days of the herein term which falls
within the Operating Year or Tax Period and the denominator of which is three
hundred sixty-five (365), or the number of days in said Tax Period, as the case
may be.
9.5 Effect of Taking. In the event of any taking of the Building or the
land upon which it stands under circumstances whereby this Lease shall not
terminate under the provisions of Article 20 then, for the purposes of
determining Tax Excess, there shall be substituted for the Tax Base originally
provided for herein a fraction of such Tax Base, the numerator of which fraction
shall be the Taxes for the first Tax Period subsequent to the condemnation or
taking which takes into account such condemnation or taking, and the denominator
of which shall be the Taxes for the last Tax Period prior to the condemnation or
taking, which did not take into account such condemnation or taking. Tenant's
Proportionate Share shall be adjusted appropriately to reflect the proportion of
the premises and/or the Building remaining after such taking.
9.6 Adjustment of Operating Costs Based Upon Vacancy. If the Building
is not at least ninety-five percent (95%) occupied during any Operating Year
(including the Base Year) or if Landlord is not supplying services to at least
ninety-five percent (95%) of the Total Rentable Area of the Building at any time
during any Operating Year, actual Operating Costs for such Operating Year for
purposes hereof shall be determined as if the Building had been ninety-five
percent (95%) occupied and Landlord had been supplying services to ninety-five
percent (95%) of the Total Rentable Area of the Building during such year. Any
necessary extrapolation of Operating Costs under this Article 9 shall be
performed by adjusting the cost of those components of Operating Costs that are
impacted by changes in the occupancy of the Building to the cost that would have
been incurred if the Building had been ninety-five percent (95%) occupied and
Landlord had been supplying services to ninety-five percent (95%) of the Total
Rentable Area of the Building.
9.7 Survival. Any obligations under this Article 9 which shall not have
been paid at the expiration or sooner termination of the term of this Lease
shall survive such expiration and shall be paid when and as the amount of same
shall be determined to be due.
10. CHANGES OR ALTERATIONS BY LANDLORD
Landlord reserves the right, exercisable by itself or its nominee, at
any time and from time to time without the same constituting an actual or
constructive eviction and without incurring any liability to Tenant therefor or
otherwise affecting Tenant's obligations under this Lease, to make such changes,
alterations, additions, improvements, repairs or replacements in or to the
Building (including the premises) and the fixtures and equipment thereof, as
well as in or to the street entrances, halls, passages, elevators, escalators,
and stairways thereof, as it may deem necessary or desirable, and to change the
arrangement and/or location
<PAGE> 23
of entrances or passageways, doors and doorways, and corridors, elevators,
stairs, toilets, or other public parts of the Building, provided, however, that
there be no unreasonable obstruction of the right of access to, or unreasonable
interference with the use and enjoyment of, the premises by Tenant. Nothing
contained in this Article 10 shall be deemed to relieve Tenant of any duty,
obligation or liability of Tenant with respect to making any repair, replacement
or improvement or complying with any law, order or requirement of any
governmental or other authority. Landlord reserves the right to adopt and at any
time and from time to time to change the name or address of the Building.
Neither this Lease nor any use by Tenant shall give Tenant any right or easement
for the use of any door or any passage or any concourse connecting with any
other building or to any public convenience, and the use of such doors, passages
and concourses and of such conveniences may be regulated or discontinued at any
time and from time to time by Landlord without notice to Tenant and without
affecting the obligation of Tenant hereunder or incurring any liability to
Tenant therefor, provided, however, that there be no unreasonable obstruction of
the right of access to, or unreasonable interference with the use of the
premises by Tenant.
If at any time any windows of the premises are temporarily closed or
darkened for any reason whatsoever including but not limited to, Landlord's own
acts, Landlord shall not be liable for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor nor abatements of rent
nor shall the same release Tenant from its obligations hereunder nor constitute
an eviction.
11. FIXTURES, EQUIPMENT AND IMPROVEMENTS--REMOVAL BY TENANT
All fixtures, equipment, improvements and appurtenances attached to or
built into the premises prior to or during the term, whether by Landlord at its
expense or at the expense of Tenant (either or both) or by Tenant shall be and
remain part of the premises and shall not be removed by Tenant during or at the
end of the term unless Landlord otherwise elects to require Tenant to remove
such fixtures, equipment, improvements and appurtenances, in accordance with
Articles 12 and/or 22 of the Lease. All electric, telephone, telegraph,
communication, radio, plumbing, heating and sprinkling systems, fixtures and
outlets, vaults, paneling, molding, shelving, radiator enclosures, cork, rubber,
linoleum and composition floors, ventilating, silencing, air conditioning and
cooling equipment, shall be deemed to be included in such fixtures, equipment,
improvements and appurtenances, whether or not attached to or built into the
premises. Where not built into the premises, all removable electric fixtures,
carpets, drinking or tap water facilities, furniture, or trade fixtures or
business equipment or Tenant's inventory or stock in trade shall not be deemed
to be included in such fixtures, equipment, improvements and appurtenances and
may be, and upon the request of Landlord will be, removed by Tenant upon the
condition that such removal shall not materially damage the premises or the
Building and that the cost of repairing any damage to the premises or the
Building arising from installation or such removal shall be paid by Tenant.
12. ALTERATIONS AND IMPROVEMENTS BY TENANT
<PAGE> 24
Tenant shall make no alterations, decorations, installations, removals,
additions or improvements in or to the premises without Landlord's prior written
consent and then only those (i) which equal or exceed the specifications and
quantities provided in Exhibit 3, and (ii) made by contractors or mechanics
approved by Landlord. No installations or work shall be undertaken or begun by
Tenant until: (i) Landlord has approved written plans and specifications and a
time schedule for such work; (ii) Tenant has made provision for either written
waivers of liens from all contractors, laborers and suppliers of materials for
such installations or work, the filing of lien bonds on behalf of such
contractors, laborers and suppliers, or other appropriate protective measures
approved by Landlord; and (iii) Tenant has procured appropriate surety payment
and performance bonds. No amendments or additions to such plans and
specifications shall be made without the prior written consent of Landlord.
Landlord's consent and approval required under this Article 12 shall not be
unreasonably withheld. Landlord's approval is solely given for the benefit of
Landlord and neither Tenant nor any third party shall have the right to rely
upon Landlord's approval of Tenant's plans for any purpose whatsoever. Without
limiting the foregoing, Tenant shall be responsible for all elements of the
design of Tenant's plans (including, without limitation, compliance with law,
functionality of design, the structural integrity of the design, the
configuration of the premises and the placement of Tenant's furniture,
appliances and equipment), and Landlord's approval of Tenant's plans shall in no
event relieve Tenant of the responsibility for such design. Landlord shall have
no liability or responsibility for any claim, injury or damage alleged to have
been caused by the particular materials, whether building standard or
non-building standard, appliances or equipment selected by Tenant in connection
with any work performed by or on behalf of Tenant in the premises including,
without limitation, furniture, carpeting, copiers, laser printers, computers and
refrigerators. Any such work, alterations, decorations, installations, removals,
additions and improvements shall be done at Tenant's sole expense and at such
times and in such manner as Landlord may from time to time designate. If Tenant
shall make any alterations, decorations, installations, removals, additions or
improvements then Landlord may elect to require the Tenant at the expiration or
sooner termination of the term of this Lease to restore the premises to
substantially the same condition as existed at the Term Commencement Date.
Tenant shall pay, as an additional charge, the entire increase in real estate
taxes on the Building which shall, at any time prior to or after the Term
Commencement Date, result from or be attributable to any alteration, addition or
improvement to the premises made by or for the account of Tenant in excess of
the specifications and quantities provided in Exhibit 3.
13. TENANT'S CONTRACTORS-MECHANICS' AND OTHER LIENS-STANDARD OF TENANT'S
PERFORMANCE-COMPLIANCE WITH LAWS
Whenever Tenant shall make any alterations, decorations, installations,
removals, additions or improvements in or to the premises--whether such work be
done prior to or after the Term Commencement Date--Tenant will strictly observe
the following covenants and agreements:
(a) Tenant agrees that it will not, either directly or
indirectly, use any contractors and/or materials if their use will create
<PAGE> 25
any difficulty, whether in the nature of a labor dispute or otherwise, with
other contractors and/or labor engaged by Tenant or Landlord or others in the
construction, maintenance and/or operation of the Building or any part thereof.
(b) In no event shall any material or equipment be incorporated
in or added to the premises, so as to become a fixture or otherwise a part of
the Building, in connection with any such alteration, decoration, installation,
addition or improvement which is subject to any lien, charge, mortgage or other
encumbrance of any kind whatsoever or is subject to any security interest or any
form of title retention agreement. No installations or work shall be undertaken
or begun by Tenant until (i) Tenant has made provision for written waiver of
liens from all contractors, laborers and suppliers of materials for such
installations or work, and taken other appropriate protective measures approved
by Landlord; and (ii) Tenant has procured appropriate surety payment and
performance bonds which shall name Landlord as an additional obligee and has
filed lien bond(s) (in jurisdictions where available) on behalf of such
contractors, laborers and suppliers.
(c) Any mechanic's lien filed against the premises or the
Building for work claimed to have been done for, or materials claimed to have
been furnished to, Tenant shall be discharged by Tenant within ten (10) days
thereafter, at Tenant's expense by filing the bond required by law or otherwise.
If Tenant fails so to discharge any lien, Landlord may do so at Tenant's expense
and Tenant shall reimburse Landlord for any expense or cost incurred by Landlord
in so doing within fifteen (15) days after rendition of a bill therefor.
(d) All installations or work done by Tenant shall be at its own
expense and shall at all times comply with (i) laws, rules, orders and
regulations of governmental authorities having jurisdiction thereof; (ii)
orders, rules and regulations of any Board of Fire Underwriters, or any other
body hereafter constituted exercising similar functions, and governing insurance
rating bureaus; (iii) Rules and Regulations of Landlord; and (iv) plans and
specifications prepared by and at the expense of Tenant theretofore submitted to
and approved by Landlord.
(e) Tenant shall procure all necessary permits before undertaking
any work in the premises; do all of such work in a good and workmanlike manner,
employing materials of good quality and complying with all governmental
requirements; and defend, save harmless, exonerate and indemnify Landlord from
all injury, loss or damage to any person or property occasioned by or growing
out of such work. Tenant shall cause contractors employed by Tenant to carry
Worker's Compensation Insurance in accordance with statutory requirements,
Automobile Liability Insurance and, naming Landlord as an additional insured,
Commercial General Liability Insurance covering such contractors on or about the
premises in the amounts stated in Article 15 hereof or in such other reasonable
amounts as Landlord shall require and to submit certificates evidencing such
coverage to Landlord prior to the commencement of such work.
14. REPAIRS BY TENANT--FLOOR LOAD
<PAGE> 26
14.1 Repairs by Tenant. Tenant shall keep all and singular the premises
neat and clean (including periodic rug shampoo and waxing of tiled floors and
cleaning of blinds and drapes) and in such repair, order and condition as the
same are in on the Term Commencement Date or may be put in during the term
hereof, reasonable use and wearing thereof and damage by fire or by other
casualty excepted. Tenant shall be solely responsible for the proper maintenance
of all equipment and appliances operated by Tenant, including, without
limitation, copiers, laser printers, computers and refrigerators. Tenant shall
make, as and when needed as a result of misuse by, or neglect or improper
conduct of, Tenant or Tenant's servants, employees, agents, contractors,
invitees, or licensees or otherwise, all repairs in and about the premises
necessary to preserve them in such repair, order and condition, which repairs
shall be in quality and class equal to the original work. Landlord may elect, at
the expense of Tenant, to make any such repairs or to repair any damage or
injury to the Building or the premises caused by moving property of Tenant in or
out of the Building, or by installation or removal of furniture or other
property, or by misuse by, or neglect, or improper conduct of, Tenant or
Tenant's servants, employees, agents, contractors, or licensees.
14.2 Floor Load--Heavy Machinery. Tenant shall not place a load upon
any floor of the premises exceeding the floor load per square foot of area which
such floor was designed to carry and which is allowed by law. Landlord reserves
the right to prescribe the weight and position of all business machines and
mechanical equipment, including safes, which shall be placed so as to distribute
the weight. Business machines and mechanical equipment shall be placed and
maintained by Tenant at Tenant's expense in settings sufficient in Landlord's
judgment to absorb and prevent vibration, noise and annoyance. Tenant shall not
move any safe, heavy machinery, heavy equipment, freight, bulky matter, or
fixtures into or out of the Building without Landlord's prior written consent.
If such safe, machinery, equipment, freight, bulky matter or fixtures requires
special handling, Tenant agrees to employ only persons holding a Master Rigger's
License to do said work, and that all work in connection therewith shall comply
with applicable laws and regulations. Any such moving shall be at the sole risk
and hazard of Tenant and Tenant will defend, indemnify and save Landlord
harmless against and from any liability, loss, injury, claim or suit resulting
directly or indirectly from such moving. Proper placement of all such business
machines, etc., in the premises shall be Tenant's responsibility.
15. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION
15.1 General Liability Insurance. Tenant shall procure, and keep in
force and pay for Commercial General Liability Insurance insuring Tenant on an
occurrence basis against all claims and demands for personal injury liability
(including, without limitation, bodily injury, sickness, disease, and death) or
damage to property which may be claimed to have occurred from and after the time
Tenant and/or its contractors enter the premises in accordance with Article 4 of
this Lease, of not less than Two Million ($2,000,000) Dollars in the event of
personal injury to any number of persons or damage to property, arising out of
any one occurrence, and from time to time thereafter shall be not less than such
higher amounts, if procurable, as may be reasonably required by Landlord and are
customarily
<PAGE> 27
carried by responsible similar tenants in the City or Town wherein the Building
is located.
15.2 Certificates of Insurance. Such insurance shall be effected with
insurers approved by Landlord, authorized to do business in the State wherein
the Building is situated under valid and enforceable policies wherein Tenant
names Landlord and Landlord's managing agent as additional insureds. Such
insurance shall provide that it shall not be canceled or modified without at
least thirty (30) days' prior written notice to each insured named therein. On
or before the time Tenant and/or its contractors enter the premises in
accordance with Articles 4 and 14 of this Lease and thereafter not less than
fifteen (15) days prior to the expiration date of each expiring policy, original
copies of the policies provided for in Article 15.1 issued by the respective
insurers, or certificates of such policies setting forth in full the provisions
thereof and issued by such insurers together with evidence satisfactory to
Landlord of the payment of all premiums for such policies, shall be delivered by
Tenant to Landlord and certificates as aforesaid of such policies shall upon
request of Landlord, be delivered by Tenant to the holder of any mortgage
affecting the premises.
15.3 General. Tenant will save Landlord, its agents and employees,
harmless and will exonerate, defend and indemnify Landlord, its agents and
employees, from and against any and all claims, liabilities or penalties
asserted by or on behalf of any person, firm, corporation or public authority
arising from the Tenant's breach of the Lease or:
(a) On account of or based upon any injury to person, or loss of
or damage to property, sustained or occurring on the premises on account of or
based upon the act, omission, fault, negligence or misconduct of any person
whomsoever (except to the extent the same is caused by Landlord, its agents,
contractors or employees or by a trespasser);
(b) On account of or based upon any injury to person, or loss of
or damage to property, sustained or occurring elsewhere (other than on the
premises) in or about the Building, (and, in particular, without limiting the
generality of the foregoing, on or about the elevators, stairways, public
corridors, sidewalks, concourses, arcades, malls, galleries, vehicular tunnels,
approaches, areaways, roof, or other appurtenances and facilities used in
connection with the Building, or premises) arising out of the negligent or
wrongful use or occupancy of the Building or premises by the Tenant, or by any
person claiming by, through or under Tenant, or on account of or based upon the
act, omission, fault, negligence or misconduct of Tenant, its agents, employees
or contractors; and
(c) On account of or based upon a breach by Tenant in its
obligations under Article 13 (c).
(d) Tenant's obligations under this Article 15.3 shall be insured
either under the Commercial General Liability Insurance required under Article
15.1, above, or by a contractual insurance rider or other coverage; and
certificates of insurance in respect thereof shall be provided by Tenant to
Landlord upon request.
<PAGE> 28
15.4 Property of Tenant. In addition to and not in limitation of the
foregoing Tenant covenants and agrees that, to the maximum extent permitted by
law, all merchandise, furniture, fixtures and property of every kind, nature and
description related or arising out of Tenant's leasehold estate hereunder, which
may be in or upon the premises or Building, in the public corridors, or on the
sidewalks, areaways and approaches adjacent thereto, shall be at the sole risk
and hazard of Tenant, and that if the whole or any part thereof shall be
damaged, destroyed, stolen or removed from any cause or reason whatsoever no
part of said damage or loss shall be charged to, or borne by, Landlord; unless,
subject to Article 19 hereof, such damage or loss is due to the negligence or
willful misconduct of Landlord or Landlord's agents, employees or contractors,
in which case Landlord shall bear loss or damage only to "ordinary office
property" (as hereinafter defined). For the purpose of this Article 15.4,
"ordinary office property" shall mean merchandise, furniture, and other tangible
personal property of the kind and quantity which may customarily be expected to
be found within comparable business offices in the greater Boston area, and
excluding any unusually valuable or exotic property, works of art, and the like.
15.5 Bursting of Pipes, etc. Landlord shall not be liable for any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam gas air contaminants or emissions, electricity, electrical or
electronic emanations or disturbance, water, rain or snow or leaks from any part
of the Building or from the pipes, appliances, equipment or plumbing works or
from the roof, street or subsurface or from any other place or caused by
dampness, vandalism, malicious mischief or by any other cause of whatever
nature, unless caused by or due to the negligence of Landlord, its agents,
servants or employees, and then, where notice and an opportunity to cure are
appropriate (i.e., where Tenant has an opportunity to know or should have known
of such condition sufficiently in advance of the occurrence of any such injury
or damage resulting therefrom as would have enabled Landlord to prevent such
damage or loss had Tenant notified Landlord of such condition) only after (i)
notice to Landlord of the condition claimed to constitute negligence and (ii)
the expiration of a reasonable time after such notice has been received by
Landlord without Landlord having taken all reasonable and practicable means to
cure or correct such condition; and pending such cure or correction by Landlord,
Tenant shall take all reasonably prudent temporary measures and safeguards to
prevent any injury, loss or damage to persons or property. In no event shall
Landlord be liable for any loss, the risk of which is covered by Tenant's
insurance or is required to be so covered by this Lease; nor shall Landlord or
its agents be liable for any such damage caused by other tenants or persons in
the Building or caused by operations in construction of any private, public, or
quasi-public work; nor shall Landlord be liable for any latent defect in the
premises or in the Building; provided however, that the foregoing shall not
relieve Landlord of its obligation to perform maintenance and repairs pursuant
to Article 8.7.
15.6 Repairs and Alterations-No Diminution of Rental Value.
A. Except as otherwise provided in Article 18, there shall be no
allowance to Tenant for diminution of rental value and no liability on the
<PAGE> 29
part of Landlord by reason of inconvenience, annoyance or injury to Tenant
arising from any repairs, alterations, additions, replacements or improvements
made by Landlord, or any related work, Tenant or others in or to any portion of
the Building or premises or any property adjoining the Building, or in or to
fixtures, appurtenances, or equipment thereof, or for failure of Landlord or
others to make any repairs, alterations, additions or improvements in or to any
portion of the Building, or of the premises, or in or to the fixtures,
appurtenances or equipment thereof.
B. Notwithstanding anything to the contrary in this Lease contained, if
due to any such repairs, alterations, replacements, or improvements made by
Landlord or if due to Landlord's failure to make any repairs, alterations, or
improvements required to be made by Landlord, any portion of the premises
becomes untenantable so that for the Premises Untenantability Cure Period, as
hereinafter defined, the continued operation in the ordinary course of Tenants
business is materially adversely affected, then, provided that Tenant ceases to
use the affected portion of the premises during the entirety of the Premises
Untenantability Cure Period by reason of such untenantability, and that such
untenantability and Landlord's inability to cure such condition is not caused by
the fault or neglect of Tenant or Tenant's agents, employees or contractors or
other causes beyond Landlord's reasonable control, Yearly Rent, Operating
Expense Excess, Tax Excess, and Electricity Rent shall thereafter be abated in
proportion to such untenantability until the day such condition is completely
corrected. For the purposes hereof, the "Premises Untenantability Cure Period"
shall be defined as three (3) consecutive business days after Landlord's receipt
of written notice from Tenant of the condition causing untenantability in the
premises.
C. The provisions of Paragraph B of this Article 15.6 shall not apply
in the event of untenantability caused by fire or other casualty, or taking (see
Articles 18 and 20).
16. ASSIGNMENT, MORTGAGING AND SUBLETTING
A. Except as provided in this Article 16, Tenant covenants and agrees
that neither this Lease nor the term and estate hereby granted, nor any interest
herein or therein, will be assigned, mortgaged, pledged, encumbered or otherwise
transferred, voluntarily, by operation of law or otherwise, and that neither the
premises, nor any part thereof will be encumbered in any manner by reason of any
act or omission on the part of Tenant, or used or occupied, or permitted to be
used or occupied, or utilized for desk space or for mailing privileges, by
anyone other than Tenant, or for any use or purpose other than as stated in
Exhibit 1, or be sublet, or offered or advertised for subletting.
Notwithstanding the foregoing, it is hereby expressly understood and agreed
however, if Tenant is a corporation, that the assignment or transfer of this
Lease, and the term and estate hereby granted, to any corporation into which
Tenant is merged or with which Tenant is consolidated which corporation shall
have a net worth at least equal to that of Tenant immediately prior to such
merger or consolidation (such corporation being hereinafter called "Assignee"),
shall not be deemed to be prohibited hereby if, and upon the express condition
that Assignee and Tenant shall promptly execute, acknowledge and deliver to
Landlord an agreement in form and substance satisfactory to
<PAGE> 30
Landlord whereby Assignee shall agree to be independently bound by and upon all
the covenants, agreements, terms, provisions and conditions set forth in this
Lease on the part of Tenant to be performed, and whereby Assignee shall
expressly agree that the provisions of this Article 16 shall, notwithstanding
such assignment or transfer, continue to be binding upon it with respect to all
future assignments and transfers.
B. Notwithstanding anything to the contrary in the Lease contained:
1. Tenant shall, prior to offering or advertising the premises,
or any portion thereof for sublease or assignment give Landlord a Recapture
Offer, as hereinafter defined.
2. For the purposes hereof a "Recapture Offer" shall be defined
as a notice in writing from Tenant to Landlord which:
(a) States that Tenant desires to sublet the premises, or a
portion thereof, or to assign its interest in this Lease.
(b) Identifies the affected portion of the premises
("Recapture Premises").
(c) Identifies the period of time ("Recapture Period") during
which Tenant proposes to sublet the Recapture Premises or to assign its interest
in the Lease.
(d) Offers to Landlord to terminate the Lease in respect of
the Recapture Premises (in the case of a proposed assignment of Tenant's
interest in the Lease or a subletting for the remainder of the term of the
Lease) or to suspend the term of the Lease pro tanto in respect of the Recapture
Period (i.e. the term of the Lease in respect of the Recapture Premises shall be
terminated during the Recapture Period and Tenant's rental obligations shall be
reduced in proportion to the ratio of the Total Rentable Area of the Recapture
Premises to the Total Rentable Area of the premises then demised to Tenant).
3. Landlord shall have twenty (20) business days to accept a Recapture
Offer. If Landlord does not timely give written notice to Tenant accepting a
Recapture Offer, then Landlord agrees that it will not unreasonably withhold or
delay its consent to a sublease of the Recapture Premises for the Recapture
Period, or an assignment of Tenant's interest in the Lease, as the case may be,
to a Qualified Transferee, as hereinafter defined.
4. For the purposes hereof, a "Qualified Transferee" shall be defined
as a person, firm or corporation which, in Landlord's reasonable opinion:
(a) is financially responsible and of good reputation;
(b) is engaged in a business, the functional aspects of which,
with respect to the premises, are similar to the use of other premises made by
other office space tenants in the Building; and
<PAGE> 31
(c) is not a tenant or subtenant of premises in the Building
or in the building known as Three Apple Hill, adjacent to the Building.
5. Notwithstanding anything to the contrary in this Paragraph B
contained:
(a) If Tenant is in default of its obligations under the Lease
at the time that it makes the aforesaid offer to Landlord, such default shall be
deemed to be a "reasonable" reason for Landlord withholding its consent to any
proposed subletting or assignment; and
(b) If Tenant does not enter into a sublease with a subtenant
(or an assignment to an assignee, as the case may be) approved by Landlord, as
aforesaid, on or before the date which is one hundred (100) days after the
earlier of: (x) the expiration of said twenty (20) business day period, or (y)
the date that Landlord notifies Tenant that Landlord will not accept Tenant's
offer to terminate or suspend the Lease, then Landlord shall have the right
arbitrarily to withhold its consent to any subletting or assignment proposed to
be entered into by Tenant after the expiration of said one hundred (100) day
period unless Tenant again offers, in accordance with this Paragraph B, either
to terminate or to suspend the Lease in respect of the portion of the premises
proposed to be sublet (or in respect of the entirety of the premises in the
event of a proposed assignment, as the case may be). If Tenant shall make any
subsequent offers to terminate or suspend the Lease pursuant to this Paragraph
B, any such subsequent offers shall be treated in all respects as if it is
Tenant's first offer to suspend or terminate the Lease pursuant to this
Paragraph B, provided that the period of time Landlord shall have in which to
accept or reject such subsequent offer shall be twenty (20) business days.
6. Notwithstanding anything to the contrary herein contained, Tenant
shall have no right, under this Paragraph B hereof, prior to the date one (1)
year after the Term Commencement Date. Without limiting the foregoing, Tenant
shall have no right to give Landlord a Recapture Offer prior to the date one (1)
year after the Term Commencement Date.
7. No subletting or assignment shall relieve Tenant of its primary
obligation as party-Tenant hereunder, nor shall it reduce or increase Landlord's
obligations under the Lease.
D. In the event of an assignment of this Lease or a sublease of the
premises or any portion thereof to anyone other than an Affiliate of Tenant,
Tenant shall pay to Landlord fifty (50%) percent of any Net Sublease Profits (as
defined below), payable in accordance with the following. In the case of an
assignment of this Lease, "Net Sublease Profit": (1) shall be defined as a lump
sum in the amount (if any) by which any consideration paid by the assignee in
consideration of or as an inducement to Tenant to make said assignment exceeds
the reasonable attorneys' fees, construction costs and brokerage fees incurred
by Tenant in order to effect such assignment (collectively, "Sublease
Expenses"), and (2) be payable concurrently with the payment to be made by the
assignee to Tenant. In the case of a sublease, "Net Sublease Profit": (3) shall
be defined as a monthly amount equal to the amount by which the sublease rent
and other charges payable by the subtenant to Tenant under the sublease
<PAGE> 32
exceed the sum of the rent and other charges payable under this Lease for the
premises or allocable to the sublet portion thereof, plus a monthly amount equal
to the Sublease Expenses divided by the number of months in the term of the
sublease, and (4) shall be payable on a monthly basis concurrently with the
subtenant's payment of rent to Tenant under the sublease.
E. If Tenant is an individual who uses and/or occupies the premises
with partners, or if Tenant is a partnership, then:
(i) Each present and future partner shall be personally bound by
and upon all of the covenants, agreements, terms, provisions and conditions set
forth in this Lease on the part of Tenant to be performed; and
(ii) In confirmation of the foregoing, Landlord may (but without
being required to do so) request (and Tenant shall duly comply) that Tenant, at
the time that Tenant admits any new partner to its partnership, shall require
each such new partner to execute an agreement in form and substance satisfactory
to Landlord whereby such new partner shall agree to be personally bound by and
upon all of the covenants, agreements, terms, provisions and conditions of this
Lease on the part of Tenant to be performed, without regard to the time when
such new partner is admitted to partnership or when any obligations under any
such covenants, etc., accrue.
F. The listing of any name other than that of Tenant, whether on the
doors of the premises or on the Building directory, or otherwise, shall not
operate to vest in any such other person, firm or corporation any right or
interest in this Lease or in the premises or be deemed to effect or evidence any
consent of Landlord, it being expressly understood that any such listing, is a
privilege extended by Landlord revocable at will by written notice to Tenant.
G. If this Lease be assigned, or if the premises or any part thereof be
sublet or occupied by anybody other than Tenant, Landlord may, at any time and
from time to time, collect rent and other charges from the assignee, subtenant
or occupant, and apply the net amount collected to the rent and other charges
herein reserved then due and thereafter becoming due, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of this covenant,
or the acceptance of the assignee, subtenant or occupant as a tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. Any consent by Landlord to a particular
assignment or subletting shall not in any way diminish the prohibition stated in
the first sentence of this Article 16 or the continuing liability of the Tenant
named on Exhibit 1 as the party Tenant under this Lease. No assignment or
subletting shall affect the purpose for which the premises may be used as stated
in Exhibit 1.
17. MISCELLANEOUS COVENANTS
Tenant covenants and agrees as follows:
17.1 Rules and Regulations. Tenant will faithfully observe and comply
with the Rules and Regulations, if any, annexed hereto and such other and
further reasonable Rules and Regulations as Landlord hereafter at any time or
from time to time may make and may communicate in writing to Tenant,
<PAGE> 33
which in the reasonable judgment of Landlord shall be necessary for the
reputation, safety, care or appearance of the Building, or the preservation of
good order therein, or tile operation or maintenance of the Building, or the
equipment thereof, or the comfort of tenants or others in the Building,
provided, however, that in the case of any conflict between the provisions of
this Lease and any such regulations, the provisions of this Lease shall control,
and provided further that nothing contained in this Lease shall be construed to
impose upon Landlord any duty or obligation to enforce the Rules and Regulations
or the terms, covenants or conditions in any other lease as against any other
tenant and Landlord shall not be liable to Tenant for violation of the same by
any other tenant, its servants, employees, agents, contractors, visitors,
invitees or licensees.
17.2 Access to Premises--Shoring. Tenant shall: (i) permit Landlord to
erect, use and maintain pipes, ducts and conduits in and through the premises,
provided the same do not materially reduce the floor area or materially
adversely affect the appearance thereof; (ii) upon prior oral notice (except
that no notice shall be required in emergency situations), permit Landlord and
any mortgagee of the Building or the Building and land or of the interest of
Landlord therein, and any lessor under any ground or underlying lease, and their
representatives, to have free and unrestricted access to and to enter upon the
premises at all reasonable hours for the purposes of inspection or of making
repairs, replacements or improvements in or to the premises or the Building or
equipment (including, without limitation, sanitary, electrical, heating, air
conditioning or other systems) or of complying with all laws, orders and
requirements of governmental or other authority or of exercising any right
reserved to Landlord by this Lease (including the right during the progress of
any such repairs, replacements or improvements or while performing work and
furnishing materials in connection with compliance with any such laws, orders or
requirements to take upon or through, or to keep and store within, the premises
all necessary materials, tools and equipment); and (iii) permit Landlord, at
reasonable times, to show the premises during ordinary business hours to any
existing or prospective mortgagee, ground lessor, space lessee, purchaser, or
assignee of any mortgage, of the Building or of the Building and the land or of
the interest of Landlord therein, and during the period of 12 months next
preceding the Termination Date to any person contemplating the leasing of the
premises or any part thereof. If, during the last month of the term, Tenant
shall have removed all or substantially all of Tenant's property therefrom,
Landlord may immediately enter and alter, renovate and redecorate the premises,
without elimination or abatement of rent, or incurring liability to Tenant for
any compensation, and such acts shall have no effect upon this Lease. If Tenant
shall not be personally present to open and permit an entry into the premises at
any time when for any reason an entry therein shall be necessary or permissible,
Landlord or Landlord's agents may enter the same by a master key, or may
forcibly enter the same, without rendering Landlord or such agents liable
therefor (if during such entry Landlord or Landlord's agents shall accord
reasonable care to Tenant's property), and without in any manner affecting the
obligations and covenants of this Lease. Provided that Landlord shall incur no
additional expense thereby, Landlord shall exercise its rights of access to the
premises permitted under any of the terms and provisions of this Lease in such
manner as to minimize to the extent practicable interference with Tenant's use
and occupation of the
<PAGE> 34
premises. If an excavation shall be made upon land adjacent to the premises or
shall be authorized to be made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the premises for the
purpose of doing such work as said person shall deem necessary to preserve the
Building from injury or damage and to support the same by proper foundations
without any claims for damages or indemnity against Landlord, or diminution or
abatement of rent.
17.3 Accidents to Sanitary and Other Systems. Tenant shall give to
Landlord prompt notice of any fire or accident in the premises or in the
Building and of any damage to, or defective condition in, any part or
appurtenance of the Building including, without limitation, sanitary,
electrical, ventilation, heating and air conditioning or other systems located
in, or passing through, the premises. Except as otherwise provided in Articles
18 and 20, and subject to Tenant's obligations in Article 14, such damage or
defective condition shall be remedied by Landlord with reasonable diligence, but
if such damage or defective condition was caused by Tenant or by the employees,
licensees, contractors or invitees of Tenant, the cost to remedy the same shall
be paid by Tenant. In addition, all reasonable costs incurred by Landlord in
connection with the investigation of any notice given by Tenant shall be paid by
Tenant if the reported damage or defective condition was caused by Tenant or by
the employees, licensees, contractors, or invitees of Tenant.
17.4 Signs, Blinds and Drapes. Tenant shall put no signs in any part of
the Building which are visible from the exterior of the premises. No signs or
blinds may be put on or in any window or elsewhere if visible from the exterior
of the Building, nor may the building standard drapes or blinds be removed by
Tenant. Notwithstanding the foregoing, Tenant shall have the right, during the
term of the Lease: (i) to list Tenant's name and the name of any permitted
subtenants or assignees on the Building directory, (ii) to install a Building
standard tenant identification sign at Tenant's entrance door, and (iii) to
install a sign identifying Tenant behind the reception desk in the reception
area within Tenant's premises. The initial listing of Tenant's name shall be at
Landlord's cost and expense. Any changes, replacements or additions by Tenant to
such directory shall be at Tenant's sole cost and expense. Tenant may hang its
own drapes, provided that they shall not in any way interfere with the building
standard drapery or blinds or be visible from the exterior of the Building and
that such drapes are so hung and installed that when drawn, the building
standard drapery or blinds are automatically also drawn. Any signs or lettering
in the public corridors or on the doors shall conform to Landlord's building
standard design. Neither Landlord's name, nor the name of the Building or any
Center, Office Park or other Park of which the Building is a part, or the name
of any other structure erected therein shall be used without Landlord's consent
in any advertising material (except on business stationery or as an address in
advertising matter), nor shall any such name, as aforesaid, be used in any
undignified, confusing, detrimental or misleading manner.
17.5 Estoppel Certificate. Tenant shall at any time and from time to
time upon not less than ten (10) days' prior notice by Landlord to Tenant,
execute, acknowledge and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect (or
<PAGE> 35
if there have been modifications, that the same is in full force and effect as
modified and stating the modifications), and the dates to which the Yearly Rent
and other charges have been paid in advance, if any, stating whether or not
Landlord is in default in performance of any covenant, agreement, term,
provision or condition contained in this Lease and, if so, specifying each such
default and such other facts as Landlord may reasonably request, it being
intended that any such statement delivered pursuant hereto may be relied upon by
any prospective purchaser of the Building or of the Building and the land or of
any interest of Landlord therein, any mortgagee or prospective mortgagee
thereof, any lessor or prospective lessor thereof, any lessee or prospective
lessee thereof, or any prospective assignee of any mortgage thereof. Time is of
the essence in respect of any such requested certificate, Tenant hereby
acknowledging the importance of such certificates in mortgage financing
arrangements, prospective sale and the like. Tenant hereby appoints Landlord
Tenant's attorney-in-fact in its name and behalf to execute such statement if
Tenant shall fail to execute such statement within such ten-(10)-day period,
17.6 Prohibited Materials and Property. Tenant shall not bring or
permit to be brought or kept in or on the premises or elsewhere in the Building
(i) any inflammable, combustible or explosive fluid, material, chemical or
substance including, without limitation, any hazardous substances as defined
under Massachusetts General Laws chapter 21E, the Federal Comprehensive
Environmental Response Compensation and Liability Act (CERCLA), 42 USC
Section 9601 et seq., as amended, under Section 3001 of the Federal Resource
Conservation and Recovery Act of 1976, as amended, or under any regulation of
any governmental authority regulating environmental or health matters (except
for standard office supplies stored in proper containers), (ii) any materials,
appliances or equipment (including, without limitation, materials, appliances
and equipment selected by Tenant for the construction or other preparation of
the premises and furniture and carpeting) which pose any danger to life, safety
or health or may cause damage, injury or death; (iii) any unique, unusually
valuable, rare or exotic property, work of art or the like unless the same is
fully insured under all-risk coverage, or (iv) any data processing, electronic,
optical or other equipment or property of a delicate, fragile or vulnerable
nature unless the same are housed, shielded and protected against harm and
damage, whether by cleaning or maintenance personnel, radiations or emanations
from other equipment now or hereafter installed in the Building, or otherwise.
Nor shall Tenant cause or permit any potentially harmful air emissions, odors of
cooking or other processes, or any unusual or other objectionable odors or
emissions to emanate from or permeate the premises.
17.7 Requirements of Law--Fines and Penalties. Tenant at its sole
expense shall comply with all laws, rules, orders and regulations, including,
without limitation, all energy-related requirements, of Federal, State, County
and Municipal Authorities and with any direction of any public officer or
officers, pursuant to law, which shall impose any duty upon Landlord or Tenant
with respect to or arising out of Tenant's use or occupancy of the premises.
Tenant shall reimburse and compensate Landlord for all expenditures made by, or
damages or fines sustained or incurred by, Landlord due to nonperformance or
noncompliance with or breach or failure to observe any item, covenant, or
condition of this Lease upon Tenant's part to be kept, observed, performed or
complied with. If Tenant receives
<PAGE> 36
notice of any violation of law, ordinance, order or regulation applicable to the
premises, it shall give prompt notice thereof to Landlord.
17.8 Tenant's Acts-Effect on Insurance. Tenant shall not do or permit
to be done any act or thing upon the premises or elsewhere in the Building which
will invalidate or be in conflict with any insurance policies covering the
Building and the fixtures and property therein; and shall not do, or permit to
be done, any act or thing upon the premises which shall subject Landlord to any
liability or responsibility for injury to any person or persons or to property
by reason of any business or operation being carried on upon said premises or
for any other reason. Tenant at its own expense shall comply with all rules,
orders, regulations and requirements of the Board of Fire Underwriters, or any
other similar body having jurisdiction, and shall not (i) do, or permit anything
to be done, in or upon the premises, or bring or keep anything therein, except
as now or hereafter permitted by the Fire Department, Board of Underwriters,
Fire Insurance Rating Organization, or other authority having jurisdiction, and
then only in such quantity and manner of storage as will not increase the rate
for any insurance applicable to the Building, or (ii) use the premises in a
manner which shall increase such insurance rates on the Building, or on property
located therein, over that applicable when Tenant first took occupancy of the
premises hereunder. If by reason of the failure of Tenant to comply with the
provisions hereof the insurance rate applicable to any policy of insurance shall
at any time thereafter be higher than it otherwise would be, the Tenant shall
reimburse Landlord for that part of any insurance premiums thereafter paid by
Landlord, which shall have been charged because of such failure by Tenant.
17.9 Miscellaneous. Tenant shall not suffer or permit the premises or
any fixtures, equipment or utilities therein or serving the same, to be
overloaded, damaged or defaced, nor permit any hole to be drilled or made in any
part thereof. Tenant shall not suffer or permit any employee, contractor,
business invitee or visitor to violate any covenant, agreement or obligations of
the Tenant under this Lease.
18. DAMAGE BY FIRE, ETC.
During the entire term of this Lease, and adjusting insurance coverages
to reflect current values from time to time:--(i) Landlord shall keep the
Building (excluding work, installations, improvements and betterments in the
premises which exceed the specifications provided in Exhibit 3, [called
"Over-Building-Standard Property"] and any other property installed by or at the
expense of Tenant) insured against loss or damage caused by any peril covered
under fire, extended coverage and all risk insurance in an amount equal to one
hundred percent (100%) replacement cost value above foundation walls; and (ii)
Tenant shall keep its personal property in and about the premises and the
Over-Building-Standard Property insured against loss or damage caused by any
peril covered under fire, extended coverage and all risk insurance in an amount
equal to one hundred percent (100%) replacement cost value. Such Tenant's
insurance shall insure the interests of both Landlord and Tenant as their
respective interests may appear from time to time and shall name Landlord as an
additional insured; and the proceeds thereof shall be used only for the
replacement or
<PAGE> 37
restoration of such personal property and the Over-Building-Standard Property.
If any portion of the premises required to be insured by Landlord under
the preceding paragraph shall be damaged by fire or other insured casualty,
Landlord shall proceed with diligence, subject to the then applicable statutes,
building codes, zoning ordinances, and regulations of any governmental
authority, and at the expense of Landlord (but only to the extent of insurance
proceeds made available to Landlord by any mortgagee and/or ground lessor of the
real property of which the premises are a part) to repair or cause to be
repaired such damage, provided, however, in respect of any over-Building
Standard Property as shall have been damaged by such fire or other casualty and
which (in the judgment of Landlord) can more effectively be repaired as an
integral part of Landlord's repair work on the premises, that such repairs to
such Tenant's alterations, decorations, additions and improvements shall be
performed by Landlord but at Tenant's expense; in all other respects, all
repairs to and replacements of Tenant's property and Over-Building-Standard
Property shall be made by and at the expense of Tenant. If the premises or any
part thereof shall have been rendered unfit for use and occupation hereunder by
reason of such damage the Yearly Rent or a just and proportionate part thereof,
according to the nature and extent to which the premises shall have been so
rendered unfit, shall be suspended or abated until the premises (except as to
the property which is to be repaired by or at the expense of Tenant) shall have
been restored as nearly as practicably may be to the condition in which they
were immediately prior to such fire or other casualty, provided, however, that
if Landlord or any mortgagee of the Building or of the Building and the land
shall be unable to collect the insurance proceeds (including rent insurance
proceeds) applicable to such damage because of some action or inaction on the
part of Tenant, or the employees, licensees or invitees of Tenant, the cost of
repairing such damage shall be paid by Tenant and there shall be no abatement of
rent. Landlord shall not be liable for delays in the making of any such repairs
which are due to government regulation, casualties and strikes, unavailability
of labor and materials, and other causes beyond the reasonable control of
Landlord, nor shall Landlord be liable for any inconvenience or annoyance to
Tenant or injury to the business of Tenant resulting from delays in repairing
such damage. If (i) the premises are so damaged by fire or other casualty
(whether or not insured) at any time during the last thirty months of the term
hereof that the cost to repair such damage is reasonably estimated to exceed one
third of the total Yearly Rent payable hereunder for the period from the
estimated date of restoration until the Termination Date, or (ii) the Building
(whether or not including any portion of the premises) is so damaged by fire or
other casualty (whether or not insured) that substantial alteration or
reconstruction or demolition of the Building shall in Landlord's judgment be
required, then and in either of such events, this Lease and the term hereof may
be terminated at the election of Landlord by a notice in writing of its election
so to terminate which shall be given by Landlord to Tenant within sixty (60)
days following such fire or other casualty, the effective termination date of
which shall be not less than thirty (30) days after the day on which such
termination notice is received by Tenant. In the event of any termination, this
Lease and the term hereof shall expire as of such effective termination date as
though that were the Termination Date as stated in Exhibit 1 and the Yearly Rent
shall be
<PAGE> 38
apportioned as of such date; and if the premises or any part thereof shall have
been rendered unfit for use and occupation by reason of such damage the Yearly
Rent for the period from the date of the fire or other casualty to the effective
termination date, or a just and proportionate part thereof, according to the
nature and extent to which the premises shall have been so rendered unfit, shall
be abated.
19. WAIVER OF SUBROGATION
In any case in which Tenant shall be obligated to pay to Landlord any
loss, cost, damage, liability, or expense suffered or incurred by Landlord,
Landlord shall allow to Tenant as an offset against the amount thereof (i) the
net proceeds of any insurance collected by Landlord for or on account of such
loss, cost, damage, liability or expense, provided that the allowance of such
offset does not invalidate or prejudice the policy or policies under which such
proceeds were payable, and (ii) if such loss, cost, damage, liability or expense
shall have been caused by a peril against which Landlord has agreed to procure
insurance coverage under the terms of this Lease, the amount of such insurance
coverage, whether or not actually procured by Landlord.
In any case in which Landlord or Landlord's managing agent shall be
obligated to pay to Tenant any loss, cost, damage, liability or expense suffered
or incurred by Tenant, Tenant shall allow to Landlord or Landlord's managing
agent, as the case may be, as an offset against the amount thereof (i) the net
proceeds of any insurance collected by Tenant for or on account of such loss,
cost, damage, liability, or expense, provided that the allowance of such offset
does not invalidate the policy or policies under which such proceeds were
payable and (ii) the amount of any loss, cost, damage, liability or expense
caused by a peril covered by fire insurance with the broadest form of property
insurance generally available on property in buildings of the type of the
Building, whether or not actually procured by Tenant.
The parties hereto shall each procure an appropriate clause in, or
endorsement on, any property insurance policy covering the premises and the
Building and personal property, fixtures and equipment located thereon and
therein, pursuant to which the insurance companies waive subrogation or consent
to a waiver of right of recovery in favor of either party, its respective agents
or employees. Having, obtained such clauses and/or endorsements, each party
hereby agrees that it will not make any claim against or seek to recover from
the other or its agents or employees for any loss or damage to its property or
the property of others resulting from fire or other perils covered by such
property insurance.
20. CONDEMNATION - EMINENT DOMAIN
In the event that the premises or any part thereof, or the whole or any
part of the Building, shall be taken or appropriated by eminent domain or shall
be condemned for any public or quasi-public use, or (by virtue of any such
taking, appropriation or condemnation) shall suffer any damage (direct, indirect
or consequential) for which Landlord or Tenant shall be entitled to
compensation, then (and in any such event) this Lease and the term hereof may be
terminated at the election of Landlord by a notice in
<PAGE> 39
writing of its election so to terminate which shall be given by Landlord to
Tenant within sixty (60) days following the date on which Landlord shall have
received notice of such taking, appropriation or condemnation. In the event that
a substantial part of the premises or of the means of access thereto shall be so
taken, appropriated or condemned, then (and in any such event) this Lease and
the term hereof may be terminated at the election of Tenant by a notice in
writing of its election so to terminate which shall be given by Tenant to
Landlord within sixty (60) days following the date on which Tenant shall have
received notice of such taking, appropriation or condemnation.
Upon the giving of any such notice of termination (either by Landlord
or Tenant) this Lease and the term hereof shall terminate on or retroactively as
of the date on which Tenant shall be required to vacate any part of the premises
or shall be deprived of a substantial part of the means of access thereto,
provided, however, that Landlord may in Landlord's notice elect to terminate
this Lease and the term hereof retroactively as of the date on which such
taking, appropriation or condemnation became legally effective. In the event of
any such termination, this Lease and the term hereof shall expire as of such
effective termination date as though that were the Termination Date as stated in
Exhibit 1, and the Yearly Rent shall be apportioned as of such date. If neither
party (having the right so to do) elects to terminate Landlord will, with
reasonable diligence and at Landlord's expense, restore the remainder of the
premises, or the remainder of the means of access, as nearly as practicably may
be to the same condition as obtained prior to such taking, appropriation or
condemnation in which event (i) the Total Rentable Area shall be adjusted as in
Exhibit 5 provided, (ii) a just proportion of the Yearly Rent, according to the
nature and extent of the taking, appropriation or condemnation and the resulting
permanent injury to the premises and the means of access thereto, shall be
permanently abated, and (iii) a just proportion of the remainder of the Yearly
Rent, according to the nature and extent of the taking, appropriation or
condemnation and the resultant injury sustained by the premises and the means of
access thereto, shall be abated until what remains of the premises and the means
of access thereto shall have been restored as fully as may be for permanent use
and occupation by Tenant hereunder. Except for any award specifically
reimbursing Tenant for moving or relocation expenses, there are expressly
reserved to Landlord all rights to compensation and damages created, accrued or
accruing by reason of any such taking, appropriation or condemnation, in
implementation and in confirmation of which Tenant does hereby acknowledge that
Landlord shall be entitled to receive all such compensation and damages, grant
to Landlord all and whatever rights (if any) Tenant may have to such
compensation and damages, and agree to execute and deliver all and whatever
further instruments of assignment as Landlord may from time to time request. In
the event of any taking of the premises or any part thereof for temporary (i.e.,
not in excess of one (1) year) use, (i) this Lease shall be and remain
unaffected thereby, and (ii) Tenant shall be entitled to receive for itself any
award made to the extent allocable to the premises in respect of such taking on
account of such use, provided, that if any taking is for a period extending
beyond the term of this Lease, such award shall be apportioned between Landlord
and Tenant as of the Termination Date or earlier termination of this Lease.
<PAGE> 40
21. DEFAULT
21.1 Conditions of Limitation - Re-entry - Termination. This Lease and
the herein term and estate are, upon the condition that if (a) subject to
Article 21.7, Tenant shall neglect or fail to perform or observe any of the
Tenant's covenants or agreements herein, including (without limitation) the
covenants or agreements with regard to the payment when due of rent, additional
charges, reimbursement for increase in Landlord's costs, or any other charge
payable by Tenant to Landlord (all of which shall be considered as part of
Yearly Rent for the purposes of invoking Landlord's statutory or other rights
and remedies in respect of payment defaults); or (b) Tenant shall desert or
abandon the premises or the same shall become, or shall appear to have become,
vacant (whether or not the keys shall have been surrendered or the rent shall
have been paid); or (c) Tenant shall be involved in financial difficulties as
evidenced by an admission in writing by Tenant of Tenant's inability to pay its
debts generally as they become due, or by the making or offering to make a
composition of its debts with its creditors; or (d) Tenant shall make an
assignment or trust mortgage, or other conveyance or transfer of like nature, of
all or a substantial part of its property for the benefit of its creditors, or
(e) an attachment on mesne process, on execution or otherwise, or other legal
process shall issue against Tenant or its property and a sale of any of its
assets shall be held thereunder; or (f) intentionally omitted; or (g) the
leasehold hereby created shall be taken on execution or by other process of law
and shall not be revested in Tenant within thirty (30) days thereafter; or (h) a
receiver, sequesterer, trustee or similar officer shall be appointed by a court
of competent jurisdiction to take charge of all or any part of Tenant's property
and such appointment shall not be vacated within thirty (30) days; or (i) any
proceeding shall be instituted by or against Tenant pursuant to any of the
provisions of any Act of Congress or State law relating to bankruptcy,
reorganizations, arrangements, compositions or other relief from creditors, and,
in the case of any proceeding instituted against it, if Tenant shall fail to
have such proceedings dismissed within thirty (30) days or if Tenant is adjudged
bankrupt or insolvent as a result of any such proceeding, or (j) any event shall
occur or any contingency shall arise whereby this Lease, or the term and estate
thereby created, would (by operation of law or otherwise) devolve upon or pass
to any person, firm or corporation other than Tenant, except as expressly
permitted under Article 16 hereof then, and in any such event (except as
hereinafter in Article 21.2 otherwise provided) Landlord may, by notice to
Tenant, elect to terminate this Lease; and thereupon (and without prejudice to
any remedies which might otherwise be available for arrears of rent or other
charges due hereunder or preceding breach of covenant or agreement and without
prejudice to Tenant's liability for damages as hereinafter stated), upon the
giving of such notice, this Lease shall terminate as of the date specified
therein as though that were the Termination Date as stated in Exhibit 1. Without
being taken or deemed to be guilty of any manner of trespass or conversion, and
without being liable to indictment, prosecution or damages therefor, Landlord
may, forcibly if necessary, enter into and upon the premises (or any part
thereof in the name of the whole); repossess the same as of its former estate;
and expel Tenant and those claiming under Tenant. Wherever "Tenant " is used in
subdivisions (c), (d), (e), (f), (g), (h) and (i) of this Article 21.1, it shall
be deemed to include any one of (i) any corporation of which Tenant is a
controlled
<PAGE> 41
subsidiary and (ii) any guarantor of any of Tenant's obligations under this
Lease. The words "re-entry" and "re-enter" as used in this Lease are not
restricted to their technical legal meanings.
21.2 Intentionally Omitted.
21.3 Damages - Termination. Upon the termination of this Lease under
tile provisions of this Article 21, then except as hereinabove in Article 21.2
otherwise provided, Tenant shall pay to Landlord the rent and other charges
payable by Tenant to Landlord up to tile time of such termination, shall
continue to be liable for any preceding breach of covenant, and in addition,
shall pay to Landlord as damages at the election of Landlord
either:
(x) the amount by which, at the time of the termination of
this Lease (or at any time thereafter if Landlord shall have initially elected
damages under subparagraph (y), below), (i) the aggregate of the rent and other
charges projected over the period commencing with such termination and ending on
the Termination Date as stated in Exhibit 1 exceeds (ii) the aggregate projected
rental value of the premises for such period based upon the then current market
conditions;
or:
(y) amounts equal to the rent and other charges which would
have been payable by Tenant had this Lease not been so terminated, payable upon
the due dates therefor specified herein following such termination and until the
Termination Date as specified in Exhibit 1, provided, however, if Landlord shall
re-let the premises during such period, that Landlord shall credit Tenant with
the net rents received by Landlord from such re-letting, such net rents to be
determined by first deducting from the gross rents as and when received by
Landlord from such re-letting the expenses incurred or paid by Landlord in
terminating this Lease, as well as the expenses of re-letting, including
altering and preparing the premises for new tenants, brokers' commissions, and
all other similar and dissimilar expenses properly chargeable against the
premises and the rental therefrom, it being understood that any such re-letting
may be for a period equal to or shorter or longer than the remaining term of
this Lease; and provided, further, that (i) in no event shall Tenant be entitled
to receive any excess of such net rents over the sums payable by Tenant to
Landlord hereunder and (ii) in no event shall Tenant be entitled in any suit for
the collection of damages pursuant to this Subparagraph (y) to a credit in
respect of any net rents from a re-letting except to the extent that such net
rents are actually received by Landlord relate to the period of time on which
the judgment rendered in such suit is based. If the premises or any part thereof
should be re-let in combination with other space, then proper apportionment on a
square foot area basis shall be made of the rent received from such re-letting
and of the expenses of re-letting.
In calculating the rent and other charges under Subparagraph (x),
above, there shall be included, in addition to the Yearly Rent, Tax Excess and
Operating Expense Excess and all other considerations agreed to be paid or
performed by Tenant, on the assumption that all such amounts and
<PAGE> 42
considerations would have remained constant (except as herein otherwise
provided) for the balance of the full term hereby granted.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not been
terminated hereunder.
Nothing herein contained shall be construed as limiting or precluding
the recovery by Landlord against Tenant of any sums or damages to which, in
addition to the damages particularly provided above, Landlord may lawfully be
entitled by reason of any default hereunder on the part of Tenant.
Landlord agrees to use reasonable efforts to relet the premises after
Tenant vacates the premises in tile event that the Lease is terminated based
upon a default by Tenant hereunder. Marketing of Tenant's premises in a manner
similar to the manner in which Landlord markets other premises within Landlord's
control in the Building shall be deemed to have satisfied Landlord's obligation
to use "reasonable efforts." In no event shall Landlord be required to (i)
solicit or entertain negotiations with any other prospective tenants for the
premises until Landlord obtains full and complete possession of the premises
including, without limitation, the final and unappealable legal right to re-let
the premises free of any claim of Tenant, (ii) relet the premises before
leasing, other vacant space in the Building or in Three Apple Hill, or (iii)
lease the premises for a rental less than the current fair market rental then
prevailing for similar office space in the Building.
21.4 Fees and Expenses.
(a) If Tenant shall default in the performance of any covenant on
Tenant's part to be performed as in this Lease contained, Landlord may
immediately, or at any time thereafter, without notice, perform the same for the
account of Tenant. If Landlord at any time is compelled to pay or elects to pay
any sum of money, or do any act which will require the payment of any sum of
money, by reason of the failure of Tenant to comply with any provision hereof,
or if Landlord is compelled to or does incur any expense, including reasonable
attorneys' fees, in instituting, prosecuting, and/or defending any action or
proceeding instituted by reason of any default of Tenant hereunder, Tenant shall
on demand pay to Landlord by way of reimbursement the sum or sums so paid by
Landlord with all costs and damages, plus interest computed as provided in
Article 6 hereof.
(b) Tenant shall pay Landlord's cost and expense, including
reasonable attorneys' fees, incurred (i) in enforcing any obligation of Tenant
under this Lease or (ii) as a result of Landlord, without its fault, being made
party to any litigation pending by or against Tenant or any persons claiming
through or under Tenant. Tenant shall not be obligated to make any payment to
Landlord of any attorneys' fees incurred by Landlord unless judgment is entered
(final, and beyond appeal) in favor of Landlord in the lawsuit relating to such
fees. Landlord shall pay, upon demand by Tenant, Tenant's costs and expenses,
including reasonable attorneys' fees, incurred by Tenant in connection with any
lawsuit between Landlord and
<PAGE> 43
Tenant where judgment is entered (final, and beyond appeal) in favor of Tenant.
21.5 Waiver of Redemption. Tenant does hereby waive and surrender all
rights and privileges which it might have under or by reason of any present or
future law to redeem the premises or to have a continuance of this Lease for the
term hereby demised after being dispossessed or ejected therefrom by process of
law or under the terms of this Lease or after the termination of this Lease as
herein provided.
21.6 Landlord's Remedies Not Exclusive. The specified remedies to which
Landlord may resort hereunder are cumulative and are not intended to be
exclusive of any remedies or means of redress to which Landlord may at any time
be lawfully entitled, and Landlord may invoke any remedy (including the remedy
of specific performance) allowed at law or in equity as if specific remedies
were not herein provided for.
21.7 Grace Period. Notwithstanding anything to the contrary in this
Article contained, Landlord agrees not to take any action to terminate this
Lease (a) for default by Tenant in the payment when due of any sum of money, if
Tenant shall cure such default within five (5) business days after written
notice thereof is given by Landlord to Tenant, provided, however, that no such
notice need be given and no such default in the payment of money shall be
curable if on two (2) prior occasions in the most recent twelve month period
there had been a default in the payment of money which had been cured after
notice thereof had been given by Landlord to Tenant as herein provided or (b)
for default by Tenant in the performance of any covenant other than a covenant
to pay a sum of money, if Tenant shall cure such default within a period of
thirty (30) days after written notice thereof given by Landlord to Tenant
(except where the nature of the default is such that remedial action should
appropriately take place sooner, as indicated in such written notice), or within
such additional period as may reasonably be required to cure such default if
(because of governmental restrictions or any other cause beyond the reasonable
control of Tenant) the default is of such a nature that it cannot be cured
within such thirty-(30)-day period, provided, however, (1) that there shall be
no extension of time beyond such thirty-(30)-day period for the curing of any
such default unless, not more than ten (10) business days after the receipt of
the notice of default, Tenant in writing (i) shall specify the cause on account
of which the default cannot be cured during such period and shall advise
Landlord of its intention duly to institute all steps necessary to cure the
default and (ii) shall, as soon as reasonably practicable, duly institute and
thereafter diligently prosecute to completion all steps necessary to cure such
default and, (2) that no notice of the opportunity to cure a default need be
given, and no grace period whatsoever shall be allowed to Tenant, if the default
is incurable or if the covenant.
Notwithstanding anything to the contrary in this Article 21.7
contained, except to the extent prohibited by applicable law, any statutory
notice and grace periods provided to Tenant by law are hereby expressly waived
by Tenant.
22. END OF TERM - ABANDONED PROPERTY
<PAGE> 44
Upon the expiration or other termination of the term of this Lease,
Tenant shall peaceably quit and surrender to Landlord the premises and all
alterations and additions thereto, broom clean, in good order, repair and
condition (except as provided herein and in Articles 8.7, 18 and 20) excepting
only ordinary wear and use and damage by fire or other casualty for which, under
other provisions of this Lease, Tenant has no responsibility of repair or
restoration. Tenant shall remove all of its property and, to the extent
specified by Landlord, all alterations and additions made by Tenant and all
partitions wholly within the premises, and shall repair any damages to the
premises or the Building caused by their installation or by such removal.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of the term of this Lease.
Tenant will remove any personal property from the Building and the
premises upon or prior to the expiration or termination of this Lease. If any
such property which shall remain in the Building or the premises after the
expiration of the term of the Lease or, if the term of the Lease terminates
prior to the expiration of the term, and any such property shall remain in the
Building after the date ten (10) days after Landlord gives Tenant written notice
to remove such property, then such property shall be conclusively deemed to have
been abandoned, and may either be retained by Landlord as its property or sold
or otherwise disposed of in such manner as Landlord may see fit. If any part
thereof shall be sold, that Landlord may receive and retain the proceeds of such
sale and apply the same, at its option, against the expenses of the sale, the
cost of moving and storage, any arrears of Yearly Rent, additional or other
charges payable hereunder by Tenant to Landlord and any damages to which
Landlord may be entitled under Article 21 hereof or pursuant to law, and the
balance shall be remitted by Landlord to Tenant.
If Tenant or anyone claiming under Tenant shall remain in possession of
the premises or any part thereof after the expiration or prior termination of
the term of this Lease without any agreement in writing between Landlord and
Tenant with respect thereto, then, prior to the acceptance of any payments for
rent or use and occupancy by Landlord, the person remaining in possession shall
be deemed a tenant-at-sufferance. Whereas the parties hereby acknowledge that
Landlord may need the premises after the expiration or prior termination of the
term of the Lease for other tenants and that the damages which Landlord may
suffer as the result of Tenant's holding-over cannot be determined as of the
Execution Date hereof, in the event that Tenant so holds over, Tenant shall pay
to Landlord in addition to all rental and other charges due and accrued under
the Lease prior to the date of termination, charges (based upon fair market
rental value of the premises) for use and occupation of the premises thereafter
and, in addition to such sums and any and all other rights and remedies which
Landlord may have at law or in equity, an additional use and occupancy charge in
the amount of fifty percent (50%) of either the Yearly Rent and other charges
calculated (on a daily basis) at the highest rate payable under the terms of
this Lease, but measured from the day on which Tenant's hold-over commenced and
terminating on the day on which Tenant vacates the premises or the fair market
value of the premises for such period, whichever is greater. In addition, Tenant
shall save Landlord, its agents and employees, harmless and will exonerate,
defend and indemnify
<PAGE> 45
Landlord, its agents and employees, from and against any and all damages which
Landlord may suffer on account of Tenant's hold-over in the premises after the
expiration or prior termination of the term of the Lease.
23. SUBORDINATION
(a) Subject to any mortgagee's or ground lessor's election, as
hereinafter provided for, this Lease is subject and subordinate in all respects
to all matters of record (including, without limitation, deeds and land
disposition agreements), ground leases and/or underlying leases, and all
mortgages, any of which may now or hereafter be placed on or affect such leases
and/or the real property of which the premises are a part, or any part of such
real property, and/or Landlord's interest or estate therein, and to each advance
made and/or hereafter to be made under any such mortgages, and to all renewals,
modifications, consolidations, replacements and extensions thereof and all
substitutions therefor. This Article 23 shall be self-operative and no further
instrument or subordination shall be required. In confirmation of such
subordination, Tenant shall execute, acknowledge and deliver promptly any
certificate or instrument that Landlord and/or any mortgagee and/or lessor under
any ground or underlying lease and/or their respective successors in interest
may request, subject to Landlord's, mortgagee's and ground lessor's right to do
so for, on behalf and in the name of Tenant under certain circumstances, as
hereinafter provided. Tenant acknowledges that, where applicable, any consent or
approval hereafter given by Landlord may be subject to the further consent or
approval of such mortgagee and/or ground lessor; and the failure or refusal of
such mortgagee and/or ground lessor to give such consent or approval shall,
notwithstanding anything to the contrary in this Lease contained, constitute
reasonable justification for Landlord's withholding its consent or approval.
(b) Any such mortgagee or ground lessor may from time to time
subordinate or revoke any such subordination of the mortgage or ground lease
held by it to this Lease. Such subordination or revocation, as the case may be,
shall be effected by written notice to Tenant and by recording an instrument of
subordination or of such revocation, as the case may be, with the appropriate
registry of deeds or land records and to be effective without any further act or
deed on the part of Tenant. In confirmation of such subordination or of such
revocation, as the case may be, Tenant shall execute, acknowledge and promptly
deliver any certificate or instrument that Landlord, any mortgagee or ground
lessor may request, subject to Landlord's, mortgagee's and ground lessor's right
to do so for, on behalf and in the name of Tenant under certain circumstances,
as hereinafter provided.
(c) Without limitation of any of the provisions of this Lease, if any
ground lessor or mortgagee shall succeed to the interest of Landlord by reason
of the exercise of its rights under such ground lease or mortgage (or the
acceptance of voluntary conveyance in lieu thereof) or any third party
(including, without limitation, any foreclosure purchaser or mortgage receiver)
shall succeed to such interest by reason of any such exercise or the expiration
or sooner termination of such ground lease, however caused, then such successor
may, upon notice and request to Tenant (which, in the case of a ground lease,
shall be within thirty (30) days after such
<PAGE> 46
expiration or sooner termination), succeed to the interest of Landlord under
this Lease, provided, however, that such successor shall not: (i) be liable for
any previous act or omission of Landlord under this Lease; (ii) be subject to
any offset, defense, or counterclaim which shall theretofore have accrued to
Tenant against Landlord; (iii) have any obligation with respect to any security
deposit unless it shall have been paid over or physically delivered to such
successor; or (iv) be bound by any previous modification of this Lease or by any
previous payment of Yearly Rent for a period greater than one (1) month, made
without such ground lessor's or mortgagee's consent where such consent is
required by applicable ground lease or mortgage documents. In the event of such
succession to the interest of the Landlord -- and notwithstanding that any such
mortgage or ground lease may antedate this Lease -- the Tenant shall attorn to
such successor and shall ipso facto be and become bound directly to such
successor in interest to Landlord to perform and observe all the Tenant's
obligations under this Lease without the necessity of the execution of any
further instrument. Nevertheless, Tenant agrees at any time and from time to
time during the term hereof to execute a suitable instrument in confirmation of
Tenant's agreement to attorn, as aforesaid, subject to Landlord's, mortgagee's
and ground lessor's right to do so for, on behalf and in the name of Tenant
under certain circumstances, as hereinafter provided.
(d) The term "mortgage(s)" as used in this Lease shall include any
mortgage or deed of trust. The term "mortgagee(s)" as used in this Lease shall
include any mortgagee or any trustee and beneficiary under a deed of trust or
receiver appointed under a mortgage or deed of trust. The term "mortgagor(s)" as
used in this Lease shall include any mortgagor or any grantor under a deed of
trust.
(e) Tenant hereby irrevocably constitutes and appoints Landlord or any
such mortgagee or ground lessor, and their respective successors in interest,
acting singly, Tenant's attorney-in-fact to execute and deliver any such
certificate or instrument for, on behalf and in the name of Tenant, but only if
Tenant fails to execute, acknowledge and deliver any such certificate or
instrument within ten (10) days after Landlord or such mortgagee or such ground
lessor has made written request therefor.
(f) Notwithstanding anything to the contrary contained in this Article
23, if all or part of Landlord's estate and interest in the real property of
which the premises are a part shall be a leasehold estate held under a ground
lease, then: (i) the foregoing subordination provisions of this Article 23 shall
not apply to any mortgages of the fee interest in said real property to which
Landlord's leasehold estate is not otherwise subject and subordinate; and (ii)
the provisions of this Article 23 shall in no way waive, abrogate or otherwise
affect any agreement by any ground lessor (x) not to terminate this Lease
incident to any termination of such ground lease prior to its term expiring or
(y) not to name or join Tenant in any action or proceeding by such ground lessor
to recover possession of such real property or for any other relief.
(g) In the event of any failure by Landlord to perform, fulfill or
observe any agreement by Landlord herein, in no event will the Landlord be
deemed to be in default under this Lease permitting Tenant to exercise any
<PAGE> 47
or all rights or remedies under this Lease until the Tenant shall have given
written notice of such failure to any mortgagee (ground lessor and/or trustee)
of which Tenant shall have been advised and until a reasonable period of time
shall have elapsed following the giving of such notice, during which such
mortgagee (ground lessor and/or trustee) shall have the right, but shall not be
obligated, to remedy such failure.
24. QUIET ENJOYMENT
Landlord covenants that if, and so long as, Tenant keeps and performs
each and every covenant, agreement, term, provision and condition herein
contained on the part and on behalf of Tenant to be kept and performed, Tenant
shall quietly enjoy the premises from and against the claims of all persons
claiming by, through or under Landlord subject, nevertheless, to the covenants,
agreements, terms, provisions and conditions of this Lease and to the mortgages,
ground leases and/or underlying leases to which this Lease is subject and
subordinate, as hereinabove set forth.
Without incurring any liability to Tenant, Landlord may permit access
to the premises and open the same, whether or not Tenant shall be present, upon
any demand of any receiver, trustee, assignee for the benefit of creditors,
sheriff, marshal or court officer entitled to, or reasonably purporting to be
entitled to, such access for the purpose of taking possession of, or removing,
Tenant's property or for any other lawful purpose (but this provision and any
action by Landlord hereunder shall not be deemed a recognition by Landlord that
the person or official making such demand has any right or interest in or to
this Lease, or in or to the premises), or upon demand of any representative of
the fire, police, building, sanitation or other department of the city, state or
federal governments.
25. ENTIRE AGREEMENT -- WAIVER -- SURRENDER
25.1 Entire Agreement. This Lease, the Rider, and the Exhibits made a
part hereof contain the entire and only agreement between the parties and any
and all statements and representations, written and oral, including previous
correspondence and agreements between the parties hereto, are merged herein.
Tenant acknowledges that all representations and statements upon which it relied
in executing this Lease are contained herein and that the Tenant in no way
relied upon any other statements or representations, written or oral. Any
executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of this Lease in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
25.2 Waiver. The failure of Landlord to seek redress for violation, or
to insist upon the strict performance, of any covenant or condition of this
Lease, or any of the Rules and Regulations promulgated hereunder, shall not
prevent a subsequent act, which would have originally constituted a violation,
from having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this Lease
shall not be deemed a waiver of such breach. The failure of Landlord to enforce
any of such Rules and Regulations against
<PAGE> 48
Tenant and/or any other tenant in the Building shall not be deemed a waiver of
any such Rules and Regulations. No provisions of this Lease shall be deemed to
have been waived by either party unless such waiver be in writing signed by such
party. No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
25.3 Surrender. No act or thing done by Landlord during the term hereby
demised shall be deemed an acceptance of a surrender of the premises, and no
agreement to accept such surrender shall be valid, unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys of the premises prior to the termination of this Lease. The
delivery of keys to any employee of Landlord or of Landlord's agents shall not
operate as a termination of the Lease or a surrender of the premises. In the
event that Tenant at any time desires to have Landlord underlet the premises for
Tenant's account, Landlord or Landlord's agents are authorized to receive the
keys for such purposes without releasing Tenant from any of the obligations
under this Lease, and Tenant hereby relieves Landlord of any liability for loss
of or damage to any of Tenant's effects in connection with such underletting.
26. INABILITY TO PERFORM - EXCULPATORY CLAUSE
Except as provided in Article 4.1 and 4.2 hereof, this Lease and the
obligations of Tenant to pay rent hereunder and perform all the other covenants,
agreements, terms, provisions and conditions hereunder on the part of Tenant to
be performed shall in no way be affected, impaired or excused because Landlord
is unable to fulfill any of its obligations under this Lease or is unable to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make or is delayed in making any repairs, replacements,
additions, alterations, improvements or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of strikes or labor troubles or any other
similar or dissimilar cause whatsoever beyond Landlord's reasonable control,
including but not limited to, governmental preemption in connection with a
national emergency or by reason of any rule, order or regulation of any
department or subdivision thereof of any governmental agency or by reason of the
conditions of supply and demand which have been or are affected by war,
hostilities or other similar or dissimilar emergency. In each such instance of
inability of Landlord to perform, Landlord shall exercise reasonable diligence
to eliminate the cause of such inability to perform.
Tenant shall neither assert nor seek to enforce any claim against
Landlord, or Landlord's agents or employees, or the assets of Landlord or of
Landlord's agents or employees, for breach of this Lease or otherwise, other
than against Landlord's interest in the Building of which the premises are a
part and in the uncollected rents, issues and profits thereof, and Tenant agrees
to look solely to such interest for the satisfaction of any liability of
Landlord under this Lease, it being
<PAGE> 49
specifically agreed that in no event shall Landlord or Landlord's agents or
employees (or any of the officers, trustees, directors, partners, beneficiaries,
joint venturers, members, stockholders or other principals or representatives,
and the like, disclosed or undisclosed, thereof) ever be personally liable for
any such liability. This paragraph shall not limit any right that Tenant might
otherwise have to obtain injunctive relief against Landlord or to take any other
action which shall not involve the personal liability of Landlord to respond in
monetary damages from Landlord's assets other than the Landlord's interest in
said real estate, as aforesaid. In no event shall Landlord or Landlord's agents
or employees (or any of the officers, trustees, directors, partners,
beneficiaries, joint venturers, members, stockholders or other principals or
representatives and the like, disclosed or undisclosed, thereof) ever be liable
for consequential or incidental damages. Without limiting the foregoing, in no
event shall Landlord or Landlord's agents or employees (or any of the officers,
trustees, directors, partners, beneficiaries, joint venturers, members,
stockholders or other principals or representatives and the like, disclosed or
undisclosed, thereof) ever be liable for lost profits of Tenant. If by reason of
Landlord's failure to acquire title to the real property of which the premises
are a part or to complete construction of the Building or premises, Landlord
shall be held to be in breach of this Lease, Tenant's sole and exclusive remedy
shall be a right to terminate this Lease.
27. BILLS AND NOTICES
Any notice, consent, request, bill, demand or statement hereunder by
either party to the other party shall be in writing and, if received at
Landlord's or Tenant's address, shall be deemed to have been duly given when
either delivered or served personally or mailed in a postpaid envelope,
deposited in the United States mail addressed to Landlord at its address as
stated in Exhibit 1 and to Tenant at the premises (or at Tenant's address as
stated in Exhibit 1, if mailed prior to Tenant's occupancy of the premises), or
if any address for notices shall have been duly changed as hereinafter provided,
if mailed as aforesaid to the party at such changed address. Either party may at
any time change the address or specify an additional address for such notices,
consents, requests, bills, demands or statements by delivering or mailing, as
aforesaid, to the other party a notice stating the change and setting forth the
changed or additional address, provided such changed or additional address is
within the United States.
If Tenant is a partnership, Tenant, for itself, and on behalf of all of
its partners, hereby appoints Tenant's Service Partner, as identified on Exhibit
1, to accept service of any notice, consent, request bill, demand or statement
hereunder by Landlord and any service of process in any judicial proceeding with
respect to this Lease on behalf of Tenant and as agent and attorney-in-fact for
each partner of Tenant.
All bills and statements for reimbursement or other payments or charges
due from Tenant to Landlord hereunder shall be due and payable in full ten (10)
days, unless herein otherwise provided, after submission thereof by Landlord to
Tenant. Tenant's failure to make timely payment of any amounts indicated by such
bills and statements, whether for work done
<PAGE> 50
by Landlord at Tenant's request, reimbursement provided for by this Lease or for
any other sums properly owing by Tenant to Landlord, shall be treated as a
default in the payment of rent, in which event Landlord shall have all rights
and remedies provided in this Lease for the nonpayment of rent.
28. PARTIES BOUND -- SEIZING OF TITLE
The covenants, agreements, terms, provisions and conditions of this
Lease shall bind and benefit the successors and assigns of the parties hereto
with the same effect as if mentioned in each instance where a party hereto is
named or referred to, except that no violation of the provisions of Article 16
hereof shall operate to vest any rights in any successor or assignee of Tenant
and that the provisions of this Article 28 shall not be construed as modifying
the conditions of limitation contained in Article 21 hereof.
If, in connection with or as a consequence of the sale, transfer or
other disposition of the real estate (land and/or Building, either or both, as
the case may be) of which the premises are a part, Landlord ceases to be the
owner of the reversionary interest in the premises, Landlord shall be entirely
freed and relieved from the performance and observance thereafter of all
covenants and obligations hereunder on the part of Landlord to be performed and
observed, it being understood and agreed in such event (and it shall be deemed
and construed as a covenant running with the land) that the person succeeding to
Landlord's ownership of said reversionary interest shall thereupon and
thereafter assume, and perform and observe, any and all of such covenants and
obligations of Landlord.
29. MISCELLANEOUS
29.1 Separability. If any provision of this Lease or portion of such
provision or the application thereof to any person or circumstance is for any
reason held invalid or unenforceable, the remainder of the Lease (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
29.2 Captions, etc. The captions are inserted only as a matter of
convenience and for reference, and in no way define, limit or describe the scope
of this Lease nor the intent of any provisions thereof. References to "State"
shall mean, where appropriate, the District of Columbia and other Federal
territories, possessions, as well as a state of the United States.
29.3 Broker. Tenant represents and warrants that it has not directly or
indirectly dealt, with respect to the leasing of office space in the Building or
any Center, Office Park or other Park of which it is a part (called "Building,
etc." in this Article 29.3) with any broker or had its attention called to the
premises or other space to let in the Building, etc. by anyone other than the
broker, person or firm, if any, designated in Exhibit 1. Tenant agrees to
defend, exonerate and save harmless and indemnify Landlord and anyone claiming
by, through or under Landlord against any claims for a commission arising out of
the execution and delivery of this Lease or out of negotiations between Landlord
and Tenant with respect to the leasing of other space in the Building, etc.,
provided
<PAGE> 51
that Landlord shall be solely responsible for the payment of brokerage
commissions to the broker, person or firm, if any, designated in Exhibit 1.
29.4 Modifications. If in connection with obtaining financing for the
Building, a bank, insurance company, pension trust or other institutional lender
shall request reasonable modifications in this Lease as a condition to such
financing, Tenant will not withhold, delay or condition its consent thereto,
provided that such modifications do not increase the obligations of Tenant
hereunder, materially decrease the obligations of Landlord, or materially
adversely affect the leasehold interest hereby created.
29.5 Arbitration. Any disputes relating to provisions or obligations in
this Lease as to which a specific provision for a reference to arbitration is
made herein shall be submitted to arbitration in accordance with the provisions
of applicable state law (as identified on Exhibit 1), as from time to time
amended. Arbitration proceedings, including the selection of an arbitrator,
shall be conducted pursuant to the rules, regulations and procedures from time
to time in effect as promulgated by the American Arbitration Association. Prior
written notice of application by either party for arbitration shall be given to
the other at least ten (10) days before submission of the application to the
said Association's office in tile City wherein the Building is situated (or the
nearest other city having an Association office). The arbitrator shall hear the
parties and their evidence. The decision of the arbitrator shall be binding and
conclusive, and judgment upon the award or decision of the arbitrator may be
entered in the appropriate court of law (as identified on Exhibit 1); and the
parties consent to the jurisdiction of such court and further agree that any
process or notice of motion or other application to the Court or a Judge thereof
may be served outside the State wherein the Building is situated by registered
mail or by personal service, provided a reasonable time for appearance is
allowed. The costs and expenses of each arbitration hereunder and their
apportionment between the parties shall be determined by the arbitrator in his
award or decision. No arbitrable dispute shall be deemed to have arisen under
this Lease prior to (i) the expiration of the period of twenty (20) days after
the date of the giving of written notice by the party asserting the existence of
the dispute together with a description thereof sufficient for an understanding
thereof, and (ii) where a Tenant payment (e.g., Tax Excess or Operating Expense
Excess under Article 9 hereof) is in issue, the amount billed by Landlord having
been paid by Tenant to the extent that such amount is not disputed by Tenant in
good faith.
29.6 Governing Law. This Lease is made pursuant to, and shall be governed by,
and construed in accordance with, the laws of the State wherein the Building is
situated and any applicable local municipal rules, regulations, by-laws,
ordinances and the like.
29.7 Assignment of Rents. With reference to any assignment by Landlord of its
interest in this Lease, or the rents payable hereunder, conditional in nature or
otherwise, which assignment is made to or held by a bank, trust company,
insurance company or other institutional lender holding a mortgage or ground
lease on the Building, Tenant agrees:
<PAGE> 52
(a) that the execution thereof by Landlord and the acceptance thereof
by such mortgagee and/or ground lessor shall never be deemed an assumption by
such mortgagee and/or ground lessor of any of the obligations of the Landlord
thereunder, unless such mortgagee and/or ground lessor shall, by written notice
sent to the Tenant, specifically otherwise elect; and
(b) that, except as aforesaid, such mortgagee and/or ground lessor
shall be treated as having assumed the Landlord's obligations thereunder only
upon foreclosure of such mortgagee's mortgage or deed of trust or termination of
such ground lessor's ground lease and the taking of possession of the demised
premises after having given notice of its exercise of the option stated in
Article 23 hereof to succeed to the interest of the Landlord under this Lease.
29.8 Representation of Authority. By his execution hereof each of the
signatories on behalf of the respective parties hereby warrants and represents
to the other that he is duly authorized to execute this Lease on behalf of such
party. If Tenant is a corporation, Tenant hereby appoints the signatory whose
name appears below on behalf of Tenant as Tenant's attorney-in-fact for the
purpose of executing this Lease for and on behalf of Tenant.
29.9 Expenses Incurred by Landlord Upon Tenant Requests. Tenant shall, upon
demand, reimburse Landlord for all reasonable expenses, including, without
limitation, legal fees, incurred by Landlord in connection with all requests by
Tenant for consents, approvals or execution of collateral documentation related
to this Lease, including, without limitation, costs incurred by Landlord in the
review and approval of Tenant's plans and specifications in connection with
proposed alterations to be made by Tenant to the premises, requests by Tenant to
sublet the premises or assign its interest in the Lease, the execution by
Landlord of estoppel certificates requested by Tenant, and requests by Tenant
for Landlord to execute waivers of Landlord's interest in Tenant's property in
connection with third party financing by Tenant. Such costs shall be deemed to
be additional rent under the Lease.
29.10 Survival. Without limiting any other obligation of the either party which
may survive the expiration or prior termination of the term of the Lease, all
obligations (if any) on the part of each party to indemnify, defend, or hold the
other party harmless, as set forth in this Lease (including, without limitation,
Tenant's obligations under Articles 13(d), 15.3, and 29.3) shall survive the
expiration or prior termination of the term of the Lease.
IN WITNESS WHEREOF the parties hereto have executed this Indenture of
Lease in multiple copies, each to be considered an original hereof, as a sealed
instrument on the day and year noted in Exhibit 1 as the Execution Date.
LANDLORD: TENANT:
METROPOLITAN LIFE INSURANCE COMPANY SERVICESOFT TECHNOLOGIES, INC.
On behalf of a co-mingled separate
account
<PAGE> 53
By: SSR Realty Advisors, Inc.,
its Investment Advisor
By: : /s/ JOHN F. LOEHR By: /s/ ILLEGIBLE
------------------------------- --------------------------------
(Name) (Title) (Name) (title)
Hereunto Duly Authorized Hereunto Duly Authorized
Date Signed: Date Signed:
JOHN F. LOEHR
MANAGING DIRECTOR
<PAGE> 54
IF TENANT IS A CORPORATION, A SECRETARY'S OR CLERK'S CERTIFICATE OF THE
AUTHORITY AND THE INCUMBENCY OF THE PERSON SIGNING ON BEHALF OF TENANT SHOULD BE
ATTACHED.
COMMONWEALTH, DISTRICT OR
STATE OF MASSACHUSETTS
COUNTY OF MIDDLESEX
On the Execution Date stated in Exhibit 1, the person above signing
this Lease for and on behalf of the Tenant, to me personally known, did sign and
execute this Lease and, being by me duly sworn, did depose and say that he is
the officer of the above named Tenant, as noted, and that he signed his name
hereto by order of the Board of Directors of said Tenant.
/s/ ILLEGIBLE
-----------------------------
Notary Public
My Commission Expires:
June 23, 2000
<PAGE> 55
STATE OF NEW YORK
COUNTY OF WESTCHESTER
On the Execution Date stated in Exhibit 1, the person above signing
this Lease for and on behalf of Landlord to me personally known, did sign and
execute this Lease and, being by me duly sworn, did depose and say that he is
the duly authorized representative of Landlord.
/s/ RENEE S. PATRICK
-------------------------------------
Notary Public
My Commission Expires: 11-17-99
RENEE S. PATRICK
Notary Public, State of New York
#01PA5088169 Qualified in Westchester
County
Commission Expires on 11/17/1999
<PAGE> 56
EXHIBIT 3
BUILDING STANDARD ITEMS
The following exhibit sets forth the Building standard level of
leasehold improvements and does not, notwithstanding anything to the contrary in
this Exhibit 3 contained, impose any obligation on Landlord to provide any such
items in the premises.
A. Exterior Walls, Lobby Walls and Core Walls
1. Finish
The exposed surfaces are to receive a drywall finish. The
toilet room walls are to be finished with ceramic tile and drywall, or equal.
2. Doors-Frames
Flush hollow metal doors or solid core wood doors 1-3/4" in
thickness will be installed in pressed metal door frames.
3. Hardware
Each swing door shall be provided with one and one-half pairs
of butts, a latch set, or lockset where required, and a door stop where
required. A surface mounted door closer will be provided at such additional
locations as may be required by the local code. All hardware shall be Sargent,
Schlage, Yale and Towne or equal.
B. Partitions and Doors
1. Partitions Separating Premises (Demising)
a. Partitions
Partitions separating premises shall be constructed
of metal studs with two layers of 5/8" wallboard on each side extending above
the ceiling, with one layer of wallboard on each side extended to the underside
of the floor construction above, or equal.
b. Doors
All doors shall have pressed metal door frames or
wood door frames and casings, as Landlord may elect. The doors shall be solid
core wood doors and shall be provided with two pairs of butts, a lockset, and
doorstop where required. A door closer will be provided for the principal
entrance to the premises and at such additional locations as may be required by
the local code. The locksets which are provided at the entrance will be
master-keyed to building standard and shall be Sargent, Yale and Towne, Schlage
or equal.
2. Partitions Separating Offices within Single Premises
a. Partitions
<PAGE> 57
The partitions shall be constructed of metal studs with one
layer of 5/8" wallboard on each side or equal.
b. Doors
The swing doors shall have pressed metal door frames or wood
frames and casings, as Landlord may elect. The doors shall be solid core and
shall be provided with two pairs of butts, latch sets, and doorstop where
required. The number of doors shall not exceed one door for each 25 lineal feet
of allowed partitions. All hardware shall be Sargent, Yale and Towne, Schlage or
equal.
3. Standard Quality of Partitions
The total lineal footage of partitions shall not exceed one
lineal foot for each 15 square feet of (i) Net Rentable Area (1) for
multi-tenant floors or (ii) Gross Area (1), not including building core area,
for single-tenant floors.
C. Ceilings
1. Mechanically suspended, 24" x 24" exposed slotted tee
system with fissured acoustic ceiling tiles, Class "A" (incombustible), 24" x
24", square edged.
2. The mechanical suspension system shall be of the concealed
type.
D. Lighting
1. At Landlord's election, either: (i) recessed 18 cell
parabolic lighting fixtures (2' x 4') with three (3) 35-watt rapid start tubes
to the extent of one such fixture per 85 square feet (average) of (x) New
Rentable Area for multi-tenant floors or (y) Gross Area, excluding core area,
for single-tenant floor, or (ii) a (1' x 4') recessed fluorescent lighting
fixture with two (2) 35-watt rapid start tubes to the extent of one such fixture
per seventy (70) square feet (average) of (x) New Rentable Area for multi-tenant
floors or (y) Gross Area 1, excluding core area, for single-tenant floors, shall
be installed by Landlord. Where required by design conditions, smaller recessed
florescent fixtures may be substituted at Landlord's option.
2. Miscellaneous fixtures, fluorescent and/or incandescent,
shall be installed in mechanical spaces, toilet areas, stairwell and utility
areas to conform to building operation requirements and existing codes.
3. Wall switches of the single pole, quiet type to the extent
of one switch for each ten lighting fixtures averaged shall be installed by
Landlord. Each private office shall have at least one wall switch (which will be
counted in the allowance).
- --------
1 The terms "Gross Area" and "Net Rentable Area" used in computing
allowances under this Exhibit 3 refer to definitions appearing in
Article 7 of the Lease.
<PAGE> 58
E. Electrical and Telephone
1. Duplex wall base and floor receptacles (not to exceed one
per 125 square feet of (i) Net Rentable Area for multi-tenant floors or (ii)
Gross Area, not including building core area, for single-tenant floors) shall be
installed by Landlord. It is understood that not more than 10% of the total
number of such receptacles may be located in the floor.
2. Landlord will make the necessary provisions for wall and
baseboard telephone outlets (not to exceed one per 200 square feet of (i) Net
Rentable Area for multi-tenant floors or (ii) Gross Area, not including building
core area, for single-tenant floors). Installation of the wiring by the
telephone company is the responsibility of Tenant. It is understood that not
more than 10% of the total number of such outlets may be located in the floor.
3. Power wiring circuits, including terminal device (208 Volt,
3 Phase, grounded) shall be made available to Tenant as may be agreed between
the parties in connection with Tenant equipment at the rate of one per 6,000
square feet of (i) Net Rentable Area for multi-tenant floors or (ii) Gross Area,
not including building core area, for single tenant floors.
F. Plumbing
1. Wet stacks will be available on the typical office floor
containing cold water, waste, and vents. Tenant equipment can be connected at
these points by the Landlord at the Tenant's expense.
G. Painting and Wall Covering
1. All wall surface shall receive a finish coat of building
standard Polomyx paint over one prime coat, or equal, as Landlord may elect.
Doors and frames shall receive one coat of enamel over one prime coat or shall
have a natural finish of one coat of sealer and one coat of varnish.
2. Paint colors shall be selected from the building standard
color chart with not more than one accent color (flat paint) on one wall in each
individual office.
3. Where Tenant desires wall covering, Landlord shall
initially prepare walls to receive wall covering as designated by Tenant. Such
wall covering shall be furnished and installed at Tenant's expense.
Wall covering shall be subject to Landlord's approval prior to installation.
4. Public areas, corridors and lobbies shall be finished in
accordance with the Landlord's Architect's schedule of room finish.
H. Sun-Control Blinds
Landlord shall furnish and install sun-control blinds or drapes,
including the tracks therefor, in colors selected by Landlord.
I. Mechanical
<PAGE> 59
1. Landlord will install one thermostat for every four
perimeter units in premises served by the Building perimeter system.
2. Landlord will install one supply diffuser with 6 feet of
flexible hose for every 200 square feet of (i) Net Rentable Area for
multi-tenant floors or (ii) Gross Area, not including core area, for
single-tenant floors in any premises served by the Building central air
distribution system.
3. Landlord will install a sprinkler system for the public
areas and tenant premises to the extent of one head per 225 square feet of (i)
Net Rentable Area for multi-tenant floors or (ii) Gross Area, not including
building core area, for single-tenant floors.
Such head shall be a chrome pendant head. Heads will be
installed in accordance with approved Tenant's final plans and all other
governing agencies and regulations.
<PAGE> 60
EXHIBIT B
FORM OF LETTER OF CREDIT
______________________________
[Name of Financial Institution]
Irrevocable Standby
Letter of Credit
No.___________________________________
Issuance Date: _______________________
Expiration Date:______________________
Applicant: Servicesoft Technologies, Inc.
Beneficiary
Metropolitan Life Insurance Company
c/o SSR Realty Advisors, Inc.
One North Broadway, Suite 500
White Plains, New York 10601
Attn: Director of Asset Management
Ladies/Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit in your favor for
the account of the above referenced Applicant in the amount of One Hundred
Sixty-Five Thousand Six Hundred Twenty-Four and 99/100 ($165,624.99) U.S.
Dollars available for payment at sight by your draft drawn on us when
accompanied by the following documents:
1. An original copy of this Irrevocable Standby Letter of Credit.
2. Beneficiary's dated statement purportedly signed by one of its officers
reading: "This draw in the amount of __________________($_______________) U. S.
Dollars under your Irrevocable Standby Letter of Credit No.
___________________________ represents funds due and owing to us as a result of
the Applicant's failure to comply with one or more of the terms of that certain
lease by and between Metropolitan Life Insurance Company, as landlord, and
Servicesoft Technologies, Inc., as tenant."
It is a condition of this Irrevocable Standby Letter of Credit that it
will be considered automatically renewed for a one year period upon the
expiration date set forth above and upon each anniversary of such date, unless
at least sixty (60) days prior to such expiration date or applicable anniversary
thereof, we notify you in writing by certified mail, return receipt requested,
that we elect not to so renew this Irrevocable Standby Letter of Credit. A copy
of any such notice shall also be sent to: Metropolitan Life Insurance Company,
c/o SSR Realty Advisors, Inc., One North Broadway, Suite 500, White Plains, New
York 10601, Attn: Legal Department. In addition, provided that you have not
provided us with written notice of Applicant's default under the above
referenced lease prior to the effective date of any reduction, the amount of
this Irrevocable Standby Letter of Credit shall automatically reduce in
accordance with the following schedule:
<PAGE> 61
<TABLE>
<CAPTION>
Effective Date of Reduction New Reduced Amount of Letter
of Credit
<S> <C>
[ ] (the thirtieth (30th) month after Fifty-Five Thousand Two
the Term Commencement Date) Hundred Eight and 33/100
($55,208.33) U.S. Dollars
</TABLE>
In addition to the foregoing, we understand and agree that you shall be entitled
to draw upon this Irrevocable Standby Letter of Credit in accordance with 1. and
2. above in the event that we elect not to renew this Irrevocable Standby Letter
of Credit and, in addition, you provide us with a dated statement purportedly
signed by one of Beneficiary's officers stating that the Applicant has failed to
provide you with an acceptable substitute irrevocable standby letter of credit
in accordance with the terms of the above referenced lease. We further
acknowledge and agree that: (a) upon receipt of the documentation required
herein, we will honor your draws against this Irrevocable Standby Letter of
Credit without inquiry into the accuracy of Beneficiary's signed statement and
regardless of whether Applicant disputes the content of such statement; (b) this
Irrevocable Standby Letter of Credit shall permit partial draws and, in the
event you elect to draw upon less than the full stated amount hereof, the stated
amount of this Irrevocable Standby Letter of Credit shall be automatically
reduced by the amount of such partial draw; and (c) you shall be entitled to
assign your interest in this Irrevocable Standby Letter of Credit from time to
time without our approval and without charge. In the event of an assignment, we
reserve the right to require reasonable evidence of such assignment as a
condition to any draw hereunder.
This Irrevocable Standby Letter of Credit is subject to the Uniform Customs and
Practice for Documentary Credits (1993 revision) ICC Publication No. 500.
We hereby engage with you to honor drafts and documents drawn under and in
compliance with the terms of this Irrevocable Standby Letter of Credit.
All communications to us with respect to this Irrevocable Standby Letter of
Credit must be addressed to Metropolitan Life Insurance company, SSR Realty
Advisors, Inc., One North Broadway, Suite 500, White Plains, New York 10601,
Attn: Director of Asset Management.
Very truly yours,
----------------------------
----------------------------
[name]
----------------------------
[title]
<PAGE> 62
EXHIBIT 4
THE DAVIS COMPANIES
Cleaning Specifications
OFFICE AREAS
A. DAILY ON BUSINESS DAYS
1. Empty and clean all waste receptacles and remove waste material from
the premises: change waste basket liners as necessary.
2. Sweep and wash all uncarpeted areas.
3. Vacuum carpeting and rugs in all traffic and main areas. Check for,
and vacuum all obvious debris under desks, behind barrels, etc.
4. Spot clean glass on tenant entrance doors and interior glass
partitions.
5. Spot clean by damp wiping fingerprints, smears and smudges on walls,
doors, frames, kick and push plates, handles, and light switches.
6. Clean spots and stains on rug and V.C.T.
7. Damp wipe all Formica counter tops, sinks, and table tops.
8. Wash clean all water fountains and adjacent floor area.
9. Wipe clean all brass and other bright work.
10. Remove all finger marks from private doors, light switches, and
doorways.
11. Upon completion of cleaning all lights will be turned off, doors
locked, and alarms engaged if applicable, leaving the premises in an orderly
condition.
<PAGE> 63
EXHIBIT 4 (con't)
-2-
B. TWICE WEEKLY.
1. Thoroughly vacuum all carpeted areas including edges and corners.
2. Hand dust and wipe clean with treated clothes, all horizontal
surfaces, including furniture, office equipment, window sills, door ledges,
chair rails and counter tops, within normal reach.
3. Move and dust under all lightweight desk equipment and telephones
and replace same.
4. Hand dust grill work.
C. WEEKLY
1. Wash all glass at tenant entrance doors.
2. Wash all glass tenant entrance sidelights.
3. Dust all closet shelving, coat racks, etc.
4. Brush and hand dust all carpet edges and other areas inaccessible to
vacuum attachments.
5. Brush seat cushions on chairs, sofas, etc.
6. Dust all ventilating and air conditioning louvers and grills.
D. MONTHLY
1. Render high dusting not reached in nightly cleaning to include:
a) dusting of all pictures, frames, charts, graphs, and
similar wall
b) dusting of all vertical surfaces, such as walls,
partitions, doors and door frames, etc.
c) dusting of all pipes, ducts, and high moldings; and
<PAGE> 64
EXHIBIT 4 (con't)
d) dusting of all Venetian blinds. hangings;
2. Move and vacuum clean underneath all furniture that can reasonably
be moved.
3. Spray buff all resilient floors.
E. SEMI-ANNUALLY
1. Strip and wax all resilient floors
LAVATORIES
A. DAILY ON BUSINESS DAYS
1. Sweep wash and rinse all floors thoroughly, using, a disinfectant.
2. Wash all basins, bowls, urinals, and shower stalls.
3. Empty and clean paper towel and sanitary disposal receptacles.
Replace liners back into receptacles. All liners to be provided by landlord.
4. Refill tissue holders, soap dispensers, towel dispensers and
sanitary dispensers. Materials are to be furnished by the landlord.
5. A non-acidic sanitizing solution will be used in all lavatory
cleaning.
6. Wash and polish all mirrors, powder shelves, brightwork,
flushometers, piping and toilet seat hinges, etc.
7. Wash both sides of all toilet seats.
8. Dust all partitions, tile walls, dispensers, and receptacles.
9. Remove waste paper and refuse to designated areas on the premises.
<PAGE> 65
EXHIBIT 4 (con't)
-4-
B. WEEKLY
1. Wash all partitions and walls.
2. Vacuum all air vents.
3. Wipe down all high light fixtures.
4. Flush floor drains with disinfectant.
5. Check and refill, if necessary, all automatic deodorizing equipment.
C. MONTHLY
1. Machine scrub floors.
ELEVATORS
A. DAILY ON BUSINESS DAYS
1. Clean interior walls, doors, and bright work, including ceiling.
2. Vacuum floors.
3. Clean door sills or tracks.
4. Clean exterior elevator doors, and frames.
<PAGE> 66
EXHIBIT 4 (con't)
LOBBIES, COMMON AREAS AND FRONT CARPETED STAIRCASE
A. DAILY ON BUSINESS DAYS
1. Empty all waste baskets and change liners, empty cigarette urns, and
ash trays. Remove waste material from premises.
2. Vacuum rugs mats and carpeted areas.
3. Inspect carpet for spots and stains, removing where possible.
4. Spot clean all interior glass in partitions and doors.
5. Clean and sanitize drinking fountains.
6. Damp mop tile lobby floor; after mopping thoroughly utilize a wetvac
to remove excess water and dirt.
7. Clean entrance glass doors on lobby floor both sides.
8. Hand dust and wipe clean with treated cloths all furniture, window
sills, railings, and planters.
9. Dust and wash all director boards.
10. Spot clean by damp wiping fingerprints, smears, smudges on walls,
doors and frames.
11. Clean any and all metal work inside lobby.
12. Clean any and all metal work surrounding building entrance doors.
13. Sweep main stairwell and dust handrails.
<PAGE> 67
EXHIBIT 4 (con't)
B. WEEKLY
1. Dust all artwork.
2. Dust air vents.
C. MONTHLY
1. Machine scrub brick or granite lobby floor.
2. Dust above hand height all surfaces, including light fixtures
with reach of a step ladder.
3. Wash all boards.
4. Dust all air grills and/or heating units and vacuum.
5. Damp mop secondary staircase flooring.
6. Dust fire extinguishers and hose cabinets.
7. Spray buff resilient floors.
D. QUARTERLY
1 Strip and wax all resilient floors.
2. Shampoo all common area carpeting.
<PAGE> 68
EXHIBIT 4 (con't)
MISCELLANEOUS
A. DAILY
1. Change light bulbs as necessary.
2. Report all maintenance deficiencies to building management i.e.,
inoperable light fixture, plumbing problems, roof leaks, etc.
B. WEEKLY
1. Sweep, mop, or vacuum secondary stairs.
2. Check supplies and order as necessary.
C. MONTHLY
1. Inspect and clean all utility closets.
2. Shampoo elevator carpets, more frequently if necessary.
Should a tenant instruct a cleaner to do other than those duties specified
herein, i.e. leave lights on, leave doors open, leave alarms off, don't vacuum,
etc., the cleaner must report this to the cleaning supervisor who will obtain
the tenant's name and, in turn, report this information to the Glen Management
Tenant Service Coordinator on the following business day.
The cleaner's duty at all times is to locate unclean conditions and correct
them.
<PAGE> 69
EXHIBIT 4 (con't)
THE DAVIS COMPANIES
Daily Day Porter Specifications
*Check and clean all common areas as needed
*Sweep, mop, and vacuum main lobby floor as necessary
*Clean main lobby glass and bright work as necessary
*Dust horizontal surfaces, woodwork, artwork, etc., in main lobby is
necessary
*Check all restrooms throughout building to ensure sufficient supply of paper
products, soap, deodorizers, etc., and clean as necessary
*Clean elevators as necessary, wipe, vacuum, etc.
*Change common area light bulbs as necessary
*Spread ice melt on all building walks and entrances as needed
*Police building exterior for debris
*Empty common area ash urns and barrels as necessary
*Respond to tenant and management requests as needed
*Report building deficiencies, i.e., lighting, plumbing, leaks, etc.,
promptly to building management
*Provide emergency assistance as needed
The Day Porter's duty is to support nightly cleaning operations and must make it
his/her business to locate unclean conditions and correct them.
<PAGE> 70
EXHIBIT 5, SHEET 1
[LETTERHEAD - VINICK & CAULFIELD ASSOCIATES, INC.]
Project Name: Servicesoft
Apple Hill
Re: Outline of Tenant Improvements
OVERVIEW
The intent is to maintain virtually all of the existing. New walls are
added to create multi-tenant lobby, tenant demise and few interior spaces.
The new work should conform to the existing similar construction or
building standard. Items perceived as "upgrades" are limited to new tenant
entrance constructed of wood and glass. Wood and glass would also be considered
at the new large Conference/Boardroom off the elevator lobby. An enlarged
Lunchroom is anticipated.
Servicesoft would be installing now movable workstations that in all
likelihood would require new locations of electric and tel/data connections.
Existing ceilings remain. Exit lights will require modifications due to
new workstation Layout. Lights will be reconfigured in the new Boardroom and a
few wall washers added.
Existing flooring to remain, be patched and cleaned as required. Areas
such as the Lunchroom will require additional VCT.
Appliances for Lunchroom will be new. Additional counters and cabinets
are required for Lunchroom. Note, the new perimeter Lunchroom will require
review of the HVAC system. The increase of population and equipment in this
localized area should focus on limiting the migration of food odors and
satisfying the BTU loads.
Computer/Communications-Networkroom will require 24-hour cooling.
Fire Alarm/Life Safety devices would need to be addressed as required
by new work.
A new coat of paint throughout would be required.
<PAGE> 71
EXHIBIT 5, SHEET 2
Project Name: Servicesoft
Apple Hill
Re: Outline of Tenant Improvements
OVERVIEW
The intent is to maintain virtually all of the existing. New walls are
added to create multi-tenant lobby, tenant demise and few interior spaces.
The new work should conform to the existing similar construction or
building standard. Items perceived as "upgrades" are limited to new tenant
entrance constructed of wood and glass. Wood and glass would also be considered
at the new large Conference/Boardroom off the elevator lobby. An enlarged
Lunchroom is anticipated.
Servicesoft would be installing new movable workstations that in all
likelihood would require new locations of electric and tel/data connections.
Existing ceilings remain. Exit lights will require modifications due to
now workstation Layout. Lights will be reconfigured in the new Boardroom and a
few wall washers added.
Existing flooring to remain, be patched and cleaned as required. Areas
such as the Lunchroom will require additional VCT.
Appliances for Lunchroom will be new. Additional counters and cabinets
are required for Lunchroom. Note, the new perimeter Luncbroom will require
review of the HVAC system. The increase of population and equipment in this
localized area should focus on limiting the migration of food odors and
satisfying the BTU loads.
Computer/Communications-Networkroom will require 24-hour cooling.
Fire Alarm/Life Safety devices would need to be addressed as required
by new work.
A new coat of paint throughout would be required.
<PAGE> 72
RIDER TO LEASE
The subject Lease is hereby amended as follows:
1. SECURITY DEPOSIT
A. Tenant shall, at the time that Tenant executes and delivers
this Lease to Landlord, pay to Landlord a Security Deposit ("Security Deposit")
in the amount of One Hundred Sixty-Five Thousand Six Hundred Twenty-Four and
99/100 ($165,624.99) securing Tenant's obligations under this Lease. In no event
shall said Security Deposit be deemed to be a prepayment of rent nor shall it be
considered a measure of liquidated damages. Tenant agrees that no interest shall
accrue on said deposit and that Landlord shall have no obligation to maintain
such deposit in a separate account (i.e. Landlord shall have the right to
commingle such deposit with other funds of Landlord). In the event that Tenant
shall default (beyond the expiration of any applicable cure periods as set forth
in Article 21.7 of the Lease) in any of its obligations under the Lease,
Landlord shall have the right, without prior notice to Tenant, to apply said
deposit (or any portion thereof) towards the cure of any such default and Tenant
shall promptly, upon notice from Landlord, pay to Landlord any amount so applied
by Landlord in order to restore the full amount of said deposit. In addition, in
the event of a termination based upon the default of Tenant under the Lease, or
a rejection of the Lease pursuant to the provisions of the Federal Bankruptcy
Code, Landlord shall have the right to apply said Security Deposit (from time to
time, if necessary) to cover the full amount of damages and other amounts due
from Tenant to Landlord under the Lease. Any amounts so applied shall, at
Landlord's election, be applied first to any unpaid rent and other charges which
were due prior to the filing of the petition for protection under the Federal
Bankruptcy Code. The application of all or any part of the deposit to any
obligation or default of Tenant under this Lease shall not deprive Landlord of
any other rights or remedies Landlord may have nor shall such application by
Landlord constitute a waiver by Landlord. Provided that Tenant has never been in
default (beyond the expiration of applicable cure periods set forth in Article
21.7 of the Lease) in any of its obligations under the Lease prior to the date
("Reduction Date") thirty (30) months after the Term Commencement Date, Landlord
shall, within ten (10) days of written request made by Tenant after the
Reduction Date, refund to Tenant One Hundred Ten Thousand Four Hundred Sixteen
and 66/100 ($110,416.66) Dollars of said Security Deposit, thereby reducing the
Security Deposit to Fifty-Five Thousand Two Hundred Eight and 33/100
($55,208.33) Dollars. Provided that Tenant is not in default of any of its
obligations under the Lease at the expiration of the term of the Lease, Landlord
shall refund to Tenant any portion of said Security Deposit which Landlord is
then holding.
B. All or part of the Security Deposit may be in the form of an
irrevocable letter of credit (the "Letter of Credit"), which Letter of Credit
shall: (a) be in the initial amount of $165,624.99; (b) be in the form attached
to the Lease as Exhibit 4; (c) name Tenant fails to give timely notice, as
aforesaid, Tenant shall have no further right to extend the term of this Lease,
time being of the essence of this Paragraph 2.
<PAGE> 73
B. Yearly Rent
The Yearly Rent during the additional term shall be based upon the Fair
Market Rental Value, as defined in Paragraph 3 of this Rider, as of the
commencement of the additional term, of the premises then demised to Tenant,
provided however, that in no event shall the sum of Yearly Rent, Operating
Expense Excess and Tax Excess payable by Tenant for any twelve-(12)-month period
during the additional term be less than the sum of Yearly Rent, Operating
Expense Excess and Tax Excess payable by Tenant in respect of the
twelve-(12)-month period immediately preceding the commencement of the
additional term.
C. Notwithstanding anything to the contrary herein or in the Lease contained, in
the event that Tenant timely exercises its option to extend the term of the
Lease pursuant to this Paragraph 2, Landlord shall contribute to Tenant up to
$2.00 per square foot of Total Rentable Area ("Landlord's Refurbishment
Allowance") towards the costs incurred by Tenant in refurbishing the premises
during said additional term of the Lease ("Tenant's Refurbishment Work").
Tenant's Refurbishment Work shall be performed in accordance with Articles 12
and 13 of the Lease. Provided that Tenant is not in default of its obligations
under the Lease at the time that Tenant requests any requisition on account of
Landlord's Refurbishment Allowance, Landlord shall pay the cost of the work
shown on each requisition (as hereinafter defined) submitted by Tenant to
Landlord within thirty (30) days of submission thereof by Tenant to Landlord.
For the purposes hereof, a "requisition" shall mean written documentation
(including, without limitation, invoices from Tenant's contractor, written lien
waivers and such other documentation as Landlord may reasonably request) showing
in reasonable detail the costs of the improvements installed by Tenant to date
in the premises. Each requisition shall be accompanied by evidence reasonably
satisfactory to Landlord that all work covered by previous requisitions has been
fully paid by Tenant. Landlord shall have the right, upon reasonable advance
notice to Tenant, to inspect Tenant's books and records relating to each
requisition in order to verify the amount thereof. Tenant shall submit
requisition(s) no more often than monthly.
Notwithstanding anything to the contrary herein contained:
(i) Landlord shall have no obligation to advance funds on account of
Landlord's Refurbishment Allowance unless and until Landlord has received the
requisition in question, together with the certifications required by
Subparagraph C. hereof, certifying that the work shown on the requisition has
been performed in accordance with applicable law and in accordance with Tenant's
plans.
(ii) Except with respect to work and/or materials previously paid for
by Tenant, as evidenced by paid invoices and written lien waivers provided to
Landlord, Landlord shall have the right to have Landlord's Refurbishment
Allowance paid to both Tenant and Tenant's contractor(s) and vendor(s) jointly,
or directly to Tenant's contractor if Landlord has reason to believe there are
or may be outstanding claims by such contractor(s) or vendor(s).
<PAGE> 74
(iii) Landlord shall have no obligation to pay Landlord's Refurbishment
Allowance in respect of any requisition submitted prior to the commencement of
the additional term or later than the date six (6) months after the commencement
of the additional term.
(iv) Tenant shall not be entitled to any unused portion of Landlord's
Refurbishment Allowance.
D. Notwithstanding the fact that upon Tenant's exercise of the herein
option to extend the term of the Lease such extension shall be self-executing,
as aforesaid, the parties shall promptly execute a lease amendment reflecting
such additional term after Tenant exercises the herein option, except that the
Yearly Rent payable in respect of such additional term may not be set forth in
said amendment. Subsequently, after such Yearly Rent is determined, the parties
shall execute a written agreement confirming the same. The execution of such
lease amendment shall not be deemed to waive any of the conditions to Tenant's
exercise of its rights under this Paragraph 2, unless otherwise specifically
provided in such lease amendment.
E. Tenant shall have no further option to extend the term of the Lease
other than the one (1) additional five (5) year term herein provided.
3. DEFINITION OF FAIR MARKET RENTAL VALUE
For the purposes of this Rider:
A. "Fair Market Rental Value" shall be computed as of the date in
question at the then current annual rental charge (i.e., the sum of Yearly Rent
plus escalation and other charges), including provisions for subsequent
increases and other adjustments for leases or agreements to lease then currently
being negotiated (i.e. as evidenced by executed letters of intent) or executed
within the previous six month period in comparable space located in the
Building, or if no leases or agreements to lease were being negotiated (i.e. as
evidenced by executed letters of intent) or executed in the Building within such
six month period, the Fair Market Rental Value shall be determined by reference
to leases or agreements to lease then currently being negotiated (i.e. as
evidenced by executed letters of intent) or executed for comparable space
located elsewhere in first-class office buildings located in the
Natick/Framingham suburban area within the previous six month period. In
determining Fair Market Rental Value, the following factors, among others, shall
be taken into account and given effect: size, location of premises, lease term,
condition of building, services provided by the Landlord, and the fact that
Landlord is required to provide Landlord's Refurbishment Allowance to Tenant in
connection with Tenant's exercise of its extension option.
B. Operating Costs in the Base Year shall be equal to the actual amount
of Operating Costs for the Operating Year immediately preceding the effective
date of determination of such Fair Market Rental Value, and the Tax Base shall
equal the actual amount of Taxes for the last fiscal/tax year for which actual
data is available.
C. Dispute as to Fair Market Rental Value
<PAGE> 75
Landlord shall initially designate Fair Market Rental Value and
Landlord shall furnish data in support of such designation. If Tenant disagrees
with Landlord's designation of a Fair Market Rental Value, Tenant shall have the
right, by written notice given within thirty (30) days after Tenant has been
notified of Landlord's designation, to submit such Fair Market Rental Value to
arbitration. Fair Market Rental Value shall be submitted to arbitration as
follows: Fair Market Rental Value shall be determined by impartial arbitrators,
one to be chosen by the Landlord, one to be chosen by Tenant, and a third to be
selected, if necessary, as below provided. The unanimous written decision of the
two first chosen, without selection and participation of a third arbitrator, or
otherwise, the written decision of a majority of three arbitrators chosen and
selected as aforesaid, shall be conclusive and binding upon Landlord and Tenant.
Landlord and Tenant shall each notify the other of its chosen arbitrator within
ten (10) days following the call for arbitration and, unless such two
arbitrators shall have reached a unanimous decision within thirty (30) days
after their designation, they shall so notify the President of the Boston Bar
Association (or such organization as may succeed to said Boston Bar Association)
and request him to select an impartial third arbitrator, who shall be an office
building owner or a real estate broker dealing with like types of properties, to
determine Fair Market Rental Value as herein defined. Such third arbitrator and
the first two chosen shall, subject to commercial arbitration rules of the
American Arbitration Association, hear the parties and their evidence and render
their decision within thirty (30) days following the conclusion of such hearing
and notify Landlord and Tenant thereof. Landlord and Tenant shall bear the
expense of the third arbitrator (if any) equally. The decision of the arbitrator
shall be binding and conclusive, and judgment upon the award or decision of the
arbitrator may be entered in the appropriate court of law (as identified on
Exhibit 1); and the parties consent to the jurisdiction of such court and
further agree that any process or notice of motion or other application to the
Court or a Judge thereof may be served outside the State wherein the Building is
situated by registered mail or by personal service, provided a reasonable time
for appearance is allowed. If the dispute between the parties as to a Fair
Market Rental Value has not been resolved before the commencement of Tenant's
obligation to pay rent based upon such Fair Market Rental offer such area for
lease to third parties). In no, event shall Tenant have any rights under this
Paragraph 4 on or after the date ("Last RFO Date") nine (9) months prior to the
expiration of the initial term of the Lease (i.e. Landlord shall have no
obligation to give Landlord's Notice, as hereinafter defined, to Tenant on or
after the date nine (9) months prior to the expiration of the initial term of
the Lease), except that if Tenant has previously timely and properly exercised
its right to extend the term of the Lease pursuant to Paragraph 2 of the Rider
to the Lease, then the Last RFO Date shall be the date nine (9) months prior to
the expiration of the additional term of this Lease .
B. Exercise of Right to Lease RFO Premises
Landlord shall give to Tenant an offer to lease RFO Premises at such
time as Landlord determines, as aforesaid, that such RFO Premises will become
available for lease to Tenant. Landlord's Notice shall set forth the exact
location of the RFO Premises, Landlord's designation of the Fair Market Rental
Value of such RFO Premises, and the Specified, Commencement
<PAGE> 76
Date in respect of such RFO Premises. Tenant shall have the right, exercisable
upon written notice ("Tenant's Exercise Notice") given to Landlord within ten
(10) business days after the receipt of Landlord's Notice, to lease such RFO
Premises. If Tenant fails timely to give Tenant's Exercise Notice, Landlord
shall be free to lease such RFO Premises to any third party, and Tenant shall
have no further right to lease such RFO Premises pursuant to this Paragraph 4,
except as set forth in Subparagraph A of this Paragraph 4. Upon the timely
giving of such notice, Landlord shall lease and demise to Tenant and Tenant
shall hire and take from Landlord, such RFO Premises, upon all of the same terms
and conditions of the Lease except as hereinafter set forth.
C. Lease Provisions Applying to RFO Premises
The leasing to Tenant of such RFO Premises shall be upon all of the
same terms and conditions of the Lease, except as follows:
(1) Term Commencement Date
The Term Commencement Date in respect of such RFO Premises shall be the
later of: (x) the Specified Commencement Date in respect of such RFO Premises as
set forth in Landlord's Notice, or (y) the date that all occupants of such RFO
Premises vacate the RFO Premises and deliver them to Landlord.
(2) Yearly Rent
The Yearly Rent shall be based upon the Fair Market Rental Value, as
defined in Paragraph 3 of the Rider to this Lease, of such RFO Premises, as of
the Term Commencement Date in respect of such RFO Premises.
(3) Condition of RFO Premises
Tenant shall take such RFO Premises "as-is" in its then (i.e. as of the date of
premises delivery) state of construction, finish, and decoration, without any
obligation on the part of Landlord to construct or prepare any RFO Premises for
Tenant's occupancy or to provide any Landlord construction allowance in respect
of the RFO Premises.
D. Execution of Lease Amendments
Notwithstanding the fact that Tenant's exercise of the above-described
option to lease RFO Premises shall be self-executing, as aforesaid, the parties
hereby agree promptly to execute a lease amendment reflecting the addition of an
RFO Premises, except that the Yearly Rent payable in respect of such RFO
Premises may not be set forth in said amendment. Subsequently, after such Yearly
Rent is determined, the parties shall execute a written agreement confirming the
same. The execution of such lease amendment shall not be deemed to waive any of
the conditions to Tenant's exercise of the herein option to lease the RFO
Premises, unless otherwise specifically provided in such lease amendment.
<PAGE> 77
Two Apple Hill
598 Worcester Street
Natick, Massachusetts
("the Building")
FIRST AMENDMENT
October 8, 1999
LANDLORD: Metropolitan Life Insurance Company
TENANT: Servicesoft Technologies, Inc.
EXISTING PREMISES: An area on the third (3rd) floor of
the Building, substantially as shown
on Lease Plan, Exhibit 2, dated April
9, 1999
ORIGINAL LEASE EXECUTION DATE: April 9, 1999
LEASE
DATA
TERMINATION DATE: June 30, 2004
PREVIOUS LEASE AMENDMENTS: Letter Agreement dated June 17, 1999
FIRST AMENDMENT An area on the third (3rd) floor of
ADDITIONAL PREMISES: the Building, consisting of 19,440
square feet of Total Rentable Area,
substantially as shown on Lease Plan,
Exhibit 2, First Amendment, dated
October 8, 1999, a copy of which is
attached hereto and incorporated by
reference herein
EXTENDED TERMINATION
DATE: July 31, 2005
WHEREAS, Tenant desires to (i) extend the term of the lease; and (ii)
lease additional premises located in the Building, to wit, the First Amendment
Additional Premises;
WHEREAS, Landlord is willing to (i) extend the term of the Lease and
(ii) lease the First Amendment Additional Premises to Tenant on the terms and
conditions hereinafter set forth;
NOW THEREFORE, the parties hereby agree that the above-referenced lease
(the "Lease") is hereby amended as follows:
<PAGE> 78
EXTENSION OF TERM OF LEASE
The term of the Lease is hereby extended for an additional period
commencing as of July 1, 2004 and terminating as of July 31, 2005. Said
additional term shall be upon the terms set forth on Revised Exhibit 1, First
Amendment, Sheets 1, 2 and 3, dated October 8, 1999, a copy of which is attached
hereto and incorporated by reference herein, and upon all of the other terms and
conditions of the Lease in effect immediately preceding the commencement of such
additional term (including, without limitation, Tenant's obligation to pay
Electricity Rent, pursuant to and in accordance with Article 8 of the Lease and
Tenant's Option to Extend the Term of the Lease, pursuant to Paragraph 2 of the
Rider to the Lease), except as set forth herein.
DEMISE OF THE FIRST AMENDMENT ADDITIONAL PREMISES
Landlord hereby demises and leases to Tenant, and Tenant hereby hires
and takes from Landlord, the First Amendment Additional Premises for a term
commencing as of January 1, 2000 and terminating as of July 31, 2005. Said
demise of the First Amendment Additional Premises shall be upon the terms set
forth on Revised Exhibit 1, First Amendment, Sheets 1, 2 and 3, dated October 8,
1999, and upon all of the other terms and conditions of the Lease, including,
without limitation, Tenant's obligation to pay Electricity Rent in accordance
with Article 8 of the Lease), except as follows:
A. The Term Commencement Date in respect of the First Amendment Additional
Premises shall be January 1, 2000.
B. Commencing as of the Term Commencement Date in respect of the First Amendment
Additional Premises, Tenant shall pay Tax Excess and Operating Expense Excess in
respect of the First Amendment Additional Premises on a monthly estimated basis
based upon the most recent Tax and Operating Cost data available to Landlord.
C. Whereas, the First Amendment Additional Premises constitute the RFO Premises,
as defined in Paragraph 4 of the Rider to the Lease, said Paragraph 4 of the
Rider to the Lease is hereby deleted in its entirety and is of no further force
or effect.
D. In the event that any of the provisions of the Lease are inconsistent with
this Amendment or the state of facts contemplated hereby, the provisions of this
Amendment shall control.
CONDITION OF FIRST AMENDMENT ADDITIONAL PREMISES
Notwithstanding anything to the contrary herein or in the Lease
contained, Tenant shall take the First Amendment Additional Premises "as-is", in
the condition in which the First Amendment Additional Premises are in as of the
Term Commencement Date in respect of the First Amendment Additional Premises,
without any obligation on the part of Landlord to prepare or construct the First
Amendment Additional Premises for Tenant's occupancy, and without any warranty
or representation on the part of Landlord as to the condition of the First
Amendment Additional Premises. In implementation of the foregoing, Article 4 of
the Lease shall have no applicability to the First Amendment Additional
Premises.
LANDLORD'S CONTRIBUTION
E. Landlord shall, in the manner hereinafter set forth, provide to Tenant Two
Hundred Thirty-Three Thousand Two Hundred Eighty and 00/100 ($233,280.00)
Dollars ("Landlord's Contribution") towards the cost of leasehold improvements
to be installed by Tenant in the First Amendment Additional Premises and towards
the cost of architectural and engineering fees incurred by Tenant in preparing
Tenant's plans ("Tenant's Work"). Provided that Tenant is not in default of its
obligations under the Lease at the time
<PAGE> 79
that Tenant requests any requisition on account of Landlord's Contribution,
Landlord shall pay the cost of the work shown on each requisition (as
hereinafter defined) submitted by Tenant to Landlord within fourteen (14) days
of submission thereof by Tenant to Landlord.
F. For the purposes hereof, a "requisition" shall mean written documentation
(including, without limitation, invoices from Tenant's contractor, written lien
waivers and such other documentation as Landlord may reasonably request
("Requisition"), showing in reasonable detail the total cost of leasehold
improvements installed by Tenant in the First Amendment Additional Premises.
Each Requisition shall be accompanied by certifications from Tenant, Tenant's
architect, and Tenant's contractor that the work performed has been performed in
accordance with applicable laws and in accordance with Tenant's approved plans,
and that the amount of Landlord's Contribution to be paid to Tenant does not
exceed the total cost of Tenant's Work. Landlord shall have the right, upon
reasonable advance notice to Tenant, to inspect Tenant's books and records
relating to each requisition in order to verify the amount thereof Tenant shall
submit requisition(s) no more often than weekly.
G. Notwithstanding anything to the contrary herein contained, Landlord shall
have no obligation to pay Landlord's Contribution unless and until Landlord has
received the Requisition, together with the certifications required by Paragraph
B hereof, certifying that the work shown on the Requisition has been performed
in accordance with applicable laws and in accordance with Tenant's plans.
H. Tenant's Work shall be performed in accordance with the provisions of the
Lease, including, without limitation, Articles 12 and 13 thereof.
I. Landlord shall have no obligation to pay Landlord's Contribution in respect
of any Requisition submitted by Tenant to Landlord after September 30, 2000.
REVISED EXHIBIT 1, FIRST AMENDMENT
Effective as of January 1, 2000, Exhibit 1, Sheets 1, 2 and 3, dated
April 9, 1999 shall be deleted and Revised Exhibit 1, First Amendment, Sheets 1,
2 and 3, dated October 8, 1999 shall be substituted in its place.
SECURITY DEPOSIT/LETTER OF CREDIT
J. The parties acknowledge that Landlord is holding a cash Security Deposit in
the amount of One Hundred Sixty-Five Thousand Six Hundred Twenty-Four and 99/100
($165,624.99) pursuant to Subparagraph A of Paragraph 1 of the Rider to the
Lease.
K. Tenant shall, at the time that Tenant executes and delivers this First
Amendment to Landlord, pay to Landlord an additional security deposit
("Additional Security Deposit") in the amount of One Hundred Thirty-One Thousand
Two Hundred Twenty and 00/ 100 ($131,220.00) Dollars securing Tenant's
obligations in respect of the First Amendment Additional Promises. Tenant may
provide the Additional Security Deposit either in the form of a cash security
deposit or an additional letter of credit ("Additional Letter of Credit"). In
either event, the Additional Security Deposit shall be held by Landlord in
accordance with the terms and conditions of Paragraph 1 of the Rider to the
Lease, except that, as of the Reduction Date, as hereinafter defined, Landlord
shall, within ten (10) days of written request made by Tenant after the
Reduction Date, refund to Tenant Eighty-Seven Thousand Four Hundred Eighty and
00/100 ($87,480.00) Dollars, thereby reducing the Additional Security Deposit to
Forty-Three Thousand Seven Hundred Forty and 00/100 ($43,740.00) Dollars.
L. The parties hereby agree that the Reduction Date is June 30, 2002.
<PAGE> 80
OPERATING COSTS IN THE BASE YEAR
Reference is made to the fact that the Operating Costs in the Base Year
in respect of the Existing Premises and First Amendment Additional Premises is
the actual amount of Operating Costs for the first Lease Year. The parties
hereby agree that, for the purposes of determining Operating Costs in the Base
Year, Operating Costs for the first Lease Year shall be equal to the sum of: (x)
13/24 multiplied by the actual amount of Operating Costs for calendar year 1999;
plus (y) 11/24 multiplied by the actual amount of Operating Costs for calendar
year 2000.
ADJUSTMENT IN RESPECT OF TOTAL RENTABLE AREA OF THE BUILDING
The parties acknowledge that there has been an adjustment in the Total
Rentable Area of the Building so that the Total Rentable Area of the Building is
127,227 square feet. Therefore, the parties hereby agree that the Tenant's
Proportionate Share in respect of the Existing Premises is 19.94%.
As hereby amended, the Lease is ratified, confirmed and approved in all
respects.
<PAGE> 81
EXECUTED under seal as of the date first above-written.
LANDLORD: TENANT:
METROPOLITAN LIFE INSURANCE SERVICESOFT TECHNOLOGIES,
COMPANY INC,
On behalf of a co-mingled separate account
By: SSR Realty Advisors, Inc., its Investment
Advisor
By: /s/ILLEGIBLE By: /s/ILLEGIBLE
------------------------------- ----------------------------------
(Name) (Title) (Name) (Title)
Hereunto Duly Authorized Hereunto Duly Authorized
Date Signed: 11/17/99 Date Signed: 11/10/99
<PAGE> 82
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 1
Two Apple Hill
598 Worcester Street
Natick, Massachusetts
(the "Building")
Execution Date: October 8, 1999
Tenant: Servicesoft Technologies, Inc.
(name)
a Delaware corporation
(description of business organization)
50 Cabot Street, Needham, Massachusetts 02194
(principal place of business - mailing address)
Landlord: Metropolitan Life Insurance Company. Mailing Address: SSR
Realty Advisors, Inc,, One North Broadway, Suite 500,
White Plains, New York 10601, Attn: Director of Asset
Management. Additional Notice Address: SSR Realty
Advisors, Inc., One North Broadway, Suite 500, White
Plains, New York 10601, Attn: Legal Department.
Building: The Building in the Town of Natick, Massachusetts, known
as Two Apple Hill, located at 598 Worcester Street.
Art. 2 Existing Premises: An area on the third (3rd))
floor of the Building
substantially as shown on
Lease Plan, Exhibit 2
First Amendment An area on the third (3rd)
Additional Premises: floor of the Building
substantially as shown on
Lease Plan, Exhibit 2, First
Amendment
Art. 3.1 Term Commencement January 1, 2000
Date in respect of
First Amendment
Additional Premises:
Art. 3.2 Termination Date in July 31, 2005
respect of all
premises:
<PAGE> 83
Art. 4.3 Final Plans Date: Not applicable
Art. 5 Use of Premises: General business offices
Art. 6 Yearly Rent in respect of Existing Premises:
<TABLE>
<CAPTION>
Time Period Yearly Rent Monthly Payment
------------ ----------- ---------------
<S> <C> <C>
June 15, 1999 - $672,225.68 $56,018.79
June 14, 2002:
June 15, 2002 - $687,592.52 $58,132.71
June 14, 2003:
June 15, 2003 - $710,276.04 $59,189.67
June 14, 2005:
</TABLE>
Yearly Rent in respect of First Amendment Additional Premises:
<TABLE>
<CAPTION>
Time Period Yearly Rent Monthly Payment
----------- ----------- ---------------
<S> <C> <C>
January 1, 2000 $250,160.04 $20,846.67
- May 31, 2000:
June 1, 2000 - $515,160.00 $42,930.00
June 15, 2002:
June 1, 2002 - $534,600.00 $44,550.00
June 15, 2003:
June 16, 2003 - $544,320.00 $45,360.00
July 31, 2005:
</TABLE>
Art. 7 Total Rentable Area in respect of:
Existing Premises: 25,367 square feet
First Amendment 19,440 square feet
Additional Premises:
TOTAL: 44,807 square feet
Building Total 127,227 square feet
Rentable Area:
<PAGE> 84
Art. 8 Electric current will be furnished by Landlord to
Tenant in respect of the Existing Premises and First
Amendment Additional Premises. In consideration of
Landlord providing electric current to Tenant during
the term of the Lease in respect of the Existing
Premises and First Amendment Additional Premises, in
accordance with Article 8.1, Tenant shall pay to
Landlord, as additional rent, at the same time and in
the same manner as Yearly Rent is paid under the
Lease, electricity rent in respect of the Existing
Premises and First Amendment Additional Premises
("Electricity Rent") in the initial amount of
$56,008.80 per annum (i.e., a monthly payment of
$4,667.40), subject to increase in accordance with
Article 8.1(b).
Art. 9 Operating and Tax Escalation in respect of Existing
Premises and First Amendment Additional Premises;
Operating Costs in The sum of: (x) 13/24
the Base Year: multiplied by the actual
amount of Operating Costs for
calendar year 1999; plus (y)
11/24 multiplied by the actual
amount of Operating Costs for
calendar year 2000.
Tax Base: The actual amount of Taxes for
fiscal/tax year 2000 (i.e.,
July 1, 1999 - June 30, 2000)
Tenant's Proportionate Share in respect of:
Existing Premises: 19.94% First
Amendment Additional
Premises: 15.28%
TOTAL: 35.22%
Art. 29.3 Broker: Insignia/ESG, Inc.
Art. 29.5 Arbitration: Massachusetts Superior Court
Exhibit Dates: Lease Plan, Exhibit 2, dated
April 9, 1999 and Lease Plan,
Exhibit 2, First Amendment
dated October 8, 1999
LANDLORD: TENANT:
METROPOLITAN LIFE INSURANCE SERVICESOFT TECHNOLOGIES, INC.
<PAGE> 85
COMPANY
On behalf of a co-mingled separate
account
By: SSR Realty Advisors, Inc., its
Investment Advisor
By: /s/ILLEGIBLE By: /s/ILLEGIBLE
------------------------ -------------------------
(Name) (Title) (Name) (Title)
Hereunto Duly Authorized Hereunto Duly Authorized
Date Signed: 11/17/99 Date Signed: 11/10/99
--------------- --------------
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 11, 2000, relating to the consolidated financial
statements of Servicesoft Technologies, Inc., which appears in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 2000
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 11, 2000 with respect to the
financial statements of Balisoft Technologies Inc. as at December 31, 1998 and
1997 and for the year ended December 31, 1998 and for the period from the date
of incorporation, June 5, 1997, to December 31, 1997 included in the
registration statement on Form S-1 of Servicesoft Technologies, Inc.
Ernst & Young
Toronto, Canada
February 14, 2000
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated July 1, 1999, relating to the financial statements of Internet
Business Advantages, Inc., which appears in such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 2000
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