<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 1999
REGISTRATION 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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E.PIPHANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7372 77-0443392
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2300 GENG ROAD, SUITE 200
PALO ALTO, CALIFORNIA 94303
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROGER S. SIBONI
CHIEF EXECUTIVE OFFICER
2300 GENG ROAD, SUITE 200
PALO ALTO, CALIFORNIA 94303
(650) 496-2430
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
AARON J. ALTER, ESQ. WILLIAM D. SHERMAN, ESQ.
N. ANTHONY JEFFRIES, ESQ. CORI M. ALLEN, ESQ.
PETER F. STEWART, ESQ. COREY A. LEVENS, ESQ.
BRADLEY L. FINKELSTEIN, ESQ. MORRISON & FOERSTER LLP
DAVID R. BOWMAN, ESQ. 755 PAGE MILL ROAD
WILSON SONSINI GOODRICH & ROSATI PALO ALTO, CALIFORNIA 94304
PROFESSIONAL CORPORATION (650) 813-5600
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock $0.0001 par value.............................. $50,000,000 $13,900
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of 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 HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE CANNOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 14, 1999
Shares
Common Stock
E.PIPHANY LOGO
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list the shares on The
Nasdaq Stock Market's National Market under the symbol "EPNY."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
<TABLE>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS E.PIPHANY
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
MERRILL LYNCH & CO.
The date of this prospectus is , 1999.
<PAGE> 3
[INSIDE FRONT COVER OF PROSPECTUS]
The gatefold page begins with our logo and the title "Customer-Centric
Solutions" and includes language as follows:
"Identify... California State Automobile Association employees can use their
E.piphany solution to independently profile customers and manage
customer-specific marketing campaigns across the company's travel and general
membership services."
Below this language is California State Automobile Associations's logo along
with a graphic depicting an example of a screen relating to the described
solution.
"Customize... Visio employees can use their E.piphany solution to discern how
the company's electronic commerce initiatives are affecting business in the
company's traditional channels, and analyze customer preference data captured on
their electronic commerce site to refine their products."
Below this language is Visio's logo along with a graphic depicting an example of
a screen relating to the described solution.
"Differentiate...Microsoft selected E.piphany over other suppliers of campaign
management solutions because of our ability to provide a full range of
enterprise solutions focused on personalizing customer relationships and of our
ability to make our solutions broadly available to distributed knowledge workers
and managers in large corporations."
Below this language is Microsoft's logo along with a graphic depicting an
example of a screen relating to the described solution.
"Interact... Capital Blue Cross employees can use their E.piphany solution to
analyze enrollment histories and other patient information to better understand
member activity and enhance the value and profitability of the company's
insurance product offerings."
Below this language is Capital Blue Cross' logo along with a graphic depicting
an example of a screen relating to the described solution.
[PAGE 37]
Graphic depicts the elements of the E.piphany E.4 System platform including
data sources, extractors, packaged semantic transformations, the Adaptive Schema
Generator, the EpiCenter Data Mart, accelerators, the Application Server,
analytic components and campaign management and examples of output screens.
<PAGE> 4
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 6
USE OF PROCEEDS....................... 16
DIVIDEND POLICY....................... 16
CAPITALIZATION........................ 17
DILUTION.............................. 18
SELECTED FINANCIAL DATA............... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 20
BUSINESS.............................. 30
MANAGEMENT............................ 45
</TABLE>
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PAGE
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CERTAIN TRANSACTIONS.................. 55
PRINCIPAL STOCKHOLDERS................ 57
DESCRIPTION OF CAPITAL STOCK.......... 59
SHARES ELIGIBLE FOR FUTURE SALE....... 62
ADDITIONAL INFORMATION................ 63
UNDERWRITING.......................... 65
NOTICE TO CANADIAN RESIDENTS.......... 67
LEGAL MATTERS......................... 68
EXPERTS............................... 68
CHANGE IN INDEPENDENT PUBLIC
ACCOUNTANTS......................... 68
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the risk factors
beginning on page 6.
E.PIPHANY, INC.
We are a leading provider of customer-centric analytic solutions that
enable companies to better understand the unique needs of individual customers
and take action on that knowledge to personalize interactions, products and
services across electronic commerce and traditional channels. As the rapid
growth of the Internet continues to reduce traditional customer loyalties and
intensify competition, businesses are seeking new ways to increase the value and
personalization of customer relationships. Our E.piphany E.4 System addresses
these challenges by providing Web-based, packaged analytic solutions designed to
enable businesses to maximize the value of their existing customer relationships
and develop profitable new relationships. Our E.piphany E.4 System combines the
following characteristics:
Business solutions designed to enhance and personalize customer
relationships. Our solutions help businesses seamlessly identify and
differentiate their customers and personalize interactions, products and
services.
Web-based architecture to promote ease of use and wide-scale
deployment. Our solutions are Web-based and accessed through standard Web
browsers to extend easy-to-use, yet powerful, customer-centric analytic
capabilities available to all business users and to virtually all channels
of customer interaction.
Packaged analytic solutions to minimize complexity and accelerate
deployment. To provide users with rapidly deployable pre-built
functionality and to minimize the costs of implementation and maintenance,
we provide packaged analytic solutions that seamlessly integrate sales,
marketing, finance and electronic commerce expertise and functionality into
a comprehensive platform for data extraction, management, analysis and
customer interaction, as well as marketing campaign management. Our
solutions can be implemented in 16 weeks or less and integrate data from
virtually all electronic, transactional commerce and legacy applications,
as well as third-party data sources.
As of June 30, 1999, we have licensed our products to Acxiom, Ascend
Communications, Autodesk, California State Automobile Association, Capital Blue
Cross, Charles Schwab, DIRECTV, Exactis.com, Hewlett-Packard, Hilton Hotels,
KPMG, Macromedia, Microsoft, Nissan North America, Sallie Mae, SGI and Wells
Fargo, among others. We have focused on developing a limited number of highly
strategic relationships with leading systems integrators and industry
consultants, such as Cambridge Technology Partners, Ernst & Young, KPMG and
Marketing 1:1. We have also established reseller relationships with leading
providers of customer data and strategic marketing services, such as Acxiom and
Harte-Hanks, and leading providers of customer interaction software and
services, such as Broadvision, Exactis.com, Pivotal Software and Vignette. These
relationships will help us both to enable the rapid adoption and deployment of
our solutions and to expand our solutions into new industry-specific, or
vertical, markets.
To become the leading provider of customer-centric analytic solutions that
enable personalized customer interactions, products and services across
electronic commerce and traditional channels, we intend to increase market
penetration by expanding our direct sales force and augmenting our distribution
and systems integration relationships, embed additional vertical market
expertise into our solutions, continue to expand the breadth and depth of our
product offerings and introduce additional application service provider
solutions.
We were incorporated in Delaware in November 1996 as Epiphany Marketing
Automation, Inc. In March 1997, we changed our name to Epiphany Marketing
Software, Inc., and in April 1999, we changed our name to E.piphany, Inc. Our
principal executive offices are located at 2300 Geng Road, Suite 200, Palo Alto,
California 94303, and our telephone number is (650) 496-2430. Our World Wide Web
site is located at http://www.epiphany.com. Information contained on our World
Wide Web site does not constitute part of this prospectus.
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Adaptive Schema Generator, E.4, the E.piphany E.4 System, EpiCenter,
E.piphany and the E.piphany logo are our trademarks. Other trademarks or service
marks appearing in this prospectus are trademarks or service marks of the
companies that use them.
3
<PAGE> 6
THE OFFERING
Common stock offered................ shares
Common stock to be outstanding after
this offering....................... shares
Use of proceeds..................... For general corporate purposes,
principally working capital and capital
expenditures
Proposed Nasdaq National Market
symbol.............................. EPNY
- ---------------
The share amounts in this table is based on shares outstanding as of June 30,
1999. This table excludes:
- 6,943,962 shares of common stock reserved for issuance under our 1997
stock plan, of which 5,582,708 shares are subject to outstanding options
- 7,000,000 shares of common stock reserved for issuance under our 1999
stock plan
- 4,000,000 shares available for issuance under our 1999 employee stock
purchase plan, and
- 959,873 shares of common stock issuable upon exercise of outstanding
warrants and stock purchase rights.
------------------
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- the conversion of all outstanding shares of our convertible preferred
stock into 23,119,967 shares of common stock immediately prior to the
closing of this offering
- the filing of an amended and restated certificate of incorporation after
the closing of this offering, and
- no exercise of the underwriters' over-allotment option to purchase
shares.
4
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SUMMARY FINANCIAL INFORMATION
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<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
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1997 1998 1998 1999
--------- ---------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................... $ -- $ 3,377 $ 863 $ 5,124
Cost of revenues................................. -- 1,400 370 2,513
Gross profit..................................... -- 1,977 493 2,611
Loss from operations............................. (3,220) (10,613) (4,022) (9,461)
Net loss......................................... (3,149) (10,330) (3,893) (9,346)
Basic and diluted net loss per share............. $ (1.45) $ (3.59) $ (0.91) $ (0.93)
Shares used in computing basic and diluted net
loss per share................................ 2,174 2,874 4,270 10,027
Pro forma basic and diluted net loss per share
(unaudited)................................... $ (0.58) $ (0.30)
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)........ 17,665 31,376
</TABLE>
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JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $19,852 $
Working capital........................................... 18,289
Total assets.............................................. 24,759
Long-term obligations, net of current portion............. 8,095
Total stockholders' equity................................ 12,605
</TABLE>
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See Note 2 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
The as adjusted amounts reflect the conversion of the preferred stock and
the receipt of the net proceeds from the sale of the shares of common
stock offered hereby by E.piphany at an assumed initial public offering price of
$ per share, after deducting the underwriting discount and estimated
offering expenses payable by E.piphany. See "Use of Proceeds" and
"Capitalization."
5
<PAGE> 8
RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks described below, together with all of the other information
included in this prospectus, before buying shares in this offering.
WE HAVE A HISTORY OF LOSSES, WE EXPECT LOSSES IN THE FUTURE AND WE MAY NOT EVER
BECOME PROFITABLE
We were founded in November 1996, and our limited operating history makes
it difficult to forecast our future operating results. We expect to incur net
losses in the foreseeable future, and we may not ever become profitable. Our
revenue and income potential is unproven. We received our first revenues from
licensing in early 1998 and began shipping our most recent E.piphany E.4
solutions in June 1999. We incurred net losses of $9.3 million in the six months
ended June 30, 1999, $10.3 million in 1998 and $3.1 million in 1997. We had an
accumulated deficit of $22.8 million as of June 30, 1999. In addition, we expect
to significantly increase our expenses in the near term, including research and
development and sales and marketing expenses. Therefore our operating results
will be harmed if our revenue does not keep pace with our expected increase in
expenses or is not sufficient for us to achieve profitability. If we do achieve
profitability in any period, we cannot be certain that we will sustain or
increase profitability on a quarterly or annual basis.
VARIATIONS IN QUARTERLY OPERATING RESULTS DUE TO SUCH FACTORS AS CHANGES IN
DEMAND FOR OUR PRODUCTS AND CHANGES IN OUR MIX OF REVENUES MAY CAUSE OUR STOCK
PRICE TO DECLINE
Our quarterly operating results have fluctuated in the past and are likely
to continue to do so in the future. We therefore believe that quarter-to-quarter
comparisons of our operating results may not be a good indication of our future
performance, and you should not rely on them to predict our future performance
or the future performance of our stock price. Our short-term expense levels are
relatively fixed and are based on our expectations of future revenues. As a
result, a reduction in revenues in a quarter may adversely affect our operating
results for that quarter. Although our operating results have generally improved
from quarter-to-quarter in the past, our quarterly revenues, expenses and
operating results could vary significantly from quarter-to-quarter for several
reasons, many of which are out of our control. If our operating results in
future quarters fall below the expectations of market analysts and investors,
the trading price of our common stock will fall. Factors that may cause our
operating results to fluctuate on a quarterly basis are:
- Varying size, timing and contractual terms of orders for our products
- Our ability to timely complete our service obligations related to product
sales
- Changes in the mix of revenue attributable to higher-margin product
license revenue as opposed to substantially lower-margin service revenue
- Customers' decisions to defer orders or implementations, particularly
large orders or implementations, from one quarter to the next, including
decisions to defer related to year 2000 concerns
- Changes in demand for our E.piphany E.4 System or for analytic solutions
software generally
- Increased competition in general and any changes in our pricing policies
that may result from increased competitive pressures
- Varying budgeting cycles of our customers and potential customers
- Potential downturns in our customers' businesses, particularly in the
high technology, financial services and health care services industries
- Our ability to develop and introduce on a timely basis new or enhanced
versions of our products
- Software defects and other product quality problems, and
- Any increase in our need to supplement our professional services
organization by subcontracting to more expensive third-party consultants.
6
<PAGE> 9
IF WE FAIL TO PROVIDE SERVICES TO SUPPORT OUR PRODUCTS, OUR REVENUES AND
PROFITABILITY WOULD BE HARMED
Our services are integral to the successful deployment of our solutions. If
our professional services organization does not effectively implement and
support our products or if we are unable to expand our professional services
organization and effectively use strategic third-party partners to provide
services directly to customers to keep pace with sales, our revenues and
operating results would be harmed. In addition, if we are unable to expand our
professional services organization and effectively use these strategic third
party partners to provide these services directly to our customers, we may be
required to increasingly subcontract with third parties to help provide these
services to implement and support our products, which will result in lower gross
margins. In addition, since we generally recognize revenues on the sale of
licenses sold together with our implementation services over the period those
services are performed, delays in providing implementation services will delay
our recognition of revenue.
CHANGES IN THE MIX OF REVENUES ATTRIBUTABLE TO HIGHER-MARGIN LICENSE REVENUES AS
OPPOSED TO LOWER-MARGIN SERVICES REVENUES COULD HARM OUR PROFITABILITY
Services revenues, which includes fees for implementation, consulting,
support and training, constituted 43% of our revenues for the six months ended
June 30, 1999 and 34% of our revenues for the year ended December 31, 1998.
Services revenues have a substantially lower gross margin than license revenues.
Our cost of services revenues for the six months ended June 30, 1999 was 113% of
our services revenues. An increase in the percentage of total revenues
represented by services revenues could adversely affect our overall gross
margins and operating results. Services revenues as a percentage of total
revenues and cost of services revenues as a percentage of total revenues have
varied significantly from quarter to quarter due to our relatively early stage
of development. The relative amount of services revenues as compared to license
revenues has varied based on the volume of solution orders compared to the
volume of additional user orders. In addition, the amount and profitability of
services can depend in large part on the solution which has been licensed, the
complexity of the customers' information technology environment, the resources
directed by customers to their implementation projects, the number of users
licensed and the extent to which our strategic third-party integrators provide
services directly to customers.
NEW PRODUCT INTRODUCTIONS OR ENHANCEMENTS AND PRICING STRATEGIES BY OUR
COMPETITORS COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS AND COULD
RESULT IN PRESSURE TO PRICE OUR PRODUCTS IN A MANNER THAT REDUCES OUR MARGINS
Competitive pressures could prevent us from growing, reduce our market
share or require us to reduce prices on our products and services, any of which
could harm our business.
We compete principally with vendors of:
- decision support and data warehousing software such as Brio Technology,
Business Objects, Cognos, Informatica and Sagent Technology
- enterprise application software such as i2 Technologies, Oracle,
Peoplesoft, SAP and Siebel Systems, and
- campaign management software such as Exchange Applications and Prime
Response.
Many of these companies have significantly greater financial, technical,
marketing, service and other resources, a larger installed base of users, have
been in business longer or have greater name recognition than we do. For
example, the annual revenue of Oracle exceeded $7.1 billion, and the annual
revenue of Siebel Systems exceeded $350 million in fiscal 1998. Some large
companies may attempt to build functions into their products that are similar to
functions of our products. Some of our competitors' products may be more
effective than our products at performing particular functions or be more
customized for particular needs. Even if these functions are more limited than
those provided by our products, our competitors' products could discourage
potential customers from purchasing our products, particularly if their products
incorporate other functionality, such as transactional database systems.
Further, our competitors may be able to respond more quickly than we can to
changes in customer requirements.
7
<PAGE> 10
In addition, our products must integrate with software solutions provided
by a number of our existing or potential competitors. These competitors could
alter their products so that our products no longer integrate well with them, or
they could deny or delay access by us to advance software releases that allow us
to timely adapt our products to integrate with their products.
Our competitors have made and may also continue to make strategic
acquisitions or establish cooperative relationships among themselves or with
other solution providers, which may increase the ability of their products to
address the needs of our prospective customers, particularly the need for a
single comprehensive data integration and analytic application solution. Our
competitors may also establish or strengthen cooperative relationships with our
current or future distributors or strategic partners, thereby limiting our
ability to sell through these channels.
IF THE MARKET IN WHICH WE SELL OUR PRODUCTS DOES NOT GROW AS WE ANTICIPATE, OUR
REVENUES WILL BE REDUCED
If the market for products such as ours that enable businesses to access,
interpret and utilize data to personalize customer relationships does not grow
as quickly or become as large as we anticipate, our revenues will be reduced.
Our market is relatively new and still emerging. Our potential customers may:
- not understand or see the benefits of using these products
- not achieve favorable results using these products
- experience technical difficulty in implementing or using these products,
or
- use alternative methods for data access and decision making.
In addition, because our products can be used in connection with electronic
commerce and we are currently developing additional electronic commerce
solutions, if the electronic commerce market does not grow as quickly as we
anticipate, we may experience sales which are lower than our expectations.
Some businesses may have already made a substantial investment in other
third-party and internally-developed solutions designed to integrate data from
disparate sources and apply business analytics to this data. These companies may
be reluctant to abandon these investments in favor of our solutions. In
addition, information technology departments of businesses may resist our
solutions for a variety of reasons, including the potential displacement of
their historical role in deploying business analytics and concerns about the
customizability of such applications for their enterprises. If the market for
our products does not grow for any of these reasons, our revenues may be
reduced.
IF WE FAIL TO DEVELOP NEW PRODUCTS OR IMPROVE OUR EXISTING PRODUCTS TO MEET OR
ADAPT TO THE CHANGING NEEDS AND STANDARDS OF OUR INDUSTRY, SALES OF OUR PRODUCTS
MAY DECLINE
Our future success depends on our ability to address the rapidly changing
needs of our customers. If we are not able to maintain and improve our E.piphany
E.4 System and develop new products that include new technological developments,
keep pace with products of our competitors or satisfy the changing requirements
of our customers, we may not achieve market acceptance, we may lose existing
customers or we may be unable to attract new customers. To achieve increased
market acceptance of our products, we must, among other things, continue to:
- improve and introduce new solutions for reporting and analysis,
distributed database marketing and e-commerce
- improve the effectiveness of our solutions, particularly in
implementations involving very large databases and large numbers of
simultaneous users
- enhance our software's ease of administration
- improve our software's data extraction capabilities, and
- adapt to rapidly changing computer operating system and database
standards and Internet technology.
We may not be successful in developing and marketing these new or improved
products, other products enhancements or new products. If we are not successful,
we may lose sales to competitors. In
8
<PAGE> 11
addition, we have entered into customer contracts which contain specific
performance goals relating to new product releases or enhancements, and if we
are not able to meet these goals, we may be required to, among other things,
return fees, pay damages and offer discounts.
Our E.piphany E.4 System application server is currently designed to
operate on the Microsoft Windows NT computer operating system platform and
popular internet browsers from Netscape and Microsoft. Our database server is
designed to be compatible with database products from Microsoft and Oracle. If
we fail to obtain access to developer versions of these software products, we
may be unable to timely build and enhance our products. Our E.piphany E.4 System
is also designed to access data stored in many leading industry database and
enterprise data applications, such as applications from Oracle, PeopleSoft,
Siebel Systems and SAP, running on a variety of computer operating systems. If
we fail to enhance our software to be compatible with new versions of these
products or new products, we may lose potential customers.
In addition, adoption of uniform, industry-wide standards across various
database and analytic applications, or the emergence of a single, commonly-used
standard as a result of the dominance of a single competitor in the market for
such applications, could minimize the importance of the data integration
functionality of our products and adversely affect the competitiveness and
market acceptance of our products.
OUR PRODUCTS HAVE A LONG SALES CYCLE WHICH MAKES IT DIFFICULT TO PLAN OUR
EXPENSES AND FORECAST OUR RESULTS
The delay or failure to complete sales in a particular quarter could reduce
our quarterly revenues. If our sales cycle in general unexpectedly lengthens, it
would adversely affect the timing of our revenues. It typically takes us between
three and six months to complete a sale, but it can take us up to one year or
longer. It is therefore difficult to predict the quarter in which a particular
sale will occur and to plan our expenditures accordingly. The period between our
initial contact with a potential customer and their purchase of our products and
services is relatively long due to several factors, including:
- the complex nature of our products
- our need to educate potential customers about the uses and benefits of
our products
- the purchase of our products requires a significant investment of
resources by a customer
- our customers have budget cycles which affect timing of purchases
- many of our customers require competitive evaluation and internal
approval before purchasing our products
- potential customers may delay purchases due to announcements or planned
introductions of new products by us or our competitors, and
- many of our customers are large organizations which may require a long
time to make decisions.
IF WE FAIL TO EXPAND OUR DIRECT AND INDIRECT SALES CHANNELS, WE WILL NOT BE ABLE
TO INCREASE REVENUES
In order to grow our business, we need to increase market awareness and
sales of our products and services. To achieve this goal, we need to increase
both our direct and indirect sales channels. If we fail to do so, this failure
could harm our ability to increase revenues. We need to expand our indirect
sales channel by entering into additional strategic partnerships with system
integrators, value added resellers, application service providers and
consultants. In international markets, we believe we will be even more dependent
on indirect channels. Therefore, our ability to develop and maintain these
channels will significantly affect our ability to penetrate international
markets.
IF WE FAIL TO ESTABLISH, MAINTAIN OR EXPAND OUR STRATEGIC RELATIONSHIPS, OUR
ABILITY TO GROW REVENUES COULD BE HARMED
In order to grow our business, we must generate, retain and strengthen
successful relationships with strategic partners. To date, we have established
relationships with several companies, including system integrators and
consultants such as Cambridge Technology Partners, Ernst & Young, KPMG and
9
<PAGE> 12
Marketing 1:1; resellers such as Acxiom and Harte Hanks; and an application
service provider, Exactis.com. If our partners do not provide sufficient,
high-quality service or integrate and support our software correctly, both our
direct and indirect sales may be harmed. In addition, our partners may offer
products of other companies, including products that compete with our products.
We have little control over the amount of resources our strategic partners
devote to promoting, selling and supporting our products. We cannot assure you
that we can generate and maintain adequate strategic relationships to offset the
significant resources that are necessary to develop these channels.
We must also effectively leverage the resources and expertise of
third-party strategic partners to develop applications for our E.piphany E.4
System. If we fail to effectively leverage our strategic partners, our ability
to increase revenues by broadening our solution offerings, particularly in
additional vertical markets, will be limited.
OUR REVENUES DEPEND ON A SMALL NUMBER OF LARGE ORDERS FROM OUR TOP CUSTOMERS AND
IF WE FAIL TO COMPLETE ONE OR MORE LARGE ORDERS, OUR REVENUES WILL BE REDUCED
To date, we have received a significant portion of our revenues from a
small number of large orders. In the first half of 1999, orders from our top
four customers accounted for approximately 55% of our revenues. In 1998, orders
from our top five customers accounted for approximately 85% of our revenues. Our
operating results may be harmed if we are not able to complete one or more
substantial product sales in any future period or attract new customers.
IF CUSTOMERS DELAY INSTALLATIONS OR PURCHASES OF OUR PRODUCTS TO AVOID HAVING TO
PERFORM ADDITIONAL TESTS ON THEIR EXISTING SYSTEMS RELATED TO YEAR 2000
COMPLIANCE, OUR REVENUES WILL BE REDUCED IN THE NEAR TERM
In 1999, a significant number of companies, including some of our current
customers, may be required to devote a substantial amount of their information
technology resources to testing systems for year 2000 compliance and fixing
existing year 2000 problems. Some companies may delay installation of new
systems during the remainder of 1999 and possibly into early 2000 to avoid
having to perform additional tests on their existing systems. If these customers
also defer purchases of our products until their year 2000 problems have been
resolved, it will depress our sales in the near term.
WE HAVE GROWN VERY QUICKLY AND IF WE FAIL TO MANAGE OUR GROWTH, OUR ABILITY TO
GENERATE NEW REVENUES AND ACHIEVE PROFITABILITY WOULD BE HARMED
We have grown significantly since our inception and need to grow quickly in
the future. Any failure to manage this growth could impede our ability to
increase revenues and achieve profitability. We have increased our number of
employees from 21 at December 31, 1997 to 115 at June 30, 1999. Future expansion
could be expensive and strain our management and other resources. In order to
manage growth effectively, we must:
- hire, train and integrate new personnel
- augment our financial and accounting systems
- manage our sales operations, which are in several locations, and
- expand our facilities.
THE LOSS OF KEY PERSONNEL OR ANY INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD AFFECT OUR ABILITY TO SUCCESSFULLY GROW OUR BUSINESS
Our future success will depend in large part on our ability to hire and
retain a sufficient number of qualified personnel, particularly in sales,
marketing, research and development, service and support. If we are unable to do
so, this inability could affect our ability to grow our business. Competition
for qualified personnel in high technology is intense, particularly in the
Silicon Valley region of Northern California where our principal offices are
located. Our future success also depends upon the continued service of our
executive officers and other key personnel, and loss of the services of our
executive officers and other key personnel would harm our operations. None of
our officers or key personnel is bound by an employment agreement, and we do not
maintain key person insurance on any of our employees. We would also be
10
<PAGE> 13
harmed if one or more of our officers or key employees decided to join a
competitor or otherwise compete with us.
IF OTHERS CLAIM THAT WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY, WE COULD
INCUR SIGNIFICANT EXPENSES OR BE PREVENTED FROM SELLING OUR PRODUCTS
We cannot assure you that others will not claim that we are infringing
their intellectual property rights or that we do not in fact infringe those
intellectual property rights. While we do not believe that any of our products
infringes the proprietary rights of others, we have not conducted a search for
existing intellectual property registrations and we may be unaware of
intellectual property rights of others that may cover some of our technology.
Any litigation regarding intellectual property could be costly and
time-consuming and divert the attention of our management and key personnel from
our business operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require us to enter into costly
royalty or license agreements; however, we may not be able to obtain royalty or
licenses agreements on terms acceptable to us, or at all. We also may be subject
to significant damages or an injunction against use of our products. A
successful claim of patent or other intellectual property infringement against
us would have an immediate material adverse effect on our business and financial
condition.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THIS INABILITY
COULD WEAKEN OUR COMPETITIVE POSITION, REDUCE OUR REVENUES AND INCREASE OUR
COSTS
Our success depends in large part on our proprietary technology. We rely on
a combination of patent, copyright, trademark and trade secrets, confidentiality
procedures and licensing arrangements to establish and protect our proprietary
rights. We may be required to spend significant resources to monitor and police
our intellectual property rights. If we fail to successfully enforce our
intellectual property rights, our competitive position may be harmed.
Our pending patent and trademark registration applications may not be
allowed or competitors may successfully challenge the validity or scope of these
registrations. In addition, our patents may not provide us a significant
competitive advantage.
Other software providers could copy or otherwise obtain and use our
products or technology without authorization or develop similar technology
independently which may infringe our proprietary rights. We may not be able to
detect infringement and may lose a competitive position in the market before we
do so. In addition, competitors may design around our technology or develop
competing technologies. The laws of some foreign countries do not protect
proprietary rights to the same extent as do the laws of the United States.
In addition, organizations that have a site license for a fixed number of
users for our products may allow unauthorized use of our software by unlicensed
users. Unauthorized use is difficult to detect and, to the extent that our
software is used without authorization, we may lose potential license fees.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR INTERNAL SYSTEMS, OUR SOFTWARE PRODUCTS OR
THE PRODUCTS WITH WHICH OUR SOFTWARE INTEGRATES COULD ADVERSELY AFFECT OUR
BUSINESS
We cannot assure you that we will not experience unanticipated negative
consequences relating to problems of computer systems in processing dates after
January 1, 2000. These negative consequences include costs associated with:
- problems with our products
- problems of the interaction of our products with other software, and
- loss of data in our internal systems.
Many currently installed computer systems and software were written to
accept and process only two digit entry codes for the year when storing dates.
Beginning with the year 2000, these entry codes will need to accept four digit
entries to distinguish 21st century dates from 20th century dates. As a result,
computer
11
<PAGE> 14
systems and/or software products used by many companies may need to be upgraded
to solve this problem to avoid incorrect or lost data.
We have tested our E.piphany E.4 System and believe that it is year 2000
compliant. We have tested our prior products, many of which are currently in use
by our customers, to a limited extent. We have also inquired of significant
vendors of our internal accounting, management and product development systems
as to their year 2000 readiness and tested our systems to a limited extent. We
believe that, based on these tests and assurances of our vendors, we will not
incur material costs to resolve year 2000 issues. If our tests and inquiries did
not uncover all year 2000 problems, we could be exposed to damages resulting
from year 2000 failures and claims resulting from damages caused by any
incorrect data produced by our software, whether through a claim of breach of
warranty, product defect or otherwise.
If our technical services organization does not adequately address existing
year 2000 issues of our customers, or there are preexisting errors in our
customer databases, the usefulness of our software may be impaired. Although we
cannot control the year 2000 compliance of our customers and their third-party
vendors, we may still be subject to claims and liability based on the fact that
our products provided incorrect data. These claims could divert significant
management, financial and other resources and we may not have adequate
commercial insurance to cover these claims.
If it comes to our attention that there are any year 2000 problems with our
products or that some of our third-party hardware and software is not year 2000
compliant, then we will endeavor to make modifications to our products and
systems, or purchase new systems, on a timely basis. Although we do not believe
that the cost of these modifications and replacements, if any, will materially
affect our operating results, we have no other contingency plan to address
effects of year 2000 problems with our products and internal systems. We cannot
assure you that our products and systems will be year 2000 compliant or that we
will not incur material expenses or liability relating to the year 2000 problem.
OUR PRODUCTS ARE NEW, AND IF THEY CONTAIN DEFECTS OR OUR SERVICES ARE NOT
PERCEIVED AS HIGH QUALITY, WE COULD LOSE POTENTIAL CUSTOMERS OR BE SUBJECT TO
DAMAGES
We recently began shipping our first products in early 1998, and in June
1999, we began shipping our most recent E.piphany E.4 solutions. These products
are complex and may contain errors, defects or failures, particularly since they
are new and recently released. We test our products extensively prior to
releasing them; however, in the past we have discovered software errors in some
of our products after introduction. We may not be able to detect and correct
errors before releasing our products commercially despite our testing. If our
commercial products contain errors, we may be required to expend significant
resources to locate and correct the error, delay introduction of new products or
commercial shipment of products, or experience reduced sales and harm to our
reputation from dissatisfied customers. Our customers also may encounter system
configuration problems which require us to spend additional consulting or
support resources to resolve these problems.
Because our software products are used for important decision-making
processes by our customers, product defects may also give rise to product
liability claims. Although our license agreements with customers typically
contain provisions designed to limit our exposure, some courts may not enforce
all or part of these limitations. Although we have not experienced any product
liability claims to date, we may encounter these claims in the future. Product
liability claims, whether or not successful, could:
- divert the attention of our management and key personnel from our
business
- be expensive to defend, and
- result in large damage awards.
Our product liability insurance may not be adequate to cover all of the expenses
resulting from a claim. In addition, if our customers do not find our services
to be of high quality, they may elect to use other training, consulting and
product integration firms rather than contract for our services. If customers
are dissatisfied with our services, we may lose a significant component of our
revenues.
12
<PAGE> 15
IF WE NEED ADDITIONAL FINANCING TO MAINTAIN AND EXPAND OUR BUSINESS, FINANCING
MAY NOT BE AVAILABLE ON FAVORABLE TERMS, IF AT ALL
We expect to incur net losses for the foreseeable future. We may need
additional funds to expand or meet all of our operating needs. If we need
additional financing, we cannot be certain that it will be available on
favorable terms, if at all. Further, if we issue equity securities, stockholders
will experience additional dilution and the equity securities may have seniority
over our common stock. If we need funds and cannot raise them on acceptable
terms, we may not be able to:
- develop or enhance our products
- take advantage of future opportunities, or
- respond to customers and competition.
WE INTEND TO EXPAND OUR INTERNATIONAL OPERATIONS BUT DO NOT HAVE SUBSTANTIAL
EXPERIENCE IN INTERNATIONAL MARKETS
We may not be able to successfully expand into international markets. We
have limited experience in marketing, selling and supporting our products and
services abroad. We plan to expand our international operations in the near
future, and this will require a significant amount of attention from our
management and substantial financial resources. If we are unable to grow our
international operations successfully and in a timely manner, our business and
operating results could be seriously harmed. In addition, doing business
internationally involves greater expenses and many additional risks, including,
among others, unexpected changes in regulatory requirements, taxes and tariffs,
differing intellectual property rights, greater difficulty in staffing and
managing foreign operations and fluctuating exchange rates.
IF WE ACQUIRE ANY COMPANIES OR TECHNOLOGIES IN THE FUTURE, THEY COULD PROVE
DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE AND
ADVERSELY AFFECT OUR OPERATING RESULTS
We may acquire or make investments in complementary companies, services and
technologies in the future. We have not made any acquisitions or investments to
date, and therefore our ability as an organization to conduct acquisitions or
investments is unproven. If we fail to properly evaluate and execute
acquisitions and investments, they may seriously harm our business and
prospects. To successfully complete an acquisition, we must properly evaluate
the technology, accurately forecast the financial impact of the transaction,
including accounting charges and transactions expenses, integrate and retain
personnel, combine potentially different corporate cultures and effectively
integrate products and research and development, sales, marketing and support
operations. If we fail to do any of these, we may suffer losses or our
management may be distracted from our day-to-day operations. In addition, if we
conduct acquisitions using debt or equity securities, existing stockholders may
be diluted which could affect the market price of our stock.
SEASONAL TRENDS IN SALES OF BUSINESS APPLICATION SOFTWARE MAY AFFECT OUR
QUARTERLY REVENUES
The market for business application software has experienced seasonal
fluctuations in demand. The first and third quarters of the year have been
typically characterized by lower levels of revenue growth. We believe that these
fluctuations are caused in part by customer buying patterns, which are
influenced by year-end budgetary pressures and by sales force commission
structures. As our revenues grow, we may experience seasonal fluctuations in our
revenues.
BECAUSE SOME EXISTING STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK,
OTHER STOCKHOLDERS' VOTING POWER MAY BE LIMITED
After this offering, it is anticipated that our officers, directors and
five percent or greater stockholders will beneficially own or control, directly
or indirectly, 29,514,725 shares of common stock, which in the aggregate will
represent approximately % of the outstanding shares of common stock. As a
result, if some of these persons act together, they will have the ability to
control all matters submitted to our stockholders for approval, including the
election and removal of directors and the approval of any business combination.
This may delay or prevent an acquisition or affect the market price of our
stock.
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<PAGE> 16
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Shares issued upon the exercise of outstanding options may also be
sold in the public market. In addition, such sales could create the perception
to the public of difficulties or problems with our products and services. As a
result, these sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.
Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options after June 30, 1999. Of these shares, the
shares sold in this offering are freely tradable. The remaining 42,163,556
shares will become eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES DATE
--------- ---------------------------------------------
<C> <S>
0 At the date of this prospectus
40,288,556 181 days after the date of this prospectus,
if the sales meet certain restrictions under
the federal securities laws
1,875,000 At June 16, 2000, if the sales meet certain
restrictions under the federal securities
laws
</TABLE>
The above table includes the effect of lock-up arrangements with the
underwriters and us which prevent our directors, officers and other existing
stockholders from selling or otherwise disposing of their shares of common stock
prior to 181 days after the offering. The underwriters may remove these lock-up
restrictions prior to 181 days after the offering without prior notice. Please
see the sections entitled "Shares Eligible for Future Sale" and "Underwriting"
for more information about when and how shares of our common stock may become
available for sale in the market.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE RETURN
The majority of the net proceeds of this offering are not allocated for
specific uses other than working capital and general corporate purposes. Thus,
our management has broad discretion over how these proceeds are used and could
spend most of these proceeds in ways with which our stockholders may not agree.
We cannot assure you that the proceeds will be invested in a way that yields a
favorable return. Please see the section entitled "Use of Proceeds" for more
information about how we plan to use our proceeds from this offering.
OUR SECURITIES HAVE NO PRIOR MARKET AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING
Before this offering, there has not been a public market for our common
stock and an active public market for our common stock may not develop or be
sustained after this offering. Further, the trading market price of our common
stock may decline below our initial public offering price. The initial public
offering price will be determined by negotiations between the representatives of
the underwriters and us. This price may not directly relate to our book value,
assets, past operating results, financial condition or other established
criteria of value. Please see the section entitled "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price.
WE DO NOT INTEND TO PAY DIVIDENDS, AND YOU MAY NOT EXPERIENCE A RETURN ON YOUR
INVESTMENT WITHOUT SELLING SHARES
We have never declared or paid any cash dividends on our capital stock and
do not intend to pay dividends in the foreseeable future. We intend to invest
our future earnings, if any, to fund our growth. Therefore, you will not
experience a return on your investment in our common stock without selling your
14
<PAGE> 17
shares. We further cannot assure you that you will receive a return on your
investment when you sell your shares.
AS A NEW INVESTOR YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution in pro forma net tangible book
value. If the holders of outstanding options or warrants exercise those options
or warrants, you will experience further dilution. See "Dilution" for a
calculation of the amount of dilution you will experience.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY OR PREVENT AN
ACQUISITION OF OUR COMPANY
Our certificate of incorporation and bylaws contain provisions which could
make it harder for a third party to acquire us without the consent of our board
of directors. While we believe these provisions provide for an opportunity to
receive a higher bid by requiring potential acquirors to negotiate with our
board of directors, these provisions may apply even if the offer may be
considered beneficial by some stockholders. See "Description of Capital Stock"
for an explanation of the factors that may delay or prevent an acquisition.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN
You should not rely on forward-looking statements in this prospectus. 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 such
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described above and elsewhere in this prospectus.
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common
stock offered by us are estimated to be $ , after deducting the
underwriting discount, estimated offering expenses and assuming no exercise of
the underwriters' over-allotment option to purchase shares from us.
The principal purposes of this offering are to obtain additional working
capital, to create a public market for our common stock and to facilitate future
access by us to public markets. We expect to use the net proceeds of this
offering for working capital and general corporate purposes. In addition, we may
use a portion of the net proceeds to acquire complementary products,
technologies or businesses; however, we currently have no commitments or
agreements and are not involved in any negotiations to do so. Pending use of the
net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our existing lines of credit prohibit the payment of cash
dividends.
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<PAGE> 19
CAPITALIZATION
The following table sets forth the following information:
- the actual capitalization of E.piphany as of June 30, 1999, and
- the as adjusted capitalization of E.piphany to give effect to the
conversion of all outstanding shares of convertible preferred stock into
shares of common stock and the sale of shares of common stock
at an assumed initial public offering price of $ per share in this
offering, less underwriting discounts and commissions and estimated
offering expenses payable by E.piphany.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, net of current portion............... $ 8,095 $
Stockholders' equity:
Convertible preferred stock; issuable in series, $.0001
par value; 25,405,724 shares authorized, 23,119,967
shares issued and outstanding,
actual; no shares authorized, issued or outstanding, as
adjusted............................................... 3
Preferred stock; $.0001 par value, no shares authorized,
issued or outstanding, actual; 10,000,000 shares
authorized, no shares issued or outstanding, as
adjusted............................................... --
Common stock, $.0001 par value; 50,000,000 shares
authorized, 19,043,589 shares issued and outstanding,
actual; 200,000,000 shares authorized, shares
issued and outstanding, as adjusted.................... 2
Additional paid-in capital.................................. 39,375
Warrants to purchase preferred stock........................ 532
Note receivable............................................. (640)
Deferred compensation....................................... (3,842)
Accumulated deficit......................................... (22,825)
-------- --------
Total stockholders' equity............................. 12,605
-------- --------
Total capitalization.............................. $ 20,700
======== ========
</TABLE>
This table excludes:
- 6,943,962 shares of common stock reserved for issuance under our 1997
stock plan, of which 5,582,708 shares are subject to outstanding options
- 7,000,000 shares of common stock reserved for issuance under our 1999
stock plan
- 4,000,000 shares available for issuance under our 1999 employee stock
purchase plan, and
- 959,873 shares of common stock issuable upon exercise of outstanding
warrants and stock purchase rights.
See the sections entitled "Management -- Incentive Stock Plans,"
"Description of Capital Stock" and Notes 3, 5 and 6 of Notes to Financial
Statements.
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<PAGE> 20
DILUTION
The net tangible book value of our common stock (assuming conversion of all
outstanding shares of our convertible preferred stock on June 30, 1999) was
$12.6 million, or approximately $0.30 per share. Net tangible book value per
share represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common and convertible preferred stock
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. After giving effect to our sale of
shares of common stock offered by this prospectus at an assumed
initial public offering price of $ per share and after deducting the
underwriting discount and estimated offering expenses payable by us, our net
tangible book value would have been approximately $ , or $ per
share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
1999................................................... $0.30
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after the
offering..................................................
-----
Dilution in pro forma net tangible book value per share to
new investors............................................. $
=====
</TABLE>
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. See Notes and to Notes to Financial
Statements. The exercise of outstanding options and warrants would increase the
dilutive effect to new investors.
The following table sets forth, as of June 30, 1999, on the pro forma basis
described above, the differences between the number of shares of common stock
purchased from us, the total price paid and average price per share paid by
existing stockholders and by the new investors in this offering at an assumed
initial public offering price, before deducting the underwriting discount and
estimated offering expenses payable by us, of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 42,163,556 % $35,430,000 % $0.84
New investors.........................
---------- ----- ----------- -----
Total....................... 100.0% $ 100.0%
---------- ----- ----------- -----
</TABLE>
If the underwriters over-allotment option is exercised in full, the
following will occur:
- the number of shares of common stock held by existing stockholders will
decrease to or approximately % of the total number of
shares of common stock outstanding after the offering, and
- the number of shares held by new public investors will be increased to
or approximately % of the total number of shares of our
common stock outstanding after this offering.
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<PAGE> 21
SELECTED FINANCIAL DATA
The following selected financial data and other operating information as of
and for the years ended December 31, 1997 and 1998, are derived from our
financial statements, which have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere in this prospectus.
The financial data as of and for the six months ended June 30, 1998 and 1999 are
derived from unaudited financial statements included elsewhere in this
prospectus. We have prepared this unaudited information on the same basis as the
audited financial statements and have included all adjustments, consisting only
of normal recurring adjustments that we consider necessary for a fair
presentation of our financial position and operating results for such periods.
When you read this selected financial data, it is important that you also read
the historical financial statements and related notes included in this
prospectus, as well as the section of this prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Historical results are not necessarily indicative of future results.
See Note 2 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------- ------------------
1997 1998 1998 1999
------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product license.................................. $ -- $ 2,216 $ 533 $ 2,929
Services......................................... -- 1,161 330 2,195
------- -------- ------- -------
Total revenues........................... -- 3,377 863 5,124
------- -------- ------- -------
Cost of revenues:
Product license.................................. -- 4 -- 25
Services......................................... -- 1,396 370 2,488
------- -------- ------- -------
Total cost of revenues................... -- 1,400 370 2,513
------- -------- ------- -------
Gross profit....................................... -- 1,977 493 2,611
------- -------- ------- -------
Operating expenses:
Research and development......................... 1,646 3,769 1,644 2,865
Sales and marketing.............................. 1,200 6,519 2,260 6,351
General and administrative....................... 373 1,503 609 1,284
Stock-based compensation......................... 1 799 2 1,572
------- -------- ------- -------
Total operating expenses................. 3,220 12,590 4,515 12,072
------- -------- ------- -------
Loss from operations............................... (3,220) (10,613) (4,022) (9,461)
Interest income, net............................... 71 283 129 115
------- -------- ------- -------
Net loss........................................... $(3,149) $(10,330) $(3,893) $(9,346)
======= ======== ======= =======
Basic and diluted net loss per share............... $ (1.45) $ (3.59) $ (0.91) $ (0.93)
======= ======== ======= =======
Shares used in calculation of basic and diluted net
loss per share................................... 2,174 2,874 4,270 10,027
======= ======== ======= =======
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (0.58) $ (0.30)
======== =======
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)........... 17,665 31,376
======== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------- -----------
1997 1998 1999
---- ------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $369 $13,595 $19,852
Working capital............................................. 131 12,601 18,289
Total assets................................................ 801 16,364 24,759
Long term obligations, net of current portion............... -- 333 8,095
Total stockholders' equity.................................. 468 13,440 12,605
</TABLE>
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including but not limited to, those discussed in "Risk Factors" starting on page
6 and elsewhere in this prospectus.
OVERVIEW
E.piphany is a leading provider of customer-centric analytic solutions that
enable companies to better understand the unique needs of individual customers
and take action on that knowledge to personalize interactions, products and
services across electronic commerce and traditional channels.
E.piphany was founded in November 1996. From our founding through the end
of 1997, we primarily engaged in research activities, developing our products
and building our business infrastructure. We began shipping our first software
product and first generated revenues from customer-centric analytic solutions in
early 1998. During 1998, we introduced several other software products, and in
June 1999, we shipped our E.piphany E.4 System which integrates and extends the
functionality of our prior products, especially in the area of campaign
management and electronic commerce. Although revenues consistently increased
from quarter to quarter during 1998, we incurred significant costs to develop
our technology and products, to continue the recruitment of research and
development personnel, to build a direct sales force and a professional services
organization, and to expand our general and administrative infrastructure. Our
total headcount has increased from 21 at December 31, 1997 to 115 at June 30,
1999. Our revenues were $3.4 million in 1998 and $5.1 million in the six months
ended June 30, 1999. We had net losses of $3.1 million in 1997, $10.3 million in
1998 and $9.3 million in the six months ended June 30, 1999.
SOURCE OF REVENUES AND REVENUE RECOGNITION POLICY
We generate revenues principally from licensing our software products
directly to customers and providing related professional services including
implementation, consulting, support and training. Through June 1999,
substantially all of our revenues have been derived from sales within the United
States through our direct sales force. Our license agreements generally provide
that customers pay an up-front license fee for one or more solutions supported
by our E.piphany E.4 System platform. Enterprises that license our
customer-centric analytic solutions receive a license to use our E.piphany E.4
System platform and one or more of our solution modules with the extractors
required to extract, manage and analyze data from their existing data sources.
Following the implementation of our solution, customers are able to analyze and
act on meaningful customer information located throughout the organization. Our
customers also pay fees to deploy the solution to additional users throughout
the organization through standard Internet browsers and to purchase additional
solutions, which integrate with previously implemented solutions. We also charge
for implementation, consulting and training services. Customers generally
purchase implementation services directly from us; however, we intend to
increasingly rely on third-party consulting organizations to deliver these
services directly to our customers. Customers also generally purchase
maintenance contracts which provide software upgrades and technical support over
a stated term, generally twelve months.
We recognize product license revenues in accordance with the provisions of
American Institute of Certified Public Accounts (AICPA) Statement of Position
97-2, "Software Revenue Recognition." Pursuant to the requirements of Statement
of Position 97-2, we recognize product license revenues when all of the
following conditions are met:
- we have signed a noncancellable license agreement with the customer
- we have delivered the software product to the customer
20
<PAGE> 23
- the amount of fees to be paid by the customer is fixed or determinable,
and
- we believe that collection of these fees is probable.
When we manage the implementation process for our customers, the
implementation services are considered essential to the functionality of the
software products. Accordingly, both the product license revenues and services
revenue is recognized in accordance with the provisions of AICPA Statement of
Position 81-1, "Accounting for Performance of Construction Type and Certain
Production Type Contracts." Prior to 1999, we recognized substantially all of
our revenues using the completed contract method. In 1999 and future periods, we
expect to recognize most of our revenues using the percentage of completion
method, and therefore both product license and services revenues are recognized
as work progresses. The implementation of our products can take several months
or more depending on the solution which has been licensed, the complexity of the
customer's information technology environment and the resources directed by
customers to the implementation projects. To date, we have managed the
implementation of our solutions for the substantial majority of our customers.
Some of our contracts provide for the delivery of unspecified future products
over a period of time. Accordingly, payments received from our customers upon
the signing of these agreements are deferred and the revenues are recognized
ratably over the contract period.
Revenue allocated to maintenance is recognized ratably over the contract
period and revenue allocated to training and other services is recognized as the
services are performed.
COST OF REVENUES AND OPERATING EXPENSES
Our cost of license revenues primarily consists of license fees due to
third parties for integrated technology. Our cost of services revenues includes
salaries and related expenses for our implementation, consulting support and
training organizations, costs of subcontracting to third parties to provide
consulting services to customers and an allocation of facilities, communications
and depreciation expenses. Our operating expenses are classified into three
general categories: sales and marketing, research and development, and general
and administrative. We classify all charges to these operating expense
categories based on the nature of the expenditures. We allocate the costs for
overhead and facilities to each of the functional areas that use the overhead
and facilities services based on their headcount. These allocated charges
include facility rent for corporate offices, communication charges and
depreciation expenses for office furniture and equipment.
We had 115 full-time employees as of June 30, 1999 and intend to hire a
significant number of employees in the future. This expansion places significant
demands on our management and operational resources. To manage rapid growth and
increased demand, we must continue to invest in and implement scalable
operational systems, procedures and controls.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUES
Total revenues increased to $5.1 million for the six months ended June 30,
1999, from $0.9 million for the six months ended June 30, 1998. This rapid
growth in revenues reflects our relatively early stage of development, and we do
not expect revenues to increase at the same rate in the future. For the six
months ended June 30, 1999, Sallie Mae, CSAA, KPMG and Fair, Isaac accounted for
20%, 13%, 11% and 11% of our total revenues, respectively. For the six months
ended June 30, 1998, Autodesk, Visio and Macromedia accounted for 57%, 21% and
16% of our total revenues, respectively.
Product license revenues increased to $2.9 million, or 57% of total
revenues, for the six months ended June 30, 1999 from $0.5 million, or 62% of
total revenues, for the six months ended June 30, 1998. The increase in dollar
amount of product license revenues was due to both an increase in the number of
licenses sold and the average size of the licenses, and resulted primarily from
the growth of our direct sales force and the introduction and shipment of new
products. Although product license revenues declined as a
21
<PAGE> 24
percentage of total revenues primarily because of our early stage of development
and the volume of solution orders compared to orders for additional users, which
do not generally require services, we do not believe this trend is indicative of
future performance.
Services revenues increased to $2.2 million, or 43% of total revenues, for
the six months ended June 30, 1999 from $0.3 million, or 38% of revenues, for
the six months ended June 30, 1998. The increase was primarily attributable to
increased implementation and consulting services performed in connection with
increased license sales and to maintenance contracts sold to E.piphany's new
customers. Because services revenues have substantially lower margins relative
to product license revenues, to the extent that services revenues become a
greater percentage of our total revenues, our overall gross profits will
decline.
COST OF REVENUES
Total cost of revenues increased to $2.5 million for the six months ended
June 30, 1999 from $0.4 million for the six months ended June 30, 1998.
Cost of product license revenues consists primarily of license fees paid to
third parties under technology license arrangements and have not been
significant to date.
Cost of services revenues consists primarily of the costs of consulting and
customer service and support. Cost of services revenues increased to $2.5
million, or 113% of services revenues, for the six months ended June 30, 1999
from $0.4 million, or 112% of services revenues, for the six months ended June
30, 1998. The increase in cost of services revenues in absolute dollars resulted
primarily from the hiring of additional employees and subcontracting with
third-party integrators to support increased customer demand for consulting
services. Cost of services revenues has exceeded services revenues due to the
rapid growth of our services organization from 5 employees at June 30, 1998 to
28 employees at June 30, 1999 and our investment in a scalable infrastructure in
anticipation of future revenue growth.
OPERATING EXPENSES
Research and Development
Research and development expenses consist primarily of personnel and
related costs associated with our product development efforts. Research and
development expenses increased to $2.9 million for the six months ended June 30,
1999 from $1.6 million for the six months ended June 30, 1998. The increase in
absolute dollars was primarily due to an increase in the number of employees
engaged in research and development. Research and development expenses as a
percentage of total revenues decreased from 190% to 56% due primarily to growth
in our revenues. We believe that investments in product development are
essential to our future success and expect that the absolute dollar amount of
research and development expenses will increase in future periods.
Sales and Marketing
Sales and marketing expenses consist primarily of employee salaries,
benefits and commissions, and the costs of trade shows, seminars, promotional
materials and other sales and marketing programs. Sales and marketing expenses
increased to $6.4 million for the six months ended June 30, 1999 from $2.3
million for the six months ended June 30, 1998. Sales and marketing expenses as
a percentage of total revenues decreased from 262% to 124% due primarily to
growth in our revenues. The increase in absolute dollars was primarily
attributable to an increase in the number of direct sales, pre-sales support and
marketing employees. We expect that the absolute dollar amount of sales and
marketing expenses will continue to increase due to the planned growth of our
sales force, including the establishment of sales offices in additional domestic
and international locations, and due to expected additional increases in
advertising and marketing programs and other promotional activities.
22
<PAGE> 25
General and Administrative
General and administrative expenses consist primarily of employee salaries
and related expenses for executive, finance and administrative personnel.
General and administrative expenses increased to $1.3 million for the six months
ended June 30, 1999 from $0.6 million for the six months ended June 30, 1998.
General and administrative expenses as a percentage of total revenues decreased
from 71% to 25% due primarily to growth in our revenues. The increase in
absolute dollars was primarily attributable to increased salary and related
expenses in the executive, finance and administrative functions to manage our
growth. We expect general and administrative expenses to increase in absolute
dollars in future periods.
Stock-Based Compensation
Stock-based compensation consists of amortization of deferred compensation
in connection with stock option grants and sales of stock to employees at
exercise or sales prices below the deemed fair market value of our common stock
and compensation related to equity instruments issued to non-employees for
services rendered. In 1998 and the six months ended June 30, 1999, we recorded
aggregate deferred compensation of $5.9 million related to stock-based
compensation to employees. This amount is being amortized over the respective
vesting periods of these equity instruments in a manner consistent with
Financial Accounting Standards Board Interpretation No. 28. Of the total
deferred compensation, $1.3 million was amortized in the six months ended June
30, 1999. We expect amortization of approximately $1,182,000, $1,525,000,
$794,000, $315,000, and $26,000 in the second half of 1999, the years ended
December 31, 2000, 2001, 2002, and the first half of 2003, respectively. Total
stock-based compensation was $1.6 million for the six months ended June 30,
1999. See Note 6 to Notes to Financial Statements.
INTEREST INCOME, NET
The decrease in interest income, net of interest expense, for the six
months ended June 30, 1999 was not significant when compared to the same period
in the prior year.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Our total revenues were $3.4 million in 1998 and were comprised of the
first commercial sales of software products and related services fees from
implementation, training and support. Product license revenues were $2.2 million
in 1998. Services revenues were $1.2 million in 1998. For 1998, product license
revenues and services revenues accounted for 66% and 34% of revenues,
respectively. We did not recognize any revenues in 1997.
In 1998, Autodesk, Charles Schwab, Hewlett-Packard, KPMG and Macromedia,
accounted for 30%, 17%, 16%, 11% and 11% of total revenues, respectively.
COST OF REVENUES
Cost of revenues was $1.4 million in 1998. Cost of services revenues as a
percentage of services revenues was 120%. The increase in cost of services
revenues in 1998 resulted primarily from the hiring of employees and, to a
lesser extent, the use of third-party integrators to support customer demand for
consulting and maintenance services. We did not have any revenues in 1997 and
thus had no cost of revenues in 1997.
OPERATING EXPENSES
Research and Development
Research and development expenses increased to $3.8 million in 1998 from
$1.6 million in 1997. The increase in research and development expenses was
related primarily to an increase in the number of employees engaged in research
and development to support the development of new products.
23
<PAGE> 26
Sales and Marketing
Sales and marketing expenses increased to $6.5 million in 1998 from $1.2
million in 1997. The increase in sales and marketing expenses resulted primarily
from building a direct sales force and investing in sales and marketing
infrastructure which included significant personnel-related expenses, recruiting
fees, travel expenses, and related facility and equipment costs, as well as
increased marketing activities, including trade shows, public relations, direct
mail campaigns and other promotional expenses.
General and Administrative
General and administrative expenses increased to $1.5 million in 1998 from
$0.4 million in 1997. The increase in dollar amount of general and
administrative expenses resulted primarily from the addition of executive,
finance and administrative personnel to support the growth of our business
during this period.
Stock-Based Compensation
In 1998, stock-based compensation consisted of amortization of deferred
compensation in connection with certain stock option grants and sales of stock
to employees at exercise or sales prices below the deemed fair market value of
our common stock and compensation related to equity instruments issued to
non-employees. We recorded aggregate deferred compensation of $3.2 million in
1998 related to stock transactions with employees. Of the deferred compensation,
$0.7 million was amortized in 1998. Total stock-based compensation was $0.8
million in 1998. See Note 6 to Notes to Financial Statements.
INTEREST INCOME, NET
Interest income, net of interest expense, increased to $0.3 million from
$0.1 million as a result of higher interest income due to higher average cash
balances related to capital financing activities, partially offset by higher
interest expense due to bank borrowings.
PROVISION FOR INCOME TAXES
From inception through December 31, 1998, we incurred net losses for
federal and state tax purposes and have not recognized any tax provision or
benefit. As of December 31, 1998, we had $11.7 million of federal and state net
operating loss carry forwards to offset future taxable income. The federal net
operating loss carry forwards begin to expire on varying dates beginning in 2012
through 2018 and the state operating loss carry forwards begin to expire in
2004. Given our limited operating history, our losses incurred to date and the
difficulty in accurately forecasting our future results, management does not
believe that the realization of the related deferred income tax asset meets the
criteria required by generally accepted accounting principles. Therefore, we
have recorded a 100% valuation allowance against these tax loss carryforwards.
See Note 7 of Notes to Financial Statements.
24
<PAGE> 27
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain
unaudited quarterly financial results for the six quarters ended June 30, 1999.
The statement of operations data has been derived from our unaudited financial
statements. In management's opinion, these statements have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods presented. This
information should be read in conjunction with the financial statements and
notes thereto included elsewhere in this prospectus. We have experienced and
expect to continue to experience fluctuations in operating results from quarter
to quarter. Historical operating results are not necessarily indicative of the
results that may be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues:
Product license............. $ 137 $ 396 $ 737 $ 946 $ 1,136 $ 1,793
Services.................... 90 240 375 456 758 1,437
------- ------- ------- ------- ------- -------
Total revenues....... 227 636 1,112 1,402 1,894 3,230
------- ------- ------- ------- ------- -------
Cost of revenues:
Product license............. -- -- 3 1 5 20
Services.................... 127 243 477 549 827 1,661
------- ------- ------- ------- ------- -------
Total cost of
revenues........... 127 243 480 550 832 1,681
------- ------- ------- ------- ------- -------
Gross profit.................. 100 393 632 852 1,062 1,549
------- ------- ------- ------- ------- -------
Operating expenses:
Research and development.... 724 920 973 1,152 1,294 1,571
Sales and marketing......... 862 1,398 1,818 2,441 2,763 3,588
General and
administrative............ 172 437 378 516 456 828
Stock-based compensation.... -- 2 393 404 603 969
------- ------- ------- ------- ------- -------
Total operating
expenses........... 1,758 2,757 3,562 4,513 5,116 6,956
------- ------- ------- ------- ------- -------
Loss from operations.......... (1,658) (2,364) (2,930) (3,661) (4,054) (5,407)
Interest income, net.......... 63 66 24 130 95 20
------- ------- ------- ------- ------- -------
Net loss...................... $(1,595) $(2,298) $(2,906) $(3,531) $(3,959) $(5,387)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUES
Revenues:
Product license............. 60% 62% 66% 67% 60% 56%
Services.................... 40 38 34 33 40 44
------- ------- ------- ------- ------- -------
Total revenues....... 100 100 100 100 100 100
------- ------- ------- ------- ------- -------
Cost of revenues:
Product license............. -- -- -- -- -- 1
Services.................... 56 38 43 39 44 51
------- ------- ------- ------- ------- -------
Total cost of
revenues........... 56 38 43 39 44 52
------- ------- ------- ------- ------- -------
Gross profit.................. 44 62 57 61 56 48
------- ------- ------- ------- ------- -------
Operating expenses:
Research and development.... 319 145 88 82 68 49
Sales and marketing......... 380 220 163 174 146 111
General and
administrative............ 76 69 34 37 24 26
Stock-based compensation.... -- -- 35 29 32 30
------- ------- ------- ------- ------- -------
Total operating
expenses........... 775 434 320 322 270 216
------- ------- ------- ------- ------- -------
Loss from operations.......... (731) (372) (263) (261) (214) (168)
Interest income, net.......... 28 10 2 9 5 1
------- ------- ------- ------- ------- -------
Net loss...................... (703)% (362)% (261)% (252)% (209)% (167)%
======= ======= ======= ======= ======= =======
</TABLE>
25
<PAGE> 28
Our quarterly revenues increased throughout 1998 and the first two quarters
of 1999 primarily as a result of the introduction of our first commercially
available software products and the growth of our direct sales force. Cost of
revenues has increased in each of these quarters as a result of the hiring of
employees and the cost of subcontracting with third-party integrators to support
customer demand for consulting and maintenance services. Total operating
expenses increased in each quarter primarily due to increased expenses
associated with building a sales and marketing infrastructure including the
development of a direct sales force, increased spending on research and
development to support new product introductions and an increase in general and
administrative expenses to manage our expanding operations.
Services revenues as a percentage of total revenues and cost of services
revenues as a percentage of total revenues have varied significantly from
quarter to quarter due to our relatively early stage of development. The
relative amount of services revenues as compared to license revenues has varied
based on the volume of solution orders compared to the volume of additional user
orders, which generally do not require services. In addition, the amount and
profitability of services can depend in large part on the solution which has
been licensed, the complexity of the customers' information technology
environment, the resources directed by customers to their implementation
projects, the number of users licensed and the extent to which our strategic
third-party integrators provide services directly to customers. Services
revenues as a percentage of total revenues has increased for each of the last
two quarters primarily due to growth of our new customer base which has resulted
in a higher percentage of new solution sales compared to additional user sales.
Cost of services revenues as a percentage of total revenues has increased
each of the last two quarters, primarily as a result of the increased services
revenues as a percentage of total revenues. Our operating expenses as a
percentage of total revenues have generally decreased from quarter to quarter
due to our relatively early stage of development and our historical rapid
revenue growth.
Although we have a limited operating history, we believe that quarterly
operating results may experience seasonal fluctuations in the future. For
instance, quarterly results may fluctuate based on client calendar year
budgeting cycles, slow summer purchasing patterns in Europe and our compensation
policies that tend to compensate sales personnel, typically in the latter half
of the year, for achieving annual quotas.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date primarily through private placements
of equity securities and, to a lesser extent, debt financing and revenues.
Through June 30, 1999, we have raised $32.5 million through equity financing.
Under a senior credit facility, we maintain a $1.0 million revolving line
of credit with a bank that expires December 1, 1999 and bears variable interest
at the bank's prime rate. We also have a $3.0 million term loan under this
senior credit facility that is repayable ratably over a 36 month period
beginning March 1, 2000. The term loan bears variable interest at the bank's
prime rate plus 0.5%. Both of these loans are secured by essentially all of our
assets. In addition, we have a subordinated convertible debt facility under
which we are entitled to borrow up to $10.0 million, of which $5.0 million is
currently outstanding, over 42 months beginning June 1999 at a fixed interest
rate of 10.0%. All borrowings under the subordinated facility are secured by
essentially all of our assets after the rights of senior creditors, and we
cannot maintain more than $5.0 million of senior debt without approval of the
lender. We also have a $2.0 million equipment lease line. See Note 3 of Notes to
Financial Statements.
Net cash used in operating activities totaled $2.9 million in 1997, $8.7
million in 1998 and $7.2 million during the six months ended June 30, 1999. Cash
used in operating activities for each period resulted primarily from net losses
in those periods.
Net cash used in investing activities totaled $0.4 million in 1997, $1.1
million in 1998 and $0.8 million for the six months ended June 30, 1999. The
increases in each period resulted primarily from the purchase of furniture and
equipment, consisting largely of computer servers and workstations.
26
<PAGE> 29
Net cash provided by financing activities totaled $3.6 million in 1997,
$23.0 million in 1998 and $14.3 million for the six months ended June 30, 1999.
The increases in each period resulted primarily from the net proceeds from
issuances of convertible preferred stock, the issuance of subordinated
convertible debt, and bank borrowings.
As of June 30, 1999, our principal sources of liquidity included $19.9
million of cash and cash-equivalents. We anticipate a substantial increase in
our capital expenditures and lease commitments consistent with anticipated
growth in operations, infrastructure and personnel. See Notes 3 and 4 of Notes
to Financial Statements.
We believe that the net proceeds from this offering, combined with current
cash balances and short-term investments, will be sufficient to meet our
anticipated liquidity needs for working capital and capital expenditures for at
least 12 months from the date of this prospectus. Our forecast of the period of
time through which our financial resources will be adequate to support
operations is a forward-looking statement that involves risks and uncertainties,
and actual results could vary materially as a result of the factors described
above. We expect to incur net losses for the foreseeable future. We may need
additional funds to expand or meet all of our operating needs. If we require
additional capital resources to grow our business internally or to acquire
complementary technologies and businesses, we may seek to sell additional equity
or debt securities or secure an additional bank line of credit. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders. We cannot assure you that any financing
arrangements will be available in amounts or on terms acceptable to us.
YEAR 2000 ISSUES
We are aware of the issues surrounding the year 2000 and problems relating
to computers and computer software incorrectly distinguishing between 21st and
20th century dates. Year 2000 issues could affect both our products and services
as well as our internal management control systems.
With respect to our products, we have designed our E.piphany E.4 System and
other products to be year 2000 compliant. We have tested our E.piphany E.4
System and based on these tests, as well as input from our customers using the
pre-release test version of the software, believe our software is year 2000
compliant. We have tested our prior products only to a limited extent. Based on
these tests and input from our customers, we believe that the prior products are
also year 2000 compliant. We therefore do not expect to expend significant
resources to resolve year 2000 errors in our products. However, we cannot be
certain that our test procedures, particularly the limited tests performed on
our prior products, will uncover all possible year 2000 errors in our products.
In some cases, we have warranted to our customers that our products are year
2000 compliant. If our tests and design measures have failed to discover and
resolve all year 2000 problems in our products, we could be liable to customers
for breach of warranty, product defects or otherwise.
In addition, many of the enterprise databases and web browsers with which
our software interacts may not be year 2000 compliant. If our customers'
databases are not year 2000 compliant, our technical services organization must
address these existing year 2000 issues. Also, preexisting data in our
customers' databases accessed by our software may already contain year 2000
errors. Our technical services organization may not be able to adequately
address existing year 2000 issues, or there may be preexisting errors in our
customers' databases. Although we cannot control the year 2000 compliance of our
customers and their third-party vendors, we may still be subject to claims and
liability based on the fact that our products provided incorrect data. These
claims could divert significant management, financial and other resources and we
may not have adequate commercial insurance to cover these claims.
With respect to our information technology and management functions, we
have inquired of the year 2000 compliance of our material hardware and software
vendors related to internal accounting, management and product development. We
have also tested our systems, but only to a very limited extent. Based on the
representations of our vendors and the internal tests we have conducted, we do
not believe we will incur material losses relating to upgrade and replacement of
our systems or from failure of our systems.
27
<PAGE> 30
We intend to implement a new accounting and management reporting system in
late 1999 for business reasons unrelated to year 2000. We have been assured that
our new system is also year 2000 compliant by the vendor. If any of our vendors'
representations regarding their products are not accurate, or if we encounter
unknown year 2000 problems relating to the interaction of our systems, we could
incur significant expenses to resolve these issues or damages resulting from a
failure of our systems to perform correctly. For example, if our accounting
system fails to properly record our transactions, we would need to devote staff
or hire a third-party to correct the problem, could lose important data and
would have difficulty planning without accurate financial information.
In the event we discover year 2000 problems in our products or internal
systems, we will endeavor to resolve these problems by making modifications to
our products or systems or purchasing new systems, on a timely basis. However,
we have no other contingency plan to address the effect of year 2000 problems
with our products and internal systems. In addition, the effect of year 2000 on
our customers generally, or on our banks, stock markets and other infrastructure
functions is unknown. We cannot assure you that our products and systems will be
year 2000 compliant or that we will not incur material expenses or liability
relating to the year 2000 problem.
MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the risk factors section of this
prospectus.
Foreign Currency Exchange Rate Risk
To date, all of our recognized revenues have been denominated in U.S.
dollars and primarily from customers in the United States. We expect, however,
that future product license and services revenues may also be derived from
international markets and may be denominated in the currency of the applicable
market. As a result, our operating results may become subject to significant
fluctuations based upon changes in the exchange rates of certain currencies in
relation to the U.S. dollar. Furthermore, to the extent that we engage in
international sales denominated in U.S. dollars, an increase in the value of the
U.S. dollar relative to foreign currencies could make our products less
competitive in international markets. Although we will continue to monitor our
exposure to currency fluctuations, and, when appropriate, may use financial
hedging techniques in the future to minimize the effect of these fluctuations,
we cannot assure you that exchange rate fluctuations will not adversely affect
our financial results in the future.
Interest Rate Risk
As of June 30, 1999, we had cash and cash equivalents of $19.9 million
which consist of cash and highly liquid short-term investments. Our short-term
investments will decline in value by an immaterial amount if market interest
rates increase. Declines of interest rates over time will, however, reduce our
interest income from our short-term investments.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires companies to
record derivative financial instruments on their balance sheets as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows. In June 1999, the
FASB issued SFAS No. 137, "Accounting For Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," which
amends SFAS No. 133 to be effective for all fiscal quarters or all fiscal years
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beginning after June 15, 2000, or January 1, 2001 for us. This statement will
not have a material impact on the financial condition or results of our
operations.
In December 1998, the AICPA issued Statement of Position (SOP) 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions." SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the deferral
of the application of some provisions of SOP 97-2 amended by SOP 98-4 through
fiscal years beginning on or before March 15, 1999. All other provisions of SOP
98-9 are effective for transactions entered into in fiscal years beginning after
March 15, 1999. We do not anticipate that this statement will have a material
adverse impact on our statement of operations.
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<PAGE> 32
BUSINESS
E.PIPHANY OVERVIEW
We are a leading provider of customer-centric analytic solutions that
enable companies to better understand the unique needs of individual customers
and take action on that knowledge to personalize interactions, products and
services across electronic commerce and traditional channels. As the rapid
growth of the Internet continues to reduce traditional customer loyalties and
intensify competition, businesses are seeking new ways to increase the value and
personalization of customer relationships. Our E.piphany E.4 System addresses
these challenges by providing Web-based, packaged analytic solutions designed to
enable businesses to maximize the value of their existing customer relationships
and develop profitable new relationships.
We market our products primarily through our direct sales force to
companies across a wide variety of industries. As of June 30, 1999, we licensed
our products to Acxiom, Ascend Communications, Autodesk, California State
Automobile Association, Capital Blue Cross, Charles Schwab, DIRECTV,
Exactis.com, Hewlett-Packard, Hilton Hotels, KPMG, Macromedia, Microsoft, Nissan
North America, Sallie Mae, SGI and Wells Fargo, among others.
INDUSTRY BACKGROUND
The rapid growth of the Internet is fundamentally changing the way
businesses interact with their customers and suppliers. Consumers are using the
Internet to more quickly evaluate products and prices from a wide range of
vendors without regard to geographical constraints. At the same time, companies
across a variety of industries are using the Internet to redefine the way that
goods and services are marketed, sold and distributed. In general, the emergence
of on-line business is reducing traditional customer loyalties, intensifying
competition and compelling companies to develop new ways of delivering value to
their customers.
In response to these challenges, many companies are working to maximize the
lifetime value of individual customer relationships by understanding and
addressing the unique needs and characteristics of each customer. Companies that
succeed in understanding their customers can build long-term relationships with
their most profitable customers by providing more personalized interactions,
products and services. These companies can also use this information to better
anticipate demand and optimize their fulfillment processes to serve each
customer in the most efficient manner. Many companies believe that this
personalization will increase the frequency of customer interactions and further
enrich their knowledge of their customers. Over time, the convenience of a
personalized relationship can become so compelling to the customer that
evaluating and working with competitors becomes an inconvenient alternative.
Throughout the process, a company can leverage the strength of its customer
relationships and customer knowledge to execute customer-specific marketing
campaigns to sell complementary products, known as "cross-selling," or to sell
higher-end products, known as "up-selling," to its customers and win profitable
new customers.
Over the past two decades, companies have invested in software applications
that reduce costs by automating business processes. AMR Research, a leading
industry and market analysis firm, estimates that, from 1995 through 1998,
companies have spent more than $56.5 billion on industrial enterprise
applications software to automate such transaction-oriented functions as sales,
support, manufacturing, distribution and finance. More recently, companies have
begun investing in electronic commerce infrastructure software, including
systems that enable commercial transactions over the Web, as well as Web logs
that monitor customers' behavior on Web sites. Many companies also continue to
operate older legacy systems that automate critical business processes. All of
these applications have allowed companies to collect and store enormous volumes
of customer data, which is often augmented by marketing data from third-party
sources.
Despite the vast amounts of data generated, these applications remain
focused on automating business processes, rather than analyzing data to provide
meaningful and actionable customer information.
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Moreover, because this data resides in disparate transactional, electronic
commerce and legacy applications or are delivered from third parties,
integrating and analyzing these various data sources to provide a comprehensive
view of the customer is a significant challenge. For example, many companies'
electronic commerce systems operate independently of systems that automate their
traditional sales channels and fulfillment processes. To analyze disparate
corporate data, many companies have attempted to custom build analytic solutions
using a combination of data extraction tools, data marts or data warehouses,
data mining technologies, on-line analytic processing software, campaign
management software and, increasingly, electronic commerce reporting tools and
Web logs. Many of these internally developed solutions can require substantial
amounts of time to integrate, can be expensive to deploy and maintain, and can
limit the ability to embed sales, marketing, finance and electronic commerce
expertise and functionality. Finally, these solutions often have complex user
interfaces and may not be accessible to all business users across the
enterprise.
To enable all employees in a company to analyze and act on meaningful
customer information located throughout the organization, companies need a new
generation of analytic solutions. These solutions should incorporate all of the
following characteristics:
- Customer-centric business solutions. Solutions should provide
functionality that allows companies to identify and differentiate their
customers and take action on that knowledge to personalize interactions,
products and services to most efficiently serve each customer across
electronic commerce and traditional channels.
- Deployable to all employees and customer interaction points. Solutions
should leverage the ease of use and availability of Web-based
architectures to enable all employees, not just information technology
professionals and specialized analysts, to access, understand and act on
customer information. Additionally, solutions should easily integrate
with companies' electronic commerce infrastructure to drive personalized
interactions via the Web and enable customers to query corporate
information sources over the Internet.
- Comprehensive, packaged solutions. Solutions should minimize the time and
expense of solution deployment and maintenance by integrating the
complexity of data extraction, aggregation, management and analysis, as
well as marketing campaign management, with business expertise and
functionality into a packaged analytic solution.
THE E.PIPHANY SOLUTION
We are a leading provider of customer-centric analytic solutions that
enable companies to better understand the unique needs of individual customers
and act on that knowledge to personalize interactions, products and services
across electronic commerce and traditional channels. Our products address the
needs of business users who are seeking to understand how to maintain and
maximize the value of existing customer relationships and attract profitable new
customers. Our E.piphany E.4 System is differentiated by its combination of the
following characteristics:
Business solutions designed to personalize customer relationships. Our
solutions provide unique functionality to support the development and management
of personalized customer relationships by:
- Identifying customers. Our solutions enable companies to better identify
their customers by aggregating and analyzing widely distributed data from
electronic commerce infrastructure, transactional applications and legacy
systems, as well as from third-party data sources.
- Differentiating customers. Our solutions allow companies to differentiate
their customers by analyzing customer groups by demographics,
profitability, length of sales cycle, cross-sell success rates and other
company-defined criteria.
- Interacting with customers more personally. Our solutions leverage
improved customer knowledge to facilitate more personal interactions and
manage customer-specific marketing campaigns based on individual customer
needs and preferences.
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- Customizing products, services and fulfillment. Our solutions provide
companies the information required to customize products and services
based on customer needs and preferences. In addition, companies may use
our products to understand and anticipate customer demands to optimize
their fulfillment processes to serve each customer most efficiently.
Web-based architecture to promote ease of use and wide-scale
deployment. All of our solutions are Web-based and accessed through standard
Internet browsers. As a result, our user interfaces are easy to use and
accessible to any business user as well as selected customers, not just to
information technology professionals and specialized analysts. Additionally, our
Web-based architecture does not require additional software to be installed and
maintained on each user's computer, minimizing deployment and maintenance costs.
Packaged analytic solutions designed to minimize complexity and accelerate
deployment. We provide packaged analytic solutions that seamlessly integrate
sales, marketing, finance and electronic commerce expertise and functionality
into a comprehensive platform for data extraction, management, analysis and
customer interaction, as well as marketing campaign management. This provides
users with pre-built functionality and minimizes the costs of implementation and
maintenance. Our solutions can be implemented in 16 weeks or less and integrate
data from virtually all electronic commerce, transactional, and legacy
applications, as well as third-party data sources.
E.PIPHANY STRATEGY
Our objective is to be the leading provider of customer-centric analytic
solutions that enable companies to understand the unique needs of individual
customers and act on that knowledge to personalize interactions, products and
services across electronic commerce and traditional channels. Key elements of
our strategy include:
Extend the breadth and depth of our product offerings. We intend to extend
our leadership in the market for customer-centric analytic solutions by
continuing to invest in research and development. We intend to leverage the
extensibility of our E.piphany E.4 System to build new analytic solutions that
increase the range of problems that we can solve for our customers. In
particular, we intend to expand our solution offerings for electronic commerce
and to build solutions that solve problems in fulfillment, logistics and
operations. We believe that maintaining and enhancing our products and services
is important to our ability to expand our market share, retain existing
customers and acquire new customers.
Develop additional industry specific solutions to further penetrate
vertical markets. To date, we have sold our solutions primarily to companies in
the financial services, high technology, healthcare, telecommunications and
automotive industries. Using our extensible architecture, we plan to further
penetrate new and existing vertical markets that have dynamic, rapidly changing
business environments, are information intensive and require competitive
differentiation based on customer loyalty. To achieve this goal, we intend to
leverage the industry expertise of our professional services organization and
our existing and future strategic partners.
Increase market penetration by expanding our distribution capabilities. In
addition to growing our direct sales force, we have developed a limited number
of highly strategic relationships with leading systems integrators and resellers
that allow us to leverage our sales presence. In particular, we have established
reseller relationships with Acxiom and Harte-Hanks -- two leading database
marketing companies. We also intend to establish additional relationships with
leading consultants and integrators, such as those we already have with
Cambridge Technology Partners, Ernst & Young, KPMG and Marketing 1:1. We intend
to use these relationships to support sales and develop new solutions based on
our E.piphany E.4 System. We also intend to build our international presence by
leveraging our system integration relationships and augmenting our direct sales
force.
Offer additional application service provider solutions. In addition to
licensing our software, we have recently begun to offer our solutions through an
Internet-based applications service provider, Exactis.com for companies that
want a third party to host their customer-centric analytic solutions. In the
future, we
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intend to add additional application service providers. We believe that the
application service provider option will be particularly attractive to pure
electronic commerce companies, as well as mid-sized companies that typically
have limited internal information technology resources.
E.PIPHANY PRODUCTS
The E.piphany E.4 System consists of multiple customer-centric analytic
solutions that are supported by an integrated platform for data extraction,
management, analysis and customer interaction, as well as campaign management.
The E.piphany E.4 System solutions address specific business issues in three
main areas:
- Reporting and Analysis
- Distributed Database Marketing
- E-Commerce
The E.piphany E.4 System applies advanced analytic techniques to relevant
data drawn from existing software applications and third-party data sources. Our
customers can then take action based on this analysis by managing
customer-specific marketing campaigns across electronic commerce and traditional
channels. Our solutions can be deployed simultaneously or in incremental steps
as our customers address new business problems.
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Reporting and Analysis Solutions
Our reporting and analysis solutions allow any business user with a Web
browser to easily analyze customer, supplier and operational data across the
enterprise. To support this capability, we have designed our E.piphany E.4
System to extract and aggregate data from a wide variety of electronic data
sources regardless of their format. Our current reporting and analysis solutions
include the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SOLUTION DESCRIPTION
- --------------------------------------------------------------------------------------
<S> <C>
Bookings, Billings & - Calculates and analyzes bookings, billings, backlog,
Backlog/Sales deferred revenue, allowances and other sales information
Reporting & Analysis - Enables users to better understand revenue drivers and
trends
- --------------------------------------------------------------------------------------
Customer - Analyzes customer relationship management data
Relationship - Enables users to better understand quantity, flow and the
Management Reporting status of sales leads, customer inquiries and service calls
& Analysis - Forecasts future sales based on the number and quality of
current leads
- Identifies patterns of support problems
- Presents a comprehensive profile of customers and
prospects
- --------------------------------------------------------------------------------------
Channel Sell-Through - Enables companies to better manage their indirect channels
Management and forecast revenue
- Tracks geographical distribution of sales, inventory
trends, distributors' profit margins, distributors' sales by
product line and channel backlog trends
- --------------------------------------------------------------------------------------
Call Center - Enhances the efficient management of call centers by
Reporting & Analysis tracking various metrics, such as the average cost and time
for problem resolution and the frequency of customer
contact
- Measures the profitability of individual call center
representatives
- --------------------------------------------------------------------------------------
Customer - Enables segmentation of customers by profitability and
Profitability potential lifetime value
- Develops models for company, division and geographical
profitability
- --------------------------------------------------------------------------------------
Branch Information - Enables branch offices to develop an executive "dashboard"
Systems to profile customers, track regional sales and execute
marketing campaigns
- --------------------------------------------------------------------------------------
</TABLE>
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Distributed Database Marketing Solutions
Our distributed database marketing solutions allow individual employees
within a company to profile customers and design and execute customer-specific
marketing campaigns in a collaborative environment. Once a campaign is designed,
our solutions can be used to trigger direct mail, personalized e-mail,
customized Web pages and other campaign delivery mechanisms. Once campaigns are
executed, our distributed database marketing solutions analyze the resulting
data to refine and tune campaigns. Our current distributed database marketing
solutions include the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SOLUTION DESCRIPTION
- --------------------------------------------------------------------------------------
<S> <C>
Cross-sell/Up-sell - Enables companies to better identify opportunities to sell
complementary or higher-end products to existing customers
- Manages test marketing campaigns to maximize effectiveness
- Segments customer clusters, generates marketing
campaign target lists, and measures and maximizes
the effectiveness of campaigns
- --------------------------------------------------------------------------------------
Campaign Performance - Monitors response rates, total costs and profitability
Measurement scores for corporate, regional and divisional marketing
campaigns
- Measures, models and predicts returns on marketing
campaign investments
- --------------------------------------------------------------------------------------
Loyalty Program - Measures and helps manage a company's customer loyalty
Management program
- Enables companies to better identify and understand their
most loyal customers
- Improves effectiveness of loyalty programs by providing
information about customer buying and churn patterns
- --------------------------------------------------------------------------------------
</TABLE>
We are actively working to extend our distributed database marketing
solution family to add the following solutions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SOLUTION DESCRIPTION
- --------------------------------------------------------------------------------------
<S> <C>
Customer Acquisition We are designing this solution to:
- Integrate customer prospect lists from external providers,
advertising responses and promotional events
- Analyze past conversion rates to develop predictive models
for new customer acquisition programs
- Enable companies to better identify and segment the best
new customer opportunities, execute campaigns, measure the
effectiveness of the campaigns, and, using these results,
further refine customer acquisition models
- --------------------------------------------------------------------------------------
Attrition Management We are designing this solution to:
- Enable companies to better analyze why customers terminate
their relationships with companies
- Enable companies to better maximize retention of
profitable customers and attrition of unprofitable
customers
- --------------------------------------------------------------------------------------
</TABLE>
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E-Commerce Solutions
Our e-commerce solutions help to execute electronic commerce marketing
campaigns through electronic mail and electronic commerce systems. Our solutions
also enable better personalization of customer interactions on the Web and
better product customization in addition to measuring the effectiveness of
companies' electronic commerce initiatives and their effect on traditional
channels. Our current e-commerce solutions include the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SOLUTION DESCRIPTION
- --------------------------------------------------------------------------------------
<S> <C>
E-Commerce Reporting - Evaluates electronic commerce customer purchasing patterns
& Analysis and Web site effectiveness
- Analyzes the effect of electronic commerce on traditional
channels and overall profitability
- --------------------------------------------------------------------------------------
</TABLE>
We are actively working to extend our e-commerce solution family to add the
following solutions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SOLUTION DESCRIPTION
- --------------------------------------------------------------------------------------
<S> <C>
E-Commerce We are designing this solution to:
Campaigns - Manage marketing campaigns executed through e-mail and the
Web as well as conventional direct mail and phone
solicitations
- Integrate data from multiple communication and
distribution channels to form an integrated view of the
customer
- Allow companies to improve the effectiveness of electronic
commerce marketing campaigns by analyzing customer profiles
and segmenting target customer lists across channels
- --------------------------------------------------------------------------------------
E.Mailer We are designing this solution to:
- Personalize e-mails by selecting and segmenting customer
data
- Track e-mail delivery and response
- Embed Web addresses in e-mails to provide personalized Web
pages and customized offers
- Measure and help manage the effectiveness of on-line
marketing campaigns
- --------------------------------------------------------------------------------------
Product We are designing this solution to:
Customization
- Analyze customer preferences to drive product
customization, new product introductions and up-selling
opportunities
- --------------------------------------------------------------------------------------
Real-Time Campaigner We are designing this solution to:
- Allow companies to personalize product or service
offerings for each customer in real-time based on customer
profiles created using data collected across both
electronic commerce and traditional channels
- Enable companies to up-sell and cross-sell the most
appropriate products to each customer
- --------------------------------------------------------------------------------------
</TABLE>
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PROFESSIONAL SERVICES
Our professional services organization plays an integral role in delivering
our solutions to our customers as well as supporting and training our customers.
We believe that providing a high level of customer service and technical support
is critical to the satisfaction of our customers and our own success. As of June
30, 1999, our professional services staff consisted of 28 employees. Our
professional services offerings include:
Consulting services. We offer industry-specific consulting services focused
on configuring and implementing solutions to meet each of our customers' unique
needs. These services are delivered by our consulting specialists as well as
through our implementation partners. We believe that our consulting services
enhance implementation, improve the time to market and integrity of the solution
and share best practices with client project teams.
Training services. We offer extensive training programs to our customers
and partners to accelerate implementation and end user adoption. Fees for our
training services are typically charged separately from our software license
fees and consulting fees.
Support services. We provide our customers with extensive support services
including telephone support, Web-based support and updates to our products and
documentation. We enter into maintenance and support contracts separate from our
product license agreements. Fees are typically 15 to 20% of the license fees for
the associated software products.
In addition to implementing our solutions and supporting our customers, our
professional services organization works closely with our development
organization to design new E.piphany E.4 solutions. Experience gained by our
consultants through repeated implementation of our products is routinely
conveyed to our research and development staff. Our research and development
staff then uses this experience to design new features into new releases of our
software. To promote this interaction, we have located our professional services
organization together with our development organization, and we have created a
staff exchange program between the two groups.
E.PIPHANY E.4 SYSTEM PLATFORM
GRAPHIC
Underlying our solutions is the E.piphany E.4 System platform. This
platform enables our solutions to extract, manage and analyze data from existing
systems, as well as managing marketing campaigns. By packaging the complexity of
these processes into an extensible, integrated system, our solutions allow
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customers to avoid expensive and time intensive integration of analytic
components. In addition, this platform allows our development organization and
partners to rapidly build and deploy new functional and vertical solutions as
market opportunities arise. The major elements of our E.piphany E.4 System
application platform include:
EpiCenter. EpiCenter is our integrated, state-of-the-art data mart for
storing and managing data. Our analytic solutions access EpiCenter to retrieve
the data that they require to perform their analysis. Key functional elements of
EpiCenter include:
- Adaptive Schema Generator. Our Adaptive Schema Generator is our
technology for automatically designing and generating the EpiCenter data
mart, based on high-level specifications, each time a customer's solution
is modified. The Adaptive Schema Generator enables rapid customization of
our products to meet the specific and dynamic business needs of our
customers and allows system administrators to avoid having to manage
complex data mart design tasks.
- Metadata integration. All of the components of our E.piphany E.4 System
are integrated through proprietary metadata, which is a high-level
description of the data residing in a database. As a result, when new
data elements are added to one component of the system, all other
components are able to recognize the change and adapt accordingly.
- Accelerators. We have integrated accelerators that improve the
performance of our system by pre-computing some data aggregation
functions, creating special indices and providing "hints" to the system
on how to optimize the processing of user queries.
Extraction and transformation. E.piphany's E.4 System offers a powerful
approach to extracting data from various sources and transforming that data
before loading it into EpiCenter. Because our E.piphany E.4 System is a
comprehensive platform driven by metadata, we can build into our solutions much
of the business logic that has traditionally been custom built by information
technology staff. This business logic is incorporated into a series of packaged
semantic transformations, or rules that change customer data into a form
well-suited to effective data analysis. Our packaged semantic transformations
enable rapid implementation, deployment and maintenance of customer solutions.
Application server. Our application server manages the analytic application
components that are invoked to analyze data in response to application queries.
The analytic components integrated into our E.piphany E.4 System include data
mining algorithms, query and reporting technologies, campaign management
functions and other analytic capabilities. In addition, the application server
generates the Web pages that end-users access through their Web browsers.
RELATIONSHIPS AND ALLIANCES
An important element of our sales strategy is to establish relationships
and alliances to assist us in marketing, selling and developing our analytic
solutions. This approach is intended to increase the number of personnel
available to perform application design and development services for our
customers and provide additional sales, marketing and customer support expertise
in selected vertical industry segments. These relationships and alliances fall
into the following four categories:
Strategic relationships. We have formed strategic relationships with major
system integrators and industry experts to enable the rapid adoption and
deployment of our solutions and expand our solutions into new vertical markets.
We currently have strategic relationships with Cambridge Technology Partners,
Ernst & Young, KPMG and Marketing 1:1. Each of these partners has committed
resources to training their consultants on our software, co-marketing programs
and incorporating our products into their customer relationship management
strategies. In addition, Cambridge Technology Partners, KPMG and Marketing 1:1
are investors in the Company.
Platform relationships. To ensure that our products are based on industry
standards and take advantage of current and emerging technologies, we have
formed strategic platform relationships. These relationships enable us to focus
on our core competencies, reduce time to market and simplify the task of
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designing and developing applications. We currently maintain platform
relationships with Hewlett-Packard, Microsoft, Oracle and Sun Microsystems.
Technology relationships. To ensure that our products are compatible with
the latest technology, we have formed technology relationships with many of the
leading technology companies in the Internet, enterprise software and data
management industries. This approach has allowed us to continuously take
advantage of and design for new technology advances in all of these industries.
We currently have referral selling agreements with Broadvision and Vignette to
exploit joint selling opportunities.
Reseller relationships. In order to extend the reach of our solutions, we
have entered into reseller agreements with key vendors. These relationships
allow us to leverage the sales professionals of their organizations as well as
extend our presence in new markets. We currently have reseller agreements with
Acxiom and Harte-Hanks, two leading providers of customer data and strategic
marketing services, and Pivotal Software, a leading provider of sales force
automation and customer support software. Each of these partners has committed
resources to training their employees, co-marketing programs and incorporating
our products into their customer relationship management strategies.
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CUSTOMERS
Our customers represent a wide, cross-industry spectrum of large global
institutions. Customers who have entered into agreements to purchase in excess
of $300,000 of software and related services since we began shipping products in
early 1998 include:
Acxiom
Ascend Communications
Autodesk
California State Automobile Association
Capital Blue Cross
Charles Schwab
DIRECTV
Envision
Fair, Isaac
FileNET
Hewlett-Packard
Hilton Hotels
KPMG
Macromedia
Microsoft
Nissan North America
Sallie Mae
Visio
Wells Fargo
These customers have accounted for approximately 93% of our revenues to
date. For the six months ended June 30, 1999, Sallie Mae, CSAA, KPMG and Fair,
Isaac accounted for 20%, 13%, 11% and 11% of our total revenues, respectively.
In 1998, Autodesk, Charles Schwab, Hewlett-Packard, KPMG and Macromedia,
accounted for 30%, 17%, 16%, 11% and 11% of total revenues, respectively.
SELECTED CUSTOMER APPLICATIONS
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
CUSTOMER APPLICATION
- -------------------------------------------------------------------------------------
Microsoft Microsoft is the worldwide leader in software for personal
computers. Microsoft was seeking a campaign management
[Microsoft Logo] solution to enhance its internal World Wide Marketing
Database. Microsoft selected E.piphany over other suppliers
of campaign management solutions because of our ability to
provide a full range of enterprise solutions focused on
personalizing customer relationships and our ability to make
our solutions broadly available to distributed knowledge
workers and managers in large corporations.
- -------------------------------------------------------------------------------------
California State CSAA is one of the largest of the American Automobile
Automobile Association's nationwide affiliates, serving nearly four
Association (CSAA) million members. Because CSAA has separate legacy systems
for its membership data and its travel services group
[CSAA Logo] transaction records, it had difficulty integrating this data
to facilitate its efforts to cross-sell and up-sell
products. We offered CSAA a solution that integrates these
disparate systems and allows employees to profile customers
and manage customer-specific marketing campaigns.
- -------------------------------------------------------------------------------------
Visio Visio, with more than three million customers worldwide,
develops, markets, and supports drawing and diagramming
[Visio Logo] software for enterprise-wide use. To support its electronic
commerce initiatives and evaluate their effect on its
traditional channels, Visio required a solution to integrate
and analyze customer data from multiple enterprise systems.
Using our solution, Visio employees can discern how the
company's electronic commerce initiatives are affecting its
business as a whole. Visio is also using our solutions to
incorporate customer preferences captured on its electronic
commerce site into its product development processes.
- -------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 43
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
CUSTOMER APPLICATION
- -------------------------------------------------------------------------------------
Sallie Mae Sallie Mae is a government sponsored enterprise that is the
nation's largest provider of funds and servicing for student
[Sallie Mae Logo] loans, services one-third of all outstanding student loans,
totaling more than $47 billion and more than five million
active customers. The company was recently privatized and is
seeking opportunities to provide better service and
cross-sell additional products and services by better
understanding its customers. Using our solution, Sallie Mae
employees are able to rapidly analyze customer data and
manage customer-specific marketing campaigns to cross-sell
new financial services as customers' financial status
changes.
- -------------------------------------------------------------------------------------
Capital Blue Cross Capital Blue Cross, an independent licensee of the Blue
Cross and Blue Shield Association, offers health care
[Capital Blue Cross benefits and complementary services throughout central
Logo] Pennsylvania. To better understand the suitability and
profitability of its product offerings, Capital Blue Cross
needed to analyze large amounts of customer data. Using our
solution, Capital Blue Cross is able to analyze enrollment
histories and other patient information to better understand
member activity and develop enhancements to existing and
future product offerings.
- -------------------------------------------------------------------------------------
Hewlett-Packard The Hewlett-Packard Asia-Pacific Computing Channels
Operation (APCCO) manages the flow of HP's computing
[Hewlett-Packard Logo] products into and through its reseller channel in Asia. To
enhance its channel partner relationships, HP APCCO sales
and marketing executives needed to analyze channel sales
information from throughout the Asia-Pacific region. HP
APCCO is deploying our solution to allow business users to
tailor HP's reseller programs and direct sales activities
for specific channel partners based upon their past sales
and future potential sales. Hewlett-Packard has also
deployed our solution across a number of other business
units.
- -------------------------------------------------------------------------------------
Hilton Hotels Hilton Hotels develops, owns, manages or franchises more
than 250 hotels, resorts and vacation properties in the
[Hilton Hotels Logo] United States. Hilton has collected a huge amount of guest
information in disparate systems at individual properties.
Hilton is deploying our solution to gather and analyze guest
behavior information from all U.S. Hilton hotels and resorts
and to make this information available to its hotels over
the Internet. By acting on this information, Hilton expects
that its business managers will be able to provide better
service to their guests, better manage corporate customer
relationships and fine-tune their business.
- -------------------------------------------------------------------------------------
</TABLE>
RESEARCH AND DEVELOPMENT
Our research and development organization is responsible for product
architecture, core technology, product testing and quality assurance and
ensuring the compatibility of our products with leading hardware platforms,
operating systems and database systems. In addition, this organization supports
some pre-sale and customer support activities. Our research and development
organization is divided into teams consisting of development engineers, product
managers, quality assurance engineers and technical writers. Our professional
services staff helps identify potential new product features.
On June 30, 1999, our research and development staff consisted of 36
employees. Our total expenses for research and development were $3.8 million for
the year ended December 31, 1998 and $1.6 million for the year ended December
31, 1997.
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SALES, MARKETING AND DISTRIBUTION
To date, we have marketed our products primarily through our direct sales
force. However, we intend to expand our sales channels through additional
relationships with systems integrators and value-added resellers. We typically
approach both business users and information technology professionals with an
integrated team from our sales and professional services organizations. Initial
sales activities typically include a demonstration of our product capabilities
followed by one or more detailed technical reviews. We also seek to establish
alliances and partnerships with major industry vendors that will add value to
our products and expand distribution opportunities. As of June 30, 1999, our
sales and marketing organization consisted of 38 employees.
We use a variety of marketing programs to build market awareness of our
company, our brand name and our products, as well as to attract potential
customers, including market research, product and strategy updates with industry
analysts, public relations activities, direct mail programs, telemarketing and
telesales, seminars, trade shows, reseller programs, speaking engagements and
Web site marketing. Our marketing organization also produces marketing materials
in support of sales to prospective customers that include brochures, data
sheets, white papers, presentations and demonstrations.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our future success depends in part on legal protection of our technology.
To protect our technology, we rely on a combination of the following methods,
among others:
- Patent laws
- Copyright laws
- Trademark laws
- Trade secret laws, or
- Employee and third-party nondisclosure agreements and confidentiality
procedures.
We have applied for seven patents on our technology in the United States;
we have also received several trademark registrations and applied for additional
trademarks. Our pending patent and trademark applications may not be allowed.
Even if they are allowed, these patents may not provide us a competitive
advantage. Competitors may successfully challenge the validity and scope of our
patents and trademarks.
Our end-user licenses are designed to prohibit unauthorized use, copying
and disclosure of our software and technology. However, these provisions may be
unenforceable under the laws of some jurisdictions and foreign countries.
Unauthorized third parties may be able to copy some portions of our products or
reverse engineer or obtain and use information and technology that we regard as
proprietary. Third parties could also independently develop competing technology
or design around our technology. If we are unable to successfully detect
infringement and enforce our rights in our technology, we may lose competitive
position in the market. We cannot assure you that our means of protecting its
proprietary rights in the United States or abroad will be adequate or that
competing companies will not independently develop similar technology. In
addition, some of our licensed users may allow additional unauthorized users to
use our software, and if we do not detect such use we could lose potential
license fees.
From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We believe that our products do not infringe
the intellectual property rights of third parties. However, we cannot assure you
that we will prevail in all intellectual property disputes. We have not
conducted a search for existing patents and other intellectual property
registrations, and we cannot assure you that our products do not infringe upon
issued patents. In addition, because patent applications in the United States
are not publicly disclosed until the patent is issued, applications may have
been filed which would relate to our products.
We indemnify some of our customers against claims that our products
infringe upon the intellectual property rights of others. We could incur
substantial costs in defending ourselves and our customers
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<PAGE> 45
against infringement claims. In the event of a claim of infringement, we or our
customers may be required to obtain one or more licenses from third parties. We
cannot assure you that such licenses could be obtained from third parties at a
reasonable cost, or at all. Defense of any lawsuit or failure to obtain any such
required license would have a material adverse effect on our business.
COMPETITION
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. E.piphany's integrated software solution
competes against providers of decision support and data warehousing software,
enterprise application software, and campaign management software. Our
competitors include companies that sell:
- decision support and data warehousing software such as Brio Technology,
Business Objects, Cognos, Informatica and Sagent Technology
- enterprise application software such as i2 Technologies and Siebel
Systems, and
- campaign management software such as Exchange Applications and Prime
Response.
In addition, enterprise application software vendors such as Oracle,
PeopleSoft and SAP are beginning to offer decision support and analytic modules,
although they typically tend to support only the analysis of data from their own
operational systems. We may also face competition from vendors of collaborative
filtering solutions, such as Net Perceptions and Rightpoint Software, Inc.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing, or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements. Competition
could seriously harm our ability to sell additional software, maintenance and
support renewals, and services on terms favorable to us. Competitive pressures
could reduce our market share or require us to reduce the price of products and
services, any of which could materially and adversely affect our business,
financial condition and operating results.
We compete on the basis of certain factors, including:
- product performance
- product features
- user scalability
- open architecture
- ease of use
- product reliability
- analytic capabilities
- time to market
- customer support, and
- product pricing.
We believe that we presently compete favorably with respect to each of
these factors. However, the market for our products is still rapidly evolving,
and we may not be able to compete successfully against current and potential
competitors.
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<PAGE> 46
EMPLOYEES
As of June 30, 1999, we had 115 full-time employees. Of these employees, 36
were engaged in research and development, 38 were engaged in sales and
marketing, 28 were engaged in professional services and 13 were engaged in
finance and administration.
None of our employees is represented by a labor union or a collective
bargaining agreement. We have not experienced any work stoppages and consider
our relations with our employees to be good.
FACILITIES
We currently lease approximately 13,500 square feet of office space for our
headquarters in one building, located in Palo Alto, California. We have entered
into a lease of approximately 32,500 square feet of office space in one building
in San Mateo, California. We intend to move our headquarters to the San Mateo
office space beginning in September 1999. We also lease sales offices near
Atlanta, Detroit, Dallas, Los Angeles and Stamford, Connecticut. We believe our
new facilities are adequate for our current needs. We may need to locate
additional space to meet our needs in the future.
LEGAL PROCEEDINGS
From time to time, we may become involved in litigation relating to claims
arising from our ordinary course of business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would have a material adverse effect on us.
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<PAGE> 47
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to our executive
officers and directors as of June 30, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Roger S. Siboni.............. 44 President, Chief Executive Officer and Director
Steven G. Blank.............. 45 Executive Vice President, Marketing
Phillip M. Fernandez......... 38 Executive Vice President, Product Development
Anthony M. Leach............. 47 Executive Vice President, Operations and Services
Karen A. Richardson.......... 36 Executive Vice President, Worldwide Sales
Kevin J. Yeaman.............. 32 Vice President, Finance and Administration
Eliot L. Wegbreit............ 55 Chairman of the Board of Directors
Paul M. Hazen................ 57 Director
Robert L. Joss............... 58 Director
Sam H. Lee................... 38 Director
Douglas J. Mackenzie......... 39 Director
</TABLE>
Roger S. Siboni has served as President, Chief Executive Officer and a
member of the board of directors of E.piphany since August 1998. Prior to
joining E.piphany, Mr. Siboni served as Deputy Chairman and Chief Operating
Officer of KPMG Peat Marwick LLP, a member firm of KPMG International, an
accounting and consulting organization, from October 1996 to July 1998 and
served as National Managing Partner of KPMG's information and communications
practice from June 1993 to October 1996. He serves on the board of directors of
Cadence Design Systems, Inc. FileNET, Inc., Macromedia, Inc. and Pivotal
Corporation. Mr. Siboni has accepted a position as Chairman of the advisory
board of the Haas Graduate School of Business at the University of California at
Berkeley. Mr. Siboni holds a B.S. in Business Administration from the University
of California at Berkeley and is a Certified Public Accountant in New York and
California.
Steven G. Blank co-founded E.piphany in November 1996. Mr. Blank served as
President of E.piphany from its founding until May 1998 when he began serving in
his current position as Executive Vice President, Marketing. In February 1993,
Mr. Blank co-founded Rocket Science Games Inc., a video game company, and served
as its Chief Executive Officer until joining E.piphany in November 1996. From
August 1989 to February 1993, Mr. Blank served as Vice President of Marketing at
SuperMac, Inc., a supplier of color graphics boards and monitors for Macintosh
computers. Mr. Blank serves on the board of directors of several private
companies.
Phillip M. Fernandez has served as Executive Vice President, Product
Development of E.piphany since April 1999. Prior to joining E.piphany, Mr.
Fernandez served in several executive positions at Red Brick Systems Inc., a
provider of database software. Mr. Fernandez served as Executive Vice President
and Chief Operating Officer of Red Brick Systems Inc. from June 1998 to December
1998, as Senior Vice President of Products and Services from November 1996 to
May 1998 and as Vice President of Product Development from December 1991 to
October 1996. From January 1999 to March 1999, after Red Brick Systems, Inc. was
acquired by Informix Software, Inc., Mr. Fernandez served as a consultant to
Informix, a provider of relational database software. Mr. Fernandez holds a B.A.
in History from Stanford University.
Anthony M. Leach has served as Executive Vice President, Operations and
Services of E.piphany since January 1999. Prior to joining E.piphany, Mr. Leach
was employed by Oracle Corporation, a database system and applications supplier,
as Senior Vice President of Consulting Services for Europe, the Middle East and
Africa from November 1994 to June 1997, and as Senior Vice President of World
Wide Consulting from June 1997 to January 1999. From August 1975 to November
1994, Mr. Leach served with KPMG, an accounting and services firm, in Europe,
and became a partner in the firm in 1984.
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<PAGE> 48
Karen A. Richardson has served as Executive Vice President, Worldwide Sales
of E.piphany since June 1998. From November 1995 to May 1998, Ms. Richardson
served as Vice President of Sales at Netscape Communications Corporation, an
internet software company. From December 1994 to November 1995, Ms. Richardson
served as Vice President of Sales at Collabra Software, Inc., a developer of
groupware software. From November 1993 to September 1995, Ms. Richardson served
as Vice President of Marketing at Be Incorporated, a provider of software
operating systems for digital media applications. Ms. Richardson holds a B.S. in
Industrial Engineering from Stanford University.
Kevin J. Yeaman has served as Vice President, Finance and Administration of
E.piphany since June 1999 and as Controller of E.piphany from August 1998 to
June 1999. From February 1998 to August 1998, Mr. Yeaman served as Worldwide
Vice President of Field Operations for Informix Software, Inc., a provider of
relational database software. From September 1988 to February 1998, Mr. Yeaman
served in Silicon Valley and London in various positions at KPMG Peat Marwick
LLP, an accounting firm, serving most recently as a senior manager. Mr. Yeaman
holds a B.S. in Commerce from Santa Clara University and is a Certified Public
Accountant in California.
Eliot L. Wegbreit co-founded E.piphany in November 1996 and has served as
chairman of the board of directors of E.piphany since December 1996. Dr.
Wegbreit also served as Chief Executive Officer and Chief Financial Officer of
E.piphany from December 1996 to May 1998 and as Executive Vice President,
Research and Development from May 1998 to April 1999. From May 1988 to December
1998, Dr. Wegbreit was a principal at Hambrecht and Quist Venture Capital, a
venture capital investment firm. From January 1991 to January 1995, Dr. Wegbreit
served as Chairman of the Board of Directors and Chief Executive Officer of
Kubota Pacific Inc., a manufacturer of graphics workstations. Dr. Wegbreit holds
a B.E.S. in Engineering Physics from Johns Hopkins University and a Ph.D. in
Computer Science from Harvard University.
Paul M. Hazen has served as a director of E.piphany since June 1999. Mr.
Hazen serves as chairman of the board of directors of Wells Fargo & Co., a
position he has held since January 1995. Mr. Hazen also served as Chief
Executive Officer of Wells Fargo & Co. from January 1995 to November 1998 and as
President and Chief Operating Officer from July 1984 to January 1995. Mr. Hazen
serves on the board of directors of Safeway, Inc., Phelps Dodge Corporation, and
Vodafone Group, plc. Mr. Hazen holds a B.S. in Finance from the University of
Arizona and an M.B.A. from the University of California at Berkeley.
Robert L. Joss has served as a director of E.piphany since June 1999. Mr.
Joss will become dean of the Graduate School of Business at Stanford University
on September 1, 1999. From January 1993 to June 1999, Mr. Joss served on the
Board of Directors of Westpac Banking Corporation, a banking and financial
services company. From February 1993 to February 1999, Mr. Joss also served as
Chief Executive Officer of Westpac Banking Corporation. Mr. Joss holds a B.A. in
Economics from the University of Washington and an M.B.A. and Ph.D. in Finance
from Stanford University.
Sam H. Lee has served as a director of E.piphany since March 1997. Mr. Lee
is a co-founder and general partner of Information Technology Ventures, a
venture capital firm, a position he has held since June 1994. From June 1990 to
May 1994, Mr. Lee served as vice president of Philadelphia Ventures, a venture
capital firm. Mr. Lee serves on the board of directors of several private
companies. Mr. Lee holds a Bachelor of Science degree in Electrical Engineering
from Mississippi State University, a Masters of Engineering degree from Texas
A&M University and an M.B.A. from the Wharton School of the University of
Pennsylvania.
Douglas J. Mackenzie has served as a director of E.piphany since January
1998. Mr. Mackenzie has been a general partner of the venture capital firm of
Kleiner Perkins Caufield & Byers since 1994. Mr. Mackenzie serves on the board
of directors of Marimba, Inc., Pivotal Corporation and Visio Corporation. He
also serves on the board of directors of several private companies. Mr.
Mackenzie holds an A.B. in Economics from Stanford University, an M.S. in
Industrial Engineering from Stanford University and an M.B.A. from Harvard
University.
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<PAGE> 49
CLASSIFIED BOARD
Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, two of the nominees to the board will be elected
to one-year terms, two will be elected to two-year terms and two will be elected
to three-year terms. Thereafter, directors will be elected for three-year terms.
Sam H. Lee and Roger S. Siboni have been designated Class I directors whose term
expires at the 2000 annual meeting of stockholders. Douglas J. Mackenzie and
Eliot L. Wegbreit have been designated Class II directors whose term expires at
the 2001 annual meeting of stockholders. Paul M. Hazen and Robert L. Joss have
been designated Class III directors whose term expires at the 2002 annual
meeting of stockholders. For more information on the classified board, see the
section entitled "Description of Capital Stock -- Anti-takover Effects of
Provisions of Our Certificate and Bylaws and Delaware Law."
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees.
BOARD COMMITTEES
We established an audit committee in June 1999 and compensation committee
in June 1999.
Our audit committee consists of Sam H. Lee and Paul M. Hazen. The audit
committee reviews our internal accounting procedures and consults with and
reviews the services provided by our independent accountants.
Our compensation committee consists of Douglas J. Mackenzie and Robert L.
Joss. The compensation committee reviews and recommends to the board of
directors the compensation and benefits of our employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of 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.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from us for their
service as members of the board of directors. Under our 1999 stock plan, outside
directors are granted an option to purchase 50,000 shares of our common stock
upon appointment to our board of directors. In addition, an option to purchase
up to 25,000 shares of common stock is granted to each outside director at the
start of each of the second and third years of his service at the then fair
market value of our common stock at that time. During 1999, the board of
directors granted options to purchase 50,000 shares to each of Robert L. Joss
and Paul M. Hazen at an exercise price of $3.00 per share under our 1997 stock
plan. Future grants will be made under our 1999 stock plan after this offering.
See the section entitled "-- Incentive Stock Plans."
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<PAGE> 50
EXECUTIVE COMPENSATION
The table below summarizes the compensation earned for services rendered to
us in all capacities for the fiscal year ended December 31, 1998, by each person
that served as chief executive officer during the last fiscal year and our next
most highly compensated executive officers who earned more than $100,000 during
the fiscal year ended December 31, 1998. These executives are referred to as the
named executive officers in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- -------- ------- ------------
<S> <C> <C> <C>
Roger S. Siboni........................................... $104,166 -- --
President and Chief Executive Officer
Eliot L. Wegbreit......................................... 162,500 -- --
Chairman of the Board of Directors,
Former President and Chief Executive Officer
Steven G. Blank........................................... 162,500 -- --
Executive Vice President, Marketing
Karen A. Richardson....................................... 84,712 $61,909 485,000
Executive Vice President, Worldwide Sales
</TABLE>
In July 1998, Mr. Wegbreit resigned as our President and Chief Executive
Officer and Mr. Siboni was appointed to these positions. Mr. Siboni joined us in
August 1998, and his annual salary is $250,000. Ms. Richardson joined us in June
1998, and her annual salary is $150,000.
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<PAGE> 51
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
granted to each of the named executive officers in the fiscal year ended
December 31, 1998, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. These assumed rates of appreciation comply with the rules
of the Securities and Exchange Commission and do not represent our estimate of
future stock price. Actual gains, if any, on stock option exercises will be
dependent on the future performance of our common stock.
In the fiscal year ended December 31, 1998, we granted options to purchase
up to an aggregate of 5,240,325 shares to employees, directors and consultants.
All options were granted under our 1997 stock plan at exercise prices at or
above the fair market value of our common stock on the date of grant, as
determined in good faith by the board of directors. All options have a term of
ten years. Optionees may pay the exercise price by cash, check, cancellation of
any outstanding indebtedness of the option holder to us or delivery of
already-owned shares of our common stock. All options listed below are
immediately exercisable upon grant; however, any unvested shares are subject to
repurchase by us at their cost if the optionee's service with E.piphany
terminates. All option shares listed in the table below vest over four years,
with 25% of the option shares vesting one year after the option grant date, and
the remaining option shares vesting ratably each month thereafter.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------- POTENTIAL REALIZABLE
NUMBER % OF TOTAL VALUE AT ASSUMED ANNUAL
OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN LAST PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ----------- --------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Roger S. Siboni.................... -- -- -- -- -- --
Eliot L. Wegbreit.................. -- -- -- -- -- --
Steven G. Blank.................... -- -- -- -- -- --
Karen A. Richardson................ 485,000 9.26% $0.30 7/14/08 $91,504 $231,890
</TABLE>
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<PAGE> 52
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table describes for the named executive officers their option
exercises for the fiscal year ended December 31, 1998, and exercisable and
unexercisable options held by them as of December 31, 1998.
The "Value of Unexercised In-the-Money Options at December 31, 1998" is
based on a value of $0.50 per share, the fair market value of our common stock
as of December 31, 1998, as determined by the board of directors, less the per
share exercise price, multiplied by the number of shares issued upon exercise of
the option. All options were granted under our 1997 stock plan. All options
listed below are immediately exercisable; however, as a condition of exercise,
the optionee must enter into a restricted stock purchase agreement granting us
the right to repurchase any unvested portion of the shares issuable by such
exercise at their cost in the event of the optionee's termination of employment.
The shares vest over four years, with 25% of the shares vesting one year after
the grant date and the remaining shares vesting ratably each month thereafter.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS AT DECEMBER 31, THE-MONEY OPTIONS AT
ACQUIRED 1998 DECEMBER 31, 1998
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger S. Siboni................. -- -- -- -- -- --
Eliot L. Wegbreit............... -- -- -- -- -- --
Steven G. Blank................. -- -- -- -- -- --
Karen A. Richardson............. 242,500 -- 242,500 -- $48,500 --
</TABLE>
INCENTIVE STOCK PLANS
1997 STOCK OPTION PLAN
Our 1997 stock plan provides for the granting to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and for the granting to employees and consultants of
nonstatutory stock options and stock purchase rights. As of June 30, 1999,
options to purchase an aggregate of 5,582,708 shares of common stock were
outstanding under our 1997 stock plan. Our board of directors has determined
that no further options will be granted under the 1997 stock plan after this
offering. The 1997 stock plan provides that if we merge with or into another
corporation, or sell substantially all of our assets, each outstanding option
must be assumed or substituted for by the successor corporation. If the
successor corporation refuses to assume or substitute for the E.piphany options,
the E.piphany options will terminate as of the closing of the merger or sale of
assets.
1999 STOCK PLAN
Our 1999 stock plan was adopted by our board of directors in June 1999 and
approved by the stockholders in July 1999. As of the date of this prospectus, no
options or stock purchase rights have been granted under the 1999 stock plan.
The 1999 stock plan provides for the grant of incentive stock options to
employees, including officers and employee directors, and for the grant of
nonstatutory stock options and stock purchase rights to employees, directors and
consultants.
The total number of shares of common stock currently reserved for issuance
under the 1999 stock plan equals 7,000,000 shares which includes:
- the shares of common stock which have been reserved but unissued under
the 1997 stock plan as of the effective date of the offering (as of June
30, 1999, there were 6,943,962 shares reserved but unissued under the
1997 stock plan) and
- any shares returned to the 1997 stock plan as a result of termination of
options under the 1997 stock plan.
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In addition, commencing January 1, 2000, annual increases will be added to
the 1999 stock plan equal to the lesser of: (A) 5,000,000 shares, (B) 4% of all
outstanding shares of our common stock or (C) a lesser amount determined by our
board of directors.
Unless terminated sooner, the 1999 stock plan will terminate automatically
ten years from the effective date of this offering.
The administrator of our 1999 stock plan, which is currently our board of
directors, has the power to determine among other things:
- the terms of the options or stock purchase rights granted, including the
exercise price of each option or stock purchase right
- the number of shares subject to each option or stock purchase right
- the exercisability of each option or stock purchase right, and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
In addition, the administrator has the authority to amend, suspend or
terminate the 1999 stock plan, so long as the action does not affect any shares
of common stock previously issued and sold or any option previously granted
under the 1999 stock plan. During any fiscal year, each optionee may be granted
options to purchase a maximum of 1,500,000 shares. In addition, in connection
with an optionee's initial employment with us, such optionee may be granted an
option covering an additional 1,500,000 shares.
Options and stock purchase rights granted under our 1999 stock plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the 1999 stock plan must generally be exercised within
three months after the end of the optionee's status as an employee, director or
consultant of E.piphany, or within twelve months after such optionee's
termination by death or disability, but not later than the expiration of the
option's term.
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreement grants E.piphany a repurchase
option, exercisable for any unvested stock purchase rights, upon the voluntary
or involuntary termination of the purchaser's employment or consulting
relationship with E.piphany for any reason, including death or disability. The
purchase price for shares repurchased pursuant to the restricted stock purchase
agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to E.piphany. The repurchase
option lapses at a rate determined by the administrator.
The exercise price of all incentive stock options granted under the 1999
stock plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of nonstatutory stock options and stock
purchase rights granted under the 1999 stock plan is determined by the
administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Internal Revenue Code, the exercise price must be at least equal to the
fair market value of our common stock on the date of grant. With respect to any
participant who owns stock having more than 10% of the voting power of all
classes of our outstanding capital stock, the exercise price of any incentive
stock option granted must be at least equal to 110% of the fair market value on
the grant date and the term of such incentive stock option must not exceed five
years. The term of all other options granted under the 1999 stock plan may not
exceed ten years.
The 1999 stock plan provides that if we merge with or into another
corporation, or sell substantially all of our assets, each option and stock
purchase right must be assumed or an equivalent option or stock purchase right
substituted for by the successor corporation. If the outstanding options and
stock purchase rights are not assumed or substituted for by the successor
corporation, the optionees shall become fully vested in and have the right to
exercise such options or stock purchase rights. If an option or stock purchase
right becomes fully vested and exercisable in the event of a merger or sale of
assets, the administrator must notify the optionee that the option or stock
purchase right is fully exercisable for a
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<PAGE> 54
period of 15 days from the date of the notice, and the option or stock purchase
right will terminate upon the expiration of the 15 day period.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 employee stock purchase plan was adopted by our board of directors
in June 1999, and approved by the stockholders in July 1999. A total of
4,000,000 shares of our common stock has been reserved for issuance under the
1999 purchase plan, plus annual increases equal to the lesser of: (A) 4,000,000
shares, (B) 4% of the outstanding shares on such date or (C) a lesser amount
determined by our board of directors. As of the date of this prospectus, no
shares have been issued under the 1999 purchase plan.
The 1999 purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, contains consecutive, overlapping, twenty-four month
offering periods. Each offering period includes four six-month purchase periods.
The offering periods generally start on the first trading day on or after May 1
and November 1 of each year, except for the first such offering period which
commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before October 31, 2001.
Employees are eligible to participate if they are customarily employed by
E.piphany or any participating subsidiary for at least 20 hours per week and for
more than five months in any calendar year. However, employees may not be
granted an option to purchase stock under the 1999 purchase plan if they either:
- immediately after grant, own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
- hold rights to purchase stock under our employee stock purchase plans
which accrue at a rate which exceeds $25,000 worth of stock for each
calendar year.
The 1999 purchase plan permits participants to purchase our common stock
through payroll deductions of up to 15% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings,
overtime, shift premium and bonuses, but excludes other compensation. The
maximum number of shares a participant may purchase during a single purchase
period is 20,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 1999 purchase plan is generally 85% of the lower of the fair
market value of the common stock either:
- at the beginning of the offering period, or
- at the end of the purchase period.
In the event the fair market value at the end of a purchase period is less
than the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically re-enrolled in a new offering period. The new
offering period will use the lower fair market value as of the first date of the
new offering period to determine the purchase price for future purchase periods.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with E.piphany.
Rights granted under the 1999 purchase plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1999 purchase plan. The 1999 purchase plan provides
that, if a merge with or into another corporation or a sale of substantially all
of our assets, each outstanding option may be assumed or substituted for by the
successor corporation. If the successor corporation refuses to assume or
substitute for the
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<PAGE> 55
outstanding options, the offering period then in progress will be shortened and
a new exercise date will be set. The new exercise date will be set prior to the
proposed date of the merger or sale of assets.
Our board of directors has the authority to amend or terminate the 1999
purchase plan, except that they may not adversely affect any outstanding rights
to purchase stock under the 1999 purchase plan. However, the board of directors
may terminate an offering period on any exercise date if the board determines
that the termination of the 1999 purchase plan is in our best interests and the
best interest of our stockholders. Notwithstanding anything to the contrary, the
board of directors may in its sole discretion amend the 1999 purchase plan to
the extent necessary and desirable to avoid unfavorable financial accounting
consequences by altering the purchase price for any offering period, shortening
any offering period or allocating remaining shares among the participants. The
1999 purchase plan will terminate automatically ten years from the effective
date of this offering unless terminated earlier by our board of directors.
401(K) PLAN
In January 1999, we adopted a 401(k) plan to provide eligible employees
with a tax preferential savings and investment program. Employees become
eligible to participate in the 401(k) plan on the first day they perform an hour
of service for us. Eligible participants may elect to reduce their current
compensation up to the lesser of 15% of eligible compensation or the statutorily
prescribed annual limit, currently $10,000, and have such reduction contributed
to the 401(k) plan. The 401(k) plan permits, but does not require, us to make
additional matching contributions to the 401(k) plan on behalf of eligible
participants. All contributions made by and on behalf of participants are
subject to a maximum contribution limitation currently equal to the lesser of
25% of their compensation or $30,000 per year. At the direction of each
participant, the trustee of the 401(k) plan invests the assets of the 401(k)
plan in selected investment options. Contributions by participants or by us to
the 401(k) plan, and income earned on plan contributions, are generally not
taxable to the participants until withdrawn, and contributions by us, if any,
are generally deductible by us when made.
CHANGE IN CONTROL, SEVERANCE AND EMPLOYMENT ARRANGEMENTS
We entered into founders' stock purchase agreements that contain change of
control and severance provisions with each of Steven G. Blank, John P. McCaskey
and Greg Walsh. Mr. Blank beneficially owns 4,200,000 shares of common stock
that were purchased under his founders' stock purchase agreement. Mr. McCaskey
and Mr. Walsh each beneficially own 1,400,000 shares of common stock that were
purchased under their founders' stock purchase agreements. E.piphany's right to
repurchase the shares purchased under each stock purchase agreement lapses as to
1/48 of the total number of shares at the end of each month after November 1,
1996. However, our right to repurchase the shares of a particular founder
terminates as to all shares purchased under his stock purchase agreement upon a
change in control of E.piphany, the termination the founder's employment with us
other than for cause or upon death or disability, or the founder's termination
of his employment with us because of a constructive termination.
In connection with our hiring of Roger S. Siboni as our President and Chief
Executive Officer in July 1998, we sold 3,200,000 shares of our common stock to
him at a purchase price of $0.20 per share in exchange for a promissory note and
cash. We have a right to repurchase these shares of stock at a price of $0.20
per share. Our right to repurchase Mr. Siboni's shares lapses as to 1/48 of his
total number of shares at the end of each month after May 1, 1998. However, our
right to repurchase Mr. Siboni's shares terminates as to all of his shares upon
a change in control of E.piphany in which Mr. Siboni is not given equivalent
compensation and title in the post change of control entity. See the sections
entitled "Certain Transactions -- Common Stock Sales" and " -- Employee Loans."
In a merger or a sale of substantially all of our assets, if the options
under our 1997 stock plan are not assumed or substituted for, each outstanding
option will terminate as of the closing of the merger or sale of assets. In a
merger or a sale of substantially all of our assets, if the options outstanding
under our 1999
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<PAGE> 56
stock plan are not assumed or substituted, each outstanding option will vest
fully and become immediately exercisable.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:
- any breach of their duty of loyalty to the corporation or its
stockholders
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
- unlawful payments of dividends or unlawful stock repurchases or
redemptions, or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether our bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding arising out of such
person's services as a director or executive officer or at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
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<PAGE> 57
CERTAIN TRANSACTIONS
PREFERRED STOCK SALES
Series C Preferred Stock. In September and October 1998, we sold shares of
Series C Preferred Stock, at a purchase price of $1.69 per share, to raise
capital to finance our operations. The following directors, officers, and 5%
stockholders purchased shares in that financing:
<TABLE>
<CAPTION>
PURCHASER NUMBER OF SHARES AGGREGATE CONSIDERATION
--------- ---------------- -----------------------
<S> <C> <C>
Kleiner Perkins Caufield & Byers.................. 2,958,580 $5,000,000
Information Technology Ventures................... 2,366,864 4,000,000
</TABLE>
Entities affiliated with Kleiner Perkins Caufield & Byers and Information
Technology Ventures each own more than 5% of our stock and each have one
representative on our board of directors.
Series B Preferred Stock. In January 1998, we sold shares of Series B
Preferred Stock, at a purchase price of $1.25 per share, to raise capital to
finance our operations. The following directors, officers, and 5% stockholders
purchased shares in that financing:
<TABLE>
<CAPTION>
PURCHASER NUMBER OF SHARES AGGREGATE CONSIDERATION
--------- ---------------- -----------------------
<S> <C> <C>
Kleiner Perkins Caufield & Byers.................. 4,460,000 $5,575,000
Information Technology Ventures................... 1,193,863 1,492,329
</TABLE>
Entities affiliated with Kleiner Perkins Caufield & Byers were allotted a
representative on the board of directors in connection with their participation
in the Series B financing.
Series A Preferred Stock. In March and September 1997, we sold shares of
Series A Preferred Stock, at a purchase price of $0.565 per share, to raise
capital to finance our operations. The following directors, officers, and 5%
stockholders purchased shares in that financing:
<TABLE>
<CAPTION>
PURCHASER NUMBER OF SHARES AGGREGATE CONSIDERATION
--------- ---------------- -----------------------
<S> <C> <C>
Information Technology Ventures................... 4,333,862 $2,448,632
Eliot L. Wegbreit as Trustee of Wegbreit Trust.... 149,140 84,264
Steven G. Blank as Trustee of Elliot-Blank
Revocable Trust................................. 62,125 35,101
</TABLE>
COMMON STOCK SALES
In connection with our hiring of Roger S. Siboni, our President and Chief
Executive Officer, on July 7, 1998 we sold an aggregate of 3,200,000 shares of
common stock to Mr. Siboni at a purchase price of $0.20 per share. Mr. Siboni
paid for his shares with a promissory note in the amount of $639,680 and $320 in
cash. The principal amount of the note accrues simple interest at a rate of
5.88% per year. The note is secured by Mr. Siboni's 3,200,000 shares of stock.
On January 16, 1998, in connection with our Series B financing, we sold an
aggregate of 500,000 shares of our common stock to entities affiliated with
Kleiner Perkins Caufield & Byers, a 5% stockholder of E.piphany, at a purchase
price of $0.125 per share.
EMPLOYEE LOANS
In addition to the loan to purchase stock given to Mr. Siboni, in
connection with his offer of employment as our President and Chief Executive
Officer, Mr. Siboni received a loan of $175,000 for relocation expenses. The
entire amount of the loan was forgiven under the terms of the loan on March 31,
1999. We have also offered to loan to Mr. Siboni up to $250,000 per year for two
years, drawable monthly. Mr. Siboni is currently drawing down this loan at a
rate of $20,833 per month. As of June 30, 1999, the total outstanding principal
amount of this loan is $267,000. This loan currently bears interest at the
lowest rate allowable by the IRS and is repayable upon Mr. Siboni's first sales
of our stock. Mr. Siboni is also
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<PAGE> 58
eligible for an annual bonus of up to $125,000, which is first applied to any
outstanding loan balance that Mr. Siboni has with E.piphany including the loan
described above.
INDEMNIFICATION AGREEMENTS
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding arising out of such
person's services as a director or executive officer or at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
We believe that the shares sold in transactions described above were sold
at fair market value and the terms of the other arrangements described above
were no less favorable than we could have obtained from unaffiliated third
parties.
In addition to the transactions described above, we have compensation
arrangements with directors and officers which are described under the section
entitled "Management."
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<PAGE> 59
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of June 30, 1999, by the following
individuals or groups:
- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock
- each of the named executive officers
- each of our directors, and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder listed in the
following table is c/o E.piphany, Inc., 2300 Geng Road, Suite 200, Palo Alto,
California 94303. Except as otherwise indicated, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock held by them.
Applicable percentage ownership in the following table is based on
42,163,556 shares of common stock outstanding as of June 30, 1999, as adjusted
to reflect the conversion of all outstanding shares of preferred stock upon the
closing of this offering.
To the extent that any shares are issued upon exercise of options, warrants
or other rights to acquire our capital stock that are presently outstanding or
granted in the future or reserved for future issuance under our stock plans,
there will be further dilution to new public investors.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. We have granted the underwriters an option to
purchase up to shares to cover over-allotments, if any.
PRINCIPAL STOCKHOLDERS TABLE
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
---------------- ------------------ -------- --------
<S> <C> <C> <C>
Kleiner Perkins Caufield & Byers(1)....................... 7,918,580 18.8%
2750 Sand Hill Road
Menlo Park, California 94025
Information Technology Ventures(2)........................ 7,894,589 18.7%
3000 Sand Hill Road
Building 1, Suite 280
Menlo Park, California 94025
Eliot L. Wegbreit(3)...................................... 4,349,140 10.3%
Steven G. Blank(4)........................................ 4,262,125 10.1%
Roger S. Siboni........................................... 3,200,000 7.6%
Karen A. Richardson(5).................................... 515,291 1.2%
Douglas J. Mackenzie(6)................................... 7,918,580 18.8%
Sam H. Lee(7)............................................. 7,894,589 18.7%
Paul M. Hazen(8).......................................... 50,000 *
Robert L. Joss(9)......................................... 50,000 *
All directors and officers as a group (11 persons)(10).... 29,514,725 67.8%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 7,303,263 shares held by Kleiner Perkins Caufield & Byers VIII,
L.P., 417,352 shares held by KPCB VIII Founders Fund, L.P., and 197,965
shares held by KPCB Information Services Zaibatsu Fund II, L.P. The general
partner of Kleiner Perkins Caufield & Byers VIII, L.P. and
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<PAGE> 60
KPCB VIII Founders Fund, L.P. is KPCB VIII Associates, L.P. The general
partner of KPCB Information Sciences Zaibatsu Fund II, L.P. is KPCB VII
Associates, L.P. Douglas J. Mackenzie, a member of the board of directors
of E.piphany, is a general partner of both KPCB VIII Associates, L.P. and
KPCB VII Associates, L.P.
(2) Includes 7,689,535 shares held by Information Technology Ventures, L.P. and
205,054 shares held by ITV Affiliates Fund, L.P. The general partner of
each of these two limited partnerships is ITV Management, L.L.C. Sam H.
Lee, a member of the board of directors of E.piphany, is a principal member
of ITV Management, L.L.C.
(3) Includes 149,140 shares held by Eliot L. Wegbreit as trustee of the
Wegbreit Trust.
(4) Includes 62,125 shares held by Steven G. Blank as Trustee of the
Elliot-Blank Revocable Trust.
(5) Includes 30,291 shares issuable upon exercise of currently exercisable
stock options.
(6) All 7,918,580 shares are held by entities associated with Kleiner Perkins
Caufield & Byers, a venture capital firm (see footnote (1) above). Mr.
Mackenzie disclaims beneficial ownership of the shares held by the entities
associated with Kleiner Perkins Caufield & Byers except for his monetary
interest arising from his general partnership interest in the entities.
(7) All 7,894,589 shares are held by entities associated with ITV Management,
L.L.C., a venture capital firm. Mr. Lee disclaims beneficial ownership of
the shares held by the entities associated with ITV Management, L.L.C.
except for his monetary interest arising from his principal membership
interest in ITV Management, L.L.C.
(8) Includes 50,000 shares issuable upon exercise of currently exercisable
stock options.
(9) Includes 50,000 shares issuable upon exercise of currently exercisable
stock options.
(10) Includes the information contained in footnotes 3 to 9 above and includes
an aggregate of 1,355,291 shares issuable upon exercise of stock options
held by the directors and officers that are exercisable within 60 days of
June 30, 1999.
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<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, we will be authorized to issue
200,000,000 shares of common stock, $0.0001 par value, and 10,000,000 shares of
undesignated preferred stock, $0.0001 par value. The following description of
our capital stock is subject to and qualified in its entirety by our certificate
of incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable Delaware law.
COMMON STOCK
As of June 30, 1999, there were 19,043,589 shares of common stock
outstanding which were held of record by approximately 76 stockholders and upon
conversion of all outstanding shares of convertible preferred stock, which will
occur upon the closing of this offering, there will be an aggregate of
42,163,556 shares of common stock outstanding.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of the liquidation, dissolution or
winding up of E.piphany, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The holders of
common stock have no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel to E.piphany, is delivering a legal opinion that the shares of common
stock to be issued upon the closing of this offering, when issued and sold in
the manner described in this prospectus and in accordance with the resolutions
adopted by the board of directors, will be fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:
- restricting dividends on the common stock
- diluting the voting power of the common stock
- impairing the liquidation rights of the common stock, or
- delaying or preventing a change in control of E.piphany without further
action by the stockholders.
Upon the closing no shares of preferred stock will be outstanding, and we
have no present plans to issue any shares of preferred stock.
WARRANTS
At June 30, 1999, there were warrants outstanding to purchase 44,248 shares
of Series A preferred stock, up to 150,000 shares of Series B preferred stock,
and up to 62,500 shares of Series C preferred stock which are convertible in the
aggregate into 256,748 shares of common stock.
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<PAGE> 62
STOCK PURCHASE OPTION
At June 30, 1999, there was a stock purchase option outstanding to purchase
up to 703,125 shares of our Series C' Preferred Stock convertible in the
aggregate into 703,125 shares of common stock. This stock purchase option was
granted in connection with our subordinated convertible debt facility. The
holder of this stock purchase option may pay for the shares in cash or by
converting outstanding debt. The stock purchase option will terminate upon
closing of this offering if not exercised prior to the closing.
REGISTRATION RIGHTS
The holders of 37,495,927 shares of common stock and the holders of
warrants to purchase preferred stock convertible into 150,000 shares of common
stock are entitled to the following rights with respect to registration of such
shares under the Securities Act. These rights are provided under the terms of an
agreement between E.piphany and the holders of registrable securities. Beginning
180 days following the date of this prospectus but not before March 18, 2000, if
holders of at least 50% of the then outstanding registrable securities request
that at least 30% of the then outstanding registrable securities be registered,
we may be required, on up to two occasions, to register their shares for public
resale. We are obligated to register these shares only if the outstanding
registrable securities have an anticipated public offering price of at least
$6,000,000. Also, holders of registrable securities may require on two separate
occasions within any twelve month period that we register their shares for
public resale on Form S-3 or similar short-form registration if the value of the
securities to be registered is at least $2,000,000. Depending on market
conditions, however, we may defer such registration for up to 120 days.
Furthermore, in the event we elect to register any of our shares of common stock
for purposes of effecting any public offering, the holders of the registrable
securities described above and additional holders of warrants to purchase
preferred stock convertible into an additional 44,248 shares of common stock are
entitled to include their shares of common stock in the registration, but we may
reduce the number of shares proposed to be registered in view of market
conditions. We plan to obtain waivers of these registration rights with respect
to this offering. All expenses in connection with any registration, other than
underwriting discounts and commissions, will be borne by us. All registration
rights will terminate five years following the consummation of this offering,
or, with respect to each holder of registrable securities, at such time as the
holder is entitled to sell all of its shares in any three month period under
Rule 144 of the Securities Act.
ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE AND BYLAWS AND DELAWARE LAW
Some provisions of Delaware law and our certificate of incorporation and
bylaws could make the following more difficult:
- acquisition of E.piphany by means of a tender offer
- acquisition of E.piphany by means of a proxy contest or otherwise, or
- removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging such proposals because negotiation of such proposals could result
in an improvement of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term, one
class being elected each year by our stockholders for more information on the
classified board, see the section entitled "Management -- Executive Officers and
Directors." This system of electing and removing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of us because it generally makes it more difficult for
stockholders to replace a majority of the directors.
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<PAGE> 63
Stockholder Meetings. Under our bylaws, only the board of directors, the
chairman of the board and the president may call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board of directors.
Delaware Anti-Takover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held by
stockholders.
Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Elimination of Cumulative Voting. Our certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of E.piphany. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of E.piphany.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
NASDAQ NATIONAL MARKET LISTING
We have applied for the listing of our shares on The Nasdaq National Market
under the symbol "EPNY."
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<PAGE> 64
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
the offering could adversely affect the market price of our common stock and our
ability to raise equity capital in the future on terms favorable to E.piphany.
After the offering shares of our common stock will be
outstanding, assuming that the underwriters do not exercise the over-allotment
option. Of these shares, all of the shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. The remaining shares of common
stock held by existing shareholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act, which are
summarized below.
The following table shows approximately when the 42,163,556 shares of our
common stock that are not being sold in this offering but which will be
outstanding when this offering is complete will be eligible for sale in the
public market:
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<CAPTION>
<S> <C>
At the effective date....................................... 0
181 days after the effective date........................... 40,288,556
At April 16, 2000........................................... 1,875,000
</TABLE>
Resale of 30,762,380 of the restricted shares that will become available
for sale in the public market starting 181 days after the effective date will be
limited by volume and other resale restrictions under Rule 144 because the
holders are affiliates of E.piphany.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell, within any three-month
period, a number of shares that is not more than the greater of:
- 1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after this
offering; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.
Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days before a sale, and who has beneficially owned the
restricted shares for at least two years, is entitled to sell the shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchase shares from us under
a stock option plan or other written agreement can resell those shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
complying with some of the restrictions, including the holding period, contained
in Rule 144. As of June 30, 1999, 4,143,589 shares outstanding had been issued
as a result of the exercise of stock options. Of
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<PAGE> 65
these shares, 4,008,631 shares will be vested and exercisable and will be able
to be resold after the 90 day period, subject to the lock-up agreements
described below.
LOCK-UP AGREEMENTS
After this offering approximately 42,163,556 shares of our common stock
held by our directors, executive officers and our existing stockholders are
subject to "lock-up" agreements under which they agree not to sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, any shares of
common stock or any securities convertible into or exercisable or exchangeable
for shares of common stock or securities convertible into or exchangeable or
exercisable for any shares of common stock, or publicly disclose the intention
to make any such offer, sale, pledge or disposal without the prior consent of
Credit Suisse First Boston Corporation, for a period of 180 days after the date
of this prospectus. Transfers or dispositions can be made sooner with the prior
written consent of Credit Suisse First Boston Corporation.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 37,495,927 shares of our
common stock and holders of 194,248 shares of our common stock issuable upon
conversion of warrants, assuming such warrants are converted, will be entitled
to rights to registration of their shares under the Securities Act. After
registration, these shares will become freely tradable without restrictions
under the Securities Act. Any sales of securities by these shareholders could
have a material adverse effect on the trading price of our common stock.
STOCK OPTIONS
Immediately after this offering we intend to file a registration statement
under the Securities Act covering shares of common stock subject to outstanding
options or reserved for issuance under our stock option plans. Each year as the
number of shares reserved for issuance under our 1999 stock plan and 1999
employee stock purchase plan automatically increases, we will file an amendment
to the registration statement covering the additional shares. As of June 30,
1999, under our 1997 stock plan, options to purchase 5,582,708 shares of common
stock were issued and outstanding and 6,943,962 shares were reserved for future
issuance under our stock plans. When the lock-up agreements described above
expire, options to purchase 4,834,519 shares of common stock will become fully
vested and, when exercised, these shares will be freely tradable, based on the
number of options outstanding as of June 30, 1999. This registration statement
is expected to be filed and become effective as soon as practicable after the
effective date of this offering. Accordingly, shares registered under that
registration statement will, upon the optionee's exercise and subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates, be
available for sale in the open market immediately after the 180 day lock-up
agreements expire.
WARRANTS
Upon consummation of the initial public offering, warrants to purchase up
to 256,748 shares of our common stock will remain outstanding of which warrants
for 150,000 and 44,248 shares will have the registration rights described in the
section entitled "Description of Capital Stock -- Registration Rights".
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information with respect to E.piphany and our common
stock, see the registration statement and the exhibits and schedules thereto.
Any document we file may be read and copied at the Securities and Exchange
Commission's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information about the public
63
<PAGE> 66
reference rooms. Our filings with the Securities and Exchange Commission are
also available to the public from the Securities and Exchange Commission's Web
site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Such periodic reports, proxy
statements and other information will be available for inspection and copying at
the Securities and Exchange Commission's public reference rooms and the World
Wide Web site of the Securities and Exchange Commission referred to above.
64
<PAGE> 67
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist
LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Hambrecht & Quist LLC.......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of common stock at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses that
we will pay:
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid
by us..................................... $ $ $
Expenses payable by us...................... $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our executive officers, directors and our existing stockholders have
agreed not to offer, sell, contract to sell, announce their intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Securities Act relating to, any
additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock without the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
The underwriters have reserved for sale, at the initial offering price up
to shares of common stock for employees and other persons
associated with us who have expressed an interest in purchasing common stock in
the offering. The number of shares of common stock available for sale to the
general public in the offering will be reduced to the extent these persons
purchase
65
<PAGE> 68
the reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or to contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list the shares on The Nasdaq Stock Market's National
Market under the symbol "EPNY."
Prior to the offering, there has been no public market for our common
stock. The initial public offering price for the common stock will be determined
by negotiation between the representatives and us and does not reflect the
market price of the common stock following the offering. Among the principal
factors considered in determining the initial public offering price will be:
- the information in this prospectus and otherwise available to the
representatives
- market conditions for initial public offerings
- the history of and prospects for the industry in which we will
compete
- the ability of our management
- our prospects for our future earnings
- the present state of our development and our current financial
condition
- the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies
- the general condition of the securities markets at the time of this
offering, and
- other relevant factors.
We can offer no assurances that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to the offering or that an active trading market for the
common stock will develop and continue after the offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act:
- Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified
maximum.
- Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been completed
in order to cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock originally
sold by the syndicate member is purchased in a syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
66
<PAGE> 69
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the common
stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase common stock without the
benefit of a prospectus qualified under the securities laws, (2) where required
by law, that the purchaser is purchasing as principal and not as agent, and (3)
the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein, may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada upon
the issuer and these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
67
<PAGE> 70
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Some legal matters will be passed upon for the underwriters by
Morrison & Foerster LLP, Palo Alto, California. As of the date of this
prospectus, WS Investments, an investment partnership composed of some current
and former members of and persons associated with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, as well as several individual attorneys of
this firm, beneficially own a total of 156,923 shares of our common stock. Aaron
J. Alter, a member of Wilson Sonsini Goodrich & Rosati, is the Secretary of
E.piphany.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
In July 1998, KPMG Peat Marwick LLP resigned as E.piphany's independent
public accountants, as KPMG Peat Marwick LLP became an integrator of E.piphany's
products and purchased E.piphany's preferred stock. The former independent
accountants' report on E.piphany's financial statements for the year ended
December 31, 1997 did not contain an adverse opinion, a disclaimer of opinion or
any qualifications or modifications related to uncertainty, limitation of audit
scope or application of accounting principles. The former independent public
accountants' report does not cover any of E.piphany's financial statements in
this registration statement. KPMG Peat Marwick LLP did not issue an audit
opinion on E.piphany's financial statements for any other period. There were no
disagreements with the former public accountants on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure with respect to E.piphany's financial statements up through the time
of dismissal that, if not resolved to the former accountants' satisfaction,
would have caused them to make reference to the subject matter of the
disagreement in connection with their report. In September 1998, E.piphany
retained Arthur Andersen LLP as its independent public accountants. The decision
to retain Arthur Andersen LLP was approved by resolution of the board of
directors. Prior to retaining Arthur Andersen LLP, E.piphany had not consulted
with Arthur Andersen LLP regarding accounting principles.
68
<PAGE> 71
E.PIPHANY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Stockholders' Equity and Comprehensive Loss.... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To E.piphany, Inc.:
We have audited the accompanying balance sheets of E.piphany, Inc. (a
Delaware corporation) as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity and comprehensive loss, and cash
flows for the years then ended. These financial statements are the
responsibility of E.piphany's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of E.piphany, Inc., as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Jose, California
June 19, 1999
F-2
<PAGE> 73
E.PIPHANY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1997 1998 1999
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 369 $ 13,595 $ 19,852
Accounts receivable, net of allowance for doubtful
accounts
of $0, $30, and $50, respectively....................... 16 1,243 1,989
Prepaid expenses and other current assets................. 79 354 507
------- -------- --------
Total current assets............................... 464 15,192 22,348
Property and equipment, net................................. 337 1,172 1,888
Other assets................................................ -- -- 523
------- -------- --------
$ 801 $ 16,364 $ 24,759
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligation............... $ -- $ -- $ 81
Current portion of notes payable.......................... -- 167 432
Accounts payable.......................................... 117 1,015 533
Accrued liabilities....................................... 140 1,028 2,213
Deferred revenue.......................................... 76 381 800
------- -------- --------
Total current liabilities.......................... 333 2,591 4,059
Capital lease obligations, net of current portion......... -- -- 116
Notes payable, net of current portion..................... -- 333 7,979
------- -------- --------
Total liabilities.................................. 333 2,924 12,154
------- -------- --------
Commitments (Note 4)
Stockholders' equity:
Convertible preferred stock, $0.0001 par value;
Series A:
Authorized -- 6,500 shares
Outstanding -- 6,456 shares in 1997, 1998 and June 30,
1999;
liquidation preference of $3,648...................... 1 1 1
Series B:
Authorized -- 6,608 shares
Outstanding -- 6,458 shares in 1998 and June 30, 1999;
liquidation preference of $8,072...................... -- 1 1
Series C:
Authorized -- 8,923 shares
Outstanding -- 8,331 shares in 1998 and June 30, 1999;
liquidation preference of $14,080..................... -- 1 1
Series C':
Authorized -- 1,500 shares
Outstanding -- 0 shares................................. -- -- --
Series D:
Authorized -- 1,875 shares
Outstanding -- 1,875 shares at June 30, 1999;
liquidation preference of $6,000....................... -- -- --
Common stock, $0.0001 par value;
Authorized -- 50,000 shares
Outstanding -- 11,239 in 1997, 17,826 shares in 1998 and
19,043 shares at June 30, 1999........................ 1 2 2
Additional paid-in capital................................ 3,615 30,030 39,375
Warrants to purchase preferred stock...................... -- -- 532
Note receivable........................................... -- (640) (640)
Deferred compensation..................................... -- (2,476) (3,842)
Accumulated deficit....................................... (3,149) (13,479) (22,825)
------- -------- --------
Total stockholders' equity......................... 468 13,440 12,605
------- -------- --------
$ 801 $ 16,364 $ 24,759
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 74
E.PIPHANY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------- ------------------
1997 1998 1998 1999
------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Product license.................................. $ -- $ 2,216 $ 533 $ 2,929
Services......................................... -- 1,161 330 2,195
------- -------- ------- -------
-- 3,377 863 5,124
------- -------- ------- -------
Cost of revenues:
Product license.................................. -- 4 -- 25
Services......................................... -- 1,396 370 2,488
------- -------- ------- -------
-- 1,400 370 2,513
------- -------- ------- -------
Gross profit............................. -- 1,977 493 2,611
------- -------- ------- -------
Operating expenses:
Research and development......................... 1,646 3,769 1,644 2,865
Sales and marketing.............................. 1,200 6,519 2,260 6,351
General and administrative....................... 373 1,503 609 1,284
Stock-based compensation......................... 1 799 2 1,572
------- -------- ------- -------
Total operating expenses................. 3,220 12,590 4,515 12,072
------- -------- ------- -------
Loss from operations..................... (3,220) (10,613) (4,022) (9,461)
------- -------- ------- -------
Other income (expense):
Interest income.................................. 71 333 149 261
Interest expense................................. -- (48) (18) (145)
Other............................................ -- (2) (2) (1)
------- -------- ------- -------
Total other income....................... 71 283 129 115
------- -------- ------- -------
Net loss................................. $(3,149) $(10,330) $(3,893) $(9,346)
======= ======== ======= =======
Basic and diluted net loss per share............... $ (1.45) $ (3.59) $ (0.91) $ (0.93)
======= ======== ======= =======
Shares used in computing basic and diluted net loss
per share........................................ 2,174 2,874 4,270 10,027
======= ======== ======= =======
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (0.58) $ (0.30)
======== =======
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)........... 17,665 31,376
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 75
E.PIPHANY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------------------- -------------------- PAID-IN NOTE DEFERRED
SHARES AMOUNT WARRANTS SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
---------- ------- ---------- ---------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock................. -- $-- $ -- 11,200 $ 1 $ 2 $ -- $ --
Exercise of common stock
options............... -- -- -- 16 -- 1 -- --
Issuance of common stock
in exchange for
services.............. -- -- -- 23 -- 1 -- --
Issuance of Series A
preferred stock,
net................... 6,456 1 -- -- -- 3,611 -- --
Comprehensive loss:
Net loss.............. -- -- -- -- -- -- -- --
---------- --- ---- ------ --- -------- ----- -------
Total comprehensive
loss..............
Balance, December 31,
1997...................... 6,456 1 -- 11,239 1 3,615 -- --
Issuance of Series B
preferred stock,
net................... 6,458 1 -- -- -- 8,019 -- --
Sale of common stock to
Series B investors.... -- -- -- 500 -- 62 -- --
Issuance of common stock
to officer............ -- -- -- 3,200 -- 640 (640) --
Issuance of common stock
in exchange for
services.............. -- -- -- 120 -- 36 -- --
Issuance of Series C
preferred stock,
net................... 8,319 1 -- -- -- 13,992 -- --
Exercise of common stock
options............... -- -- -- 3,080 1 488 -- --
Repurchase of stock..... -- -- -- (313) -- (70) -- --
Issuance of Series C
preferred stock in
exchange for
services.............. 12 -- -- -- -- 20 -- --
Stock-based
compensation.......... -- -- -- -- -- 11 -- --
Deferred stock
compensation.......... -- -- -- -- -- 3,217 -- (3,217)
Amortization of deferred
stock compensation.... -- -- -- -- -- -- -- 741
Comprehensive loss:
Net loss.............. -- -- -- -- -- -- -- --
---------- --- ---- ------ --- -------- ----- -------
Total comprehensive
loss..............
Balance, December 31,
1998...................... 21,245 3 -- 17,826 2 30,030 (640) (2,476)
Exercise of common stock
options (unaudited)... -- -- -- 1,217 -- 437 -- --
Stock-based compensation
(unaudited)........... -- -- -- -- -- 251 -- --
Issuance of Series D
preferred stock, net
(unaudited)........... 1,875 -- -- -- -- 5,970 -- --
Issuance of warrants
related to leases and
debt financing
(unaudited)........... -- -- 532 -- -- -- -- --
Deferred stock
compensation
(unaudited)........... -- -- -- -- -- 2,687 -- (2,687)
Amortization of deferred
stock compensation
(unaudited)........... -- -- -- -- -- -- -- 1,321
Comprehensive loss:
Net loss
(unaudited)......... -- -- -- -- -- -- -- --
---------- --- ---- ------ --- -------- ----- -------
Total comprehensive
loss
(unaudited).......
Balance, June 30, 1999
(unaudited)............... 23,120 $ 3 $532 19,043 $ 2 $ 39,375 $(640) $(3,842)
========== === ==== ====== === ======== ===== =======
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS' COMPREHENSIVE
DEFICIT EQUITY LOSS
----------- ------------- -------------
<S> <C> <C> <C>
Issuance of common
stock................. $ -- $ 3
Exercise of common stock
options............... -- 1
Issuance of common stock
in exchange for
services.............. -- 1
Issuance of Series A
preferred stock,
net................... -- 3,612
Comprehensive loss:
Net loss.............. (3,149) (3,149) $ (3,149)
-------- -------- --------
Total comprehensive
loss.............. $ (3,149)
========
Balance, December 31,
1997...................... (3,149) 468
Issuance of Series B
preferred stock,
net................... -- 8,020
Sale of common stock to
Series B investors.... -- 62
Issuance of common stock
to officer............ -- --
Issuance of common stock
in exchange for
services.............. -- 36
Issuance of Series C
preferred stock,
net................... -- 13,993
Exercise of common stock
options............... -- 489
Repurchase of stock..... -- (70)
Issuance of Series C
preferred stock in
exchange for
services.............. -- 20
Stock-based
compensation.......... -- 11
Deferred stock
compensation.......... -- --
Amortization of deferred
stock compensation.... -- 741
Comprehensive loss:
Net loss.............. (10,330) (10,330) $(10,330)
-------- -------- --------
Total comprehensive
loss.............. $(10,330)
========
Balance, December 31,
1998...................... (13,479) 13,440
Exercise of common stock
options (unaudited)... -- 437
Stock-based compensation
(unaudited)........... -- 251
Issuance of Series D
preferred stock, net
(unaudited)........... -- 5,970
Issuance of warrants
related to leases and
debt financing
(unaudited)........... -- 532
Deferred stock
compensation
(unaudited)........... -- --
Amortization of deferred
stock compensation
(unaudited)........... -- 1,321
Comprehensive loss:
Net loss
(unaudited)......... (9,346) (9,346) $ (9,346)
-------- -------- --------
Total comprehensive
loss
(unaudited)....... $ (9,346)
========
Balance, June 30, 1999
(unaudited)............... $(22,825) $ 12,605
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 76
E.PIPHANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------ -----------------
1997 1998 1998 1999
------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(3,149) $(10,330) $(3,893) $(9,346)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................ 47 269 90 320
Allowance for doubtful accounts..................... -- 30 -- 20
Loss on sale of property and equipment.............. 9 -- -- --
Noncash compensation expense........................ 1 799 2 1,572
Noncash interest expense............................ -- -- -- 9
Changes in operating assets and liabilities:
Accounts receivable............................... (16) (1,257) (892) (766)
Prepaid expenses and other assets................. (79) (275) (150) (153)
Accounts payable.................................. 117 898 (1) (482)
Accrued liabilities............................... 140 888 428 1,185
Deferred revenue.................................. 76 305 527 419
------- -------- ------- -------
Net cash used in operating activities.......... (2,854) (8,673) (3,889) (7,222)
------- -------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment..................... (408) (1,104) (520) (811)
Proceeds from the sale of property and equipment....... 15 -- -- --
------- -------- ------- -------
Net cash used in investing activities.......... (393) (1,104) (520) (811)
------- -------- ------- -------
Cash flows from financing activities:
Borrowings............................................. -- 500 500 8,000
Repayments on line of credit........................... -- -- -- (89)
Principal payments on capital lease obligations........ -- -- -- (28)
Net proceeds from issuance of convertible preferred
stock............................................... 3,612 22,033 8,020 5,970
Issuance of common stock............................... 4 470 77 437
------- -------- ------- -------
Net cash provided by financing activities...... 3,616 23,003 8,597 14,290
------- -------- ------- -------
Net increase in cash and cash equivalents................ 369 13,226 4,188 6,257
Cash and cash equivalents at beginning of period......... -- 369 369 13,595
------- -------- ------- -------
Cash and cash equivalents at end of period............... $ 369 $ 13,595 $ 4,557 $19,852
======= ======== ======= =======
Supplemental cash flow information:
Cash paid for interest................................. $ -- $ 48 $ 18 $ 204
Non-cash transactions:
Loan to officer to purchase stock...................... $ -- $ 640 $ -- $ --
Equipment capital lease................................ $ -- $ -- $ -- $ 225
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 77
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS
E.piphany, Inc. ("E.piphany"), formerly Epiphany Marketing Software, Inc.,
was incorporated in Delaware in November 1996, and provides customer-centric
analytic solutions that enable companies to understand the unique needs of
individual customers and personalize interactions, products, and services. In
1997, E.piphany was in the development stage and was primarily engaged in
obtaining equity financing and performing research and development activities.
Although E.piphany began actively selling its products in 1998 and no longer
considers itself to be in the development stage, it has not operated profitably
to date and there are no assurances that it will operate profitably in the
future.
E.piphany has incurred net operating losses since inception and, as of June
30, 1999, had an accumulated deficit of $22.8 million. E.piphany is subject to
various risks associated with companies in a comparable stage of development,
including having a limited operating history; competition from substitute
products and larger competitors; dependence on a limited number of customers;
dependence on key individuals; and the ability to obtain adequate financing to
support its growth.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of June 30, 1999 and for the
six months ended June 30, 1999 and 1998 have been prepared on the same basis as
the audited financial statements and, in the opinion of management, reflect all
normal recurring adjustments necessary to present fairly the financial
information set forth therein, in accordance with generally accepted accounting
principles.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, E.piphany considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents. Cash equivalents consist of amounts on deposit at a
commercial bank and investments in commercial paper and other securities.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
E.piphany provides credit to its customers in the normal course of
business, performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses which, to date, have not been material.
F-7
<PAGE> 78
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
Receivables due from significant customers as a percentage of total
accounts receivable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ --------
<S> <C> <C>
Customer A.................................................. 21% 19%
Customer B.................................................. 17% --
Customer C.................................................. 13% --
Customer D.................................................. 12% --
Customer E.................................................. 10% --
Customer F.................................................. -- 21%
Customer G.................................................. -- 17%
</TABLE>
Sales to significant customers as a percentage of total revenues were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------- ---------------
1997 1998 1998 1999
---- ---- ----- -----
<S> <C> <C> <C> <C>
Customer A............................................ -- 16% -- --
Customer B............................................ -- 17% -- --
Customer C............................................ -- 30% 57% --
Customer D............................................ -- 11% 16% --
Customer F............................................ -- -- -- 11%
Customer G............................................ -- -- -- 20%
Customer H............................................ -- 11% -- 11%
Customer I............................................ -- -- 21% --
Customer J............................................ -- -- -- 13%
</TABLE>
In September 1998, the President and Chief Executive Officer of E.piphany
was elected to the board of directors of Customer D. E.piphany recognized
$357,000 in revenue from this customer in 1998 and had $146,000 in accounts
receivable due from Customer D at December 31, 1998. The majority of the
agreements relating to this revenue were entered into before the chief executive
officer was elected to Customer D's board of directors. E.piphany also
recognized $227,000 in revenue from this customer for the six months ended June
30, 1999 and had $169,000 in accounts receivable at June 30, 1999.
The President and Chief Executive Officer of E.piphany is a member of the
board of directors of two additional customers. E.piphany recognized a total of
$463,000 in revenue from these customers for the six months ended June 30, 1999
and had a total of $68,000 and $12,000 in accounts receivable at December 31,
1998 and June 30, 1999, respectively, from these customers.
An outside director of E.piphany is a member of the board of directors of
Customer I. E.piphany recognized $233,000 and $236,000 in revenue and $57,000
and $0 in accounts receivable from Customer I for the year ended December 31,
1998 and during the six months ended June 30, 1999, respectively.
This outside director of E.piphany also is a member of the board of
directors of another customer. E.piphany recognized $205,000 in revenue from
this customer during the six months ended June 30, 1999.
F-8
<PAGE> 79
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on estimated useful lives, generally three to
five years. Depreciation expense is included in operating expenses.
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1997 1998 1999
---- ------ --------
<S> <C> <C> <C>
Computer software and equipment........................... $372 $1,329 $2,365
Furniture and fixtures.................................... 12 159 159
---- ------ ------
384 1,488 2,524
Less: Accumulated depreciation............................ (47) (316) (636)
---- ------ ------
$337 $1,172 $1,888
==== ====== ======
</TABLE>
Included in property and equipment are assets acquired under capital leases
with original cost of approximately $225,000 as of June 30, 1999. Accumulated
amortization on the leased assets is approximately $27,000 as of June 30, 1999.
Future minimum lease payments on capital leases are as follows at June 30,
1999 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1999........................................................ $ 51
2000........................................................ 102
2001........................................................ 73
----
Total minimum lease payments................................ 226
Less: Imputed interest (10.0%).............................. (29)
----
Present value of payments under capital leases.............. 197
Less: Current portion....................................... (81)
----
Long-term capital lease obligations......................... $116
====
</TABLE>
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred prior to the establishment of
technological feasibility are included in research and development expenses.
E.piphany defines establishment of technological feasibility as the completion
of a working model. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general market
availability of the products are capitalized, if material, after consideration
of various factors, including net realizable value. To date, software
development costs that are eligible for capitalization have not been material
and have been expensed.
F-9
<PAGE> 80
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1997 1998 1999
---- ------ --------
<S> <C> <C> <C>
Accrued professional services............................... $ 42 $ 158 $ 521
Accrued sales tax........................................... 17 93 48
Accrued compensation........................................ 16 614 1,259
Accrued other............................................... 65 163 385
---- ------ ------
$140 $1,028 $2,213
==== ====== ======
</TABLE>
STOCK-BASED COMPENSATION
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," in October 1995. This accounting standard permits the use of
either a fair value based method of accounting or the method defined in
Accounting Principles Board Opinion 25 ("APB 25"), "Accounting for Stock Issued
to Employees" to account for stock-based compensation arrangements. Companies
that elect to employ the method proscribed by APB 25 are required to disclose
the pro forma net income (loss) that would have resulted from the use of the
fair value based method. E.piphany has elected to continue to account for its
stock-based compensation arrangements under the provisions of APB 25, and
accordingly, has included in Note 6 the pro forma disclosures required under
SFAS No. 123.
REVENUE RECOGNITION
E.piphany generates several types of revenue including the following:
License Fees. E.piphany's standard end user license agreement for
E.piphany's products provides for an initial fee to use the product in
perpetuity up to a maximum number of users. E.piphany also enters into other
license agreement types, which allow for the use of E.piphany's products,
usually restricted by the number of employees, the number of users, or the
license term. Fees from licenses are recognized as revenue upon contract
execution, provided all shipment obligations have been met, fees are fixed or
determinable, and collection is probable. Fees from license agreements which
include the right to receive unspecified future products are recognized over the
term of the arrangement or, if not specified, the estimated economic life of the
product.
When licenses are sold together with consulting and implementation
services, license fees are recognized upon shipment, provided that (1) the above
criteria have been met, (2) payment of the license fees is not dependent upon
the performance of the consulting services, and (3) the services do not include
significant alterations to the features and functionality of the software. In
instances where these criteria have not been met, contract accounting is applied
to both the license and consulting fees.
E.piphany provides for sales returns based on historical rates of return
which, to date, have not been material.
Support Agreements. Support agreements generally call for E.piphany to
provide technical support and software updates to customers. Revenue on
technical support and software update rights is recognized ratably over the term
of the support agreement and is included in services revenue in the accompanying
statements of operations.
F-10
<PAGE> 81
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
Consulting and Training Services. E.piphany provides consulting and
training services to its customers. Revenue from such services, when not sold in
conjunction with product licenses, is generally recognized as the services are
performed.
As of June 30, 1999, $594,000 of accounts receivable was unbilled due to
services performed in advance of billings.
COMPREHENSIVE INCOME (LOSS)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which E.piphany adopted beginning on January 1, 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS No. 130 is to report a measure of all changes in equity of an enterprise
that results from transactions and other economic events of the period other
than transactions with shareholders ("comprehensive income"). Comprehensive
income is the total of net income and all other non-owner changes in equity. For
each of the two years ended December 31, 1998, and the six months ended June 30,
1999, E.piphany's comprehensive income was equal to net loss.
COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE AND PRO FORMA BASIC AND
DILUTED NET LOSS PER SHARE
Basic and diluted net loss per common share are presented in conformity
with SFAS No. 128, "Earnings Per Share," for all periods presented. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of the initial public
offering must be included in the calculation of basic and diluted net loss per
common share as if such stock had been outstanding for all periods presented. To
date, E.piphany has not had any issuances or grants for nominal consideration.
In accordance with SFAS No. 128, basic net loss per common share has been
computed using the weighted average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Basic and diluted pro
forma net loss per common share, as presented in the statements of
F-11
<PAGE> 82
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
operations, has been computed as described above and also gives effect to the
conversion of the convertible preferred stock (using the if-converted method)
from the original date of issuance.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------- ------------------
1997 1998 1998 1999
------- -------- ------- -------
<S> <C> <C> <C> <C>
Net loss........................................... $(3,149) $(10,330) $(3,893) $(9,346)
Basic and diluted:
Weighted average shares of common stock
outstanding................................... 10,972 14,470 11,783 18,265
Less: Weighted average shares subject to
repurchase....................................... (8,798) (11,596) (7,513) (8,238)
------- -------- ------- -------
Weighted average shares used in computing basic and
diluted net loss per common share................ 2,174 2,874 4,270 10,027
======= ======== ======= =======
Basic and diluted net loss per common share...... $ (1.45) $ (3.59) $ (0.91) $ (0.93)
======= ======== ======= =======
Net loss......................................... $(10,330) $(9,346)
======== =======
Shares used above................................ 2,874 10,027
Pro forma adjustment to reflect weighted effect
of assumed conversion of convertible preferred
stock (unaudited)............................. 14,791 21,349
-------- -------
Shares used in computing pro forma basic and
diluted net loss per common share
(unaudited)................................... 17,665 31,376
======== =======
Pro forma basic and diluted net loss per common
share (unaudited)............................. $ (0.58) $ (0.30)
======== =======
</TABLE>
E.piphany has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options, and shares subject to
repurchase from the calculation of diluted net loss per common share because all
such securities are antidilutive for all periods presented. The total number of
shares excluded from the calculations of diluted net loss per share were
approximately 19,374,000, 29,804,000, and 36,129,000 for the years ended
December 31, 1997 and 1998, and the six months ended June 30, 1999,
respectively. See Notes 5 and 6 for further information on these securities.
SEGMENT REPORTING
During 1998, E.piphany adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 requires a new basis of
determining reportable business segments (i.e., the management approach). This
approach requires that business segment information used by management to assess
performance and manage company resources be the source for information
disclosure. On this basis, E.piphany is organized and operates as one business
segment, the design, development, and marketing of software solutions.
During the years ended December 31, 1997 and 1998, and the six months ended
June 30, 1998 and 1999, E.piphany did not generate significant revenues in
foreign countries.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to record
derivative financial instruments on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly
F-12
<PAGE> 83
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
effective in achieving offsetting changes in fair value or cash flows. In June
1999, the FASB issued SFAS No. 137, "Accounting For Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133,"
which amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000 (or January 1, 2001 for E.piphany). This
Statement will not have a material impact on the financial condition or results
of the operations of E.piphany.
In December 1998, the AICPA issued Statement of Position ("SOP") 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions." SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the deferral
of the application of certain provisions of SOP 97-2 amended by SOP 98-4 through
fiscal years beginning on or before March 15, 1999. All other provisions of SOP
98-9 are effective for transactions entered into in fiscal years beginning after
March 15, 1999. E.piphany does not anticipate that this statement will have a
material impact on its statement of operations.
3. LONG-TERM DEBT
E.piphany had the following long-term debt arrangements as of June 30, 1999
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1997 1998 1999
---- ----- --------
<S> <C> <C> <C>
Subordinated convertible debt facility for $10.0 million.
Expires in February 2000. Borrowings bear interest at 10%
and are payable in equal monthly installments of interest
only through June 2001 and equal installments of
principal and interest from June 2001 to December 2002... $ -- $ -- $5,000
Non-revolving equipment line of credit with a bank for $3.0
million. Expires in March 2000 with all payments due
March 2003. Borrowings bear interest at the bank's prime
rate plus 0.5% (8.25% at December 31, 1998).............. -- -- 3,000
Non-revolving equipment line of credit with a bank for
$1.25 million. Borrowings bear interest at the bank's
prime rate plus 0.5% (8.25% at December 31, 1998) and are
payable in monthly installments through October 2001..... -- 500 411
Revolving line of credit with a bank for $1.0 million.
Expires in December 1999. Borrowings bear interest at the
bank's prime rate (7.75% at December 31, 1998)........... -- -- --
Equipment lease line for $2.0 million. Expires in May 2000.
Borrowings bear interest at 8.5% for the first six months
of the lease............................................. -- -- --
---- ----- ------
Total borrowings outstanding............................. -- 500 8,411
Less: current portion.................................... -- (167) (432)
---- ----- ------
Total long-term debt............................. $ -- $ 333 $7,979
==== ===== ======
</TABLE>
All of the debt arrangements above are collateralized by substantially all
of E.piphany's assets. E.piphany must comply with certain covenants under some
of these arrangements including minimum deposits, liquidity ratios, and
quarterly profitability requirements.
The subordinated convertible debt facility lender has the option to convert
forty-five percent of the outstanding borrowings under the facility as of June
30, 1999 to shares of E.piphany's Series C' preferred stock at a price of $3.20
per share. As of June 30, 1999, the number of shares subject to conversion was
703,125. The conversion warrant is exerciseable irrespective of whether
borrowings are outstanding under the arrangement and terminates within
forty-five days of notice to the lender of an initial public offering of
F-13
<PAGE> 84
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
E.piphany's stock. The fair value of the warrant at the date of issuance was
determined to be $391,000 and was estimated using the Black-Scholes model with
the following assumptions: risk-free interest rate of 5.6%; expected life of
0.25 years; and expected volatility of 85%. This amount will be recognized as
additional interest expense over the term of this arrangement with the lender.
Borrowings outstanding as of June 30, 1999 are payable as follows (in
thousands):
<TABLE>
<S> <C>
1999........................................ $ 78
2000........................................ 937
2001........................................ 2,730
2002........................................ 4,416
2003........................................ 250
------
$8,411
======
</TABLE>
4. COMMITMENTS
E.piphany leases its facilities under operating lease agreements. The
facility leases expire at various dates in 1999. As of December 31, 1998, future
minimum payments required under E.piphany's operating leases in 1999 were
$464,000.
In April 1999, E.piphany entered into an operating lease agreement for a
new office facility. The term of the lease is four years and expires in October
2003. Future minimum lease payments under the lease are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1999........................................ $ 416
2000........................................ 1,259
2001........................................ 1,297
2002........................................ 1,336
2003........................................ 1,135
------
$5,443
======
</TABLE>
Total rent expense for the years ended December 31, 1997 and 1998, and the
six months ended June 30, 1999, was approximately $127,000, $610,000 and
$384,000, respectively.
5. PREFERRED STOCK
CONVERTIBLE PREFERRED STOCK
The rights, preferences, and privileges of the holders of preferred stock
are as follows:
- Dividends are noncumulative and payable only upon declaration by
E.piphany's board of directors at a rate of $0.06, $0.12, $0.17, $0.17
and $0.32 per share per annum for Series A, B, C, C', and D preferred
stock, respectively.
- The holders of Series A, B, C' and D preferred stock have voting rights
equal to an equivalent number of shares of common stock into which it is
convertible.
- Each share of Series A, B, C, C' and D preferred stock is convertible at
any time into one share of common stock at the option of the holder,
subject to adjustment to protect against dilution. E.piphany can be
required to convert the preferred stock into common stock at the consent
of not less than two-thirds of the outstanding Series A, B, C, C' and D
preferred stockholders, voting together as a single class. Each share of
preferred stock automatically converts upon the closing of
F-14
<PAGE> 85
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
the sale of E.piphany's common stock in a public offering in which the
gross proceeds exceed $10,000,000 and the offering price equals or
exceeds $5.00 per share or whenever less than 2,500,000 shares of
preferred stock remain outstanding.
- In the event of liquidation, dissolution or winding up of E.piphany, the
holders of Series A, B, C' and D preferred stock are entitled to receive
$0.565, $1.25, $1.69, $1.69 and $3.20 per share, respectively, as well as
any declared but unpaid dividends on each share, prior to any
distribution to the holders of common stock. Any remaining distributable
assets of E.piphany would be distributed among the holders of Series A,
B, C, C' and D preferred stock and common stock on a pro-rata basis, up
to a total distribution of $1.70, $3.75, $5.07, $5.07 and $9.60 per
Series A, B, C, C' and D preferred stock share, respectively, after which
any remaining assets are distributed solely to the holders of common
stock.
In September 1998, 12,040 shares of Series C preferred stock were granted
to an outside firm for services rendered to E.piphany. The fair value of the
Series C preferred stock of $20,347 has been reflected in operating expenses in
1998.
WARRANTS
In May 1997, E.piphany issued a warrant to purchase 44,248 shares of Series
A preferred stock at $0.565 per share in connection with obtaining a line of
credit. The warrant is exercisable through May 2002. The fair value of the
warrant at the date of issuance was estimated using the Black-Scholes model with
the following assumptions: risk-free interest rate of 6.4%; expected life of 4
years; and expected volatility of 85%. The value was determined to be
immaterial.
In January 1998, E.piphany issued a warrant to purchase shares of Series B
preferred stock at $1.25 per share in connection with obtaining a line of credit
with a bank. The number of shares is calculated based on $97,500 plus a
percentage of borrowings under the revolving line of credit divided by the share
price. At December 31, 1998, this warrant allowed for the purchase of 150,000
shares. The warrant is exercisable through the earlier of January 9, 2003, or
three years after the initial public offering of E.piphany. The fair value of
the warrant at the date of issuance was estimated using the Black-Scholes model
with the following assumptions: risk-free interest rate of 5.6%; expected life
of 3 years; and expected volatility of 85%. The value was determined to be
immaterial.
In June 1999, E.piphany issued a warrant to purchase 62,500 shares of
Series C preferred stock at $1.69 per share in connection with obtaining an
equipment lease line. The warrant is exercisable immediately and expires in June
2009. The fair value of the warrant at the date of issuance was determined to be
$141,000 and was estimated using the Black-Scholes model with the following
assumptions: risk-free interest rate of 5.2%; expected life of 3 years; and
expected volatility of 85%. This amount will be recognized as additional
interest expense over the term of this arrangement with the lender.
6. COMMON STOCK
During January and February 1997, E.piphany issued 11,200,000 shares of
common stock, under restricted stock purchase agreements, for $0.00025 per share
in exchange for cash. Pursuant to the restricted stock purchase agreements,
E.piphany has the right to repurchase the common stock at the original purchase
price. The repurchase right expires over a 48-month period. In July 1998,
E.piphany's chief executive officer purchased 3,200,000 shares of common stock
under a restricted stock purchase agreement in exchange for a promissory note
(see Note 8). Pursuant to the stock purchase agreement, E.piphany has the right
to repurchase the common stock at the original purchase price. The repurchase
right expires over a 48-month period. All exercised but unvested stock options
are also subject to
F-15
<PAGE> 86
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
repurchase by E.piphany at the original purchase price. As of June 30, 1999,
5,372,917 shares of common stock were subject to repurchase under these
agreements.
In December 1997, 22,500 shares of common stock valued at $1,350 were
granted to an outside consultant for services rendered to E.piphany. In July
1998, 120,000 shares of common stock valued at $36,000 were granted to a
marketing firm for services rendered to E.piphany. The fair value of these
shares is reflected in operating expenses in the respective years.
As of June 30, 1999, E.piphany had reserved the following shares of
authorized but unissued common stock:
<TABLE>
<S> <C>
Conversion of Series A preferred stock...................... 6,455,752
Conversion of Series B preferred stock...................... 6,457,645
Conversion of Series C preferred stock...................... 8,331,570
Conversion of Series D preferred stock...................... 1,875,000
Conversion of preferred stock upon the exercise of stock
warrants.................................................. 959,873
Stock options outstanding and remaining to be granted under
1997 stock option plan.................................... 6,943,962
----------
Total shares reserved............................. 31,023,802
==========
</TABLE>
In January 1998, E.piphany sold 500,000 shares of common stock to a Series
B preferred stock holder for $0.125 per share for cash.
STOCK-BASED COMPENSATION
In connection with the grant of certain stock options to employees during
the year ended December 31, 1998, and the six months ended June 30, 1999, the
Company recorded deferred compensation of approximately $5.9 million,
representing the difference between the deemed value of the common stock for
accounting purposes and the option exercise price or stock sale price at the
date of the option grant or stock sale. Such amount is presented as a reduction
of stockholders' equity and amortized over the vesting period of the applicable
options in a manner consistent with Financial Accounting Standards Board
Interpretation No. 28. Approximately $0.7 million and $1.3 million was expensed
during the year ended December 31, 1998, and the six months ended June 30, 1999,
respectively. Compensation expense is decreased in the period of forfeiture for
any accrued but unvested compensation arising from the early termination of an
option holder's services.
During the years ended December 31, 1997 and 1998, and the six months ended
June 30, 1998 and 1999, E.piphany recorded stock-based compensation of $1,000,
$58,000, $2,000, and $251,000, respectively, related to equity instruments
issued to non-employees.
STOCK OPTIONS
In 1997, E.piphany adopted the 1997 Stock Plan (the "Plan") under which
incentive stock options and nonstatutory stock options may be granted to
employees and consultants of E.piphany. The exercise price for incentive stock
options is at least 100% of the fair market value on the date of grant for
employees owning less than 10% of the voting power of all classes of stock and
at least 110% of the fair market value on the date of grant for employees owning
more than 10% of the voting power of all classes of stock. For nonstatutory
stock options, the exercise price is at least 110% of the fair market value on
the date of grant for employees owning more than 10% of voting power of all
classes of stock and at least 85% for employees owning less than 10% of the
voting power of all classes of stock. Options generally expire in 10 years.
Options are immediately exercisable, but shares so purchased vest over periods
determined by the
F-16
<PAGE> 87
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
board of directors, generally four years. Upon termination of employment,
unvested shares may be repurchased by E.piphany for the original purchase price.
As of June 30, 1999, an aggregate of 1,361,254 shares were available for
future option grants under the Plan.
E.piphany accounts for the Plan under APB 25 whereby the difference between
the exercise price and the fair value at the date of grant is recognized as
compensation expense. Had compensation expense for stock option plans been
determined consistent with SFAS No. 123, net losses would have increased to the
following pro forma amounts (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS
------------------- ENDED JUNE 30,
1997 1998 1999
------- -------- --------------
<S> <C> <C> <C>
Net loss as reported............................. $(3,149) $(10,330) $ (9,346)
Net loss pro forma............................... (3,163) (10,457) (10,117)
Net loss per share as reported................... $ (1.45) $ (3.59) $ (0.93)
Net loss per share pro forma..................... (1.45) (3.64) (1.01)
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions for grants in 1997, 1998, and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate............................ 5.8 - 6.9% 4.3 - 5.7% 4.4 - 5.4%
Expected life of the option........................ 4.5 years 4.5 years 4.5 years
Dividend yield..................................... 0% 0% 0%
Volatility......................................... 0% 85% 85%
</TABLE>
The following table summarizes the stock option plan activity under the
Plan (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 JUNE 30, 1999
------------------ ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period............. -- $0.00 2,419 $0.06 3,322 $0.29
Granted............... 2,435 $0.06 5,120 $0.27 3,782 $1.94
Exercised............. (16) $0.06 (3,080) $0.15 (1,217) $0.36
Canceled.............. -- $0.00 (1,137) $0.13 (305) $0.66
------ ------- -------
Outstanding at end of
period................ 2,419 $0.06 3,322 $0.29 5,582 $1.37
====== ======= =======
Vested and exercisable
at end of period...... 143 $0.07 1,062 $0.12 1,055 $0.81
====== ======= =======
Weighted average fair
value per share....... $ 0.04 $ 0.14 $ 0.59
====== ======= =======
</TABLE>
F-17
<PAGE> 88
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
OPTIONS VESTED
OPTIONS OUTSTANDING AND EXERCISABLE
------------------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
JUNE 30, 1999 AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES NUMBER YEARS PRICE NUMBER PRICE
--------------- ------ --------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$0.06 - $0.30.. 1,429 8.74 $0.18 783 $0.12
$0.50 - $1.00.. 1,570 9.46 $0.81 12 $0.50
$1.35 - $2.00.. 1,223 9.74 $1.59 25 $2.00
$3.00 - $3.20.. 1,360 9.94 $3.06 235 $3.00
----- -----
$0.06 - $3.20.. 5,582 9.45 $1.37 1,055 $0.81
===== =====
</TABLE>
During the years ended December 31, 1997 and 1998, E.piphany issued 22,500
and 120,000 shares, respectively, under the plan for services rendered. The fair
value of these shares is reflected in operating expenses in the respective
years.
7. INCOME TAXES
E.piphany accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." A valuation allowance has been recorded for the total
deferred tax assets of E.piphany as a result of uncertainties regarding the
realization of the assets based on the limited operating history of E.piphany,
the lack of profitability to date, and the uncertainty of future profitability.
The components of net deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Net operating loss carryforwards......................... $ 1,238 $ 4,889
Research and development credits......................... 76 333
------- -------
Total deferred tax assets................................ 1,314 5,222
Valuation allowance...................................... (1,314) (5,222)
------- -------
Net deferred tax assets.................................. $ -- $ --
======= =======
</TABLE>
As of December 31, 1998, E.piphany had net operating loss carryforwards of
approximately $11.7 million for federal and state tax purposes. The federal net
operating loss and other credit carryforwards expire on various dates beginning
on 2012 through 2018. The state net operating loss carryforwards will expire in
2004.
Under current tax law, net operating loss and credit carryforwards
available to offset future income in any given year may be limited upon the
occurrence of certain events, including significant changes in ownership
interests.
The provision for income taxes differs from the expected tax benefit amount
computed by applying the statutory federal income rate of 34% to income (loss)
before taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1997 1998
----- -----
<S> <C> <C>
Federal statutory rate...................................... (34.0)% (34.0)%
State taxes, net of federal benefit......................... (5.8) (5.8)
Change in valuation allowance............................... 39.8 39.8
----- -----
0% 0%
===== =====
</TABLE>
F-18
<PAGE> 89
E.PIPHANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND 1998 IS UNAUDITED)
8. RELATED PARTY TRANSACTIONS
In 1998, E.piphany loaned its chief executive officer $175,000 for
relocation expenses. In accordance with the loan agreement, the entire amount of
the loan was forgiven on March 31, 1999. The chief executive officer was also
offered a loan of $250,000 per year for two years, drawable monthly. This loan
bears interest at the lowest rate allowable and is repayable by the officer's
first stock sales. As of June 30, 1999, $267,000 was outstanding on this loan.
As the repayment of this amount was contingent on future stock sales, this
amount has been expensed as paid. This chief executive officer was also given a
loan to purchase 3,200,000 shares of common stock at $0.20 per share. This loan
is due on July 1, 2008 and accrues interest at 5.88% per annum.
9. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
(UNAUDITED)
1999 STOCK PLAN
On June 30, 1999, the board of directors approved the adoption of
E.piphany's 1999 Stock Plan (the "1999 Plan"). A total of 7,000,000 shares of
common stock have been reserved for issuance related to stock options under the
1999 Plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
On June 30, 1999, the board of directors approved the adoption of
E.piphany's 1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of
4,000,000 shares of common stock have been reserved for issuance under the
Purchase Plan. The Purchase Plan permits eligible employees to purchase shares
of common stock through payroll deductions at 85% of the fair market value of
the common stock, as defined in the Purchase Plan.
F-19
<PAGE> 90
[INSIDE BACK COVER OF PROSPECTUS]
The graphic begins with our logo and the title "E.piphany Solutions for Real
Business Problems" and includes language as follows:
o "Business solutions designed to enhance and personalize customer
relationships"
o "Web-based architecture to promote ease of use and wide-scale
deployment"
o "Packaged analytic solutions designed to minimize complexity and
accelerate deployment"
The graphic further depicts photographs of various types of users of the
E.piphany E.4 System and includes language as follows:
"INTERNET USERS"
"Remote Sales Representative - Who are my most profitable customers in this
region?"
"E-Commerce Customer - This company's Web site configured a product designed
just for me!"
"Branch Manager - How do sales in my region compare to corporate benchmarks?"
"INTRANET USERS"
"Marketing Manager - What campaigns have generated the highest returns?"
"Sales Manager - What sales representatives are driving my pipeline growth?"
"Fulfillment Manager - Which suppliers offer me the shortest lead times?"
"Finance Manager - What is driving the growth in our revenue?"
"Customer Service Representative - Do we offer a product that could eliminate
this customer's problems?"
"Sales Representative - To what customers should I cross-sell this new product?"
"Product Development - What new features do our customers want incorporated into
the next release?"
The graphic continues with a table containing the following language:
THE E.PIPHANY E.4 SYSTEM
<TABLE>
<CAPTION>
REPORTING & ANALYSIS DISTRIBUTED DATABASE E-COMMERCE
MARKETING
<S> <C> <C>
o Bookings, Billings & o E-Commerce
Backlog o Cross-Sell/Up-Sell Reporting & Analysis
o Customer Relationship o Campaign o E-Commerce
Management Reporting & Performance Measurement Campaigns*
Analysis o Loyalty Program o E.mailer*
o Channel Sell-Through Measurement o Product
Management o Customer Customization*
o Call Center Reporting Acquisition* o Real-Time
& Analysis o Attrition Campaigner*
o Customer Profitability Management*
o Branch Information
Systems
</TABLE>
THE E.PIPHANY E.4 SYSTEM PLATFORM
*In Development
<PAGE> 91
LOGO
<PAGE> 92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by E.piphany in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 13,900
NASD filing fee............................................. 5,500
Nasdaq Stock Market listing fee............................. 95,000
Printing and engraving costs................................ 150,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 200,000
Blue Sky fees and expenses.................................. 5,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous expenses...................................... 20,600
Total....................................................... $900,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article VII of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of the registrant and its executive officers
and directors, and by the registrant of the underwriters for some liabilities,
including liabilities arising under the Securities Act, in connection with
matters specifically provided in writing by the Underwriters for inclusion in
the Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:
(a) On January 24, 1997 and February 24, 1997, Registrant issued and
sold an aggregate of 11,200,000 shares of common stock to the founding
officers and directors of the Registrant for an aggregate purchase price of
$2,240. The foregoing purchase and sale was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
(b) On March 18, 1997 and September 30, 1997, Registrant issued and
sold an aggregate of 6,455,752 shares of Series A preferred stock to 17
investors for $0.565 per share or an aggregate of
II-1
<PAGE> 93
$3,647,500. The foregoing purchases and sales were exempt from registration
under the Securities Act pursuant to Section 4(2) thereof on the basis that
the transaction did not involve a public offering.
(c) On May 29, 1997, Registrant issued and sold a warrant to purchase
up to 44,248 shares of Series A preferred stock at an exercise price of
$0.565 per share to Imperial Bancorp. The foregoing purchase and sale was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof on the basis that the transaction did not involve a public
offering.
(d) On January 16, 1998, Registrant issued and sold an aggregate of
6,457,645 shares of Series B preferred stock to a total of 16 investors for
$1.25 per share, or an aggregate of $8,072,056.25. The foregoing purchases
and sales were exempt from registration under the Securities Act pursuant
to Section 4(2) thereof on the basis that the transaction did not involve a
public offering.
(e) On January 16, 1998, Registrant also sold an aggregate of 500,000
shares of our common stock to entities affiliated with Kleiner Perkins
Caufield & Byers at a purchase price of $0.125 per share. The foregoing
purchases and sales were exempt from registration under the Securities Act
pursuant to Section 4(2) thereof on the basis that the transaction did not
involve a public offering.
(f) On January 16, 1998, Registrant issued and sold a warrant to
purchase up to 142,000 shares of Series B preferred stock at an exercise
price of $1.25 per share to Silicon Valley Bank. The foregoing purchase and
sale was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transaction did not involve a
public offering.
(g) On July 1, 1998, Registrant issued and sold an aggregate of
3,200,000 shares of common stock at a purchase price of $0.20 per share to
Roger S. Siboni, who serves as President and Chief Executive Officer of
E.piphany. The foregoing purchase and sale was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof on the basis that
the transaction did not involve a public offering.
(h) On September 24, 1998 and October 30, 1998, Registrant issued and
sold an aggregate of 8,331,570 shares of Series C preferred stock to a
total of 25 investors for $1.69 per share, or an aggregate of
$14,080,353.30. The foregoing purchases and sales were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof on
the basis that the transaction did not involve a public offering.
(i) On June 2, 1999, Registrant issued and sold a warrant to purchase
up to 62,500 shares of Series C preferred stock at an exercise price of
$1.69 per share to Comdisco, Inc. On June 2, 1999 the Registrant also
granted a stock purchase option to Comdisco, Inc. to purchase shares of
Series C' preferred stock at a purchase price of $3.20 per share, which is
currently exercisable for 703,125 shares of Series C' preferred stock. The
foregoing purchases and sales were exempt from registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
(j) On June 16, 1999, Registrant issued and sold an aggregate of
1,875,000 shares of Series D preferred stock to a total of three investors
for $3.20 per share, or an aggregate of $6,000,000. The foregoing purchases
and sales were exempt from registration under the Securities Act pursuant
to Section 4(2) thereof on the basis that the transaction did not involve a
public offering.
(k) As of June 30, 1999, an aggregate of 4,456,038 shares of common
stock had been issued upon exercise of options under the Registrant's 1997
stock plan, of which 312,449 shares have been repurchased and not returned
to the 1997 stock plan option pool.
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions, or any public offering, and
the Registrant believes that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation
D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients in such transactions represented
II-2
<PAGE> 94
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof, and appropriate
legends were affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Form of Restated Certificate of Incorporation of the
Registrant to be in effect after the closing of the offering
made under this Registration Statement.
3.2 Form of Restated Bylaws of the Registrant to be in effect
after the closing of the offering made under this
Registration Statement.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2 1999 Stock Plan and form of agreements thereunder.
10.3 1999 Employee Stock Purchase Plan and form of agreements
thereunder.
10.4 1997 Stock Plan and form of agreements thereunder.
10.5 Fourth Amended and Restated Investors' Rights Agreement
dated June 16, 1999.
10.6 Loan and Security Agreement entered into as of January 9,
1998 with Silicon Valley Bank.
10.7 Loan Modification Agreement between the Registrant and
Silicon Valley Bank dated December 1, 1998.
10.8 Master Lease Agreement dated June 2, 1999 by and between
Comdisco, Inc. and the Registrant.
10.9 Subordinated Loan and Security Agreement dated as of June 2,
1999 by and between the Registrant and Comdisco, Inc.
10.10 Sublease Portion of Third Floor of 1900 Norfolk Street, San
Mateo, California dated April 23, 1999 by and between
Inktomi Corporation and the Registrant.
10.11 Form of Amended and Restated Common Stock Purchase Agreement
dated March 18, 1997 between the Registrant and four
stockholders.
10.12 Restricted Stock Purchase Agreement, Promissory Note, Stock
Pledge Agreement and Joint Escrow Instructions dated July 1,
1998 between Roger S. Siboni and the Registrant.
16.1 Letter from KPMG LLP.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
23.3 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-3
<PAGE> 95
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 by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto,
State of California, on the 14th day of July, 1999.
E.PIPHANY, INC.
By: /s/ ROGER S. SIBONI
------------------------------------
Roger S. Siboni
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Roger S. Siboni and Kevin J. Yeaman and
each of them singly, as true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign the Registration Statement filed
herewith and any or all amendments to said Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule 462
and otherwise), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents the full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his substitute, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROGER S. SIBONI President and Chief Executive July 14, 1999
- --------------------------------------------------- Officer (Principal Executive
Roger S. Siboni Officer)
/s/ KEVIN J. YEAMAN Vice President, Finance and July 14, 1999
- --------------------------------------------------- Administration (Principal
Kevin J. Yeaman Financial and Accounting Officer)
/s/ ELIOT L. WEGBREIT Chairman of the Board of Directors July 14, 1999
- ---------------------------------------------------
Eliot L. Wegbreit
/s/ PAUL M. HAZEN Director July 14, 1999
- ---------------------------------------------------
Paul M. Hazen
Director
- ---------------------------------------------------
Robert L. Joss
/s/ SAM H. LEE Director July 14, 1999
- ---------------------------------------------------
Sam H. Lee
/s/ DOUGLAS J. MACKENZIE Director July 14, 1999
- ---------------------------------------------------
Douglas J. Mackenzie
</TABLE>
II-5
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Form of Restated Certificate of Incorporation of the
Registrant to be in effect after the closing of the offering
made under this Registration Statement.
3.2 Form of Restated Bylaws of the Registrant to be in effect
after the closing of the offering made under this
Registration Statement.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2 1999 Stock Plan and form of agreements thereunder.
10.3 1999 Employee Stock Purchase Plan and form of agreements
thereunder.
10.4 1997 Stock Plan and form of agreements thereunder.
10.5 Fourth Amended and Restated Investors' Rights Agreement
dated June 16, 1999.
10.6 Loan and Security Agreement entered into as of January 9,
1998 with Silicon Valley Bank.
10.7 Loan Modification Agreement between the Registrant and
Silicon Valley Bank dated December 1, 1998.
10.8 Master Lease Agreement dated June 2, 1999 by and between
Comdisco, Inc. and the Registrant.
10.9 Subordinated Loan and Security Agreement dated as of June 2,
1999 by and between the Registrant and Comdisco, Inc.
10.10 Sublease Portion of Third Floor of 1900 Norfolk Street, San
Mateo, California dated April 23, 1999 by and between
Inktomi Corporation and the Registrant.
10.11 Form of Amended and Restated Common Stock Purchase Agreement
dated March 18, 1997 between the Registrant and four
stockholders.
10.12 Restricted Stock Purchase Agreement, Promissory Note, Stock
Pledge Agreement and Joint Escrow Instructions dated July 1,
1998 between Roger S. Siboni and the Registrant.
16.1 Letter from KPMG LLP.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
23.3 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
E.PIPHANY, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Roger S. Siboni and Aaron J. Alter each hereby certifies:
(1) They are the President and Secretary, respectively, of E.piphany,
Inc., a corporation organized and existing under the General Corporation Law of
the State of Delaware (the "General Corporation Law");
(2) The Certificate of Incorporation of this corporation was originally
filed on November 26, 1996 under the name "Epiphany Marketing Automation, Inc.".
The name of the corporation was changed to Epiphany Marketing Software, Inc. by
the corporation's Second Amended and Restated Certificate of Incorporation filed
with the Secretary of State of Delaware on March 17, 1997. The name of the
corporation was then changed to E.piphany , Inc. by the corporation's Fifth
Amended and Restated Certificate of Incorporation filed with the Secretary of
State of Delaware on April 16, 1999. The Certificate of Incorporation is hereby
amended and restated in its entirety to read as follows:
FIRST: The name of this corporation is E.piphany, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1013 Centre Road, Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such
address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of stock to be
designated respectively Common Stock and Preferred Stock. The
total number of shares of all classes of stock that the
Corporation has authority to issue is Two Hundred Ten Million
(210,000,000), consisting of Two Hundred Million (200,000,000)
shares of Common Stock, $0.0001 par value (the "Common Stock"),
and Ten Million (10,000,000) shares of Preferred Stock, $0.0001
par value (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized subject
to limitations prescribed by law, to fix by resolution or
resolutions the designations, powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, of each
such series of Preferred Stock, including without limitation
authority to fix by resolution or resolutions, the dividend
rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption (including sinking fund
<PAGE> 2
provisions), redemption price or prices, and liquidation
preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the
designation thereof, or any of the foregoing.
The Board of Directors is further authorized to increase (but not
above the total number of authorized shares of the class) or
decrease (but not below the number of shares of any such series
then outstanding) the number of shares of any series, the number
of which was fixed by it, subsequent to the issue of shares of
such series then outstanding, subject to the powers, preferences
and rights, and the qualifications, limitations and restrictions
thereof stated in the resolution of the Board of Directors
originally fixing the number of shares of such series. If the
number of shares of any series is so decreased, then the shares
constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the
number of shares of such series.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The election of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
SEVENTH: The number of directors which constitute the whole Board of
Directors of the Corporation shall be designated in the Bylaws of
the Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is
expressly authorized to adopt, alter, amend or repeal the Bylaws
of the Corporation.
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended,
no director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
The Corporation may indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or
intestate is or was a director, officer or employee of the
Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer or employee
at the request of the Corporation or any predecessor to the
Corporation.
Neither any amendment nor repeal of this Article, nor the
adoption of any provision of this Amended and Restated
Certificate of Incorporation inconsistent with this Article,
shall eliminate or reduce the effect of this Article in respect
of any matter occurring, or any cause of action, suit or claim
that,
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but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
TENTH: At the election of directors of the Corporation, each holder of
stock of any class or series shall be entitled to one vote for
each share held. No stockholder will be permitted to cumulate
votes at any election of directors.
The number of directors which constitute the whole Board of
Directors of the Corporation shall be fixed exclusively by one or
more resolutions adopted from time to time by the Board of
Directors. The Board of Directors shall be divided into three
classes designated as Class I, Class II, and Class III,
respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders
following the date hereof, the term of office of the Class I
directors shall expire and Class I directors shall be elected for
a full term of three years. At the second annual meeting of
stockholders following the date hereof, the term of office of the
Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual
meeting of stockholders following the date hereof, the term of
office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At
each succeeding annual meeting of stockholders, directors shall
be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, may be filled by
the vote of a majority, although less than a quorum, of the
directors then in office, or by a sole remaining director.
ELEVENTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in
the laws of the State of Delaware) outside of the State of
Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the Bylaws of the
Corporation.
The stockholders of the Corporation may not take any action by
written consent in lieu of a meeting, and must take any actions
at a duly called annual or special meeting of stockholders and
the power of stockholders to consent in writing without a meeting
is specifically denied.
TWELFTH: Advance notice of new business and stockholder nominations for
the election of directors shall be given in the manner and to the
extent provided in the Bylaws of the Corporation.
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THIRTEENTH: Notwithstanding any other provisions of this Restated Certificate
of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of the capital stock required by
law or this Restated Certificate of Incorporation, the
affirmative vote of the holders of at least two-thirds (2/3) of
the combined voting power of all of the then-outstanding shares
of the Corporation entitled to vote shall be required to alter,
amend or repeal Articles NINTH, TENTH, ELEVENTH or TWELFTH
hereof, or this Article THIRTEENTH, or any provision hereof or
thereof, unless such amendment shall be approved by a majority of
the directors of the Corporation.
FOURTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights
conferred herein are granted subject to this reservation.
(3) This Amended and Restated Certificate of Incorporation has been duly
adopted by the Board of Directors of this Corporation in accordance with
Sections 242 and 245 of the General Corporation Law.
(4) This Amended and Restated Certificate of Incorporation has been duly
approved, in accordance with Section 242 of the General Corporation Law, by vote
of the holders of a majority of the outstanding stock entitled to vote thereon.
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Certificate of Incorporation on this ____ day of _____, 1999.
------------------------------------
Roger S. Siboni
Chief Executive Officer
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Aaron J. Alter
Secretary
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
E.PIPHANY, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
I.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
certificate of incorporation of the corporation.
I.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
II.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
II.2 ANNUAL MEETING
The annual meeting of the stockholders of this corporation shall be held
each year on a date and at a time designated by the board of directors. At the
meeting, directors shall be elected and any other proper business may be
transacted. 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 of stockholders only (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
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was a stockholder of record at the time of giving of notice provided for in
these Bylaws, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Bylaw.
For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of the preceding
sentence, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation and such other business must otherwise 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 60th day, but not
earlier than the close of business on the 90th day, prior to the meeting;
provided, however, that in the event that less than 65 days notice of the
meeting is given to stockholders, notice by the stockholder to be timely must be
so delivered not earlier than the close of business on the seventh (7th) day
following the day on which the notice of meeting was mailed. 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 (or any successor thereto) (the "Exchange Act") and Rule
14a-11 thereunder (or any successor thereto) (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 that are owned
beneficially and of record by such stockholder and such beneficial owner.
Notwithstanding any provision herein to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 2.2.
II.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board or by the president.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing to the secretary of the
corporation, and shall set forth (a) as to each person whom such person or
persons propose to nominate for election or reelection as a director at such
meeting all information relating to such proposed nominee 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 Exchange Act (or any successor thereto) and Rule 14a-11 thereunder (or any
successor thereto) (including such proposed nominee'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
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business to be taken at the meeting, a brief description of such business, the
reasons for conducting such business and any material interest in such business
of the person or persons calling such meeting and the beneficial owners, if any,
on whose behalf such meeting is called; and (c) as to the person or persons
calling such meeting and the beneficial owners, if any, on whose behalf the
meeting is called (i) the name and address of such persons, as they appear on
the corporation's books, and of such beneficial owners, and (ii) the class and
number of shares of the corporation that are owned beneficially and of record by
such persons and such beneficial owners. No business may be transacted at such
special meeting otherwise than specified in such notice or by or at the
direction of the corporation's board of directors. The corporation's secretary
shall cause notice to be promptly given to the stockholders entitled to vote, in
accordance with the provisions of Sections 2.4 and 2.5, that a meeting will be
held at the time reasonably requested by the person or persons who called the
meeting, not less than 60 nor more than 90 days after the receipt of the
request. If the notice is not given within 20 days after the receipt of a valid
request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph 2.3 shall be construed as limiting, fixing
or affecting the time when a meeting of stockholders called by action of the
board of directors may be held.
Only such business shall be conducted at a special meeting of
stockholders called by action of the board of directors as shall have been
brought before the meeting pursuant to the corporation's notice of meeting.
II.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise given
in accordance with Sections 2.2 and 2.3 of these bylaws not less than ten (10)
nor more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
II.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
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An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
II.6 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
II.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
II.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.10 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation
or these bylaws, each stockholder shall be entitled to one vote for each share
of capital stock held by such stockholder.
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II.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
The stockholders may not take any action by written consent in lieu of a
meeting, and must take any actions at a duly called annual or special meeting of
stockholders and the power of stockholders to consent in writing is specifically
denied.
II.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, 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 business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
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
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these bylaws.
II.11 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
II.12 ORGANIZATION
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a chairman
for such meeting. The chairman of any meeting of stockholders shall determine
the order of
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business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and the conduct of business. The secretary of
the corporation shall act as secretary of all meetings of the stockholders, but
in the absence of the secretary at any meeting of the stockholders, the chairman
of the meeting may appoint any person to act as secretary of the meeting.
II.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (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 time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
III.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
to any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
III.2 NUMBER OF DIRECTORS
The board of directors shall consist of seven (7) members. The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
III.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
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Except as provided in Section 3.4 of these bylaws or the certificate of
incorporation, directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting. Each director, including a
director elected or appointed to fill a vacancy, shall hold office until the
expiration of the term for which elected and until a successor has been elected
and qualified.
Election of directors need not be by written ballot.
III.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director; provided however, a vacancy created by the removal of a
director by the vote of the stockholders or by court order may be filled only by
the affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum). Unless
otherwise provided in the certificate of incorporation or these bylaws, each
director so elected shall hold office until the next annual meeting of the
stockholders and until a successor has been elected and qualified..
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent (10%) of the total number of the shares then
outstanding having the right
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to vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office as aforesaid, which election shall be
governed by the provisions of Section 211 of the General Corporation Law of
Delaware as far as applicable.
III.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, only with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
III.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of Delaware that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
III.7 FIRST MEETINGS
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. 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.
III.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors. If
any regular meeting day shall fall on a legal holiday, then the meeting shall be
held at the same time and place on the next succeeding business day.
III.9 SPECIAL MEETINGS; NOTICE
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Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telecopy, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telecopy, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
III.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.12 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the quorum for that meeting.
III.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
III.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the board to another time and place.
III.13 NOTICE OF ADJOURNMENT
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Notice of the time and place of holding an adjourned meeting of the
board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than twenty-four
(24) hours, then notice of the time and place of the adjourned meeting shall be
given before the adjourned meeting takes place, in the manner specified in
Section 3.9 of these bylaws, to the directors who were not present at the time
of the adjournment.
III.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board of directors.
III.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
III.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
III.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
ARTICLE IV
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COMMITTEES
IV.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. 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. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
IV.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the following provisions of Article III of these
bylaws: Section 3.6 (place of meetings; meetings by telephone), Section 3.8
(regular meetings), Section 3.9 (special meetings; notice), Section 3.10
(quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section
3.13 (notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
IV.3 COMMITTEE MINUTES
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Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
V.1 OFFICERS
The Corporate Officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents (however denominated), one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these bylaws. Any number of offices may be
held by the same person.
V.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
V.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.6 of
these bylaws.
V.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any contract
of employment, any Corporate Officer may be removed, either with or without
cause, by the board of directors at any regular or special meeting of the board
or, except in case of a Corporate Officer chosen by the board of directors, by
any Corporate Officer upon whom such power of removal may be conferred by the
board of directors.
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Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may
be removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
V.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
V.6 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
V.7 AUTHORITY AND DUTIES OF OFFICERS
The officers of the corporation shall respectively have such authority
and powers and perform such duties in the management of the business of the
corporation as may be designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
VI.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
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The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware as the same now exists or may
hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was a
director or officer of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation shall mean any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
If a claim for indemnification or payment of expenses under this Article
is not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's Certificate of Incorporation,
these bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
VI.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to
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indemnify any person (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit, or proceeding, in which such person was or is a party or
is threatened to be made a party by reason of the fact that such person is or
was an employee or agent of the corporation. The corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or non-profit entity shall be reduced by any amount such
person may collect as indemnification from such other corporation, partnership,
joint venture, trust, enterprise or non-profit enterprise. For purposes of this
Section 6.2, an "employee" or "agent" of the corporation (other than a director
or officer) shall mean any person (i) who is or was an employee or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was an employee or agent of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
VI.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
VII.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual business hours to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be
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accompanied by a power of attorney or such other writing that authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand under
oath shall be directed to the corporation at its registered office in Delaware
or at its principal place of business.
VII.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
VII.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
VII.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president,
the chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
VII.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered
to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the stockholders
of the corporation, at all reasonable times during business hours.
ARTICLE VIII
GENERAL MATTERS
VIII.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders 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
precede the date upon which
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the resolution fixing the record date is adopted and which shall not be more
than sixty (60) days before any such action. In that case, only stockholders of
record at the close of business on the date so fixed are entitled to receive the
dividend, distribution or allotment of rights, or to exercise such rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date so fixed, except as otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
VIII.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
VIII.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize and empower any officer or officers, or agent or agents, to enter
into any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
VIII.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
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Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
VIII.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
VIII.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation
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secured by a bond or other adequate security sufficient to protect the
corporation against any claim that may be made against it, including any expense
or liability, on account of the alleged loss, theft or destruction of the
certificate or the issuance of the replacement certificate.
VIII.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company--either domestic or foreign--who shall be
appointed at such times and places as the requirements of the corporation may
necessitate and the board of directors may designate.
VIII.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, as used in these bylaws, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both an
entity and a natural person.
ARTICLE IX
AMENDMENTS
Any of these bylaws may be altered, amended or repealed by the
affirmative vote of a majority of the members of the board of directors or, with
respect to bylaw amendments, excluding amendments relating to Sections 2.2, 2.3,
2.9 or Article VI, placed before the stockholders for approval and except as
otherwise provided herein or required by law, by the affirmative vote of the
holders of a majority of the shares of the corporation's stock entitled to vote,
voting as one class, and with respect to bylaw amendments relating to Sections
2.2, 2.3, 2.9 or Article VI, placed before the stockholders for approval and
except as otherwise provided herein or required by law, by the affirmative vote
of the holders of at least two-thirds of the shares of the corporation's stock
entitled to vote, voting as one class.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
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AMENDED AND RESTATED
BYLAWS OF
E.PIPHANY, INC.
(A DELAWARE CORPORATION)
TABLE OF CONTENTS
<TABLE>
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ARTICLE I - CORPORATE OFFICES....................................................................1
1.1 REGISTERED OFFICE.................................................................1
1.2 OTHER OFFICES.....................................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS............................................................1
2.1 PLACE OF MEETINGS.................................................................1
2.2 ANNUAL MEETING....................................................................1
2.3 SPECIAL MEETING...................................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS..................................................3
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE......................................3
2.6 QUORUM............................................................................4
2.7 ADJOURNED MEETING; NOTICE.........................................................4
2.8 VOTING............................................................................4
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING ............................................................5
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING........................................5
2.11 PROXIES...........................................................................5
2.12 ORGANIZATION......................................................................5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE.............................................6
ARTICLE III - DIRECTORS..........................................................................6
3.1 POWERS............................................................................6
3.2 NUMBER OF DIRECTORS...............................................................6
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS..........................................7
3.4 RESIGNATION AND VACANCIES.........................................................7
3.5 REMOVAL OF DIRECTORS..............................................................8
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..........................................8
3.7 FIRST MEETINGS....................................................................8
3.8 REGULAR MEETINGS..................................................................8
3.9 SPECIAL MEETINGS; NOTICE..........................................................9
3.10 QUORUM............................................................................9
</TABLE>
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<TABLE>
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3.11 WAIVER OF NOTICE..................................................................9
3.12 ADJOURNMENT.......................................................................9
3.13 NOTICE OF ADJOURNMENT............................................................10
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................................10
3.15 FEES AND COMPENSATION OF DIRECTORS...............................................10
3.16 APPROVAL OF LOANS TO OFFICERS....................................................10
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION...........................10
ARTICLE IV - COMMITTEES.........................................................................11
4.1 COMMITTEES OF DIRECTORS..........................................................11
4.2 MEETINGS AND ACTION OF COMMITTEES................................................11
4.3 COMMITTEE MINUTES................................................................12
ARTICLE V - OFFICERS............................................................................12
5.1 OFFICERS.........................................................................12
5.2 ELECTION OF OFFICERS.............................................................12
5.3 SUBORDINATE OFFICERS.............................................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS..............................................13
5.5 VACANCIES IN OFFICES.............................................................13
5.6 ADMINISTRATIVE OFFICERS..........................................................13
5.7 AUTHORITY AND DUTIES OF OFFICERS.................................................13
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS........................................................................14
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................14
6.2 INDEMNIFICATION OF OTHERS........................................................15
6.3 INSURANCE........................................................................15
ARTICLE VII - RECORDS AND REPORTS...............................................................15
7.1 MAINTENANCE AND INSPECTION OF RECORDS............................................15
7.2 INSPECTION BY DIRECTORS..........................................................16
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.................................................16
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...................................16
7.5 CERTIFICATION AND INSPECTION OF BYLAWS...........................................16
ARTICLE VIII - GENERAL MATTERS..................................................................17
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING............................17
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS........................................17
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED...............................17
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES.................................17
</TABLE>
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<TABLE>
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8.5 SPECIAL DESIGNATION ON CERTIFICATES..............................................18
8.6 LOST CERTIFICATES................................................................19
8.7 TRANSFER AGENTS AND REGISTRARS...................................................19
8.8 CONSTRUCTION; DEFINITIONS........................................................19
ARTICLE IX - AMENDMENTS.........................................................................19
</TABLE>
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EXHIBIT 10.1
E.PIPHANY, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of
____________, ___ by and between E.piphany, Inc. a Delaware corporation (the
"COMPANY") and ____________________________________ ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to
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the institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other (hereinafter a "Claim") by reason of (or arising in part out of) any event
or occurrence related to the fact that Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Company, or any subsidiary of the Company,
or is or was serving at the request of the Company as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust or other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity (hereinafter an "INDEMNIFIABLE EVENT")
against any and all expenses (including attorneys' fees and all other costs,
expenses and obligations incurred in connection with investigating, defending,
being a witness in or participating in (including on appeal), or preparing to
defend, be a witness in or participate in, any such action, suit, proceeding,
alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if such settlement
is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed
on Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "EXPENSES"), including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses. Such payment of Expenses shall be made by the Company as soon
as practicable but in any event no later than five days after written demand by
Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "EXPENSE ADVANCE") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the
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Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation seeking an initial determination by the
court or challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and the Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitees to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than five days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In
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addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitees' power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitees' counsel in any such Claim at Indemnitee expense and (ii) if
(A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee counsel shall be at
the expense of the Company. The Company shall have the right to conduct such
defense as it sees fit in its sole discretion, including the right to settle any
claim against Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
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(a) Scope. The Company hereby agrees to indemnify Indemnitee to
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested directors, the General Corporation Law of
the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee are entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by
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such policies in such a manner as to provide Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be relieved of liability under applicable law;
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
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10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company"
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, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with respect to an employee benefit plan,
its participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii)
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the stockholders of the Company approve a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the
Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall
mean any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall
mean any securities of the Company that vote generally in the election of
directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
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13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of Indemnitee material defenses to such action
was made in bad faith or was frivolous.
14. Notice. 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 (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
the Indemnitee address as set forth beneath Indemnitee signatures to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be
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construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
E.PIPHANY, INC.
______________________________________
By:
______________________________________
Title:
Address: 2300 Geng Road, Suite 200
Palo Alto, CA 94303
AGREED TO AND ACCEPTED BY:
Signature: ___________________________
Name: ___________________________
Address: ___________________________
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EXHIBIT 10.2
E.PHIPHANY, INC.
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are (i) to
attract and retain the best available personnel for positions of substantial
responsibility, (ii) to provide additional incentive to Employees, Directors and
Consultants, and (iii) to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means E.piphany, Inc.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless
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reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i)If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "Inside Director" means a Director who is an Employee.
(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
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(t) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(u) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.
(w) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(x) "Outside Director" means a Director who is not an Employee.
(y) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(z) "Plan" means this 1999 Stock Plan.
(aa) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(bb) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(cc) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(dd) "Section 16(b)" means Section 16(b) of the Exchange Act.
(ee) "Service Provider" means an Employee, Director or
Consultant.
(ff) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(gg) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(hh) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 7,000,000 Shares, plus an annual increase to be added on the
first day of the Company's fiscal year beginning in 2000 equal to the lesser of
(i) 5,000,000 shares, (ii) 4% of the outstanding shares on such date, or
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(iii) a lesser amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock. If an Option or Stock Purchase Right
expires or becomes unexercisable without having been exercised in full, or is
surrendered pursuant to an Option Exchange Program, the unpurchased Shares which
were subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated); provided, however, that Shares that have
actually been issued under the Plan, whether upon exercise of an Option or
Right, shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if Shares of Restricted Stock
are repurchased by the Company at their original purchase price, such Shares
shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options
and Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common
Stock to be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase
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Rights may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or Stock Purchase Right or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or
Stock Purchase Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option or Stock Purchase Right shall
have declined since the date the Option or Stock Purchase Right was granted;
(vii) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;
(viii) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(ix) to modify or amend each Option or Stock Purchase
Right (subject to Section 16(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;
(x) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xi) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xii) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such
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<PAGE> 6
designation, to the extent that the aggregate Fair Market Value of the Shares
with respect to which Incentive Stock Options are exercisable for the first time
by the Optionee during any calendar year (under all plans of the Company and any
Parent or Subsidiary) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock
Options shall be taken into account in the order in which they were granted. The
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any
fiscal year of the Company, Options to purchase more than 1,500,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
1,500,000 Shares which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 14.
(iv) If an Option is cancelled in the same fiscal year
of the Company in which it was granted (other than in connection with a
transaction described in Section 14), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 16 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
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<PAGE> 7
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option the
per Share exercise price shall be determined by the Administrator. In the case
of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
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<PAGE> 8
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of payment
for the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 14 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the
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<PAGE> 9
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted
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<PAGE> 10
Stock Purchase Agreement shall be the original price paid by the purchaser and
may be paid by cancellation of any indebtedness of the purchaser to the Company.
The repurchase option shall lapse at a rate determined by the Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Formula Option Grants to Outside Directors. All grants of Options to
Outside Directors pursuant to this Section shall be automatic and
nondiscretionary and shall be made strictly in accordance with the following
provisions:
(a) All Options granted pursuant to this Section shall be
Nonstatutory Stock Options and, except as otherwise provided herein, shall be
subject to the other terms and conditions of the Plan.
(b) No person shall have any discretion to select which Outside
Directors shall be granted Options under this Section or to determine the number
of Shares to be covered by such Options.
(c) Each person who first becomes an Outside Director following the
effective date of this Plan, as determined in accordance with Section 7 hereof,
shall be automatically granted an Option to purchase 50,000 Shares (the "First
Option") or the date on which such person first becomes an Outside Director,
whether through election by the stockholders of the Company or appointment by
the Board to fill a vacancy; provided, however, that an Inside Director who
ceases to be an Inside Director but who remains a Director shall not receive a
First Option.
(d) Each Outside Director shall be automatically granted an Option
to purchase 25,000 Shares (a "Subsequent Option") at the start of each of the
second and third years of his or her service at the then fair market value of
our common stock at that time.
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<PAGE> 11
(e) Notwithstanding the provisions of subsections (c) and (d)
hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 20 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 20 hereof.
(f) The terms of each Option granted pursuant to this Section shall
be as follows:
(i) the term of the Option shall be ten (10) years.
(ii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(iii) the First Option shall be fully vested and exercisable
on the date of grant.
(iv) the Subsequent Option shall be fully vested and
exercisable on the date of grant.
14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously
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<PAGE> 12
exercised, an Option or Stock Purchase Right will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
15. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the
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<PAGE> 13
Optionee and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such termination.
17. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
18. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
19. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
20. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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<PAGE> 14
E.PIPHANY, INC.
1999 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[OPTIONEE'S NAME AND ADDRESS]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _____________________________
Date of Grant _____________________________
Vesting Commencement Date _____________________________
Exercise Price per Share $____________________________
Total Number of Shares Granted _____________________________
Total Exercise Price $____________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _____________________________
Vesting Schedule:
Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
[25% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST TWELVE MONTHS AFTER THE
VESTING COMMENCEMENT DATE, AND 1/48 OF THE SHARES SUBJECT TO THE OPTION SHALL
VEST EACH MONTH THEREAFTER, SUBJECT TO THE OPTIONEE CONTINUING TO BE A SERVICE
PROVIDER ON SUCH DATES].
<PAGE> 15
Termination Period:
This Option may be exercised for three months after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for twelve months after Optionee ceases to be a Service Provider.
In no event shall this Option be exercised later than the Term/Expiration Date
as provided above.
II. AGREEMENT
A. Grant of Option.
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the Extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Secretary of the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall by deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE> 16
C. Method of Payment.
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
2. check; or
3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
4. surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
5. to the extent permitted by the Administrator, delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale proceeds
required to pay the Exercise Price.
D. Non-Transferability of Option.
This Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of the Plan and this
Option Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
E. Term Of Option.
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
F. Tax Consequences.
Some of the federal tax consequences relating to this Option, as of
the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
G. Exercising the Option.
1. Nonstatutory Stock Option. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is
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<PAGE> 17
an Employee or a former Employee, the Company will be required to withhold from
his or her compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
2. Incentive Stock Option. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purpose and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
3. Disposition of Shares.
(a) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant dated, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If
the Optionee sells or otherwise disposes of any of the Shares acquired pursuant
to an ISO on or before the later of (i) two years after the grant date, or (ii)
one year after the exercise date, the Optionee shall immediately notify the
Company in writing of such disposition. The Optionee agrees that he or she may
be subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
-4-
<PAGE> 18
H. Entire Agreement; Governing Law.
The Plan is incorporated herein by reference. The Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof, and may not be modified adversely to the Optionee's
interest except by means of a writing signed by the Company and Optionee. This
agreement is governed by the internal substantive laws, but not the choice of
law rules, of Texas.
I. NO GUARANTEE OF CONTINUED SERVICE.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN
EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR
THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH
OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS
A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Administrator upon any questions
relating to the Plan and Option Agreement. Optionee further agrees to notify
the Company upon any change in the residence address indicated below.
OPTIONEE E.PIPHANY, INC.
- ------------------------------ ------------------------------
Signature By
- ------------------------------ ------------------------------
Print Name Title
- ------------------------------
Residence Address
- ------------------------------
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<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
Dated:_____________________, ____
________________________________________
Signature of Spouse
<PAGE> 20
EXHIBIT A
E.PIPHANY, INC.
1999 STOCK PLAN
EXERCISE NOTICE
E.piphany, Inc.
2300 Geng Road, Suite 200
Palo Alto, CA 94303
Attention: Secretary
1. Exercise of Option. Effective as of today, ______________, ____, the
undersigned ("Purchaser") hereby elects to purchase ____________ shares (the
"Shares") of the Common Stock of E.piphany, Inc. (the "Company") under and
pursuant to the 1999 Stock Plan (the "Plan") and the Stock Option Agreement
dated, ____ (the "Option Agreement"). The purchase price for the Shares shall be
$____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all
<PAGE> 21
prior undertakings and agreements of the Company and Purchaser with respect to
the subject matter hereof, and may not be modified adversely to the Purchaser's
interest except by means of a writing signed by the Company and Purchaser. This
agreement is governed by the internal substantive laws, but not the choice of
law rules, of Texas.
Submitted by: Accepted by:
PURCHASER E.PIPHANY, INC.
- ------------------------------ ------------------------------
Signature By
- ------------------------------ ------------------------------
Print Name Title
Address: Address:
- ------------------------------ E.piphany, Inc.
2300 Geng Road, Suite 200
- ------------------------------ Palo Alto, CA 94303
- ------------------------------
------------------------------
Date Received
-2-
<PAGE> 22
E.PIPHANY, INC.
1999 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[GRANTEE'S NAME AND ADDRESS]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number -----------------------------
Date of Grant -----------------------------
Price Per Share $----------------------------
Total Number of Shares Subject -----------------------------
to This Stock Purchase Right
Expiration Date: -----------------------------
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 1999 Stock Plan and the Restricted Stock
Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a
part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: E.PIPHANY, INC.
- ---------------------------------- ----------------------------------
Signature By
- ---------------------------------- ----------------------------------
Print Name Title
<PAGE> 23
EXHIBIT A-1
E.PIPHANY, INC.
1999 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the notice of Grant, (the "Purchaser") is a
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice
of Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option")
for a period of sixty (60) days from such date to repurchase up to that number
of shares which constitute the Unreleased Shares (as defined in Section 4) at
the original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND,
at the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
canceling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals the aggregate
<PAGE> 24
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interests therein or relating
thereto, and the Company shall have the right to retain and transfer to its own
name the number of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of
such Shares, then each such designee or assignee shall pay the Company cash
equal to the difference between the Repurchase FMV and the aggregate Repurchase
Price of such Shares.
4. Release of Shares from Repurchase Option.
(a) ________________ percent (_____%) of the Shares shall be released
from the Company's Repurchase Option ___________ after the Date of Grant and
________________ percent (_____%) of the Shares [at the end of each month
thereafter], provided that the Purchaser does not cease to be a Service
Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the Company may require the spouse of the Purchaser, if any, to
execute and deliver to the Company the Consent of Spouse attached hereto as
Exhibit A-4.
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<PAGE> 25
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares and
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares that may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that may arise as a result of the transactions contemplated by this Agreement.
The Purchaser understands that Section 83 of the Internal Revenue Code of 1986,
as amended (the "Code"), taxes as ordinary income the difference between the
purchase price for the Shares and the Fair Market Value of the Shares as of the
date any restrictions on the Shares lapse. In this context, "restriction"
includes the
-3-
<PAGE> 26
right of the Company to buy back the Shares pursuant to the Repurchase Option.
The Purchaser understands that the Purchaser may elect to be taxed at the time
the Shares are purchased rather than when and as the Repurchase Option expires
by filing an election under Section 83(b) of the Code with the IRS within 30
days from the date of purchase. The form for making this election is attached
as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO
MAKE THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of Texas. This Agreement, subject to the
terms and conditions of the Plan and the Notice of Grant, represents the entire
agreement between the parties with respect to the purchase of the Shares by the
Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Agreement, the terms and conditions of the Plan shall prevail. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other
in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal
remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING
-4-
<PAGE> 27
SERVICE AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE
ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN
EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR
THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH
PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP
AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: ---------------------------
PURCHASER E.PIPHANY, INC.
- ---------------------------------- ----------------------------------
Signature By
- ---------------------------------- ----------------------------------
Print Name Title
-5-
<PAGE> 28
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto ____________________________________ (________) shares of the
Common Stock of E.piphany, Inc., standing in my name of the books of said
corporation represented by Certificate No. ____ herewith and do hereby
irrevocably constitute and appoint _________________ to transfer the said stock
on the books of the within named corporation with full power of substitution in
the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between ___________________ and the
undersigned dated ___________________, ____.
Dated:___________________, _____
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 29
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
Corporate Secretary __________, ________
E.piphany, Inc.
2300 Geng Road, Suite 200
Palo Alto, CA 94303
Dear __________________________:
As Escrow Agent for both E.piphany, Inc., a Delaware corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's Repurchase
Option set forth in the Agreement, the Company shall give to Purchaser and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price, and the time for a closing hereunder at the principal office of
the Company. Purchaser and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the
<PAGE> 30
Company's Repurchase Option. Within 90 days after Purchaser ceases to be a
Service Provider, you shall deliver to Purchaser a certificate or certificates
representing the aggregate number of shares held or issued pursuant to the
Agreement and not purchased by the Company or its assignees pursuant to
exercise of the Company's Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation 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.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
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<PAGE> 31
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or
defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: E.piphany, Inc.
2300 Geng Road, Suite 200
Palo Alto, CA 94303
PURCHASER: -------------------------
-------------------------
-------------------------
ESCROW AGENT: Corporate Secretary
E.piphany, Inc.
2300 Geng Road, Suite 200
Palo Alto, CA 94303
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
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<PAGE> 32
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of the law rules, of Delaware.
Very truly yours,
E.PIPHANY, INC.
----------------------------------
By
----------------------------------
Title
PURCHASER:
----------------------------------
Signature
----------------------------------
Print Name
ESCROW AGENT:
- ----------------------------------
Corporate Secretary
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<PAGE> 33
EXHIBIT A-4
CONSENT OF SPOUSE
I, ________________ , spouse of _______________ , have read and approve the
foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of E.piphany, Inc., as set forth in the Agreement, I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: ________________
_________________________
Signature of Spouse
<PAGE> 34
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross
income for the current taxable year the amount of any compensation taxable to
taxpayer in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: ____________ shares (the "Shares") of the Common Stock of
E.piphany, Inc. (the "Company").
3. The date on which the property was transferred is: _______________________
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by taxpayer over time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will never
lapse, of such property is:
$__________.
6. The amount (if any) paid for such property is:
$__________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: --------------------------- ----------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: --------------------------- ----------------------------------
Spouse of Taxpayer
<PAGE> 35
ATTACHMENT 2
E.PIPHANY, INC.
EXECUTIVE OFFICERS AND DIRECTORS SUBJECT TO
SECTION 16 AND MANDATORY TRADING WINDOW
OTHER EMPLOYEES SUBJECT TO PRE-CLEARANCE
NOTE: "SECTION 16 INSIDERS" DENOTED BELOW BY BOLD ITALICS.
1. Directors:
Name Title
-------------- --------------------------------------
Roger S. Siboni DIRECTOR
Eliot L. Wegbreit CHAIRMAN OF THE BOARD
Paul Hazen DIRECTOR
Robert L. Joss DIRECTOR
Sam H. Lee DIRECTOR
Douglas J. Mackenzie DIRECTOR
[ ] DIRECTOR
2. Executive Officers (including executive officers who are also directors):
Name Title
-------------- --------------------------------------
Roger S. Siboni PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
Steven G. Blank EXECUTIVE VICE PRESIDENT, MARKETING
Karen A. Richardson EXECUTIVE VICE PRESIDENT, WORLDWIDE
SALES
Anthony Leach EXECUTIVE VICE PRESIDENT, OPERATIONS
AND SERVICES
Phillip M. Fernandez EXECUTIVE VICE PRESIDENT, PRODUCT
DEVELOPMENT
Kevin J. Yeamen VICE PRESIDENT, FINANCE AND
ADMINISTRATION
<PAGE> 1
EXHIBIT 10.3
E.PIPHANY, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of E.piphany, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean E.piphany, Inc. and any Designated
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings, commissions, overtime, shift premium, and bonuses, but exclusive of
other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each
Purchase Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock prior to the date of determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board; or
(iv) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before November 30,
2001. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
(m) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
Notwithstanding the above, the first Purchase Period under the Plan shall
commence on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statements effective and ending on the last
Trading Day on or before April 30, 2000.
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<PAGE> 3
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
November 30, 2001. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
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<PAGE> 4
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding 15% of the Compensation
which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
-4-
<PAGE> 5
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
20,000 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall occur
as provided in Section 8 hereof, unless the participant has withdrawn pursuant
to Section 10 hereof. The option shall expire on the last day of the Offering
Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence,
-5-
<PAGE> 6
notwithstanding any authorization of additional shares for issuance under the
Plan by the Company's shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason,
he or she shall be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the Offering
Period but not yet used to exercise the option shall be returned to such
participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 4,000,000 shares, plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2000 equal to the
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<PAGE> 7
lesser of (i) 4,000,000 shares, (ii) 4% of the outstanding shares on such date
or (iii) a lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
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<PAGE> 8
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of
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<PAGE> 9
the Company's proposed sale or merger. The Board shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(iii) allocating shares.
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<PAGE> 10
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE> 11
EXHIBIT A
E.PIPHANY, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the E.piphany, Inc.
1999 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan")
and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
___________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me
<PAGE> 12
over the price which I paid for the shares. I hereby agree to notify the
Company in writing within 30 days after the date of any disposition of
my shares and I will make adequate provision for Federal, state or other
tax withholding obligations, if any, which arise upon the disposition of
the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received income only at the time
of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)__________________________________________________
(First) (Middle) (Last)
_________________________ __________________________________________
Relationship
__________________________________________
(Address)
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<PAGE> 13
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ____________________________________
Signature of Employee
____________________________________
Spouse's Signature
(If beneficiary other than spouse)
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<PAGE> 14
EXHIBIT B
E.PIPHANY, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the E.piphany,
Inc. 1999 Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:
---------------------------
<PAGE> 1
EXHIBIT 10.4
EPIPHANY MARKETING SOFTWARE, INC.
1997 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1997 Stock Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as
amended.
(e) "COMMITTEE" means the Committee appointed by the Board
of Directors in accordance with Section 4(a) of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Epiphany Marketing Software, Inc., a
Delaware corporation.
(h) "CONSULTANT" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means
the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military
<PAGE> 2
leave; (iii) any other leave of absence approved by the Administrator, provided
that such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or their respective successors. For
purposes of this Plan, a change in status from an Employee to a Consultant or
from a Consultant to an Employee will not constitute an interruption of
Continuous Status as an Employee or Consultant.
(j) "EMPLOYEE" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company,
with the status of employment determined based upon such minimum number of hours
or periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(l) "FAIR MARKET VALUE" means, as of any date, the fair
market value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such system or exchange, or the exchange with the
greatest volume of trading in Common Stock for the last market trading day prior
to the time of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock for the last market trading day prior to the time of determination,
as reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable written option agreement.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
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<PAGE> 3
(o) "OPTION" means a stock option granted pursuant to the
Plan.
(p) "OPTIONED STOCK" means the Common Stock subject to an
Option or a Stock Purchase Right.
(q) "OPTIONEE" means an Employee or Consultant who receives an
Option or a Stock Purchase Right.
(r) "PARENT" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any successor
provision.
(s) "PLAN" means this 1997 Stock Plan.
(t) "REPORTING PERSON" means an officer, director, or
greater than ten percent stockholder of the Company within the meaning of Rule
16a-2 under the Exchange Act, who is required to file reports pursuant to Rule
l6a-3 under the Exchange Act.
(u) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 10 below.
(v) "RULE 16B-3" means Rule 16b-3 promulgated under the
Exchange Act, as the same may be amended from time to time, or any successor
provision.
(w) "SHARE" means a share of the Common Stock, as adjusted
in accordance with Section 12 of the Plan.
(x) "STOCK EXCHANGE" means any stock exchange or
consolidated stock price reporting system on which prices for the Common Stock
are quoted at any given time.
(y) "STOCK PURCHASE RIGHT" means the right to purchase
Common Stock pursuant to Section 10 below.
(z) "SUBSIDIARY" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code, or any
successor provision.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
12 of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 5,600,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should expire
or become unexercisable for any reason without having been exercised in full,
the unpurchased Shares that were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock which are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise shall be treated as not issued and shall
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<PAGE> 4
continue to be available under the Plan. Shares repurchased by the Company
pursuant to any repurchase right which the Company may have shall not be
available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) ADMINISTRATOR. The Plan shall be administered by the
Board or a committee appointed by the Board. Which committee shall be
constituted in such a manner as to satisfy Applicable Laws. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions
of the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any Stock Exchange, the
Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what
circumstances an Option may be settled in cash under Section 9(f) instead of
Common Stock;
(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
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<PAGE> 5
(ix) to determine the terms and restrictions
applicable to Stock Purchase Rights and the Restricted Stock purchased by
exercising such Stock Purchase Rights;
(x) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan; and
(xi) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options or Stock Purchase Rights
to participants who are foreign nationals or employed outside of the United
States in order to recognize differences in local law, tax policies or customs.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options or Stock Purchase Rights.
5. ELIGIBILITY.
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and
Stock Purchase Rights may be granted to Employees and Consultants. Incentive
Stock Options may be granted only to Employees. An Employee or Consultant who
has been granted an Option or Stock Purchase Right may, if he or she is
otherwise eligible, be granted additional Options or Stock Purchase Rights.
(b) TYPE OF OPTION. Each Option shall be designated in the
written option agreement as either an Incentive Stock Option or a Nonstatutory
Stock Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Options designated
as Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) EMPLOYMENT RELATIONSHIP. The Plan shall not confer upon
any Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated
in the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of
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<PAGE> 6
grant thereof or such shorter term as may be provided in the Option Agreement
and provided further that, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the written option agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board and set forth in the applicable agreement, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option that
is:
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Parent or Subsidiary, the per Share exercise price shall be
no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option that
is:
(A) granted to a person who, at the time of
the grant of such Option, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note (subject to the provisions of Section 153 of the
Delaware General Corporation Law), (4) other Shares that (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six months on the date of surrender or such other period as may be
required to avoid a charge to the Company's earnings, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option shall be exercised, (5) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (6) delivery of a properly executed exercise notice
together with such other
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<PAGE> 7
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale or
loan proceeds required to pay the exercise price and any applicable income or
employment taxes, (7) delivery of an irrevocable subscription agreement for the
Shares that irrevocably obligates the option holder to take and pay for the
Shares not more than twelve months after the date of delivery of the
subscription agreement, (8) any combination of the foregoing methods of payment,
or (9) such other consideration and method of payment for the issuance of Shares
to the extent permitted under Applicable Laws. In making its determination as to
the type of consideration to accept, the Administrator shall consider if
acceptance of such consideration may be reasonably expected to benefit the
Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, and reflected in the written
option agreement, which may include vesting requirements and/or performance
criteria with respect to the Company and/or the Optionee; provided that such
Option shall become exercisable at the rate of at least twenty percent (20%) per
year over five (5) years from the date the Option is granted. In the event that
any of the Shares issued upon exercise of an Option should be subject to a right
of repurchase in the Company's favor, such repurchase right shall lapse at the
rate of at least twenty percent (20%) per year over five (5) years from the date
the Option is granted.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and the
Company has received full payment for the Shares with respect to which the
Option is exercised. Full payment may, as authorized by the Board, consist of
any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares that thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP.
Subject to Section 9(c), in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant with the Company, such Optionee may, but
only within three (3) months (or such other
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<PAGE> 8
period of time not less than thirty (30) days as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option and not exceeding three (3)
months) after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee
is an Employee who becomes a Consultant.
(c) DISABILITY OF OPTIONEE.
(i) Notwithstanding Section 9(b) above, in the event
of termination of an Optionee's Continuous Status as an Employee or Consultant
as a result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall terminate.
(ii) In the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of a disability which
does not fall within the meaning of total and permanent disability (as set forth
in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
422 of the Code) within three (3) months of the date of such termination, the
Option will not qualify for ISO treatment under the Code. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within six
months (6) from the date of termination, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an
Optionee during the period of Continuous Status as an Employee or Consultant
since the date of grant of the Option, or within thirty (30) days following
termination of Optionee's Continuous Status as an Employee or Consultant, the
Option may be exercised, at any time within six (6) months following the date of
death (but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement), by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of death or, if
earlier, the date of termination of Optionee's Continuous Status as an Employee
or Consultant. To the extent that Optionee was not entitled to exercise the
Option at the date of
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<PAGE> 9
death or termination, as the case may be, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(e) BUYOUT PROVISIONS. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer, or, in the case of
a person owning stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the price shall not be less than one hundred percent (100%) of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but at a minimum rate of 20% per year.
(c) OTHER PROVISIONS. The Restricted Stock purchase
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its sole
discretion. In addition, the provisions of Restricted Stock purchase agreements
need not be the same with respect to each purchaser.
(d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right
is exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
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<PAGE> 10
11. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee for more
than six months on the date of surrender, and (ii) have a fair market value on
the date of surrender equal to or less than Optionee's marginal tax rate times
the ordinary income recognized, or (d) by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, or the Shares to be
issued in connection with the Stock Purchase Right, if any, that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
Any surrender by a Reporting Person of previously owned Shares
to satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy
tax withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Stock Purchase Right as to which the election
is made; and
(c) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN
OTHER TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding
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<PAGE> 11
Option or Stock Purchase Right, and the number of shares of Common Stock that
have been authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or that have been returned to the
Plan upon cancellation or expiration of an Option or Stock Purchase Right, as
well as the price per share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock, or any other increase
or decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR SALE OF ASSETS. In the event of a proposed
sale of all or substantially all of the Company's assets or a merger of the
Company with or into another corporation where the successor corporation issues
its securities to the Company's stockholders, each outstanding Option or Stock
Purchase Right shall be assumed or an equivalent option or right shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the successor corporation does not agree to assume
the Option or Stock Purchase Right or to substitute an equivalent option or
right, in which case such Option or Stock Purchase Right shall terminate upon
the consummation of the merger or sale of assets.
(d) CERTAIN DISTRIBUTIONS. In the event of any distribution
to the Company's stockholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
13. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS.
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised or purchased during the
lifetime of the Optionee or Stock Purchase Rights Holder only by the Optionee or
Stock Purchase Rights Holder.
14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes
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<PAGE> 12
the determination granting such Option or Stock Purchase Right, or such other
date as is determined by the Board; provided however that in the case of any
Incentive Stock Option, the grant date shall be the later of the date on which
the Administrator makes the determination granting such Incentive Stock Option
or the date of commencement of the Optionee's employment relationship with the
Company. Notice of the determination shall be given to each Employee or
Consultant to whom an Option or Stock Purchase Right is so granted within a
reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any
time amend, alter, suspend or discontinue the Plan, but no amendment,
alteration, suspension or discontinuation shall be made that would impair the
rights of any Optionee under any grant theretofore made, without his or her
consent. In addition, to the extent necessary and desirable to comply with
Applicable Laws, the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or
termination of the Plan shall adversely affect Options already granted, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with Applicable Laws. As a condition
to the exercise of an Option, the Company may require the person exercising such
Option to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by law.
17. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced
by written agreements in such form as the Administrator shall approve from time
to time.
19. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject
to approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the degree and manner required under applicable state and federal
law and the rules of any Stock Exchange upon which the Common Stock is listed.
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<PAGE> 13
All Options and Stock Purchase Rights issued under the Plan shall become void in
the event such approval is not obtained.
20. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. The
Company shall provide financial statements at least annually to each Optionee
and to each individual who acquired Shares Pursuant to the Plan, during the
period such Optionee or purchaser has one or more Options or Stock Purchase
Rights outstanding, and in the case of an individual who acquired Shares
pursuant to the Plan, during the period such individual owns such Shares. The
Company shall not be required to provide such information if the issuance of
Options or Stock Purchase Rights under the Plan is limited to key employees
whose duties in connection with the Company assure their access to equivalent
information. In addition, at the time of issuance of any securities under the
Plan, the Company shall provide to the Optionee or the Purchaser a copy of the
Plan and any agreement(s) pursuant to which securities under the Plan are
issued.
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<PAGE> 14
E.PIPHANY, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the 1997 Stock
Plan (the "Plan") shall have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
FIELD(1)
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
<TABLE>
<S> <C> <C>
Grant Number FIELD(2)
Date of Grant FIELD(3)
Vesting Commencement Date FIELD(4)
Exercise Price per Share $FIELD(5)
Total Number of Shares Granted FIELD(6)
Total Exercise Price $FIELD(7)
Type of Option: FIELD(8) Incentive Stock Option
FIELD(9) Nonstatutory Stock Option
Term/Expiration Date: FIELD(10)
</TABLE>
Exercise and Vesting Schedule:
This Option is exercisable immediately, in whole or in part; provided,
however that exercise of any unvested Optioned Stock is conditioned upon the
Optionee signing a Restricted Stock Purchase Agreement (attached hereto as
Exhibit C-1). The Shares subject to this Option shall vest or be released from
the Company's repurchase option, as set forth in the Restricted Stock Purchase
Agreement, according to the following schedule:
<PAGE> 15
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to your Continuous Status as an
Employee or Consultant with the Company on such dates.
Termination Period:
This Option may be exercised, to the extent it is then vested, for
thirty (30) days after Optionee ceases his or her Continuous Status as an
Employee or Consultant with the Company. Upon death or Disability of the
Optionee, this Option may be exercised, to the extent it is then vested, for one
year after Optionee ceases his or her Continuous Status as an Employee or
Consultant with the Company. In no event shall this Option be exercised later
than the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant (the "Optionee"), an option
(the "Option") to purchase the number of Shares set forth in the Notice of
Grant, at the exercise price per Share set forth in the Notice of Grant (the
"Exercise Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 11(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
as defined in Section 422 of the Code. Nevertheless, to the extent that it
exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated
as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its
term in accordance with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
(i) Subject to subsections 2(a)(ii) and 2(a)(iii)
below, this Option shall be exercisable cumulatively according to the vesting
schedule set forth in the Notice of Grant. Alternatively, at the election of the
Optionee, this option may be exercised in whole or in part at any time as to
Shares which have not yet vested. For purposes of this Stock Option Agreement,
Shares subject to the Option shall vest based on Optionee's Continuous Status as
an Employee or Consultant with the Company. Vested Shares shall not be subject
to the Company's repurchase right (as set forth in the Restricted Stock Purchase
Agreement, attached hereto as Exhibit C-1).
(ii) As a condition to exercising this Option for
unvested Shares, the Optionee shall execute the Restricted Stock Purchase
Agreement.
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<PAGE> 16
(iii) This Option may not be exercised for a fraction
of a Share.
(b) Method of Exercise. This Option shall be exercisable by
delivery of an exercise notice in the form attached as Exhibit A (the "Exercise
Notice") which shall state the election to exercise the Option, the number of
Shares with respect to which the Option is being exercised, and such other
representations and agreements as may be required by the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by the aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Optionee's Representations. In the event the Shares have not
been registered under the Securities Act of 1933, as amended, at the time this
Option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Option, deliver to
the Company his or her Investment Representation Statement in the form attached
hereto as Exhibit B, and shall read the applicable rules of the Commissioner of
Corporations attached to such Investment Representation Statement.
4. Market Standoff Agreement. Optionee hereby agrees that, if so
requested by the Company or any representative of the underwriters (the
"Managing Underwriter") in connection with any registration of the offering of
any securities of the Company under the Securities Act, Optionee shall not sell
or otherwise transfer any Shares or other securities of the Company during the
180-day period (or such other period as may be requested in writing by the
Managing Underwriter and agreed to in writing by the Company) (the "Market
Standoff Period") following the effective date of a registration statement of
the Company filed under the Securities Act and to execute an agreement
reflecting the foregoing as may be requested by the Managing Underwriter at the
time of the public offering. Such restriction shall apply only to the first
registration statement of the Company to become effective under the Securities
Act that includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check; or
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<PAGE> 17
(c) consideration received by the Company under a formal
cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares which, (i) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
6. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the stockholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of the Plan and this Option Agreement shall be binding upon
the executors, administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the
date of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO,
there will be no regular federal income tax liability upon the exercise of the
Option, although the excess, if any, of the Fair Market Value of the Shares on
the date of exercise over the Exercise Price will be treated as an adjustment to
the alternative minimum tax for federal tax purposes and may subject the
Optionee to the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee
ceases to be an Employee as a result of a disability that is not a total and
permanent disability as defined in Section 22(e)(3) of the Code, to the extent
permitted on the date of termination, the Optionee must exercise an ISO within
three months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a
regular federal income tax liability upon the exercise of a Nonstatutory Stock
Option. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Shares on the date of exercise over the Exercise Price. If
Optionee is an Employee or a former Employee, the Company will be required to
withhold from
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<PAGE> 18
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares
are held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal income tax purposes. In
the case of an ISO, if Shares transferred pursuant to the Option are held for at
least one year after exercise and at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (i) the Fair Market Value of the
Shares on the date of exercise, or (ii) the sale price of the Shares. Different
rules may apply if the Shares are subject to a substantial risk of forfeiture
(within the meaning of Section 83) at the time of purchase. Any additional gain
will be taxed as capital gain, short-term depending on the period that the ISO
Shares were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If
the Option granted to Optionee herein is an ISO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (i) the date two years after the Date of Grant, or (ii) the
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(f) Section 83(b) Election for Unvested Shares Purchased
Pursuant to Options. With respect to the exercise of an Option for unvested
Shares, an election may be filed by the Optionee with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Optionee on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Optionee at the time
or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Optionee for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Optionee at the time or times on which the Company's Repurchase
Option lapses. OPTIONEE IS STRONGLY ENCOURAGED TO SEEK THE ADVICE OF HIS OR HER
OWN TAX CONSULTANTS IN CONNECTION WITH THE PURCHASE OF THE SHARES AND THE
ADVISABILITY OF FILING OF THE ELECTION UNDER SECTION 83(b) OF THE CODE. A FORM
OF ELECTION UNDER SECTION 83(b) IS ATTACHED HERETO AS EXHIBIT C-5 FOR REFERENCE.
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<PAGE> 19
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement; Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY OPTIONEE'S CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT WITH
THE COMPANY, AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT OF THE
COMPANY FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
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<PAGE> 20
OPTIONEE: E.PIPHANY, INC.
- --------------------------------- ----------------------------------------
Signature By
- --------------------------------- ----------------------------------------
Print Name Title
- ---------------------------------
- ---------------------------------
Residence Address
-7-
<PAGE> 21
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
E.piphany, Inc.
2300 Geng Road, Suite 200
Palo Alto, CA 94303-3323
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, ____,
the undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase _________ shares of the Common Stock (the "Shares") of E.piphany, Inc.
(the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the [
] Incentive [ ] Nonstatutory Stock Option Agreement dated ________, ____ (the
"Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Stockholder. Until the issuance of the Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares shall be issued to
the Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Limitations on Transfer. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by
Purchaser or any transferee of Purchaser (either being sometimes referred to
herein as the "Holder") may be sold or otherwise transferred (including transfer
by gift or operation of law), the Company or its assignee(s) shall have a right
of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 5(a) (the "Right of First Refusal").
<PAGE> 22
(i) Notice of Proposed Transfer. The Holder of the
Shares shall deliver to the Company a written notice (the "Notice") stating: (i)
the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the terms and conditions of each proposed sale or transfer. The Holder
shall offer the Shares at the same price (the "Offered Price") and upon the same
terms (or terms as similar as reasonably possible) to the Company or its
assignee(s).
(ii) Exercise of Right of First Refusal. At any time
within thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 5(a) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
(iv) Payment. Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
5(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 5 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) Exception for Certain Family Transfers. Anything
to the contrary contained in this Section 5(a) notwithstanding, the transfer of
any or all of the Shares during Purchaser's lifetime or on Purchaser's death by
will or intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
5(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold
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<PAGE> 23
the Shares so transferred subject to the provisions of this Section, and there
shall be no further transfer of such Shares except in accordance with the terms
of this Section 5.
(b) Involuntary Transfer.
(i) Company's Right to Purchase upon Involuntary
Transfer. In the event, at any time after the date of this Agreement, of any
transfer by operation of law or other involuntary transfer (including death or
divorce, but excluding a transfer to Immediate Family as set forth in Section
5(a)(vi) above) of all or a portion of the Shares by the record holder thereof,
the Company shall have an option to purchase all of the Shares transferred at
the greater of the purchase price paid by Purchaser pursuant to this Agreement
or the fair market value of the Shares on the date of transfer. Upon such a
transfer, the person acquiring the Shares shall promptly notify the Secretary of
the Company of such transfer. The right to purchase such Shares shall be
provided to the Company for a period of thirty (30) days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to
any stock to be transferred pursuant to Section 5(b)(i), the price per Share
shall be a price set by the Board of Directors of the Company that will reflect
the current value of the stock in terms of present earnings and future prospects
of the Company. The Company shall notify Purchaser or his or her executor of the
price so determined within thirty (30) days after receipt by it of written
notice of the transfer or proposed transfer of Shares. However, if the Purchaser
does not agree with the valuation as determined by the Board of Directors of the
Company, the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) Assignment. The right of the Company to purchase any
part of the Shares may be assigned in whole or in part to any stockholder or
stockholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the parent or a 100%
owned subsidiary of the Company, must pay the Company, upon assignment of such
right, cash equal to the difference between the original purchase price and fair
market value, if the original purchase price is less than the fair market value
of the Shares subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement. Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are
satisfied.
(e) Termination of Rights. The right of first refusal
granted the Company by Section 5(a) above and the option to repurchase the
Shares in the event of an involuntary transfer granted the Company by Section
5(b) above shall terminate upon the first sale of Common Stock of the Company to
the general public pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act.
Upon termination of the right of first refusal described in Section 5(a) above,
a new certificate or certificates representing
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<PAGE> 24
the Shares not repurchased shall be issued, on request, without the legend
referred to in Section 6(a)(ii) herein and delivered to Purchaser.
6. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. The certificate or certificates representing
the Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS
OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
(iii) IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER
OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO
RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
(b) Stop Transfer Notices. Purchaser agrees that, in order
to ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required
(i) to transfer on its books any Shares that have been sold or otherwise
transferred in violation of any of the provisions of this Agreement or (ii) to
treat as owner of such Shares or to accord the right to vote or pay dividends to
any purchaser or other transferee to whom such Shares shall have been so
transferred.
-4-
<PAGE> 25
7. No Employment Rights. Nothing in this Agreement shall affect in
any manner whatsoever the right or power of the Company, or a parent or
subsidiary of the Company, to terminate Purchaser's employment, for any reason,
with or without cause.
8. Market Stand-off Agreement. In connection with the initial
public offering of the Company's securities and upon request of the Company or
the underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
9. Successors and Assigns. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by, the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
10. Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
11. Construction. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
12. Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or forty-eight (48) hours after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, and addressed
to the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
14. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
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<PAGE> 26
15. Governing Law; Severability. This Agreement is governed by the
internal substantive laws, but not the choice of law rules, of California.
16. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Restricted Stock Purchase
Agreement, the Option Agreement and the Investment Representation Statement
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. The failure by either
party to enforce any rights under this Agreement shall not be construed as a
waiver of any rights of such party.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 27
The parties have executed this Exercise Notice as of the date first set
forth above.
Submitted by: Accepted by:
OPTIONEE: E.PIPHANY, INC.
- --------------------------------- ----------------------------------------
Signature By
- --------------------------------- ----------------------------------------
Print Name Its
Address: Address:
- --------------------------------- 2300 Geng Road, Suite 200
Palo Alto, CA 94303
- ---------------------------------
----------------------------------------
Date Received
-7-
<PAGE> 28
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : E.PIPHANY, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the
Securities constitute "restricted securities" under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of Optionee's investment intent as expressed herein. In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be unavailable
if Optionee's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted
<PAGE> 29
securities" acquired, directly or indirectly from the issuer thereof, in a
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of the grant of
the Option to the Optionee, the exercise will be exempt from registration under
the Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable. PURCHASER UNDERSTANDS THAT PAYMENT FOR THE
SHARES WITH A PROMISSORY NOTE IS NOT DEEMED TO BE FULL PAYMENT UNDER RULE 144
UNLESS THE NOTE IS SECURED BY ASSETS OTHER THAN THE SHARES.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of
the applicable requirements of Rule 701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact that
Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange
Commission has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and otherwise than
pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk. Optionee understands that no
assurances can be given that any such other registration exemption will be
available in such event.
(e) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
(f) Purchaser understands that Purchaser may suffer adverse
tax consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has
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<PAGE> 30
consulted any tax consultants Purchaser deems advisable in connection with the
purchase or disposition of the Shares and that Purchaser is not relying on the
Company for any tax advice.
Signature of Optionee:
----------------------------------------
Date:
-----------------------------------
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<PAGE> 31
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security upon
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate
a sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section
25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or
any custodian or trustee for the account of the transferor or the
transferor's ancestors, descendants, or spouse; or to a transferee by a
trustee or custodian for the account of the transferee or the
transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the
knowledge of the broker-dealer, nor actually present in this state if
the sale of such securities is not in violation of any securities law of
the foreign state, territory or country concerned;
(8) to a broker-dealer licensed under the Code in a
principal transaction, or as an underwriter or member of an underwriting
syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other
lien given by the purchaser to the seller upon a sale of the security
for which the Commissioner's written consent is obtained or under this
rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113 or 25121 of the Code, of the securities to be transferred,
provided that no order under Section 25140 or subdivision (a) of Section
25143 is in effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111,
25112 or 25113 of the Code, provided that no order under Section 25140
or subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed
Property Law or to the administrator of the unclaimed property law of
another state; or
(15) by the State Controller pursuant to the Unclaimed
Property Law or by the administrator of the unclaimed property law of
another state if, in either such case, such person (i) discloses to
potential purchasers at the sale that transfer of the securities is
restricted under this rule, (ii) delivers to each purchaser a copy of
this rule, and (iii) advises the Commissioner of the name of each
purchaser;
(16) by a trustee to a successor trustee when such transfer
does not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in
an issuer transaction that is subject to the qualification requirement
of Section 25110 of the Code but exempt from that qualification
requirement by subdivision (f) of Section 25102; provided that any such
transfer is on the condition that any certificate evidencing the
security issued to such transferee shall contain the legend required by
this section.
(c) The certificates representing all such securities subject to
such a restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently stamped or
printed thereon in capital letters of not less than 10-point size, reading as
follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE> 32
EXHIBIT C-1
E.PIPHANY, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ____________________________________ (the
"Purchaser") and __________________________________ (the "Company") as of
- ------------------, ------.
RECITALS
A. Pursuant to the exercise of the stock option (grant number ____)
granted to Purchaser under the Company's 1997 Stock Plan (the "Plan") and
pursuant to the Stock Option Agreement (the "Option Agreement") dated
___________ by and between the Company and Purchaser with respect to such grant,
which Plan and Option Agreement are hereby incorporated by reference, Purchaser
has elected to purchase _________ of those shares which have not become vested
under the vesting schedule set forth in the Option Agreement ("Unvested
Shares"). The Unvested Shares and the shares subject to the Option Agreement
which have become vested are sometimes collectively referred to herein as the
"Shares".
B. As required by the Option Agreement, as a condition to
Purchaser's election to exercise the option, Purchaser must execute this
Restricted Stock Purchase Agreement, which sets forth the rights and obligations
of the parties with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
(a) If Purchaser's Continuous Status as an Employee or
Consultant with the Company is terminated for any reason, including for cause,
death, and disability, the Company shall have the right and option to purchase
from Purchaser, or Purchaser's personal representative, as the case may be, all
of the Purchaser's Unvested Shares as of the date of such termination at the
price paid by the Purchaser for such Shares (the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may
exercise its Repurchase Option by delivering personally or by registered mail,
to Purchaser (or his transferee or legal representative, as the case may be),
within ninety (90) days of the termination, a notice in writing indicating the
Company's intention to exercise the Repurchase Option and setting forth a date
for closing not later than thirty (30) days from the mailing of such notice. The
closing shall take place at the Company's office. At the closing, the holder of
the certificates for the Unvested Shares being transferred shall deliver the
stock certificate or certificates evidencing the Unvested Shares, and the
Company shall deliver the purchase price therefor.
<PAGE> 33
(c) At its option, the Company may elect to make payment for
the Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase
Option conferred above by giving the requisite notice within ninety (90) days
following the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with
the Vesting Schedule in Optionee's Option Agreement.
2. Transferability of the Shares; Escrow.
(a) Purchaser hereby authorizes and directs the secretary of
the Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's
Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option
under Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit C-3 hereto, until the Company
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of the Unvested
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for
any act it may do or omit to do with respect to holding the Shares in escrow and
while acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to
restrictions on transfer imposed by any applicable state and federal securities
laws. Any transferee shall hold such Shares subject to all the provisions hereof
and the Exercise Notice executed by the Purchaser with respect to any
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<PAGE> 34
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing
a copy of this Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not
affect in any way the ownership, voting rights or other rights or duties of
Purchaser, except as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of
Shares and the purchase price of the Shares in this Agreement shall be
appropriately adjusted to reflect any stock split, stock dividend or other
change in the Shares which may be made by the Company after the date of this
Agreement.
6. Notices. Notices required hereunder shall be given in person or
by registered mail to the address of Purchaser shown on the records of the
Company, and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind
Purchaser and the Company and their respective permitted assignees and
transferees, heirs, legatees, executors, administrators and legal successors.
8. Section 83(b) Election. Purchaser hereby acknowledges that he or
she has been informed that, with respect to the exercise of an Option for
unvested Shares, an election may be filed by the Purchaser with the Internal
Revenue Service, within 30 days of the purchase of the Shares, electing pursuant
to Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Purchaser for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Purchaser at the time or times on which the Company's Repurchase
Option lapses. Purchaser is strongly encouraged to seek the advice of his or her
own tax consultants in connection with the purchase of the Shares and the
advisability of filing of the Election under Section 83(b) of the Code. A form
of Election under Section 83(b) is attached
-3-
<PAGE> 35
hereto as Exhibit C-5 for reference. A form of cover letter addressed to the
Internal Revenue Service to accompany such Election under Section 83(b) is
attached hereto as Exhibit C-6 for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON
PURCHASER'S BEHALF.
9. Representations. Purchaser has reviewed with his own tax
advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. Purchaser understands that he (and not the
Company) shall be responsible for his own tax liability that may arise as a
result of this investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
Purchaser represents that he has read this Agreement and is familiar
with its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-4-
<PAGE> 36
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first
set forth above.
OPTIONEE: E.PIPHANY, INC.
- --------------------------------- ----------------------------------------
Signature By
- --------------------------------- ----------------------------------------
Print Name Title
- ---------------------------------
- ---------------------------------
Residence Address
Dated: _______________, ____
-5-
<PAGE> 37
EXHIBIT C-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto E.piphany, Inc. (__________) shares of the Common Stock of
E.piphany, Inc. standing in my name of the books of said corporation represented
by Certificate No. ________ herewith and do hereby irrevocably constitute and
appoint to transfer the said stock on the books of the within named corporation
with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement of E.piphany, Inc. and the undersigned dated
______________, ____.
Date: _______________
Signature:______________________________
- --------------------------------------------------------------------------------
INSTRUCTIONS TO PURCHASER: Please do not fill in any blanks other than the
signature line. The purpose of this assignment is to enable the Company to
exercise its "repurchase option," as set forth in the Agreement, without
requiring additional signatures on the part of the Purchaser.
- --------------------------------------------------------------------------------
-6-
<PAGE> 38
EXHIBIT C-3
JOINT ESCROW INSTRUCTIONS
_______________, _________
Secretary
E.piphany, Inc.
2300 Geng Road, Suite 200
Palo Alto, CA 94303-3323
Attention: Secretary
Dear___________________:
As Escrow Agent for both E.piphany, Inc. (the "Company"), and the
undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby
authorized and directed to hold the documents delivered to you pursuant to the
terms of that certain Restricted Stock Purchase Agreement (the "Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the "Company") exercises the
Company's repurchase option set forth in the Agreement, the Company shall give
to Purchaser and you a written notice specifying the number of shares of stock
to be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock
assignments necessary for the transfer in question, (b) to fill in the number of
shares being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE> 39
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's Continuous Status as an Employee
or Consultant with the Company, or any parent or subsidiary of the Company, you
will deliver to Purchaser a certificate or certificates representing the
aggregate number of shares held or issued pursuant to the Agreement and not
purchased by the Company or its assignees pursuant to exercise of the Company's
repurchase option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties
as are specifically set forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed by you
to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation 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.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under
the Statute of Limitations with respect to these Joint Escrow Instructions or
any documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
-2-
<PAGE> 40
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such termination,
the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
PURCHASER: E.PIPHANY, INC.
- --------------------------------- ----------------------------------------
Signature By
- --------------------------------- ----------------------------------------
Print Name Title
- ---------------------------------
- ---------------------------------
Residence Address
ESCROW AGENT
- ---------------------------------
Corporate Secretary
Dated: _______________, ____
1. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
-3-
<PAGE> 41
2. This instrument shall be binding upon and inure to the benefit
of the parties hereto, and their respective successors and permitted assigns.
3. These Joint Escrow Instructions shall be governed by the
internal substantive laws, but not the choice of law rules, of California.
PURCHASER: E.PIPHANY, INC.
- --------------------------------- ----------------------------------------
Signature By
- --------------------------------- ----------------------------------------
Print Name Title
- ---------------------------------
- ---------------------------------
Residence Address
ESCROW AGENT
- ---------------------------------
Corporate Secretary
Dated: _______________, ____
-4-
<PAGE> 42
EXHIBIT C-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Agreement. In consideration of granting of the right to my
spouse to purchase shares of E.piphany, Inc., as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact in respect to the exercise of
any rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________, ____
- ---------------------------------
<PAGE> 43
EXHIBIT C-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
or alternative minimum taxable income, as the case may be, for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: ___________ shares (the "Shares") of the Common Stock of
E.piphany, Inc. (the "Company").
3. The date on which the property was transferred is: _____________, _____.
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under
the terms of an agreement between the taxpayer and the Company. These
restrictions lapse upon the satisfaction of certain conditions contained
in such agreement.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will
never lapse, of such property is:
$__________________.
6. The amount (if any) paid for such property is:
$__________________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, ______ ________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, ______ ________________________________________
Spouse
<PAGE> 44
INFORMATION RE: FILING OF SECTION 83(b) ELECTION
This information is supplied to you in connection with your recent
purchase of shares of Common Stock of E.piphany, Inc. (the "COMPANY").
One executed copy of the 83(b) election form must be filed with the
Internal Revenue Service within 30 days of the purchase of the shares. The steps
outlined below should be followed to ensure the election is filed correctly and
timely:
1) Complete 83(b) election form, attached as Exhibit C-5 of the
Agreement;
2) Prepare cover letter to the IRS (sample letter attached as
Exhibit C-6);
3) Send cover letter with originally executed 83(b)form and one (1)
additional copy via certified mail or Federal Express to the
IRS, within 30 days of the date of purchase, with a
self-addressed stamped envelope; retain receipt of mailing;
4) One copy should be returned to the Company for its records and
one copy should be filed along with your federal income tax
return for this year; and
5) Retain IRS file stamped copy in records when returned.
For your information, the address of the IRS (if you live in California)
is as follows:
Internal Revenue Service
5045 East Butler Avenue
Fresno, CA 93888
<PAGE> 45
EXHIBIT C-6
__________________, _______
Internal Revenue Service
5045 East Butler Avenue
Fresno, California 93888
RE: 83(b) ELECTION FOR PURCHASE OF E.PIPHANY, INC. COMMON STOCK
Ladies and Gentlemen:
Enclosed is a completed form of election pursuant to Section 83(b) of
the Internal Revenue Code of 1986 relating to my recent purchase of
______________ shares of Common Stock of E.piphany, Inc.
Please acknowledge receipt of the enclosed by date-stamping the
additional enclosed copy of this election and returning it in the envelope
provided.
Sincerely,
________________________________________
Enclosure
<PAGE> 46
EPIPHANY MARKETING SOFTWARE, INC.
1997 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the 1997 Stock
Plan (the "Plan") shall have the same defined meanings in this Notice of Grant.
_____(1)
___________________
___________________
I. NOTICE OF GRANT OF STOCK PURCHASE RIGHT
You have been granted the right to purchase Common Stock of the Company
on the terms and conditions described below:
<TABLE>
<S> <C>
Date of Grant _____(4)
Exercise Price Per Share ______(6)*
Total Number of Shares Subject _____(7)
to This Stock Purchase Right
Total Exercise Price ______(8.00)**
Expiration Date _____(9)
</TABLE>
You must exercise this stock purchase right before the expiration date
or it will terminate and you will have no further right to purchase the shares.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
subject to the terms and conditions of the Plan, the Restricted Stock Purchase
Agreement attached hereto as Exhibit A-1, and the Investment and Representation
Statement attached as Exhibit A-2, each of which is hereby incorporated herein
by reference. You further agree to execute the Restricted Stock Purchase
Agreement and the Investment and Representation Statement as a condition to
purchasing any shares under this Stock Purchase Right.
_______________________
* Fair Market Value of shares on date of grant of stock purchase right.
** Such exercise price deemed paid by past services rendered by you to the
Company.
<PAGE> 47
Whereby the parties executed this Notice of Grant of Stock Purchase
Right as of the date first set forth above.
GRANTEE: EPIPHANY MARKETING SOFTWARE, INC.
- ---------------------------------- By:
Signature -------------------------------------
- ---------------------------------- Title:
Print Name ----------------------------------
-2-
<PAGE> 48
EXHIBIT A-1
EPIPHANY MARKETING SOFTWARE, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
THIS AGREEMENT is made as of ______________(4), at 2300 Geng Road, Suite
200, Palo Alto, California 94303-3323, by and between Epiphany Marketing
Software, Inc., a Delaware corporation (the "Company"), and ______________(1)
(the "Purchaser").
WHEREAS the Purchaser named in the Notice of Grant, is a Consultant of
the Company, and has performed services considered by the Company to be
important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as compensation for services rendered to the
Company, the Administrator has granted to the Purchaser stock purchase rights
subject to the terms and conditions of the Plan, the Investment Representation
Statement, and the Notice of Grant, which are incorporated herein by reference,
and pursuant to this Restricted Stock Purchase Agreement (the "Agreement").
THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the
Purchaser and the Purchaser hereby agrees to purchase shares of the Company's
Common Stock (the "Shares"), at the per share purchase price and as otherwise
described in the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares
shall be deemed paid at the time of execution of this Agreement by past services
rendered to the Company by Purchaser.
3. Restriction on Transfer. Except for as contemplated by this
Agreement and as permitted under applicable securities laws, none of the Shares
or any beneficial interest therein shall be transferred, encumbered or otherwise
disposed of in any way.
4. Right of First Refusal. Purchaser shall not assign, encumber or
dispose of any interest in the Shares except in compliance with the provisions
below:
<PAGE> 49
(a) Company's Right of First Refusal. Before any Shares that
are permitted to be sold or otherwise transferred pursuant to this Agreement and
that are held by Purchaser or any transferee of Purchaser (either being
sometimes referred to herein as the "Holder") may be sold or otherwise
transferred (including transfer by gift or operation of law), the Company or its
assignee(s) shall have a right of first refusal to purchase the Shares on the
terms and conditions set forth in this Section (the "Right of First Refusal").
i) Notice of Proposed Transfer. The Holder of the
Shares shall deliver to the Company a written notice (the "Notice") stating: (i)
the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
ii) Exercise of Right of First Refusal. At any time
within thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.
iii) Purchase Price. The purchase price ("Purchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section shall be the Offered Price. If the Offered Price includes consideration
other than cash, the cash equivalent value of the non-cash consideration shall
be determined by the Board of Directors of the Company in good faith.
iv) Payment. Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within thirty (30) days after receipt of the
Notice or in the manner and at the times set forth in the Notice.
v) Holder's Right to Transfer. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Shares to that Proposed
Transferee at the Offered Price or at a higher price, provided that such sale or
other transfer is consummated within sixty (60) days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section shall continue to apply to
the Shares in the hands of such Proposed Transferee. If the Shares described in
the Notice are not transferred to the Proposed Transferee within such period, a
new Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by the
Holder may be sold or otherwise transferred.
-2-
<PAGE> 50
vi) Exception for Certain Family Transfers. Anything
to the contrary contained in this Section notwithstanding, the transfer of any
or all of the Shares during the Purchaser's lifetime or on the Purchaser's death
by will or intestacy to the Purchaser's immediate family or a trust for the
benefit of the Purchaser's immediate family shall be exempt from the provisions
of this Section, provided that the Purchaser notifies the Company in writing
within thirty (30) days of said transfer. "Immediate Family" as used herein
shall mean spouse, lineal descendant or antecedent, father, mother, brother or
sister. In such case, the transferee or other recipient shall receive and hold
the Shares so transferred subject to the provisions of this Agreement, including
but not limited to this Section and Section 3, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section.
(b) Involuntary Transfer.
i) Company's Right to Purchase upon Involuntary
Transfer. In the event, at any time after the date of this Agreement, of any
transfer by operation of law or other involuntary transfer (including death or
divorce, but excluding a transfer upon Purchaser's death to Immediate Family as
set forth in Section 4(a)(vi) above) of all or a portion of the Shares by the
record holder thereof, the Company shall have an option to purchase all of the
Shares transferred at the greater of the purchase price paid by Purchaser
pursuant to this Agreement or the Fair Market Value of the Shares on the date of
transfer. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company for a period of thirty (30) days
following receipt by the Company of written notice by the person acquiring the
Shares.
ii) Price for Involuntary Transfer. With respect to
any stock to be transferred pursuant to Section 4(b)(i), the Fair Market Value
of the Shares shall be set by the Board of Directors of the Company and shall
reflect the current value of the shares in terms of present earnings and future
prospects of the Company. The Company shall notify Purchaser or his or her
executor of the price so determined within thirty (30) days after receipt by it
of written notice of the transfer or proposed transfer of Shares. However, if
the Purchaser does not agree with the valuation as determined by the Board of
Directors of the Company, the Purchaser shall be entitled to have the valuation
determined by an independent appraiser to be mutually agreed upon by the Company
and the Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) Assignment. The right of the Company to purchase any
part of the Shares may be assigned in whole or in part to any stockholder or
stockholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the parent or a 100%
owned subsidiary of the Company, must pay the Company, upon assignment of such
right, cash equal to the difference between the original purchase price and Fair
Market Value, if the original purchase price is less than the Fair Market Value
of the Shares subject to the assignment.
-3-
<PAGE> 51
(d) Restrictions Binding on Transferees. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement. Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are
satisfied.
(e) Termination of Right of First Refusal. The Right of
First Refusal granted the Company by Section 4(a) above and the option to
repurchase the Shares in the event of an involuntary transfer granted the
Company by Section 4(b) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to an underwritten public
offering which has been filed pursuant to a Form S-1 Registration Statement (or
its successor) with the Securities and Exchange Commission under the Securities
Act. Upon termination of the Right of First Refusal described in Section 4(a)
above and the option to repurchase described in 4(b) above, a new certificate or
certificates representing the Shares not repurchased shall be issued, on
request, without the legend referred to in Section 5(a)(ii) herein and delivered
to Purchaser.
5. Restrictive Legends.
(a) Purchaser understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by applicable
state or federal securities laws:
i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.
ii) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER INCLUDING A RIGHT OF FIRST
REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A
COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.
SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order
to ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
-4-
<PAGE> 52
(c) Refusal to Transfer. The Company shall not be required
(i) to transfer on its books any Shares that have been sold or otherwise
transferred in violation of any of the provisions of this Agreement or (ii) to
treat as the owner of such Shares, or to accord the right to vote or pay
dividends to, any purchaser or other transferee to whom such Shares shall have
been so transferred in violation of any of the provisions of this Agreement.
6. No Employment Rights. Nothing in this Agreement shall affect in
any manner whatsoever the right or power of the Company, or a parent or
subsidiary of the Company, to terminate Purchaser's employment or consulting
relationship, for any reason, with or without cause.
7. Adjustment for Stock Split. All references to the number of
Shares and the purchase price of the Shares in this Agreement shall be
appropriately adjusted to reflect any stock split, stock dividend or other
change in the Shares which may be made by the Company after the date of this
Agreement.
8. Tax Consequences. The Purchaser has reviewed with the
Purchaser's own tax advisors the federal, state, local and foreign tax
consequences of this investment and the transactions contemplated by this
Agreement. The Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. The Purchaser
understands that the Purchaser (and not the Company) shall be responsible for
the Purchaser's own tax liability that may arise as a result of this investment
or the transactions contemplated by this Agreement.
9. Market Standoff Agreement. Purchaser hereby agrees that, if so
requested by the Company or any representative of the underwriters (the
"Managing Underwriter") in connection with any registration of the offering of
any securities of the Company under the Securities Act, Purchaser shall not sell
or otherwise transfer any Shares or other securities of the Company during the
up to 180-day period (or such other period as may be requested in writing by the
Managing Underwriter and agreed to in writing by the Company) (the "Market
Standoff Period") following the effective date of a registration statement of
the Company filed under the Securities Act and to execute an agreement
reflecting the foregoing as may be requested by the Managing Underwriter at the
time of the public offering. Such restriction shall apply only to the first
registration statement of the Company to become effective under the Securities
Act that includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such Market Standoff Period.
10. General Provisions.
(a) Successors and Assigns. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by, the Company's
successors and assigns. Except in the event of Purchaser's death, the rights and
obligations of Purchaser under this Agreement may only be assigned with the
prior written consent of the Company. In the event of Purchaser's death, the
terms
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<PAGE> 53
and conditions of the Plan and this Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Purchaser.
(b) Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties agree
to renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement, (ii)
the balance of the Agreement shall be interpreted as if such provision were so
excluded and (iii) the balance of the Agreement shall be enforceable in
accordance with its terms.
(c) Notices. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(d) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(e) Interpretation. Any dispute regarding the interpretation
of this Agreement shall be submitted by Purchaser or by the Company forthwith to
the Administrator which shall review such dispute at its next regular meeting.
The resolution of such a dispute by the Administrator shall be final and binding
on all parties.
(f) Governing Law. This Agreement is governed by the
internal substantive laws, but not the choice of law rules, of California.
(g) Entire Agreement. This Agreement, the Plan, the Notice
of Grant, and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser. The failure by either party to enforce any rights under
this Agreement shall not be construed as a waiver of any rights of such party.
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<PAGE> 54
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, the Notice of Grant, and the
Investment Representation Statement, and hereby accepts this Agreement subject
to all of the terms and provisions thereof. Purchaser has reviewed the Plan, the
Notice of Grant, the Investment Representation Statement, and this Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Agreement, and fully understands all provisions of this
Agreement. Purchaser agrees to accept as binding, conclusive and final all
decisions or interpretations of the Administrator upon any questions arising
under the Plan, the Notice of Grant, the Investment Representation Statement, or
this Agreement. Purchaser further agrees to notify the Company upon any change
in the residence indicated in the Notice of Grant.
The parties have executed this Restricted Stock Purchase Agreement as of
the date first set forth above.
Submitted by: Accepted by:
PURCHASER: EPIPHANY MARKETING SOFTWARE, INC.
- ---------------------------------- ----------------------------------------
Signature By
- ---------------------------------- ----------------------------------------
Print Name Its
Address: Address:
- ---------------------------------- 2300 Geng Road, Suite 200
Palo Alto, CA 94303-3323
- ----------------------------------
----------------------------------------
Date Received
-7-
<PAGE> 55
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of granting of the right to my spouse to purchase shares of
Epiphany Marketing Software, Inc., as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: FIELD(4)
----------------------------------------
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<PAGE> 56
EXHIBIT A-2
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : FIELD(1)
COMPANY : EPIPHANY MARKETING SOFTWARE, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE : FIELD(4)
In connection with the purchase of the above-listed Securities, the undersigned
Purchaser represents to the Company the following:
(a) Purchaser has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
Securities. Purchaser is acquiring these Securities for investment for
Purchaser's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act").
(b) Purchaser acknowledges and understands that the
Securities constitute "restricted securities" under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of Purchaser's investment intent as expressed herein. In this
regard, Purchaser understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Purchaser further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Purchaser further
acknowledges and understands that the Company is under no obligation to register
the Securities. Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Purchaser is familiar with the provisions of Rule 701
and Rule 144, each promulgated under the Securities Act, which, in substance,
permit limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at
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<PAGE> 57
the time of the grant of the Stock Purchase Right to the Purchaser, the exercise
will be exempt from registration under the Securities Act. In the event the
Company becomes subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, (3) the amount of Securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Stock Purchase Right, then the Securities may be resold in
certain limited circumstances subject to the provisions of Rule 144, which
requires the resale to occur not less than one year after the later of the date
the Securities were sold by the Company or the date the Securities were sold by
an affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Purchaser further understands that in the event all of
the applicable requirements of Rule 701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact that
Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange
Commission has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and otherwise than
pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk. Purchaser understands that no
assurances can be given that any such other registration exemption will be
available in such event.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 58
Whereby Purchaser executed this Investment Representation Statement as
of the date first set forth above.
Signature of Purchaser:
----------------------------------------
Date: FIELD 4
-1-
<PAGE> 1
EXHIBIT 10.5
E.PIPHANY, INC.
FOURTH AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
JUNE 16, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C> <C>
1. Registration Rights...................................................2
1.1 Definitions....................................................2
1.2 Request for Registration.......................................3
1.3 Company Registration...........................................5
1.4 Obligations of the Company.....................................5
1.5 Furnish Information............................................6
1.6 Expenses of Demand Registration................................7
1.7 Expenses of Company Registration...............................7
1.8 Underwriting Requirements......................................7
1.9 Delay of Registration..........................................8
1.10 Indemnification................................................8
1.11 Reports Under Securities Exchange Act of 1934.................10
1.12 Form S-3 Registration.........................................11
1.13 Assignment of Registration Rights.............................12
1.14 Limitations on Subsequent Registration Rights.................12
1.15 "Market Stand-Off" Agreement..................................12
1.16 Termination of Registration Rights............................13
2. Covenants of the Company.............................................13
2.1 Delivery of Financial Statements..............................13
2.2 Inspection....................................................13
2.3 Observer Rights...............................................14
2.4 Termination Covenants.........................................14
2.5 Right of First Offer..........................................15
2.6 Employee Stock................................................16
3. Miscellaneous........................................................16
3.1 Successors and Assigns........................................16
3.2 Governing Law.................................................17
3.3 Counterparts..................................................17
3.4 Titles and Subtitles..........................................17
3.5 Notices.......................................................17
3.6 Expenses......................................................17
3.7 Amendments and Waivers........................................17
3.8 Severability..................................................17
3.9 Prior Investor Rights Agreement...............................18
3.10 Aggregation of Stock..........................................18
</TABLE>
i
<PAGE> 3
This Fourth Amended and Restated Investors' Rights Agreement (the
"AGREEMENT") is made as of the 16th day of June, 1999, by and among E.piphany,
Inc., a Delaware corporation (the "COMPANY"), certain existing investors in the
Company listed on Exhibit A, Exhibit B and Exhibit C hereto (the "EXISTING
INVESTORS"), those individuals and entities listed on Exhibit D hereto (the "NEW
INVESTORS") and the entity listed on Exhibit E hereto (the "WARRANT INVESTOR").
RECITALS
WHEREAS, the Company, the Existing Investors and the Warrant Investor
are parties to that certain Third Amended and Restated Investors' Rights
Agreement dated as of September 24, 1998 (the "PRIOR RIGHTS AGREEMENT"), and
were granted pursuant thereto (i) certain rights to register shares of the
Company's Common Stock issuable upon conversion of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock held by the Existing
Investors and upon exercise of the Warrant (as defined below) held by the
Warrant Investor, (ii) certain rights to receive or inspect information
pertaining to the Company and (iii) a right of first offer with respect to
certain issuances by the Company of its securities (collectively, the "RIGHTS").
WHEREAS, pursuant to Section 2.5 of the Prior Rights Agreement, the
issuance and sale of the Company's Series D Preferred Stock is subject to a
Right of First Offer (as defined in the Prior Rights Agreement). To induce the
New Investors to purchase the Series D Preferred Stock certain of the Existing
Investors are willing to amend the Prior Rights Agreement in order to grant the
Rights to the New Investors.
WHEREAS, pursuant to Section 3.7 of the Prior Rights Agreement, holders
of at least 66 2/3% of the Registrable Securities (as defined in such Prior
Rights Agreement) then outstanding, not including Founders' Stock, may, with the
Company's written consent, waive, modify or amend on behalf of all holders, any
provisions of the Prior Rights Agreement so long as the effect thereof will be
that all such persons will be treated in the same manner.
WHEREAS, the holders of at least 66 2/3% of the Registrable Securities
currently outstanding, not including Founders' Stock, agree, by executing this
Agreement, to amend and restate the Prior Rights Agreement.
WHEREAS, the New Investors, in connection with their proposal to
purchase shares of the Company's Series D Preferred Stock pursuant to the Series
D Preferred Stock Purchase Agreement, of even date herewith, between the Company
and certain investors hereto (the "PURCHASE AGREEMENT"), desire to obtain the
Rights referenced above. In order to induce the New Investors to enter into the
<PAGE> 4
Purchase Agreement, the Company and the Existing Investors desire to grant such
Rights and to amend and restate the Prior Rights Agreement as provided herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, all parties hereto agree (i) the Prior Rights Agreement
is hereby amended and restated in its entirety as set forth herein; (ii) the
Company hereby grants to the Existing Investors, the New Investors, and the
Warrant Investor the rights set forth below; (iii) the Company and the Existing
Investors, to induce the New Investors to invest, accept and agree to the
termination of all prior rights in their entirety and accept and agree to be
bound by the terms of this Agreement; and (iv) as follows:
1. REGISTRATION RIGHTS. The Company, the Existing Investors, the
New Investors and the Warrant Investor covenant and agree as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The terms "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "ACT"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "REGISTRABLE SECURITIES" means (i) the
shares of Common Stock issuable or issued upon conversion of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock (such shares of Common Stock are collectively referred to
hereinafter as the "STOCK"), (ii) any other shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the Stock, (iii) the
shares of Common Stock issued by the Company to the Founders (the "FOUNDERS'
STOCK"), (iv) Common Stock issued to Kleiner Perkins Caufield & Byers ("KPCB")
or to funds affiliated with KPCB, and (v) the shares of Common Stock issued or
issuable upon conversion of the Series B Preferred Stock issued or issuable
pursuant to that certain Warrant dated as of January 9, 1998 issued in
connection with that certain Loan and Security Agreement dated as of January 9,
1998 and currently held by the Warrant Investor; provided, however, that for the
purposes of Section 1.2, 1.12, 1.14 or 2.5, the Founders' Stock shall not be
deemed Registrable Securities and the Founders shall not be deemed Holders; and
provided, further, that the foregoing definition shall exclude in all cases any
Registrable Securities sold by a person in a transaction in which his or her
rights under this Agreement are not assigned. Notwithstanding the foregoing,
Common Stock or other securities shall only be treated as Registrable Securities
if and so long as they have not been (A) sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, or
(B) sold in a transaction exempt from the registration and prospectus delivery
requirements of the Act under Section 4(1) thereof so that all transfer
restrictions, and restrictive legends with respect thereto, if any, are removed
upon the consummation of such sale;
2
<PAGE> 5
(c) The number of shares of "REGISTRABLE SECURITIES
THEN OUTSTANDING" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "PREFERRED STOCK" means: (i) all
outstanding shares of Series A Preferred Stock of the Company, (ii) the Series B
Preferred Stock of the Company issued pursuant to the Series B Preferred Stock
Purchase Agreement dated January 16, 1998, (iii) the shares of Series C
Preferred Stock of the Company issued pursuant to (1) the Series C Stock
Purchase Agreement dated September 24, 1998 and (2) Addendum No. 1 to the Series
C Stock Purchase Agreement dated October 30, 1998, (iv) the shares of Series D
Preferred Stock of the Company issued pursuant to the Purchase Agreement.
(e) The term "PREFERRED STOCKHOLDERS" means the
holders of the Preferred Stock.
(f) The term "CONVERSION STOCK" means the Common
Stock issued or issuable pursuant to conversion of the Preferred Stock.
(g) The term "FOUNDERS" means Eliot L. Wegbreit,
Steven G. Blank, Greg Walsh, John P. McCaskey and Roger Siboni.
(h) The term "HOLDER" means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.13 hereof;
(i) The term "FORM S-3" means such form under the
Act as in effect on the date hereof or any successor form under the Act; and
(j) The term "SEC" means the Securities and Exchange
Commission.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after
the earlier of (i) March 1, 2002, or (ii) six (6) months after the effective
date of the first registration statement for a public offering of securities of
the Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction), a written request from
the Holders of at least fifty percent (50%) of the Registrable Securities then
outstanding that the Company file a registration statement under the Act
covering the registration of at least thirty percent (30%) of the Registrable
Securities then outstanding having an aggregate offering price, net of
underwriting discounts and commissions, in excess of $6,000,000, then the
Company shall, within ten (10) days of the receipt thereof, give written notice
of such request to all Holders and shall, subject to the limitations of
subsection 1.2(b), use its best efforts to effect as soon as practicable, and in
any event within 60 days of the receipt of such request, the registration under
the Act of all Registrable Securities which the Holders request to be registered
within
3
<PAGE> 6
twenty (20) days of the mailing of such notice by the Company in accordance with
Section 3.5; provided, however, that the Company shall not be obligated to
effect any such registration prior to March 18, 2000.
(b) If the Holders initiating the registration
request hereunder ("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 1.2
and the Company shall include such information in the written notice referred to
in subsection 1.2(a). The underwriter will be selected by a majority in interest
of the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include its Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting.
(c) Notwithstanding the foregoing, if the Company
shall furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated
to effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period (A) starting upon the
earlier of (I) the Company's delivery of notice to the Holders not later than
twenty (20) days following any registration request pursuant to this Section 1.2
of the Company's intent to file within sixty (60) days a registration statement
subject to Section 1.3 or (II) the effective date of a registration statement,
and (B) ending on a date one
4
<PAGE> 7
hundred eighty (180) days after the effective date of a registration subject to
Section 1.3 hereof; provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or
(iii) If the Initiating Holders propose to
dispose of shares of Registrable Securities that may be immediately registered
on Form S-3 pursuant to a request made pursuant to Section 1.12 below.
(iv) In any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration.
1.3 COMPANY REGISTRATION. If (but without any obligation to
do so) the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the Holders)
any of its stock under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a transaction
covered by Rule 145 under the Act, a registration in which the only stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered, or any registration on any form that does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 3.5,
the Company shall, subject to the provisions of Section 1.8, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days. The Company shall not be required to file, cause to become
effective or maintain the effectiveness of any registration statement that
contemplates a distribution of securities on a delayed or continuous basis
pursuant to Rule 415 under the Act.
(b) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement for up to one hundred twenty (120) days.
(c) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as
5
<PAGE> 8
they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included 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 the light of the circumstances then
existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request
of any Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.5 FURNISH INFORMATION. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
6
<PAGE> 9
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.12(b)(2), whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of one counsel for the selling
Holders selected by them with the approval of the Company, which approval shall
not be unreasonably withheld, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering is determined by the underwriters, in their sole
discretion, to be incompatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, that the underwriters determine in
their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling stockholders) but in no event shall (i) the amount
of securities of the selling Holders included in the offering be reduced below
twenty-five percent (25%) of the total amount of securities included in such
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offering, unless such offering is the initial public offering of the Company's
securities in which case the selling stockholders may be excluded if the
underwriters make the determination described above and no other stockholder's
securities are included, or (ii) any shares being sold by a stockholder
exercising a demand registration right similar to that granted in Section 1.2 be
excluded from such offering or (iii) any Founder's Stock be included if any
shares of Stock held by any selling Holder are excluded. For purposes of the
preceding parenthetical clause concerning apportionment, for any selling
stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "SELLING STOCKHOLDER," and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"VIOLATION"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Act, the Exchange Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
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(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject under the Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
1.10(b) exceed the net proceeds from the offering received by such Holder,
except in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 1.10 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission to so deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this
Section 1.10 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations; provided, that, in no event shall any
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contribution by a Holder under this Subsection 1.10(d) exceed the net proceeds
from the offering received by such Holder, except in the case of willful fraud
by such Holder. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general public so
long as the Company remains subject to the periodic reporting requirements under
Sections 13 or 15(d) of the Exchange Act;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the Exchange Act (at
any time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and
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(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC which permits the selling of any
such securities without registration or pursuant to such form.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or Holders of the Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $2,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Section 1.12, provided, however,
that the Company shall not utilize this right more than once in any twelve (12)
month period; (4) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two registrations on Form
S-3 for the Holders pursuant to this Section 1.12; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file
a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. The Company shall bear and pay all
expenses incurred in connection with the first four (4) registrations requested
pursuant to Section 1.12, including (without limitation) all registration,
filing, qualification, printers' and accounting fees and the reasonable fees and
disbursements of one counsel for the selling Holder or Holders selected by them
with the approval of the Company, and counsel for the Company, but excluding any
underwriters' discounts or commissions associated with Registrable Securities.
All of such expenses with respect to all subsequent registrations requested
pursuant to Section 1.12 shall be borne pro rata by the Holder or Holders
participating in the Form S-3 Registration. Registrations effected pursuant to
this Section 1.12
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shall not be counted as demands for registration or registrations effected
pursuant to Sections 1.2 or 1.3, respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee who holds of at least 1,000,000 shares of such securities upon such
transfer, provided, that (a) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned, (b) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act and (c) the
assignee or transferee enters into a written agreement with the Company whereby
the assignee or transferee agrees to be bound by the terms of this Agreement
including, but not limited to, the terms of Section 1.15 of this Agreement. For
the purposes of determining the number of shares of Registrable Securities held
by a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under Section 1.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not enter into any agreement
granting any holder or prospective holder of any securities of the Company
registration rights with respect to such securities unless such holder derives
its rights as an additional Holder hereunder, or such shares or securities are
entitled to be included in registrations only to the extent that the inclusion
of such securities will not diminish the amount of Registrable Securities that
are included.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that, during the period of duration (up to, but not exceeding, 180 days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the date of the final prospectus distributed in
connection with a registration statement of the Company filed under the Act, it
shall not, to the extent requested by the Company and such underwriter, directly
or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that all
officers, directors, Founders and one-percent (1%) security holders of the
Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Registrable Securities
of each Holder (and the shares or securities of every other person subject to
the foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.15.
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Notwithstanding the foregoing, the obligations described
in this Section 1.15 shall not apply to a registration relating solely to
employee benefit plans on Form S-1 or Form S-8 or similar forms which may be
promulgated in the future, or a registration relating solely to an SEC Rule 145
transaction on Form S-4 or similar forms which may be promulgated in the future.
1.16 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) five (5) years following the consummation of the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the initial firm commitment underwritten offering of its
securities to the general public, or (ii) such time as Rule 144 or another
similar exemption under the Act is available for the sale of all of such
Holder's shares during a three (3) month period without registration.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall
deliver to each Preferred Stockholder holding, and to transferees of, at least
1,000,000 shares of Registrable Securities (as adjusted for stock splits, stock
dividends, recapitalizations and the like) and to the Warrant Investor:
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by an independent public accounting firm of nationally
recognized standing selected by the Company;
(b) as soon as practicable, but in any event within
thirty (30) days after the end of each of the first three (3) quarters of each
fiscal year of the Company, an unaudited profit or loss statement, a statement
of cash flows for such fiscal quarter and an unaudited balance sheet as of the
end of such fiscal quarter;
(c) as soon as practicable, but in any event thirty
(30) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
(d) with respect to the financial statements called
for in subsection (b) of this Section 2.1, an instrument executed by the Chief
Financial Officer or Chief Executive Officer of the Company and certifying that
such financials were prepared in accordance with GAAP consistently applied with
prior practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so.
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2.2 INSPECTION. (a) The Company shall permit each Preferred
Stockholder who holds not less than 1,000,000 shares of Registrable Securities
(as adjusted for stock splits, stock dividends, recapitalizations and the like)
and the Warrant Investor, at such Preferred Stock Holder's or Warrant Investor's
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by the
Preferred Stock Holder or the Warrant Investor; provided, however, that the
Company shall not be obligated pursuant to this Section 2.2 to provide access to
any information which it reasonably considers to be a trade secret or
confidential information.
(b) The covenants set forth in Section 2.1 and
Section 2.2(a) above shall survive any distribution or transfer of Registrable
Securities by such Preferred Stockholder or the Warrant Investor to any of its
constituent partners.
2.3 OBSERVER RIGHTS. To the extent that he is not on the
Board of Directors but continues to serve as an officer or consultant of the
Company, Eliot L. Wegbreit or Steven G. Blank, (each, an "OBSERVER") shall have
the right to attend, at Observer's own expense, all meetings of the Board of
Directors in a nonvoting observer capacity and to receive copies of all notices,
minutes, consents, and other materials that it provides to its directors;
provided, however, that the Observer shall agree to hold in confidence and trust
and to act in a fiduciary manner with respect to all information provided to him
in connection with this Section 2.3; and, provided further, that the Company
reserves the right to withhold any information and to exclude the Observer from
any meeting or portion thereof if the Company believes access to such
information or attendance at such meeting or portion thereof could adversely
affect the attorney-client privilege between the Company and its counsel. The
obligations of an Observer under this Section 2.3 will survive any termination
of this Section 2.3 or this Agreement. The rights of an Observer under this
Section 2.3 shall not be assignable, and shall terminate as set forth in Section
2.4 below.
2.4 TERMINATION COVENANTS. (a) The covenants set forth in
Sections 2.1, 2.2 and 2.3 shall terminate as to Preferred Stockholders, the
Warrant Investor, and as to any Observer, and be of no further force or effect,
upon the date upon which the Company or a parent of the Company consummates a
sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with the firm commitment underwritten offering of
its securities to the general public or the date upon which the company first
becomes subject to the periodic reporting requirements of Sections 13 or 15(d)
of the 1934 Act, whichever event shall first occur.
(b) The covenants set forth in Section 2.3 shall
terminate as to any Observer and be of no further force or effect, upon the
earlier to occur of subsection (a) of this Section 2.4, or the date upon which
the Company consummates (i) a consolidation or merger of the Company or any
affiliated corporation with or into any other corporation or corporations (other
than a consolidation or merger of this Company with or into a wholly owned
subsidiary of this Company), (ii) a sale of all or substantially all of the
assets or business of the Company in one or more related transactions, (iii) a
transaction or series of related transactions (other than a public offering of
the Company's securities) in which the stockholders of the Company immediately
prior to such transaction(s) own, as a result of such transaction(s), less than
a majority of the voting securities of the successor or surviving corporation,
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which shall not be the Company in the event of a consolidation or merger,
immediately thereafter, or (iv) a transaction or series of related transactions
(other than a public offering of the Company's securities) in which the Company
issues shares representing more than 50% of the voting power of the Company
immediately after giving effect to such transaction.
2.5 RIGHT OF FIRST OFFER. Subject to the terms and
conditions specified in this Section 2.5, the Company hereby grants to each
Major Investor (as hereinafter defined) a right of first offer with respect to
future sales by the Company of its Shares (as hereinafter defined). For purposes
of this Section 2.5, a "MAJOR INVESTOR" shall mean any person who holds at least
1,000,000 shares of Preferred Stock or Conversion Stock (as adjusted for stock
splits, stock dividends, recapitalizations and the like). For purposes of this
Section 2.5, Major Investor includes any general partners and affiliates of a
Major Investor. A Major Investor who chooses to exercise the right of first
offer may designate as purchasers under such right itself or its partners or
affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of,
or securities convertible into or exercisable for any shares of, any class of
its capital stock ("SHARES"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified
mail ("NOTICE") to the Major Investors stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and (iii) the
price and terms, if any, upon which it proposes to offer such Shares.
(b) Within 10 calendar days after delivery of the
Notice, the Major Investor may elect to purchase or obtain, at the price and on
the terms specified in the Notice, up to that portion of such Shares which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Major Investor bears to the total number of shares
of Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities, including securities authorized for
issuance under stock plans authorized by the Company's Board of Directors).
(c) The Company may, during the 45 day period
following the expiration of the period provided in subsection 2.5(b) hereof,
offer the remaining unsubscribed portion of the Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within 60 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this Section 2.5
shall not be applicable: (i) to the issuance or sale of shares of Common Stock
(or options therefor) to employees, consultants and directors, pursuant to plans
or agreements approved by the Board of Directors for the primary purpose of
soliciting or retaining their services; or (ii) after consummation of a firmly
underwritten public offering of shares of Common Stock, registered under the Act
pursuant to a registration statement registered under the Act; provided that if,
with respect to the Company's first such firmly underwritten
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public offering, the underwriter advises the Major Investor(s) exercising the
right of first offer in writing that marketing factors require a limitation on
the number of shares as to which such Major Investor(s) may exercise the right
of first offer (including, if appropriate, a complete limitation) then the
number of shares to be purchased pursuant to the right of first offer shall be
reduced in accordance with the underwriter's advice and such shares shall be
allocated among all exercising Major Investor(s) in proportion (as nearly as
practicable) to the amount of shares each such Major Investor would otherwise be
entitled to purchase under Section 2.5(b); provided further that the right of
first offer with respect to the Company's first firmly underwritten public
offering of shares of Common Stock shall not be foregone by virtue of the fact
that the shares held by such Major Investor(s) convert as a result of such
firmly underwritten public offering; or (iii) to the issuance of securities
pursuant to the conversion or exercise of convertible or exercisable securities;
or (iv) to the issuance of securities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise; or (v) to the issuance of
securities to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings, or similar transactions approved by
the Board of Directors; or (vi) to the issuance or sale of the Series D
Preferred Stock; or (vii) to the issuance of securities that, with unanimous
approval of the Board of Directors of the Company, are not offered to any
existing stockholder of the Company.
(e) The Major Investors acknowledge and agree that
their ability to exercise their right of first offer in connection with the
Company's first firmly underwritten public offering shall be subject to
applicable securities laws and NASD rules.
2.6 EMPLOYEE STOCK. With respect to any shares issued or
options or rights granted (including all shares issued or options or rights
granted prior to the date hereof except that the commencement of vesting for
such shares shall be such dates as agreed upon by the Company and the Preferred
Stockholders), unless a majority of the Board of Directors of the Company (such
a majority including the affirmative vote of the directors elected by the
holders of Preferred Stock) approves otherwise, the Company shall cause each
officer, director, employee and consultant of the Company to enter into an
agreement (i) providing for vesting of such shares of options or rights over
forty-eight (48) months, with no shares or options or rights being vested for
twelve (12) months from the date of issuance or grant, as the case may be, at
which time 12/48ths of the shares or options or rights shall be vested; (ii)
providing for the repurchase price to be the lesser of the original purchase
price or fair market value in the event the holder's employment with or service
to the Company terminates; (iii) under which the holder agrees to a market
standoff requested by the Company or the underwriters of any public offering of
the Company's securities, substantially as set forth in Section 1.15; and (iv)
providing for a right of first refusal in favor of the Company with respect to
both vested and unvested shares.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any of the Preferred Stock or Conversion Stock).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties
16
<PAGE> 19
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto shall be governed, construed and interpreted in
accordance with the laws of the State of California, without giving effect to
principles of conflicts of laws.
3.3 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required
or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight courier or
sent by telegram or fax, or forty-eight (48) hours after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, and addressed
to the party to be notified at such party's address as set forth below on
Exhibit A, Exhibit B, Exhibit C, Exhibit D or Exhibit E hereto or as
subsequently modified by written notice.
3.6 EXPENSES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
662/3% of the Registrable Securities then outstanding, not including the
Founders' Stock; provided that if such amendment has the effect of affecting the
Founders' Stock (i) in a manner different than securities issued to the
Preferred Stockholders, (ii) in a manner different than securities issued or
issuable to the Warrant Investor, and (iii) in a manner adverse to the interests
of the holders of the Founders' Stock, then such amendment shall require the
consent of the holder or holders of a majority of the Founders' Stock. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, and the Company. Notwithstanding the
foregoing, purchasers of shares of the Company's Series D Preferred Stock under
the Purchase Agreement or an addendum thereto after the date of the Purchase
Agreement may be subsequently added as a party to this Agreement as a Holder and
shall be bound by and entitled to the terms, benefits and conditions herein by
the execution of this Agreement on a signature page to this Agreement and by
attaching an addendum to Exhibit D.
3.8 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties agree
to renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision,
17
<PAGE> 20
then (a) such provision shall be excluded from this Agreement, (b) the balance
of the Agreement shall be interpreted as if such provision were so excluded and
(c) the balance of the Agreement shall be enforceable in accordance with its
terms.
3.9 PRIOR INVESTOR RIGHTS AGREEMENT. Upon both (i) the
execution of this Agreement by Existing Investors holding a majority of the
Registrable Securities outstanding or deemed to be outstanding immediately prior
to the Closing under the Purchase Agreement and (ii) the initial sale by the
Company of any shares of Series D Preferred Stock, this Agreement shall
supersede and replace the Prior Rights Agreement, which shall be terminated and
cease to have any further force or effect.
3.10 AGGREGATION OF STOCK. All shares of the Preferred Stock
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE> 21
The parties have executed this Fourth Amended and Restated Investors'
Rights Agreement as of the date first written above.
COMPANY:
E.PIPHANY, INC.
By: /s/ ROGER SIBONI
-------------------------------------------
Roger Siboni, Chief Executive Officer
FOUNDERS:
TOTAL OUTSTANDING FOUNDER SHARES -- 14,400,000
<TABLE>
<S> <C>
/s/ ELIOT L. WEGBREIT /s/ STEVEN G. BLANK
- --------------------------------------------- ----------------------------------------------
Eliot L. Wegbreit Steven G. Blank
REPRESENTING 4,200,000 SHARES OF COMMON STOCK REPRESENTING 4,200,000 SHARES OF COMMON STOCK
/s/ GREG WALSH /s/ JOHN P. MCCASKEY
- --------------------------------------------- -----------------------------------------------
Greg Walsh John P. McCaskey
REPRESENTING 1,400,000 SHARES OF COMMON STOCK REPRESENTING 1,400,000 SHARES OF COMMON STOCK
/s/ ROGER SIBONI
- ---------------------------------------------
Roger Siboni
REPRESENTING 3,200,000 SHARES OF COMMON STOCK
</TABLE>
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT
S-1
<PAGE> 22
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
NEW INVESTORS:
- ---------------------------------------------------------------------------------------------------
Integral Capital Partners IV, L.P. Integral Capital Partners IV MS Side Fund, L.P.
By: Integral Capital Management IV, LLC By: Integral Capital Partners NBT, LLC
its General Partner its General Partner
By: /s/ PAMELA K. HAGENAH By: /s/ PAMELA K. HAGENAH
--------------------------------------- ---------------------------------------------
Pamela K. Hagenah Pamela K. Hagenah
a Manager a Manager
- ---------------------------------------------------------------------------------------------------
KPMG
By: /s/ PHILIP ALAN REID
------------------------------------
Name: Philip Alan Reid
----------------------------------
Title: Head of Finance & Infrastructure
---------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT
S-2
<PAGE> 23
EXISTING INVESTORS:
TOTAL OUTSTANDING SHARES OF PREFERRED STOCK -- 21,244,967
<TABLE>
<S> <C>
INFORMATION TECHNOLOGY VENTURES, ITV AFFILIATES FUND, L.P.,
L.P., A California limited partnership
A California limited partnership
By: ITV MANAGEMENT, L.L.C.
By: ITV MANAGEMENT, L.L.C. A California limited liability company
A California limited liability company Title: General Partner
Title: General Partner
By: /s/ SAM H. LEE
By: /s/ SAM H. LEE -------------------------------------------
--------------------------------------- Sam H. Lee, Principal Member
Sam H. Lee, Principal Member REPRESENTING 205,054 SHARES OF PREFERRED STOCK
REPRESENTING 7,689,535 SHARES OF PREFERRED STOCK
KLEINER PERKINS CAUFIELD & BYERS VIII, KPCB INFORMATION SCIENCES ZAIBATSU
By: KPCB VIII Associates, L.P., its General FUND II, L.P.
Partner By: KPCB VII Associates, L.P., its General Partner
Name: /s/ SIGNATURE ILLEGIBLE
------------------------------------- By: /s/ SIGNATURE ILLEGIBLE
a General Partner -------------------------------------------
a General Partner
Title:
------------------------------------
REPRESENTING 6,836,963 SHARES OF PREFERRED Title:
STOCK ----------------------------------------
REPRESENTING 185,465 SHARES OF PREFERRED STOCK
KPCB VIII FOUNDERS FUND, L.P. VISA INTERNATIONAL
By: KPCB VIII Associates, L.P., its General By: /s/ CYNTHIA HENDRICKS
Partner -------------------------------------------
Name: Cynthia Hendricks
-----------------------------------------
By: /s/ SIGNATURE ILLEGIBLE (print)
---------------------------------------
a General Partner
REPRESENTING 396,152 SHARES OF PREFERRED STOCK Title: Vice President
----------------------------------------
REPRESENTING 1,005,918 SHARES OF PREFERRED
STOCK
</TABLE>
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT
S-3
<PAGE> 24
EXHIBIT A
SERIES A PREFERRED STOCKHOLDERS
<TABLE>
<CAPTION>
NAME/ADDRESS NO. OF SHARES
- -------------------------------------------- ---------------------------
<S> <C>
Information Technology Ventures, L.P. 4,221,294
3000 Sand Hill Road
Building 1, Suite 280
Menlo Park, CA 94025
ITV Affiliates Fund, L.P. 112,568
3000 Sand Hill Road
Building 1, Suite 280
Menlo Park, CA 94025
Discovery Ventures, LLC II 884,956
3000 Sand Hill Road
Building 1, Suite 210
Menlo Park, CA 94025
Margaret L. Taylor 176,992
40 Kentfield Court
Alamo, CA 94507
David A. Duffield as Trustee of the 176,992
David A. Duffield Trust dtd 7/14/88
c/o PeopleSoft, Inc.
4440 Rosewood Drive
Building 4
Pleasanton, CA 94588-3031
Philip S. Dauber and Elayne R. Dauber as 132,744
Trustees of PSERD Trust dtd 3/11/86
27930 Roble Alto
Los Altos Hills, CA 94022
Eliot L. Wegbreit as Trustee of 149,140
Wegbreit Trust
c/o Epiphany Marketing Software, Inc.
2141 Landings Drive
Mountain View, CA 94043
</TABLE>
A-1
<PAGE> 25
<TABLE>
<CAPTION>
NAME/ADDRESS NO. OF SHARES
- --------------------------------------------- ---------------------------
<S> <C>
Steven G. Blank as Trustee of 62,125
Elliot-Blank Revocable Trust
c/o Epiphany Marketing Software, Inc.
2141 Landings Drive
Mountain View, CA 94043
Cristina M. Morgan 88,496
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Amnon M. Landan 26,548
729 Inverness Way
Sunnyvale, CA 94087
Jorge del Calvo and Gerine Ongkeko 26,548
c/o Pillsbury, Madison & Sutro
2700 Sand Hill Road
Menlo Park, CA 94025
VLG Investments 1997 35,398
2800 Sand Hill Road
Menlo Park, CA 94025
E.J. Blawie, J.C. Richards & R.R. Deming 12,390
TTEES Venture Law Group 401(k)
Retirement Savings Plan and Trust U/A DTD
4/1/93 FBO Peter Cohn
2800 Sand Hill Road
Menlo Park, CA 94025
Gordon Bell 88,500
450 Old Oak Court
Los Altos, CA 94022
Ralph Kimball and Julie Kimball, Trustees 84,071
or Successor Trustee, Under the Kimball
Living Trust U/A/D 6/13/96
13150 Highway 9, Suite 116
Boulder Creek, CA 95006
</TABLE>
A-2
<PAGE> 26
<TABLE>
<CAPTION>
NAME/ADDRESS NO. OF SHARES
- --------------------------------------------- ---------------------------
<S> <C>
Edward Feigenbaum as Trustee 88,495
of the Feigenbaum Family Trust
1017 Cathcart Way
Stanford, CA 94305
Michael A. Harrison and Susan G. Harrison 88,495
590 Euclid Avenue
Berkeley, CA 94708
</TABLE>
A-3
<PAGE> 27
EXHIBIT B
SERIES B PREFERRED STOCKHOLDERS
<TABLE>
<CAPTION>
PURCHASER NO. OF SHARES
- -------------------------------------------- ----------------------------
<S> <C>
Information Technology Ventures, L.P. 1,162,854
3000 Sand Hill Road
Building 1, Suite 280
Menlo Park, CA 94025
ITV Affiliates Fund, L.P. 31,009
3000 Sand Hill Road
Building 1, Suite 280
Menlo Park, CA 94025
Discovery Ventures, LLC II 243,782
3000 Sand Hill Road
Building 1, Suite 210
Menlo Park, CA 94025
Kleiner Perkins Caufield & Byers VIII, L.P. 4,110,336
2750 Sand Hill Road
Menlo Park, CA 94025
KPCB VIII Founders Fund, L.P. 238,164
2750 Sand Hill Road
Menlo Park, CA 94025
KPCB Information Sciences Zaibatsu Fund 111,500
II, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025
APV Technology Partners, L.P. 320,000
535 Middlefield Road, Suite 150
Menlo Park, CA 94025
APV Technology Partners U.S., L.P. 80,000
535 Middlefield Road, Suite 150
Menlo Park, CA 94025
WS Investments 40,000
650 Page Mill Road
Palo Alto, CA 94304
</TABLE>
B-1
<PAGE> 28
<TABLE>
<CAPTION>
PURCHASER NO. OF SHARES
- ----------------------------------------- ----------------------------
<S> <C>
Gary L. Reback 20,000
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Trustee, WSGR Retirement Plan FBO Aaron 6,668
J. Alter
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Trustee, WSGR Retirement Plan FBO David 6,666
J. Segre
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Kenneth M. Siegel 6,666
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Don Peppers 34,000
10 Overbrook Drive
Weston, CT 06883
Bob Dorf 34,000
411 Soundview Avenue
Stanford, CT 06902
Bruce Kasanoff 12,000
97 Sweet Briar Road
Stanford, CT 06905
</TABLE>
B-2
<PAGE> 29
EXHIBIT C
SERIES C PREFERRED STOCKHOLDERS
<TABLE>
<CAPTION>
PURCHASER NO. OF SHARES
- ------------------------------------------- ---------------------------
<S> <C>
Information Technology Ventures, L.P. 2,305,387
3000 Sand Hill Road
Building 1, Suite 280
Menlo Park, CA 94025
ITV Affiliates Fund, L.P. 61,477
3000 Sand Hill Road
Building 1, Suite 280
Menlo Park, CA 94025
Discovery Ventures, LLC II 118,344
3000 Sand Hill Road
Building 1, Suite 210
Menlo Park, CA 94025
Kleiner Perkins Caufield & Byers VIII, L.P. 2,726,627
2750 Sand Hill Road
Menlo Park, CA 94025
KPCB VIII Founders Fund, L.P. 157,988
2750 Sand Hill Road
Menlo Park, CA 94025
KPCB Information Sciences Zaibatsu Fund II, L.P. 73,965
2750 Sand Hill Road
Menlo Park, CA 94025
Cambridge Technology Capital Fund I, L.P. 591,716
304 Vassar Street
Cambridge, MA 02139
KPMG Peat Marwick LLP 887,574
Three Chestnut Ridge Road
Montvale, NJ 07645
Hambrecht & Quist California 63,117
One Bush Street
San Francisco, CA 94104
</TABLE>
C-1
<PAGE> 30
<TABLE>
<CAPTION>
PURCHASER NO. OF SHARES
- --------------------------------------------- ----------------------------
<S> <C>
H&Q Employee Venture Fund, L.P. 31,559
One Bush Street
San Francisco, CA 94104
Cristina M. Morgan 5,917
One Bush Street
San Francisco, CA 94104
Daniel H. Case III 5,917
One Bush Street
San Francisco, CA 94104
A.G. Edwards & Sons C-F Couglas P. Smith IRA 5,917
Account
One Bush Street
San Francisco, CA 94104
Jim Pickrel 5,917
One Bush Street
San Francisco, CA 94104
WS Investments 29,586
650 Page Mill Road
Palo Alto, CA 94304
Gary L. Reback 14,793
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Aaron J. Alter 8,876
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Trustee, WSGR Retirement Plan FBO David J. 8,876
Segre
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
</TABLE>
C-2
<PAGE> 31
<TABLE>
<CAPTION>
PURCHASER NO. OF SHARES
- -------------------------------------------- ---------------------------
<S> <C>
Trustee, WSGR Retirement Plan FBO Kenneth M. 8,876
Siegel
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
N. Anthony Jeffries 2,958
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
2,958
Bradley L. Finkelstein
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Martha Rogers 17,752
700 Canal Street
Stamford, CT 06902
Visa International 1,005,918
900 Metro Center Blvd.
Mail Stop M-1, 11-G
Foster City, CA 94404
EMS Investment Partners 177,515
1911 Waverly Street
Palo Alto, CA 94301
- --------------------------------------------------------------------------------
TOTAL 8,319,530
</TABLE>
C-3
<PAGE> 32
EXHIBIT D
SERIES D PREFERRED STOCKHOLDERS
<TABLE>
<CAPTION>
PURCHASER NO. OF SHARES
- ----------------------------------------------- ---------------------------
<S> <C>
Integral Capital Partners IV, L.P. 1,553,964
2750 Sand Hill Road
Menlo Park, CA 94025
Fax: 650-233-0366
Integral Capital Partners IV MS Side Fund, L.P. 8,536
2750 Sand Hill Road
Menlo Park, CA 94025
Fax: 650-233-0366
KPMG 312,500
8 Salisbury Square
London, England
EC34 8BB
- -------------------------------------------------------------------------------
TOTAL 1,875,000
</TABLE>
D-1
<PAGE> 33
EXHIBIT E
WARRANT INVESTOR
Silicon Valley Bank
1731 Embarcadero, Suite 220
Palo Alto, California 94303
E-1
<PAGE> 1
EXHIBIT 10.6
EPIPHANY MARKETING SOFTWARE, INC.
LOAN AND SECURITY AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 10
2. LOAN AND TERMS OF PAYMENT 10
2.1 Revolving Facility 10
2.2 Equipment Facility 12
2.3 Overadvances 13
2.4 Interest Rates, Payments, and Calculations 13
2.5 Crediting Payments 14
2.6 Fees 14
2.7 Additional Costs 14
2.8 Term 15
3. CONDITIONS OF LOANS 15
3.1 Conditions Precedent to Initial Advance 15
3.2 Conditions Precedent to all Advances 16
3.3 Post-Closing Condition 16
4. CREATION OF SECURITY INTEREST 16
4.1 Grant of Security Interest 16
4.2 Delivery of Additional Documentation Required 16
4.3 Right to Inspect 16
5. REPRESENTATIONS AND WARRANTIES 17
5.1 Due Organization and Qualification 17
5.2 Due Authorization; No Conflict 17
5.3 No Prior Encumbrances 17
5.4 Bona Fide Eligible Accounts 17
5.5 Merchantable Inventory 17
5.6 Intellectual Property 17
5.7 Name; Location of Chief Executive Office 17
5.8 Litigation 18
5.9 No Material Adverse Change in Financial Statements 18
5.10 Solvency 18
5.11 Regulatory Compliance 18
5.12 Taxes 18
5.13 Subsidiaries 18
5.14 Government Consents 18
5.15 Full Disclosure 18
6. AFFIRMATIVE COVENANTS 19
6.1 Good Standing 19
6.2 Government Compliance 19
6.3 Financial Statements, Reports, Certificates 19
6.4 Inventory; Returns 20
6.5 Taxes 20
6.6 Insurance 20
6.7 Principal Depository 20
6.8 Quick Ratio 20
6.9 Liquidity Coverage 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
6.10 Tangible Net Worth 21
6.11 Registration of Intellectual Property Rights 21
6.12 Further Assurances 21
7. NEGATIVE COVENANTS 21
7.1 Dispositions 21
7.2 Change in Business 22
7.3 Mergers or Acquisitions 22
7.4 Indebtedness 22
7.5 Encumbrances 22
7.6 Distributions 22
7.7 Investments 22
7.8 Transactions with Affiliates 22
7.9 Intellectual Property Agreements 22
7.10 Subordinated Debt 22
7.11 Inventory 22
7.12 Compliance 23
8. EVENTS OF DEFAULT 23
8.1 Payment Default 23
8.2 Covenant Default 23
8.3 Material Adverse Change 23
8.4 Attachment 23
8.5 Insolvency 24
8.6 Other Agreements 24
8.7 Subordinated Debt 24
8.8 Judgments 24
8.9 Misrepresentations 24
9. BANK'S RIGHTS AND REMEDIES 24
9.1 Rights and Remedies 24
9.2 Power of Attorney 25
9.3 Accounts Collection 26
9.4 Bank Expenses 26
9.5 Bank's Liability for Collateral 26
9.6 Remedies Cumulative 26
9.7 Demand; Protest 26
10. NOTICES 26
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER 27
12. GENERAL PROVISIONS 27
12.1 Successors and Assigns 27
12.2 Indemnification 27
12.3 Time of Essence 27
12.4 Severability of Provisions 28
12.5 Amendments in Writing, Integration 28
12.6 Counterparts 28
12.7 Survival 28
12.8 Confidentiality 28
</TABLE>
ii
<PAGE> 4
This LOAN AND SECURITY AGREEMENT is entered into as of January 9, 1998,
by and between SILICON VALLEY BANK ("Bank") and EPIPHANY MARKETING SOFTWARE,
INC. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a cash advance or cash
advances under the Revolving Facility or the Equipment Facility.
"Affiliate" means, with respect to any Person, any Person
that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person, and
each of such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and expenses
of appeal), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" means an amount equal to seventy-five
percent (75%) of Eligible Accounts.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California are authorized or
required to close.
"Cash Management Service" or "Cash Management Services" has
the meaning set forth in Section 2.1.3 herein.
1
<PAGE> 5
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
attached hereto.
"Committed Line" means Two Million Dollars ($2,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates, or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at
the end of a given day.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4. Unless
otherwise agreed to by Bank, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay
within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
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(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does
not have its principal place of business in the United States, except for
Eligible Foreign Accounts, and Accounts arising from products shipped to or
services provided to branches or offices located in the United States of any
account debtor that does not have its principal place of business in the United
States;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed
twenty-five percent (25%) of all Accounts, to the extent such obligations exceed
the aforementioned percentage, except (i) such percentage shall be thirty-five
percent (35%) with respect to Accounts with Macromedia, Schwab, Onyx Software
and Visio, and (ii) as approved in writing by Bank;
(j) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(k) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Eligible Customers" shall include (i) customers of Borrower
who have accepted product shipment and for whom Borrower has received revenues,
according to GAAP, (ii) companies with whom the Borrower is working to
consummate a sale, lease, OEM agreement, or other agreement, as approved by
Bank, in Bank's reasonable discretion, and (iii) Macromedia, Schwab, Onyx
Software and Visio (which four (4) entities shall be deemed at all times and for
all purposes to be "Eligible Customers" under this Agreement, any related
agreements, or the warrant issued to Bank in connection with this Agreement.
"Eligible Customers Listing" means evidence of an installed
base of at least seven (7) Eligible Customers, in form and substance approved by
Bank, in Bank's reasonable discretion.
"Eligible Equipment" means general purpose equipment,
computer equipment, office equipment and furnishings and other machines as
approved by Bank in its reasonable discretion in which the Bank has a valid
perfected security interest, which equipment is new and has not previously been
used by any Person.
"Eligible Foreign Accounts" means Accounts with respect to
which the account debtor does not have its principal place of business in the
United States and that are: (1) covered by credit insurance in form and amount,
and by an insurer satisfactory to Bank less the amount of any deductible(s)
which may be or become owing thereon; or (2) supported by one or more letters of
credit
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in favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on a
case-by-case basis.
"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"Equipment Advance" or "Equipment Advances" means a cash
advance or cash advances under the Equipment Facility.
"Equipment Committed Line" means One Million Two Hundred and
Fifty Thousand Dollars ($1,250,000).
"Equipment Facility" means the facility under which Borrower
may request Bank to issue cash advances, as specified in Section 2.2 hereof.
"Equipment Availability Date" means the date that is nine
(9) months from the date of this Agreement.
"Equipment Maturity Date" means the date that is thirty-six
(36) months from the Equipment Availability Date.
"Equity Infusion" means the receipt by Borrower of cash
proceeds from the sale of its capital stock or Subordinated Debt, other than in
a nonfinancing transaction to employees, officers, directors or consultants of
the Borrower, in a minimum aggregate amount of Four Million Dollars
($4,000,000).
"ERISA" means the Employment Retirement Income Security Act
of 1974, as amended, and the regulations thereunder.
"Foreign Exchange Reserve" has the meaning set forth in
Section 2.1.2 herein.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money
of the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means any and all right,
title and interest of Borrower in the following:
(a) Copyrights, Trademarks and Patents;
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<PAGE> 8
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present
and future infringement of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the
Copyrights, Patents or Trademarks, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"Letter of Credit" or "Letters of Credit" has the meaning
set forth in Section 2.1.1 herein.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any
note or notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan Documents.
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"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
"Payment Date" means the eighth (8th) calendar day of the
month.
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay to
Bank pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed
in the Schedule;
(c) Indebtedness to trade creditors and with respect to
surety bonds and similar obligations incurred in the ordinary course of
business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of Borrower
(provided that the primary obligations are not prohibited hereby), and
Indebtedness of any Subsidiary to any other Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of any other
Subsidiary (provided that the primary obligations are not prohibited hereby);
(f) Indebtedness secured by Permitted Liens;
(g) Other Indebtedness not otherwise permitted by Section
7.4 and not in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate outstanding at any time.
(h) Capital leases or indebtedness incurred solely to
purchase equipment which is secured in accordance with clause (c) of "Permitted
Liens" below and is not in excess of the lesser of the purchase price of such
equipment or the fair market value of such equipment on the date of acquisition;
and
(i) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
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"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in
the Schedule;
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank, and (iv) any Investments permitted by
Borrower's investment policy, as amended from time to time, provided that such
investment policy (and any such amendment thereto) has been approved by Bank, in
its reasonable discretion;
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transaction in the ordinary
course of business;
(d) Investments accepted in connection with Transfers
permitted by Section 7.1;
(e) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the Board of
Directors of Borrower determines that such compensation is in the best interests
of Borrower, (ii) travel advances, employee relocation loans and other employee
loans and advances in the ordinary course of business, and (iii) loans to
employees, officers or directors relating to the purchase of equity securities
of Borrower or its Subsidiaries pursuant to employee stock purchase plans or
agreements approved by Borrower's Board of Directors;
(f) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(g) Investments pursuant to or arising under currency
agreements or interest rate agreements entered into in the ordinary course of
business;
(h) Investments consisting of notes receivable of, or
prepaid royalties and other credit extensions to, customers and suppliers who
are not Affiliates, in the ordinary course of business; provided that this
paragraph (i) shall not apply to Investments by Borrower in any Subsidiary;
(i) Investments constituting acquisitions permitted under
Section 7.3;
(j) Investments of Subsidiaries in or to other Subsidiaries
or Borrower and Investments by Borrower in Subsidiaries not to exceed Two
Hundred and Fifty Thousand Dollars ($250,000) in the aggregate outstanding at
any time;
(k) Other Investments not otherwise permitted by Section 7.7
and not in excess of One Hundred Thousand Dollars ($100,000) in the aggregate
outstanding at any time;
(l) Deposit accounts of Borrower in which Bank has a Lien
prior to any other Lien; and
(m) Deposit accounts of any Subsidiaries maintained in the
ordinary course of business.
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"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any Equipment, other than Equipment
financed hereunder, acquired or held by Borrower or any of its Subsidiaries to
secure the purchase price of such Equipment or indebtedness incurred solely for
the purpose of financing the acquisition of such Equipment, or (ii) existing on
such Equipment at the time of its acquisition, provided that the Lien is
confined solely to the property so acquired and improvements thereon, and the
proceeds of such Equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement);
(e) Leases or subleases and licenses and sublicenses granted
to others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license;
(f) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation that
existed at the time it became or becomes a Subsidiary); provided such Liens are
not granted in contemplation of or in connection with the acquisition of such
asset by Borrower or a Subsidiary;
(g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(h) Easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not constituting a Material Adverse Effect;
(i) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payments of customs duties in connection
with the importation of goods;
(j) Liens that are not prior to the Lien of Bank which
constitute rights of set-off of a customary nature or banker's Liens with
respect to amounts on deposit, whether arising by operation of law or by
contract, in connection with arrangement entered in to with banks in the
ordinary course of business;
(k) Earn-out and royalty obligations existing on the date
hereof or entered into in connection with an acquisition permitted by Section
7.3;
(l) Liens on insurance proceeds in favor of insurance
companies granted solely as security for financed premiums; and
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<PAGE> 12
(m) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described in
clauses (a) (c), (d), (e), (f) and (k) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
unrestricted cash, unrestricted cash-equivalents; net, billed accounts
receivable; and investments with maturities of one year or less of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Advance" or "Revolving Advances" means a cash
advance or cash advances under the Revolving Facility.
"Revolving Facility" means the facility under which Borrower
may request Bank to issue cash advances, as specified in Section 2.1 hereof.
"Revolving Maturity Date" means (i) May 5, 1998, if Borrower
has not received the Equity Infusion, or (ii) November 15, 1998, provided that
the Borrower has received the Equity Infusion on or before May 5, 1998.
"Schedule" means the schedule of exceptions, attached
hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which
(i) any general partnership interest or (ii) more than 50% of the stock of which
by the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means as of the applicable date, the
consolidated total assets of Borrower and its wholly-owned Subsidiaries minus,
without duplication, (i) the sum of any amounts attributable to (a) goodwill,
(b) intangible items such as unamortized debt discount and expense, Patents,
Trademarks and service marks and names, Copyrights and research and development
expenses except prepaid expenses, and (c) all reserves not already deducted from
assets, and (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any
date as of which the amount thereof shall be determined, all obligations that
should, in accordance with GAAP be classified as liabilities on the consolidated
balance sheet of Borrower, including in any event all Indebtedness.
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"Trademarks" means any trademark and service mark rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the business of Assignor
connected with and symbolized by such trademarks.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Revolving Facility.
(a) Advances. Subject to and upon the terms and conditions
of this Agreement, Bank agrees to make Revolving Advances to Borrower in an
aggregate amount not to exceed the lesser of the (i) Committed Line, or (ii) the
Borrowing Base, minus the sum of (i) the face amount of all outstanding Letters
of Credit (including drawn but unreimbursed Letters of Credit), (ii) the Foreign
Exchange Reserve and (iii) amounts outstanding for Cash Management Services.
Notwithstanding the foregoing, and only until the earlier of Borrower's receipt
of the Equity Infusion or May 5, 1998, Borrower may request the following
Revolving Advances: (i) on the Closing Date, in an aggregate amount not to
exceed the Borrowing Base plus One Million Dollars ($1,000,000); and (ii) as of
March 5, 1998 until the Maturity Date, and provided that Bank has received the
Eligible Customers Listing, in an aggregate amount not to exceed the Borrowing
Base plus Two Million Dollars ($2,000,000). Subject to the terms and conditions
of this Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid
and reborrowed at any time prior to the Revolving Maturity Date.
(b) Procedures. Whenever Borrower desires a Revolving
Advance, Borrower will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. California time, on the Business Day that the Revolving
Advance is to be made. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is
authorized to make Revolving Advances under this Agreement, based upon
instructions received from a Responsible Officer, or without instructions if in
Bank's discretion such Revolving Advances are necessary to meet Obligations
which have become due and remain unpaid. Bank shall be entitled to rely on any
telephonic notice given by a person who Bank reasonably believes to be a
Responsible Officer, and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of such reliance. Bank will credit
the amount of Revolving Advances made under this Section 2.1 to Borrower's
deposit account.
(c) Maturity. The Revolving Facility shall terminate on the
Revolving Maturity Date, at which time all Revolving Advances under this Section
2.1 shall be immediately due and payable.
2.1.1 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued letters of credit (each a "Letter of
Credit," collectively, the "Letters of Credit") for the account of Borrower in
an aggregate outstanding face amount not to exceed (i) the lesser of the
Committed Line or the Borrowing Base, minus (ii) the then outstanding principal
balance of the Advances, minus (iii) the Foreign Exchange Reserve, minus
outstanding amounts for Cash Management Services. Each Letter of Credit shall
have an expiry date no later than the Revolving Maturity Date. All Letters of
Credit shall be, in form and substance, acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's form of
standard application and letter of credit agreement.
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(b) The obligation of Borrower to immediately reimburse Bank
for drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a demand for payment
is made under any such Letter of Credit, Bank shall treat such demand as an
Advance to Borrower of the equivalent of the amount thereof (plus cable charges)
in United States currency at the then prevailing rate of exchange in San
Francisco, California, for sales of that other currency for cable transfer to
the country of which it is the currency.
(d) Upon the issuance of any letter of credit payable in a
currency other than United States Dollars, Bank shall create a reserve under the
Committed Line for letters of credit against fluctuations in currency exchange
rates, in an amount equal to ten percent (10%) of the face amount of such letter
of credit. The amount of such reserve may be amended by Bank from time to time
account for fluctuations in the exchange rate. The availability of funds under
the Committed Line shall be reduced by the amount of such reserve for so long as
such letter of credit remains outstanding.
2.1.2. Foreign Exchange Contract; Foreign Exchange Settlements.
(a) Subject to the terms of this Agreement, Borrower may
enter into foreign exchange contracts (the "Exchange Contracts") not to exceed
the Committed Line or Borrowing Base (the "Contract Limit"), pursuant to which
Bank shall sell to or purchase from Borrower foreign currency on a spot or
future basis. Borrower shall not request any Exchange Contracts at any time it
is out of compliance with any of the provisions of this Agreement. All Exchange
Contracts must provide for delivery of settlement on or before the Revolving
Maturity Date. The amount available under the Committed Line at any time shall
be reduced by the following amounts (the "Foreign Exchange Reserve") on any
given day (the "Determination Date"): (i) on all outstanding Exchange Contracts
on which delivery is to be effected or settlement allowed more than two business
days after the Determination Date, ten percent (10%) of the gross amount of the
Exchange Contracts; plus (ii) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed within two (2) business days
after the Determination Date, one hundred percent (100%) of the gross amount of
the Exchange Contracts.
(b) Bank may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs or (b) that there is
no sufficient availability under the Committed Line and Borrower does not have
available funds in its bank account to satisfy the Foreign Exchange Reserve. If
Bank terminates the Exchange Contracts, and without limitation of any applicable
indemnities, Borrower agrees to reimburse Bank for any and all fees, costs and
expenses relating thereto to arising in connection therewith.
(c) Borrower shall not permit the total gross amount of all
Exchange Contracts on which delivery is to be effected and settlement allowed in
any two (2) business day period to be more than the Contract Limit (the
"Settlement Limit") nor shall Borrower permit the total gross amount of all
Exchange Contracts to which Borrower is a party, outstanding at any one time, to
exceed the Contract Limit. Notwithstanding the above, however, the amount which
may be settled in any two (2) business day period may be increased above the
Settlement Limit up to, but in no event to exceed, the amount of the Contract
Limit under either of the following circumstances:
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(i) if there is sufficient availability under the
Committed Line in the amount of the Foreign Exchange Reserve as of each
Determination Date, provided that Bank in advance shall reserve the full
amount of the Foreign Exchange Foreign Reserve against the Committed Line;
or
(ii) if there is insufficient availability under the
Committed Line, as to settlements within any two (2) business day period,
provided that Bank, in its sole discretion, may: (A) verify good funds
overseas prior to crediting Borrower's deposit account with Bank (in the
case of Borrower's sale of foreign currency); or (B) debit Borrower's
deposit account with Bank prior to delivering foreign currency overseas (in
the case of Borrower's purchase of foreign currency).
(d) In the case of Borrower's purchase of foreign currency,
Borrower in advance shall instruct Bank upon settlement either to treat the
settlement amount as an advance under the Committed Line, or to debit Borrower's
account for the amount settled.
(e) Borrower shall execute all standard form applications
and agreements of Bank in connection with the Exchange Contracts and, without
limiting any of the terms of such applications and agreements, Borrower will pay
all standard fees and charges of Bank in connection with the Exchange Contracts.
(f) Without limiting any of the other terms of this
Agreement or any such standard form applications and agreement of Bank, Borrower
agrees to indemnify Bank and hold it harmless, from and against any and all
claims, debts, liabilities, demands, obligations, actions, costs and expenses
(including, without limitation, attorneys' fees of counsel of Bank's choice), of
every nature and description which it may sustain or incur, based upon, arising
out of, or in any way relating to any of the Exchange Contracts or any
transactions relating thereto or contemplated thereby.
2.1.3 Cash Management Sublimit. Subject to the terms and
conditions of this Agreement, Borrower may utilize cash management services
provided by Bank, which services may include merchant services, PC-ACH, direct
deposit of payroll, business credit card, Firstax, and other related check
cashing services as defined in that certain Cash Management Services Agreement
provided to Borrower in connection herewith (a "Cash Management Service", or the
"Cash Management Services"). Any amounts actually paid by Bank in respect of a
Cash Management Service or Cash Management Services shall, when paid, constitute
a Revolving Advance under this Agreement, and any amounts actually received by
Bank in respect of a Cash Management Service or Cash Management Services shall,
when repaid, constitute a repayment of a Revolving Advance under this Agreement.
2.2 Equipment Facility.
(a) Equipment Advances. Subject to and upon the terms and
conditions of this Agreement, Bank agrees, at any time from the date of this
Agreement through the Equipment Availability Date to make Equipment Advances to
Borrower in an aggregate principal amount of up to the Equipment Committed Line,
including Equipment Advances to repay existing indebtedness of Borrower, if any,
which is secured by Eligible Equipment; provided, however, such Equipment
Advances shall not exceed Seven Hundred and Fifty Thousand Dollars ($750,000),
prior to Borrower receiving the Equity Infusion, and shall only include Eligible
Equipment purchased after December 1, 1996. On the date of each Equipment
Advance, Borrower shall provide invoices or other documents as requested by
Bank, in form and content satisfactory to Bank, demonstrating that the Equipment
Advances then outstanding (A) shall be used to finance or refinance, as the case
may be, Eligible Equipment, and (B) shall not exceed one hundred percent (100%)
of the cost of such Eligible Equipment, excluding any and all installation,
software, freight or warranty expenses or sales taxes, and (C) that no more than
thirty percent (30%) of the aggregate outstanding Equipment Advances
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shall finance software licenses, leasehold improvements, or other soft costs.
Amounts borrowed pursuant to this Section 2.2 may not be reborrowed once repaid.
(b) Procedures. Whenever Borrower desires an Equipment
Advance, Borrower shall notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. California time, one (1) Business Day before the day on
which the Equipment Advance is requested to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form
of Exhibit B hereto. The notice shall be signed by a Responsible Officer and
include a copy of the invoice or other documents for the Eligible Equipment to
be financed. Bank is authorized to make Equipment Advances under this Agreement,
based upon instructions received from a Responsible Officer, or without
instructions if in Bank's discretion such Equipment Advances are necessary to
meet Obligations which have become due and remain unpaid. Bank shall be entitled
to rely on any telephonic notice given by a person who Bank reasonably believes
to be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless
for any damages or loss suffered by Bank as a result of such reliance. Bank will
credit the amount of Equipment Advances made under this Section 2.2 to
Borrower's deposit account.
(c) Interest and Principal. Interest shall accrue from the
date of each Equipment Advance at the rate specified in Section 2.4(a), and
shall be payable monthly on the Payment Date for each month through the month in
which the Equipment Availability Date falls. Bank shall, at its option, charge
such interest, all Bank Expenses, and all Periodic Payments against any of
Borrower's deposit accounts or against the Equipment Committed Line, in which
case those amounts shall thereafter accrue interest at the rate then applicable
hereunder. Any interest not paid when due shall be compounded by becoming a part
of the Obligations, and such interest shall thereafter accrue interest at the
rate then applicable hereunder. All Equipment Advances that are outstanding on
the Equipment Availability Date will be payable in thirty-six (36) equal monthly
installments of principal, plus accrued interest, on the Payment Date for each
month through the Equipment Maturity Date.
(d) Maturity. The Equipment Facility shall terminate on the
Equipment Maturity Date, at which time all Obligations owing under this Section
2.2 and all other amounts under this Agreement shall be immediately due and
payable.
2.3 Overadvances. Subject to the terms set forth in Section 2.1,
if, at any time or for any reason, the amount of Obligations owed by Borrower to
Bank pursuant to Section 2.1 of this Agreement is greater than (i) the face
amount of all outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) minus the lesser of the Committed Line or the Borrowing Base
(as adjusted in Section 2.1), minus (ii) the Foreign Exchange Reserve, minus
(iii) outstanding amounts for Cash Management Services, Borrower shall
immediately pay to Bank, in cash, the amount of such excess. Subject to the
terms set forth in Section 2.2, if, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.2 of this Agreement
is greater than the Equipment Committed Line (as adjusted in Section 2.2),
Borrower shall immediately pay to Bank, in cash, the amount of such excess.
2.4 Interest Rates, Payments, and Calculations.
(a) Interest Rate.
(i) Revolving Advances. Except as set forth in Section
2.4(b), all Revolving Advances shall bear interest, on the average Daily Balance
thereof, at a rate equal to the Prime Rate.
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(ii) Equipment Advance. Except as set forth in Section
2.4(b), all Equipment Advances shall bear interest, on the average Daily Balance
thereof, at a rate equal to one half of one (0.50) percentage point above the
Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from
and after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable
on the Payment Date of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed
from time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.5 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.6 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A facility fee equal to Five Thousand
Dollars ($5,000) which fee shall be due on the Closing Date and shall be fully
earned and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, up to a maximum of One Thousand Five Hundred Dollars ($1,500), and for
each appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon the date hereof, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses, up to a maximum of Four Thousand Dollars ($4,000), and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.7 Additional Costs. In case any change in any law, regulation,
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central
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bank or other governmental authority (whether or not having the force of law),
in each case after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement, and the result of any of the foregoing is
to increase the cost to Bank, reduce the income receivable by Bank or impose any
expense upon Bank with respect to any loans, Bank shall notify Borrower thereof.
Borrower agrees to pay to Bank the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by Bank of a statement of the amount
and setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error; provided,
however, that Borrower shall not be liable for any such amount attributable to
any period prior to the date of one hundred eighty (180) days prior to the date
of such certificate.
2.8 Term. This Agreement shall become effective on the Closing
Date and, subject to Section 12.7, shall continue in full force and effect for a
term ending on the Equipment Maturity Date. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Advances under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations (excluding
Obligations under Section 2.7 and 12.2 to the extent they remain inchoate at the
time outstanding payment obligations are paid in full) are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The obligation of
Bank to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect
to incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) an intellectual property security agreement;
(d) warrant to purchase stock and related agreements as
shall be requested by Bank;
(e) financing statements (Forms UCC-1);
(f) insurance certificate;
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(g) payment of the fees and Bank Expenses then due
specified in Section 2.6 hereof; and
(h) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of Bank
to make each Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1;
(b) timely receipt by Bank of the invoices or other
documents as provided in Section 2.2; and
(c) the representations and warranties contained in Section
5 shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Advance as though
made at and as of each such date, and no Event of Default shall have occurred
and be continuing, or would result from such Advance (except to the extent they
relate specifically to any earlier date, in which case such representations and
warranties shall continue to have been true and accurate as of such date). The
making of each Advance shall be deemed to be a representation and warranty by
Borrower on the date of such Advance as to the accuracy of the facts referred to
in this Section 3.2(c).
3.3 Post-Closing Condition. Borrower hereby covenants and agrees
to amend, no later than thirty (30) days following the Closing Date, the
Investors' Rights Agreement, dated March 18, 1997, between the Borrower and
certain investors listed in Exhibit A thereto, in connection with the Equity
Sale (as defined in the warrant issued by Borrower to the Bank at the time of
the execution of this Agreement) to include the Bank as a party thereto with
respect to the capital stock underlying such warrant. The failure by Borrower to
comply with the foregoing shall constitute an Event of Default under this
Agreement.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Except for Permitted Liens
and as set forth in the Schedule, such security interest constitutes a valid,
first priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof, in each case, to the extent that a security interest in
such Collateral can be perfected by the filing of a financing statement or, in
the case of Collateral consisting of instruments, documents, chattel paper or
certificated securities, to the extent that Bank takes possession of such
Collateral. Bank agrees to execute and deliver to Borrower from time to time
such Lien subordination agreements as Borrower may request and as are necessary
to give to other lenders which finance equipment for Borrower a first priority
security interest in the equipment financed so long as the Liens and the
Indebtedness incurred with respect to such equipment financing are permitted
under this Agreement.
4.2 Delivery of Additional Documentation Required. Borrower
shall from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business
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hours, to inspect Borrower's Books and to make copies thereof and to check,
test, and appraise the Collateral in order to verify Borrower's financial
condition or the amount, condition of, or any other matter relating to, the
Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and is
in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified, except for states as to
which any failure to so qualify would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound except to the extent that
certain intellectual property agreements prohibit the assignment of the rights
thereunder to a third party without the Borrower's or other party's consent and
the Loan Documents constitute an assignment. Borrower is not in default under
any agreement to which it is a party or by which it is bound, which default
could reasonably be expected to have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona
fide existing obligations. The property giving rise to such Eligible Accounts
has been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor that is included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 Intellectual Property. Borrower is the sole owner of the
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party. Except for and upon the filing with the
United States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests created hereunder, and except as has
been already made or obtained, no authorization, approval or other action by,
and no notice to or filing with, any United States governmental authority or
United States regulatory body is required either (i) for the grant by Borrower
of the security interest granted hereby or for the execution, delivery or
performance of Loan Documents by Borrower in the United States or (ii) for the
perfection in the United States or the exercise by Bank of its rights and
remedies hereunder.
5.7 Name; Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
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5.8 Litigation. Except as set forth in the Schedule, there are
no actions or proceedings pending by or against Borrower or any Subsidiary
before any court or administrative agency in which an adverse decision could
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
Borrower does not have knowledge of any such pending or threatened actions or
proceedings.
5.9 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.10 Solvency. The fair saleable value of Borrower's assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement; and Borrower are able to pay their
respective debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary has met
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's failure
to comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could reasonably be expected to have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to
be filed all tax returns required to be filed, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein, which
failure could not reasonably be expected to have a Material Adverse Effect.
5.13 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted except where the failure to obtain any such consent, approval or
authorization, to make any such declaration or filing, or to be given any such
notice could not reasonably be expected to have a Material Adverse Effect.
5.15 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank, and taken together with all such certificates and written statements
furnished to Bank, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading (it being recognized by Bank that
the projections and forecasts provided by Borrower are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections and forecasts may differ from the projected or forecasted results).
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6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain or cause to be
maintained its and each of its Subsidiaries' corporate existence and good
standing in its jurisdiction of incorporation and maintain qualification in each
jurisdiction in which the failure to so qualify could reasonably be expected to
have a Material Adverse Effect. Borrower shall maintain, and shall cause each of
its Subsidiaries to maintain, to the extent consistent with prudent management
of Borrower's business, in force all licenses, approvals and agreements, the
loss of which could reasonably be expected to have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 Financial Statements, Reports, Certificates.
(a) Borrower shall deliver to Bank: (i) as soon as
available, but in any event within thirty (30) days after the end of each month,
a company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during such period, certified by a
Responsible Officer; (ii) as soon as available, but in any event within ninety
(90) days after the end of Borrower's fiscal year, beginning with fiscal year
ending December 31, 1997, audited consolidated financial statements of Borrower
prepared in accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (iii) within five (5) days
upon becoming available, copies of all statements, reports and notices sent or
made available generally by Borrower to its security holders or to any holders
of Subordinated Debt and all reports on Form 10-K and 10-Q filed with the
Securities and Exchange Commission; (iv) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; (v) prompt notice
of any material change in the composition of the Intellectual Property
Collateral, including, but not limited to, any subsequent ownership right of the
Borrower in or to any Copyright, Patent or Trademark not specified in any
intellectual property security agreement between Borrower and Bank or knowledge
of an event that materially adversely effects the value of the Intellectual
Property Collateral; and (vi) such budgets, sales projections, operating plans
or other financial information as Bank may reasonably request from time to time.
(b) Within twenty (20) days after the last day of each
month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto, together with
aged listings of accounts receivable and accounts payable.
(c) Borrower shall deliver to Bank with the monthly
financial statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto.
(d) Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense.
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6.4 Inventory; Returns. Borrower shall keep all Inventory in
good and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary
to make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. So long as no
Event of Default has occurred and is continuing, Borrower shall have the option
of applying the proceeds of any casualty policy to the replacement or repair of
destroyed or damaged property; provided, that after the occurrence and during
the continuance of an Event of Default, all proceeds payable under any such
policy shall, at the option of Bank, be payable to Bank for application to the
Obligations.
6.7 Principal Depository. Borrower shall maintain at least
fifty-one percent (51%) of cash and cash equivalents in operating and money
market accounts with the Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of
each calendar month beginning on April 30, 1998, a ratio of Quick Assets to
Current Liabilities (excluding deferred revenue) of at least 2.00 to 1.00.
6.9 Liquidity Coverage. Borrower shall maintain, as of the last
day of each calendar month beginning on April 30, 1998, the sum of (i)
unrestricted cash and cash equivalents plus (ii) the amount of Revolving
Advances available under Section 2.1 of not less than two (2) times the
outstanding amount of Equipment Advances under Section 2.2.
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6.10 Tangible Net Worth. Borrower shall maintain, as of the last
day of each calendar month beginning on April 30, 1998, a Tangible Net Worth
plus Subordinated Debt of not less than Three Million Dollars ($3,000,000).
6.11 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered (to
the extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within thirty (30) days of the date of this Agreement. Borrower shall
register or cause to be registered with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those additional
intellectual property rights developed or acquired by Borrower from time to time
in connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents and Copyrights, (ii) use
its best efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Bank in writing of material infringements
detected and (iii) not allow any Trademarks, Patents or Copyrights to be
abandoned, forfeited or dedicated to the public without the written consent of
Bank, which shall not be unreasonably withheld, unless Bank determines that
reasonable business practices suggest that abandonment is appropriate.
(d) Bank shall have the right, but not the obligation, to
take, at Borrower's sole expense, any actions that Borrower is required under
this Section 6.11 to take but which Borrower fails to take, after fifteen (15)
days' notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.11.
6.12 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment or Equipment
financed by other vendors; (iv) Transfers which constitute liquidation of
Investments permitted under Section 7.7; and (v) other Transfers not otherwise
permitted by this Section 7.1 not exceeding One Hundred Thousand Dollars
($100,000) in the aggregate in any fiscal year.
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7.2 Change in Business. Engage in any business, or permit any of
its Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without thirty (30) days prior written notification to Bank,
relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with or into any other Person, or
acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of another Person provided that this Section
7.3 shall not apply to (i) such transactions that do not involve an amount that
in the aggregate exceeds Five Hundred Thousand Dollars ($500,000) during the
term of this Agreement (provided that no Event of Default has occurred and is
continuing), and (ii) merger or consolidation of one Subsidiary into another
Subsidiary or into the Borrower (provided that no Event of Default has occurred
and is continuing).
7.4 Indebtedness. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock; provided, that (i) Borrower may declare and make any
dividend payment or other distribution payable in its equity securities, (ii)
Borrower may convert any of its convertible securities into other securities
pursuant to the terms of such convertible securities or otherwise in exchange
therefor and (iii) for so long as an Event of Default has not occurred, Borrower
may repurchase stock from former employees of Borrower in accordance with the
terms of repurchase or similar agreements between Borrower and such employees.
7.7 Investments. Directly or indirectly acquire or own, or make
any Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter
into or permit any material transaction with any Affiliate of Borrower (other
than a Subsidiary) except for transactions that are in the ordinary course of
Borrower's business on terms less favorable to Borrower than would be obtained
in an arm's length transaction with a nonaffiliated Person.
7.9 Intellectual Property Agreements. Borrower shall not permit
the inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within the
definition of the Intellectual Property Collateral acquired under such
contracts, except to the extent that such provisions are necessary in Borrower's
exercise of its reasonable business judgment.
7.10 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.11 Inventory. Store the Inventory with a bailee, warehouseman,
or similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
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hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12 Compliance. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event
of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the principal of,
or any interest on, any Advances when due and payable; or fails to pay any
portion of any other Obligations not constituting such principal or interest,
including without limitation Bank Expenses, within thirty (30) days of receipt
by Borrower of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any
obligation under Sections 6.7, 6.8, 6.9, 6.10, 6.11 or violates any of the
covenants contained in Article 7 of this Agreement, or fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and Bank
and as to any default under such other term, provision, condition, covenant or
agreement that can be cured, has failed to cure such default within ten(10) days
after Borrower receives notice thereof or any Responsible Officer of Borrower
becomes aware thereof; provided, however, that if the default cannot by its
nature be cured within the ten (10) day period or cannot after diligent attempts
by Borrower be cured within such ten (10) day period, and such default is likely
to be cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the failure
to have cured such default shall not be deemed an Event of Default (provided
that no Advances will be required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse
change in Borrower's business or financial condition, or if there is a material
impairment in the Borrower's ability to repay any portion of the Obligations or
a material impairment of the value or priority of Bank's security interests in
the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate
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bond has been posted pending a good faith contest by Borrower (provided that no
Advances will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within sixty (60)
days (provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000).
8.7 Subordinated Debt. If Borrower makes any payment on account
of Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least One Hundred
Thousand Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower;
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all letters of credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(e) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
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Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Bank's rights or remedies provided
herein, at law, in equity, or otherwise;
(f) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(h) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(i) Bank may credit bid and purchase at any public sale; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to Borrower's policies of insurance; and (e) settle and adjust
disputes and claims respecting the accounts directly with account debtors, for
amounts and upon terms which Bank determines to be reasonable; (f) to modify, in
its sole discretion, any intellectual property security agreement entered into
between Borrower and Bank without first obtaining Borrower's approval of or
signature to such modification by amending Exhibit A, Exhibit B and Exhibit C,
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents or Trademarks acquired by Borrower after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Borrower no longer has or claims any
right, title or interest; (g) to file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of Borrower where permitted by law; and (h)
to transfer the Intellectual Property Collateral into the name of Bank or a
third party to the extent permitted under the California Uniform Commercial Code
provided Bank may exercise such power of attorney to sign the name of Borrower
on any of the documents described in Section 4.2 regardless of whether an Event
of Default has occurred. The appointment of Bank as Borrower's attorney in fact,
and each and every one of Bank's rights and powers, being coupled with an
interest, is irrevocable until all of the
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Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 Accounts Collection. At any time from the date of this
Agreement, Bank may notify any Person owing funds to Borrower of Bank's security
interest in such funds and verify the amount of such Account. Upon the
occurrence and during the continuation of an Event of Default, Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Revolving Facility as Bank deems necessary to protect Bank
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.6 of this Agreement, and take any
action with respect to such policies as Bank reasonably deems prudent. Any
reasonable amounts so paid or deposited by Bank shall constitute Bank Expenses,
shall be immediately due and payable, and shall bear interest at the then
applicable rate hereinabove provided, and shall be secured by the Collateral.
Any payments made by Bank shall not constitute an agreement by Bank to make
similar payments in the future or a waiver by Bank of any Event of Default under
this Agreement. Bank shall have a non-exclusive, royalty-free license to use the
Intellectual Property Collateral to the extent reasonably necessary to permit
Bank to exercise its rights and remedies upon the occurrence of an Event of
Default.
9.5 Bank's Liability for Collateral. So long as Bank complies
with its obligations under Section 9207 of the Code, Bank shall not in any way
or manner be liable or responsible for: (a) the safekeeping of the Collateral;
(b) any loss or damage thereto occurring or arising in any manner or fashion
from any cause; (c) any diminution in the value thereof; or (d) any act or
default of any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. Subject to the foregoing, all risk of loss, damage or destruction of
the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
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If to Borrower: Epiphany Marketing Software, Inc.
2141 Landings Drive
Mountain View, CA 94043
Attn: Mr. Ben Wegbreit
FAX: (650) 526-2022
If to Bank: Silicon Valley Bank
1731 Embarcadero, Suite 220
Palo Alto, CA 94303
Attn: Mr. James Marshall
FAX: (650) 812-0640
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
The Loan Documents shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure
to the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance
of all obligations set forth in this Agreement.
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12.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made
in this Agreement shall continue in full force and effect so long as any
Obligations (excluding Obligations under Section 2.7 and 12.2 to the extent they
remain inchoate at the time the outstanding payment Obligations are paid in
full) remain outstanding. The obligations of Borrower to indemnity Bank with
respect to the expenses, damages, losses, costs and liabilities described in
Section 12.2 shall survive until all applicable statute of limitations periods
with respect to actions that may be brought against Bank have run, provided that
so long as the obligations set forth in the first sentence of this Section 12.7
have been satisfied, and Bank has no commitment to make any Advances or to make
any other loans to Borrower, Bank shall release all security interests granted
hereunder and redeliver all Collateral held by it in accordance with applicable
law.
12.8 Confidentiality. In handling any confidential information
Bank shall exercise the same degree of care that it exercises with respect to
its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank and (v)
as Bank may determine in connection with the enforcement of any remedies
hereunder. Confidential information hereunder shall not include information that
either: (a) is in the public domain or in the knowledge or possession of Bank
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank through no fault of Bank; or (b) is disclosed to Bank by a third party,
provided Bank does not have actual knowledge that such third party is prohibited
from disclosing such information.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
EPIPHANY MARKETING SOFTWARE, INC.
By: /s/ Eliot L. Wegbreit
-----------------------------------
Title: CEO
SILICON VALLEY BANK
By: /s/ James R. Marshall
-----------------------------------
Title: Vice President
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EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, financial assets,
investment property, securities accounts, securities entitlements, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the term "Collateral" shall not include
any general intangibles or contracts of Borrower (whether owned or held as
licensee or lessee, or otherwise) to the extent that (i) such general
intangibles or contracts are not assignable or capable of being encumbered as a
matter of law or under the terms of the license, lease or other agreement
applicable thereto (but solely to the extent that such restriction shall be
enforceable under applicable law) without the consent of the licensor or lessor
thereof or other applicable party thereto and (ii) such consent has not been
obtained: provided, however, that the foregoing grant of security interest shall
extend to, and the term "Collateral" shall include, (A) any general intangible
or contract which is an Account or a proceed of, or otherwise related to the
enforcement or collection of, any Account or goods which are the subject of
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any Account, and (B) any and all proceeds of any general intangibles or
contracts which are otherwise excluded to the extent that the assignment or
encumbrance of such proceeds is not so restricted, and (C) upon obtaining the
consent of any such licensor, lessor or other applicable party with respect to
any such otherwise excluded general intangibles or contracts, such general
intangibles or contracts as well as any and all proceeds thereof that might
theretofore have been excluded from such grant of a security interest and the
term "Collateral".
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INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
January 9, 1998, by and between SILICON VALLEY BANK ("Bank") and EPIPHANY
MARKETING SOFTWARE, INC. ("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks and Patents
to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents and Trademarks listed on Schedules
A, B and C hereto), and including without limitation all proceeds thereof (such
as, by way of example but not by way of limitation, license royalties and
proceeds of infringement suits), the right to sue for past, present and future
infringements, all rights corresponding thereto throughout the world and all
re-issues, divisions continuations, renewals, extensions and
continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Bank as a matter of law or equity. Each
right, power and remedy of Bank provided for herein or in the Loan Agreement or
any of the Loan Documents, or now or hereafter existing at law or in equity
shall be cumulative and concurrent and shall be in addition to every right,
power or remedy provided for herein and the exercise by Bank of any one or more
of the rights, powers or remedies provided for in this Intellectual Property
Security Agreement, the Loan Agreement or any of the other Loan Documents, or
now or hereafter existing at law or in equity, shall not preclude the
simultaneous or later exercise by any person, including Bank, of any or all
other rights, powers or remedies.
1
<PAGE> 36
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
Address of Grantor: EPIPHANY MARKETING SOFTWARE, INC., a
Delaware corporation
2141 Landings Drive
Mountain View, CA 94043 By: /s/ Eliot L. Wegbreit
--------------------------------
Attn: Mr. Ben Wegbreit Title: CEO
BANK:
Address of Bank: SILICON VALLEY BANK
1731 Embarcadero Road, Suite 220
Palo Alto, CA 94303 By: /s/ James R. Marshall
---------------------------------
Attn: Mr. James Marshall Title: Vice President
2
<PAGE> 37
EXHIBIT A
Copyrights
Subject to the exceptions described in the Schedule of Exceptions
delivered by the Borrower to the Bank on the Closing Date, the Borrower claims
copyrights to the following software products:
Clarity
Relevance
Momentum
Epicenter
Borrower has not applied for registration of these copyrights with the
U.S. Copyright Office.
<PAGE> 38
EXHIBIT B
Patents
None
<PAGE> 39
EXHIBIT C
Trademarks
Epiphany Marketing Software, Inc.
(Borrower has applied for registration of this trademark with the U.S. Patent
and Trademark Office)
<PAGE> 40
EXHIBIT A
Copyrights
<PAGE> 41
EXHIBIT B
Patents
<PAGE> 42
EXHIBIT C
Trademarks
<PAGE> 1
EXHIBIT 10.7
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of December 1, 1998,
by and between Epiphany Marketing Software, Inc. ("Borrower") and Silicon Valley
Bank ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated January 9, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Line in the original principal amount of
Two Million Dollars ($2,000,000) (the "Revolving Facility") and an Equipment
Committed Line in the original principal amount of One Million Two Hundred Fifty
Thousand Dollars ($1,250,000) (the "Equipment Facility"). Defined terms used but
not otherwise defined herein shall have the same meanings as in the Loan
Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness
is secured by the Collateral as described in the Loan Agreement and an
Intellectual Property Security Agreement, dated January 9, 1998.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement.
1. The following terms are hereby amended and restated in their
entirety or added to Section 1.1 entitled "Definitions" to
read as follows:
"Borrowing Base" means an amount equal to eighty percent
(80%) of Eligible Accounts as determined by Borrower's most
recent borrowing base certificate.
"Committed Line" means One Million Dollars ($1,000,000).
"Debt Service Coverage" means net income plus depreciation,
amortization and interest expense, to current portion of
long term debt plus interest expense, each measured on a
quarterly basis.
Subsection (i) of the definition of "Eligible Accounts" is
hereby amended to read, in its entirety as follows:
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to
Borrower exceed twenty-five percent (25%) of all Accounts,
to the extent such obligations exceed the aforementioned
percentage.
"Non-Revolving Committed Line" means Three Million Dollars
($3,000,000).
1
<PAGE> 2
"Non-Revolving Facility" means the facility under which
Borrower may request Bank to issue cash advances, as
specified in Sections 2.3 hereof.
"Non-Revolving Availability Date" means the date that is
fifteen (15) months from the date of this Loan Modification
Agreement.
"Non-Revolving Maturity Date" means the date that is
thirty-six (36) months from the Non-Revolving Availability
Date.
"Payment Date" means the first (1st) calendar day of the
month.
"Revolving Maturity Date" means December 1, 1999.
2. Section 2.1(a) entitled "Advances" is hereby amended and
restated in its entirety to read as follows:
Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Revolving Advances to
Borrower in an aggregate outstanding amount not to exceed
the Committed Revolving Line or the Borrowing Base,
whichever is less. Subject to the terms and conditions of
this Agreement, amounts borrowed pursuant to this Section
2.1 may be repaid and reborrowed at any time during the term
of this Agreement.
3. Section 2.1.1, 2.1.2 and 2.1.3 are hereby deleted in their
entirety.
4. Section 2.3 entitled "Overadvances" shall now be known as
Section 2.3.1, and the following shall now be known as
Section 2.3:
2.3 Non-Revolving Facility.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through March 1,
2000 (the "Non-Revolving Availability Date"), Bank agrees to
make advances (each a "Non-Revolving Advance" and
collectively, the "Non-Revolving Advances") to Borrower in
an aggregate outstanding amount not to exceed the
Non-Revolving Committed Line.
(b) Interest shall accrue from the date of each Non-Revolving
Advance at the rate specified in Section 2.4(ii) and shall
be payable monthly on the Payment Date for each month
through the month in which the Non-Revolving Availability
Date falls. Any Non-Revolving Advances that are outstanding
on the Non-Revolving Availability Date will be payable in
thirty-six (36) equal monthly installments of principal,
plus all accrued interest, beginning on the Payment Date of
each month following the Non-Revolving Availability Date and
ending on the Non-Revolving Maturity Date. Non-Revolving
Advances, once repaid, may not be reborrowed.
(c) When Borrower desires to obtain a Non-Revolving Advance,
Borrower shall notify Bank (which notice shall be
irrevocable) by facsimile transmission to be received no
later than 3:00 p.m. Pacific time one (1) Business Day
before the day on which the Non-Revolving Advance is to be
made. Such notice shall be substantially in the form of
Exhibit B. The notice shall be signed by a Responsible
Officer or its designee.
2
<PAGE> 3
5. Section 2.3.1 entitled "Overadvances" is hereby amended and
restated to read in its entirety as follows:
Subject to the terms set forth in Section 2.1, if at any
time or for any reason, the outstanding principal amount of
Revolving Advances owed by Borrower to Bank pursuant to
Section 2.1, is greater than the lesser of the Committed
Line or the Borrowing Base, Borrower shall immediately pay
to Bank, in cash, the amount of such excess.
6. The following paragraph is hereby incorporated into Section
2.4 entitled "Interest Rates, Payments, and Calculations":
2.4(a)(iii) Non-Revolving Advances. Except as set forth in
Section 2.4(b), all Non-Revolving Advances shall bear
interest, on the average Daily Balance thereof, at a rate
equal to one half of one (0.50) percentage point above the
Prime Rate.
7. Section 6.3 entitled "Financial Statements, Reports,
Certificates" is hereby amended in part to provide that
Borrower's audited fiscal year end financial statements
shall be provided to Bank no later than 120 days (rather
than 90 days) after the end of Borrower's fiscal year.
8. Section 6.7 and all references thereto are hereby deleted in
its entirety.
9. Section 6.8 is hereby deleted and replaced with the
following:
6.8 Minimum Deposits.
Borrower shall maintain on deposit with Bank the lesser of
$4,000,000 or 100% of cash in the form of certificate of
deposits, money market accounts and/or checking accounts.
For any period in which the minimum balance requirement is
not kept, Borrower will pay to Bank a fee calculated at a
rate of one percent (1%) per annum, based on the difference
between the minimum required balance and the actual average
daily balance during the period. The fee will be calculated
quarterly and shall be due within 15 days of each quarter
end.
10. Section 6.9 entitled "Liquidity Coverage" is hereby amended
and restated in its entirety to read:
Borrower shall maintain, as of the last day of each calendar
month, a ratio of (a)(i) unrestricted cash and cash
equivalents plus (ii) 80% of Eligible Accounts minus (iii)
outstanding Revolving Advances of not less than (b)(i) two
(2) times the aggregate outstanding amount of all Equipment
Advances and Non-Revolving Advances under Section 2.2 and
2.3 through the month ending June 30, 1999, then (ii) 1.5
times the aggregate outstanding amount of all Equipment
Advances and Non-Revolving Advances under Section 2.2. and
2.3 through the month ending December 31, 1999, then (iii)
two (2) times the aggregate outstanding amount of all
Equipment Advances and Non-Revolving Advances under Section
2.2. and 2.3, thereafter. Notwithstanding the foregoing, at
such time as Borrower achieves a Debt Service Coverage ratio
of 1.50 to 1.00 for two (2) consecutive quarters, the
Liquidity Coverage shall be replaced by a Debt Service
Coverage ratio of 1.50 to 1.00, measured on a quarterly
basis.
3
<PAGE> 4
11. Section 6.10 is hereby deleted and replaced with the
following:
6.10 Quarterly Profitability. Borrower shall achieve
quarterly profits (adjusted for capitalized development
costs) of at least $1.00, provided, however, Borrower may
suffer quarterly losses not to exceed:
$3,200,000 for the quarter ending December 31, 1998;
$3,000,000 for the quarter ending March 31, 1999;
$2,700,000 for the quarter ending June 30, 1999
$1,300,000 for the quarter ending September 30, 1999;
$400,000 for the quarter ending December 31, 1999;
and $200,000 for the quarter ending March 31, 2000.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. PAYMENT OF THE LOAN FEE. Borrower shall pay to Bank a fee in the amount
of Five Thousand and 00/100 Dollars ($5,000.00) (the "Loan Fee") plus all
out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
signing below) agrees that, as of the date hereof, it has no defenses against
the obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon Borrower's payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
EPIPHANY MARKETING SOFTWARE, INC. SILICON VALLEY BANK
By: /s/ Kevin Yeaman By: _________________
------------------------------
Name: KEVIN YEAMAN Name:________________
Title: CONTROLLER Title:_______________
4
<PAGE> 5
ADDENDUM TO INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Addendum to Intellectual Property Security Agreement is executed
pursuant to, and is an addendum to, an Intellectual Property Security Agreement,
dated January 9, 1998. This Addendum to Intellectual Property Security Agreement
is presented for recordation as constructive notice that EPIPHANY MARKETING
SOFTWARE, INC. ("Assignor"), with its principal office at 2141 Landings Drive,
Mountain View, CA 94043, is the owner of the intellectual property identified in
the exhibits attached hereto, has granted to SILICON VALLEY BANK ("Assignee"),
with its principal office at 3003 Tasman Drive, Santa Clara, CA 95054, a
security interest in the intellectual property, and the exclusive rights
comprised in the intellectual property, to secure payment of a debt.
IN WITNESS WHEREOF, Assignor has executed this Addendum to Intellectual Property
Security Agreement as of December 1, 1998.
EPIPHANY MARKETING SOFTWARE, INC.
By: /s/ Kevin Yeaman
-----------------------------
Name: KEVIN YEAMAN
Title: CONTROLLER
<PAGE> 1
EXHIBIT 10.8
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated June 2, 1999 by and between
COMDISCO, INC. ("Lessor") and E.piphany, Inc., ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No Interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that,
so long as Lessee is not in default, Lessor will not disturb to Lessee's quiet
and peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights
of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes
Lessor, as Lessee's agent, and at Lessor's expense, to prepare, execute and file
in Lessee's name precautionary Uniform Commercial Code financing statements
showing the interest of the Owner, Lessor, and any Assignee or Secured Party in
the Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear from
any liens or encumbrances of any kind (except any caused by Lessor) and will
indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless
from and against any loss caused by Lessee's failure to do so, except where such
is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain
<PAGE> 2
and insure the Equipment is not altered, (v) all financing statements required
to continue the Secured Party's prior perfected security interest are filed, and
(vi) Lessee executes sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have
been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer
its interest or grant a security interest in each Schedule and/or the Equipment
to a Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other transfer
by Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights,
but will not be obligated to perform any of the obligations of Lessor. The
Secured Party will not disturb Lessee's quiet and peaceful possession and
unrestricted use of the Equipment so long as Lessee is not in default and the
Secured Party continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee reserves
its right to have recourse directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is absolute
and unconditional and is not subject to any abatement, reduction, set-off,
defense, counterclaim, interruption, deferment or recoupment for any reason
whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Summary Equipment Schedule against Lessor, Lessee or the
Equipment by any governmental authority (except only Federal, state, local and
franchise taxes on the capital or the net income of Lessor). Lessor will file
all personal property tax returns for the Equipment and pay all such property
taxes due. Lessee will reimburse Lessor for property taxes within thirty (30)
days of receipt of an invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided
re-certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each Schedule
executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be,
<PAGE> 3
located) where its ownership or lease of property or the conduct of its business
requires such qualification, except for where such lack of qualification would
not have a material adverse effect on the Company's business; and has full
corporate power and authority to hold property under the Master Lease and each
Schedule and to enter into and perform its obligations under the Master Lease
and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not
-1-
<PAGE> 4
contravene any law or governmental rule, regulation or order applicable to it,
do not and will not contravene any provision of, or constitute a default under,
any indenture, mortgage, contract or other instrument to which it is a party or
by which it is bound, and the Master Lease and each Schedule constitute legal,
valid and binding agreements of the Lessee, enforceable in accordance with their
terms, subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally and rules of law concerning
equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or, to
the knowledge of the Lessee, threatened against or affecting the Lessee in any
court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Lessee to perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee
is a party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the Equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
<PAGE> 5
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment. Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due
if that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule
or the material inaccuracy of any representation or warranty made by the Lessee
in the Schedule or in any document or certificate furnished to the Lessor
hereunder if that failure or inaccuracy continues for ten (10) business days
after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee
or the filing against Lessee of any petition under any bankruptcy or insolvency
law or for the appointment of a trustee or other officer with similar powers,
the adjudication of Lessee as insolvent, the liquidation of Lessee, or the
taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary
Equipment Schedule or other agreement between Lessee and Lessor or its Assignee
or Secured Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and recover
the present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and
<PAGE> 6
without obligation to give any priority to such Equipment) to mitigate Lessor's
damages as described below. EXCEPT AS SET FORTH IN THIS SECTION, LESSEE HEREBY
WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY
REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSORS RIGHTS OR
REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise dispose of all or
any part of the Equipment at a public or private sale for cash or credit with
the privilege of purchasing the Equipment. The proceeds from any sale, lease or
other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the Default
Costs; or
-2-
<PAGE> 7
(b) if leased, the present value (discounted at 3 percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting. Lessee will provide Lessor with a certified copy of the
minutes of each Board of Directors meeting within thirty (30) days following the
date of such meeting held during the term of this Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month
(and in any event within thirty (30) days), Lessee will provide to Lessor the
same information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
surviving entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate or
be construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit
of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to
<PAGE> 8
those arising under Section 6.2, representations and warranties contained in
this Master Lease, any Schedule, Summary Equipment Schedule or in any document
delivered in connection with those agreements are for the benefit of Lessor and
any Assignee or Secured Party and survive the execution, delivery, expiration or
termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by
the other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (2) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease
or any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products
which will at all times remain the property of the owner of the Licensed
Products. A license from the owner may be required and it is Lessee's
responsibility to obtain any required license before the use of the Licensed
Products. Lessee agrees to treat the Licensed Products as confidential
information of the owner, to observe all copyright restrictions, and not to
reproduce or sell the Licensed Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master
Lease, provide Lessor with a secretary's certificate of incumbency and
authority. Upon the execution of each Schedule with a purchase price in excess
of $1,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel
in a form acceptable to Lessor regarding the representations and warranties in
Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Master Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the
<PAGE> 9
balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
-3-
<PAGE> 10
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is located.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
MERGER - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
RENT - means the rent Lessee will pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor summarizing
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the-terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
E.piphany, Inc. COMDISCO, INC.,
AS LESSEE as Lessor
By: /s/ Roger Siboni By: /s/ James Labe
Title: CEO Title: James Labe, President
Comdisco Ventures Division
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<PAGE> 11
ADDENDUM TO THE
MASTER LEASE AGREEMENT DATED AS OF JUNE 2, 1999
BETWEEN E.PIPHANY, INC., AS LESSEE
AND COMDISCO, INC., AS LESSOR
The undersigned hereby agree that the terms and conditions of the
above-referenced Master Lease Agreement are hereby modified and amended as
follows:
1) Section 4.2 "WARRANTY AND DISCLAIMER OF WARRANTIES."
First Sentence, line 2, delete the words "Lessee is not in
default" and insert "no Event of Default has occurred and is
continuing, neither Lessor nor any person or entity claiming
by or through Lessor".
2) Section 5.1 "TITLE."
Delete the first sentence in its entirety and replace with:
"Lessee shall have no right, title or interest in the
Equipment except as set forth in this Master Lease or in any
Schedule."
Third Sentence, line 3, after the words "caused by Lessor",
insert "or parties claiming by or through Lessor".
3) Section 5.3 "ASSIGNMENT BY LESSOR."
In Paragraph (a), second sentence, lines 3 and 4, delete the
words "Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule." and
replace with "no Event of Default has occurred and is
continuing".
In Paragraph (b), insert the following clause at the beginning
thereof: "Upon written notice from Lessor,".
4) Section 6.1 "NET LEASE."
At the end of second sentence insert the following,
"; provided, however, that Lessee's ability to bring suit
against Lessor for breach of this Master Lease shall not be
affected by this Section 6.1."
5) Section 6.2 "TAXES AND FEES."
First Sentence, line 3 delete "accrued for or arising" and
replace with "attributable to periods".
-1-
<PAGE> 12
6) Section 7.1 "CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR."
Delete the fourth sentence in its entirety and replace with:
"With Lessor's prior written consent, Lessee may have the
Equipment maintained by a party other than the manufacturer.
Lessor approves Lessee as such maintenance contractor."
7) Section 8 "REPRESENTATIONS AND WARRANTIES OF LESSEE."
Paragraph (f) insert the following at the end thereof:",
except where the failure to do so would not reasonably be
expected to have a material adverse effect.".
8) Section 9 "DELIVERY AND RETURN OF EQUIPMENT."
Second sentence, line 3, after the words "to Lessor's" insert
the word "reasonable".
Fourth sentence, line 1, after the words "under Section 2"
insert ", subject to Lessee's security requirements,".
Insert the following sentence at the end of Section 9: "All
such demonstrations will be conducted in such manner as to
minimize any interference with Lessee's operations.".
9) Section 11 "INDEMNITY."
Second sentence, in line 3, after the words "negligent acts"
insert "or willful conduct".
10) Section 13.1 "DEFAULT."
Paragraph (c), insert the following at the end thereof: "(and
any such involuntary event has not been dismissed or vacated
within 30 days)".
11) Section 13.2 "REMEDIES."
Paragraph (c), line 5, delete "6%" and insert "U.S. Treasury
Notes of comparable maturity to the remaining term of the
defaulted Schedule".
12) Section 13.3 "MITIGATION."
Paragraph (b), lines 2 and 3, delete "3 percent (3%) over the
U.S. Treasury Notes of comparable maturity to the term of" and
insert, "the same interest rate implicit in".
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<PAGE> 13
13) Section 14.1 "BOARD ATTENDANCE"
Delete this section in its entirety.
14) Section 14.3 "OBLIGATION TO LEASE ADDITIONAL EQUIPMENT."
In line 3, delete "Lessee is in default" and replace with "an
Event of Default has occurred or is continuing".
In line 6 after the words "material indebtedness" insert "for
borrowed money in an amount in excess of $75,000".
15) Section 14.4 "MERGER AND SALE PROVISIONS."
In line 2, delete "sixty (60)" and replace with "twenty (20)".
16) Section 14.6 "NO WAIVER."
First sentence, insert the following at the beginning thereof:
"Except for a written waiver,".
17) Section 14.7 "BINDING NATURE."
Second sentence, insert the following at the end thereof:
"EXCEPT IN ACCORDANCE WITH SECTION 14.4.".
18) Section 14.9 "NOTICES."
Line 3, delete "three (3)" and insert "five (5)"; delete
"postage prepaid by regular or air mail" and insert "certified
mail, return receipt requested".
19) Section 14.13 "LICENSED PRODUCTS."
After the first sentence insert: "To the extent that Lessor,
by reason of its ownership of the Equipment, holds any license
to a Licensed Product, Lessor shall obtain the right for
Lessee to use any such Licensed Product for the duration of
the lease term.".
Third sentence, line 2, after the word "owner" insert "of such
Licensed Product".
20) Section 14.18 "DEFINITIONS."
"Delivery Date" revise the word "Inventory" to read
"inventory".
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<PAGE> 14
In the definition of "INTERIM RENT", delete "the pro-rata
portion" and replace with "interest only portion of".
"Like Equipment" delete the words "of the same model, type,
configuration, and manufacture as Equipment." and replace with
"of the same manufacture and of a type, model and feature
configuration having a capability and value equal to or
greater than the Equipment being replaced.".
Except as amended hereby, all other terms and conditions of the Master
Lease Agreement remain in full force and effect.
E.piphany, Inc. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Roger Siboni By: /s/ James Labe
Title: President
Title: CEO Comdisco Ventures Division
Date: 5/31/99 Date: JUN 10 1999
-4-
<PAGE> 1
EXHIBIT 10.9
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of June 2, 1999, is entered
into by and between E.piphany Inc., a Delaware corporation, with its chief
executive office and principal place of business located at 2300 Geng Road, Palo
Alto, CA 94303 (the "Borrower") and Comdisco, Inc., a Delaware corporation, with
its principal place of business located at 6111 North River Road, Rosemont,
Illinois 60018 (the "Lender" or sometimes, "Comdisco"). In consideration of the
mutual agreements contained herein, the parties hereto agree as follows:
RECITALS
WHEREAS, Borrower has requested Lender to make available to Borrower a
loan or loans up to an aggregate principal amount of Ten Million Dollars
($10,000,000) (as the same may from time to time be amended, modified,
supplemented or revised, individually or collectively referred to as the
"Loan(s)"), which would be evidenced by Subordinated Promissory Note(s) executed
by Borrower substantially in the form of Exhibit A hereto (as the same may from
time to time be amended, modified, supplemented or restated the "Note(s)") to be
made available in two (2) parts of Five Million Dollars each ("Part I") and
("Part II");
WHEREAS, Lender is willing to make the Loan(s) on the terms and
conditions set forth in this Agreement;
WHEREAS, Lender and Borrower agree any Loan(s) hereunder shall be
subordinate to Senior Debt (as defined herein) to the extent set forth in the
Subordination Agreement (as defined herein); and
WHEREAS, Borrower has also given Lender certain rights to purchase the
Borrower's Preferred Stock under terms and conditions set forth in this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall
have the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined);
1.1 "ACCOUNT" means any "account" as such term is defined in Section
9-106 of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, all accounts receivable, book debts and other forms
of obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by Borrower (including, without
limitation, any such obligation which may be characterized as an
<PAGE> 2
account or contract right under the UCC) and all of Borrower's rights in, to and
under all purchase orders or receipts now owned or hereafter acquired by it for
goods or services, and all of Borrower's rights to any goods represented by any
of the foregoing (including, without limitation, unpaid seller's rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), and all monies due or to become due
to Borrower under all purchase orders and contracts for the sale of goods or the
performance of services or both by Borrower (whether or not yet earned by
performance on the part of Borrower or in connection with any other
transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is
defined in Section 9-105(1)(a) of the UCC.
1.3 "ADVANCE" means each installment made by the Lender to Borrower
pursuant to the Loan(s) to be evidenced by the Note(s) secured by the
Collateral.
1.4 "ADVANCE DATE" means the funding date of any Advance of the
Loan(s).
1.5. "ADVANCE REQUEST" means the request by Borrower for an Advance
under the Loan(s), each to be substantially in the form of Exhibit B attached
hereto, as submitted by Borrower to Lender from time to time.
1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined
in Section 9-105(1)(b) of the UCC, now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.
1.7 "CLOSING DATE" means the date hereof.
1.8 "COLLATERAL" shall have the meaning assigned to such term in
Section 3 of this Agreement.
1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements
or other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
1.10 "COPYRIGHTS" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant
to the laws of the United States, any State thereof or of any other country;
(ii) registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
2
<PAGE> 3
1.11 "COPYRIGHT LICENSE" means any written agreement granting any right
to use any Copyright or Copyright registration now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest.
1.12 "DOCUMENTS" means any "documents," as such term is defined in
Section 9-105(1)(f) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest.
1.13 "EQUIPMENT" means any "equipment," as such term is defined in
Section 9-109(2) of the UCC, now or hereafter owned or acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.
1.14 "EXCLUDED AGREEMENTS" means (i) the Master Lease Agreement dated
as of June 2, 1999 between Borrower, as lessee, and Lender, as lessor,
including, without limitation, any Equipment Schedules and Summary Equipment
Schedules to the Master Lease Agreement executed or delivered by Borrower
pursuant thereto and any other modifications or amendments thereof, whereby
Borrower (as lessee) leases equipment, software, or goods from Lender (as
lessor) to Borrower (as lessee).
1.15 "FACILITY FEE" means one percent (1.0%) of the Maximum Loan Amount
of each Part I and Part II, respectively and due to Lender at the Closing Date
and Advance Date respectively. The transaction and due diligence fee of $10,000
shall be added to the Part I Facility Fee.
1.16 "FIXTURES" means any "fixtures," as such term is defined in
Section 9-313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Borrower in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all purchases of the security constituted
thereby, immediately upon any acquisition or release thereof or any such
purchase, as the case may be.
1.17 "GENERAL INTANGIBLES" means any "general intangibles," as such
term is defined in Section 9-106 of the UCC, now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest and,
in any event, shall include, without limitation, all right, title and interest
which Borrower may now or hereafter have in or under any contract, all customer
lists, Copyrights, Trademarks, Patents, rights to Intellectual Property,
interests in partnerships, joint ventures and other business associations,
Licenses, permits, trade secrets, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data bases, data, skill,
expertise, recipes, experience, processes, models, drawings, materials and
records, goodwill (including, without limitation, the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License), claims in or under insurance policies, including unearned premiums,
uncertificated securities, cash and other forms of money or currency, deposit
accounts (including as defined in Section 9-105(e) of the UCC), rights to sue
for
3
<PAGE> 4
past, present and future infringement of Copyrights, Trademarks and Patents,
rights to receive tax refunds and other payments and rights of indemnification.
1.18 "INITIAL PUBLIC OFFERING" means an initial public offering of
Borrower's securities.
1.19 "INSTRUMENTS" means any "instrument," as such term is defined in
Section 9-105(1)(i) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest.
1.20 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents,
Licenses, trade secrets, source codes, customer lists, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data
bases, skill, expertise, experience, processes, models, drawings, materials,
records and goodwill.
1.21 "INVENTORY" means any "inventory," as such term is defined in
Section 9-109(4) of the UCC, wherever located, now or hereafter owned or
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest, and, in any event, shall include, without limitation, all inventory,
goods and other personal property which are held by or on behalf of Borrower for
sale or lease or are furnished or are to be furnished under a contract of
service or which constitute raw materials, work in process or materials used or
consumed or to be used or consumed in Borrower's business, or the processing,
packaging, promotion, delivery or shipping of the same, and all furnished goods
whether or not such inventory is listed on any schedules, assignments or reports
furnished to Lender from time to time and whether or not the same is in transit
or in the constructive, actual or exclusive occupancy or possession of Borrower
or is held by Borrower or by others for Borrower's account, including, without
limitation, all goods covered by purchase orders and contracts with suppliers
and all goods billed and held by suppliers and all inventory which may be
located on premises of Borrower or of any carriers, forwarding agents, truckers,
warehousemen, vendors, selling agents or other persons.
1.22 "LICENSE" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest
and any renewals or extensions thereof.
1.23 "LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the filing of any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
1.24 "LOAN DOCUMENTS" shall mean and include this Agreement, the
Note(s), and any other documents executed in connection with the Secured
Obligations or the transactions contemplated hereby, as the same may from time
to time be amended, modified, supplemented or restated, provided, that the Loan
Documents shall not include any of the Excluded Agreements.
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1.25 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon:
(i) the business, operations, properties, prospects, assets or conditions
(financial or otherwise) of Borrower; or (ii) the ability of Borrower to
perform, or of Lender to enforce, the Secured Obligations other than limitations
on Lender's ability to enforce the Secured Obligations under any Subordination
Agreement.
1.26 "MATURITY DATE" means the date forty two (42) months from the
Advance Date of each installment of the Loan(s).
1.27 "MAXIMUM LOAN AMOUNT" means Five Million Dollars and No/100
($5,000,000) as to Part 1 and Five Million Dollars and No/100 ($5,000,000) as to
Part II.
1.28 "MERGER EVENT" means a capital reorganization of the shares of
the Borrower's stock (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), or a merger or
consolidation of the Borrower with or into another corporation (other than with
a subsidiary of Borrower) whether or not the Borrower is the surviving
corporation, or the sale of all or substantially all of the Borrower's
properties and assets to any other person.
1.29 "NEXT EVENT" means the earlier of (i) the effective date of an
Initial Public Offering; (ii) the effective date of a Merger Event; or (iii) the
closing of Borrower's next round of private equity financing, specifically
excluding the financing with Integral Capital.
1.30 "PATENT LICENSE" means any written agreement granting any right
with respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
1.31 "PATENTS" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) letters patent of, or rights corresponding thereto in, the United
States or any other county, all registrations and recordings thereof, and all
applications for letters patent of, or rights corresponding thereto in the
United States or any other country, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country; (b) all reissues, continuations,
continuations-in-part or extensions thereof; (c) all petty patents, divisionals,
and patents of addition; and (d) all patents to issue in any such applications.
1.32 "PERMITTED LIENS" means any and all of the following:
(i) Liens in favor of Lender,
(ii) Liens related to, or arising in connection with, Senior Debt,
(iii) any Liens existing as of the date hereof as identified on
Schedule ____;
(iv) Liens for taxes, fees, assessments or other government charges
or levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its books in accordance with GAAP;
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(v) purchase money Liens (i) on Equipment acquired or held by Borrower
incurred for financing the acquisition of the Equipment, or (ii)
existing on Equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the Equipment;
(vi) leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business;
(vii) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.8;
(viii) Liens on assets (including the proceeds thereof and accessions
thereto) that existed at the time such assets were acquired by
Borrower; provided such Liens are not granted in contemplation of or in
connection with the acquisition of such asset by Borrower;
(ix) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payments of customs duties in connection with
the importation of goods;
(xi) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums;
(xii) deposits under worker's compensation, unemployment insurance,
social security and other similar laws, or to secure the performance of
bids, tenders or contracts (other than for the repayment of borrowed
money) or to secure indemnity, performance or other similar bonds for
the performance of bids, tenders or contracts (other than for the
repayment of borrowed money) or to secure statutory obligations (other
than liens arising under ERISA or Environmental Liens) or surety or
appeal bonds, or to secure indemnity, performance or other similar
bonds in the ordinary course of business;
(xiii) Liens arising by operation of law such as artisans', mechanics',
materialman's, carriers', warehousemen's liens incurred in the ordinary
course of business.
(xiv) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described
in clause (ii) and (v) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase.
1.33 "PREFERRED STOCK" means the Borrower's Series C' Preferred Stock.
1.34 "PROCEEDS" means "proceeds," as such term is defined in Section
9-306(1) of the UCC and, in any event, shall include, without limitation, (a)
any and all Accounts, Chattel Paper, Instruments, cash or other forms of money
or currency or other proceeds payable to Borrower from time to time in respect
of the Collateral, (b) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Borrower from time to time with respect
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to any of the Collateral, (c) any and all payments (in any form whatsoever) made
or due and payable to Borrower from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental authority (or any Person acting under
color of governmental authority), (d) any claim of Borrower against third
parties (i) for past, present or future infringement of any Copyright, Patent or
Patent License or (ii) for past, present or future infringement or dilution of
any Trademark or Trademark License or for injury to the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License and (e) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
1.35 "PURCHASE OPTION" shall have the meaning assigned to such term in
Section 8 of this Agreement.
1.36 "RECEIVABLES" shall mean and include all of the Borrower's
accounts, instruments, documents, chattel paper and general intangibles whether
secured or unsecured, whether now existing or hereafter created or arising, and
whether or not specifically sold or assigned to Lender hereunder.
1.37 "SECURED OBLIGATIONS" shall mean and include all principal,
interest, fees, costs, or other liabilities or obligations for monetary amounts
owed by Borrower to Lender, whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent, and all covenants and
duties regarding such amounts, of any kind of nature, present or future, arising
under this Agreement, the Note(s), or any of the other Loan Documents, whether
or not evidenced by any Note(s), Agreement or other instrument, as the same may
from time to time be amended, modified, supplemented or restated, provided, that
the Secured Obligations shall not include any indebtedness or obligations of
Borrower arising under or in connection with the Excluded Agreements.
1.38 "SENIOR CREDITOR" means a bank, insurance company, pension fund,
or other institutional lender to be determined and identified to Lender in
accordance with the Subordination Agreement, or a syndication of such
institutional lenders that provides Senior Debt financing to Borrower; provided,
that Senior Creditor shall not include any officer, director, shareholder,
venture capital investor, or insider of Borrower, or any affiliate of the
foregoing persons, except upon the express written consent of Lender.
1.39 "SENIOR DEBT" means any and all indebtedness and obligations for
borrowed money (including, without limitation, principal, premium (if any),
interest, fees charges, expenses, costs, professional fees and expenses, and
reimbursement obligations) at any time owing by Borrower to Senior Creditor
under the Senior Loan Documents, including, but not limited to such amounts as
may accrue or be incurred before or after default or workout or the commencement
of any liquidation, dissolution, bankruptcy, receivership or reorganization by
or against Borrower provided, that Senior Debt shall not include debt exceeding
Five Million Dollars ($5,000,000) outstanding at any one time.
1.40 "SENIOR LOAN DOCUMENTS" means the loan agreement between Borrower
and Senior Creditor and any other agreement, security agreement, document,
promissory note, UCC financing statement, or instrument executed by Borrower in
favor of Senior Creditor
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pursuant to or in connection with the Senior Debt or the loan agreement, as the
same may from time to time be amended, modified, supplemented, extended,
renewed, restated or replaced.
1.41 "SUBORDINATION AGREEMENT" means the Subordination Agreement of
even date herewith, entered into between Borrower and Lender for the benefit of
Senior Creditor.
1.42 "TRADEMARK LICENSE" means any written agreement granting any right
to use any Trademark or Trademark registration now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest.
1.43 "TRADEMARKS" means any of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
1.44 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
SECTION 2. THE LOAN
2.1 Lender agrees to lend to Borrower an amount not to exceed Ten
Million and No/100 Dollars ($10,000,000) in the aggregate available in two
installments of Five Million and No/100 Dollars each ($5,000,000) as Parts I and
II upon the terms and subject to the conditions contained in this Agreement.
Part I shall be available immediately and Part II shall be made available upon
request of Borrower and subject to review, approval and due diligence by Lender.
2.3 The Loan(s) shall be available in minimum Advances of One Million
Dollars ($1,000,000.00). Each Advance made by Lender to Borrower shall be
evidenced by a Note(s) in the original principal amount of such Advance. The
principal balance of each Note(s) shall bear interest thereon precomputed at the
rate of ten percent (10%) per annum, and each such Note(s) shall be due and
payable in twenty four (24) equal monthly installments of interest only, payable
on the first day of each month, followed by eighteen (18) equal monthly
installments of principal and interest, payable on the first day of each month,
to and including the Maturity Date (each, a "Payment Date"). If any payment
under a Note(s) shall be payable on a day other than a business day, then such
payment shall be due and payable on the next succeeding business day.
2.4 In order to obtain an Advance under the Loan(s), Borrower shall
complete, sign and deliver an Advance Request to Lender. Each Advance Request
shall identify an Advance Date which is no less than five (5) business days from
the date of such notice. Upon receipt of an Advance Request, Lender shall verify
the information contained in the Advance Request and if Lender determines to
fund such Advance it shall deliver a Note(s) dated the Advance Date
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evidencing such Advance to Borrower for signature. Upon receipt of the signed
Note(s), Lender will fund the Advance in the manner requested by the Advance
Request. Borrower agrees that Lender may rely on any notice given by any person
it reasonably believes to be an authorized officer of Borrower without the
necessity of independent investigation.
2.5 Borrower shall have the option to prepay any Note(s), in whole
or in part, without premium after twelve (12) months from the Advance Date by
paying the principal amount thereon together with all accrued and unpaid
interest with respect to such principal amount, as of the date of such
prepayment. If Borrower prepays a Note(s) within twelve (12) months from the
Advance Date thereof, Borrower shall pay the principal amount together with all
accrued and unpaid interest and a prepayment premium equal to one percent (1%)
of the then outstanding principal amount. Notwithstanding the foregoing, any
such prepayment by the Borrower shall not affect Lessor's right to purchase as
described in Section 8 herein.
2.6 (a) Notwithstanding any provision in this Agreement, the
Note(s), or any other Loan Document, it is not the parties' intent to contract
for, charge or receive interest at a rate that is greater than the maximum rate
permissible by law which a court of competent jurisdiction shall deem applicable
hereto (which under the laws of the State of Illinois shall be deemed to be the
laws relating to permissible rates of interest on commercial loans) (the
"Maximum Rate"). If the Borrower actually pays Lender an amount of interest,
chargeable on the total aggregate principal Secured Obligations of Borrower
under this Agreement and the Note(s) (as said rate is calculated over a period
of time from the date of this Agreement through the end of time that any
principal is outstanding on the Note(s)), which amount of interest exceeds
interest calculated at the Maximum Rate on said principal chargeable over said
period of time, then such excess interest actually paid by Borrower shall be
applied first, to the payment of principal outstanding on the Note(s); second,
after all principal is repaid, to the payment of Lender's out of pocket costs,
expenses, and professional fees which are owed by Borrower to Lender under this
Agreement or the Loan Documents; and third, after all principal, costs,
expenses, and professional fees owed by Borrower to Lender are repaid, the
excess (if any) shall be refunded to Borrower, and the effective rate of
interest will be automatically reduced to the Maximum Rate.
(b) In the event any interest is not paid when due
hereunder, delinquent interest shall be added to principal and shall bear
interest on interest, compounded at the rate set forth in Section 2.3.
(c) Upon and during the continuation of an Event of Default
hereunder, all Secured Obligations, including principal, interest, compounded
interest, and professional fees, shall bear interest at a rate per annum equal
to the rate set forth in Section 2.3 plus five percent (5%) per annum ("Default
Rate").
SECTION 3. SECURITY INTEREST
As security for the prompt, complete and indefeasible payment when due
(whether at stated payment dates or otherwise) of all the Secured Obligations
and in order to induce Lender to make the Loan(s) upon the terms and subject to
the conditions of the Note(s), Borrower hereby, conveys, mortgages, pledges,
hypothecates and transfers to Lender for security purposes only, and hereby
grants to Lender a security interest in, all of Borrower's right, title
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and interest in, to and under each of the following (all of which being
hereinafter collectively called the "Collateral"):
(a) All Receivables;
(b) All Equipment;
(c) All Fixtures;
(d) All General Intangibles;
(e) All Inventory;
(f) All other goods and personal property of Borrower whether
tangible or intangible and whether now or hereafter owned or
existing, leased, consigned by or to, or acquired by, Borrower
and wherever located; and
(g) To the extent not otherwise included, all Proceeds of each of
the foregoing and all accessions to, substitutions and
replacements for, and rents, profits and products of each of
the foregoing.
Notwithstanding the foregoing, the security interest granted herein shall not
extend to and the term "Collateral" shall not include any property, rights or
licenses to the extent the granting of a security interest therein (i) would be
contrary to applicable law or (ii) is prohibited by or would constitute a
default under any agreement or document governing such property, rights or
licenses (but only to the extent such prohibition is enforceable under
applicable law).
SECTION 4. CONDITIONS PRECEDENT TO LOAN(S)
The obligation of Lender to fund the Loan(s) on each Advance Date shall
be subject to the satisfaction by Borrower, or waiver by Lender, of the
following conditions:
4.1 (a) Part I: The Advance Date for any installment shall occur on
or before February 19,2000.
(b) Part II: The Advance Date for any installment shall occur on
or before February 19, 2000 and shall be subject to (i) Borrower's
formal written request; and (ii) satisfactory completion of Lender's
due diligence and approval process.
4.2 Borrower, on or prior to the Closing Date, shall have delivered
to Lender the following:
(a) executed originals of the Agreement, the Subordination
Agreement, and any other documents reasonably required by Lender to
effectuate the liens of Lender with respect to all Collateral;
(b) certified copy of resolutions of Borrower's board of
directors evidencing approval of the borrowing and other transactions
evidenced by the Loan(s) Documents;
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(c) certified copies of the Certificate of Incorporation and the
Bylaws, as amended through the Closing Date, of Borrower;
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in
which it does business and where the failure to be qualified could
reasonably be expected to have a Material Adverse Effect;
(e) payment of the Facility Fee for Part I;
(f) an executed Master Lease Agreement and associated Equipment
Schedules with Lender as lessor, in the minimum amount of One Million
Two Hundred Fifty Thousand Dollars ($1,250,000.00); and
(g) such other documents as Lender may reasonably request.
4.2 ON EACH ADVANCE DATE:
(a) The Lender shall have received (i) an Advance Request for
such Advance as required by Section 2.4, (ii) an executed Note(s) evidencing
such Advance and (iii) any other documents Lender may reasonably request.
(b) The representations and warranties set forth in Section 5
hereof shall be true and correct in all material respects on and as of the
Advance Date with the same effect as though made on and as of such date, except
to the extent such representations and warranties expressly relate to an earlier
date.
(c) The Borrower shall be in compliance with all the terms and
provisions set forth herein and in each other Loan(s) Document on its part to be
observed or performed, and at the time of and immediately after such Advance no
Event of Default shall have occurred and be continuing.
Each Advance Request shall be deemed to constitute a representation and warranty
by the Borrower on the Advance Date as to the matters specified in paragraphs
(b) and (c) of this Section 4.2.
(d) The Borrower shall deliver to Lender the Facility Fee for
Part II upon the Advance Date of any portion of Part II.
4.3 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or
caused to be taken such actions requested by Lender to grant Lender a perfected
security interest in the Collateral, subject only to Permitted Liens. Such
actions shall include, without limitation, the delivery to Lender of all
appropriate financing statements, executed by Borrower, as to the Collateral
granted by Borrower for all jurisdictions as may be necessary or desirable to
perfect the security interest of Lender in such Collateral.
4.4 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date or the
Advance Date, no fact or condition exists that would (or would, with the passage
of time, the giving of notice, or
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both) constitute an Event of Default under this Agreement or any of the Loan(s)
Documents and no fact or condition exists that would (or would, with the passage
of time, the giving of notice, or both) constitute an "event of default" as
defined under the Senior Loan Documents between Borrower and Senior Creditor.
4.5 MATERIAL ADVERSE EFFECT. As of the Closing Date or the Advance
Date, no event which has had or could reasonably be expected to have a Material
Adverse Effect has occurred and is continuing.
4.6 TERMINATION DATE. Notwithstanding anything in this Agreement to
the contrary, Lender's obligations to provide the Loan(s) shall terminate on the
earlier of (i) February 19, 2000 or (ii) the occurrence and continuance of an
Event of Default pursuant to Section 9, and no Advance Requests shall be
accepted after such date.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that:
5.1 Borrower owns all right title and interest in and to the
Collateral, free of all liens, security interests, encumbrances and claims
whatsoever, except for Permitted Liens.
5.2 Borrower has the full power and authority to, grant and convey
to the Lender, a perfected security interest in the Collateral as security for
the Secured Obligations, free of all liens, security interests, encumbrances and
claims, other than Permitted Liens and shall execute such Uniform Commercial
Code financing statements in connection herewith as the Lender may reasonably
request. Except for Permitted Liens, no other lien, security interest, adverse
claim or encumbrance has been created by Borrower or is known by Borrower to
exist with respect to any Collateral.
5.3 Borrower is a corporation duly organized, legally existing and
in good standing under the laws of the State of Delaware, and is duly qualified
as a foreign corporation in all jurisdictions in which the nature of its
business or location of its properties require such qualifications and where the
failure to be qualified could reasonably be expected to have a Material Adverse
Effect.
5.4 Borrower's execution, delivery and performance of the Note(s),
this Agreement, all financing statements, all other Loan Documents, required to
be delivered or executed in connection herewith, have been duly authorized by
all necessary corporate action of Borrower, the individual or individuals
executing the Loan Documents were duly authorized to do so; and the Loan
Documents constitute legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization or other similar laws generally affecting
the enforcement of the rights of creditors.
5.5 This Agreement and the other Loan Documents do not and will not
(i) violate any provisions of Borrower's Certificate of Incorporation, bylaws or
any agreement, law, regulation, order, injunction, judgment, decree or writ to
which the Borrower is subject, or (ii) violate any provisions of any contract to
which Borrower is subject to the degree that such violation could reasonably be
expected to have material adverse effect or result in the creation or imposition
of
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any lien, security interest or other encumbrance upon the Collateral, other than
those created by this Agreement.
5.6 The execution, delivery and performance of this Agreement and
the other Loan Documents do not require the consent or approval of any other
person or entity including, without limitation, any regulatory authority or
governmental body of the United States or any state thereof or any political
subdivision of the United States or any state thereof.
5.7 No event which has had or could reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.
5.8 No fact or condition exists that would (or would, with the
passage of time, the giving of notice, or both) constitute an "event of default"
as defined under the Senior Loan Documents.
5.9 (a) There are no actions, suits or proceedings at law or in
equity or by or before any governmental authority now pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
business, property or rights of the Borrower (i) which involve any Loan Document
or (ii) as to which there is a reasonable possibility of an adverse
determination and which, if adversely determined, could, individually or in the
aggregate, reasonably be expected to cause a Material Adverse Effect.
(b) The Borrower is not in violation of any law, rule or
regulation, or in default with respect to any judgment, writ, injunction or
decree of any governmental authority, where such violation or default could
reasonably be expected to cause a Material Adverse Effect.
5.10 (a) The Borrower is not a party to any agreement or instrument
or subject to any corporate restriction that has resulted or could reasonably be
expected to cause a Material Adverse Effect.
(b) The Borrower is not in default in any manner under any
provision of any indenture or other agreement or instrument evidencing
indebtedness, or any other material agreement or instrument to which it is a
party or by which it or any of its properties or assets are or may be bound,
where such default could result in a Material Adverse Effect.
5.11 No information, report, financial statement, exhibit or schedule
furnished by or on behalf of the Borrower to the Lender in connection with the
negotiation of any Loan Document or included therein or delivered pursuant
thereto contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
or will be made, not misleading (it being recognized by Lender that any
projections and forecasts provided by Borrower are not to be viewed as facts and
that actual results during the period or periods covered thereby may differ from
the projected or forecasted results).
5.12. All issued and outstanding shares of Common Stock, Preferred
Stock or any other securities of the Borrower have been duly authorized and
validly issued and are fully paid
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and nonassessable. All outstanding shares of Common Stock, Preferred Stock and
any other securities were issued in full compliance with all Federal and state
securities laws. In addition:
(a) The authorized capital stock of the Borrower consists of
50,000,000 shares of Common Stock, par value $.0001 per share (the
"Common Stock"), of which 17,825,921 shares shall be issued and
outstanding, and 23,530,724 shares of Preferred Stock, $.0001 par value
per share, of which 6,500,000 shares shall have been designated as
Series A Preferred Stock, 6,607,645 shares shall have been designated
as Series B Preferred Stock, 8,923,079 shares shall have been
designated as Series C, Preferred Stock and 1,500,000 shares shall have
been designated Series C' Preferred Stock. 6,455,752 shares of Series A
Preferred Stock, 6,457,645 shares of Series B Preferred Stock,
8,331,570 shares of Series C Preferred Stock and no shares of Series C'
Preferred Stock are issued and outstanding. All of the issued and
outstanding shares of Preferred Stock have been duly authorized and
validly issued and are fully paid and nonassessable. There are
10,600,000 shares of Common Stock reserved for issuance under the
Borrower's 1997 Stock Plan, of which 3,768,008 shares have been issued
upon the exercise of options, 4,747,405 shares are subject to
outstanding options and 2,084,587 shares remain available for issuance.
Except as set forth in this Agreement or in the schedule of exceptions,
(i) no subscription, warrant, option, convertible security or other
right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Borrower is authorized or outstanding, (ii) the
Borrower has no obligation (contingent or otherwise) to issue any
subscription, warrant, option, convertible security or other such right
or to issue or distribute to holders of a share of its capital stock
any evidences of indebtedness or assets of the Borrower, and (iii) the
Borrower has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend to make any other distribution
in respect thereof. All of the issued and outstanding securities of the
Borrower have been offered, issued and sold by the Borrower in
compliance with applicable federal and state securities laws.
(b) In accordance with the Borrower's Certificate of
Incorporation, no shareholder of the Borrower has preemptive rights to
purchase new issuances of the Borrower's capital stock.
5.13 Borrower has filed and will file all tax returns, federal, state
and local, which it is required to file and has duly paid or fully reserved for
all taxes or installments thereof (including any interest or penalties) as and
when due, which have or may become due pursuant to such returns or pursuant to
any assessment received by Borrower for the three (3) years preceding the
Closing Date, if any (including any taxes being contested in good faith and by
appropriate proceedings).
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SECTION 6. INSURANCE
6.1 So long as there are any Secured Obligations outstanding,
Borrower shall cause to be carried and maintained commercial general liability
insurance against risks customarily insured against in Borrower's line of
business. Such risks shall include, without limitation, the risks of death,
bodily injury and property damage. So long as there are any Secured Obligations
outstanding, Borrower shall also cause to be carried and maintained insurance
upon the Collateral and Borrower's business, covering casualty, hazard and such
other property risks in amounts equal to the full replacement cost of the
Collateral. Borrower shall deliver to Lender lender's loss payable endorsements
(Form BFU 438 or equivalent) naming Lender as loss payee and additional insured.
Borrower shall use commercially reasonable efforts to cause all policies
evidencing such insurance to provide for at least thirty (30) days prior written
notice by the underwriter or insurance company to Lender in the event of
cancellation or expiration. Such policies shall be issued by such insurers and
in such amounts as are reasonably acceptable to Lender.
6.2 Borrower shall and does hereby indemnify and hold Lender, its
agents and shareholders harmless from and against any and all claims, costs,
expenses, damages and liabilities (including, without limitation, such claims,
costs, expenses, damages and liabilities based on liability in tort, including
without limitation, strict liability in tort), including reasonable attorneys'
fees, arising out of the disposition or utilization of the Collateral, other
than claims arising at or caused by Lender's gross negligence or willful
misconduct.
SECTION 7. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Secured Obligations remain outstanding:
7.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within thirty (30)
days) after the end of each month, unaudited interim financial
statements as of the end of such month (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and
related statements of income and cash flows accompanied by a report
detailing any material contingencies (including the commencement of any
material litigation by or against Borrower) or any other occurrence
that could reasonably be expected to have a Material Adverse Effect,
all certified by Borrower's Chief Executive Officer or Chief Financial
Officer to be true and correct;
(b) as soon as practicable (and in any event within one hundred
twenty (120) days) after the end of each fiscal year, audited financial
statements as of the end of such year (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and
related statements of income and cash flows, and setting forth in
comparative form the corresponding figures for the preceding fiscal
year, certified by a firm of independent certified public accountants
selected by Borrower and reasonably acceptable to Lender, accompanied
by any management report from such accountants;
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(c) promptly after the sending or filing thereof, as the case
may be, copies of any proxy statements, financial statements or reports
which Borrower has made available to its shareholders and copies of any
regular, periodic and special reports or registration statements which
Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any
national securities exchange; and
(d) promptly, any additional information, financial or otherwise
(including, but not limited, to tax returns and names of principal
creditors) as Lender reasonably believes necessary to evaluate
Borrower's continuing ability to meet its financial obligations.
7.2 Borrower shall permit any authorized representative of Lender
and its attorneys and accountants on reasonable notice to inspect, examine and
make copies and abstracts of the books of account and records of Borrower at
reasonable times during normal business hours. In addition, such representative
of Lender and its attorneys and accountants shall have the right to meet with
management and officers of the Borrower to discuss such books of account and
records.
7.3 Borrower will from time to time execute, deliver and file, alone
or with Lender, any financing statements, security agreements or other
documents; procure any instruments or documents as may be reasonably requested
by Lender; and take all further action that may be reasonably necessary or
desirable, or that Lender may reasonably request, to confirm, perfect, preserve
and protect the security interests intended to be granted hereby, and in
addition, and for such purposes only, Borrower hereby authorizes Lender to
execute and deliver on behalf of Borrower and to file such financing statements,
security agreement and other documents without the signature of Borrower either
in Lender's name or in the name of Borrower as agent and attorney-in-fact for
Borrower. The parties agree that a carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof.
7.4 Borrower shall protect and defend Borrower's title as well as
the interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any legal process, liens or encumbrances whatsoever (except any placed
thereon by Lender and Permitted Liens) and shall give Lender immediate written
notice thereof.
7.5 Without Lender's prior written consent, Borrower shall not (a)
grant any material extension of the time of payment of any of the Receivables,
(b) to any material extent, compromise, compound or settle the same for less
than the full amount thereof, except to the extent that such compromise or
settlement arises from a good faith dispute between the parties and is resolved
pursuant to the Borrower's customary business practices, (c) release, wholly or
partly, any Person liable for the payment thereof, or allow any credit or
discount whatsoever thereon other than trade discounts granted in the ordinary
course of business of Borrower and except to the extent that such release,
credit or discount arises from a good faith dispute between the parties and is
resolved pursuant to the Borrower's customary business practices.
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7.6. Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its Equipment and Fixtures, in good
order and working repair and condition (taking into consideration ordinary wear
and tear and except if the Borrower determines in its reasonable business
judgment that it is in the best interest of the Borrower not to do so) and from
time to time make or cause to be made all necessary and proper repairs, renewals
and replacements thereto and shall competently manage and care for its property
in accordance with prudent industry practices.
7.7 Borrower shall not merge with and into any other entity; or sell
or convey all or substantially all of its assets or stock to any other person or
entity without notifying Lender a minimum of forty-five (45) days prior to the
closing date and requesting Lender's consent to the assignment of all of
Borrower's Secured Obligations hereunder to the successor entity in form and
substance satisfactory to Lender, provided that such consent by the Lender shall
not be required in any transaction in which the acquiring entity has a Moody's
Bond Rating of BA3 or better or a commercially acceptable equivalent measure of
creditworthiness as reasonably determined by Lender. In the event Lender does
not consent to such assignment the parties agree Borrower shall prepay the
Loan(s) in accordance with Section 2.5 hereof.
7.8 Borrower shall not, without the prior written consent of Lender,
such consent not to be unreasonably withheld, (i) declare or pay any cash
dividend or make a distribution on any class of stock, other than (a) the
repurchase of its capital stock from directors, officers, employees and/or
consultants upon exercise of its right of repurchase upon termination of
employment or services to Borrower, (b) conversion of any of its convertible
securities into other securities pursuant to the terms of such convertible
securities or otherwise in exchange therefor, (c) repurchase of its capital
stock from the proceeds of the issuance of capital stock of the Borrower,
provided that such repurchases are effectuated immediately upon the consummation
of such transactions, or (ii) transfer, sell, lease, lend or in any other manner
convey any equitable, beneficial or legal interest in any material portion of
the assets of Borrower (except inventory sold in the normal course of business)
other than (a) transfers of non-exclusive licenses and similar arrangements for
the use of the property of Borrower, (b) transfers of worn-out or obsolete
Equipment or Equipment financed by other vendors, (c) joint ventures or
strategic partnerships consisting of licensing of technology, the development of
technology or the providing of technical support; (d) investments (including
debt obligations) received in connection with the bankruptcy or reorganization
of customers or suppliers and in settlement of delinquent obligations of, and
other disputes with, customers or suppliers arising in the ordinary course of
business; (e) travel advances, employee relocation loans and other employee
loans and advances in the ordinary course of business; (f) loans to employees,
officers or directors relating to the purchase of equity securities of the
Borrower; (g) other loans to officers and employees of the Borrower in an
aggregate amount not in excess of $100,000 outstanding at any time; or (i) other
transfers which in the aggregate do not exceed $100,000 in any fiscal year;
7.9 Upon the prior request of Lender, Borrower shall, during
business hours, make the Inventory and Equipment available to Lender for
inspection at the place where it is normally located and shall make Borrower's
log and maintenance records pertaining to the Inventory and
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Equipment available to Lender for inspection. Borrower shall take all action
necessary to maintain such logs and maintenance records in a correct and
complete fashion.
7.10 Borrower covenants and agrees to pay when due, all taxes, fees
or other charges of any nature whatsoever (together with any related interest or
penalties) now or hereafter imposed or assessed against Borrower, or the
Collateral arising from or upon Borrower's ownership, possession, use, operation
or disposition thereof or upon Borrower's rents, receipts or earnings arising
therefrom except to the extent that such non-payment could not reasonably be
expected to have a Material Adverse Effect and for which Borrower maintains
adequate reserves in accordance with GAAP and provided further that Borrower
shall not be responsible for any taxes, fees or other charges arising from the
income of Lender. Borrower shall file on or before the due date therefor all
personal property tax returns in respect of the Collateral. Notwithstanding the
foregoing, Borrower may contest, in good faith and by appropriate proceedings,
taxes for which Borrower maintains adequate reserves therefor.
7.11 Borrower shall not relocate any item of the Collateral (other
than sale of inventory in the ordinary course of business and "mobile goods" as
such term is defined in the Illinois Commercial Code.) unless: such relocation
shall be within the continental United States. (ii) Borrower shall first (a)
cause to be filed and/or delivered to the Lender all Uniform Commercial Code
financing statements, certificates or other documents or instruments necessary
to continue in effect the perfected security interest of the Lender in the
Collateral, and (iii) have given the Lender no less than thirty (30) days prior
written notice of such relocation.
7.12 In addition to any other rights granted pursuant to Section 8 of
this Agreement, Lender shall have the right to purchase shares of Borrower's
securities having a minimum value of One Hundred Thousand and No/100 Dollars
($100,000.00) upon the occurrence of the Next Event (other than a Merger Event),
upon the same terms and conditions as the other investors in the Next Event. If
such Next Event is an Initial Public Offering, Borrower shall instruct the
managing underwriters of its Initial Public Offering to give the Lender the
opportunity to purchase at least $100,000 worth of shares of common stock to be
sold in the offering (based on the "price to public" of such shares as shown on
the cover page of the final prospectus for the offering) through the directed
share program for the offering.
SECTION 8. PURCHASE OPTION
8.1 (a) In addition the right granted pursuant to Section 7.12
hereof, Lender shall have the right to purchase shares of Borrower's Preferred
Stock with an aggregate value of up to forty-five percent (45%) of Part I of the
Maximum Loan Amount and upon Lender's firm commitment to advance Part II of the
Maximum Loan Amount, Lender shall have the right to purchase shares of
Borrower's Preferred Stock with an aggregate value of up to forty-five percent
(45%) of such Maximum Loan Amount with respect to Part II (subject to increase
as provided in Section 8.2) at any time prior to the termination of such right
pursuant to Section 8.1(c) hereof, at Lender's sole and absolute discretion (the
"Purchase Option"). The Purchase Option shall be exercisable by Lender at a
purchase price per share equal to $3.20 a per share price representing a fully
diluted valuation of $150,000,000 as of the date of this Agreement ("Purchase
Price").
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(b) In the event the Borrower completes a private equity
financing of at least $5,000,000 (excluding the Integral financing) on or after
August 11, 1999, and prior to a Merger Event or Initial Public Offering, then
upon request of the Borrower, Lender shall convert up to forty-five percent
(45%) of the outstanding principal balance of each Part I and/or Part II, as
applicable. The Purchase Price in this event shall be equal to the lesser of (i)
$3.20 or (ii) a price per share equal to 70% of the pre-money diluted valuation
of the Borrower at the time of such private equity financing. The number and
purchase price of such shares are subject to adjustment as provided in this
Section 8.
(c) The Purchase Option will terminate upon (i) the date
forty-five (45) days from receipt by Lender of notice from Borrower of an
Initial Public Offering, or (ii) twenty (20) days from receipt by Lender of
notice from Borrower of a Merger Event, subject to the terms set forth in
Section 8.9 hereof.
8.2 If the Borrower has not repaid the outstanding principal amount
under a Note(s) in its entirety by the Maturity Date (as defined in the
applicable Note(s)), then for each additional month, or portion thereof,
thereafter that the outstanding principal is not paid, Lender shall have the
right to purchase from the Borrower, at the Purchase Price (adjusted, as set
forth and defined in Section 8.3 herein), an additional amount of Preferred
Stock with a value equal to the product of (x) the outstanding principal amount
which is due but unpaid and (y) one percent (1%).
8.3 The Purchase Price per share and the number of shares of
Preferred Stock purchasable hereunder are subject to adjustment, as follows:
(a) If the Borrower at any time shall, by combination,
reclassification, exchange or subdivision of the securities as to which purchase
rights under this Purchase Option exist into the same or a different number of
securities of any other class or classes, this Purchase Option shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Purchase Option immediately prior
to such classification, exchange, subdivision or other change.
(b) If the Borrower at any time shall combine or subdivide its
Preferred Stock, the Purchase Price shall be proportionately decreased in the
case of a subdivision, or proportionately increased in the case of a
combination.
(c) If the Borrower at any time shall pay a dividend payable in,
or make any other distribution (except any distribution specifically provided
for in the foregoing subsections (a) or (b)) of the Borrower's stock, then the
Purchase Price shall be adjusted, from and after the record date of such
dividend or distribution, to that price determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction (i) the
numerator of which shall be the total number of all shares of the Borrower's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Borrower's stock outstanding immediately after such dividend or distribution.
The Lender shall thereafter be entitled to purchase, at the Purchase Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share)
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obtained by multiplying the Purchase Price in effect immediately prior to such
adjustment by the number of shares of Preferred Stock issuable upon the exercise
hereof immediately prior to such adjustment and dividing the product thereof by
the Purchase Price resulting from such adjustment.
(d) Additional antidilution rights applicable to the Preferred
Stock purchasable hereunder are as set forth in the Borrower's Certificate of
Incorporation, as amended through the date of this Agreement, a true and
complete copy of which is attached hereto as Exhibit C (the "Charter"). The
Borrower shall promptly provide the Lender with any restatement, amendment,
modification or waiver of the Charter. The Borrower shall provide Lender with
prior written notice of any issuance of its stock or other equity security to
occur after the date of this Agreement, which notice shall include (i) the price
at which such stock or security is to be sold, (ii) the number of shares to be
issued, and (iii) such other information as necessary for Lender to determine if
a dilutive event has occurred. Notwithstanding any provision of this Section 8
to the contrary, no adjustment to the Purchase Price shall be made pursuant to
any provision of this Section 8 to the extent a corresponding adjustment is made
to the Conversion Price of the Preferred Stock pursuant to the Borrower's
Charter.
(e) If prior to the termination of exercise of the Purchase
Option: (i) the Borrower shall declare any dividend or distribution upon its
stock, whether in cash, property, stock or other securities; (ii) the Borrower
shall offer for subscription prorata to the holders of any class of its
preferred or other convertible stock any additional shares of stock of any class
or other rights; (iii) there shall be any Merger Event; (iv) there shall be an
Initial Public Offering; or (v) there shall be any voluntary dissolution,
liquidation or winding up of the Borrower; then, in connection with each such
event, the Borrower shall send to the Lender: (A) at least forty-five (45) days'
prior written notice of the date on which the books of the Borrower shall close
or a record shall be taken for such dividend, distribution, subscription rights
(specifying the date on which the holders of Preferred Stock shall be entitled
thereto) or for determining rights to vote in respect of such dissolution,
liquidation or winding up; (B) in the case of any such dissolution, liquidation
or winding up, at least forty-five (45) days' prior written notice of the date
when the same shall take place (and specifying the date on which the holders of
Preferred Stock shall be entitled to exchange their Preferred Stock for
securities or other property deliverable upon dissolution, liquidation or
winding up); and (C) in the case of a (i) Initial Public Offering, the Borrower
shall give the Lender at least forty-five (45) days prior written notice or (ii)
Merger Event, the Borrower shall give the Lender at least twenty (20) days prior
written notice.
Each such written notice shall set forth, in reasonable detail and only
as appropriate, (i) the event requiring the adjustment, (ii) the amount of the
adjustment, (iii) the method by which such adjustment was calculated, (iv) the
Purchase Price, and (v) the number of shares subject to purchase hereunder after
giving effect to such adjustment, and shall be given by first class mail,
postage prepaid, addressed to the Lender, at the address as shown on the books
of the Lender.
(f) Failure to timely provide such notice required by subsection
(e) above shall entitle Lender to retain the benefit of the applicable notice
period notwithstanding anything to the contrary contained in any insufficient
notice received by Lender. The notice period shall
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begin on the date Lender actually receives a written notice containing all the
information specified above.
8.5 The Purchase Option is exercisable by the Lender, in whole or in
part, at any time, or from time to time, prior to (i) forty-five (45) days after
receipt of notice from Borrower of a Initial Public Offering, or (ii) twenty
(20) days after receipt of notice from Borrower of a Merger Event. Lender may
exercise its Purchase Option by tendering to the Borrower at its principal
office a notice of exercise in the form attached hereto as Exhibit D (the
"Notice of Purchase"), duly completed and executed together with payment in an
amount equal to the Purchase Price for that portion of the Purchase Option so
exercised, in by bank cashier's or certified check or wire transfer; provided
that Lender may satisfy all or a portion of the Purchase Price by tender of one
or more Note(s), the outstanding principal and interest of which shall be
credited against the Purchase Price, with the balance, if any, of the Purchase
Price payable in cash or by check as provided above. In such event, the Note(s)
so tendered will be deemed satisfied in full and will be cancelled by the
Borrower and the Borrower will have no further obligation to the Lender under
such Note(s).
Promptly upon receipt of the Notice of Purchase and the payment of the
Purchase Price in accordance with the terms set forth below, Borrower shall
execute the acknowledgment of exercise in the form attached hereto as Exhibit E
(the "Acknowledgment of Purchase") indicating the number of shares which remain
subject to future purchases, if any. Subject to Lender's right of recission of
its election pursuant to Section 8.9, no later than thirty (30) days thereafter,
the Borrower shall issue to the Lender a certificate for the number of shares of
Preferred Stock purchased.
8.6 (a) During the term of this Purchase Option, the Borrower will
at all times have authorized and reserved a sufficient number of shares of its
Preferred Stock to provide for the exercise of the rights to purchase Preferred
Stock as provided for herein.
(b) If any shares of Preferred Stock required to be reserved
hereunder require registration with or approval of any governmental authority
under any Federal or State law (other than any registration under the Securities
Act of 1933, as amended ("1933 Act"), as then in effect, or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such purchase), or listing on any domestic securities
exchange, before such shares may be issued upon purchase, the Borrower will, at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered, listed or approved for listing on such domestic
securities exchange, as the case may be.
8.7 No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of the Purchase Option, but in lieu of such
fractional shares the Borrower shall make a cash payment therefor upon the basis
of the Purchase Price then in effect.
8.8 This Purchase Option does not entitle the Lender to any voting
rights or other rights as a shareholder of the Borrower prior to the exercise of
the Purchase Option.
8.9 In the event Lender has exercised the Purchase Option based upon
receipt of notice from Borrower of a Initial Public Offering or Merger Event and
such transaction is not consummated, the Borrower shall promptly notify the
Lender that such proposed transaction
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has been terminated, and the Lender may rescind any exercise of its Purchase
Option promptly after such notice of termination of the proposed transaction.
8.10 In the event the Borrower files a registration statement
covering the sale of its securities (other than on Form S-4 or Form S-8 or any
successor forms), and if requested by the Borrower or the underwriters managing
an underwritten offering of the securities, the Lender will not (i) offer,
pledge, sell, contract to sell, grant any option, contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, any shares of the
Preferred Stock (or Common Stock, as applicable) or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Preferred Stock (or Common Stock as
applicable), whether or not any such transaction described in clause (i) or (ii)
above is to be settled by delivery of such Preferred Stock (or Common Stock, as
applicable) in cash or otherwise, without prior written consent of the Borrower
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Borrower or such managing underwriters.
SECTION 9. DEFAULT
The occurrence of any one or more of the following events (herein
called "Events of Default") shall constitute a default hereunder and under the
Note(s) and other Loan Documents:
9.1 Borrower defaults in the payment of any principal, interest or
other Secured Obligation involving the payment of money under this Agreement,
the Note(s) or any of the other Loan Documents, and such default continues for
more than five (5) days after the due date thereof; or
9.2 Borrower defaults in the performance of any other covenant or
Secured Obligation of Borrower hereunder or under the Note(s) or any of the
other Loan Documents, and such default continues for more than twenty (20) days
after Lender has given notice of such default to Borrower.
9.3 Any representation or warranty made herein by Borrower shall
prove to have been false or misleading in any material respect when made; or
9.4 Borrower shall make an assignment for the benefit of creditors,
or shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Borrower or of all or any substantial part (33-1/3% or more) of
the properties of Borrower; or Borrower or its directors or majority
shareholders shall take any action initiating the dissolution or liquidation of
Borrower; or
9.5 Sixty (60) days shall have expired after the commencement of an
action by or against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such
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action being dismissed or all orders or proceedings thereunder affecting the
operations or the business of Borrower being stayed; or a stay of any such order
or proceedings shall thereafter be set aside and the action setting it aside
shall not be timely appealed; or Borrower shall file any answer admitting or not
contesting the material allegations of a petition filed against Borrower in any
such proceedings; or the court in which such proceedings are pending shall enter
a decree or order granting the relief sought in any such proceedings; or
9.6 Sixty (60) days shall have expired after the appointment,
without the consent or acquiescence of Borrower, of any trustee, receiver or
liquidator of Borrower or of all or any substantial part of the properties of
Borrower without such appointment being vacated; or
9.7 An Event of Default (as such term is defined in the applicable
document) by Borrower under any Excluded Agreement(s), any other promissory note
or agreement for borrowed money, or any other agreement between Borrower and
Lender; or
9.8 The occurrence of any default under any lease or other agreement
or obligation (not to include the Senior Loan Documents) of Borrower involving
an amount in excess of $200,000.00 or having a Material Adverse Effect; or the
entry of any judgment against Borrower involving an award in excess of
$200,000.00 that could reasonably be expected to have a Material Adverse Effect,
that has not been bonded or stayed on appeal within thirty (30) days; or
9.9 The occurrence of any material event of default as defined under
the Senior Loan Documents that has not been waived by Senior Creditor and for
which Senior Creditor issues a Blockage Notice (as defined in the Subordination
Agreement).
SECTION 10. REMEDIES
Upon the occurrence and continuance of any one or more Events of
Default, Lender, at its option, may declare the Note(s) and all of the other
Secured Obligations to be accelerated and immediately due and payable (provided,
that upon the occurrence of an Event of Default of the type described in
Sections 9.4 or 9.5, the Note(s) and all of the other Secured Obligations shall
automatically be accelerated and made due and payable without any further act),
whereupon the unpaid principal of and accrued interest on such Note(s) and
all other outstanding Secured Obligations shall become immediately due and
payable, and shall thereafter bear interest at the Default Rate set forth in,
and calculated according to, Section 2.6 (c) of this Agreement. Lender may
purchase all rights and remedies with respect to the Collateral under the Loan
Documents or otherwise available to it under applicable law, including the right
to release, hold or otherwise dispose of all or any part of the Collateral and
the right to occupy, utilize, process and commingle the Collateral.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere. Borrower agrees that any such public or private sale may occur upon
ten(10) calendar days' prior written notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably
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convenient to Lender and Borrower. The proceeds of any sale, disposition or
other realization upon all or any part of the Collateral shall be distributed by
Lender in the following order of priorities:
First, to Lender in an amount sufficient to pay in full Lender's costs
and professionals' and advisors' fees and expenses;
Second, to Lender in an amount equal to the then unpaid amount of the
Secured Obligations in such order and priority as Lender may choose in
its sole discretion; and
Finally, upon payment in full of all of the Secured Obligations, to
Borrower or its representatives or as a court of competent jurisdiction
may direct.
Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under Section 9-207 of the UCC.
Lender's rights and remedies hereunder are subject to the terms of the
Subordination Agreement.
SECTION 11. MISCELLANEOUS
11.1 CONTINUATION OF SECURITY INTEREST. This is a continuing
Agreement and the grant of a security interest hereunder shall remain in full
force and effect and all the rights, powers and remedies of Lender hereunder
shall continue to exist until the Secured Obligations are paid in full as the
same become due and payable and until Lender has executed a written termination
statement (which Lender shall execute within a reasonable time after full
payment of the Secured Obligations hereunder), releasing to Borrower, without
recourse, the Collateral and all rights conveyed hereby and returning possession
of the Collateral to Borrower. The rights, powers and remedies of Lender
hereunder shall be in addition to all rights, powers and remedies given by
statute or rule of law and are cumulative. The exercise of any one or more of
the rights, powers and remedies provided herein shall not be construed as a
waiver of or election of remedies with respect to any other rights, powers and
remedies of Lender.
11.2 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
11.3 NOTICE. Except as otherwise provided herein, all notices and
service of process required, contemplated, or permitted hereunder or with
respect to the subject matter hereof shall be in writing, and shall be deemed to
have been validly served, given or delivered upon the earlier of: (i) the first
business day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the fifth
calendar day after deposit in the United States mails certified mail, return
receipt requested, with proper first class postage prepaid, and shall be
addressed to the party to be notified as follows:
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<PAGE> 25
(a) IF TO LENDER.
COMDISCO VENTURES
Attention: Jim Labe
3000 Sand Hill Road
Menlo Park, Ca 94025
Facsimile: (650) 854-4026
WITH A COPY TO:
COMDISCO, INC.
Legal Department
Attention: General Counsel
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5088
COMDISCO, INC./COMDISCO VENTURES
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5465
(b) IF TO BORROWER:
E.PIPHANY, INC.
Attention: Kevin Yeaman
2300 Geng Road
Palo Alto, CA
Facsimile: (650) 496-2431
Phone: (650) 496-2430
or to such other address as each party may designate for itself by like notice.
11.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Note(s), and the
other Loan Documents constitute the entire agreement and understanding of the
parties hereto in respect of the subject matter hereof and thereof, and
supersede and replace in their entirety any prior proposals, term sheets,
letters, negotiations or other documents or agreements, whether written or oral,
with respect to the subject matter hereof or thereof (including, without
limitation, Lender's proposal letter dated April 13, 1999, all of which are
merged herein and therein. None of the terms of this Agreement, the Note(s) or
any of the other Loan Documents may be amended except by an instrument executed
by each of the parties hereto.
11.5 HEADINGS. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
11.6 NO WAIVER. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy
25
<PAGE> 26
reserved to it, or to require performance of any of the terms, covenants or
provisions hereof by Borrower at any time designated, shall be a waiver of any
such right or remedy to which Lender is entitled, nor shall it in any way affect
the right of Lender to enforce such provisions thereafter.
11.7 SURVIVAL. All agreements, representations and warranties
contained in this Agreement, the Note(s) and the other Loan Documents or in any
document delivered pursuant hereto or thereto shall be for the benefit of
Lender and shall survive the execution and delivery of this Agreement and as to
Section 6.2, the expiration or other termination of this Agreement.
11.8 SUCCESSOR AND ASSIGNS. The provisions of this Agreement and the
other Loan Documents shall inure to the benefit of and be binding on Borrower
and its permitted assigns (if any). Unless otherwise provided herein, Borrower
shall not assign its obligations under this Agreement, the Note(s) or any of the
other Loan Documents without Lender's express written consent, and any such
attempted assignment shall be void and of no effect. Lender may assign,
transfer, or endorse its rights hereunder and under the other Loan Documents
without prior notice to Borrower, and all of such rights shall inure to the
benefit of Lender's successors and assigns.
11.9 FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save
Lender, harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all excise, sales or other similar taxes which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Agreement,
except that Borrower shall not indemnify Lender for any taxes based upon the
income of Lender.
11.10 GOVERNING LAW. This Agreement, the Note(s) and the other Loan
Documents have been negotiated and delivered to Lender in the State of Illinois,
and shall not become effective until accepted by Lender in the State of
Illinois. Payment to Lender by Borrower of the Secured Obligations is due in the
State of Illinois. This Agreement, the Note(s) and the other Loan Documents
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Illinois, excluding conflict of laws principles that would cause
the application of laws of any other jurisdiction.
11.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings
arising in or under or related to this Agreement, the Note(s) or any of the
other Loan Documents may be brought in any state or federal court of competent
jurisdiction located in the State of Illinois. By execution and delivery of this
Agreement, each party hereto generally and unconditionally: (a) consents to
personal jurisdiction in Cook County, State of Illinois; (b) waives any
objection as to jurisdiction or venue in Cook County, State of Illinois; (c)
agrees not to assert any defense based on lack of jurisdiction or venue in the
aforesaid courts; and (d) irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement, the Note(s) or the other
Loan Documents. Service of process on any party hereto in any action arising out
of or relating to this agreement shall be effective if given in accordance with
the requirements for notice set forth in Section 11.3, above and shall be deemed
effective and received as set forth in Section 11.3, above. Nothing herein shall
affect the right to serve process in any other manner permitted by law or shall
limit the right of either party to bring proceedings in the courts of any other
jurisdiction.
26
<PAGE> 27
11.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in
connection with complex financial transactions are most quickly and economically
resolved by an experienced and expert person and the parties wish applicable
state and federal laws to apply (rather than arbitration rules), the parties
desire that their disputes be resolved by a judge applying such applicable laws.
EACH OF BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL
BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY
CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST
LENDER OR ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This
waiver extends to all such Claims, including, without limitation, Claims which
involve persons or entities other than Borrower and Lender; Claims which arise
out of or are in any way connected to the relationship between Borrower and
Lender; and any Claims for damages, breach of contract arising out of this
Agreement, any other Loan Document or any of the Excluded Agreements, specific
performance, or any equitable or legal relief of any kind.
11.13 CONFIDENTIALITY. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of Intellectual Property, and any Financial
Statements provided pursuant to Section 7 hereof, constitute proprietary and
confidential information of the Borrower (the "Confidential Information").
Accordingly, Lender agrees that any Confidential Information it may obtain in
the course of acquiring, perfecting or foreclosing on the Collateral or
otherwise provided under this Agreement, provided such Confidential Information
is marked as confidential by Borrower at the time of disclosure, shall be
received in the strictest confidence and will not be disclosed to any other
person or entity in any manner whatsoever, in whole or in part, without the
prior written consent of the Borrower, unless and until Lender has acquired
indefeasible title thereto.
11.14 COUNTERPARTS. This Agreement and any amendments, waivers,
consents or supplements hereto may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
27
<PAGE> 28
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered
this Agreement as of the day and year first above written.
BORROWER: E.piphany, Inc.
Signature: /s/ ROGER S. SIBONI
Print Name: ROGER S. SIBONI
Title: CEO
ACCEPTED IN ROSEMONT, ILLINOIS:
- ------------------------------
LENDER: COMDISCO, INC.
Signature: /s/ JAMES LABE
Print Name: JAMES LABE
Title: President
Comdisco Ventures Division
28
<PAGE> 1
EXHIBIT 10.10
SUBLEASE
PORTION OF THIRD FLOOR
1900 NORFOLK STREET, SAN MATEO, CALIFORNIA
THIS SUBLEASE ("Sublease"), dated April 23, 1999, for reference purposes
only, is entered into by and between INKTOMI CORPORATION, a Delaware corporation
("Sublandlord"), and EPIPHANY MARKETING SOFTWARE, INC., a Delaware corporation
("Subtenant").
RECITALS
A. Sublandlord leases and is in possession of premises consisting of
approximately 32,264 square feet of rentable area, as shown cross-hatched on the
floor plan attached as Exhibit 1 to this Sublease (the "Premises") located on
the third floor of the office building at 1900 South Norfolk Street, San Mateo,
California (the "Building"), pursuant to that certain Office Lease dated July
31, 1997, as amended by the First Amendment to Office Lease dated July 16, 1998
and the Second Amendment to Office Lease dated as of January 31, 1999
(collectively, the "Master Lease"), between Sublandlord, as Lessee, and Norfolk
Atrium, a California limited partnership, as Lessor ("Landlord").
B. Sublandlord desires to sublease the Premises to Subtenant, and
Subtenant desires to sublease the Premises from Sublandlord, upon the terms and
conditions provided for herein.
C. Under Addendum 1 to the Master Lease, effective March 1, 2000, the
Premises demised to Sublandlord shall be expanded to include additional space
commonly known as Suite 115 (the "Additional Space") in the Building. The
Additional Space is not subject to this Sublease. References herein to
"Premises" shall mean only the Premises shown on Exhibit 1 to this Sublease.
D. Capitalized terms used in this Sublease which are not otherwise
defined herein shall have the same meanings given them in the Master Lease.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Sublandlord and Subtenant covenant and agree as follows:
AGREEMENT
1. DEMISE AND USE.
(a) Sublandlord hereby subleases the Premises to Subtenant, and
Subtenant hereby takes and hires the Premises from Sublandlord, on and subject
to the terms, covenants and conditions set forth in this Sublease. Subtenant
shall have the right, appurtenant to the demise of the Premises, to the use of
113 non-exclusive parking spaces in the parking lot serving the Building, but
only to the extent the same are provided by Landlord pursuant to the Master
Lease.
<PAGE> 2
(b) Under the Master Lease the Premises are to be used solely for
general office use. Subtenant represents and warrants to Sublandlord that its
proposed use of the Premises conforms to the use restrictions embodied in the
Master Lease.
2. TERM.
(a) Subject to Paragraph 2(e) below, the term of this Sublease
(the "Sublease Term") shall commence on the date (the "Commencement Date") which
is the later of (i) September 1, 1999, and (ii) the date on which all the
following have occurred: (A) Landlord has given its consent to this Sublease;
(B) Sublandlord has vacated the Premises and delivered possession of the
Premises to Subtenant in the condition required by this Sublease; and (C)
Subtenant's Early Possession Period, as described in Paragraph 2(d), has
expired. Sublandlord shall use commercially reasonable efforts to cause the
Commencement Date to occur by September 1, 1999.
(b) The parties anticipate that the Commencement Date will occur
on or about September 1, 1999. However, if for any reason the Commencement Date
does not occur until after September 1, 1999, Sublandlord shall not be liable
for such delay, nor shall such delay in the Commencement Date affect the
validity of this Sublease or the obligations of Subtenant hereunder (except as
hereinafter provided) or extend the Sublease Term. Notwithstanding the
foregoing: (i) if Subtenant's Early Possession Period does not occur by
September 1, 1999, the date Subtenant is otherwise obliged to commence payment
of Rent shall be delayed by one day for each day that the commencement of
Subtenant's Early Possession Period is delayed beyond September 1, 1999; and
(ii) if Subtenant's Early Possession Period does not occur by September 15,
1999, Subtenant shall have the right to terminate this Sublease by delivering
written notice thereof to Sublandlord. Unless exercised prior thereto,
Subtenant's right of termination hereunder shall expire upon the delivery of the
Premises to Subtenant. Sublandlord shall keep Subtenant informed regarding the
status of construction of Sublandlord's new facility and the anticipated timing
for Sublandlord's vacation of the Premises.
(c) The Sublease Term shall end on the earliest of: (i) October
31, 2003; (ii) the date on which the Master Lease terminates for any cause
whatsoever; or (iii) the date of earlier termination of this Sublease as
provided herein.
(d) After Sublandlord has obtained Landlord's consent to this
Sublease and Sublandlord has vacated the Premises, Sublandlord shall tender
possession of the Premises to Subtenant for a period of fourteen (14) days
preceding the Commencement Date (the "Early Possession Period"). All terms
covenants and conditions of this Sublease shall apply during the Early
Possession Period except that Subtenant shall be not be required to pay any
Rent. The Early Possession Period is intended to allow Subtenant to ready the
Premises for its use (subject to first obtaining all required consents and
approvals) and shall not advance the scheduled expiration of the Sublease Term.
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<PAGE> 3
(e) If Sublandlord is prepared to vacate and deliver the Premises
for commencement of the Early Possession Period prior to August 16, 1999,
Sublandlord shall so notify Subtenant. In such case, Subtenant shall have the
right, but not the obligation, to accept delivery and start the Early Possession
Period early. In such case, the Commencement Date shall be the fifteenth (15th)
day after the start of the Early Possession Period. The advancement of the
Commencement Date under this Paragraph 2(e) shall not alter the expiration of
the Sublease Term under Paragraph 2(c).
3. RENT. Subtenant shall pay rent for the Premises consisting of basic
rental ("Basic Rent") plus additional rental ("Additional Rent"), all as
provided below. Basic Rent, Additional Rent, and any other charges due under
this Sublease are referred to collectively as "Rent."
(a) Beginning on the Rent Commencement Date and continuing on or
before the first day of each succeeding month, Subtenant shall pay to
Sublandlord in advance, and without deduction or offset, monthly Basic Rent as
follows:
PERIOD BASIC RENT
- -------------------------------------------------- -----------------------
Commencement Date to the date immediately $103,890.08 per month
preceding the first anniversary of the
Commencement Date
First anniversary of the Commencement Date $107,006.78 per month
through the date immediately preceding the
second anniversary of the Commencement Date
Second anniversary of the Commencement Date $110,216.99 per month
through the date immediately preceding the third
anniversary of the Commencement Date
Third anniversary of the Commencement Date $113,523.50 per month
through October 31, 2003
(b) Beginning on the first anniversary of the Commencement Date
and continuing for the remainder of the Sublease Term, Subtenant also shall pay,
as Additional Rent, all Excess Expenses attributable to the Premises. For this
purpose, "Excess Expenses" shall mean all amounts payable as Project Taxes and
Operating Expenses in respect of the Premises under Article 7(b) of the Master
Lease in excess of the amount thereof Sublandlord is obligated to pay for the
first twelve (12) months of the Sublease Term (the "Base Sublease Expenses").
The Base Sublease Expenses shall be determined as follows: (i) the total Project
Taxes and Operating Expenses under Article 7(b) of the Master Lease for the
calendar year 1999 shall be multiplied by a fraction, the numerator of which is
the number of days of the Sublease Term falling within the calendar year 1999,
and the denominator of which is 365; (ii) the total Project Taxes and Operating
Expenses under Article 7(b) of the Master
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<PAGE> 4
Lease for the calendar year 2000 shall be multiplied by a fraction, the
numerator of which is the number of days elapsed from January 1, 2000 to the
date immediately preceding the first anniversary of the Commencement Date, and
the denominator of which is 365; and (iii) the sum of the products achieved
under clauses (i) and (ii) shall be the Base Sublease Expenses.
(c) Where items of Additional Rent due under the Master Lease are
payable on a monthly basis, Additional Rent shall be paid to Sublandlord as and
when Basic Rent is paid. Where items of Additional Rent are billed from time to
time to Sublandlord by Landlord, such Additional Rent shall be paid by Subtenant
to Sublandlord within fifteen (15) days after Subtenant's receipt of an invoice
therefor. Where Additional Rent is payable on an estimated basis pursuant to the
Master Lease, the Additional Rent due hereunder shall be adjusted between the
parties (with appropriate reimbursements or additional payments) within twenty
(20) days after the actual Additional Rent due under the Master Lease has been
determined and notice thereof has been delivered to Subtenant. All Rent shall be
paid to Sublandlord at the address specified for Sublandlord below, or to such
other person or to such other place as Sublandlord may from time to time
designate in writing.
(d) Sublandlord shall pay all Base Rent, Additional Rent and
other monetary amounts required to be paid under the Master Lease (collectively,
"Underlying Rent") on or before such amounts become due and payable thereunder.
If Sublandlord fails to make any payment of Underlying Rent as and when required
under the Master Lease, Subtenant shall have the right, but not the obligation,
to make such payments on behalf of Sublandlord, in which event Subtenant shall
have the right to offset any amounts so paid against Rent payable under this
Sublease.
(e) In the event of any casualty or condemnation affecting the
Premises, Rent payable by Subtenant shall be abated as provided in Articles 21
and 24 of the Master Lease, as incorporated herein; provided, however, that such
right to abatement of Rent (as distinguished from the amount of any such
abatement) must be recognized by Landlord under the Master Lease.
4. SECURITY DEPOSIT.
(a) On execution of this Sublease, Subtenant shall pay cash to
Sublandlord in the amount of Five Hundred Thousand Dollars ($500,000) (the
"Sublease Security Deposit"), as security for the full and faithful performance
of Subtenant's obligations under this Sublease. If Subtenant defaults in its
obligations under this Sublease after the expiration of applicable notice and
cure periods (if any), Sublandlord may use or apply all or any part of the
Sublease Security Deposit to cure the default or to compensate Sublandlord for
its damages and expenses resulting from the default, in which event, Subtenant
shall promptly deposit with Sublandlord the sum necessary to restore the
Sublease Security Deposit to the full amount set forth above. Upon termination
of this Sublease, Sublandlord shall return the balance of the Sublease Security
Deposit to Subtenant, less the amount of the Furniture Purchase Price payable by
Subtenant under Paragraph 17 below. Sublandlord shall be entitled to commingle
the Sublease Security Deposit with its general funds. Subtenant shall have no
right to interest on the Sublease Security Deposit.
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<PAGE> 5
(b) In lieu of the cash to be posted by Subtenant as the Sublease
Security Deposit under Paragraph 4.2 of this Sublease, Subtenant may deliver to
Sublandlord (either upon execution of this Sublease or thereafter when Subtenant
is not in default hereunder, after expiration of any applicable notice and cure
period) a clean, irrevocable letter of credit (the "Letter of Credit") issued in
favor of Sublandlord by a reputable bank reasonably satisfactory to Sublandlord
(the "Issuing Bank"). The Letter of Credit shall: (i) have a maturity date not
less than one (1) year from the date of issuance; (ii) require the Issuing Bank
to provide notice to Sublandlord of the scheduled expiration date not less than
thirty (30) days nor more than forty-five (45) days before the scheduled
expiration of the Letter of Credit; (iii) permit full or partial drawings to be
made by Sublandlord at any time before expiration; (iv) require the Issuing Bank
to pay on the Letter of Credit upon Sublandlord's presentation thereof, together
with a sight draft and a statement signed by Sublandlord certifying that, under
the provisions of this Sublease, Sublandlord is entitled to draw upon the Letter
of Credit; and (v) be assignable by Sublandlord to any entity which may succeed
to Sublandlord's interest under this Sublease. If the Letter of Credit is due to
expire before the date the Sublease Term is scheduled to end and the Issuing
Bank has not issued and Subtenant has not delivered to Sublandlord, at least
thirty (30) days before the expiration of the Letter of Credit, a new Letter of
Credit meeting all of the requirements stated above (except that the expiration
date of the new Letter of Credit need not extend beyond the scheduled expiration
of the Sublease Term), then Sublandlord may draw down the entire amount of the
expiring Letter of Credit and retain such amount as the cash Sublease Security
Deposit under Paragraph 4.2 above; provided that Subtenant may thereafter
deliver to Sublandlord a new Letter of Credit to replace the expired one and,
provided Tenant is not then in default (after expiration of any applicable
notice and cure period), Sublandlord will accept the new Letter of Credit and
refund to Subtenant the cash Sublease Security Deposit. If Subtenant defaults in
the performance of its obligations under this Sublease (after expiration of any
applicable notice and cure period), Sublandlord shall have the right to draw
down the Letter of Credit, in whole or in part, to the extent required in
Sublandlord's reasonable judgment to cure Subtenant's default or to compensate
Sublandlord for all damages resulting from Subtenant's default, and to use,
retain or apply the funds thereupon obtained by Sublandlord in the manner
permitted under Paragraph 4.2 above. If Sublandlord draws down the Letter of
Credit and uses, retains or applies all or a portion of the funds received
therefrom to cure Subtenant's default or to compensate Sublandlord for damages
resulting from Subtenant's default, Subtenant shall, within ten (10) days after
written demand, either cause the Issuing Bank to restore the Letter of Credit to
the full amount or deposit with Sublandlord cash in an amount sufficient to
restore the funds held by Sublandlord (together with any remaining balance of
the Letter of Credit) to the full amount of the Sublease Security Deposit. If
Subtenant delivers to Sublandlord a new Letter of Credit to replace the one
Sublandlord has drawn down, provided Tenant is not then in default (after
expiration of any applicable notice and cure period), Sublandlord will accept
the new Letter of Credit and refund to Subtenant the cash Sublease Security
Deposit.
5. CONDITION OF PREMISES.
(a) Sublandlord shall, upon tender of possession, remove from the
Premises all personal property other than the Furniture and deliver the Premises
in a broom clean condition, with all improvements for which Sublandlord is
responsible under the Master Lease in good operating condition. Except as
otherwise expressly provided in this Sublease, Sublandlord subleases the
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<PAGE> 6
Premises to Subtenant, and Subtenant agrees to accept the Premises, in their
presently existing condition, "AS-IS" and "WITH ALL FAULTS," and Sublandlord
shall have no duty to perform any repairs, alterations or additions to the
Premises to ready the same for Subtenant's occupancy. Subtenant shall be deemed
conclusively to have acknowledged that the Premises are in the condition
required by this Sublease unless Subtenant gives written notice to Sublandlord
during the Early Possession Period describing in reasonable detail any
conditions in the Premises that Subtenant contends are not as required by this
Sublease.
(b) At the beginning of the Early Possession Period, the Premises
will be in good condition and all Building operating systems serving the
Premises will be in good working condition, including, but not limited to, the
heating, ventilating, air conditioning, electrical, roof and plumbing systems,
and the Premises shall otherwise be in the same condition as exists on the date
of this Sublease. Subtenant shall notify Sublandlord in writing of any
malfunctioning of the Building systems and Sublandlord shall use commercially
reasonable efforts to cause Landlord to undertake corrective action.
(c) As used herein, the "ADA" refers to the Americans With
Disabilities Act of 1990, as amended, and state and local laws and ordinances
governing accessibility to public accommodations by disabled persons. Subtenant
has engaged a licensed architect to survey the Premises for compliance with the
ADA and Subtenant's architect has identified the work specified in Exhibit 2 to
this Sublease as being necessary to bring the Premises into compliance with the
ADA. Prior to the commencement of the Early Possession Period Sublandlord shall
complete the work described in Exhibit 2. As between Sublandlord and Subtenant,
Subtenant shall be responsible for any further work as may be required during
the Sublease Term to comply with the ADA.
6. SUBORDINATION TO MASTER LEASE. This Sublease shall be subject and
subordinate to all of the terms, covenants and conditions of the Master Lease,
and Landlord shall have all rights in respect of the Master Lease and the
Premises as set forth therein. Those obligations which are imposed on
Sublandlord under the Master Lease and agreed to be performed by Subtenant under
this Sublease are referred to as the "Transferred Obligations." Without limiting
the specific covenants of this Sublease, Subtenant shall at all times observe
and perform the Transferred Obligations in respect to the Premises so as to
avoid any default under the Master Lease.
7. INCORPORATION OF MASTER LEASE.
(a) Subject to the exclusions, limitations and modifications set
forth in this Sublease, the terms, covenants and conditions of the Master Lease
are incorporated in this Sublease by reference so that, except to the extent
that they are excluded, limited or otherwise modified by the provisions of this
Sublease for the purpose of incorporation by reference, each and every term,
covenant and condition of the Master Lease binding or inuring to the benefit of
the Landlord thereunder shall, in respect of this Sublease, bind or inure to the
benefit of Sublandlord, and each and every term, covenant and condition of the
Master Lease binding or inuring to the benefit of the Lessee thereunder shall,
in respect of this Sublease, bind or inure to the benefit of Subtenant, with the
same force and effect as if such terms, covenants and conditions were completely
set forth in this
-6-
<PAGE> 7
Sublease, and as if the words "Lessor" and "Lessee," or words of similar import,
wherever the same appear in the Master Lease, were construed to mean,
respectively, "Sublandlord" and "Subtenant" in this Sublease, and as if the word
"Lease," or words of similar import, wherever the same appear in the Master
Lease, were construed to mean this "Sublease." Subtenant represents that it has
examined, read and is thoroughly familiar with the terms, covenants and
conditions of the Master Lease, and accepts those terms, covenants and
conditions and obligations thereof which have been incorporated herein.
(b) The following provisions of the Master Lease are not
incorporated as a part of this Sublease and are expressly excluded herefrom
(except insofar as the same may be referenced elsewhere in this Sublease for
purposes of identification or definition of certain matters): Articles 1 through
5, the first grammatical paragraph only of Section 13(f), Article 53, Addenda 1
through 10, Addendum 16, Exhibit C and the First Amendment.
(c) The following limitations shall apply to the interpretation
and enforcement of the incorporated terms, covenants and conditions of the
Master Lease:
(i) Wherever the term "Premises" appears in the Master
Lease, it shall be incorporated into this Sublease only to the extent it refers
to the Premises demised by this Sublease and shall not apply to the Additional
Premises demised by the Master Lease.
(ii) The time limits contained in the Master Lease for the
giving of notices, making of demands or performing of any act, condition or
covenant on the part of the Lessee thereunder, or for the exercise by the Lessee
thereunder of any right, remedy or option, are changed for the purposes of
incorporation herein by reference by shortening the same in each instance by two
(2) business days, so that in each instance Subtenant shall have two (2)
business days less time to observe or perform hereunder than Sublandlord has as
the Lessee under the Master Lease. Notwithstanding the foregoing, the time limit
in the eighteenth line of Article 12 shall be changed to two (2) days, and the
time limit in the sixth line of Article 40(a) shall remain three (3) business
days.
(iii) Any non-liability, release, indemnity or hold
harmless provision, and any provisions pertaining to waiver of subrogation
rights and or the naming of a party under an insurance policy, in the Master
Lease for the benefit of Landlord which is incorporated herein by reference,
shall be deemed to inure to the benefit of Sublandlord and Landlord, for the
purpose of incorporation by reference in this Sublease.
(iv) Any right of the Landlord for access or inspection
and any right of the Landlord under the Master Lease to do work in the Premises
or in the Building or in the Common Area shall be deemed to inure to the benefit
of both Sublandlord and the Landlord, for the purpose of incorporation by
reference in this Sublease.
(v) If any of the express provisions of this Sublease
conflict with any of the provisions incorporated by reference such conflict
shall be resolved in every instance in favor of the express provisions of this
Sublease. If any incorporated provision of the Master Lease cross-
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<PAGE> 8
references a provision of the Master Lease which is not incorporated in this
Sublease, such cross-referenced Master Lease provision shall be disregarded
except to the extent required for a fair and equitable interpretation of the
incorporated Master Lease provision.
(vi) Any obligation of Sublandlord which is contained in
this Sublease by the incorporation by reference of the provisions of the Master
Lease shall be observed or performed by Sublandlord using reasonable good faith
efforts to cause the Landlord under the Master Lease to observe and/or perform
the same, and Sublandlord shall have a reasonable time do so after written
notice from Subtenant specifying with reasonable particularity the deficiency in
Landlord's performance under the Master Lease. Sublandlord shall not be required
to furnish, supply, install, maintain or repair anything under any provision of
the Master Lease. Subtenant shall not in any event have any rights in respect of
the Premises greater than Sublandlord's rights under the Master Lease, and
notwithstanding any provision to the contrary, as to obligations that pertain to
the Premises and Common Area and are part of this Sublease by the incorporation
by reference of provisions of the Master Lease, Sublandlord shall not be
required to make any payment or to perform any obligation, and Sublandlord shall
have no liability to Subtenant for any matter whatsoever, except for
Sublandlord's obligation to pay the Underlying Rent and to use reasonable good
faith efforts, upon request of Subtenant, to cause the Landlord to observe
and/or perform Landlord's obligations under the Master Lease. Sublandlord shall
not be responsible for any failure or interruption, for any reason whatsoever,
of the services or facilities that may be appurtenant to or supplied at the
Building by Landlord. Subtenant hereby expressly waives the provisions of any
statute, ordinance or judicial decision which would give Subtenant rights to
make repairs at the expense of Sublandlord. The foregoing notwithstanding: (A)
Sublandlord will furnish to Subtenant, promptly after receipt of same from
Landlord, a copy of the Lessor's Statement called for in the fourth grammatical
paragraph of Article 7(b) of the Master Lease, and credit any overpayment of
Excess Expenses as provided therein to the extent such overpayment of Excess
Expenses has been credited by Landlord to Sublandlord; (B) under the second
grammatical paragraph of Article 8(b) of the Master Lease, Sublandlord will give
notice within thirty (30) days after receipt of Subtenant's written notice of
objection whether Sublandlord will enforce the use restriction or permit a
change in use, as contemplated therein; (C) Sublandlord and Subtenant each agree
to be bound to the other by the waiver of subrogation in Article 15 of the
Master Lease; (D) Sublandlord and Subtenant each agree to be bound to the other
under Article 43 of the Master Lease; (E) the two (2) grace periods in Addendum
19 of the Master Lease shall be applicable to Subtenant's monetary obligations
under this Sublease; and (F) Sublandlord also shall be bound by the restrictions
set forth in Addendum 20 to the Master Lease.
(vii) With respect to any approval or consent required to
be obtained from Landlord under the Master Lease, such approval or consent must
be obtained from both Landlord and Sublandlord. Any approval or consent required
of Sublandlord conclusively shall be deemed reasonably withheld if approval or
consent also is required of the Landlord, and Landlord withholds Landlord's
approval or consent.
(d) Subtenant shall fully perform all of the Transferred
Obligations and shall indemnify, defend, protect, and hold harmless Sublandlord
from any and all liability, damages,
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<PAGE> 9
liabilities, claims proceedings, actions, demands and costs (including
reasonable attorneys' fees) resulting, directly or indirectly, from Subtenant's
failure to perform the Transferred Obligations.
(e) Without limiting the generality of the foregoing, for
purposes of incorporating the terms, covenants and conditions of the Master
Lease into this Sublease, the following provisions of the Master Lease are
amended as follows:
(i) Under Article 7 and Addendum 11 of the Master Lease,
Sublandlord shall be entitled to rely on any statement or estimate from Landlord
regarding the calculation and payment of Additional Rent (including, without
limitation, any calculation of Lessee's Percentage Share of Excess Expenses) and
shall be under no duty to verify the same.
(ii) Under Article 16 and Addendum 16 of the Master Lease,
Sublandlord shall only be required, after written request by Subtenant, to use
reasonable good faith efforts to cause Landlord to maintain the insurance
required of Landlord.
(iii) Under Article 11 of the Master Lease, Sublandlord
shall only be required, after written request by Subtenant, to use reasonable
good faith efforts to cause Landlord to perform the maintenance and repair
obligations thereunder.
(iv) Under Article 17 and Addendum 17 of the Master Lease,
Sublandlord shall only be required, after written request by Subtenant, to use
reasonable good faith efforts to cause Landlord to furnish the utilities and
services called for thereunder.
(v) Under Article 13 and Addendum 15 of the Master Lease,
all profit or additional consideration from any assignment or sublease shall be
paid to Landlord, and the determination of the amount to be paid shall be
determined in accordance with the Master Lease.
(vi) Under Article 28 of the Master Lease, upon surrender
of the Premises at the expiration of the Sublease Term or the earlier
termination of this Sublease, Subtenant shall return the Premises to Sublandlord
in the same condition as existed upon delivery of the Premises to Subtenant,
prior to the construction of any alterations or improvements as may be made by
Subtenant; provided, however, that Subtenant shall not be required to remove any
such alterations or improvements if Landlord agrees in writing to waive its
right to require Sublandlord to remove such any alterations or improvements upon
surrender of the Premises to Landlord.
(vii) Under Article 19 of the Master Lease, the Rent
payable during any holding over without the consent of Sublandlord and Landlord
shall be one hundred fifty percent (150%) of the Basic Rent.
(viii) Under Article 33 of the Master Lease, Sublandlord's
notice address shall be as provided adjacent to Sublandlord's signature below,
or at such other address as Sublandlord may from time to time designate in
writing; and Subtenant's notice address shall be as provided adjacent to
Subtenant's signature below, provided that after Subtenant takes occupancy of
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<PAGE> 10
the Premises, notices shall be sent to Subtenant at the address of the Premises.
Any notice required or permitted under this Sublease shall be deemed to have
been delivered upon actual receipt or upon refusal of delivery. Notices under
this Sublease shall be permitted to be transmitted by overnight courier service,
in addition to the other methods permitted under the Master Lease. Neither
Sublandlord nor Subtenant shall be required to send facsimile copies of notices
which are personally delivered or mailed.
(ix) For purposes of clarification, and without limiting
the general intentions expressed elsewhere in this Sublease, it is agreed that:
(A) references to "Base Rent" and "Rentals" shall be deemed to refer,
respectively, "Basic Rent" and "Rent;" (B) references in the following articles
and sections of the Master Lease to "Lessor" shall be deemed to refer to
"Landlord" only (except that Sublandlord also shall enjoy the full benefit of
any exculpation, waiver, release, indemnity or like provisions contained
therein): 7(b)(i), 7(b)(ii), 16(d), 17, 18, 20 (the fifth sentence only), 21, 24
(except the last sentence of the first paragraph), 26, 29 (the second and third
sentences only), 30, 44, 54, 56 and 63 ), Addendum 18 and Exhibit D; (C) with
respect to Subtenant's indemnity obligation under the third paragraph of Article
14 of the Master Lease, the exception thereto for active negligence or willful
misconduct shall apply to both Landlord and Sublandlord (meaning that the active
negligence or willful misconduct of one shall affect Subtenant's indemnity
obligation to both); (D) Subtenant's obligation to pay Excess Expenses shall be
limited to its obligation to pay Excess Expenses as set forth in Paragraph 3(b)
of this Sublease; (E) Subtenant's obligation pay taxes allocable to the Tenant
Improvements shall be limited to the extent to which such taxes exceed the
amount payable therefor during the first twelve (12) months of the Sublease
Term, and no such taxes shall be payable by Subtenant until after the first
anniversary of the Commencement Date; (F) Sublandlord shall not unreasonably
withhold its consent to a change in the use of the Premises (including, without
limitation, in connection with a Transfer), provided Landlord unconditionally
consents to such change in use; (G) Subtenant's obligations under Article 9 of
the Master Lease shall be subject to Paragraph 5(c) of this Sublease; (H)
provided Landlord unconditionally consents thereto, Sublandlord shall not
unreasonably withhold its consent to any Alterations described in the last
paragraph of Article 10(a); (I) Sublandlord's rights to enter the Premises shall
be limited to reasonable entry to inspect the Premises and cure defaults of
Subtenant under this Sublease, and Sublandlord shall not be entitled to retain a
key to the Premises; (J) Sublandlord shall not exercise any rights of
termination under Article 24 except with the prior written consent of Subtenant;
(K) the provisions of Article 42 of the Master Lease shall not apply to
Sublandlord's performance of its obligations as Lessee under the Master Lease;
(L) upon written request by Subtenant, and at Subtenant's sole expense,
Sublandlord shall conduct such inspection of Landlord's books and records as is
allowed under Article 7(b) of the Master Lease and share the results of such
inspection with Subtenant; and (M) Subtenant shall not be required to obtain the
prior consent of Sublandlord to construct Alterations of the type described in
Addendum 12 to the Master Lease.
8. ASSIGNMENT AND SUBLETTING. Subtenant shall not assign this Sublease
or sublet all or any part of the Premises, or hypothecate or otherwise encumber
its interest under this Sublease, or allow any other person or entity to use or
occupy all or any part of the Premises, except with the prior written consent of
Sublandlord. Sublandlord will not unreasonably withhold its consent to an
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<PAGE> 11
assignment of this Sublease or a further subletting of all or any part of the
Premises; provided, however, that it shall be conclusively deemed reasonable for
Sublandlord to withhold such consent where Landlord fails or refuses to give any
corresponding consent required under the Master Lease. Notwithstanding the
foregoing, Subtenant shall have the right to assign or sublet any part or all of
the Premises to (a) an entity controlling, controlled by, or under common
control with, Subtenant, (b) an entity which results from a merger,
consolidation or other non-bankruptcy business reorganization of Subtenant or
(c) an entity which acquires all or substantially all of the stock or assets of
Subtenant as a going concern, provided, however, that prior to any assignment or
subletting under clauses (a) through (c) above, Subtenant must give to
Sublandlord written notice of Subtenant's intent to effect such transfer and
Landlord must have granted its unconditional consent thereto in writing.
9. BROKERAGE. Sublandlord has been represented in the negotiation of
this Sublease by BT Commercial and Subtenant has been represented by CRESA
Partners, LLC, (formerly known as Catalyst Real Estate Group). Subject to
obtaining Landlord's consent to this Sublease, Sublandlord shall pay a
commission pursuant to a separate agreement between Sublandlord and BT
Commercial, which shall in turn compensate CRESA Partners. Each party warrants
and represents to the other that such party has not retained the services of any
real estate broker, finder or any other person (other than the brokers named in
the two preceding sentences) whose services would form the basis for any claim
for any commission or fee in connection with this Sublease or the transactions
contemplated hereby. Each party agrees to save, defend, indemnify and hold the
other party free and harmless from any breach of its warranty and representation
as set forth in the preceding sentence, including the other party's attorneys'
fees.
10. SUBLANDLORD'S OBLIGATIONS. So long as Subtenant is not in default
under this Sublease (after the expiration of any applicable notice or cure
period), Sublandlord shall observe, perform and discharge those obligations
which are imposed on the Lessee under the Master Lease and are not Transferred
Obligations under this Sublease. However, except as expressly provided in this
Sublease, Sublandlord shall have no obligations to Subtenant with respect to the
Premises or the performance by Landlord of any obligations of the Lessor under
the Master Lease.
11. EARLY TERMINATION OF MASTER LEASE.
(a) If the Master Lease terminates prior to the scheduled
expiration of the Sublease Term, Sublandlord shall have no liability to
Subtenant unless termination of the Master Lease is due to Sublandlord's default
thereunder, and such default is not caused by Subtenant's failure to timely and
fully observe, perform and discharge its obligations under this Sublease
(including, without limitation, the Transferred Obligations) or Sublandlord's
material default under this Sublease. Where the Master Lease grants Sublandlord
any discretionary right to terminate the Master Lease, whether due to casualty,
condemnation, or otherwise, Sublandlord shall exercise such right only with the
prior written consent of Subtenant and, subject only to such consent
requirement, the termination of this Sublease as a consequence of Sublandlord's
exercise of any right to terminate the Master Lease shall not lead to any
liability on Sublandlord's part.
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<PAGE> 12
(b) Without limiting any other right or remedy of Subtenant under
this Sublease, if Landlord seeks to terminate the Master Lease due to a default
by Sublandlord, which default is not attributable to Subtenant's failure to
fully observe, perform and discharge its obligations under this Sublease
(including, without limitation, the Transferred Obligations), Sublandlord shall
use its reasonable good faith efforts to maintain the Master Lease in full force
and effect and to avoid forfeiture thereof, and shall take all action as may
reasonably be required to reinstate the Master Lease and/or to claim and pursue
any right of redemption or relief from forfeiture of the Master Lease to which
Sublandlord may be entitled at law or in equity.
12. CONSENT OF LANDLORD. If Subtenant desires to take any action which
requires the consent of Landlord pursuant to the terms of the Master Lease,
including, without limitation, the making of any Alterations, then,
notwithstanding anything to the contrary herein, (a) Sublandlord, independently,
shall have the same rights of approval or disapproval as Landlord has under the
Master Lease, (b) Subtenant shall not take any such action until it obtains the
consent of both Sublandlord (whose consent shall not be unreasonably withheld,
except as otherwise expressly provided in this Sublease) and Landlord, and (c)
Subtenant shall request that Sublandlord obtain Landlord's consent on
Subtenant's behalf and Sublandlord shall use commercially reasonable efforts to
obtain such consent, unless Sublandlord and Landlord agree that Subtenant may
contact Landlord directly with respect to the specific action for which
Landlord's consent is required.
13. NO THIRD PARTY RIGHTS. Except as otherwise expressly provided
herein, the benefit of the provisions of this Sublease is limited to Sublandlord
and Subtenant and to their successors and assigns. No third party shall be
construed to have any rights as a third party beneficiary with respect to any of
the provisions of this Sublease. Subtenant acknowledges, however, that under
Article 13(c) of the Master Lease Landlord may require Subtenant to execute an
Assumption Agreement as a condition to Landlord's consent to this Sublease.
Subtenant shall not unreasonably refuse to execute such Assumption Agreement,
even though the same may make Landlord a third party beneficiary of this
Sublease.
14. LANDLORD'S CONSENT TO SUBLEASE. This Sublease is subject to the
consent of the Landlord. Sublandlord and Subtenant shall use commercially
reasonable efforts to obtain the consent of Landlord to this Sublease as soon as
reasonably possible following execution of this Sublease. At Subtenant's
election, Landlord's consent shall include: (a) Landlord's agreement to give
Subtenant notice of any material default by Sublandlord under the Master Lease
and the right to cure any such default; (b) Landlord's waiver of subrogation for
Subtenant's benefit, comparable to that found in Article 15 of the Master Lease;
and (c) Landlord's approval of Subtenant's installation of the signage described
in Exhibit 6 to this Sublease. In the event that Landlord's consent is not
obtained within twenty (20) days following the submittal of this Sublease by
Sublandlord to Landlord for consent, each of Sublandlord and Subtenant shall
have the right to terminate this Sublease by providing written notice of
termination to the other. Unless exercised prior thereto, this right of
termination hereunder shall expire upon the delivery to Subtenant of Landlord's
consent. For purposes of this paragraph, Landlord's consent shall be deemed to
have been given as of the date when Landlord's unconditional consent to this
Sublease has been obtained, or, in the event such
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<PAGE> 13
consent is conditional, the date upon which such conditions have been fully
satisfied or waived by Landlord.
15. COUNTERPARTS. This Sublease may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
all of which together shall constitute one and the same instrument.
16. STATUS OF LEASE. Sublandlord hereby represents and warrants to
Subtenant that (i) the Master Lease attached hereto as Exhibit 3 has been
executed and delivered by Master Landlord and Sublandlord and constitutes the
entire agreement of the parties thereto relating to the lease of the Premises,
(ii) no default or breach by Sublandlord or, to the best of Sublandlord's
knowledge, by Landlord, exists under the Lease, (iii) no event has occurred
that, with the passage of time, the giving of notice, or both, would constitute
a default or breach by Sublandlord or, to the best of Sublandlord's knowledge,
by Landlord under the Lease, and (iv) subject to receipt of Landlord's written
consent hereto, Sublandlord has the right and power to execute and deliver this
Sublease and to perform its obligations hereunder. Sublandlord shall not, except
with the prior written consent of Subtenant, terminate the Master Lease or take
any action that gives rise to a right of termination thereof by Landlord.
Furthermore, so long as Subtenant is not in default hereunder (after any
applicable notice and cure period), Sublandlord shall not, except with the prior
written consent of Subtenant, modify or amend the Master Lease, or make any
elections or give any consent under the Master Lease in such a manner as to
materially adversely affect the rights or obligations of Subtenant under this
Sublease.
17. PURCHASE OF FURNITURE. Sublandlord agrees to sell and Subtenant
agrees to purchase the furniture described in Exhibit 4 to this Sublease (the
"Furniture"), effective at the commencement of the Early Possession Period. The
sale and purchase of the Furniture is on an "AS IS" and "WITH ALL FAULTS" basis,
and is conditioned only upon the receipt of Landlord's consent to this Sublease.
Subtenant shall pay to Sublandlord $420,000 for the Furniture (the "Furniture
Purchase Price"), which shall be due and payable upon demand by Sublandlord.
Provided Subtenant is not in material default under this Lease (after any
applicable notice or cure period, including, without limitation, the statutory
three (3) day notice period or other notice period required by statute in order
to terminate the Sublease), Sublandlord shall make no demand for payment of the
Furniture Purchase Price until the expiration of the Sublease Term or the
earlier termination of this Sublease. Subtenant authorizes Sublandlord, at
Sublandlord's election, to use and apply so much of the Security Deposit as may
be needed in payment of the Furniture Purchase Price. Upon payment in full of
the Furniture Purchase Price, provided Subtenant is not otherwise in default
under this Sublease, and provided further that Subtenant first deposits with
Sublandlord the sum necessary (if any) to restore the Sublease Security Deposit
to the full amount of Five Hundred Thousand Dollars ($500,000), Sublandlord
shall convey title to the Furniture pursuant to a Bill of Sale in the form
attached as Exhibit 5 to this Sublease. Beginning with the commencement of the
Early Possession Period and continuing throughout the Sublease Term, Subtenant
shall (i) insure the Furniture, through a qualified insurer reasonably
acceptable to Sublandlord, against loss or damage under an "all risk" policy
providing coverage for the full replacement cost of the Furniture and naming
Sublandlord as loss payee, (ii) maintain the Furniture in good condition and
repair, (iii) not dispose of Furniture having a value in excess of
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$42,000 except with Sublandlord's consent (which may be granted or withheld in
Sublandlord's sole discretion), (iv) not remove the Furniture from the Premises
except upon not less than ten (10) days prior notice to Sublandlord and then
only to a secure location identified in Subtenant's notice, and (v) bear all
risk of loss to the Furniture. Subtenant shall provide satisfactory evidence of
the insurance coverage required under the preceding clause (i) at the beginning
of the Early Possession Period and thereafter within ten (10) days after
Sublandlord's written request therefor. If requested by Sublandlord, Subtenant
shall execute, acknowledge and deliver such further documents and instruments
(including, without limitation, a security agreement and UCC-1 financing
statement) as may be required to fully secure and protect Sublandlord's interest
in the Furniture. Sublandlord shall deliver possession of the Furniture to
Subtenant on the Early Possession Date in substantially the same condition as
exists on the date hereof.
18. SUBTENANT'S SIGNAGE. Subject to obtaining Landlord's prior written
consent thereto, Subtenant may install the signage described in Exhibit 6 to
this Sublease. Subtenant shall install such signage strictly in accordance with
applicable legal requirements, and shall be responsible for removing such
signage (and repairing any damage caused by such installation and removal) at
the expiration of the Sublease Term or the earlier termination of this Sublease.
All costs of installing, maintaining and removing Subtenant's signage (and of
repairing any damage resulting therefrom) shall be borne solely by Subtenant.
19. PRORATION OF RENT; PAYMENT OF EXCESS EXPENSES. If the Commencement
Date is a day other than the first day of a calendar month or if the Sublease
Term expires or this Sublease terminates on a day other than the last day of a
calendar month, all Rent shall be prorated appropriately. In no event shall
Subtenant's obligation to pay Excess Expenses exceed the amount attributable to
the Premises and payable by Sublandlord under the Master Lease. Subtenant shall
be entitled to all credits, if any, given by Landlord to Sublandlord where such
credits are for overpayment of Excess Expenses attributable to the Premises for
periods after the first anniversary of the Commencement Date.
20. SUBLANDLORD'S DEFAULT. Sublandlord shall not be in default under
this Sublease for failure to perform those obligations which are imposed on the
Lessee under the Master Lease, but which Subtenant has not agreed to perform
under this Sublease, unless such failure continues for more than thirty (30)
days after Subtenant gives Sublandlord written notice specifying with reasonable
particularity the obligations which remain unperformed (the "Correction
Period"); provided, however, that (a) if such failure of performance cannot be
corrected within thirty (30) days, the Correction Period shall be extended for
such additional time as is reasonably required, where Sublandlord commences
appropriate corrective action within such thirty (30) day period and thereafter
proceeds diligently to complete such action, and (b) if such failure of
performance poses a material risk of harm to persons or property, violates any
laws enacted specifically to protect public health or safety, or threatens the
forfeiture of the Master Lease, then such Correction Period shall be reduced to
such shorter period as allows Sublandlord a reasonable time to perform. If
Sublandlord is in default under this Sublease, Subtenant shall be entitled to
cure such default and to collect from Sublandlord promptly following written
demand therefor (which demand shall be accompanied by appropriate evidence of
Subtenant's expenditures) all amounts reasonably expended by Subtenant in
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<PAGE> 15
curing Sublandlord's default. Subtenant's right to cure Sublandlord's default
under this Paragraph 20 is in addition to Subtenant's right to pay Landlord
delinquent amounts of Underlying Rent under Paragraph 3(d) of this Sublease.
21. CONSENT AND APPROVALS. Except as otherwise expressly provided in
this Sublease: (i) whenever consent or approval of either party is required,
such party shall not unreasonably withhold, condition or delay such consent or
approval; (ii) whenever either party is permitted to make a judgment, form an
opinion or exercise discretion in taking any action or making any determination,
the party shall employ commercially reasonable standards in so doing; and (iii)
where performance is to be made to a party's satisfaction, an objective and
reasonable standard shall be employed in regard to such performance. Subtenant
acknowledges that Sublandlord may reasonably withhold its consent where any
corresponding consent of Landlord under the Master Lease is not forthcoming,
without regard to whether Landlord's withholding of consent is reasonable.
22. PERFORMANCE UNDER MASTER LEASE. Sublandlord shall fully perform all
of its obligations imposed on it as Lessee under the Master Lease to the extent
Subtenant has not expressly agreed to perform the same under this Sublease.
Sublandlord, with respect to the obligations of Landlord under the Master Lease,
shall use Sublandlord's diligent, good faith efforts to cause Landlord to
perform such obligations for the benefit of Subtenant. Such diligent, good faith
efforts shall include: (a) upon Subtenant's written request, immediately
notifying Landlord of its non-performance under the Master Lease, and requesting
that Landlord perform its obligations under the Master Lease; and (b) provided
Subtenant is not in default (after any applicable notice or cure period)
permitting Subtenant to commence a lawsuit or other action in Subtenant's name
to obtain the performance required from Landlord under the Master Lease;
provided, however, that if Subtenant commences a lawsuit or other action,
Subtenant shall pay all costs and expense incurred in connection therewith, and
Subtenant shall indemnify Sublandlord against, and hold Sublandlord harmless
from, any and all liabilities arising therefrom and all reasonable costs and
expenses (including, without limitation, attorneys fees and court costs)
incurred by Sublandlord in connection therewith. Sublandlord may require, prior
to the commencement of any litigation against Landlord, that Subtenant post with
Sublandlord such additional security as Sublandlord reasonably may require to
assure the full performance of Subtenant's indemnity obligations hereunder.
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Sublease on the dates
set forth adjacent to the signatures below, with the last such date being the
date to be inserted at the beginning hereof as the date of this Sublease.
ADDRESS: SUBLANDLORD:
(Before the Commencement Date)
1900 South Norfolk St., Ste. 110 INKTOMI CORPORATION,
San Mateo, CA 94403 a Delaware corporation
Attn.: Director of Facilities
(After the Commencement Date) By: /s/ [Signature Illegible]
4100 Third Avenue -------------------------------
Foster City, CA 94404 Its:
Attn.: Director of Facilities -----------------------------
By: /s/ [Signature Illegible]
-------------------------------
Its:
------------------------------
Date: , 1999
------------------
ADDRESS: SUBTENANT:
(Before the Commencement Date) EPIPHANY MARKETING SOFTWARE, INC.,
2300 Geng Rd. a Delaware Corporation
Palo Alto, CA 94303
Attn: Chief Financial Officer
By: Roger Siboni
-------------------------------
(After the Commencement Date) Its: CEO
At the Premises ------------------------------
Attn: Chief Financial Officer
By:
-------------------------------
Its:
------------------------------
Date: May 5 , 1999
------------------
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<PAGE> 1
EXHIBIT 10.11
EPIPHANY MARKETING SOFTWARE, INC.
AMENDED AND RESTATED
COMMON STOCK PURCHASE AGREEMENT
This Amended and Restated Common Stock Purchase Agreement (the
"Agreement") is made as of March 18, 1997 by and between Epiphany
Marketing Software, Inc., a Delaware corporation (the "Company"), and _____
("Purchaser") amends and restates that certain Common Stock Purchase Agreement
dated as of ______, 1997.
1. SALE OF STOCK. Subject to the terms and conditions of this
Agreement, on the Purchase Date (as defined below) the Company issued and sold
to Purchaser, and Purchaser purchased from the Company, ______ shares of the
Company's Common Stock (the "Shares") at a purchase price of $0.00025 per Share
for a total purchase price of $______. The term "Shares" refers to the purchased
Shares and all securities received in replacement of or in connection with the
Shares pursuant to stock dividends or splits, all securities received in
replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or other
properties to which Purchaser is entitled by reason of Purchaser's ownership of
the Shares.
2. PURCHASE. The purchase and sale of the Shares under this
Agreement occurred at the principal office of the Company on ______, 1997 (the
"Purchase Date"). On the Purchase Date, the Company delivered to Purchaser a
certificate representing the Shares to be purchased by Purchaser (which was
issued in Purchaser's name) against payment of the purchase price therefor by
Purchaser by check made payable to the Company.
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below), except as provided below.
After any Shares have been released from the Repurchase Option, Purchaser shall
not assign, encumber or dispose of any interest in such Shares except in
compliance with the provisions below and applicable securities laws.
(a) REPURCHASE OPTION.
(i) Subject to Section 3(a)(iv), in the event of the
termination of Purchaser's employment or consulting relationship with the
Company for any reason, with or without cause, the Company shall upon the date
of such termination (the "Termination Date") have an irrevocable, exclusive
option (the "Repurchase Option") for a period of 60 days from such date to
repurchase all or any portion of the Shares held by Purchaser as of the
Termination Date which have not yet been released from the Company's Repurchase
Option at the original purchase price per Share specified in Section 1 (adjusted
for any stock splits, stock dividends and the like); provided, however, that the
Repurchase Option shall continue for a period of up to one year from the
Termination Date to the extent that the Company reasonably determines that such
<PAGE> 2
an extension of time is necessary to prevent the repurchase of Purchaser's
Shares from causing other capital stock of the Company to not qualify as "small
business stock" under Section 1202 of the Internal Revenue Code of 1986, as
amended.
(ii) The Repurchase Option shall be exercised by the
Company by written notice to Purchaser or Purchaser's executor and, at the
Company's option, (A) by delivery to Purchaser or Purchaser's executor with such
notice of a check in the amount of the purchase price for the Shares being
purchased, or (B) in the event Purchaser is indebted to the Company, by
cancellation by the Company of an amount of such indebtedness equal to the
purchase price for the Shares being repurchased, or (C) by a combination of (A)
and (B) so that the combined payment and cancellation of indebtedness equals
such purchase price. Upon delivery of such notice and payment of the purchase
price in any of the ways described above, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and interest
therein or related thereto, and the Company shall have the right to transfer to
its own name the number of Shares being repurchased by the Company, without
further action by Purchaser.
(iii) One hundred percent (100%) of the Shares shall
initially be subject to the Repurchase Option, 1/48 of the total number of
Shares shall be released from the Repurchase Option at the end of each month
after the Vesting Commencement Date (as set forth on the signature page of this
Agreement), until all Shares are released from the Repurchase Option (provided
in each case that Purchaser's employment or consulting relationship with the
Company has not been terminated prior to the date of any such release).
Fractional shares shall be rounded to the nearest whole share.
(iv) Notwithstanding the forgoing, the Company's
Repurchase Option shall terminate as to all Shares (X) upon a Change of Control,
(Y) in the event the Company shall terminate Purchaser's employment with the
Company other than for Cause or Purchaser's death or Disability, or (Z) in the
event Purchaser shall terminate his employment with the Company because of a
Constructive Termination. Any Shares as to which the Company's Repurchase Option
has terminated pursuant to this Section 3(a)(iv) shall be deposited as Trust
Shares under that certain Voting Trust Agreement dated March 19, 1997 among the
Company, the holders of the Company's shares of Series A Preferred Stock and the
Trustors and Voting Trustee signatory thereto. The following terms referred to
in this Section 3(a)(iv) shall have the following meanings:
(A) "Change of Control" shall mean the
occurrence of any of the following events:
(I) Any "Person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) other than any Purchaser under that certain Series A Preferred Stock
Purchase Agreement dated as of March 19, 1997 among the Company and the
Purchasers signatory thereto) is or becomes the "Beneficial Owner" (as defined
in Rule l3d-3 under said Act), directly or indirectly, of securities of the
Company
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<PAGE> 3
representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities; or
(II) A merger or consolidation of the
Company other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(B) "Cause" shall mean: (I) any act of
personal dishonesty taken by Purchaser in connection with his responsibilities
as an employee and intended to result in substantial personal enrichment of
Purchaser, (II) gross negligence or willful misconduct in the performance of
Purchaser's duties to the Company where such gross negligence or willful
misconduct has resulted or is likely to result in substantial and material
damage to the Company or its subsidiaries; (III) repeated unexplained or
unjustified absence from the Company; (IV) a material and willful violation of
any federal or state law; (V) commission of any act of fraud with respect to the
Company; or (VI) conviction of a felony or a crime involving moral turpitude
causing material harm to the standing and reputation of the Company, in each
case as determined in good faith by the Board of Directors of the Company.
(C) "Constructive Termination" shall mean
Purchaser's voluntary termination, upon 30 days prior written notice to the
Company, following: (I) a material reduction or change in job duties,
responsibilities and requirements inconsistent with Purchaser's position with
the Company and Purchaser's prior duties, responsibilities and requirements;
(II) any reduction of Purchaser's base compensation (other than in connection
with a general decrease in base salaries for most officers of the successor
corporation); or (III) Purchaser's refusal to relocate to a facility or location
more than 30 miles from the Company's current location.
(D) "Disability" shall mean that the
Purchaser has been unable to perform his duties under this Agreement as the
result of his incapacity due to physical or mental illness, and such inability,
at least 26 weeks after its commencement, is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Purchaser or legal representative (such agreement as to acceptability not
to be unreasonable withheld).
(b) RIGHT OF FIRST REFUSAL. Before any Shares held by
Purchaser or any transferee of Purchaser (either being sometimes referred to
herein as the "Holder") may be sold or otherwise transferred (including transfer
by gift or operation of law), the Company or its assignee(s) shall have a right
of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 3(b) (the "Right of First Refusal").
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<PAGE> 4
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the
Shares shall deliver to the Company a written notice (the "Notice") stating: (A)
the Holder's bona fide intention to sell or otherwise transfer such Shares; (B)
the name of each proposed purchaser or other transferee ("Proposed Transferee");
(C) the number of Shares to be transferred to each Proposed Transferee; and (D)
the terms and conditions of each proposed sale or transfer. The Holder shall
offer the Shares at the same price (the "Offered Price") and upon the same terms
(or terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time
within thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.
(iii) PURCHASE PRICE. The purchase price ("Purchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 3(b) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
3(b), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 3 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything
to the contrary contained in this Section 3(b) notwithstanding, the transfer of
any or all of the Shares during Purchaser's lifetime or on Purchaser's death by
will or intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
3(b). "Immediate Family" as used herein shall mean spouse, lineal
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<PAGE> 5
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section 3.
(c) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY
TRANSFER. In the event, at any time after the date of this Agreement, of any
transfer by operation of law or other involuntary transfer (including death or
divorce, but excluding a transfer to Immediate Family as set forth in Section
3(b)(vi) above) of all or a portion of the Shares by the record holder thereof,
the Company shall have an option to purchase all of the Shares transferred at
the greater of the purchase price paid by Purchaser pursuant to this Agreement
or the fair market value of the Shares on the date of transfer. Upon such a
transfer, the person acquiring the Shares shall promptly notify the Secretary of
the Company of such transfer. The right to purchase such Shares shall be
provided to the Company for a period of thirty (30) days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to
any stock to be transferred pursuant to Section 3(c)(i), the price per Share
shall be a price set by the Board of Directors of the Company that will reflect
the current value of the stock in terms of present earnings and future prospects
of the Company. The Company shall notify Purchaser or his or her executor of the
price so determined within thirty (30) days after receipt by it of written
notice of the transfer or proposed transfer of Shares. However, if the Purchaser
does not agree with the valuation as determined by the Board of Directors of the
Company, the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(d) ASSIGNMENT. The right of the Company to purchase any
part of the Shares may be assigned in whole or in part to any stockholder or
stockholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the parent or a 100%
owned subsidiary of the Company, must pay the Company, upon assignment of such
right, cash equal to the difference between the original purchase price and fair
market value, if the original purchase price is less than the fair market value
of the Shares subject to the assignment.
(e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement, including, insofar as applicable,
the Repurchase Option. Any sale or transfer of the Company's Shares shall be
void unless the provisions of this Agreement are met.
(f) TERMINATION OF RIGHTS. The right of first refusal
granted the Company by Section 3(b) above and the option to repurchase the
Shares in the event of an involuntary transfer granted the Company by Section
3(c) above shall terminate upon the first sale of Common Stock of the Company to
the general public pursuant to a registration statement filed with and declared
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<PAGE> 6
effective by the Securities and Exchange Commission under the Securities Act.
Upon termination of the right of first refusal described in Section 3(b) and the
expiration or exercise of the Repurchase Option, a new certificate or
certificates representing the Shares not repurchased shall be issued, on
request, without the legend referred to in Section 6(a)(ii) below and delivered
to Purchaser.
4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit A executed by
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party). The escrow holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may resign at any time. Purchaser agrees that if the Secretary of
the Company, or the Secretary's designee, resigns as escrow holder for any or no
reason, the Board of Directors of the Company shall have the power to appoint a
successor to serve as escrow holder pursuant to the terms of this Agreement.
5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
Shares must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available.
Purchaser further acknowledges and understands that the Company is under no
obligation to register the Shares. Purchaser understands that the certificate
evidencing the Shares will be imprinted with a legend which prohibits the
transfer of the Shares unless they are registered or such registration is not
required in the opinion of counsel for the Company.
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<PAGE> 7
(d) Purchaser is familiar with the provisions of Rules 144
and 701, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of issuance of
the securities, such issuance will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), the securities exempt under Rule 701 may be resold by Purchaser
ninety (90) days thereafter, subject to the satisfaction of certain of the
conditions specified by Rule 144, including, among other things: (1) the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Exchange Act); and (2) in the case of an affiliate, the availability of certain
public information about the Company, and the amount of securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), if applicable. Notwithstanding this Section 5(d), Purchaser acknowledges
and agrees to the restrictions set forth in Section 5(f) hereof.
In the event that the Company does not qualify under Rule 701 at the
time of purchase, then the Shares may be resold by Purchaser in certain limited
circumstances subject to the provisions of Rule 144, which requires, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than one year after the party has purchased,
and made full payment of (within the meaning of Rule 144), the securities to be
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as such term is defined under the Exchange Act) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(e) Purchaser further understands that at the time he or
she wishes to sell the Shares there may be no public market upon which to make
such a sale, and that, even if such a public market then exists, the Company may
not be satisfying the current public information requirements of Rule 144 or
701, and that, in such event, Purchaser would be precluded from selling the
Shares under Rule 144 or 701 even if the one-year minimum holding period had
been satisfied.
(f) Purchaser further understands that in the event all of
the applicable requirements of Rule 144 or 701 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact that
Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange
Commission has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and otherwise than
pursuant to Rule 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
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<PAGE> 8
(g) Purchaser understands that Purchaser may suffer adverse
tax consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted any tax consultants
Purchaser deems advisable in connection with the purchase or disposition of the
Shares and that Purchaser is not relying on the Company for any tax advice.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing
the Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
(iii) Any legend required to be placed thereon by the
California Commissioner of Corporations.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order
to ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
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<PAGE> 9
(c) REFUSAL TO TRANSFER. The Company shall not be required
(i) to transfer on its books any Shares that have been sold or otherwise
transferred in violation of any of the provisions of this Agreement or (ii) to
treat as owner of such Shares or to accord the right to vote or pay dividends to
any purchaser or other transferee to whom such Shares shall have been so
transferred.
7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in
any manner whatsoever the right or power of the Company, or a parent or
subsidiary of the Company, to terminate Purchaser's employment, for any reason,
with or without cause.
8. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
the Internal Revenue Service within 30 days from the date of purchase. Even if
the fair market value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company
with this executed Agreement a copy of the Acknowledgment and Statement of
Decision Regarding Section 83(b) Election (the "Acknowledgment"), attached
hereto as Exhibit B. Purchaser further agrees that Purchaser will execute and
submit with the Acknowledgment a copy of the 83(b) Election, attached hereto as
Exhibit C, if Purchaser has indicated in the Acknowledgment his or her decision
to make such an election.
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<PAGE> 10
9. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties agree
to renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement, (ii)
the balance of the Agreement shall be interpreted as if such provision were so
excluded and (iii) the balance of the Agreement shall be enforceable in
accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of
negotiations between and has been reviewed by each of the parties hereto and
their respective counsel, if any; accordingly, this Agreement shall be deemed to
be the product of all of the parties hereto, and no ambiguity shall be construed
in favor of or against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
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<PAGE> 11
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
(i) DISPUTE RESOLUTION. Any dispute or claim arising out of
or in relation to this Agreement, or the interpretation, making, performance,
breach or termination hereof (including any disputes arising under Section
3(a)(iv)) shall be submitted for resolution to a mediator selected by the mutual
agreement of the parties. The parties will cooperate in good faith with the
mediator to reach a resolution to any dispute or claim. If the parties, in
conjunction with the mediator, cannot agree on a reasonable resolution within 10
days after the initiation of mediation, then the dispute shall be finally
settled by binding arbitration in Santa Clara County, California, under the
Commercial Arbitration Rules of the American Arbitration Association by one
Arbitrator appointed in accordance with said Rules. Judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The Company shall bear all costs and expenses arising from the
resolution of any dispute or claim under this provision.
[Signature Page Follows]
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<PAGE> 12
The parties have executed this Agreement as of the date first set forth
above.
EPIPHANY MARKETING SOFTWARE, INC.
By:
-------------------------------------
Title:
----------------------------------
Address:
2061 Landings Drive
Mountain View, CA 94043
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY OR AS OTHERWISE PROVIDED HEREIN. PURCHASER
FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON
PURCHASER ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR
CONSULTING RELATIONSHIP WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH
PURCHASERS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR
CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER
[Name]
----------------------------------------
(Signature)
Address:
----------------------------------------
----------------------------------------
Vesting Commencement Date: ___________________________
I, ______________________, spouse of____________________, have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or other such interest shall be similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
----------------------------------------
(Signature)
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<PAGE> 1
EXHIBIT 10.12
EPIPHANY MARKETING SOFTWARE, INC.
ROGER SIBONI
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between Roger Siboni (the "Purchaser") and
Epiphany Marketing Software, Inc. (the "Company") as of July 1, 1998.
WHEREAS, Purchaser has agreed to become Chief Executive Officer of the
Company.
WHEREAS, in connection with the foregoing, Purchaser desires to purchase
from the Company, and the Company desires to sell to Purchaser, shares of the
Company's Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Purchaser agree as
follows:
1. Purchase and Sale of Shares. Subject to the terms and conditions of
this Agreement, the Company hereby agrees to sell to Purchaser and Purchaser
agrees to purchase from the Company, on the Closing Date (as herein defined),
3,200,000 shares of the Company's Common Stock (the "Shares") at a price of
$0.20 per share, for an aggregate purchase price of $640,000.
2. Closing. The purchase and sale of the Shares shall occur at a Closing
to be held at a time to be mutually agreed upon by the Company and Purchaser
(the "Closing Date"). The Closing will take place at the principal offices of
the Company or at such other place as shall be designated by the Company. At the
Closing, Purchaser shall deliver to the Company a check payable to Epiphany
Marketing Software, Inc. in the amount of $320 and executed copies of a
Promissory Note in the aggregate amount of $639,680, a Stock Pledge Agreement, a
Stock Power, Joint Escrow Instructions and Consent of Spouse, in substantially
the forms attached hereto as Exhibits A-E, respectively, together with such
other documents as the Company may reasonably request. The Company will then
issue into escrow (as hereinafter described), as promptly thereafter as
practicable, a certificate registered in the name of the Purchaser evidencing
the Shares.
3. Vesting of Shares.
(a)The Shares shall vest and become exercisable as follows:
12/48th of the number of Shares purchased shall vest on the 12-month anniversary
of May 12, 1998, with the remainder vesting at the rate of 1/48th of the number
of Shares purchased on each monthly anniversary thereafter, for so long as the
Purchaser's employment or consulting relationship with Epiphany has not
terminated. For purposes of this Agreement, "vesting" shall be synonymous with
the lapsing of the Company's repurchase option under Section 4. Further, for
purposes of this Agreement, on any applicable date, "Vested Shares" refers to
shares that are vested pursuant to the terms of this Agreement on such date and
"Unvested Shares" refers to shares that are not vested pursuant to such terms on
such date.
<PAGE> 2
(b) Notwithstanding Section 3(a), if after a Change of Control
of the Company (as defined below):
(i) the total compensation paid to Purchaser (which
shall include Purchaser's base salary, base bonus and loan amounts) is reduced;
or
(ii) Purchaser is not offered a Senior Executive
Position (as defined below) with the Company or its successor,
the vesting of the Shares shall be accelerated as
follows:
(x) If the Change of Control is consummated prior to
May 12, 1999, such number of Shares shall vest immediately, in addition to
Purchaser's already Vested Shares, that would result in 1/2 of Purchaser's total
number of Shares being vested at such time; or
(y) if the Change of Control is consummated on or
after May 12, 1999, 1/4 of the Purchaser's total number of Shares shall vest
immediately at such time (or if less than 1/4 of the total number of Shares
remain Unvested Shares, such number of Unvested Shares).
(c) "Change of Control" shall mean the occurrence of any of the
following events:
(i) Any "Person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than any stockholder of the Company as of the date of
this Agreement, is or becomes the "Beneficial Owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or
(ii) A merger or consolidation of the Company other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
(d) "Senior Executive Position" shall mean a position with the
Company or its successor that permits Purchaser to run a significant business
unit of the Company or its successor or manage a significant function of the
Company or its successor.
4. Repurchase Option.
(a) If Purchaser's continuous status as an employee or consultant
with the Company is terminated for any reason, including for cause, death, and
disability, the Company shall have the
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<PAGE> 3
right and option to purchase from Purchaser, or Purchaser's personal
representative, as the case may be, all of the Purchaser's Unvested Shares as of
the date of such termination at the price paid by the Purchaser for such Shares
(the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may
exercise its Repurchase Option by delivering personally or by registered mail,
to Purchaser (or his transferee or legal representative, as the case may be),
within ninety (90) days of the termination, a notice in writing indicating the
Company's intention to exercise the Repurchase Option and setting forth a date
for closing not later than thirty (30) days from the mailing of such notice. The
closing shall take place at the Company's offices. At the closing, the holder of
the certificates for the Unvested Shares being transferred shall deliver the
stock certificate or certificates evidencing the Unvested Shares, and the
Company shall deliver the purchase price therefor.
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
offices.
(d) If the Company does not elect to exercise the Repurchase
Option conferred above by giving the requisite notice within ninety (90) days
following the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the
vesting schedule provided in Section 3.
5. Transferability of the Shares; Escrow.
(a) Purchaser hereby authorizes and directs Wilson Sonsini
Goodrich & Rosati, Professional Corporation ("WSGR"), or such other person or
entity designated by the Company, to transfer the Unvested Shares as to which
the Repurchase Option has been exercised from Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's
Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option
under Section 4, Purchaser hereby appoints WSGR, or any other person or entity
designated by the Company, as Escrow Agent (as defined in the Joint Escrow
Instructions discussed below), as its attorney-in-fact to sell, assign and
transfer unto the Company, such Unvested Shares, if any, repurchased by the
Company pursuant to the Repurchase Option and shall, upon execution of this
Agreement, deliver and deposit with WSGR, or such other person or entity
designated by the Company, the share certificates representing the Unvested
Shares, together with the stock assignment duly endorsed in blank, attached
hereto as Exhibit C. The Unvested Shares and stock assignment shall be held by
WSGR in escrow, pursuant to the Joint Escrow Instructions of the Company and
Purchaser attached hereto as Exhibit D, until the Company exercises its
Repurchase Option as provided in Section 4, until such Unvested Shares are
vested, or until such time as this Agreement no longer is in effect. As a
further condition to the Company's obligations under this Agreement, the spouse
of the Purchaser, if any, shall execute and
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<PAGE> 4
deliver to the Company the Consent of Spouse attached hereto as Exhibit E. Upon
vesting of the Unvested Shares, the Escrow Agent shall promptly deliver to the
Purchaser the certificate or certificates representing such Shares in the Escrow
Agent's possession belonging to the Purchaser, and the Escrow Agent shall be
discharged of all further obligations hereunder; provided, however, that the
Escrow Agent shall nevertheless retain such certificate or certificates as
Escrow Agent if so required pursuant to other restrictions imposed pursuant to
this Agreement.
(c) The Escrow Agent, the Company, or its designee, shall not be
liable for any act it may do or omit to do with respect to holding the Shares in
escrow and while acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and shall
acknowledge the same by signing a copy of this Agreement.
6. Limitations on Transfer. In addition to any other limitation on
transfer created by applicable securities laws, Purchasers shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser
or any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 6(a) (the "Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the
Shares shall deliver to the Company a written notice (the "Notice") stating: (i)
the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the terms and conditions of each proposed sale or transfer. The Holder
shall offer the Shares at the same price (the "Offered Price") and upon the same
terms (or terms as similar as reasonably possible) to the Company or its
assignee(s).
(ii) Exercise of Right of First Refusal. At any time
within thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 6(a) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
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<PAGE> 5
(iv) Payment. Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
6(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 6 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) Exception for Certain Family Transfers. Anything
to the contrary contained in this Section 6(a) notwithstanding, the transfer of
any or all of the Shares during Purchaser's lifetime or on Purchaser's death by
will or intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
6(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Agreement, and there shall be no further transfer of such
Shares except in accordance with the terms of this Agreement.
(b) Involuntary Transfer.
(i) Company's Right to Purchase upon Involuntary
Transfer. In the event, at any time after the date of this Agreement, of any
transfer by operation of law or other involuntary transfer (including death or
divorce, but excluding a transfer upon Purchaser's death to Immediate Family as
set forth in Section 6(a)(vi) above) of all or a portion of the Shares by the
record holder thereof, the Company shall have an option to purchase all of the
Shares transferred at the greater of the purchase price paid by Purchaser
pursuant to this Agreement or the Fair Market Value of the Shares on the date of
transfer. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company for a period of thirty (30) days
following receipt by the Company of written notice by the person acquiring the
Shares.
(ii) Price for Involuntary Transfer. With respect to
any stock to be transferred pursuant to Section 6(b)(i), the price per Share
shall be a price set by the Board of Directors of the Company that will reflect
the current value of the stock in terms of present earnings and future prospects
of the Company. The Company shall notify Purchaser or his executor of the
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<PAGE> 6
price so determined within thirty (30) days after receipt by it of written
notice of the transfer or proposed transfer of Shares. However, if the Purchaser
or his executor does not agree with the valuation as determined by the Board of
Directors of the Company, the Purchaser or his executor shall be entitled to
have the valuation determined by an independent appraiser to be mutually agreed
upon by the Company and the Purchaser and whose fees shall be borne equally by
the Company and the Purchaser or his estate.
(c) Assignment. The right of the Company to purchase any part of
the Shares may be assigned in whole or in part to any stockholder or
stockholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the parent or a 100%
owned subsidiary of the Company, must pay the Company, upon assignment of such
right, cash equal to the difference between the original purchase price and Fair
Market Value, if the original purchase price is less than the Fair Market Value
of the Shares subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement. Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are
satisfied.
(e) Termination of Rights. The Right of First Refusal granted the
Company by Section 6(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 6(b) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to an underwritten public offering which has been filed pursuant
to a Form S-1 registration statement (or its successor) with the Securities and
Exchange Commission under the Securities Act.
(f) Nonexclusivity of Rights. The rights of the Company under
this Section 6 shall be addition to, and not in lieu of, all other rights of the
Company under this Agreement.
7. First Amended and Restated Co-Sale Agreement. The Purchaser agrees to
be a party to and bound by the terms of that certain First Amended and Restated
Co-Sale Agreement, dated as of January 16, 1998, between the Company and certain
investors in the Company, as if Purchaser were a Founder under that Agreement.
8. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. The certificate or certificates representing the
Shares shall bear the following legends (as well as any other legends required
by applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED; NO SALE OR
DISPOSITION OF SUCH SHARES MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN EXEMPTION
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<PAGE> 7
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
(b) Stop Transfer Notices. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Purchaser Securities Laws Representations. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the Shares.
Purchaser is acquiring these Shares for investment for Purchaser's own account
only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Purchaser acknowledges and understands that the Shares
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein. In this regard,
Purchaser understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Purchaser's representation was predicated solely upon a present intention to
hold these Shares for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Shares, or for a period of one year or any other fixed
period in the future. Purchaser further understands that the Shares must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. Purchaser further acknowledges
and understands that the Company is under no obligation to register the Shares.
Purchaser understands that the certificate evidencing the Shares will be
imprinted with a legend which prohibits the transfer of the Shares unless they
are registered or such registration is not required in the opinion of counsel
satisfactory to the Company, and any other legend required under applicable
state securities laws.
(c) Purchaser is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted
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<PAGE> 8
securities" acquired, directly or indirectly from the issuer thereof, in a
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of the sale of
the Shares to the Purchaser, the exercise will be exempt from registration under
the Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), ninety (90) days thereafter (or such longer period
as any market stand-off agreement may require) the Shares exempt under Rule 701
may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including: (1) the resale being made through a broker in
an unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Exchange Act); and, in the case of an
affiliate, (2) the availability of certain public information about the Company,
(3) the amount of Shares being sold during any three month period not exceeding
the limitations specified in Rule 144(e), and (4) the timely filing of a Form
144, if applicable.
In the event that the Company does not qualify under Rule 701 at
the time of sale of the Shares, then the Shares may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Shares were sold
by the Company or the date the Shares were sold by an affiliate of the Company,
within the meaning of Rule 144; and, in the case of acquisition of the Shares by
an affiliate, or by a non-affiliate who subsequently holds the Shares less than
two years, the satisfaction of the conditions set forth in sections (1), (2),
(3) and (4) of the paragraph immediately above. PURCHASER UNDERSTANDS THAT
PAYMENT FOR THE SECURITIES WITH A PROMISSORY NOTE IS NOT DEEMED TO BE FULL
PAYMENT UNDER RULE 144 UNLESS THE NOTE IS SECURED BY ASSETS OTHER THAN THE
SECURITIES.
(d) Purchaser further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
10. Section 83(b) Election; Tax Representation.
(a) Purchaser hereby acknowledges that he has been informed that,
with respect to the purchase of the Shares subject to the Repurchase Option
under Section 4, an election may be filed by the Purchaser with the Internal
Revenue Service, within 30 days of the purchase of the Shares, electing pursuant
to Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. Absent such an election, taxable income will be measured and
recognized by Purchaser at the time or times on which the Company's Repurchase
Option lapses. Purchaser is strongly encouraged to seek the advice of his
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<PAGE> 9
own tax consultants in connection with the purchase of the Shares and the
advisability of filing of the Election under Section 83(b) of the Code. A form
of Election under Section 83(b) is attached hereto as Exhibit F for reference. A
form of cover letter addressed to the Internal Revenue Service to accompany such
Election under Section 83(b) is attached hereto as Exhibit G for reference.
(b) PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS
FILING ON PURCHASER'S BEHALF.
(c) Purchaser has reviewed with his or her own tax advisors the
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
11. No Employment Rights. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
12. Market Standoff Agreement. Purchaser hereby agrees that, if so
requested by the Company or any representative of the underwriters (the
"Managing Underwriter") in connection with any registration of the offering of
any securities of the Company under the Securities Act, Purchaser shall not sell
or otherwise transfer any Shares or other securities of the Company during the
up to 180-day period (or such other period as may be requested in writing by the
Managing Underwriter and agreed to in writing by the Company) (the "Market
Standoff Period") following the effective date of a registration statement of
the Company filed under the Securities Act and to execute an agreement
reflecting the foregoing as may be requested by the Managing Underwriter at the
time of the public offering. Such restriction shall apply only to the first
registration statement of the Company to become effective under the Securities
Act that includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such Market Standoff Period.
13. Ownership, Voting Rights, Duties. This Agreement shall not affect in
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
14. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
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<PAGE> 10
15. Notices. Notices required hereunder shall be given in person or by
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
16. Survival of Terms. This Agreement shall apply to and bind Purchaser
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
17. Governing Law. This Agreement shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
18. Purchaser Representation. Purchaser represents that he has read this
Agreement and is familiar with its terms and provisions. Purchaser hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Board upon any questions arising under this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, this Restricted Stock Purchase Agreement is deemed
made as of the date first set forth above.
PURCHASER: EPIPHANY MARKETING SOFTWARE, INC.
/s/ ROGER S. SIBONI /s/ BEN WEGBREIT
- ------------------------------- -----------------------------------
Signature By
ROGER S. SIBONI EVP R&D & CHAIRMAN OF THE BOARD
- ------------------------------- -----------------------------------
Print Name Title
- -------------------------------
- -------------------------------
Residence Address
Dated: July 1, 1998
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<PAGE> 12
EXHIBIT A
PROMISSORY NOTE
US$639,680
Date: July 1, 1998
FOR VALUE RECEIVED, Roger Siboni ("Maker") hereby absolutely and
unconditionally promises to pay to the order of Epiphany Marketing Software,
Inc. or its successors and assigns ("Payee") in immediately available funds the
principal amount of $639,680 or, if less, the aggregate principal amount of this
Note outstanding on such date (the "Principal Sum"), together with accrued and
unpaid interest thereon at the rate hereinafter provided.
1. Repayment. The Principal Sum shall be paid on July 1, 2008, together
with all accrued and unpaid interest thereon calculated from the date hereof at
the rate provided in Section 2 of this Note. This Note may be repaid, in whole
or in part, at any time without premium or penalty, with interest calculated on
the outstanding balance. Security for this Note shall be the pledged Collateral
as defined in the Stock Pledge Agreement, dated as of the date hereof, by and
between the Maker as "Stockholder" and Payee as "Pledgee" (the "Security
Agreement").
2. Interest. This Note shall bear interest on the Principal Sum thereof
from time to time outstanding at a rate per annum equal to five and eighty-eight
hundredths percent (5.88%), calculated without compounding; additional interest
on any amounts outstanding after July 1, 2008 shall accrue at the same rate.
3. Method and Place of Payment. All payments of the Principal Sum and
interest pursuant hereto shall be made in immediately available funds of the
United States. All payments shall be made to Payee at is registered office as
indicated in Section 8. In the event Maker pays any interest on this Note and it
is determined that such rate was in excess of the then-legal maximum interest
rate, then the portion of the interest payment representing an amount in excess
of the then-legal maximum interest rate shall be deemed a payment of principal
and applied against the principal of the Note.
4. Defaults and Remedies. An "Event of Default" with respect to this
Note occurs (i) if Maker defaults in the payment of the Principal Sum or
interest thereon when the same becomes due and payable and remains in default
for fifteen (15) days after receipt of notice of such default from Payee, (ii)
upon the termination by Payee of Maker's employment with Payee, or (iii) upon a
voluntary or involuntary bankruptcy of Maker. Upon the occurrence and during the
continuation of any Event of Default, (in addition to any other rights and
remedies Payee may have hereunder), Payee may by written notice of default to
Maker declare all or a portion of the amounts outstanding under this Note as due
and payable immediately. Maker agrees to pay all collection expenses, court
costs and reasonable attorneys' fees and disbursements that are incurred after
July 1, 2008, or such earlier date as the Principal Sum may become due
hereunder, in connection with the successful collection under or enforcement of
this Note.
<PAGE> 13
5. Waiver. Except as otherwise specifically provided in this Note, Maker
hereby waives presentment, demand, notice, protest, and all other demands and
notice in connection with the delivery, acceptance, performance or enforcement
of this Note. No failure or delay on the part of Payee in exercising any of its
rights, powers or privileges hereunder shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise of any right, power or privilege. The remedies provided herein are
cumulative and are not exclusive of any remedies provided by law. This Note may
be amended, waived or discharged only with the written consent of Payee.
6. Governing Law; Jurisdiction. THIS NOTE IS MADE AND DELIVERED AND
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPALS THEREOF.
Each of Maker and Payee irrevocably and unconditionally (i) agrees that any
action or proceeding against him or it seeking specific performance or other
equitable relief or other remedy arising out of this Note shall be brought only
in an appropriate court located in the State of California, (ii) submits to the
jurisdiction and venue of the courts referred to above in connection with any
such action or proceeding and (iii) consents to the service of process outside
the territorial jurisdiction of the courts referred to above in any such action
and proceeding by sending copies thereof by overnight courier or certified mail
to his or its address as specified in Section 8 hereof.
7. Severability. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by, or invalid under,
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note.
8. Notices. All notices and other communications provided hereunder
shall be in writing or by facsimile and addressed, delivered or transmitted if
to Maker at _________________ ____________________________ or if to Payee at
2300 Geng Road, Suite 200, Palo Alto, CA 94303, (650) 496-2330 (telephone),
(650) 496-2431 (facsimile) or at such other address or facsimile number as may
be designated by such party in a notice to the other party. Any notice, if
mailed and properly addressed with postage prepaid or if properly addressed and
sent by prepaid courier service, shall be deemed given when received; any
notice, if transmitted by facsimile, shall be deemed given when transmitted and
confirmed by telephone call to the recipient at the number specified herein.
9. Successors and Assigns. This Note shall be finding upon Maker and his
assigns and successors in interest and shall inure to the benefit of Payee and
its administrators, personal representatives, assigns and successors in
interest.
WITNESS MY HAND as of the day and year first above written.
MAKER
/s/ ROGER SIBONI
------------------------------------
Roger Siboni
-2-
<PAGE> 14
EXHIBIT B
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (the "Agreement") is made and dated as of
July 1, 1998 between Epiphany Marketing Software, Inc., a Delaware corporation
(the "Pledgee") and Roger Siboni ("Stockholder").
RECITALS
WHEREAS, Stockholder desires to purchase 3,200,000 shares of Pledgee;
WHEREAS, Pledgee has agreed that the exercise price for the shares may
be paid by Stockholder by means of delivery of an executed promissory note (the
"Promissory Note"), to be dated July 1, 1998; and
WHEREAS, Stockholder has agreed to pledge the shares as collateral for
the Promissory Note.
NOW THEREFORE, in consideration of and in order to induce Pledgee to
accept the Promissory Note as consideration for the shares, and for other good
and valuable consideration, Stockholder hereby agrees, for the benefit of
Pledgee, as follows:
AGREEMENT
1. Defined Terms. Except as otherwise provided herein, the capitalized
terms set forth below shall have the following meanings:
(a) "Person" shall mean any natural person, corporation,
partnership, firm, association, government, governmental agency or any other
entity and whether acting in an individual, fiduciary or other capacity.
(b) "Transfer" shall mean any transfer, sale, issuance,
assignment, pledge, encumbrance, award, or confirmation, of any interest in any
Pledged Stock (as hereinafter defined), or any attempt to do the same, for
consideration or otherwise, whether voluntary, involuntary or by operation of
law, irrespective of whether any change in the record ownership of the Pledged
Stock occurs, including without limitation whenever any transfer, award or
confirmation of any such Pledged Stock occurs to any Stockholder's spouse
pursuant to a decree of divorce, dissolution, or separate maintenance, or
pursuant to a property settlement or separation agreement, whenever any
testamentary or other similar disposition of any interest in any such Pledged
Stock occurs upon any Stockholder's death, or whenever any other event which,
were it not for the provisions of this Agreement, would cause any such Pledged
Stock, or any interest therein, to be sold, assigned, pledged, encumbered,
awarded, confirmed, or otherwise transferred, for consideration or otherwise, to
any Person, whether voluntarily, involuntarily, or by operation of law.
Capitalized terms used herein without definition shall have the
meaning ascribed thereto in the Promissory Note.
-3-
<PAGE> 15
2. Stock Subject to This Agreement. Stock subject to this Agreement (the
"Pledged Stock") shall consist of the 3,200,000 shares of capital stock of
Pledgee purchased by Stockholder together with all now existing and hereafter
arising rights of the Stockholder as the holder of Pledged Stock, including,
without limitation, all voting rights and all rights to cash and non-cash
dividends and other distributions on account of the Pledged Stock.
3. Grant of Security Interest. Stockholder hereby pledges, assigns, and
hypothecates, transfers and delivers to the Pledgee all of his Pledged Stock and
hereby grants to the Pledgee a first lien on, and security interest in, such
Pledged Stock and all other Collateral (as hereinafter defined) pledged
hereunder, and in all proceeds thereof, and hereby transfers and delivers to the
Pledgee stock certificates evidencing the Pledged Stock, together with
appropriate undated stock powers duly executed in blank, to secure payment and
performance of the obligations described in Paragraph 5 below.
4. Collateral. The Collateral shall consist of the following:
(a) The Pledged Stock together with all new, substituted,
exchanged and additional securities issued at any time with respect to such
Pledged Stock;
(b) All now existing and hereafter arising rights of Stockholder
as the holder of Pledged Stock, including, without limitation, all voting rights
and all rights to cash and non-cash dividends and other distributions on account
of the Pledged Stock; and
(c) All proceeds of the foregoing Collateral, and all proceeds of
such proceeds, including proceeds acquired with cash proceeds consisting of any
of the property described in paragraphs (a) and (b) above.
For purposes of this Agreement, the term "proceeds" includes
whatever is receivable or received when Collateral or proceeds are sold,
collected, exchanged or otherwise disposed of whether such disposition is
voluntary or involuntary, and includes, without limitation, all rights to
payment, including return premiums, with respect to any insurance relating
thereto and also includes all interest, dividends and other property receivable
or received on account of, the Collateral or proceeds thereof.
5. Obligations. The obligations secured by this Agreement (the
"Obligations") shall consist of any and all debts, obligations and liabilities
of the Stockholder (or Maker) to the Pledgee (or Payee) arising under the
Promissory Note.
6. Sale or Transfer of Shares. As a condition precedent to any transfer
of Pledged Stock, a counterpart of this Agreement must be executed by the
proposed transferee, and such Pledged Stock, with stock powers, executed in
blank, shall be delivered to the Pledgee under this Agreement together with such
other documents and instruments as may be reasonably requested by the Pledgee in
order to perfect the security interest in the Pledged Stock as stated herein.
7. Authorized Action by the Pledgee. Stockholder hereby irrevocably
appoints the Pledgee as his attorney-in-fact to do (but the Pledgee shall not be
obligated to and shall incur no liability to Stockholder or any third party for
failure so to do), from and after such time as there has occurred a
-4-
<PAGE> 16
default hereunder, any act that Stockholder is obligated by this Agreement to
do, and to exercise such rights and powers as Stockholder might exercise with
respect to the Collateral, including, without limitation, the right to (a)
collect by legal proceedings or otherwise and endorse, receive and receipt for
all dividends, interest, payments, proceeds and other sums and property
thereafter payable on or on account of the Collateral; (b) enter into any
extension, reorganization, deposit, merger, consolidation or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral; (c) insure, process and preserve the Collateral;
(d) transfer the Collateral to the Pledgee's own or its nominee's name; and (e)
make any compromise or settlement, and take any other action the Pledgee deems
advisable with respect to the Collateral. Each Stockholder agrees to reimburse
the Pledgee upon demand for any costs and expenses, including, without
limitation, reasonable attorneys' fees, the Pledgee may incur while acting as
such Stockholder's attorney-in-fact hereunder, all of which costs and expenses
are included in the Obligations secured hereby.
8. Administration of the Pledged Stock. In addition to any provisions of
this Agreement which govern the administration of the Collateral generally, the
following provisions shall govern the administration of the Pledged Stock:
(a) Until there shall have occurred a default hereunder,
Stockholder shall be entitled to vote or consent with respect to the Pledged
Stock in any manner not inconsistent with this Agreement, the Promissory Note or
any document or instrument delivered or to be delivered pursuant to or in
connection herewith. If there shall have occurred and be continuing a default
hereunder and the Pledgee shall have notified Stockholder that the Pledgee
desires to exercise its proxy rights with respect to all or a portion of the
Pledged Stock, Stockholder grants to the Pledgee an irrevocable proxy for the
Pledged Stock pursuant to which proxy the Pledgee shall be entitled to vote or
consent, in its discretion, and in such event Stockholder agrees to deliver to
the Pledgee such further evidence of the grant of such proxy as the Pledgee may
request.
(b) In the event that at any time or from time to time after the
date hereof, Stockholder, as record and beneficial owner of the Pledged stock,
shall receive or shall become entitled to receive, any dividend or any other
distribution with respect to the Pledged Stock, whether in securities or
property, by way of stock-split, spin-off, split-up, reverse stock split or
reclassification, combination of stock or the like, or in case of any
reorganization, consolidation or merger, Stockholder, as record and beneficial
owner of the Pledged Stock, shall thereby be entitled to receive securities or
property in respect of such Pledged Stock, then and in each such case,
Stockholder shall deliver to the Pledgee and the Pledgee shall be entitled to
receive and retain all such securities or property as part of the Pledged Stock,
as security for the payment and performance of the Obligations; provided,
however, that until there shall have occurred a default hereunder, Stockholder
shall be entitled to retain any cash dividends paid on account of the Pledged
Stock.
(c) Upon the occurrence of a default hereunder, Pledgee may
exercise the rights and remedies of the holder of a first priority perfected
security interest in the Pledged Stock with respect thereto, including, without
limitation, at any sale of any of the Pledged Stock, if it deems it advisable to
do so, to restrict the prospective bidders or purchasers to persons or entities
who (i) will represent and agree that they are purchasing for their own account,
for investment, and not with a view to the distribution or sale of any of the
Pledged Stock; and (ii) satisfy the offeree and purchase requirements for a
valid private placement transaction under Section 4(2) of the Securities Act of
-5-
<PAGE> 17
1933, as amended (the "Act"), and under Securities and Exchange Commission
Regulation D, or under any similar state or federal statute, rule or regulation.
(d) If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority shall be
necessary to effectuate any sale or other disposition of Pledged Stock, or any
part thereof, Stockholder will execute such applications and other instruments
as may be required in connection with securing any such consent, approval or
authorization, and will otherwise use his best efforts to secure the same.
9. Default and Remedies. Stockholder shall be deemed in default under
this Agreement upon the occurrence of an Event of Default under the Promissory
Note.
Upon the occurrence of a default hereunder, the Pledgee may, at
its option and without notice to or demand upon Stockholder, and in addition to
all rights and remedies at law or in equity or otherwise, (a) foreclose or
otherwise enforce the Pledgee's security interest in the Collateral in any
manner permitted by law or provided for in this Agreement; (b) sell or otherwise
dispose of the Collateral or any part thereof at one or more public or private
sales at the Pledgee's place of business or any other place or places,
including, without limitation, any broker's board or securities exchange,
whether or not such Collateral is present at the place of sale, for cash or
credit or future delivery, on such terms and in such manner as the Pledgee may
determine; and (c) recover from Stockholder all costs and expenses, including,
without limitation, reasonable attorneys' fees, incurred or paid by the Pledgee
in exercising any right, power or remedy provided by this Agreement or by law.
Stockholder shall be given ten (10) business days prior notice of the time and
place of the sale of Pledged Stock at any public sale or of the time after which
any private sale or other intended disposition is to be made, which notice
Stockholder hereby agrees shall be deemed reasonable notice thereof. Upon any
sale or other disposition pursuant to this Agreement, the Pledgee shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral or
portion thereof so sold or disposed of.
10. Spousal Interests in Stock. To the extent that any Pledged Stock of
Stockholder constitutes the community property of Stockholder and his spouse,
the Stockholder shall obtain his or her spouse's acknowledgment of and consent
to the existence and binding effect of this Agreement, by having a spousal
consent in the form attached hereto executed and delivered to the Pledgee. If a
Stockholder marries or remarries subsequent to the date of this Agreement,
Stockholder shall obtain and deliver to the Pledgee the required spousal consent
within a reasonable time, not to exceed thirty (30) days, following the
marriage.
11. Cumulative Rights. The rights, powers and remedies of the Pledgee
under this Agreement shall be in addition to all rights, powers and remedies
given to the Pledgee by virtue of any statute or rule of law, the Promissory
Note or any other agreement, all of which rights, powers and remedies shall be
cumulative and may be exercised successively or concurrently without impairing
the Pledgee's security interest in the Collateral.
12. Release of Security Interest. The Pledgee hereby agrees to release
its security interest in the Collateral promptly on the date the Promissory Note
is repaid in full.
-6-
<PAGE> 18
13. Waiver. Compliance with any provision hereof may be waived only in
writing signed by the party against which such waiver is sought to be enforced.
No exercise of or failure to exercise any right hereunder, and no partial or
single exercise of any such right, shall operate as a waiver, or otherwise
affect such exercise or any other exercise, of that or any other right, it being
understood that all such rights and all remedies therefor are intended to be
cumulative and not exclusive.
14. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns, except that Stockholder may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Pledgee.
15. Notice. Any written notice, consent or other communication provided
for in this Agreement shall be given in accordance with Section 8 of the
Promissory Note.
[Remainder of Page Intentionally Left Blank]
-7-
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above.
EPIPHANY MARKETING SOFTWARE, INC.
By: /s/ BEN WEGBREIT
-----------------------------------------
Ben Wegbreit
--------------------------------------------
Print Name
Chairman & EVP R&D
--------------------------------------------
Title
STOCKHOLDER
/s/ ROGER SIBONI
--------------------------------------------
Roger Siboni
-8-
<PAGE> 20
EXHIBIT D
JOINT ESCROW INSTRUCTIONS
July 1, 1998
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Aaron J. Alter
Ladies and Gentlemen:
As Escrow Agent for both Epiphany Marketing Software, Inc. (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement (the "Agreement") between the Company and the undersigned, in
accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company's
Repurchase Option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE> 21
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 120 days after cessation of Purchaser's continuous status as an employee
or consultant with the Company, or any parent or subsidiary of the Company, you
will deliver to Purchaser a certificate or certificates representing the
aggregate number of shares held or issued pursuant to the Agreement and not
purchased by the Company or its assignees pursuant to exercise of the Company's
Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation 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.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10.You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11.You shall be entitled to incur legal expenses on your own, or employ
such legal counsel and other experts as you may deem necessary properly to
advise you in connection with your obligations hereunder, you may rely upon the
advice of such counsel, and may pay such counsel reasonable compensation
therefor.
12.Your responsibilities as Escrow Agent hereunder shall terminate if
and when you resign as Escrow Agent by written notice and deliver such notice to
each party. In the event of any such termination, the Company shall appoint a
successor Escrow Agent.
-2-
<PAGE> 22
13.If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14.It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15.Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.
PURCHASER: COMPANY:
ROGER SIBONI EPIPHANY MARKETING SOFTWARE, INC.
/s/ ROGER SIBONI Attn: Corporate Secretary
- ------------------------------------- 2141 Landings Drive
Mountain View, California 94043
Residence Address:
ESCROW AGENT:
- -------------------------------------
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
- -------------------------------------
Attn: Aaron J. Alter, Esq.
650 Page Mill Road
Mountain View, California 94304-1050
16.By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17.This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE> 23
18. These Joint Escrow Instructions shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
PURCHASER: EPIPHANY MARKETING
SOFTWARE, INC.
/s/ ROGER SIBONI Ben Wegbreit
- ------------------------------- ------------------------------------
Roger Siboni By Ben Wegbreit
------------------------------------
Title Chairman & EVP R&D
ESCROW AGENT:
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
------------------------------------
By
/s/ AARON J. ALTER
------------------------------------
Title Partner
Dated: July 1, 1998
-4-
<PAGE> 1
Exhibit 16.1
Securities and Exchange Commission
Washington, D.C. 20549
July 13, 1999
Ladies and Gentlemen:
We were previously principal accountants for E.piphany, Inc. (formerly Epiphany
Marketing Software, Inc.) and, under the date of April 10, 1998, we reported on
the financial statements of E.piphany, Inc. as of and for the year ended
December 31, 1997. In September 1998, we resigned. We have read E.piphany's
statements included under "Change in Independent Public Accountants" of its Form
S-1 dated July 14, 1999, and we agree with such statements.
Very truly yours,
/s/ KPMG LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
July 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 369 13,595
<SECURITIES> 0 0
<RECEIVABLES> 16 1,273
<ALLOWANCES> 0 (30)
<INVENTORY> 0 0
<CURRENT-ASSETS> 464 15,192
<PP&E> 384 1,488
<DEPRECIATION> (47) (316)
<TOTAL-ASSETS> 801 16,364
<CURRENT-LIABILITIES> 333 2,591
<BONDS> 0 0
0 0
1 3
<COMMON> 1 2
<OTHER-SE> 466 13,435
<TOTAL-LIABILITY-AND-EQUITY> 801 16,364
<SALES> 0 3,377
<TOTAL-REVENUES> 0 3,377
<CGS> 0 1,400
<TOTAL-COSTS> 0 1,400
<OTHER-EXPENSES> 3,220 12,590
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 (48)
<INCOME-PRETAX> (3,149) (10,328)
<INCOME-TAX> 0 (2)
<INCOME-CONTINUING> (3,149) (10,330)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,149) (10,330)
<EPS-BASIC> 1.45 3.59
<EPS-DILUTED> 1.45 3.59
</TABLE>
