<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 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
ADKNOWLEDGE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 7389 77-0429320
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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1808 EMBARCADERO ROAD
PALO ALTO, CALIFORNIA 94303
(650) 842-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. SCOTT L. KAUFFMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ADKNOWLEDGE INC.
1808 EMBARCADERO ROAD
PALO ALTO, CALIFORNIA 94303
(650) 842-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
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FAYE H. RUSSELL, ESQ. NICHOLAS A. KRONFELD, ESQ.
BROBECK, PHLEGER & HARRISON LLP DAVIS POLK & WARDWELL
550 WEST C STREET, SUITE 1300 450 LEXINGTON AVENUE
SAN DIEGO, CALIFORNIA 92101 NEW YORK, NEW YORK 10017
(619) 234-1966 (212) 450-4000
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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. [ ]
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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................................................ $57,500,000 $15,985
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(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
amount of the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION
8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO BUY SECURITIES, IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
SUBJECT TO COMPLETION
DATED AUGUST 27, 1999
Shares
[LOGO]
ADKNOWLEDGE INC.
Common Stock
This is our initial public offering of common stock. No public market currently
exists for our common stock. We estimate that the initial public offering price
will be between $ and $ per share.
We have filed an application to qualify the common stock for quotation on the
Nasdaq National Market under the symbol "ADKN."
INVESTING IN THE COMMON STOCK INVOLVES MATERIAL RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED NOR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT ADKNOWLEDGE
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Per Share $ $ $
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Total $ $ $
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We have granted the underwriters the right to purchase up to an additional
shares of common stock to cover over-allotments.
J. P. MORGAN & CO. BANCBOSTON ROBERTSON STEPHENS
VOLPE BROWN WHELAN & COMPANY
, 1999
<PAGE> 3
INSIDE FRONT COVER
[Three sections, separated by gradations of color, and each featuring a
different photo graphic depicting the value of using AdKnowledge. The first
section shows a semi-circular gear with the word "execute" super-imposed in the
upper left corner. The second section shows a tape measure with the word
"measure" super-imposed in the center. The third section shows a desktop
telescope with the word "optimize" in the lower right section. At the bottom is
band of red with the AdKnowledge logo (with sm after the name) and slogan, "We
make Web advertising work," flush right.]
The following statement appears in the upper right quadrant:
AdKnowledge provides sophisticated marketers and agencies with the power to
execute Web marketing programs, measure their effectiveness and optimize results
to increase return on investment.
FRONT GATEFOLD:
[Graphical depiction of AdKnowledge, in the center, provides a system for ad
buying customers, on the left, to execute their campaigns, serves them to sites
and networks, on the right, across the Web, measures the results and gathers
more information for analysis and data mining, which in turn is made available
to customers so they can optimize their campaigns working through the system.
Arrows are numbered to demonstrate the flow and correspond to copy in the bottom
center of the page.]
Upper Left Corner Diagonal: AdKnowledge Clients
Center top of Left Column: Ad Buyers
Left column:
eBay logo
SportsLine USA logo
PlanetRx
Left Field
Fleet logo
i-Frontier
eToys logo
SmarterKids.com logo
Organic logo with 3 representative client logos horizontally underneath
Center of page:
Graphical depiction of AdKnowledge services, starting at the bottom section
captioned The AdKnowledge System. Within this section, rectangles are stacked
vertically with arrows in between labeled Planner, Campaign Manager, and
SmartBanner(R). There is a two way arrow between the AdKnowledge System section
and a top section captioned AdKnowledge eAnalytics. Within this section there is
a rectangle labeled Reporter, with arrows pointing to two rectangles labeled
Advisor to the left, VOYAGER Profile(TM) to the right, with arrows from these
pointing to another rectangle labeled DataDNA at the top. An arrow numbered 1
flows from the list of AdKnowledge customers on the left to the AdKnowledge
System. Another arrow numbered 2 flows from the AdKnowledge System to the list
of ad sellers on the right and moves out to point to AdKnowledge eAnalytics. A
third arrow numbered 3 flows from AdKnowledge eAnalytics to the list of
customers and into the AdKnowledge System.
Below the center graphic is the following narration:
AdKnowledge offers sophisticated marketers and agencies the technology and
services to evaluate the effectiveness of Web campaigns and optimize their
results.
1. Execute: Marketers and agencies develop campaigns and put information into
the AdKnowledge System.
2. Measure: AdKnowledge serves the ads to the Web audience across all sites and
networks in a campaign, and tracks all results including clicks, visits,
leads and sales generated by the campaign.
3. Optimize: Marketers and agencies use the information and insights provided by
AdKnowledge eAnalytics to improve results by making campaign changes through
the AdKnowledge System.
Upper right corner caption: Ad Sellers
<PAGE> 4
Right Column:
A series of rectangles, each a different color and labeled as follows:
(green) Yahoo
(blue) DoubleClick Network and 2 media choices they sell, Alta Vista and the
Technology channel
(gold) CNN
(green) Flycast Network and 2 media choices they sell, Business & Finance and
Community channels
(blue) CBS Sportsline
(orange) 24/7 Network and 2 media choices they sell, Music and Health channels
(purple) CNET
INSIDE BACK COVER
Headline: AdKnowledge eAnalytics
Introduction, which appears in a highlighted box near the top of the page:
AdKnowledge eAnalytics mines and analyzes information from a variety of sources
to provide Web marketers and advertisers with the kind of strategic insights
they need to base future marketing plans on the real drivers of brand awareness
and purchase behavior. Findings are then put into action through the AdKnowledge
System, resulting in optimal return on investment and effective campaigns.
(Three graphics representing the services that provide information through
AdKnowledge eAnalytics. The graphics are at the top of the page and each has a
caption describing the benefit of the service. In the center is a graphic
entitled AdKnowledge Data Warehouse. Arrows flow from the data warehouse to each
of the eAnalytics graphics; arrows also flow from each of the five data sources,
which are separate graphics, displayed horizontally at the bottom of the page.
Each graphic has a title and a caption.)
Information output icons:
eAnalytics Services
Graphic: Compass
Title: Advisor
Caption: Make creative and media decisions in real time.
Graphic: Heads of several people
Title: Voyager Profile(TM)
Caption: Understand the demographics of your campaign audience
Graphic: A DNA helix
Title: DataDNA
Caption: Find out what drives online brand awareness and purchases.
Data Sources (positioned across the bottom of the page, horizontally)
Graphic: Hand moving mouse
Title: Campaign Set-up
Caption: Campaign customers put into AdKnowledge System
Graphic: Person working at a computer
Title: Ad Views and Clicks
Caption: Web ads delivered & tracked by System
Graphic: A shopping cart
Title: Visits and Transactions, i.e. Purchases, Memberships, etc.
Caption: System tracks actions taken after ad views/clicks
Graphic: Logos of AdKnowledge data partners (Millward Brown Interactive, Media
Metrix and Nielsen/NetRatings
Title: 3rd Party Data, i.e. Audience Profiles
Caption: Partnerships with top data providers
Graphic: Computer mainframe
Title: AdKnowledge Customer Databases
Caption: Profile and relationship info from marketers & agencies.
(AdKnowledge logo and slogan)
<PAGE> 5
TABLE OF CONTENTS
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Prospectus Summary........................... 1
Summary Financial Information................ 3
Risk Factors................................. 4
Use of Proceeds.............................. 13
Dividend Policy.............................. 13
Capitalization............................... 14
Dilution..................................... 16
Selected Financial Data...................... 17
Forward-Looking Statements................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 19
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Business..................................... 28
Management................................... 40
Certain Relationships and Related
Transactions............................... 49
Principal Stockholders....................... 52
Description of Capital Stock................. 54
Shares Eligible for Future Sale.............. 59
Underwriting................................. 60
Legal Matters................................ 61
Experts...................................... 61
Available Information........................ 62
Index to Financial Statements................ F-1
</TABLE>
------------------------
In deciding whether to buy our common stock, you should rely only on the
information contained in this prospectus. To understand this offering fully, you
should read this entire prospectus carefully, including the financial statements
and notes. Individual sections of the prospectus, such as the section entitled
"Prospectus Summary," are not complete and do not contain all the information
that you should consider before investing in AdKnowledge. We have not authorized
anyone to provide you with information that is different from that contained in
this prospectus. We are offering to sell, and seeking offers to buy, shares of
common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of our common stock.
Until , all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
We are a California corporation but expect to reincorporate in Delaware prior to
the closing of this offering. In addition, we expect to merge Focalink
Communications, Inc., a wholly owned subsidiary of ours, with and into
AdKnowledge prior to the closing of this offering. Unless otherwise indicated,
the information in this prospectus assumes that we have completed our
reincorporation in Delaware and that we have completed our merger with Focalink.
Unless otherwise indicated, the information in this prospectus assumes that the
underwriters do not exercise the over-allotment option. In addition, unless
otherwise indicated, all references to shares of common stock in this
prospectus:
- reflect a for one reverse stock split effective , 1999;
- include shares of common stock issuable upon the closing of this
offering as a result of the conversion of all outstanding shares of all
series of preferred stock; and
- exclude the shares of common stock issuable upon exercise of all
outstanding warrants and options.
For additional information on our common stock, see "Capitalization,"
"Management -- Benefit Plans," "Description of Capital Stock" and the financial
statements and notes in this prospectus.
------------------------
We own applications for federal registration or claim rights in the following
trademarks and service marks: AdKnowledge, AdKnowledge eAnalytics, SmartBanner,
VOYAGER Profile and Focalink. This prospectus also refers to trade names and
trademarks of other companies.
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights some of the information found in greater detail
elsewhere in this prospectus. This summary is not complete and does not contain
all of the information that you should consider before investing in our common
stock. We urge you to read the entire prospectus carefully, especially the risks
of investing in our common stock discussed under "Risk Factors" and the
financial statements before you decide to buy our common stock.
OUR BUSINESS
AdKnowledge is a leading independent provider of comprehensive Internet
advertising management and analytic services for marketers and advertising
agencies. Our services integrate powerful data capture and analysis into an
end-to-end advertising management solution that enables marketers and agencies
to more productively manage their advertising campaigns and increase the return
on their Internet advertising. To date, our services have been used to manage
Internet marketing campaigns on behalf of over 200 leading advertisers,
including: eBay, eToys, planetRx, and SportsLine. We seek to build on our
current position as a market leader to become the industry standard provider of
ad management and analytic services to marketers and agencies.
Our services are designed to leverage the unique characteristics of the Internet
as an advertising medium. Because ads are delivered to one viewer at a time
across a digital infrastructure, the Internet provides the potential for
personalized ad delivery and the measurement and tracking of consumer responses
to ads in real time. Although the Internet allows advertisers and agencies to
capture an unprecedented amount of valuable data on consumer behavior, according
to Jupiter Communications the majority of this data currently goes uncaptured or
unused. By using our ad management services in conjunction with our robust data
collection and data mining services, marketers and agencies can identify the
factors that underlie advertising effectiveness and thereby customize and target
their Web advertising based on a multitude of audience metrics.
OUR MARKET OPPORTUNITY
We operate in the fast-growing Internet advertising market. Forrester Research
projects that the market for Internet advertising will grow from $3.3 billion in
1999 to $33 billion by 2004. Within this market, we focus exclusively on the
buy-side segment, comprised of marketers and their agencies, which is relatively
underserved. We believe that we are well positioned to take advantage of this
significant opportunity.
We believe that the buyers of Web advertising are seeking powerful solutions to
enable them to optimize their Internet advertising campaigns and better leverage
the significant potential of the Internet as an advertising medium. To date,
however, there have been few solutions responsive to these needs. For the most
part, the buyers of ad inventory have had to rely on the sellers of ad
inventory -- ad networks and independent Web sites -- for ad management and
reporting services. Because these services are based on systems tailored to the
needs of the sellers of ad inventory, we believe that they do not fully address
the unique needs of marketers and agencies. These needs include:
- Comprehensive and easily outsourced ad management, tracking and reporting
services;
- Consistent measurement metrics on advertising effectiveness from unbiased
and independent third parties;
- Ability to determine the return on investment in Internet advertising, or
"ROI"; and
- Robust data collection, management, and mining tools.
OUR SOLUTION
We respond to the needs of the buy-side by providing centralized ad management
and analytic services that offer independent and standardized reporting on
advertising effectiveness, including ROI, across all major Web sites. We believe
that because we are unaffiliated with any ad network or media property, our
clients view us as a trusted infomediary offering an unbiased and independent
view on advertising effectiveness.
Our service offering includes the AdKnowledge System and AdKnowledge
eAnalytics(TM). The AdKnowledge System is a suite of Web-based applications that
enables marketers and agencies to more efficiently manage all aspects of their
Web advertising from their desktop. AdKnowledge eAnalytics is a collection of
detailed data analysis and data mining services that gives marketers and
agencies the ability to obtain deeper insights into consumer behavior and brand
awareness. In addition to increasing ROI, our services also allow our clients to
experience significant productivity gains and cost savings.
1
<PAGE> 7
THE OFFERING
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COMMON STOCK OFFERED................................. shares
COMMON STOCK OUTSTANDING AFTER THE
OFFERING........................................... shares
OVER-ALLOTMENT OPTION................................ shares
USE OF PROCEEDS...................................... Assuming a price per share of $ , the mid-point
of the range set forth on the cover of this prospectus,
AdKnowledge will receive net proceeds from this offering,
after deducting expenses, of approximately
$ million, or $ million if the
underwriters purchase all of the shares they are entitled
to purchase to cover over-allotments. See "Underwriting."
We intend to use these proceeds for working capital and
general corporate purposes. See "Use of Proceeds."
PROPOSED NASDAQ NATIONAL MARKET SYMBOL............... "ADKN"
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The information above includes shares of common stock issuable upon the closing
of this offering as a result of the conversion of all outstanding shares of all
series of preferred stock but excludes the following:
- shares issuable upon the exercise of stock options
outstanding under our stock option plans, with a weighted average
exercise price of $ per share;
- shares issuable upon exercise of outstanding warrants with
a weighted average exercise price of $
per share;
- Up to shares issuable upon exercise of a warrant granted
on August 25, 1999 with an exercise price per share which shall be
between $ and $ ;
- shares reserved for issuance under our 1999 Stock
Incentive Plan; and
- shares reserved for issuance under our 1999 Employee Stock
Purchase Plan.
For additional information on our common stock, see "Capitalization,"
"Management -- Benefit Plans," "Description of Capital Stock" and the financial
statements and notes in this prospectus.
------------------------
Our principal executive offices are located at 1808 Embarcadero Road, Palo Alto,
California 94303. Our telephone number at that location is (650) 842-6500. Our
Web site is www.adknowledge.com. The information contained on our Web site does
not constitute part of this prospectus.
2
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The following table contains our summary financial data which should be read
together with our financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Pro forma per share amounts in the table below reflect the common stock
outstanding during each period plus the common stock to be issued at the closing
of this offering in connection with the conversion of preferred stock. For a
more complete explanation of the determination of the number of shares used in
computing pro forma basic and diluted net loss per share, please see "Selected
Financial Data."
The "Pro Forma As Adjusted" column in the second table below reflects the
conversion of preferred stock described above plus the sale of
shares of common stock in this offering at an assumed initial public offering
price of $ per share, the mid-point of the range set forth on the cover of
this prospectus. For a more complete explanation of how pro forma as adjusted
amounts were calculated, see "Selected Financial Data" and "Capitalization."
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PERIOD FROM
JULY 10, 1996
(DATE OF
INCEPTION) TO YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
DECEMBER 31, --------------------------- ----------------------------
1996 1997 1998 1998 1999
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(UNAUDITED)
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Dollars in thousands, except per share
data
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ -- $ 564 $ 2,421 $ 1,071 $ 1,636
Cost of revenues...................... -- 209 3,109 1,442 2,523
Gross profit (loss)................... -- 355 (688) (371) (887)
Loss from operations.................. (727) (2,954) (10,156) (4,601) (7,525)
Net loss.............................. (729) (2,914) (10,258) (4,621) (7,671)
Net loss per share, basic and
diluted............................. $ (0.39) $ (0.60) $ (1.27) $ (0.72) $ (0.61)
Shares used in computing net loss per
share, basic and diluted............ 1,880,729 4,886,242 8,051,461 6,453,335 12,621,474
Pro forma net loss per share, basic
and diluted......................... $ (0.35) $ (0.16)
Shares used in pro forma net loss per
common share calculation, basic and
diluted............................. 29,146,430 49,336,944
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AS OF JUNE 30, 1999
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PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
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Dollars in thousands
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 5,052
Working capital............................................. 4,709
Total assets................................................ 14,351
Notes payable and capital lease obligations, less current
portion................................................... 2,410
Total stockholders' equity.................................. 8,326
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3
<PAGE> 9
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
consider carefully the following information about this risk along with the
other information contained in this prospectus before you decide whether to buy
our common stock. If any of the following risks actually occurred, our business,
results of operations and financial condition would likely suffer. If this
happened, the market price of our common stock could decline, and you could lose
all or part of the money you paid to buy our common stock. Although we believe
that the risks and uncertainties described below are the material risks
currently facing our company, such risks and uncertainties are not the only ones
that we will face. Additional risks and uncertainties not presently known to us
or that we currently believe to be immaterial may also impair our business,
results of operations and financial condition.
WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE CONTINUED LOSSES.
We have never been profitable. As of June 30, 1999, we had an accumulated
deficit of $21.6 million. Our costs and expenses historically have increased
faster than our revenues and we expect that they will continue to do so. We
therefore expect to continue to incur significant losses for the foreseeable
future.
We will need to generate significant additional revenue in order to achieve
profitability and may not achieve profitability. If our revenue grows more
slowly than we anticipate or if our expenses either increase more than we expect
or cannot be reduced in light of lower revenue, our business may not succeed.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for detailed information on our
history of losses and anticipation of continued losses.
OUR FUTURE PROFITABILITY DEPENDS ON ADKNOWLEDGE EANALYTICS.
The AdKnowledge eAnalytics service is central to our business model. We may not
achieve an acceptable level of profitability, or become profitable at all, if
marketers and advertising agencies do not perceive that the use of AdKnowledge
eAnalytics will improve the effectiveness of their advertising campaigns or if
they are otherwise unable to generate a sufficient return on investment from
using the service. AdKnowledge eAnalytics was recently introduced and is
currently in a preliminary stage, generating insignificant revenues and
incurring significant costs. Because the service is new, we cannot assure you
that it will achieve widespread customer acceptance. Even if AdKnowledge
eAnalytics does achieve widespread customer acceptance, we cannot assure you
that we will be able to provide the service in a timely and cost-effective
manner or that one or more of our current or future competitors will not develop
a similar or superior service. There is also a risk that services similar to our
AdKnowledge eAnalytics services will in the future become a basic commodity and
be freely available to marketers and advertising agencies at little or no cost.
If any of these developments occurs, our results of operations and financial
condition would be materially harmed.
WE MAY NOT BE ABLE TO SUCCESSFULLY SCALE OUR TECHNOLOGY INFRASTRUCTURE.
Our technology infrastructure may not be able to support higher volumes of ads,
additional clients or new types of advertising or direct marketing. If we are
not able to scale our technology infrastructure, we will have difficulty
retaining existing clients and attracting new clients. If our traffic increases
because of heightened demand from existing or new clients, we will need to
accommodate large increases in the number of ads that we manage and deliver and
the amount of data that we store. We will also need to support the introduction
of new and evolving types of advertising and direct marketing that require
greater system resources than current methods of Internet advertising. We may
not be able to continue to scale our data centers on time or within budget. The
uninterrupted performance of our data centers is critical to our success. We
expect to add more data centers to improve redundancy and to increase capacity.
Adding capacity will be expensive, and we may not be able to do so successfully.
In addition, we cannot assure you that we will be able to protect our new or
existing data centers from unexpected events as we scale our systems. See
"Business -- Ad Management Technology and Infrastructure" for detailed
information on our system capacity.
4
<PAGE> 10
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT FUTURE RESULTS OF
OPERATIONS AND TO ADDRESS RISKS AND UNCERTAINTIES.
We have a limited operating history and our prospects are subject to the risks
and uncertainties frequently encountered by early stage Internet companies.
These risks and uncertainties include our inability to predict future results of
operations accurately due to our lack of operating history and the
unavailability of comparable business models. We cannot assure you that our
business strategy will be successful or that we will address these risks and
uncertainties successfully.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND
SEASONAL VARIATIONS.
Our quarterly results of operations have varied significantly in the past. Our
revenue and quarterly results of operations may continue to vary significantly
from quarter to quarter due to a variety of factors, many of which are beyond
our control. These factors include:
- the advertising budget cycles of individual advertisers and marketers and
the seasonality of Internet advertising generally;
- changes in our pricing policies to effectively compete in the Internet
advertising market;
- the time it takes us to sell and implement our services and the size of
each contract or sale;
- our ability to attract and retain new clients and maintain client
satisfaction;
- our costs related to hiring and retaining key personnel;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and ad management and
delivery infrastructure;
- costs related to implementing and improving our operational, financial
and management information systems;
- costs related to possible acquisitions and integration of technologies or
businesses; and
- costs related to international expansion and sales of our services
abroad.
We believe that advertising sales in traditional media, such as television and
radio, generally are lower in the first calendar quarter of each year. If our
market makes the transition from an emerging to a more developed medium, similar
seasonal and cyclical patterns may develop in our industry. Our revenues will be
affected by seasonal and cyclical patterns in Internet advertising spending.
Due to all of the foregoing factors and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. Also, it is possible that in
some future periods our results of operations may be below the expectations of
public market analysts and investors. In this event, the price of our common
stock may fall. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for more information on our historical quarterly
operating results.
WE HAVE MANY COMPETITORS AND MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN THE
MARKET FOR AD MANAGEMENT AND ANALYTIC SERVICES.
The market for Internet advertising management and ad delivery services, broadly
defined, is relatively new yet intensely competitive. On an ongoing basis we
expect to compete with numerous vendors offering alternative solutions that
provide similar functionality to that offered by our services. We currently
compete principally with providers of alternative advertising management
systems, including DoubleClick Inc.; AdForce, Inc.; Excite@Home, through its
MatchLogic subsidiary; and NetGravity Inc. Over time, we believe additional
competition will come from other segments including companies providing ad
management solutions for Web sites, advertising agencies and other marketing
infrastructure service providers.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
client bases and significantly greater financial, technical and marketing
resources than we do. These competitors may engage in more extensive research
and development, undertake more far-reaching marketing campaigns and make more
attractive offers to existing and potential employees, marketers and advertising
agencies. These competitors may
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<PAGE> 11
also adopt more aggressive pricing policies and may even provide services
similar to ours for free by bundling them with their other product and service
offerings. We cannot assure you that our competitors will not develop products
or services that are equal or superior to our solutions or that achieve greater
market acceptance than our solutions. In addition, our competitors may develop
databases that are larger than or otherwise superior to our database. Our
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share. In addition, companies involved in the Internet advertising market,
including ours, must also compete with television, radio, cable and print media.
We cannot assure you that we will be able to compete successfully or that
competitive pressures will not materially and adversely affect our business,
financial condition and results of operations.
WE MAY NEED ADDITIONAL FINANCING WHICH COULD BE DIFFICULT TO OBTAIN.
We may need to raise additional financing, and we cannot be certain that we
would be able to obtain additional financing on favorable terms, if at all.
While we currently do not have any material commitments for capital
expenditures, we anticipate that we will incur significant capital expenditures
in the second half of 1999 in connection with maintenance and enhancement of our
ad serving and reporting equipment, and hardware and software necessary for
continued development of our AdKnowledge eAnalytics services. We also expect to
make significant investments in sales and marketing and the development of new
services. The failure to raise sufficient funds to finance growth could require
us to delay or abandon some or all of our plans or forego new market
opportunities, making it difficult for us to respond to competitive pressures.
If we issue equity securities to raise funds, our stockholders will be diluted.
The holders of the new equity securities may also have rights, preferences or
privileges senior to those of existing holders of common stock.
THE VALUE OF THE ADKNOWLEDGE EANALYTICS SERVICE DEPENDS ON COLLECTION OF DATA
FROM CLIENTS' ADVERTISING CAMPAIGNS.
In addition to the detailed data we collect and warehouse for individual
clients, we accumulate anonymous data on the activity of Internet users across
all of our clients. We use this anonymous data to build user behavioral models
to assist in the targeting of Internet advertising campaigns. Our clients
currently can elect to not allow us to collect this anonymous data. They might
choose to do this because of concerns relating to sharing proprietary
information about their users and perceived privacy concerns. If a significant
number of our clients elected not to allow us to collect the anonymous data, the
value of the AdKnowledge eAnalytics service could be severely impaired.
WE DEPEND ON A SMALL NUMBER OF CLIENTS FOR OUR REVENUES.
We derive a substantial portion of our revenues from a small number of marketers
and ad agencies. Our quarterly and annual results of operations would be
materially and adversely affected by the loss of any of these clients or any
significant reduction in revenues generated from any of these clients. Our ten
largest clients represented 45% of our revenues for 1998 and 49% of our revenues
for the first half of 1999. Our client agreements can generally be terminated by
our clients at any time with little or no penalty.
WE MAY NOT BE ABLE TO RETAIN KEY PERSONNEL, AND OUR MANAGEMENT TEAM MAY NOT WORK
TOGETHER SUCCESSFULLY.
Our future success depends on our ability to attract and retain key technical,
sales and senior management personnel and their ability to execute our growth
strategy. In particular, we rely heavily on Scott L. Kauffman, President, Chief
Executive Officer and a director. Other than as described in
"Management -- Employment and Severance Arrangements," none of our key personnel
has an employment or non-competition agreement with us and could therefore
terminate their employment with us at any time without penalty. We also do not
maintain key person life insurance policies on any of our executives or key
personnel.
In 1998, we hired a Vice President of Business Development and a Vice President
and Chief Information Officer. Additionally, during 1999, we promoted two
existing employees to their current positions of Vice President of Analytic
Services and Vice President of Marketing. We are currently seeking to hire a
Chief Financial Officer, a Vice President of Sales, a Vice President of
Engineering and a Vice President of Operations. Our future performance will
depend, in part, on our ability to attract new
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<PAGE> 12
employees and integrate our newly hired executive officers effectively into our
management team. Our executive officers, who have worked together for only a
short time, may not be successful in carrying out their duties or making
strategic decisions quickly in a rapidly changing market.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR TECHNOLOGY.
Our success and ability to compete are dependent on our internally developed
technologies and trademarks. If our proprietary rights are infringed by a third
party, the value of our services to our clients would be diminished and
additional competition might result from the third party's use of those rights.
We cannot assure you that our patent applications or trademark registrations
will be approved. Even if they are approved, our patents or trademarks may be
successfully challenged by others or invalidated. If our trademark registrations
are not approved because third parties own those trademarks, our use of these
trademarks would be restricted unless we entered into arrangements with the
third-party owners, which might not be possible on reasonable terms. We cannot
assure you that any of our proprietary rights will be viable or of value since
the validity, enforceability and scope of protection of proprietary rights in
Internet-related industries are uncertain and evolving. We also cannot assure
you that the steps we have taken will prevent misappropriation of our solutions
or technologies, particularly in foreign countries where laws or law enforcement
practices may not protect our proprietary rights as fully as in the United
States.
OUR SYSTEMS MAY FAIL, EXPERIENCE SLOWDOWNS OR BE DAMAGED.
Our system's continuing and uninterrupted performance is critical to our
success. Clients may become dissatisfied by any system failure or slowdown that
interrupts our ability to provide our services to them, including failures or
slowdowns affecting our ability to deliver advertisements accurately and in a
timely manner and our ability to collect, analyze and report data. Sustained or
repeated system failures or slowdowns would reduce the attractiveness of our
solutions to our clients. To the extent that we do not effectively address any
system failures or slowdowns, our business, results of operations and financial
condition would be materially and adversely affected.
Our operations are dependent on our ability and that of our co-location
providers to protect our computer systems against damage from fire, power loss,
water damage, telecommunications failures, vandalism and other malicious acts
and similar unexpected adverse events. Despite precautions we have taken,
unanticipated problems affecting our systems have from time to time in the past
caused, and in the future could cause, interruption in the delivery of our
solutions. In addition, damage to our systems may cause loss of data used in our
services. Our business, results of operations and financial condition could be
materially and adversely affected by any damage or failure that interrupts our
systems or if any data in our database were lost.
WE MAY NOT BE ABLE TO TARGET ADVERTISEMENTS, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO RETAIN OUR EXISTING CLIENTS AND TO ATTRACT NEW CLIENTS.
We may not be able to continue to meet the needs of our clients or the
marketplace for more sophisticated targeting solutions. As more advertisers
demand targeting solutions, we will need to develop increasingly effective tools
and larger databases that can provide greater demographic precision in ad
management and delivery. The development of these tools and databases is
technologically challenging and expensive. We cannot assure you that we can
develop any of these tools or databases in a cost-effective and timely manner,
if at all. Moreover, privacy concerns may cause a reduction or limitation in the
use of user information, which could limit the effectiveness of our technology
and adversely affect our ability to retain our existing clients and to attract
new clients.
MANY OF OUR CLIENTS HAVE LIMITED OPERATING HISTORIES, ARE UNPROFITABLE AND MAY
NOT BE ABLE TO PAY FOR OUR SERVICES.
Many of our principal clients have limited operating histories and have not
achieved profitability. If one or more of our clients is unable to pay for our
services, or pays more slowly than we anticipate, our quarterly and annual
results of operations could be materially and adversely affected. You should
evaluate the ability of our clients to meet their payment obligations to us in
light of the risks, expenses and difficulties encountered by companies with
limited operating histories, particularly in the evolving Internet market.
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<PAGE> 13
THIRD PARTIES MAY ASSERT INFRINGEMENT CLAIMS AGAINST US OR OUR CLIENTS.
Third parties may assert infringement claims against us or our clients based on
our technology or our collection of Internet user data. Any claims or
litigation, if they occur, could subject us to significant liability for damages
or could result in invalidation of our rights. Even if we were to prevail,
litigation could be time-consuming and expensive to defend, and could result in
diversion of our time and attention. Any claims or litigation from third parties
might also limit our ability to use the proprietary rights subject to these
claims or litigation.
POTENTIAL YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS.
There is significant uncertainty regarding the potential effects associated with
Year 2000 compliance issues. We have not engaged in any formal process designed
to independently verify our Year 2000 readiness. We cannot assure you that
unanticipated costs associated with any Year 2000 compliance will not exceed our
present expectations. We depend heavily on the uninterrupted availability of the
Internet infrastructure to conduct our business. We also rely heavily on the
continued operations of ad networks and independent Web sites for our revenues.
We are therefore dependent upon the success of the Year 2000 compliance efforts
of the many service providers that support the Internet, and the Year 2000
compliance efforts of ad networks and sites. Interruptions in the Internet
infrastructure affecting us or ad networks and sites, or the failure of the Year
2000 compliance efforts of ad networks or sites, could have a material adverse
effect on our quarterly and annual results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance" for detailed information on our Year 2000 readiness.
PROVISIONS IN OUR CHARTER DOCUMENTS MAY DETER ACQUISITION BIDS FOR ADKNOWLEDGE.
Our board of directors expects to adopt a stockholder rights plan prior to the
closing of this offering. This plan would cause substantial dilution to any
person or group that attempts to acquire our company on terms not approved in
advance by our board of directors. We also expect to adopt a classified board of
directors and restated bylaws so that our stockholders will be unable to act by
written consent or to fill any vacancy on the board of directors or be able to
call special meetings of stockholders to remove any director or the entire board
of directors without cause. These provisions and other provisions of Delaware
law could make it more difficult for a third party to acquire us, even if doing
so would benefit our stockholders. See "Management" and "Description of Capital
Stock" for detailed information on these protective provisions.
WE COULD FACE ADDITIONAL STOCK-BASED COMPENSATION RELATED TO OUR RELATIONSHIP
WITH TRINET.
From January 1, 1998 through the present date, we have been using TriNet VCO, an
independent professional employer organization, to provide payroll services and
employee benefits for all our employees. Under the co-employment arrangement, we
pay TriNet an administration fee per co-employee, in addition to compensation
costs, to cover payroll processing and related taxes and insurance. On March 31,
1999, the Financial Accounting Standards Board ("FASB") issued an Exposure Draft
of a FASB Interpretation, Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25. This FASB Exposure
Draft, if adopted in its current form, could be interpreted to indicate that
employees subject to co-employment arrangements would not be considered our
employees for purposes of applying APB No. 25. If additional clarification
regarding the definition of an employee is not provided in the final
pronouncement, we may be required to record stock-based compensation for stock
options granted to our employees after December 15, 1998 for the purpose of
accounting for stock options under Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation." We would recognize
deferred stock-based compensation which would be amortized to expense over the
remaining vesting periods of the options. This amortization would have a
material adverse effect on our operating results.
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<PAGE> 14
WE MAY HAVE TROUBLE EXPANDING INTERNATIONALLY.
A part of our strategy is to expand into international markets. To date, we have
had only very limited experience in marketing and operating our Internet
advertising management services internationally. It may be difficult for us to
do so successfully in the future. In order to expand overseas we intend to enter
into relationships with foreign businesses. We may experience difficulty in
managing international operations because of distance, as well as language and
cultural differences, and there can be no assurance that we or our future
foreign business associates will be able to successfully market and operate our
services in foreign markets. We also believe that, in light of substantial
anticipated competition, it will be necessary to implement our business strategy
quickly in international markets to obtain a significant share of the market.
RISKS COMMON TO INTERNET ADVERTISING MANAGEMENT COMPANIES
PRIVACY CONCERNS MAY ADVERSELY AFFECT OUR ABILITY TO IMPLEMENT OUR INTERNET
ADVERTISING SOLUTIONS.
Web sites and Internet ad servers typically place a small file commonly known as
a "cookie" on a user's hard drive, generally without the user's knowledge or
consent. Our products and services and those of our competitors are dependent on
the use of cookies to collect, sort and analyze information about Internet
browsers. Most currently available Internet browsers allow users to modify their
browser settings to prevent cookies from being stored on their hard drive or to
delete cookies at any time. In addition, some Internet commentators and privacy
advocates have suggested limiting or eliminating the use of cookies. The
effectiveness of our services would be greatly limited by a significant
reduction or limitation in the use of cookies.
In addition, privacy concerns may cause some Web users to be less likely to
visit Web sites that use cookies. If enough Web users choose not to visit sites
that use cookies, our ability to sell AdKnowledge eAnalytics services would be
adversely affected. This would, in turn, have a material adverse effect on our
business, financial condition or results of operations.
LEGISLATION OR REGULATIONS MAY BE ADOPTED THAT COULD AFFECT OUR ABILITY TO
GENERATE OR USE INFORMATION FOR PROFILES AND MAY HINDER OUR ABILITY TO CONDUCT
BUSINESS.
The legal and regulatory environment governing the Internet and the use of
information about Internet users is uncertain and may change. United States
legislators in the past have introduced a number of bills aimed at regulating
the collection and use of personal data from Internet users and additional
similar bills may be considered during any congressional session. Although we
believe no current legislation has a material adverse effect on our business, it
is possible that a bill may be enacted into law that negatively affects our
ability to collect and use data about Internet users or that otherwise affects
our business. The European Union has recently adopted a directive addressing
data privacy that may result in limitations on the collection and use of
specific personal information regarding Internet users. In addition, Germany has
imposed its own laws protecting data that can become personally identifiable
through subsequent processing. Other countries may also enact limitations on the
use of personal data.
To date, these regulations have not materially restricted the use of our
products. However, legislation or regulations may in the future be adopted which
may limit our ability to target advertising or collect and use information in
one or more countries. Further, a number of laws and regulations have been and
may be adopted covering issues such as pricing, acceptable content, taxation and
quality of products and services on the Internet. Such legislation could dampen
the growth in use of the Internet generally and decrease the acceptance of the
Internet as a communications and commercial medium. In addition, due to the
global nature of the Internet, it is possible that multiple federal, state or
foreign jurisdictions might inconsistently regulate our activities or the
activities of ad networks or Web sites. Any of the foregoing developments could
have a material adverse effect on our business, financial condition and results
of operations.
WE MAY NOT BE ABLE TO MANAGE THE GROWTH WE EXPECT IN OUR OPERATIONS.
We have recently experienced a period of rapid growth and expansion. As a
result, we have grown our workforce substantially from 55 employees on June 30,
1998 to 77 employees on July 31, 1999, and we plan to continue to expand our
sales and marketing, analytic services and engineering organizations. This
growth has placed, and anticipated future growth in our
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<PAGE> 15
operations will continue to place, a significant strain on our management,
systems, and resources. To manage any growth of our operations, we must:
- improve existing and implement new financial, operational and managerial
controls and reporting systems and procedures;
- hire, train and manage additional qualified personnel;
- expand and upgrade our core technologies; and
- effectively manage multiple relationships with our clients and other
third parties.
We may not succeed in these efforts. Our future performance may also depend on
the effective integration of businesses we may acquire in the future. Our
business, results of operations and financial condition will be materially and
adversely affected if we are unable to effectively manage our expanding
operations.
We are in the process of installing an automated financial and management
accounting system, and until now have prepared much of such information
manually. We cannot assure you that our financial and management accounting
systems will adequately accommodate our need for such information as we grow
larger.
CONSOLIDATION IN THE INTERNET INDUSTRY MAY ADVERSELY AFFECT OUR ABILITY TO
RETAIN OUR PRINCIPAL CLIENTS.
Many of our principal clients are now and may in the future be affected by rapid
consolidation in the Internet industry. Our quarterly and annual results of
operations would be materially and adversely affected if we lose any of these
clients as a result of consolidation or if our clients are required to use the
proprietary ad delivery technologies of the companies that acquire them or other
ad delivery technologies. See "Business -- Competition" for detailed information
on industry consolidation.
WE MAY NOT BE ABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE.
The Internet and Internet advertising markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, and changing customer demands. The introduction of new
products and services embodying new technologies and the emergence of new
industry standards can render existing products and services obsolete. Our
future success will depend on our ability to adapt to rapidly changing
technologies and to enhance existing Internet advertising management solutions
and develop and introduce a variety of new solutions to address our clients'
changing demands. We may experience difficulties that could delay or prevent the
successful design, development, introduction or marketing of our solutions. In
addition, our new solutions or enhancements must meet the requirements of our
current and prospective clients and must achieve significant market acceptance.
Material delays in introducing new solutions and enhancements may cause clients
to forego purchases of our solutions and purchase those of our competitors.
DEMAND AND MARKET ACCEPTANCE OF INTERNET ADVERTISING SOLUTIONS IS UNCERTAIN.
Our future success is highly dependent on an increase in the use of the Internet
as an advertising medium. The Internet advertising market is new and rapidly
evolving, and it cannot yet be compared with traditional advertising media to
gauge its effectiveness. As a result, demand and market acceptance for Internet
advertising solutions is uncertain. Many of our current or potential advertising
clients have little or no experience using the Internet for advertising purposes
and they have allocated only a limited portion of their advertising budgets to
Internet advertising. These clients may find Internet advertising to be less
effective for promoting their products and services relative to traditional
advertising media. In addition, there are "filter" software programs that limit
or prevent advertising from being delivered to a user's computer. The widespread
adoption of such software would significantly undermine the commercial viability
of Internet advertising. If the market for Internet advertising fails to develop
or develops more slowly than we expect, then our business, results of operations
and financial condition could be materially and adversely affected.
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THE ACCEPTANCE AND EFFECTIVENESS OF THE INTERNET AS A MEDIUM FOR CONSUMER
TRANSACTIONS IS NOT YET FULLY ESTABLISHED.
Our future success is dependent in large part on an increase in the use of the
Internet for business transactions with consumers. The electronic commerce
market is new and rapidly evolving and the extent of consumer acceptance of the
Internet is uncertain. If a sufficiently broad base of consumers do not accept
the use of the Internet for transacting business, our business, financial
condition and results of operations could be materially and adversely affected.
THE INTERNET INFRASTRUCTURE MAY NOT BE ABLE TO ACCOMMODATE RAPID GROWTH.
The Internet infrastructure may fail to support the growth of the Internet. If
the Internet continues to experience an increase in users, an increase in
frequency of use or an increase in the capacity requirements of users, we cannot
assure you that the Internet infrastructure will be able to support the demands
placed on it. Any actual or perceived failure of the Internet could undermine
the benefits of our services. In addition, the Internet could lose its viability
as a commercial medium due to delays in the development or adoption of new
technology required to accommodate increased levels of Internet activity or due
to increased government regulation. Changes in, or insufficient availability of,
telecommunications services to support the Internet could result in slower
response times and could hamper use of the Internet. Even if the Internet
infrastructure is able to accommodate rapid growth, we may be required to spend
heavily to adapt to new technologies.
RISKS RELATING TO THE OFFERING
AFTER THE OFFERING, WE WILL CONTINUE TO BE CONTROLLED BY EXISTING STOCKHOLDERS.
Upon completion of this offering, the principal stockholders listed under
"Principal Stockholders" will beneficially own, in the aggregate, approximately
% of our outstanding common stock. Consequently, such persons, as a group,
will be able to control the outcome of all matters submitted for stockholder
action, including the election of directors and approval of significant change
in control transactions. Therefore, they will effectively control our management
and affairs. This may have the effect of delaying or preventing a change in
control of AdKnowledge. See "Management" and "Principal Stockholders."
WE WILL NOT PAY DIVIDENDS FOR THE FORESEEABLE FUTURE.
We anticipate that earnings, if any, will be retained for the development of our
business and that no cash dividends will be declared on the common stock for the
foreseeable future. In addition, some of our debt financing arrangements
restrict the payment of dividends. See "Dividend Policy."
AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP.
Before this offering, you could not buy or sell our common stock on a public
market. An active public market for our common stock may not develop or be
sustained after the offering, which could affect your ability to sell your
shares and depress the market price of your shares. The market price of your
shares may significantly vary from the offering price.
WE WILL HAVE DISCRETION AS TO THE USE OF PROCEEDS OF THIS OFFERING.
We currently have no specific uses planned for the net proceeds of this
offering. As a result, our management will have broad discretion in applying the
net proceeds of this offering, and could include uses with which you may
disagree. The failure of management to apply the net proceeds effectively could
have a material adverse effect on our business, financial condition and results
of operations. See "Use of Proceeds."
THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS, AND WE COULD BE SUBJECT TO SECURITIES LITIGATION.
The market price of our common stock is likely to be subject to wide
fluctuations. If our revenue does not grow or grows more slowly than we
anticipate, or if operating or capital expenditures exceed our expectations or
cannot be adjusted accordingly, the market price of our common stock could fall.
In addition, if the market for Internet-related stocks or the stock market in
general experiences a loss in investor confidence, the market price of our
common stock could fall for reasons unrelated to our
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<PAGE> 17
business or results of operations. Investors may be unable to resell their
shares of our common stock at or above the offering price. In the past,
companies that have experienced volatility in the market price of their stock
have been the subject of securities class action litigation. If we were the
subject of litigation, it could result in substantial costs and a diversion of
management's attention and resources.
YOU WILL SUFFER DILUTION IN THE VALUE OF YOUR SHARES.
Investors purchasing shares in this offering will incur immediate and
substantial dilution in net tangible book value per share. To the extent
outstanding options to purchase common stock are exercised, there will be
further dilution. See "Dilution" for detailed information on dilution resulting
from this offering.
SALES OF OUTSTANDING COMMON STOCK MAY DEPRESS THE STOCK PRICE AFTER THE
OFFERING.
A substantial number of shares of our common stock could be sold into the public
market after this offering. The occurrence of such sales, or the perception that
such sales could occur, could materially and adversely affect our stock price or
could impair our ability to obtain capital through an offering of equity
securities. After this offering, we will have outstanding shares of
common stock, or shares if the underwriters exercise their option to
purchase additional shares of common stock in the offering. We have also
reserved an additional shares of common stock for issuance under our
stock option and stock purchase plans and under other stock option agreements.
Options to purchase of these shares have been issued, all of which
will be exercisable upon the consummation of this offering but subject to future
vesting.
The shares of common stock being sold in this offering will be
freely transferable under the securities laws immediately after issuance, except
for any shares sold to "affiliates" of AdKnowledge. We intend to register for
resale the shares of common stock reserved for issuance under our stock option
and stock purchase plans approximately days after the date of this
prospectus. In addition, substantially all stockholders have agreed under
written "lock-up" agreements that, for a period of 180 days from the date of
this prospectus, they will not sell their shares. As a result, upon the
expiration of the lock-up agreements 180 days after the date of this prospectus,
shares of common stock will be eligible for sale subject, in most
cases, to certain volume and other restrictions under Federal securities laws.
The remaining shares of common stock will become eligible for resale
under the Federal securities laws on the first anniversary of their respective
dates of issuance, beginning on . See "Management -- Benefit
Plans" and "Shares Eligible for Future Sale."
We and stockholders who will hold in the aggregate shares of common
stock upon the consummation of this offering have entered into a registration
rights agreement which requires us to include shares of common stock held by
such stockholders in registered offerings of common stock made by us in the
future.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares will
be approximately $ million, assuming an initial public offering price
of $ per share, the mid-point of the range set forth on the cover of
this prospectus, and after deducting underwriting discounts and commissions and
estimated offering expenses of $ payable by us. If the underwriters
exercise their over-allotment option in full, we will receive additional net
proceeds of $ million.
We intend to use the net proceeds of this offering primarily for general
corporate purposes, including working capital. We may also use a portion of the
net proceeds from this offering to acquire or invest in businesses, technologies
or services that are complementary to our business. We have no present plans or
commitments and are not engaged in any negotiations with respect to any
transactions of this type. Pending these uses, we intend to invest the net
proceeds from this offering in interest-bearing, investment-grade securities.
See "Risk Factors -- We will have discretion as to the use of proceeds of this
offering."
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and we do
not expect to pay any cash dividends for the foreseeable future. We currently
intend to retain future earnings, if any, to finance the expansion of our
business. In addition, some of our debt financing arrangements restrict the
payment of dividends. Any future determination to pay cash dividends will be at
the discretion of our board of directors and will be dependent on financial
condition, operating results, capital requirements and other factors that our
board of directors deems relevant.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- on an actual basis;
- on a pro forma basis, after giving effect to (i) the for
one reverse split of our common stock, and (ii) the conversion of 525,000
shares of Series A preferred stock, 5,512,000 shares of Series B
preferred stock, 569,525 shares of Series C-1 preferred stock, 605,122
shares of Series C-2 preferred stock, 2,282,730 shares of Series C-3
preferred stock, 14,432,618 shares of Series D preferred stock and
15,555,557 shares of Series E preferred stock, into an aggregate of
shares of common stock; and
- on a pro forma as adjusted basis to reflect our receipt of the estimated
net proceeds from our sale of shares of common stock in
this offering at an assumed initial public offering price of $ per
share, the mid-point of the range set forth on the cover of this
prospectus, and after deducting underwriting discounts and commissions
and estimated offering expenses.
<TABLE>
<CAPTION>
----------------------------------
AS OF JUNE 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Dollars in thousands, except share data
Notes payable and capital lease obligations, less current
portion................................................... $ 2,410 $ 2,410 $2,410
Stockholders' equity:
Series A preferred stock, $.001 par value; 525,000
shares authorized, actual; none authorized, pro forma
and pro forma as adjusted; 525,000 shares issued,
actual; none issued, pro forma and pro forma as
adjusted.............................................. 1 -- --
Series B preferred stock, $.001 par value; 5,512,000
shares authorized, actual; none authorized, pro forma
and pro forma as adjusted; 5,512,000 shares issued,
actual; none issued, pro forma and pro forma as
adjusted.............................................. 6 -- --
Series C-1 preferred stock, $.001 par value; 576,192
shares authorized, actual; none authorized, pro forma
and pro forma as adjusted; 569,525 shares issued,
actual; none issued, pro forma and pro forma as
adjusted.............................................. 1 -- --
Series C-2 preferred stock, $.001 par value; 615,016
shares authorized, actual; none authorized, pro forma
and pro forma as adjusted; 605,122 shares issued,
actual; none issued, pro forma and pro forma as
adjusted.............................................. 1 -- --
Series C-3 preferred stock, $.001 par value; 2,442,366
shares authorized, actual; none authorized, pro forma
and pro forma, as adjusted; 2,282,730 shares issued,
actual; none issued, pro forma and pro forma as
adjusted.............................................. 2 -- --
Series D preferred stock, $.001 par value; 15,138,784
shares authorized, actual; none authorized, pro forma
and pro forma as adjusted; 14,432,618 shares issued,
actual; none issued, pro forma and pro forma as
adjusted.............................................. 14 -- --
Series E preferred stock, $.001 par value; 15,711,120
shares authorized, actual; none authorized, pro forma
and pro forma as adjusted; 15,555,557 shares issued,
actual; none issued, pro forma and pro forma as
adjusted.............................................. 16 -- --
Series 1 preferred stock, $.001 par value; no shares
authorized, actual; shares authorized,
pro forma and pro forma as adjusted; none issued,
actual, pro forma and pro forma as adjusted........... -- -- --
</TABLE>
14
<PAGE> 20
<TABLE>
<CAPTION>
----------------------------------
AS OF JUNE 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Common stock, $.001 par value; shares
authorized, actual; shares authorized,
pro forma and pro forma as adjusted;
shares issued, actual; shares issued,
pro forma; and shares issued, pro forma
as adjusted............................................ 6 -- --
Additional paid-in capital........................... 34,630
Deferred stock-based compensation.................... (4,736)
Note receivable from stockholder..................... (42)
Unrealized loss on investments....................... (1)
Accumulated deficit.................................. (21,572)
-------- ------- ------
Total stockholders' equity........................ 8,326 8,326
======== ======= ======
Total capitalization.............................. $ 10,736 $10,736
======== ======= ======
</TABLE>
The outstanding share information set forth above excludes:
- shares issuable upon the exercise of stock options
outstanding under our stock option plans, with a weighted average
exercise price of $ per share;
- shares issuable upon exercise of outstanding warrants with
a weighted average exercise price of $ per share;
- Up to shares issuable upon exercise of a warrant granted
on August 25, 1999 with an exercise price per share which shall be
between $ and $ ;
- shares reserved for issuance under our 1999 Stock
Incentive Plan; and
- shares reserved for issuance under our 1999 Employee Stock
Purchase Plan.
For additional information on our common stock, see "Management -- Benefit
Plans," "Description of Capital Stock" and the financial statements and notes in
this prospectus.
15
<PAGE> 21
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately $6.3
million or $0.14 per share of common stock. Pro forma net tangible book value
per share is equal to the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding as of
June 30, 1999, after giving effect to the conversion of all outstanding shares
of preferred stock into shares of common stock upon completion of this offering.
Assuming the sale by us of the shares offered hereby at an assumed
initial public offering price of $ per share, the mid-point of the
range set forth on the cover of this prospectus, and after deducting
underwriting discounts and estimated offering expenses, and the application of
the estimated net proceeds therefrom, our pro forma net tangible book value as
of June 30, 1999 would have been $ , or $ per share of
common stock. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $ per share to new
investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
1999................................................... $ 0.14
Increase per share attributable to new investors..........
-------
Pro forma net tangible book value per share after this
offering..................................................
----------
Pro forma dilution per share to new investors............... $
==========
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999, after
giving effect to the automatic conversion of all outstanding shares of preferred
stock into common stock, the total number of shares of common stock purchased
from us, the total consideration paid to us and the average price per share paid
by existing stockholders and by new investors:
<TABLE>
<CAPTION>
------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................. 46,518,586 % $27,662,713 % $0.59
New investors.....................................
---------- ----- ----------- -----
Total........................................... 100.0% 100.0% $
========== ===== =========== =====
</TABLE>
The tables and calculations above assume no exercise of outstanding options or
warrants outstanding at June 30, 1999. At June 30, 1999, there were:
- shares issuable upon the exercise of options outstanding under
our stock option plans, with a weighted average exercise price of $
per share;
- shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $ per share;
- Up to shares issuable upon exercise of a warrant granted on
August 25, 1999 with an exercise price per share which shall be between
$ and $ ;
- shares reserved for issuance under our 1999 Stock Incentive
Plan; and
- shares reserved for issuance under our 1999 Employee Stock
Purchase Plan.
To the extent that these options or warrants are exercised, there will be
further dilution to new investors. See "Capitalization," "Management -- Benefit
Plans" and Notes 9 and 10 of Notes to Financial Statements.
16
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. The statement of operations data for the period from July 10, 1996
(date of inception) to December 31, 1996 and for the years ended December 31,
1997 and 1998, and the balance sheet data at December 31, 1996, 1997 and 1998,
are derived from our financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and, except for the balance
sheet at December 31, 1996, are included elsewhere in this prospectus. The
statement of operations data for the six months ended June 30, 1998 and 1999 and
the balance sheet data at June 30, 1999 are derived from unaudited financial
statements included elsewhere in this prospectus and, in the opinion of our
management, include all adjustments, consisting only of normal recurring
adjustments, that are necessary for a fair presentation of the results of
operations for these periods. Historical results are not necessarily indicative
of the results to be expected in future periods. The pro forma statement of
operations data included in Note 2 of Notes to Financial Statements included
elsewhere in this prospectus gives effect to our acquisition of Focalink
Communications, Inc. as if it had occurred on July 10, 1996 (date of inception).
<TABLE>
<CAPTION>
----------------------------------------------------------------------
PERIOD FROM
JULY 10, 1996
(DATE OF
INCEPTION) TO YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
-------------- ---------- ------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Dollars in thousands, except share data
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ -- $ 564 $ 2,421 $ 1,071 $ 1,636
Cost of revenues............................... -- 209 3,109 1,442 2,523
--------- --------- ----------- --------- -----------
Gross profit (loss).......................... -- 355 (688) (371) (887)
--------- --------- ----------- --------- -----------
Operating expenses:
Research and development..................... 112 1,567 2,651 1,021 2,901
Sales and marketing.......................... 24 575 2,963 1,265 2,100
General and administrative................... 27 265 2,281 1,076 943
Amortization of intangible assets............ - - 766 383 383
Stock-based compensation..................... 564 98 807 485 311
Acquisition of in-process research and
development............................... -- 804 -- -- --
--------- --------- ----------- --------- -----------
Total operating expenses............. 727 3,309 9,468 4,230 6,638
--------- --------- ----------- --------- -----------
Loss from operations........................... (727) (2,954) (10,156) (4,601) (7,525)
Interest income (expense), net................. (2) 40 (102) (20) (146)
--------- --------- ----------- --------- -----------
Net loss....................................... $ (729) $ (2,914) $ (10,258) $ (4,621) $ (7,671)
========= ========= =========== ========= ===========
Net loss per share, basic and diluted.......... $ (0.39) $ (0.60) $ (1.27) $ (0.72) $ (0.61)
Shares used in computing net loss per share,
basic and diluted............................ 1,880,729 4,886,242 8,051,461 6,453,335 12,621,474
Pro forma net loss per share, basic and
diluted(1)................................... $ (0.35) $ (0.16)
Shares used in pro forma net loss per common
share calculation, basic and diluted(1)...... 29,146,430 49,336,944
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------
DECEMBER 31,
------------------------ JUNE 30,
1996 1997 1998 1999
---- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Dollars in thousands
BALANCE SHEET DATA:
Cash and cash equivalents................................... $216 $ 383 $ 1,165 $ 5,052
Working capital (deficit)................................... 180 (1,581) (1,547) 4,709
Total assets................................................ 258 5,940 7,097 14,351
Notes payable and capital lease obligations, less current
portion................................................... -- 648 1,438 2,410
Total stockholders' equity (deficit)........................ (37) 2,868 1,657 8,326
</TABLE>
- ---------------
(1) See the financial statements and related notes appearing elsewhere in this
prospectus for the determination of number of shares used in computing basic
and diluted net loss per share.
17
<PAGE> 23
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by forward-looking
words such as "may," "will," "expect," "intend," "anticipate," "believe,"
"estimate" and "continue" or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
condition or state other forward-looking information. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
control. The factors listed in the sections captioned "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as other cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in the "Risk Factors" section and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section and elsewhere in this prospectus could have a material
adverse effect on our business, operating results and financial condition.
18
<PAGE> 24
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 notes appearing
elsewhere in this prospectus.
OVERVIEW
AdKnowledge is a leading independent provider of comprehensive Internet
advertising management and analysis services for marketers and advertising
agencies. We began operations on July 10, 1996 and spent the first nine months
of our operations developing our first product, ClickWise, a software package
designed to enable Web sites to manage their advertising inventory. In early
1997, we began licensing our ClickWise product, and our consolidated revenues
during 1997 were generated exclusively from software licenses and service and
support contracts.
Shift in Focus to the Buyers of Web Advertising
On December 31, 1997, we acquired Focalink Communications, Inc. This acquisition
enabled us to accomplish a strategic objective of offering Internet-accessible
products and services to the buyers of Web advertising. Following the
acquisition of Focalink, we were able to offer agencies and marketers
centralized, outsourced ad serving and a media planning module. We began
generating revenues from these products in January 1998. In the second half of
1998, we developed campaign management and basic reporting modules which, along
with Focalink's original service offerings, comprise the AdKnowledge System.
In the first half of 1998, we discontinued our sell-side ClickWise product and
service offering and began to focus exclusively on products and services for the
buyers of Web advertising. In June 1998, we transferred our ClickWise client
base to DoubleClick, an Internet advertising management company, in exchange for
royalties. We do not expect to receive significant future revenues from this
arrangement.
Revenue Model
Since January 1, 1998, substantially all of our revenues have been generated
from ad delivery and associated management services. Fees for ad delivery are
generally charged on a cost-per-thousand ads served basis, commonly referred to
as "CPM." In accordance with market practice, clients with higher expected ad
volumes are generally charged a lower ad serving rate.
In addition to billings for ad delivery, we charge fees for use of our Planning,
Campaign Management and Reporting modules provided through the AdKnowledge
System. Fees for use of these modules are negotiated with each individual client
and generally include monthly usage fees over the term of the contract. Although
several of our clients have contracts with terms ranging from one to three
months or over a single advertising campaign, contracts with an increasing
number of our new clients have a term of 12 months. We expect to increase the
number of clients with subscription-based, 12-month contracts in the future.
Trends in Revenues
Our ad serving revenues generally have increased in every quarter, and we expect
ad serving revenues to continue to increase in future periods due to continued
growth in the volume of ads we serve. In the first and second half of 1998 and
first half of 1999, we delivered 1.2 billion, 1.8 billion and 3.3 billion ads
and expect this trend to continue. We expect continued declines in the rates we
charge for ad delivery due to competitive pressure on standard ad serving rates
and an expected increase in the number of our high volume clients. We
periodically review our pricing model in response to market trends and
conditions.
In the future, we expect that the primary driver of our revenue growth and,
ultimately, the primary determinant of our ability to achieve and maintain
profitability, will be AdKnowledge eAnalytics, a service offering announced in
July 1999 that incorporates advanced campaign management and analysis
functionality. In future periods, we expect that an increasing portion of our
revenues will be attributable to AdKnowledge eAnalytics. Our AdKnowledge
eAnalytics services have not yet generated significant revenues, and we cannot
give assurances as to when or whether they will do so.
We are currently introducing AdKnowledge eAnalytics to the market and testing
its pricing through preliminary commercial sales to our clients. We expect that
fees for AdKnowledge eAnalytics products will be based on the number and
complexity of
19
<PAGE> 25
individual reports or groups of reports generated for our clients and on the
corresponding volume of data analyzed. We expect that AdKnowledge eAnalytics
services will be priced either on a per-report basis or as a premium to our
current CPM-based pricing. In the future, we may also earn project-based fees
for custom data mining and data integration services.
Relationship Between Revenues and Associated Costs
Cost of revenues in 1997 reflected customer service and support activities in
connection with the ClickWise product. Since January 1, 1998, cost of revenues
has consisted primarily of:
- salaries and personnel costs associated with the maintenance of our
operational infrastructure and customer service and support activities;
- fees paid to Internet hosting service providers; and
- depreciation expense associated with ad delivery and reporting equipment.
Exclusive of Internet hosting services, which comprised 20% of total cost of
revenues in the first half of 1999, we believe that we are capable of
accommodating greater ad volumes than we serve today without a proportional
increase in our cost of revenues. Due to the costs of building out and
maintaining our ad serving capacity and our operations and client services
departments in anticipation of future growth, we have experienced negative gross
margins since January 1, 1998.
We believe that our gross margins will improve to the extent that we succeed in
the initiatives discussed below. We cannot be certain, however, that we will be
able to successfully implement these initiatives or, if implemented, that these
initiatives will have the positive effect on gross margin that we expect. These
initiatives include:
- Increasing the number of ads we serve. We are currently experiencing
significant growth in our ad serving volume and expect this growth to
continue in the future. We believe that increasing ad volumes will result
in economies of scale and generally a lower average cost to deliver each
ad. We believe that we can achieve these economies of scale because
increased volume will enable us to negotiate preferable Internet service
rates with network providers. In addition, we expect that minimal
additions to our current operations staffing will be required to maintain
and monitor a significantly greater number of ads than we serve today.
- Improving the efficiency of our ad serving equipment. A significant
portion of our research and development activities is devoted to
providing enhancements to software, hardware and network infrastructure
to achieve greater ad serving capacity with our current level of ad
delivery and reporting equipment. We expect these enhancements to result
in a reduction in required capital expenditures and, therefore, in
declining depreciation charges, in connection with incremental increases
in ad volume.
- Increasing the number of high-volume clients. We are currently
experiencing growth in our number of high-volume clients and expect this
growth to continue in the future. Such growth is expected to result in
economies of scale for client services as the number of client service
specialists is determined more by the number of clients and campaigns
managed than by aggregate ads served.
- Developing AdKnowledge eAnalytics as an emerging revenue stream.
AdKnowledge eAnalytics is currently at a preliminary commercial stage and
the potential margins on these services are currently unknown. However,
AdKnowledge eAnalytics is positioned to be a premium service to
traditional ad delivery and we expect that the incremental cost of
revenues, including data storage and personnel-related costs, will be
minimal over the mid- to long-term.
Acquisition Transaction
We acquired Focalink for a purchase price of approximately $5.5 million,
consisting of approximately $3.1 million in AdKnowledge shares and warrants,
$2.2 million in liabilities assumed and transaction costs of approximately
$208,000. The acquisition was accounted for under the purchase method of
accounting and resulted in an expense of $804,000 in the fourth quarter of 1997
for the write-off of purchased in-process research and development that had not
yet reached technological feasibility and had no alternative future use.
Purchased technology and goodwill, totaling approximately $3.2 million, were
recorded in connection with the acquisition and are being amortized on a
straight-line basis over three and five years. As of June 30, 1999,
approximately $1.2 million of this amount had been amortized to expense. In the
second half of 1999, and in
20
<PAGE> 26
years 2000, 2001 and 2002, an additional $0.4 million, $0.8 million, $0.4
million and $0.4 million of this purchased technology and goodwill will be
amortized to expense.
RESULTS OF OPERATIONS
The following table shows selected line items from our audited annual and
unaudited interim statements of operations.
<TABLE>
<CAPTION>
------------------------------------------------------
PERIOD FROM
JULY 10, 1996
(DATE OF YEARS ENDED SIX MONTHS ENDED
INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------ -----------------
1996 1997 1998 1998 1999
------------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ -- $ 564 $ 2,421 $ 1,071 $ 1,636
Cost of revenues...................................... -- 209 3,109 1,442 2,523
----- ------- -------- ------- -------
Gross profit (loss)................................. -- 355 (688) (371) (887)
----- ------- -------- ------- -------
Operating expenses:
Research and development............................ 112 1,567 2,651 1,021 2,901
Sales and marketing................................. 24 575 2,963 1,265 2,100
General and administrative.......................... 27 265 2,281 1,076 943
Amortization of intangible assets................... -- -- 766 383 383
Stock-based compensation............................ 564 98 807 485 311
Acquisition of in-process research and
development...................................... -- 804 -- -- --
----- ------- -------- ------- -------
Total operating expenses.............................. 727 3,309 9,468 4,230 6,638
----- ------- -------- ------- -------
Loss from operations.................................. (727) (2,954) (10,156) (4,601) (7,525)
Interest income (expense), net........................ (2) 40 (102) (20) (146)
----- ------- -------- ------- -------
Net loss.............................................. $(729) $(2,914) $(10,258) $(4,621) $(7,671)
===== ======= ======== ======= =======
</TABLE>
Six Months Ended June 30, 1998 and 1999
Revenues Revenues increased from $1.1 million in the first half of 1998 to $1.6
million in the first half of 1999, an increase of 53%. This increase was due
primarily to a 183% increase in aggregate ad volume offset in part by a 30%
decrease in the average revenue derived per ad served. The overall increase in
revenues was also partially offset by the recognition in the first half of 1998
of approximately $136,000 of ClickWise license and support revenues and $244,000
derived from delivery of ads on behalf of Web network sites, both of which were
discontinued in June 1998. The overall increase in ad volumes between the
periods resulted substantially from the addition of new agency and marketer
clients, partially offset by decreases in volume attributable to the
discontinuation of ad serving for sites. Excluding revenues generated from
ClickWise and ad serving for sell side clients, revenues from ad delivery, media
planning and associated management services increased from $681,000 to $1.5
million, or by 127%, from the first half of 1998 to the first half of 1999. In
the first half of 1998, one client, International Data Group (IDG), a global Web
advertising site, comprised approximately 12% of our revenues. Due to the
discontinuation of ad serving for sites, no revenues were derived from IDG in
1999. In the first half of 1999, Left Field and i-traffic, two leading
advertising agencies, comprised approximately 11% and 10% of our revenues. The
loss of either of these clients, or a significant reduction in revenues
generated from these clients, would have a material adverse impact on our
quarterly and annual results of operations.
Cost of Revenues Cost of revenues increased from $1.4 million in the first half
of 1998 to $2.5 million in the first half of 1999. Total cost of revenues
consists primarily of personnel-related costs of our operations and customer
support organizations, as well as third-party Internet hosting service costs and
depreciation of ad serving and reporting equipment. Since June 30, 1998, we have
increased the number and experience-level of our operations personnel and have
acquired significant capital assets in order to provide additional capacity and
operational redundancy. This trend has continued into the third quarter of
21
<PAGE> 27
1999 and we expect it to continue in the future. The increase in capital assets
has resulted in increased depreciation expense and Internet service costs
necessary to co-locate and connect our equipment to the Internet.
Research and Development Research and development expenses consist primarily of
personnel and related costs associated with developing technology to expand the
features and functionality of our products and to make efficiency improvements
in the design and deployment of our ad serving and reporting assets. Research
and development expenses were $1.0 million in the first half of 1998 and $2.9
million in the first half of 1999. This increase of approximately $1.9 million
was due primarily to increased personnel and consulting expenses. Of this
increase, we incurred approximately $0.6 million of personnel, consulting and
overhead expenses for the development and preliminary delivery of our
AdKnowledge eAnalytics product offering in the second quarter of 1999. In the
third quarter of 1999, we expect to incur significant additional consulting
expenses in connection with our AdKnowledge eAnalytics development. Through June
30, 1999, all research and development costs have been expensed as incurred. We
believe that continued investment in research and development is critical to
attaining our strategic objectives and, as a result, we expect research and
development expenses to continue to increase in future periods, particularly in
connection with further development of the AdKnowledge eAnalytics service
offering.
Sales and Marketing Sales and marketing expenses consist primarily of personnel
and related costs, including commissions, travel, advertising, trade show costs
and marketing materials expenses. Sales and marketing expenses were $1.3 million
in the first half of 1998 and $2.1 million in the first half of 1999. This
increase of approximately $0.8 million was due primarily to an increase in sales
personnel costs, particularly in commissions and travel, and increased
expenditures in connection with tradeshows and marketing materials. We expect
sales and marketing expenses to increase in future periods as we hire additional
sales personnel, expand into new markets and continue to promote our services
and product offering.
General and Administrative General and administrative expenses consist primarily
of personnel and related costs associated with our executive and financial
functions, as well as professional service fees and general corporate costs.
General and administrative expenses were $1.1 million in the first half of 1998
and $0.9 million in the first half of 1999. We expect general and administrative
expenses to increase in future periods as we hire additional administrative
personnel and incur additional costs related to the growth of our business and
our operations as a public company. In the third quarter of 1999, we expect to
recognize approximately $0.3 million of general and administrative expenses in
connection with the forgiveness of a related party note receivable.
Stock-based Compensation Since inception and through June 30, 1999, we have
recorded aggregate deferred stock-based compensation of approximately $6.0
million for the difference between the exercise price and the deemed fair value
of common stock issuable upon the exercise of certain stock options granted to
employees. This deferred stock-based compensation is being amortized over the
vesting periods of the related options. We recognized expense of $0.5 million in
the first half of 1998 and $0.3 million in the first half of 1999 in connection
with the amortization of stock-based compensation. The expense recognized in the
first half of 1998 reflects the amortization of approximately $130,000 of
expense attributable to 294,697 stock options that were both granted and fully
vested in the first quarter of 1998. As of June 30, 1999, deferred stock-based
compensation of $4.7 million will be amortized to expense over the remaining
vesting periods of the related options. Of this amount approximately $0.7
million, $1.3 million, $1.3 million, $1.0 million and $0.4 million will be
amortized to expense in the second half of 1999 and in 2000, 2001, 2002 and
2003.
Periods Ended December 31, 1996, 1997 and 1998
Revenues In 1996, we were a development stage company and had no revenues. In
1997, our revenues of approximately $0.6 million were generated exclusively from
the licensing of our ClickWise product and from the sale of software licenses
and service and support contracts. In 1998, our revenues of $2.4 million were
generated principally from ad delivery and associated ad management services. Of
the $2.4 million of 1998 revenues, approximately $0.4 million are nonrecurring
due to the discontinuation of ad serving for sites and our ClickWise product. No
single client, or group of affiliated clients, comprised 10% or greater of our
consolidated revenues in 1997 or 1998.
Cost of Revenues In 1996, we had no revenues or cost of revenues. In 1997, cost
of revenues consisted primarily of personnel-related costs associated with our
ClickWise client service and support activities. We recognized a gross profit of
approximately $0.4 million, or 63% of revenues, during 1997. In 1998, cost of
revenues consisted primarily of personnel-related costs of our operations and
customer support organizations, third-party Internet hosting service costs and
depreciation of ad serving and reporting equipment. Approximately 50% of our
total cost of revenues was comprised of payroll, consulting and recruiting
expenses. Internet hosting service costs, the largest variable component of cost
of revenues, were $0.4 million in 1998.
22
<PAGE> 28
Operating Expenses In 1996, we had no material research and development, sales
and marketing and general and administrative expenses. From 1997 to 1998, we
experienced a substantial increase in our overall business activities. In
connection with our Focalink acquisition on December 31, 1997, we increased our
headcount and assumed facility leases for office space in Palo Alto, California
and in New York, New York. During 1998, we disposed of property and equipment
that resulted in a loss of approximately $0.2 million and incurred significant
expenses in connection with the recruitment and compensation of certain
executive officers. During 1998, we also significantly increased our sales and
marketing activities, and developed and began to sell the AdKnowledge System.
Approximately 74% of our total research and development, sales and marketing and
general and administrative expenses were comprised of payroll, consulting and
recruiting costs during 1998.
Acquisition of In-Process Research and Development and Amortization of
Intangible Assets We acquired Focalink on December 31, 1997 and recorded an
expense of $804,000 for the write-off of purchased in-process research and
development that had not yet reached technological feasibility and had no
alternative future use. Purchased technology and goodwill, totaling
approximately $3.2 million, were recorded in connection with the acquisition
and, beginning January 1, 1998, are being amortized on a straight-line basis
over three and five years. In 1998, we recorded amortization of intangible
assets of approximately $0.8 million.
The amount allocated to the in-process technology represented the purchased
in-process technology for three projects that had not reached technological
feasibility and had no alternative future use. The three projects comprised a
campaign management module and enhanced versions of centralized outsourced ad
serving and media planning services. Upon completion, these projects were to
become the central modules of the AdKnowledge System. The campaign management
module and the AdKnowledge System were introduced in the third and fourth
quarters of 1998. The value of these projects was determined by estimating the
costs to develop the purchased in-process technology into commercially viable
services; estimating the resulting net cash flows from the sale of services
resulting from the completion of the projects, reduced by the portion of the
revenues attributable to core technology; and discounting the net cash flows
back to their present value using discount rates of approximately 30%.
The nature of the efforts to develop the purchased in-process technology into
commercially viable services principally related to the completion of all
planning, designing, prototyping, verification and testing activities that are
necessary to establish that the services can be produced to meet their design
specifications, including function, features and technical performance
requirements. The resulting net cash flows from such services were based on our
estimates of revenues, cost of revenues, research and development costs, sales
and marketing costs, and income taxes from such projects.
The related net cash flows in 1998 and 1999 have been in excess of those
projected. We currently believe the aggregate net cash flows originally
anticipated will be realized and that there has been no material change in the
expected return on investment related to these services. However, we cannot
guarantee that we will realize revenues from these services in amounts estimated
and actual revenues realized from these services may be significantly lower than
expected in the future.
Stock-based Compensation During 1996, we issued common stock to our founders
under restricted purchase agreements and retained the right to repurchase the
shares if these individuals terminated employment. In late 1996, we waived our
right to repurchase certain of these shares and recorded stock-based
compensation of $0.5 million, equal to the difference between the purchase price
of the stock and its deemed fair value. In 1996, 1997 and 1998, we recognized
stock-based compensation expense of approximately $18,000, $0.1 million and $0.8
million for the difference between the exercise price and the deemed fair value
of common stock issuable upon the exercise of employee stock options. This
stock-based compensation is being recognized over the vesting periods of the
related options. In 1996, 1997 and 1998, options for a total of 625,000 shares,
1,827,255 shares and 6,345,885 shares of common stock were granted under our
stock option programs.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statements of operations
data. We believe that this information has been prepared on the same basis as
the audited financial statements appearing elsewhere in this prospectus, and
that it reflects all
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adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of such information in accordance with
generally accepted accounting principles.
<TABLE>
<CAPTION>
------------------------------------------
QUARTER ENDED
------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1999 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Dollars in thousands
Revenues.................................................... $ 595 $ 755 $ 644 $ 992
Cost of revenues............................................ 607 1,060 1,099 1,424
------- ------- ------- -------
Gross loss................................................ (12) (305) (455) (432)
------- ------- ------- -------
Operating expenses.......................................... 2,494 2,744 3,245 3,393
------- ------- ------- -------
Loss from operations........................................ (2,506) (3,049) (3,700) (3,825)
Interest expense, net....................................... (20) (62) (90) (56)
------- ------- ------- -------
Net loss.................................................... $(2,526) $(3,111) $(3,790) $(3,881)
======= ======= ======= =======
</TABLE>
We believe that the seasonal fluctuations in our business are trending towards
those of traditional advertising, with the fourth quarter of the year expected
to generate the largest relative percentage of revenues. We expect that the
majority of our revenues in 1999 and for the foreseeable future will be
generated in the second half of each year. In the future, we also expect that
the first quarter of each year, following the holiday season, will tend to
contribute the lowest relative percentage to our annual revenues. Excluding
royalty revenues generated from DoubleClick, total revenues were approximately
$558,000, $659,000, $607,000 and $968,000 in the third and fourth quarters of
1998 and the first and second quarters of 1999.
Cost of revenues began to increase significantly in the fourth quarter of 1998
and first and second quarters of 1999 primarily as a result of increasing
payroll-related costs. Increased consulting expenses in the first quarter of
1999 and increased Internet hosting service costs in the second quarter of 1999
also contributed to the upward trend in total cost of revenues.
In our research and development, sales and marketing, and general and
administrative activities, the largest single component of our expenses is
payroll, consulting and other personnel related costs. We expect that these
costs will continue to comprise the largest component of our operating expenses
and that they will increase in the future.
Our revenues, gross margins and other operating results have varied widely in
the past and we expect that they will continue to vary in the future. As a
result, our results of operations for any particular quarter are not necessarily
indicative of our results of operations for any future period. Our revenues and
results of operations depend on a variety of factors, many of which are beyond
our control. See "Risk Factors -- Our quarterly operating results are subject to
significant fluctuations and seasonal variations."
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
private placement of equity securities and, to a significantly lesser extent,
net proceeds from the issuance of notes payable and capital lease financings. As
of June 30, 1999, we had $6.6 million in cash and cash equivalents and
short-term investments and had borrowed $3.8 million under credit and capital
lease facilities. Of these borrowings, $0.5 million of notes payable were
subject to financial covenants, including monthly liquidity, monthly quick ratio
and quarterly profitability. We have in the past had, and may in the future
have, difficulty complying with these covenants and are currently renegotiating
such covenants with the lenders. Since June 30, 1999, we have received proceeds
of $4.0 million from a three-year term note and an additional $350,000 under
capital lease obligations, payable over 42 months. In addition, we have
available credit facilities of approximately $0.8 million.
Net cash used in operating activities was $0.1 million in 1996, $1.9 million in
1997, $7.2 million in 1998 and $6.5 million in the first half of 1999. Net cash
used in operating activities resulted primarily from net losses and increasing
accounts receivable balances, partially offset by non-cash charges. During the
annual periods, net cash used in operating activities was also partially offset
by the timing of payable settlements. Net cash used in investing activities was
insignificant in 1996, $0.1 million in 1997, $1.5 million in 1998 and $2.9
million in the first half of 1999. Net cash used in investing activities
resulted primarily from capital expenditures for equipment used in ad delivery,
reporting and, to a lesser extent, for research
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and development activities. In addition, in the first half of 1999, we purchased
$1.5 million of short-term investments. Net cash provided by financing
activities was $0.4 million in 1996, $2.2 million in 1997, $9.5 million in 1998
and $13.3 million in the first half of 1999. Through June 30, 1999, net cash
provided by financing activities reflected approximately $23.1 million of net
proceeds from issuance of convertible preferred stock.
While we do not currently have any material commitments for capital
expenditures, we plan to incur approximately $2.5 million in capital
expenditures in the second half of 1999. We anticipate these capital
expenditures will be largely incurred in connection with the maintenance and
enhancement of our ad serving and reporting equipment and with hardware and
software necessary for continued development of our AdKnowledge eAnalytics
services. In addition, as of June 30, 1999, our future minimum lease payments
under noncancelable operating leases, net of sublease rental receipts, totaled
approximately $5.3 million through 2004. We expect to continue to experience
significant growth in our operating expenses for the foreseeable future and
anticipate that these expenses will require a significant use of cash.
We believe that the net proceeds of this offering, together with our existing
cash, cash equivalents and short-term investments and available credit
facilities, will be sufficient to meet our anticipated cash needs for working
capital, repayment of debt and capital expenditures for at least the next 12
months. We may need to raise additional capital, however, to fund more rapid
expansion, to develop new services or enhance existing services, to respond to
competitive pressure or to acquire complementary products, businesses or
technologies. If adequate funds are not available in sufficient amounts and on
terms acceptable to us, our business, results of operations and financial
condition could be materially adversely affected.
MARKET RISK DISCLOSURES
Our exposure to market risk is principally confined to our cash and cash
equivalents and available-for-sale securities, which have short maturities and,
therefore, immaterial market risk.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP No. 98-1 requires entities to
capitalize costs related to internal-use software once specified criteria have
been met. We adopted SOP No. 98-1 on January 1, 1999. The adoption of this
standard did not have a material impact on our results of operations, financial
position or cash flows.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-up Activities." SOP No. 98-5 requires the costs of start-up activities and
organization costs to be expensed as incurred. We adopted SOP No. 98-5 on
January 1, 1999. Because we have historically expensed the costs of start-up
activities, the adoption of this standard did not have a material impact on our
results of operations, financial position or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. We will be required to
adopt SFAS No. 133 on January 1, 2001. Because we do not currently hold any
derivative instruments and do not engage in hedging activities, we do not expect
that the adoption of SFAS No. 133 will have a material impact on our results of
operations, financial position or cash flows.
IMPACT OF THE YEAR 2000 ISSUE
Many existing computer systems, applications and other control devices use
computer programs that recognize only two digits rather than four to define an
applicable year. Therefore, any computer systems or other equipment with
embedded date-sensitive technology may recognize a date using "00" as the year
1900 rather than the year 2000. This is commonly referred to as the "Year 2000
issue". In addition to affecting the functionality of our own software and
internal systems, the Year 2000 issue could result in system failure or
miscalculations causing disruptions in the operations of business and government
entities which could affect operations in any area of AdKnowledge, including our
supply chain, distribution and financial organizations.
We initiated a Year 2000 compliance project in the first quarter of 1999. The
scope of this project includes addressing the Year 2000 issue in four key areas:
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(1) development, which includes our software-based services;
(2) operations, which includes the local area network, desktops, delivery
and reporting equipment, and desktop-based software;
(3) general and administrative, which includes voice communications
equipment and service, business applications, payroll and benefits
service providers, banks, general facilities, and key business
relationships; and
(4) quality assurance and testing of our software-based services.
The project consists of addressing each of these four areas in the following
phases:
- awareness;
- assessment;
- renovation or replacement;
- testing and validation;
- implementation; and
- contingency planning.
We commenced the awareness phase by establishing a Year 2000 team. The
assessment phase is substantially completed with core business areas and
processes identified, analyzed and the priority of their conversion or
replacement determined. The investigation included specifically identifying
information technology and non-information technology computer and embedded
systems. Based on the investigation, we determined that we would be required to
modify or replace certain portions of our third-party and proprietary software
so that such software would properly utilize dates beyond December 31, 1999.
Specific information technology and non-information technology systems in
AdKnowledge were targeted for software and hardware upgrades or replacements.
Also during the assessment phase, we commenced formal communications with our
significant suppliers to determine the extent to which we are vulnerable to
those third parties' failure to remedy their own Year 2000 issue. Computer
equipment and embedded-systems vendors, business service providers and other
third-party vendors, on whom we rely to carry out normal business operations,
generally have indicated substantial remediation, or documented plans to
remediate, the Year 2000 issue. Some have given written certification of
internal and product compliance. Substantially all critical suppliers have
indicated compliance of their product or service. We cannot assure you, however,
that the systems of third-party service providers on which our business
operations rely will be converted in a timely fashion, or that a failure to
convert by a third party, or a conversion that is incompatible with our systems,
will not have a material adverse impact on our business, results of operations
and financial position. Nevertheless, we presently believe that, based on the
positive responses of most business partners, including customers and vendors,
the Year 2000 issue is being diligently addressed and substantial mitigation
will be achieved in most, if not all, sectors.
To date, we have also substantially completed the renovation or replacement
phase with respect to mission critical internal-use information technology and
non-information technology systems and our own proprietary software. The
renovation or replacement of non-mission critical systems and embedded
information technology and non-information technology systems is expected to be
completed by the end of 1999. Substantially all of our critical business and
development computer systems have been updated with Year 2000 compliant versions
of software and are being tested to assure that the software performs as
required. The remainder of our critical business and development computer
systems will be updated by early in the fourth quarter of 1999. Testing of these
systems is expected to occur throughout the rest of 1999. Material failure by
one of these systems is not expected, based on the results of testing to date.
However, if such failure were to occur, it could result in interruption of our
normal business operations and affect our results of operations in that quarter.
Year 2000 remediation efforts are not expected to materially impact or delay
other information technology projects or new service introductions.
The process of testing, validating and implementing Year 2000 corrections in our
proprietary software is nearing completion, with final testing estimated to be
achieved in late 1999. Based on remediation and testing results achieved to
date, we expect that the Year 2000 compliant versions of our software will be
fully functional and will not result in any Year 2000-related failure. However,
if such failure were to occur, it could result in interruption of our normal
business operations and affect our
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ability to provide our services to, and satisfy and retain, our clients. We
believe, however, that our Year 2000 efforts mitigate the possibility of such
interruptions.
We are currently progressing in the contingency planning phase with the
development of a comprehensive contingency plan that is intended to mitigate
possible disruptions that may occur due to material Year 2000-related failures
in any of the core business areas or processes. We have begun to address
contingency plans in the event of either our own software failure or the failure
of any critical third-party provider of goods or services, including Internet
hosting service providers. In general, third-party vendors have indicated
virtually complete product and service compliance and substantially complete
internal compliance. Although we will identify alternative vendors for some
critical items, and continue to maintain a redundant and geographically
distributed ad delivery and reporting capability, we do not expect failures in
this area to be significant. We have determined that it is not practicable to
identify or arrange for secondary backup services for such critical functions as
electricity, telephone, banking and government services on which we must rely.
Therefore, we continue to seek information on the status of each of these
service providers. Our Year 2000 committee will continue to address options for
mitigating failures in these areas as part of our contingency plan.
Our contingency plan for handling our proprietary software and hardware service
compliance consists principally of having available appropriate engineering
personnel to address problems that may occur. As we continue to test our
software for Year 2000 readiness, we expect such issues, if any, to be
insignificant and to be handled in the normal course of business by existing
engineering staff.
Our estimates of the expected costs to complete the Year 2000 project are based
on the results of the assessment, renovation or replacement, and testing
completed to date. The computer products purchased and used by us consist
substantially of new or relatively new equipment that are certified Year 2000
compliant by the manufacturer. The principal software platforms used by us in
research and development activities, ad delivery and reporting and most of our
other operations are the latest versions which have been represented by their
manufacturers as Year 2000 compliant.
Based on the above facts, our estimate of the total cost for the Year 2000
project is $640,000. Estimated costs incurred through June 30, 1999 related to
the Year 2000 project are $270,000, all of which have been expensed in the
period incurred. Most of our expenses have related to, and are expected to
continue to relate to, the operating costs associated with time spent by
employees and consultants in the evaluation process and Year 2000 compliance
matters generally. There can be no assurance, however, that these cost estimates
will be achieved and actual results could differ materially from these
estimates. Specific factors that might cause such differences include, but are
not limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer code, the failure of third
parties which are material to our operations to mitigate their own Year 2000
issues, and similar uncertainties. However, we are continuing to pursue the Year
2000 issue, and believe that, once all phases of the project have been completed
and contingency plans have been explored and put in place, we will be able to
significantly reduce the impact of any Year 2000-related disruptions that may
occur.
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BUSINESS
This prospectus may contain forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in any forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed in "Risk Factors."
OVERVIEW
AdKnowledge is a leading provider of comprehensive Internet advertising
management and analytic services for marketers and advertising agencies. Our
services integrate powerful data capture and analysis into an end-to-end
advertising management solution that enables marketers and agencies to increase
the return on their Internet advertising. We differentiate ourselves in three
principal ways:
(1) We offer a comprehensive Web-based solution for management of Internet
advertising campaigns;
(2) We enable our clients to optimize their Internet advertising across all
major Web sites by offering complex data collection and data mining
services. These services correlate outbound marketing to customer
behavior revealing trends in consumer behavior and brand awareness; and
(3) We are independent from any media property or ad network. We are
focused exclusively on the needs of the buyers of Internet advertising,
such as marketers and their advertising agencies, as opposed to the
sellers of Internet advertising, such as Web sites.
Our services include the AdKnowledge System and AdKnowledge eAnalytics(TM). The
AdKnowledge System is a suite of Web-based applications that enables marketers
and agencies to more efficiently manage all aspects of Web advertising from the
desktop. The AdKnowledge System streamlines what is otherwise a cumbersome and
complicated process, thus providing significant productivity gains and cost
savings.
AdKnowledge eAnalytics is a suite of detailed data analysis and data mining
services that allows marketers and agencies to obtain deeper insights into
consumer behavior and brand awareness. This operationally complex service
relates data collected from campaign tracking with AdKnowledge's massive
proprietary profile database and other third party databases, including our
clients' own in-house customer data, to create a rich data set for data mining
and analysis. Combined with the AdKnowledge System, AdKnowledge eAnalytics is
designed to allow marketers and agencies to significantly enhance the efficiency
and effectiveness of their marketing programs.
While the Internet provides the potential for advertisers to capture an
unprecedented amount of data on consumers, today the vast majority of this data
goes uncaptured or unused. We believe that we are well positioned to leverage
this data to take advantage of a growing demand among Internet marketers and
agencies for more detailed and sophisticated analysis of consumer behavior and
brand awareness.
INDUSTRY BACKGROUND
GROWTH OF INTERNET COMMERCE AND INTERNET ADVERTISING. The Internet has emerged
as a significant global medium for the electronic transaction of business, or
e-commerce. Forrester Research, an independent technology research firm,
projects that U.S. business trade on the Internet will grow dramatically from
$43 billion in 1998 to $1.3 trillion in 2003, or to more than 9% of total U.S.
business sales. Also fueling this growth is the evolution of the Internet into
an entertainment medium as faster connections permit greater interactivity and
traditional advertisers dedicate an increasing portion of their budgets to
Internet advertising in order to drive offline sales as well as online activity.
Forrester projects the market for worldwide Internet advertising spending will
grow from $3.3 billion in 1999 to $33.0 billion in 2004. The Direct Marketing
Association estimates that spending on Internet direct marketing will grow from
$603 million in 1998 to $5.3 billion in 2003.
THE INTERNET AS A UNIQUE ADVERTISING MEDIUM. Unlike traditional media
advertising that is based on the mass display of a fixed message to an
aggregated audience, Internet advertising involves the independent delivery of
dynamic messages to each individual viewer. Because ads are delivered one viewer
at a time across a digital infrastructure, the Internet offers several unique
possibilities as an advertising medium including:
- Measurability. The Internet provides the potential to measure virtually
every activity -- for example, the delivery of text or an image to a
browser, click-throughs on Internet links, the completion and submission
of forms by a user, or
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the downloading of files. For this reason, the Internet allows marketers
to measure the full range of consumer behaviors associated with a
particular advertisement.
- Accountability. The Internet also offers the potential for
accountability, or the determination of the return on a marketer's
advertising investment. Advertising returns can be calculated because
sales or other desired actions resulting from a campaign can be
correlated to the original ad displayed. The Internet is the only medium
capable of providing this detailed feedback on consumer responses to
advertisements.
- Personalization. Since each Internet image or message is delivered to one
viewer at a time, specific Web pages, emails, or ads can be tailored to
the interests of each viewer, increasing the likelihood that the ad will
elicit the desired response from the viewer.
- Immediacy. The Internet dramatically accelerates the transactional
feedback loop. Information on consumer responses to campaigns can be
provided in real time and campaigns can be adjusted quickly. The Internet
is the only advertising medium that provides the potential for this real
time feedback through every stage of the sales cycle.
CHALLENGES TO INTERNET ADVERTISING. Although the Internet has the potential to
become a more effective and efficient advertising medium for marketers, several
challenges have limited its use by marketers to date. These challenges include:
- Lack of buy-side focused solutions. The Internet advertising market is
segmented into two groups -- marketers and agencies seeking to purchase
the most effective ad inventory at the lowest possible price, and Web
sites and ad networks seeking to maximize the revenue generated by their
ad inventory. To date, due to a lack of buy-side focused solutions,
marketers and agencies generally have had to rely on Web sites and ad
networks for ad management and reporting services. Because these services
are often based on systems which are tailored to the needs of the
sell-side, they do not fully address the unique needs of marketers and
agencies. Furthermore, this arrangement requires that buy-side clients
accept potential conflicts of interest and rely on advertising
effectiveness reports received from the entities whose ad inventory they
seek to evaluate.
- Disorganized and decentralized planning, execution and tracking. A
marketer or agency seeking to advertise on the Internet faces a
complicated labor intensive and multi-step process to establish and
execute a campaign across different ad networks and independent Web
sites. The marketer or agency must interact with multiple parties, many
of whom use different procedures and protocols. Accordingly, the lack of
centralized and standardized planning, execution and tracking creates
complication and inefficiency for marketers and agencies.
- Inconsistent performance metrics. Marketers and agencies managing
campaigns across different ad networks and independent Web sites must
reconcile reports from multiple parties to determine the overall
effectiveness of their advertising. Because common measurement standards
are only beginning to emerge, these reports may be based on different
measurement methodologies, and therefore are not easily consolidated or
compared with one another.
- Inability to measure ROI. A 1998 survey of corporate executives by the
Association of National Advertisers found that the reason most often
cited for not advertising online was a lack of proof of the return on
investment, commonly referred to as "ROI." Web site solutions are
designed to address the needs of the sell-side and provide basic
measurements, such as delivery and click-through numbers. These
measurements do not adequately measure ROI for marketers or agencies and
may be misleading and inaccurate proxies for measuring the effectiveness
of their advertising. For example, an internal study in July 1999 of data
we tracked across multiple advertisers revealed that the ad with the best
clickthrough rate yielded the best conversion rate less than 20% of the
time.
- Underutilized consumer behavior data. The Internet presents an
opportunity to collect and analyze vast amounts of data that tracks
consumer responses to advertisements. However, much of this information
is currently stored in databases in inflexible and largely unusable
formats. As a result, the potential for analysis and mining of this
consumer behavior data is underutilized, making it difficult for
marketers to maximize their advertising ROI. Jupiter Communications
estimates that only 22% of marketers are making optimal use of this data.
If consumer behavior data is organized and processed correctly, it can
reveal key trends and causal relationships between advertising and a
final sale or other desired transaction.
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THE ADKNOWLEDGE SOLUTION
We provide comprehensive centralized ad management and robust analytic services
that enable marketers and agencies to execute, measure and optimize their
Internet advertising. Our services enable our clients to more productively
manage their advertising campaigns and increase their advertising ROI. The
primary features of our solution are as follows:
TRUSTED INFOMEDIARY WITH EXCLUSIVE BUY-SIDE FOCUS. We believe that our clients
view our independence from any media property as a fundamental benefit of our
solution. Because we are unaffiliated with any ad network or media property, we
are able to offer unbiased and independent information on the results of ad
campaigns. Furthermore, we are entirely focused on serving the needs of the
buyers of Internet advertising. We believe that our exclusive buy-side focus
helps us to design products and services that best respond to the needs of
marketers and their agencies.
COMPREHENSIVE SOLUTION. We provide a complete solution that enables marketers
and agencies to efficiently and effectively manage every step of the Internet
advertising process. The key steps include:
- identifying where to advertise;
- quickly establishing a campaign across multiple Web sites;
- previewing and approving insertion orders;
- submitting trafficking instructions;
- specifying detailed ad targeting information;
- monitoring the status of campaign deployment; and
- generating detailed reports on the campaign results.
By providing our clients with the ability to manage all these steps through a
single Web-based user interface, our solution streamlines the otherwise complex
and administratively burdensome Internet advertising process, thus significantly
enhancing our clients' productivity.
TURNKEY, OUTSOURCED SOLUTION. Because our services are Web-based, our clients
require only a browser and Internet access to use them. No investment in
incremental hardware or software is required to use our services, and upgrades
are easily provided without client involvement. In addition, our services have
been designed based on significant feedback from our clients so that they
require minimal training to use.
CONSISTENT MEASUREMENT ACROSS ALL MAJOR WEB SITES. We provide a system that
centrally delivers ads onto every major advertising supported Web site and
network. This allows us to offer our clients consistent measurement across an
entire ad campaign. Absent such a system, a marketer or agency is left compiling
a myriad of different reports that may use different counting standards, formats
and terminology, and are therefore difficult to reconcile.
ABILITY TO TRACK CONVERSION RATES IN REAL TIME. We provide marketers and
agencies with the ability to track and monitor viewers' online responses to
Internet ads. These responses, commonly known as "post-click actions," may
include visits, user registrations, or purchases on the advertiser's site. The
post-click action ultimately sought by a marketer is referred to as a
"conversion." Knowledge of conversion rates is essential to calculating ROI, and
our services provide conversion information to our clients on a daily basis. For
an e-commerce advertiser, a conversion usually refers to a successful sale to a
customer acquired via Internet advertising. For an advertiser who does not sell
online, such as a car manufacturer, a conversion may be defined as the use of a
dealer locator function or the request that a dealer call with more information.
ROBUST DATA MINING AND TARGETING CAPABILITIES. Advertisers want to know what
worked and why. To answer these questions, we collect, manage and help analyze
massive amounts of data on consumer responses to past and current ad campaigns,
including actions and transactions on the advertiser's site. It is common for
the data that we accumulate on behalf of a single marketer client over a few
months to total tens or even hundreds of millions of rows of data. We maintain
and perform periodic analysis on massive amounts of data to ascertain deeper
trends in consumer behavior and ad campaign effectiveness. To further enrich our
database and generate more insightful reports, we have developed the
capabilities to relate our database to our clients' customer databases and other
third party databases such as Millward Brown's database of Internet user
demographic information. In total, we currently store data on the ad
interactions and transactional behavior of over 70 million unique browsers. Our
data mining provides actionable information that our clients can use to
significantly improve
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the efficiency and effectiveness of their advertising campaigns. For example, an
e-tailer client may use the results of data mining analysis to target ads to
consumers most pre-disposed to purchasing its product.
STRATEGY
Our objective is to leverage our current position as a market leader to become
the industry standard provider of marketing and analytic services for Internet
marketers and their advertising agencies. Our strategy to achieve this objective
includes the following key elements:
ESTABLISH ADKNOWLEDGE AS THE LEADING TRUSTED INFOMEDIARY FOR INTERNET
ADVERTISING. We seek to brand AdKnowledge as the leading provider of independent
and unbiased reporting information to marketers and agencies. We believe that
our clients seek a neutral third party source of advertising measurement
information that is independent of any media property or ad network. We also
believe that by maintaining our exclusive buy-side focus, we will be best
positioned to respond to the needs of marketers and agencies.
LEVERAGE OUR AGENCY DISTRIBUTION CHANNEL AND EXPAND OUR CLIENT BASE. We believe
our advertising agency clients represent a leveraged distribution channel for
our services. We have cultivated strong relationships with many leading
interactive agencies, and often work closely with them to jointly market our
services. In addition, we cultivate direct relationships with marketers, some of
whom we receive introductions to through our agency clients. As spending and
interest in the Internet as a marketing medium has grown, some marketers,
particularly e-tailers, have assumed a greater role in managing their
Internet-based marketing campaigns. These marketers tend to be more focused than
traditional marketers on the results and optimization of their marketing
campaigns. We provide a service that addresses the demand among these marketers
for increased intelligence on their marketing campaigns. We intend to build on
our past successes in winning direct marketer accounts and focus an increasing
portion of our sales and marketing resources on targeting marketers who directly
manage their Internet advertising programs.
PROVIDE MORE SOPHISTICATED DATA MINING ANALYSIS AND PROFILING. We foresee a
growing importance for the AdKnowledge eAnalytics services as an increasing
number of marketers and agencies seek a deeper understanding of what factors
underlie advertising effectiveness. To take advantage of this opportunity, we
are making, and will continue to make, substantial investments in large data
warehousing and statistical analysis systems. To provide a rich data set for
data mining, we have developed and continue to build on our massive database of
detailed anonymous behavioral profiles based on the campaigns we manage on
behalf of our clients. We believe that our profiles are uniquely useful because
we collect information on browser activity across all the major ad-supported
sites and many of the leading e-commerce sites that are our clients. In
contrast, an ad network or independent Web site often only collects data on
browser activity across their affiliate media properties. Our data, however, is
not limited to, or skewed toward, activity on any one site or network of sites.
To date, we provide a variety of detailed analyses through Advisor, VOYAGER
Profile and our recently introduced DataDNA service.
ADVANCE OUR TARGETING CAPABILITIES. Our solution currently permits clients to
target their advertising to end users based on a broad range of characteristics,
including: the type of browser, computer, or operating system being used; time
and date; the sequence of ads previously displayed to a particular browser;
creative rotation indicated by the advertiser; or domain, which permits further
targeting, such as by country, ISP, company, or SIC code. We plan to expand our
targeting capabilities to allow our clients to target based on behavioral
profiles and on information from AdKnowledge eAnalytics data mining services. A
simple but powerful example is that an advertiser will be able to show a
specific ad cross-selling a second product to those users who have previously
purchased an initial product on the advertiser's site.
ENHANCE OUR CORE SERVICES AND TECHNOLOGY. We believe that continued improvements
to our services will both help win new clients and enhance loyalty among our
existing clients as we seek to make the AdKnowledge System the standard desktop
solution for the Internet advertising buy-side community. We continually seek to
upgrade and enhance the AdKnowledge System in several areas: overall ease of
use, cost-accounting for campaign management, and intra-enterprise managed
access for improved sharing of information and functionality within the system.
We are in the process of upgrading our system to accommodate the variety of
business models, such as cost per thousand ad impressions, cost per
click-through, and cost per action, which are used for purchasing media. This
upgrade will enable our clients to better assess ROI.
PROVIDE A FULL RANGE OF INTERNET MARKETING SERVICES. Our goal is to be a
single-source provider of management and optimization tools for all Internet
advertising vehicles including direct advertising, opt-in email and affiliate
marketing.
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Incorporating tools to manage these alternative advertising vehicles into our
services will allow us to provide a broader service offering to our marketer and
agency clients.
EXPAND INTO INTERNATIONAL MARKETS. We believe that we have the opportunity to
capture a first mover advantage in international markets that are in earlier
stages of adopting Internet-based services and solutions. While substantially
all of our current revenue is derived from clients based in the United States,
we believe that, over time, markets outside the United States may provide a
significant portion of our revenues. As part of our strategy to position
ourselves early as the leading provider of Internet advertising services in
international markets, we have entered into discussions with leading buyers of
Internet advertising in the United Kingdom, France, Germany and Japan.
ADKNOWLEDGE SERVICES
Our services, the AdKnowledge System and AdKnowledge eAnalytics, are designed to
give our clients the ability to answer three questions about their Internet
marketing campaigns:
- How do I execute my campaign? Our services guide the user through a
workflow that ranges from identifying the Web sites most appropriate for
meeting their campaign goals, to quickly establishing campaigns across
multiple Web sites, to specifying detailed ad targeting instructions,
through to the delivery of the advertising campaigns.
- How do I measure what worked? Whether campaigns are geared toward
building brand awareness or toward driving direct response, the
AdKnowledge System and AdKnowledge eAnalytics track specific metrics and
audience characteristics that help our clients to measure the overall
effectiveness of their Web advertising programs.
- How do I optimize next steps? Our services assist our clients in
identifying the key factors that drive their campaigns' success, and help
them maximize their ROI.
LOGO
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THE ADKNOWLEDGE SYSTEM. The AdKnowledge System is comprised of four Web-based
modules, seamlessly integrated into one, easy-to-use system. The following chart
describes major characteristics of the modules.
<TABLE>
<S> <C>
MODULE DESCRIPTION
- ------------------------------------------------------------------------------------
Planning A comprehensive media planning tool and searchable database
that allows for cross-site comparisons based on a multitude
of criteria.
- Assists in identifying the right sites, making informed
media decisions, and planning and negotiating more
effectively.
- Lists more than 2,000 Web media properties, including
networks, representing a reach of more than 94% of the Web
audience, according to Nielsen/NetRatings.
- Incorporates the data of multiple third party data
providers, including Mediamark Research, Simmons, NetGuide,
Media Metrix and Nielsen/NetRatings.
- ------------------------------------------------------------------------------------
Campaign An Internet marketing "control panel" that streamlines the
Management process of building Internet advertising campaigns.
- Automates the process of setting up advertising campaigns.
- Creates trafficking instructions for all campaigns.
- Links seamlessly with the Planning module.
- Automates scheduling of ad rotations.
- Allows ads to be targeted based on browser, operating
system and domain characteristics.
- Allows clients to make changes to ad content daily.
- ------------------------------------------------------------------------------------
Ad Serving An Internet ad serving system.
- Automates the targeting, tracking and serving of Web
campaigns.
- Provides independent, outsourced ad serving across all
major sites and networks.
- Allows precise control of frequency and sequencing of ads
to individual users.
- Accommodates all popular rich media formats through
technology relationships with various parties, such as
InterVU, @Home Network's Enliven Business Unit, Thinking
Media, AudioBase and Comet Cursor.
- ------------------------------------------------------------------------------------
Reporting A flexible online interface for basic performance reporting.
- Instantly measures campaign performance across all major
sites and networks.
- Permits easy customization of the contents and formats of
reports.
- Downloads to Microsoft Excel for easy review or
presentation.
- Includes 24 hour online access to current and archived
reports.
- ------------------------------------------------------------------------------------
</TABLE>
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ADKNOWLEDGE EANALYTICS. In conjunction with the AdKnowledge System, our clients
can use AdKnowledge eAnalytics to go beyond basic reporting and measurement to
gain deeper insights into the effectiveness of their advertising campaigns and
consumers' underlying brand awareness and purchase behavior.
AdKnowledge eAnalytics provides the information necessary to make strategic
decisions about how to execute an effective marketing campaign on the Web. These
services are ideal for marketers and agencies that want to base future Web
marketing plans on current customer brand awareness and purchasing behavior.
AdKnowledge eAnalytics follows the principle that the data collected through
central ad serving and post-click tracking provide meaningful insight into which
ads, presented in which context, to which type of user, are most likely to yield
the long-term branding or response effect that our clients desire.
AdKnowledge eAnalytics was announced in July 1999 as a product category
incorporating three separate components. Of these, Advisor and VOYAGER Profile
were introduced as individual products in October 1998 and June 1999, and
DataDNA was introduced in August 1999. The following chart describes major
characteristics of the three services.
<TABLE>
<S> <C>
PRODUCT DESCRIPTION
- -----------------------------------------------------------------------
Advisor Enables clients to determine which ad and Web site
characteristics generate the most cost-efficient actions in
their Web advertising campaigns.
- Provides detailed reports on which ads generate the most
sales, leads or other actions.
- Seamlessly integrates with the AdKnowledge System to
provide real time insights into campaign effectiveness
across sites and ad versions.
- Incorporates flexible reporting criteria, including
product inquiry, registration, and purchase.
- -----------------------------------------------------------------------
VOYAGER Provides detailed profiles of the audience exposed to Web
campaigns or to advertisers' Web sites using demographic
Profile data compiled by Millward Brown Interactive.
- Profiles viewers of ad campaigns across more than 60 key
variables -- demographic, media usage, company information,
attitudinal measures, product usage -- even for campaigns
across multiple sites.
- Produces reports that compare actual campaign results to
their reach, frequency and demographic goals.
- Provides profile reports for an entire campaign, or for
specific date ranges within a campaign.
- Integrates with Advisor to provide a complete snapshot of
who saw a campaign, and also what they did after clicking
through to the client's site.
- -----------------------------------------------------------------------
DataDNA Provides a series of data mining services that reveal the
underlying drivers of awareness and response from an
Internet advertising campaign. These services help answer
questions that go beyond impression and click information,
including, among others:
- Conversion and sales cycle -- Do people who click become
active visitors, registered users or paying customers? How
does the time lag from a consumer clicking on an ad to
completing an on-site transaction vary by site, by
placement, or by ad version? What percentage of total
sales and total visits are attributable to my advertising?
- Branding and frequency effects -- What is the measurable
brand effect of ad impressions on people who do not click?
Do people who see my ads but do not click later visit my
site and become customers? What is the impact of frequency
of exposure on conversion rates?
- Visitors and customers -- How many customers acquired
through my ad campaign become repeat visitors or repeat
customers? Are certain media sites, placements or
creatives better at driving repeat visitors or purchasers?
What is the user profile of the exact audience of my site,
site section, or of active purchasing customers? What are
their demographics, product usage and purchase habits, Web
usage habits, media usage habits, and employment profiles?
- Time pattern of conversion -- What is the time pattern of
post-click actions by time period, such as hour of the day
or day of the week? What is the pattern of post-click
actions during the course of the campaign?
- Prospecting versus retention -- Am I reaching people with
my ad campaign that are already active visitors and/or
purchasers on my site, or am I reaching new prospects? How
does this vary by site?
- -----------------------------------------------------------------------
</TABLE>
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CUSTOMER SERVICE AND SUPPORT
Our customer service and support activities are a fundamental component of our
service offering. Our highly trained customer service and support personnel are
available 24 hours a day, 7 days a week to provide account management, training
and ongoing support to our clients.
To enhance the responsiveness and productivity of our client service personnel,
we invest in providing technology infrastructure to automate portions of the
support process. The results of our investment include the following:
- Our proprietary systems offer real-time assistance in expediting campaign
setup and tear down.
- Our campaign viewing pages are designed to allow Web publishers to view
exactly the fragments needed for each ad package.
- Our real-time campaign monitoring system automatically notifies our
customer service and support organization, as well as our clients, of
exactly which advertising fragments are active and which are inactive.
- Our campaign monitor detects common mistakes made by individual Web sites
placing ads.
- We have developed a proprietary process for campaign tear down to ensure
that time-sensitive promotions are ended on time.
- We provide customer service and support from both our Palo Alto,
California headquarters and our sales and support office, located in New
York, New York.
SALES AND MARKETING
We sell and market our products primarily through our field sales organizations
located at our headquarters in Palo Alto, California and at our sales and
support office, located in New York, New York. As of July 31, 1999, our sales
organization included eight regional sales managers and a director of sales
located on each of the East and West coasts of the U.S. In the future, we
believe that sales representation will be required abroad as we pursue our
strategic objective of international expansion.
Our sales process begins with the generation of sales leads obtained from a
variety of sources including client referrals, through our Web site, responses
to public relations and advertising activities, trade shows, published lists of
leading interactive ad agencies and Web marketers. Initial sales activities
normally include an initial phone conversation to qualify interest, followed by
product demonstrations conducted either over the telephone or by a local visit.
Demonstrations are typically followed by one or more technical discussions. Soon
thereafter, a proposal is generated based on specific client requirements.
To promote our product and service offerings, we conduct comprehensive marketing
programs, including public relations activities, print and online advertising,
trade shows, press tours, client satisfaction surveys and ongoing communications
with industry analysts, the press and our clients.
CLIENTS
During the quarter ended June 30, 1999, we served advertising campaigns on
behalf of approximately 200 clients. We participate in a single industry
segment, Internet advertising, and provide tools and services to our client
base, comprised principally of advertising agencies and marketers. Our clients
include:
<TABLE>
<S> <C>
eBay planetRx
eToys SmarterKids.com
Fleet SportsLine
i-frontier Sun Microsystems
Left Field Virtual Vineyards
Macys.com WebMD
Organic
</TABLE>
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COMPETITION
The market for Internet advertising management and ad delivery services, broadly
defined, is relatively new yet intensely competitive. On an ongoing basis we
expect to compete with numerous vendors offering alternative solutions that
provide similar functionality to that offered by our services. We believe the
keys to long term success will be to maintain a high degree of client loyalty,
provide a technological advantage to our clients, and maintain superior customer
service and support.
We compete principally with providers of alternative advertising management
systems, including: DoubleClick; AdForce, Inc.; Excite@Home, through its
MatchLogic subsidiary; and NetGravity Inc. Many of our current competitors,
particularly DoubleClick, have substantially greater capital resources and
operating histories than we do. Although we presently believe that we compete
favorably with these alternative providers, there can be no assurance that we
can continue to compete favorably with these providers, or any number of
potential new competitors, in the future.
Over time, we believe additional competition will come from several primary
segments:
- Companies providing ad management solutions for Web sites (the sell-side)
who may begin to provide services to buyers of Web advertising. These
include current competitors, such as DoubleClick, who have already done
so;
- Advertising agencies crafting technical systems as part of the services
offered to their customers such as Avenue A;
- Companies providing other marketing infrastructure services, such as
email and affiliate marketing, expanding their offerings to include
Internet advertising management systems; and
- Pure play buy-side competitors offering similar services.
Currently, we compete on the basis of functionality, customer service and
support, and price. We have established a leading competitive position in our
target market by:
- Focusing exclusively on the buyers of Web advertising;
- Maintaining media independence; and
- Providing a single, comprehensive solution for maximizing Web advertising
return on investment.
Our continued ability to compete favorably also depends on a number of
circumstances both within and beyond our control, such as:
- The ability to maintain a leading, exclusive focus on the buyers of Web
advertising;
- The continued independence and unbiased capability to plan and serve ads
across the broadest reach of Web sites in the industry;
- The ability, with a time-to-market advantage, to enhance the capabilities
and product offering of AdKnowledge eAnalytics;
- The ability to respond to rapid technological change and the need for
continual feature enhancements and product line expansions, whether
developed internally or in collaboration with partners;
- The quality and reliability of our operations and customer service and
support organizations;
- The ease of use, reliability and performance of our products and services
relative to those of our competitors; and
- The effectiveness of our sales and marketing efforts, both domestically
and abroad.
PRIVACY
We believe that preserving the privacy of Internet users is critical to the
health of the Internet as an advertising medium. We are committed to working
toward an environment in which Internet users feel secure about their privacy.
We have a privacy policy posted on our Web site which describes:
- The information we collect about browser activity;
- How we use this information;
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- With whom we share this information;
- Our security procedures for protecting this information;
- How to opt out of our information collection procedures; and
- Our policy with regards to personally identifiable information.
We do not collect, store or use personally identifiable information from
Internet users for any purpose. We maintain a business relationship with
Millward Brown Interactive, which allows us to identify browsers from people who
have opted to participate in a Millward Brown research panel. This allows us to
report to marketers the demographic, corpographic, media usage and product usage
behaviors of the audience that actually received ads from a particular campaign.
At no time, however, do we have access to any personally identifiable
information on these panelists.
AD MANAGEMENT TECHNOLOGY AND INFRASTRUCTURE
Our ad delivery infrastructure consists of ad delivery servers located on the
premises of leading Internet hosting facilities on the West and East coasts of
the U.S. Our advanced technology delivers ads 24 hours a day, 7 days a week, for
more than 200 companies, including leading traditional and interactive
advertising agencies and advertisers and marketers on the Web. The configuration
and geographic distribution of our co-location sites provides physical
ease-of-access with protection against service outages, both man-made and
natural. If a service outage were to occur, our operations staff can
transparently fail-over the load of that location to a redundant location within
minutes. Once service has been restored, ad serving traffic is once again evenly
distributed between the locations.
Our infrastructure deploys both internally developed proprietary software and
industry-standard hardware predominantly leased through leading third-party
vendors. In 1996, 1997 and 1998, we spent approximately $112,000, $1.6 million
and $2.7 million in connection with company-sponsored research and development
programs designed to enhance our Web-based applications and ad delivery system.
Ad Delivery. We use a combination of ad delivery and database servers to serve
ads and to target which ads to serve. All communications, both inter- and
intra-location, operate with high-speed connections. We also deploy high-speed
communication equipment, including switches, load balancing devices, hubs and
routers, to smoothly transmit and efficiently route traffic among the servers
and locations to ensure an appropriate level of redundancy.
AdKnowledge System Application and AdKnowledge eAnalytics Services. The
AdKnowledge System is accessible to our clients through a Web-based interface
and communicates with our system over the Internet. Accessible to our clients
though this interface, the components of our systems, are hosted on a redundant
set of servers. These modules access and store data on our central database
installed at a co-location site. Trafficking instructions received for our
clients' advertising campaigns though the Campaign Manager module of the
AdKnowledge System are stored on this database. Once nightly, these instructions
are automatically trafficked to our ad servers, allowing our clients to make
daily changes to existing campaigns or to insert new campaigns on the system.
All data logs from the ad servers are swept hourly and loaded into our highly
scalable central database. Data files received directly from marketers are also
automatically loaded into this same database for matching with the ad
performance data. Our Reporter module and ROI Advisor encompass this database to
provide our clients a flexible interface for analyzing the performance of their
Web advertising campaigns. Our reporting system also incorporates a leading
third party's reporting tool that maximizes our customers' ability to customize
their reports. We can publish reports to our clients either to the Reporter/
Advisor Web interface or to files for download and customization by our clients.
The pace of change in Web advertising requires frequent feature enhancement and
repeated releases of production systems over short periods of time. Our
centralized architecture eliminates the requirement to port, test and release a
majority of our system components on multiple hardware and software platforms.
Each of our production and application systems is maintained and run by
AdKnowledge to ensure the highest level of reliability and service to our
clients. As a result, we can iterate new releases of our technology quickly,
resulting in time-to-market competitive advantages for our clients.
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INTELLECTUAL PROPERTY
Our success and ability to compete are substantially dependent on our internally
developed technologies and trademarks, which we protect through a combination of
patent, copyright, trade secret and trademark laws. If our proprietary rights
are infringed by a third party, the value of our services to our clients would
be diminished and additional competition might result from the third party's use
of those rights, which would materially and adversely affect our business and
quarterly and annual results of operations. We have not filed any patent
applications in the United States to date. We have applied, however, to register
trademarks in the United States. We cannot assure you that our trademark
registration or future patent applications, if any, will be approved. Even if
they are approved, our trademarks or patents may be successfully challenged by
others or invalidated. If our trademark registrations are not approved because
third parties own these trademarks, our use of these trademarks would be
restricted unless we entered into arrangements with the third-party owners,
which might not be possible on reasonable terms.
Our technology collects and utilizes data derived from user activity on the
Internet. Although we believe that we generally have the right to use this
information and to compile it in our database, we cannot assure you that any
trade secret, copyright or other protection will be available for this
information. We also cannot assure you that any of our proprietary rights will
be viable or of value in the future since the validity, enforceability and scope
of protection of proprietary rights in Internet-related industries are uncertain
and still evolving. We believe that factors such as the technological and
creative skills of our personnel, new service offerings, brand recognition and
reliable customer service are more essential to establishing and maintaining our
technology leadership position than the legal protection of our technology.
There can be no assurance that others will not develop technologies that are
similar or superior to our technology.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies. The steps we have taken may not prevent
misappropriation of our solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
Third parties may assert infringement claims against us or our clients. We do
not believe that our technological processes infringe the proprietary rights of
others, but we cannot assure you that third parties will not assert claims that
we violate their rights. In addition, we believe that we have the right to use
the user data we collect for our database, but we cannot assure you that third
parties will not assert claims that we violate their trade secrets or
copyrights. Although there has not been any claims of these types in the past,
any claims and resultant litigation, if they occur, could subject us to
significant liability for damages or could result in invalidation of our rights.
In addition, even if we were to prevail, litigation could be time-consuming and
expensive to defend and could result in diversion of our time and attention,
which could materially and adversely affect our business and quarterly and
annual results of operations. Any claims or litigation from third parties might
also result in limitations on our ability to use the trademarks and other
intellectual property subject to these claims or litigations unless we entered
into arrangements with the third parties responsible for the claims or
litigation, which might be unavailable on reasonable terms, if at all.
EMPLOYEES
As of July 31, 1999, we had 77 employees, comprised of 25 in operations and
customer service, 27 in engineering and AdKnowledge eAnalytics, 19 in sales and
marketing and six in general and administrative functions. Other than as
described in "Management -- Employment and Severance Arrangements," none of
these individuals has an employment agreement with us. We are not subject to any
collective bargaining agreements and believe that our relationship with our
employees is good. We believe that our future success is dependent on our
ability to attract and retain highly qualified engineering, operations, sales
and marketing and senior management personnel. Competition for such personnel in
our geographic location and industry is intense, and there can be no assurance
that we will be successful in attracting and retaining a sufficient number of
highly qualified personnel, either to meet our business requirements or at a
favorable cost.
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DESCRIPTION OF PROPERTY
Our principal executive offices are currently located in Palo Alto, California.
This facility, consisting of approximately 19,823 square feet of office space
and laboratories for engineering development and production reporting, is leased
through December 2004. We also lease two facilities in Palo Alto consisting of
approximately 5,051 and 10,835 square feet and have sublet these facilities
through the end of their terms. In New York, New York we lease approximately
1,645 square feet to support our sales and customer service efforts. This lease
expires in May 2002. We intend to sublease our current New York office space
through the term of our lease and relocate to a larger office space in New York,
New York in the second half of 1999. Our ad delivery servers are located at the
premises of Internet hosting facilities in Northern California and New Jersey.
We believe that suitable additional office and co-location space will be
available to us in the future on commercially reasonable terms.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Our executive officers, key employees and directors, as of August 12, 1999, are
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
NAME AGE POSITION WITH US
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Scott L. Kauffman..................................... 43 President, Chief Executive Officer and Director
Kimberly A. Finder.................................... 30 Director, Finance
Stephen E. Findley.................................... 29 Vice President, Analytic Services
Roberta Greenspan..................................... 36 Vice President, Client Services
John E. Mracek........................................ 37 Vice President and General Manager
Steven C. Rubinow..................................... 46 Vice President and Chief Information Officer
Kevin L. Wandryk...................................... 42 Vice President, Business Development
David E. Zinman....................................... 31 Founder and Vice President, Marketing
Philippe Cases *...................................... 37 Director
Steven L. Eskenazi +.................................. 37 Director
Samantha McCuen +..................................... 32 Director
Russell Siegelman *................................... 38 Director
</TABLE>
- -------------------------
* Member of Compensation Committee
+ Member of Audit Committee
SCOTT L. KAUFFMAN has served as our President, Chief Executive Officer and a
director since August 1997. From April 1995 until August 1997, Mr. Kauffman
served as Vice President, Online Services of CompuServe Incorporated, an online
services company. While employed at CompuServe, Mr. Kauffman supervised
CompuServe's online services, including CompuServe Interactive and SpryNet,
CompuServe's Internet service provider. From September 1987 until April 1995,
Mr. Kauffman served in various positions at Time Warner Inc., a diversified
entertainment company, and most recently as Vice President of Business
Development for Time Warner Interactive. Mr. Kauffman holds an A.B. in English
from Vassar College and an M.B.A. in Marketing from New York University's
Graduate School of Business Administration.
KIMBERLY A. FINDER has served as our Director of Finance since November 1998.
Prior to joining AdKnowledge, Ms. Finder served as Director of Finance of Chiron
Corporation, a biotechnology company, from February 1998 to October 1998 and as
manager of financial reporting from April 1997 to February 1998, where she was
primarily responsible for the consolidation of Chiron's financial results and
for Securities and Exchange Commission filings. From July 1991 to November 1995
and from August 1996 to March 1997, Ms. Finder held various positions with the
Technology Industry Group of Price Waterhouse LLP, an independent accounting
firm, most recently as manager. From December 1995 to August 1996, Ms. Finder
was a senior financial analyst at Hewlett-Packard Company. Ms. Finder is a
certified public accountant and holds a B.A. in Social Ecology and an M.B.A.
from the University of California at Irvine.
STEPHEN E. FINDLEY has served as our Vice President, Analytic Services since May
1999. From November 1998 to May 1999, Mr. Findley served as our General Manager,
Marketer Solutions. From January 1998 through November 1998, Mr. Findley served
as our Director of Product Management. Prior to this, Mr. Findley served in
various positions, including Vice President, Business Development and Director
of Marketing, where he was responsible for product management, strategic
planning, partnerships and outbound marketing. Mr. Findley joined us in October
1996. From September 1993 to October 1996, Mr. Findley worked as a consultant at
McKinsey & Company, a management consulting company. Mr. Findley holds a B.A. in
Economics from Harvard University and an MSc degree in International Political
Economy from the London School of Economics.
ROBERTA GREENSPAN has served as our Vice President, Client Services since
February 1998. From January 1997 to February 1998, Ms. Greenspan served as
Director, Client Services at Focalink. From August 1991 to April 1996, Ms.
Greenspan served as Director, Client Services of Marketing Resources Plus, a
software company providing media buying tools to ad agencies, where her
responsibilities included overseeing both the call center and field customer
service teams. Prior to joining Marketing Resources Plus, Ms. Greenspan worked
for Chase Manhattan Bank and the USA Network, a cable TV network. Ms. Greenspan
holds a B.S. in Computer Science from the State University of New York at
Binghamton.
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JOHN E. MRACEK has served as our Vice President, Marketing and General Manager
since January 1998 and was serving as Vice President, Marketing of Focalink when
we acquired Focalink. Mr. Mracek joined Focalink in August 1996. From March 1994
through May 1996, Mr. Mracek served as Senior Director, System Software
Marketing of Apple Computer, a computer manufacturing company. While employed at
Apple, Mr. Mracek was responsible for the Mac operating system strategy and
brand and Apple's Interactive Media Product Marketing group. Mr. Mracek holds a
B.S. in Computer Science and Engineering from the Massachusetts Institute of
Technology.
STEVEN C. RUBINOW has served as our Vice President and Chief Information Officer
since June 1998. Prior to joining AdKnowledge, Dr. Rubinow served as Vice
President, Corporate Management Information Systems of Fidelity Investments from
September 1994 to June 1998, where he was primarily responsible for systems
architecture and integration across 40 divisions of Fidelity in areas of
Finance, Operations, Risk, Trading, Investments and Research. From March 1991 to
September 1994, Dr. Rubinow was employed by Budget Rent a Car Corporation where
his most recent position was Vice President, Marketing Planning. Dr. Rubinow
holds a B.S., M.S. and Ph.D in Chemistry and an M.B.A. from the University of
Illinois. He also holds an M.S. in Computer Science from DePaul University,
where he has additionally served as an adjunct faculty member in Computer
Science.
KEVIN L. WANDRYK has served as our Vice President, Business Development and
International Sales since May 1999. From November 1998 through May 1999, Mr.
Wandryk served as Vice President, Marketing and Business Development. From May
1998 through November 1998, Mr. Wandryk served as Vice President of Business
Development. Prior to joining AdKnowledge, Mr. Wandryk was employed at Adobe
Systems for approximately 10 years. From June 1996 through January 1998, he
served as Director of Product Management for Adobe's Internet Products Division,
where he oversaw product strategy for the division. From April 1993 through June
1996, Mr. Wandryk served as Director of Market Development at Adobe, where he
was responsible for corporate wide partnerships and new business development.
Mr. Wandryk holds a B.A. in Economics from Cornell University and an M.B.A. from
the University of California at Berkeley.
DAVID E. ZINMAN, a founder of Focalink, has served as our Vice President,
Marketing since May 1999. From January 1998 through May 1999, Mr. Zinman served
for various periods as President, Chief Executive Officer, Vice President, Sales
and Marketing and Director, Product Management of Focalink prior to our
acquisition of Focalink. In the summer of 1994, Mr. Zinman worked as a
management consultant at Deloitte & Touche, a professional services company. Mr.
Zinman holds a B.A. in Political Science and Economics from Tufts University and
an M.B.A. and a Certificate of Public Management from the Stanford Graduate
School of Business.
PHILIPPE CASES has served as a director since February 1999. Since 1997, Mr.
Cases has been a partner of Partech. Prior to joining Partech, Mr. Cases was a
partner at Sofinova, a French investment company, for five years. Mr. Cases also
serves as director of several private companies. Mr. Cases holds an M.S. from
the Ecole Civile des Mines de Nancy, France and is a Sloan Fellow from the
Stanford Graduate School of Business.
STEVEN L. ESKENAZI has served as a director since March 1998. Since March 1997,
Mr. Eskenazi has been a general partner of The Walden Group, a venture capital
firm. Prior to joining The Walden Group, Mr. Eskenazi served as managing
director responsible for New Media Research at Alex Brown. Mr. Eskenazi also
serves as director of several private companies. Mr. Eskenazi holds a B.S. in
Applied Mathematics from Union College and an M.B.A. in Business Administration
from the Amos Tuck School at Dartmouth College.
SAMANTHA MCCUEN has served as a director since February 1999. Since 1996, Ms.
McCuen has been a Senior Vice President of Research and Investments of Sandler
Capital Management, an investment management firm and is responsible for
industry and company research for technology companies in the public and private
sectors. She is also a partner of Sandler Internet Partners, L.P. Ms. McCuen
also serves as director of several private companies. From 1990 to 1996, Ms.
McCuen held both equity research and investment banking positions at Morgan
Stanley Dean Witter, a provider of investment banking services, where she
specialized in Internet and PC software companies, and was a co-author of The
Internet Report. Ms. McCuen holds a B.A. in Economics from Lehigh University.
RUSSELL SIEGELMAN has served as a director since March 1997. Since 1996, Mr.
Siegelman has been a partner of Kleiner Perkins Caufield & Byers, a venture
capital firm. Prior to joining Kleiner Perkins, Mr. Siegelman served in a
variety of positions at Microsoft, including most recently as Vice President of
the Microsoft Network, Microsoft's online service. Mr. Siegelman also serves as
director of several private companies. Mr. Siegelman holds a B.S. in Physics
from the Massachusetts Institute of Technology and an M.B.A. from Harvard
University.
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<PAGE> 47
CLASSES OF THE BOARD
Our board currently has five members and, prior to the completion of this
offering, will be classified into three classes of directors serving staggered
three-year terms, with one class of directors to be elected at each annual
meeting of stockholders. The classification of directors has the effect of
making it more difficult to change the composition of the board of directors.
BOARD COMMITTEES
Audit Committee. The audit committee of the board of directors reviews, acts on
and reports to the board of directors with respect to various auditing and
accounting matters, including the recommendation of our auditors, the scope of
the annual audits, fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices. As of the closing of this
offering, the members of the audit committee will be Mr. Eskenazi and Ms.
McCuen.
Compensation Committee. The compensation committee of the board of directors
recommends, reviews and oversees the salaries, benefits and stock option plans
for our employees, consultants, directors and other individuals compensated by
us. The compensation committee also administers our compensation plans. As of
the closing of this offering, the members of the compensation committee will be
Messrs. Cases and Siegelman.
DIRECTOR COMPENSATION
Directors do not receive cash compensation for their service on our board of
directors. Non-employee directors are reimbursed for reasonable expenses
incurred in connection with serving as a director. Under our 1999 stock
incentive plan to become effective upon the closing of this offering, each
individual who is serving as a non-employee member of the board of directors on
the date that the underwriting agreement relating to this offering is executed
will automatically receive an option grant on that date for
shares of common stock, provided such individual has not previously been
employed by us or any parent or subsidiary corporation. Each individual who
first becomes a non-employee member of the board of directors at any time
thereafter will receive an option to purchase shares of common
stock on the date such individual joins the board of directors, provided such
individual has not previously been employed by us or any parent or subsidiary
corporation. In addition, on the date of each annual stockholders' meeting
beginning in 2000, each non-employee member of the board of directors will
automatically be granted an option to purchase shares of common
stock, provided such individual has served as a non-employee member of the board
of directors for at least six months. Please see "-- Benefit Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of the closing of this offering, our compensation committee will consist of
Messrs. Cases and Siegelman. No member of the compensation committee has been an
officer or employee of us at any time. None of our executive officers serves as
a member of the board of directors or compensation committee of any other
company that has one or more executive officers serving as a member of our board
of directors or compensation committee.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
In May 1998, we entered into an employment agreement with Mr. Rubinow. Under
this agreement, if Mr. Rubinow is terminated for reasons other than cause, he
will be entitled to receive six months' salary at his then-current base salary.
His current base salary is $200,000 per year.
In May 1998, we entered into an employment agreement with Mr. Wandryk. Under
this agreement, if Mr. Wandryk is terminated for reasons other than cause, he
will be entitled to receive three months' salary at his then-current base
salary. His current base salary is $150,000 per year.
In August 1997, we entered into an employment agreement with Mr. Kauffman. Under
this agreement, if Mr. Kauffman is terminated for reasons other than cause, he
will be entitled to receive six months' salary at his then-current base salary.
His current base salary is $200,000 per year.
In July 1996, we entered into an employment agreement with Mr. Mracek. Under
this agreement, if Mr. Mracek is terminated for reasons other than cause, he
will be entitled to receive three months' salary at his then-current base
salary. His current base salary is $175,000 per year.
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<PAGE> 48
EXECUTIVE COMPENSATION
The following table provides summary information concerning the compensation
received for services rendered to AdKnowledge during 1998 by AdKnowledge's
current Chief Executive Officer, each of the other four most highly compensated
executive officers who were serving as executive officers at December 31, 1998
and a former executive who would have been among the four most highly
compensated executive officers had he continued to serve as an executive officer
through the end of 1998, each of whose total compensation during AdKnowledge's
last fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-----------------------------------------------------------
LONG-TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
--------------------------- -------- -------- ------------------- ------------
<S> <C> <C> <C> <C>
Scott L. Kauffman............................ $200,000 $250,000(1) 798,316 $ --
President and Chief Executive Officer
Steven C. Rubinow............................ 115,610(2) 100,000 548,856 --
Vice President and Chief Information
Officer
Scott E. Ernst............................... 212,723(3) -- 77,298(4) --
Former Vice President, Sales
John E. Mracek............................... 161,250 -- 625,000(5) --
Vice President and General Manager
Stephen E. Findley........................... 110,500 50,000 186,869 --
Vice President, Analytic Services
Ronald A. Kovas.............................. 116,322 -- 265,000(6) 100,000(7)
Former Vice President
</TABLE>
- ---------------
(1) Represents forgiveness of indebtedness evidenced by a promissory note issued
by Mr. Kauffman to AdKnowledge. See "Certain Relationships and Related
Transactions."
(2) Represents the amount Dr. Rubinow was paid in salary by AdKnowledge during
1998. Dr. Rubinow commenced employment with AdKnowledge on June 1, 1998. His
salary on an annualized basis for 1998 was $200,000.
(3) Represents the total amount Mr. Ernst was paid in salary and commissions
during 1998. Mr. Ernst terminated employment with AdKnowledge effective
April 2, 1999.
(4) These options were canceled in April 1999 upon termination of Mr. Ernst's
employment.
(5) Mr. Mracek was initially granted 265,000 shares at an option exercise price
of $0.19 per share and 95,000 shares at $0.06 per share. In April 1998, Mr.
Mracek's options with an exercise price of $0.19 per share were repriced to
$0.06 per share.
(6) Upon termination of Mr. Kovas' employment in June 1998, options for 136,562
of these securities were canceled.
(7) Mr. Kovas terminated employment with AdKnowledge effective July 10, 1998.
Represents amounts paid in conjunction with Mr. Kovas' termination.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options granted to the
executive officers listed in the Summary Compensation Table during fiscal 1998.
We have not granted any stock appreciation rights.
Each option represents the right to purchase one share of common stock. The
options shown in this table are all incentive stock options granted under our
stock option plans. Unless otherwise noted, the options were immediately
exercisable and the shares are subject to a repurchase right in favor of
AdKnowledge which lapses as to 25% of the shares after the completion of one
year of service from the grant date and the remainder of the repurchase right
lapses in equal monthly installments over the next 36 months of service. To the
extent the repurchase right has not already lapsed, in the event of a merger in
which we are not the surviving corporation or upon the sale of substantially all
of our assets, AdKnowledge may repurchase all exercised but
43
<PAGE> 49
unvested shares upon the closing of such transactions. Please see "-- Benefit
Plans" for more details regarding these options. In the year ended December 31,
1998, we granted options to employees to purchase an aggregate of 6,267,518
shares of common stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES EXERCISE EXPIRATION -----------------------
NAME GRANTED IN 1998 PRICE DATE 5% 10%
---- ---------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Scott L. Kauffman......................... 798,316 12.7% $0.06 7/9/08
Steven C. Rubinow......................... 548,856 0.9% $0.06 5/14/08
Scott E. Ernst............................ 77,298(1) 0.1% $0.06 7/9/08
John E. Mracek............................ 166,000(2) 0.3% $0.19 1/1/08
99,000(3) 0.2% $0.19 1/1/08
95,000 0.2% $0.06 7/9/08
166,000(2) 0.3% $0.06 1/1/08
99,000(3) 0.2% $0.06 1/1/08
Stephen E. Findley........................ 186,869 3.0% $0.06 7/9/08
Ronald A. Kovas........................... 265,000(4) 4.2% $0.06 4/9/08
</TABLE>
- ---------------
(1) These options were canceled in April 1999 upon termination of Mr. Ernst's
employment.
(2) Of Mr. Mracek's option covering 166,000 shares, the repurchase right with
respect to 67,765 shares lapsed on March 31, 1998, and the balance of the
option shares vest in daily installments over the next 45 months of service.
On April 9, 1998, this option grant was repriced from $0.19 per share to
$0.06 per share.
(3) On April 9, 1998, Mr. Mracek's options with an exercise price of $0.19 per
share were repriced to $0.06 per share.
(4) Of Mr. Kovas' option covering 265,000 shares, 125,000 shares vested
immediately. Mr. Kovas' options covering 75,000 shares vest in a series of
equal monthly installments over the next three years of service. Of the
remaining 65,000 shares, the repurchase right with respect to 24,375 shares
lapsed immediately, the repurchase right with respect to 1,354 shares lapsed
on April 16, 1998 and the balance of the option shares vest in equal monthly
installments over the next 29 months. Upon termination of Mr. Kovas'
employment on July 10, 1998, options covering 136,562 shares were canceled.
The exercise price per share of each option was equal to the fair market value
of the common stock on the date of grant as determined by our board of directors
after consideration of a number of factors, including, but not limited to, our
financial performance, market conditions and the price, preferred rights and
privileges of shares of equity securities sold to or purchased by outside
investors.
The potential realizable value at assumed annual rates of stock price
appreciation for the option term represents hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the SEC and do not represent our estimate or projection of
our future common stock prices. These amounts represent certain assumed rates of
appreciation in the value of our common stock from the fair market value on the
date of grant. Actual gains, if any, on stock option exercises are dependent on
the future performance of the common stock and overall stock market conditions.
The amounts reflected in the table may not necessarily be achieved.
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<PAGE> 50
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1998 AND YEAR-END
OPTION VALUES
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the executive officers listed in
the Summary Compensation Table at December 31, 1998.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott L. Kauffman.................. -- -- 798,316 -- $ 0 --
Steven C. Rubinow.................. -- -- 548,856 -- $ 0 --
Scott E. Ernst..................... -- -- 360,000 -- $10,290 --
John E. Mracek..................... -- -- 360,000 -- $ 0 --
Stephen E. Findley................. -- -- 186,869 -- $ 0 --
Ronald A. Kovas.................... 128,438 $0 -- -- -- --
</TABLE>
- ---------------
(1) Based on the fair market value of our common stock on the date of exercise,
as determined by our board of directors, minus the exercise price,
multiplied by the number of shares issued upon exercise of the option.
The fair market value of our common stock as determined by the board of
directors on or about December 31, 1998 was $0.06 per share.
There was no public trading market for the common stock as of December 31, 1998.
Accordingly, the value of unexercised in-the-money options listed above has been
calculated on the basis of the assumed initial public offering price of
$ per share, less the applicable exercise price per share, multiplied by the
number of shares underlying such options.
BENEFIT PLANS
1998 Stock Option/Stock Issuance Plan and 1996 Stock Option Plan
Our 1998 Stock Option/Stock Issuance Plan is the successor equity incentive
program to our 1996 Stock Option Plan. Our 1998 Stock Option/Stock Issuance Plan
became effective upon adoption by the board on October 7, 1998 and was
subsequently approved by the stockholders as of October 8, 1998. All outstanding
options under our 1996 Stock Option Plan were incorporated into the 1998 Stock
Option/Stock Issuance Plan, and no further option grants were made under that
plan. The incorporated options continue to be governed by their existing terms.
Incorporated options have substantially the same terms as will be in effect for
option grants made under the 1998 Stock Option/Stock Issuance Plan. The maximum
number of shares of common stock which may be issued over the term of this plan
shall not exceed 9,885,788 shares. This share reserve consists of (i) the number
of shares estimated to remain available for issuance under the 1996 Stock Option
Plan, including the shares subject to outstanding options thereunder, plus (ii)
an additional increase of 6,564,196 shares. Our 1998 Stock Option/Stock Issuance
Plan provides for the granting to our employees incentive stock options at an
exercise price of not less than 100% of the fair market value of our common
stock on the grant date and to employees, non-employee members of the board and
consultants who provide services to us, and non-statutory stock options to
purchase shares of our common stock at an exercise price of not less than 85% of
the fair market value of our common stock on the grant date. Our 1998 Stock
Option/Stock Issuance Plan also enables us to issue to employees, non-employee
members of the board of directors and consultants who provide services to us,
shares of common stock directly, through the purchase of shares at a price not
less than 85% of their fair market value at the time of issuance or as a bonus
tied to the performance of services. In the event that we are acquired by merger
or asset sale, each outstanding option under this plan which is not assumed or
continued by the successor corporation will terminate and cease to be
outstanding. At the closing of this offering, this plan will be terminated and
no further option grants will be made under such plan. All options outstanding
at the time the plan is terminated will continue to be governed by their
existing terms.
1999 Stock Incentive Plan
Introduction. The AdKnowledge 1999 Stock Incentive Plan became effective upon
adoption by the board of directors on , 1999 and was subsequently
approved by the stockholders in 1999.
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<PAGE> 51
Share Reserve. shares of common stock have been authorized for
issuance under the 1999 Stock Incentive Plan. The share reserve will
automatically increase on the first trading day in January each calendar year,
beginning January 1, 2000, by an amount equal to % of the total number of
shares of common stock outstanding on the last trading day in December in the
preceding calendar year, but in no event will this annual increase exceed
shares. In addition, no participant in the 1999 Stock Incentive
Plan may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances for more than shares of common
stock in total per calendar year.
Programs. The 1999 Stock Incentive Plan is divided into five separate programs:
- the discretionary option grant program under which eligible individuals
employed by us may be granted options to purchase shares of our common
stock at an exercise price not less than 100% of the fair market value of
those shares on the grant date;
- the stock issuance program under which such individuals may be issued
shares of common stock directly, through the purchase of such shares at a
price not less than 100% of their fair market value at the time of
issuance or as a bonus tied to the performance of services;
- the salary investment option grant program which may, at the plan
administrator's discretion, be activated for one or more calendar years
and, if so activated, will give executive officers and other highly
compensated employees the opportunity to apply a portion of their base
salary to the acquisition of special below-market stock option grants;
- the automatic option grant program under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to 100% of the fair market value of those shares on the grant date;
and
- the director fee option grant program which may, in the plan
administrator's discretion, be activated for one or more calendar years
and, if so activated, will allow non-employee board members the
opportunity to apply a portion of an annual retainer fee that might
otherwise payable to them in cash each year to the acquisition of special
below-market option grants.
Administration. The discretionary option grant program and the stock issuance
program will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when such option grants or
stock issuances are to be made, the number of shares subject to each such grant
or issuance, the status of any granted option as either an incentive stock
option or a non-statutory stock option under the Federal tax laws, the vesting
schedule to be in effect for the option grant or stock issuance and the maximum
term for which any granted option is to remain outstanding. The compensation
committee will also have the authority to select the executive officers and
other highly compensated employees who may participate in the salary investment
option grant program in the event that program is activated for one or more
calendar years.
Plan Features. Our 1999 Stock Incentive Plan will include the following
features:
- The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program in return for the
grant of new options for the same or different number of option shares
with an exercise price per share based upon the fair market value of our
common stock on the new grant date.
- Stock appreciation rights may be issued under the discretionary option
grant program. Such rights will provide the holders with the election to
surrender their outstanding options for an appreciation distribution from
us equal the fair market value of the vested shares of common stock
subject to the surrendered option less the exercise price payable for
those shares. We may make the payment in cash or in shares of common
stock.
Change in Control. The 1999 Stock Incentive Plan will include the following
change in control provisions which may result in the accelerated vesting of
outstanding option grants and stock issuances:
- In the event we are acquired by merger or asset sale or a board-approved
sale of more than 50% of our stock, each outstanding option under the
discretionary option grant program which is not assumed or continued by
the successor
46
<PAGE> 52
corporation will immediately become exercisable for all the option
shares, and all unvested shares will immediately vest, except to the
extent our repurchase rights with respect to those shares are to be
assigned to the successor corporation.
- The plan administrator will have complete discretion to grant one or more
options which will become exercisable for all the option shares in the
event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of outstanding shares under our Stock Incentive Plan may be
accelerated upon similar terms and conditions.
- The plan administrator may also grant options which will immediately vest
upon an acquisition of us, whether or not those options are assumed by
the successor corporation.
- The plan administrator may grant options and structure repurchase rights
so that the shares subject to those options or repurchase rights will
immediately vest in connection with a successful tender offer for more
than 50% of our outstanding voting stock or a change in the majority of
our board of directors through one or more contested elections. Such
accelerated vesting may occur either at the time of such transaction or
upon the subsequent termination of the individual's service.
Salary Investment Option Grant Program. In the event the compensation committee
decides to put this program into effect for one or more calendar years, each of
our executive officers and other highly compensated employees selected for
participation may elect to reduce his or her base salary for that calendar year
by a specified dollar amount not less than nor more than . Each
selected individual who makes such an election will automatically be granted, on
the first trading day in January of the calendar year for which that salary
reduction is to be in effect, an option to purchase that number of shares of
common stock determined by dividing the salary reduction amount by two-thirds of
the fair market value per share of common stock on the grant date. The option
will be exercisable at a price per share equal to one-third of the fair market
value of the option shares on the grant date. As a result, the fair market value
of the option shares on the grant date less the aggregate exercise price payable
for those shares will be equal to the amount of salary invested in that option.
The option will vest and become exercisable in a series of 12 equal monthly
installments over the calendar year for which the salary reduction is to be in
effect and will be subject to full and immediate vesting upon certain changes in
the ownership or control of us.
Automatic Option Grant Program. Each individual who first becomes a non-employee
board member at any time after the completion of this offering will
automatically receive an option grant for shares on the date such individual
joins the board, provided such individual has not been previously employed by
us. In addition, on the date of each annual stockholders meeting held after the
completion of this offering, each non-employee board member who is to continue
to serve as a non-employee board member will automatically be granted an option
to purchase shares of common stock, provided such individual has
served on the board for at least six months.
Each automatic grant will have a term of ten years, subject to earlier
termination following the optionee's cessation of board service. The option will
be immediately exercisable for all of the option shares; however, any unvested
shares purchased under the option will be subject to repurchase by us, at the
exercise price paid per share, should the optionee cease board service prior to
the vesting of those shares. The shares subject to each share
automatic option grant will vest over a year period in successive equal
annual installments upon the individual's completion of each year of board
service over the year period measured from the option grant date. Each
share automatic option grant will vest upon the individual's
completion of one year of board service measured from the option grant date.
However, the shares subject to each automatic grant will immediately vest in
full upon certain changes in control or ownership of us or upon the optionee's
death or disability while a board member.
Director Fee Option Grant Program. If this program is put into effect in the
future, then each non-employee board member may elect to apply all or a portion
of any annual retainer fee otherwise payable in cash to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of common stock on the grant date. As a result,
the option will be structured so that the fair market value of the option shares
on the grant date less the aggregate exercise price payable for those shares
will be equal to the portion of the retainer fee invested in that option. The
option will become exercisable in a series of 12 equal monthly installments over
the calendar year for which the election
47
<PAGE> 53
is to be in effect. However, the option will become immediately exercisable for
all the option shares upon certain changes in the ownership or control of us or
the death or disability of the optionee while serving as a board member.
Limited Stock Appreciation Rights. Limited stock appreciation rights will
automatically be included as part of each grant made under the automatic option
grant, salary investment option grant and director fee option grant programs and
may be granted to one or more officers of us as part of their option grants
under the discretionary option grant program. Options with such a limited stock
appreciation right may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock. In
return for the surrendered option, the optionee will be entitled to a cash
distribution from us in an amount per surrendered option share based on the
highest price per share of common stock paid in connection with the tender
offer.
Amendment. The board of directors may amend or modify the 1999 Stock Incentive
Plan at any time, subject to any required stockholder approval. The 1999 Stock
Incentive Plan will terminate no later than August 25, 2009.
1999 Employee Stock Purchase Plan.
Introduction. Our 1999 Employee Stock Purchase Plan was adopted by the board of
directors on , 1999 and approved by the stockholders in
1999 and will become effective immediately upon the execution of the
underwriting agreement for this offering. The 1999 Employee Stock Purchase Plan
is designed to allow eligible employees of AdKnowledge and participating
subsidiaries to purchase shares of common stock, at semi-annual intervals,
through their periodic payroll deductions under the 1999 Employee Stock Purchase
Plan.
Share Reserve. shares of common stock will initially be reserved
for issuance.
Offering Periods. The plan will have a series of successive offering periods,
each with a maximum duration of 24 months. The initial offering period will
begin on the date the underwriting agreement for the offering covered by this
prospectus is signed and will end on the last business day in . The
next offering period will start on the first business day in , and
subsequent offering periods will commence as designated by the compensation
committee.
Eligible Employees. Individuals who are scheduled to work more than 20 hours per
week for more than five calendar months per year on the start date of any
offering period may join an offering period on the start date or on any
subsequent semi-annual entry date within that period. Individuals who become
eligible employees after the start date of the offering period may join the plan
on any subsequent semi-annual entry date within that offering period.
Payroll Deductions. A participant may contribute up to 15% of his or her cash
earnings, and the accumulated payroll deductions will be applied to the purchase
of shares on each semi-annual purchase date. The purchase price per share will
be equal to 85% the fair market value of the common stock on the participant's
entry date into the offering period or, if lower, the fair market value on the
semi-annual purchase date. Semi-annual purchase dates will occur on the last
business day of and each year. In no event, however, may any
participant purchase more than shares on any semi-annual purchase
date nor may all participants in the aggregate purchase more than
shares on any such semi-annual purchase date.
Reset Feature. Should the fair market value per share of common stock on any
purchase date be less than the fair market value per share on the start date of
the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day, with all participants in the terminated offering period to be automatically
transferred to the new offering period.
Change in Control. In the event we are is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the fair market value per share of common stock on the participant's entry
date into the offering period in which such acquisition occurs or, if lower, the
fair market value per share of common stock immediately prior to such
acquisition.
Termination/Amendment. The 1999 Employee Stock Purchase Plan will terminate on
the last business day of . The board may at any time alter, suspend or
discontinue the plan. However, certain amendments to the plan may require
stockholder approval.
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<PAGE> 54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN SALES OF SECURITIES
Since our formation in 1996, we have issued the following securities in private
placement transactions:
- 525,000 shares of Series A preferred stock for an aggregate price of
$105,000 in September 1996;
- 5,512,000 shares of Series B preferred stock for an aggregate price of
$2,600,010 in March 1997;
- 14,432,618 shares of Series D preferred stock for an aggregate purchase
price of $8,000,000 in March 1998; and
- 15,555,557 shares of Series E preferred stock for an aggregate purchase
price of approximately $14 million.
In addition, we issued 569,525 shares of Series C-1 preferred stock, 605,122
shares of Series C-2 preferred stock and 2,282,730 shares of Series C-3
preferred stock in exchange for outstanding capital stock and long term debt to
effect the merger with Focalink Communications, Inc. in December 1997.
The purchasers of more than $60,000 of such securities in the last four years
include, among others, the following executive officers, directors and holders
of more than 5% of our outstanding stock and their affiliates:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
PREFERRED STOCK
EXECUTIVE OFFICERS, ---------------------------------------------------------------------------------------------------
DIRECTORS AND 5% TOTAL
STOCKHOLDERS SERIES A SERIES B SERIES C-1 SERIES C-2 SERIES C-3 SERIES D SERIES E CONSIDERATION
------------------- -------- --------- ---------- ---------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Funds affiliated with
Kleiner Perkins Caufield &
Byers..................... 5,300,000 2,369,589 1,111,112 $ 4,813,474
Funds affiliated with The
Mayfield Fund............. 555,636 177,976 1,237,175 742,444 $ 2,032,176
Funds affiliated with
Partech International..... 3,743,461 4,333,333 $ 5,975,000
Funds affiliated with
Sandler Capital........... 5,555,556 $ 5,000,000
Funds affiliated with The
Walden Group.............. 485,000 31,800 240,833 7,577,124 1,111,111 $ 5,312,000
</TABLE>
For additional information regarding securities held by our executive officers
and directors and by stockholders of more than 5% of our outstanding common
stock and their affiliates, please see "Principal Stockholders."
Certain holders of outstanding common stock and common stock issuable upon the
exercise of warrants are entitled to certain registration rights. Please see
"Description of Capital Stock -- Registration Rights."
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of Mr. Kauffman, Dr.
Rubinow, Mr. Mracek and Mr. Wandryk. Please see "Management -- Employment and
Severance Arrangements" for more details regarding these agreements.
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Affiliate Relationships. The following members of the board of directors are
affiliated with certain private investors that participated in the transactions
listed above: Russell Siegelman (Kleiner Perkins Caufield & Byers), Steven L.
Eskenazi (The Walden Group), Philippe Cases (Partech International) and Samantha
McCuen (Sandler Capital).
Consulting Agreement and General Release with John Worthington. In July 1998, we
entered into a general release with John Worthington, upon his resignation as
our Vice President, Engineering, pursuant to which Mr. Worthington released
AdKnowledge from any and all potential claims relating to his employment as an
officer of AdKnowledge. Contemporaneous with the execution of the general
release, we entered into a consulting agreement with Mr. Worthington, pursuant
to which Mr. Worthington served as a consultant during the period from July 16,
1998 to January 15, 1999 for a total of $90,000. Under the consulting services
agreement, Mr. Worthington's stock options continued to vest as follows: 67,310
shares as of September 22, 1998 and at a rate of 5,609 shares per month
subsequent to that date. Mr. Worthington's consulting services
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<PAGE> 55
included advising our management in technology issues, designing and completing
prototypes for our products, and reviewing, evaluating and commenting on
possible acquisitions or partnering transactions.
Confidential Agreement and General Release with Ronald Kovas. In July 1998, we
entered into a confidential agreement and general release with Ronald Kovas,
upon his resignation as our Vice President and as Chief Executive Officer of
Focalink. Under the confidential agreement and general release, Mr. Kovas
released AdKnowledge from any and all potential claims relating to his
employment as an officer of AdKnowledge and received a lump sum severance
payment in the amount of $100,000.
Separation Agreement and General Release with Theodor Nissim. In April 1999, we
entered into a separation agreement and general release with Theodor Nissim,
shortly after his resignation as our Vice President, Engineering. Upon execution
of the separation agreement and general release, Mr. Nissim released AdKnowledge
from any and all potential claims relating to his employment as an officer of
AdKnowledge and received a lump sum severance payment in the amount of $75,000
and an immediate acceleration of vesting of his options to purchase 76,230
shares of common stock.
Loans to Scott L. Kauffman. In August 1997, AdKnowledge loaned Scott Kauffman
$500,000 for the purpose of enabling Mr. Kauffman to purchase a residence in
exchange for a promissory note dated August 15, 1997. The promissory note was
due and payable with interest at the rate of 6.73% per annum and was
full-recourse and secured by the deed of trust with respect to Mr. Kauffman's
residence. On July 10, 1998, this note was amended to reflect the forgiveness of
$250,000 due under the note. On August 19, 1999, we forgave the remaining
$250,000 principal and all accrued interest, approximately $36,000, due under
this note.
In November 1997, AdKnowledge loaned Scott Kauffman $38,124.39 for the purpose
of enabling Mr. Kauffman to exercise various stock options that AdKnowledge had
granted him in exchange for a promissory note dated November 20, 1997. The note
provides that the loan becomes due and payable with interest at the rate of
5.69% per annum on the earlier of (a) November 20, 2000, (b) 60 days after
termination, either voluntarily or for cause, of Mr. Kauffman's employment with
AdKnowledge, (c) 190 days after completion of an initial public offering of
AdKnowledge's common stock, (d) the consummation of any corporate transaction in
which more than 50% of the outstanding common stock of AdKnowledge is acquired
or substantially all of AdKnowledge's assets are acquired, or (e) 10 days after
the sale or transfer of Mr. Kauffman's residence. The note further provides that
AdKnowledge will forgive the remaining balance in the event that Mr. Kauffman's
employment is terminated without cause. The loan is full-recourse and secured by
the deed of trust with respect to Mr. Kauffman's residence. $41,800.09 is
outstanding under the note as of July 31, 1999.
In July 1998, AdKnowledge loaned Scott Kauffman $125,000 for the purpose of
enabling Mr. Kauffman to pay taxes associated with the forgiveness of $250,000
on the August 1997 loan on July 10, 1998. This note provides that the loan
becomes due and payable with interest at the rate of 5.56% per annum on the
earlier of (a) July 10, 2001, (b) 60 days after termination (either voluntarily
or for cause) of Mr. Kauffman's employment with AdKnowledge, (c) 190 days after
completion of an initial public offering of AdKnowledge's common stock, (d) the
consummation of any corporate transaction in which more than 50% of the
outstanding common stock of AdKnowledge is acquired or substantially all of
AdKnowledge's assets are acquired, or (e) 10 days after the sale or transfer of
Mr. Kauffman's residence. The note further provides that AdKnowledge will
forgive the remaining balance in the event that Mr. Kauffman's employment is
terminated without cause. In the event that a corporate transaction referred to
in (d) above is consummated, Mr. Kauffman must apply any net after-tax
transaction proceeds that he receives to pay the outstanding principal and
accrued interest in full. If the net proceeds received by Mr. Kauffman are not
sufficient to pay the note in full, AdKnowledge must forgive the balance that
remains. The loan is full-recourse and secured by 807,720 shares of AdKnowledge
common stock held by Mr. Kauffman. $131,763 is outstanding under this note as of
July 31, 1999.
In August 1999, AdKnowledge loaned Scott Kauffman $143,000 for the purpose of
enabling Mr. Kauffman to pay taxes associated with the forgiveness of
approximately $286,000 on the August 1997 loan on August 19, 1999. This note
provides that the loan becomes due and payable with interest at the rate of
5.43% per annum on the earlier of (a) August 19, 2002, (b) 60 days after
termination (either voluntarily or for cause) of Mr. Kauffman's employment with
AdKnowledge, (c) 190 days after completion of an initial public offering of
AdKnowledge's common stock, (d) the consummation of any corporate transaction in
which more than 50% of the outstanding common stock of AdKnowledge is acquired
or substantially all of AdKnowledge's assets are acquired, or (e) 10 days after
the sale or transfer of Mr. Kauffman's residence. The note further provides that
AdKnowledge will forgive the remaining balance in the event that Mr. Kauffman's
employment is terminated without cause. In the event that a corporate
transaction referred to in (d) above is consummated, Mr. Kauffman must apply any
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<PAGE> 56
net after-tax transaction proceeds that he receives to pay the outstanding
principal and accrued interest in full. If the net proceeds received by Mr.
Kauffman are not sufficient to pay the note in full, AdKnowledge must forgive
the balance that remains. The loan is full-recourse and secured by 807,720
shares of AdKnowledge common stock held by Mr. Kauffman. $143,000 is outstanding
under this note as of August 19, 1999.
Loan to Tom Churchill and Related Agreements. On March 31, 1998, upon Tom
Churchill's resignation from employment as an executive officer, we entered into
a consulting agreement and a general release with Mr. Churchill, loaned Mr.
Churchill $100,000 in exchange for a note, repurchased unvested shares of
AdKnowledge common stock held by Mr. Churchill at the then current fair market
value of such stock and entered into a voting trust agreement with Mr.
Churchill. The note provides that the loan becomes due and payable with interest
at the rate of 5.59% per annum on March 31, 2002. The loan is non-recourse and
secured by 1,466,565 shares of AdKnowledge common stock owned by Mr. Churchill.
$106,987 is outstanding under the note as of July 31, 1999. Pursuant to the
consulting agreement, Mr. Churchill served as a consultant to our chief
executive officer for up to 20 hours per month for a seven month period for a
sum of $58,000. Under the voting trust agreement, Mr. Churchill deposited his
shares of AdKnowledge common stock and agreed that our chief executive officer,
as trustee under this agreement, has the right to vote these shares for the
duration of the agreement, which survives until the earlier of the payment or
discharge of the note, the closing of AdKnowledge's initial public offering or
March 31, 2002. Under the general release, Mr. Churchill released AdKnowledge
from any and all potential claims relating to his employment as an officer of
AdKnowledge.
Loan to Chih-Chao Lam and Related Agreements. On March 31, 1998, upon Chih-Chao
Lam's resignation from employment as our chief technology officer, we entered
into a consulting agreement and a general release with Mr. Lam, loaned Mr. Lam
$100,000 in exchange for a note, repurchased unvested shares of AdKnowledge
common stock held by Mr. Lam at the then current fair market value of such stock
and entered into a voting trust agreement with Mr. Lam. The note provides that
the loan becomes due and payable with interest at the rate of 5.59% per annum on
March 31, 2002. The loan is non-recourse and secured by 962,710 shares of
AdKnowledge common stock owned by Mr. Lam. $106,987 is outstanding under the
note as of July 31, 1999. Pursuant to the consulting agreement, Mr. Lam served
as a consultant to our chief executive officer for up to 20 hours per month for
a 10 month period for a sum of $78,000. Under the voting trust agreement, Mr.
Lam deposited his shares of AdKnowledge common stock and agreed that our chief
executive officer, as trustee under this agreement, has the right to vote these
shares for the duration of the agreement, which survives until the earlier of
the payment or discharge of the note, the closing of AdKnowledge's initial
public offering or March 31, 2002. Under the general release, Mr. Lam released
AdKnowledge from any and all potential claims relating to his employment as an
officer of AdKnowledge.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of August 12, 1999 and as adjusted
to reflect the sale of the shares of common stock in this offering, by:
- - each person or group of affiliated persons who we know owns beneficially 5% or
more of our common stock;
- - each of our directors;
- - our executive officers listed in the Summary Compensation Table; and
- - all of our directors and executive officers as a group.
Percentage of ownership is calculated as required by Commission Rule
13d-3(d)(1).
As used in this table, "beneficial ownership" means the sole or shared power to
vote or direct the voting or to dispose or direct the disposition of any common
stock. Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them, subject to community property
laws. The table below includes the number of shares underlying options which are
exercisable within 60 days from the date of this offering. The address for those
individuals for which an address is not otherwise indicated is: 1808 Embarcadero
Road, Palo Alto, California 94303.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THIS OFFERING THIS OFFERING
---------------------------------------- --------------------------
NUMBER OF NUMBER OF
NUMBER OF SHARES NUMBER OF SHARES
SHARES UNDERLYING PERCENT SHARES UNDERLYING PERCENT
BENEFICIAL OWNER OUTSTANDING OPTIONS/WARRANTS (%) OUTSTANDING OPTIONS/WARRANTS (%)
---------------- ----------- ---------------- ------- ----------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C>
Entities affiliated with The Walden
Group(1)............................... 9,505,035 -- 20.0% 9,505,035 --
750 Battery Street, 7th Floor
San Francisco, CA 94111
Entities affiliated with Kleiner Perkins
Caufield & Byers(2).................... 8,780,701 -- 18.5% 8,780,701 --
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with Partech
International(3)....................... 8,076,794 -- 17.0% 8,076,794 --
50 California Street, Suite 3200
San Francisco, CA 94111
Entities affiliated with Sandler
Capital(4)............................. 5,555,556 -- 11.7% 5,555,556 --
767 Fifth Avenue, 45th Floor
New York, NY 10153
Entities affiliated with The Mayfield
Fund(5)................................ 3,151,648 85,343 6.8% 3,151,648 85,343
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Steven L. Eskenazi(1).................... 9,505,035 -- 20.0% 9,505,035 --
750 Battery Street, 7th Floor
San Francisco, CA 94111
Russell Siegelman(2)..................... 8,780,701 -- 18.5% 8,780,701 --
2750 Sand Hill Road
Menlo Park, CA 94025
Philippe Cases(3)........................ 8,076,794 -- 17.0% 8,076,794 --
50 California Street, Suite 3200
San Francisco, CA 94111
Samantha McCuen(4)....................... 5,555,556 -- 11.7% 5,555,556 --
767 Fifth Avenue, 45th Floor
New York, NY 10153
</TABLE>
52
<PAGE> 58
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THIS OFFERING THIS OFFERING
---------------------------------------- --------------------------
NUMBER OF NUMBER OF
NUMBER OF SHARES NUMBER OF SHARES
SHARES UNDERLYING PERCENT SHARES UNDERLYING PERCENT
BENEFICIAL OWNER OUTSTANDING OPTIONS/WARRANTS (%) OUTSTANDING OPTIONS/WARRANTS (%)
---------------- ----------- ---------------- ------- ----------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C>
Scott L. Kauffman(6)..................... 2,029,859 798,316 5.9% 807,720 798,316
Steven C. Rubinow........................ -- 603,742 1.3% -- 603,742
John E. Mracek........................... 215,000 335,000 1.2% 215,000 335,000
Stephen E. Findley....................... 244,886 305,114 1.2% 244,886 305,114
Ronald A. Kovas.......................... 232,092 -- * 232,092 -- *
269 Oak Grove Ave.
Atherton, CA 94027
Scott E. Ernst........................... 141,351 -- * 141,351 -- *
125 Mallorca Way
San Francisco, CA 94123
All directors and executive officers as a
group (14 persons)....................... 37,517,203 2,670,989 80.2% 37,517,203 2,670,989
</TABLE>
- -------------------------
* Less than 1% of total.
(1) Includes 4,743,258 shares beneficially owned by Walden Media & Information
Technology, L.P., 1,412,941 shares beneficially owned by Walden-SBIC, L.P.,
623,375 shares beneficially owned by InfoTech Ventures Ltd., 519,499 shares
beneficially owned by Walden EDB Partners, L.P., 519,499 shares beneficially
owned by Walden Japan Partners, L.P., 375,248 shares beneficially owned by
Asian Venture Capital Investment Corp., 353,207 shares beneficially owned by
Walden Technology Ventures II, L.P., 346,382 shares beneficially owned by
TWG Investment LDC and 311,626 shares beneficially owned by O, W & W
Investments Ltd. Mr. Eskenazi is a general partner of The Walden Group and
disclaims beneficial ownership of such shares.
(2) Includes 5,924,268 shares beneficially owned by KPCB Java Fund, 2,608,026
shares beneficially owned by Kleiner Perkins Caufield & Byers VIII, 219,518
shares beneficially owned by KPCB Information Sciences Zaibatsu Fund II and
28,889 shares beneficially owned by KPCB VIII Founders Fund. Mr. Siegelman
is a partner of Kleiner Perkins Caufield & Byers and disclaims beneficial
ownership of such shares.
(3) Includes 4,150,560 shares beneficially owned by Partech U.S. Partners III
C.V., 1,111,111 shares beneficially owned by Parallel Capital I LLC,
1,000,000 shares beneficially owned by Axa U.S. Growth Fund LLC, 943,853
shares beneficially owned by Parvest U.S. Partners II C.V., 444,444 shares
beneficially owned by Partech Europe Partners III C.V., 212,630 shares
beneficially owned by Double Black Diamond II LLC, 105,760 shares
beneficially owned by Almanori Limited, 55,556 shares beneficially owned by
45th Parallel and 52,880 shares beneficially owned by Multinvest Limited.
Mr. Cases is a general partner of Partech International and disclaims
beneficial ownership of such shares.
(4) Includes 3,937,778 shares beneficially owned by Sandler Capital IV Partners,
L.P. and 1,617,778 shares beneficially owned by Sandler Capital IV FTE
Partners, L.P. Ms. McCuen is an investment professional at Sandler Capital
and disclaims beneficial ownership of such shares.
(5) Includes 2,915,511 shares beneficially owned by Mayfield VII, 153,542 shares
beneficially owned by Mayfield Associates Fund II and 82,596 shares
beneficially owned by Mayfield Software Partners. This number also includes
warrants to purchase an aggregate of 85,343 of common stock owned by
Mayfield VII and Mayfield Associates Fund II.
(6) Includes 1,222,139 shares held in a voting trust pursuant to which Mr.
Kauffman has indirect beneficial ownership. The voting trust terminates upon
the successful completion of this offering.
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
We are currently a California corporation. Subject to stockholder approval, we
intend to reincorporate in Delaware prior to circulation of preliminary
prospectuses. The following description applies to our capital stock assuming
reincorporation in Delaware. Following such reincorporation and adoption of a
shareholder rights plan, and upon completion of this offering, we will be
authorized to issue shares of common stock, $.001 par value per
share, shares of Series 1 preferred stock, $.001 par value per
share and shares of undesignated preferred stock, $.001 par value
per share.
COMMON STOCK
As of August 12, 1999, there were shares of common stock outstanding
and held of record by 87 stockholders. Based upon the number of shares
outstanding and giving effect to:
- the conversion of each share of our Series A preferred stock into one
share of our common stock upon the closing of this offering;
- the conversion of each share of our Series B Preferred stock into one
share of our common stock;
- the conversion of each share of our Series C-1 preferred stock into
approximately 1.18 shares of our common stock;
- the conversion of each share of our Series C-2 preferred stock into
approximately 1.18 shares of our common stock;
- the conversion of each share of our Series C-3 preferred stock into
approximately 1.24 shares of our common stock;
- the conversion of each share of our Series D preferred stock into one
share of our common stock;
- the conversion of each share of our Series E preferred stock into one
share of our common stock; and
- the issuance of the shares of common stock offered in this
offering, there will be shares of common stock outstanding
upon the closing of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
funds legally available for that purpose, subject to any preferential dividend
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by us in this offering will
be, when issued in consideration for payment thereof, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock which we may designate and issue in the
future. Upon the closing of this offering, there will be no shares of preferred
stock outstanding.
PREFERRED STOCK
As of August 12, 1999, there were 39,482,552 shares of convertible preferred
stock outstanding. All outstanding shares of convertible preferred stock will be
converted into an aggregate of shares of common stock upon the
closing of this offering and such shares of convertible preferred stock will no
longer be authorized, issued or outstanding.
Prior to the closing of this offering, our board of directors is expected to
adopt a rights plan so that the board of directors will be authorized, without
further stockholder approval, to issue from time to time up to an aggregate of
shares of preferred stock in one or more series and to fix or
alter the designations, powers, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. We have no present plans to issue any shares of
preferred stock. See "-- Anti-Takeover Effects of Certain Provisions of Delaware
Law and our Certificate of Incorporation and Bylaws."
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<PAGE> 60
OPTIONS
As of August 12, 1999, options to purchase a total of shares of
common stock were outstanding, all of which are subject to lock-up agreements
under the terms of the option agreements governing such options. Options to
purchase a total of shares of common stock may be granted under
the 1999 Stock Incentive Plan. See "Management -- Benefit Plans" and "Shares
Eligible for Future Sale."
WARRANTS
As of August 12, 1999, we have outstanding the following warrants:
- warrants currently exercisable for 1,577 shares of common stock and 6,312
shares of common stock at an exercise price of $1.80 per share, which
expire on or before November 30, 2005;
- warrants currently exercisable for 505 shares of common stock, 5,138
shares of common stock and 6,064 shares of common stock at an exercise
price of $7.02 per share, which expire on or before June 30, 2006;
- a warrant currently exercisable for 113,511 shares of common stock at an
exercise price of $2.19 per share, which expires on or before September
29, 2002;
- warrants currently exercisable for 81,077 shares of common stock and
4,266 shares of common stock at an exercise price of $2.19 per share,
which expire on or before September 30, 2002;
- warrants currently exercisable for 76,305 shares of common stock and
8,479 shares of common stock at an exercise price of $.69 per share,
which expire on the later of August 26, 2008 or five years from the
closing of our initial public offering.
- warrants currently exercisable for 515,712 shares of common stock and
72,337 shares of common stock at an exercise price of $.72715 per share,
which expire on the earlier of November 30, 2008 or five years from the
effective date of our initial public offering;
- a warrant currently exercisable for 33,333 shares of common stock at an
exercise price of $.90 per share, which expires on the earlier of
December 29, 2008 or five years from the closing of our initial public
offering; and
- a warrant currently exercisable for 55,555 shares of common stock at an
exercise price of $.90 per share, which expires on the earlier of
February 10, 2009 or five years from the effective date of our initial
public offering.
The warrants contain antidilution provisions providing for adjustments of the
exercise price and the number of shares underlying the warrants upon the
occurrence of dilutive events, including any recapitalization, reclassification,
stock dividend, stock split, stock combination or similar transactions. Of the
warrants listed above, the warrants exercisable for 1,577 shares, 6,312 shares,
505 shares, 5,138 shares, 6,064 shares, 76,305 shares and 8,479 shares grant
their holders registration rights with respect to the common stock issuable upon
their exercise, which are described below.
REGISTRATION RIGHTS
As of August 12, 1999, under an agreement with certain of our stockholders,
after the closing of this offering the holders of shares of
common stock will be entitled to demand registration rights with respect to the
registration of their shares under the Securities Act of 1933. The holders of
30% of shares issued on conversion of the preferred stock have the right to
demand that we register their shares under the Securities Act of 1933 subject to
limitations. We are not required to effect more than two registrations pursuant
to these demand registration rights. However, if the holders of common stock
issued upon conversion of the Series E preferred stock do not participate in
either of the two registrations, then we are required to effect one registration
for those holders. In addition, after the closing of this offering these holders
will be entitled to have their shares of capital stock of AdKnowledge included
in any registration of shares of common stock under the Securities Act of 1933.
In the event that we propose to register any shares of common stock under the
Securities Act of 1933, either for our account or for the account of other
security holders, the holders of shares having these rights are entitled to
receive notice of such registration and to include their shares in any such
registration, subject to certain limitations. Further, at any time after we
become eligible to file a registration statement on Form S-3, the holders of
shares of common stock may require us to file registration
statements under the Securities Act on Form S-3 with respect to their shares of
common stock. These registration rights are subject to various conditions and
limitations, among them the right of the underwriters of an
55
<PAGE> 61
offering to limit the number of shares of common stock held by such security
holders to be included in such registration. We are generally required to bear
all of the expenses of all such registrations, including the reasonable fees of
a single counsel acting on behalf of all selling holders, except underwriting
discounts and selling commissions. Registration of any of the shares of common
stock held by security holders with registration rights would result in such
shares becoming freely tradable without restriction under the Securities Act
immediately upon effectiveness of such registration.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE
OF INCORPORATION AND BYLAWS
General
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. These provisions of Delaware law
and the certificate of incorporation and bylaws may also have the effect of
discouraging or preventing certain types of transactions involving an actual or
threatened change of control of us, including unsolicited takeover attempts,
even though such a transaction may offer our stockholders the opportunity to
sell their stock at a price above the prevailing market price.
Delaware Takeover Statute
We are subject to the "business combination" provisions of Section 203 of the
Delaware General Corporation Law. Subject to certain exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder obtained interested stockholder status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the stockholder owned at least 85% of
our voting stock outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding
those shares owned by (a) persons who are directors and also officers and
(b) employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
- on or subsequent to the date the business combination is approved by the
board and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
In addition, certain provisions of our certificate of incorporation and bylaws
summarized in the following paragraphs may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
Rights Plan
Prior to the closing of this offering, we anticipate that our board of directors
will adopt a rights plan pursuant to which one right to purchase one
one-thousandth of a share of Series 1 preferred stock, par value $.001 per
share, would be issued as a dividend for each outstanding share of common stock.
Each right, when exercisable, would represent the right to purchase one
one-thousandth of a share of Series 1 preferred stock at a specified price. The
rights would become exercisable ten days after a person or group acquires 15% or
more of the outstanding common stock or commences or announces a tender or
exchange offer which would result in such ownership. If, after the right becomes
exercisable, we were to be acquired through a merger or
56
<PAGE> 62
other business combination transaction or 50% or more of our assets or earning
power were sold, each right would permit the holder to purchase, for the
exercise price, common stock of the acquiring company having a market value of
twice the exercise price. In addition, if any person acquires 15% or more of the
outstanding common stock, each right not owned by such person would permit the
purchase, for the exercise price, of common stock having a market value of twice
the exercise price.
The rights would expire ten years after the adoption of the rights plan, unless
earlier redeemed by us in accordance with the terms of the rights plan. The
purchase price payable and the shares of Series 1 preferred stock issuable upon
exercise of the rights would be subject to adjustment from time to time as
specified in the rights plan. In addition, our board of directors would retain
the authority to redeem, at $.001 per right, and replace the rights with new
rights at any time, provided that no such redemption could occur after a person
or group acquires 15% or more of the outstanding common stock.
Shares of Series 1 preferred stock, when issued upon exercise of the rights,
will be nonredeemable and will rank junior to all series of any other class of
preferred stock. Each share of Series 1 preferred stock will be entitled to a
cumulative preferential quarterly dividend payment equal to the greater of (1)
$ per share or (2) 1,000 times the dividend declared per share of common stock.
In the event of liquidation, the holders of shares of Series 1 preferred stock
will be entitled to a preferential liquidation payment equal to the greater of
(a) $ per share or (b) 1,000 times the payment made per share of common
stock. Each share of Series 1 preferred stock will entitle the holder to 1,000
votes, voting together with the common stock. Finally, in the event of any
merger, consolidation or other transaction in which common stock is exchanged,
each share of Series 1 preferred stock will be entitled to receive 1,000 times
the amount received per share of common stock. The foregoing rights would be
subject to antidilution adjustments. The number of shares constituting the
series of Series 1 preferred stock will be .
Board of Directors Vacancies
Our bylaws authorize the board of directors to fill vacant directorships or
increase the size of the board of directors. This may deter a stockholder from
removing incumbent directors and simultaneously gaining control of the board of
directors by filling the vacancies created by such removal with its own
nominees.
Staggered Board
Our bylaws provide that our board will be classified into three classes of
directors. See "Management -- Classes of the Board" for more information
regarding the staggered board.
Stockholder Action; Special Meeting of Stockholders
Our certificate of incorporation provides that stockholders may act only at duly
called annual or special meetings of stockholders, not by written consent. Our
bylaws further provide that special meetings of our stockholders may be called
only by the President, Chief Executive Officer or Chairman of the board of
directors or a majority of the board of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws provide that stockholders seeking to bring business before our annual
meeting of stockholders, or to nominate candidates for election as directors at
our annual meeting of stockholders, must provide timely notice thereof in
writing. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, our principal executive offices not less than 120 days prior to
the first anniversary of the date of notice of annual meeting provided with
respect to the previous year's annual meeting of stockholders; provided, that if
no annual meeting of stockholders was held in the previous year or the date of
the annual meeting of stockholders has been changed to be more than 30 calendar
days earlier than such anniversary, notice by the stockholder, to be timely,
must be received a reasonable time before the solicitation is made. The bylaws
also specify certain requirements as to the form and content of a stockholder's
notice. These provisions may preclude stockholders from bringing matters before
our annual meeting of stockholders or from making nominations for directors at
our annual meeting of stockholders.
Authorized But Unissued Shares
Our authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval, subject to certain
limitations imposed by the Nasdaq National Market. These additional shares may
be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
57
<PAGE> 63
benefit plans. The existence of authorized but unissued and unreserved common
stock and preferred stock could render more difficult or discourage an attempt
to obtain control of us by means of a proxy contest, tender offer, merger or
otherwise.
Delaware law provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that, except to the extent prohibited
by Delaware law, our directors shall not be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary duty as our
directors. Under Delaware law, the directors have a fiduciary duty to us which
is not eliminated by this provision of the certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under Delaware law for breach of the
director's duty of loyalty to us for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or which involve
intentional misconduct, or knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by Delaware
law. This provision does not affect the directors' responsibilities under any
other laws, such as the Federal securities laws or state or Federal
environmental laws.
Section 145 of the Delaware General Corporation Law empowers a corporation to
indemnify its directors and officers and to purchase insurance with respect to
liability arising out of their capacity or status as directors and officers,
provided that this provision shall not eliminate or limit the liability of a
director for the following:
- any breach of the director's duty of loyalty to us or our 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 purchases or
redemptions; and
- for any transaction from which the director derived an improper personal
benefit.
Delaware law provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under our bylaws, any agreement, a vote of stockholders
or otherwise. The certificate eliminates the personal liability of directors to
the fullest extent permitted by Delaware law. In addition, the certificate
provides that we may fully indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative) by
reason of the fact that such person is or was one of our directors or officers
or is or was serving at our request as a director of or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
We have also entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. We
believe that these provisions and agreements are necessary to attract and retain
qualified directors and executive officers. 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, regardless of whether Delaware law
would permit indemnification. We have applied for liability insurance for our
officers and directors.
At present, there is no pending litigation or proceeding involving any director,
officer, employee or agent as to which indemnification will be required or
permitted under the certificate of incorporation. We are not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
58
<PAGE> 64
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market after this offering, or
the perception that such sales could occur. Such sales also might make it more
difficult for us to sell equity securities in the future at a time and price
that we deem appropriate. After this offering, shares of common stock
will be outstanding. Of these shares, the shares being offered hereby
are freely tradable. This leaves shares eligible for sale in the public
market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<C> <S>
After the date of this prospectus
Upon the filing of a registration statement to register for
resale shares of common stock issuable upon the exercise of
options granted under our stock option plans
At various times after 90 days from the date of this
prospectus (Rules 701 and 144)
At various times after 180 days from the date of this
prospectus (subject, in some cases, to volume limitations)
(lock-up and Rule 144)
</TABLE>
In general, under Rule 144, as currently in effect, an affiliate of AdKnowledge
or a person (or persons whose shares are required to be aggregated) who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of common stock (approximately
shares immediately after this offering); or
- the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed,
subject to certain restrictions.
In addition, a person who is not deemed to have been our affiliate at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, would be entitled to sell such
shares under Rule 144(k) without regard to the requirements described above. To
the extent that shares were acquired from one of our affiliates, such person's
holding period for the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate.
As of the date of this prospectus, options to purchase a total of shares
of common stock are outstanding, all of such options are currently exercisable.
Upon the closing of this offering, we intend to file a registration statement to
register for resale the shares of common stock reserved for issuance
under our stock option plans. We expect such registration statement to become
effective immediately upon filing. Shares issued upon the exercise of stock
options granted under our stock option plans will be eligible for resale in the
public market from time to time subject to vesting and, in the case of certain
options, the expiration of the lock-up agreements referred to below.
Our directors and officers and certain of our stockholders who hold
shares in the aggregate, together with the holders of options to purchase
shares of common stock and the holders of warrants to purchase
shares of common stock, have entered into lock-up agreements
pursuant to which they have agreed that they will not sell, directly or
indirectly, any shares of common stock without the prior written consent of J.P.
Morgan Securities Inc. for a period of 180 days from the date of this
prospectus.
Certain stockholders, holding approximately shares of common stock, have
the right, subject to certain conditions and limitations, to include their
shares in certain registration statements relating to our securities. By
exercising their registration rights and causing a large number of shares to be
registered and sold in the public market, these holders may cause the price of
the common stock to fall. In addition, any demand to include such shares in our
registration statements could have an adverse effect on our ability to raise
needed capital. Please see "Management -- Benefit Plans," "Principal
Stockholders," "Description of Capital Stock -- Registration Rights" and
"Underwriting."
59
<PAGE> 65
UNDERWRITING
Under the terms and subject to the conditions in an underwriting agreement dated
the date of this prospectus, the underwriters named below, for whom J.P. Morgan
Securities Inc., BancBoston Robertson Stephens Inc. and Volpe Brown Whelan &
Company, LLC are acting as representatives, have severally agreed to purchase,
and AdKnowledge has agreed to sell to them, the respective number of shares of
common stock set forth opposite their names below:
<TABLE>
<CAPTION>
----------------
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
J.P. Morgan Securities Inc..................................
BancBoston Robertson Stephens Inc...........................
Volpe Brown Whelan & Company, LLC...........................
--------
Total.............................................
========
</TABLE>
The underwriters are offering the common stock subject to their acceptance of
the common stock and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to purchase shares of common
stock are subject to receipt of an opinion of their counsel and other
conditions. If any of the shares of common stock are purchased by the
underwriters under the underwriting agreement, all of the shares, other than the
shares covered by the overallotment option described below, must be purchased.
The underwriters propose initially to offer the shares of common stock directly
to the public at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the common stock, the offering price and other
selling terms may be changed from time to time by the underwriters.
The underwriters have informed us that they do not intend sales to discretionary
accounts to exceed 5% of the total number of shares offered.
We have granted to the underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase up to additional shares of
common stock, on the same terms and conditions as set forth on the cover page
hereof. The underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the sale of shares of common
stock offered hereby. If the underwriters' option is exercised in full, the
total price to public would be $ , the total underwriting discounts and
commissions would be $ , and the total proceeds to us would be
$ before deducting $ in estimated expenses.
AdKnowledge and its officers, directors and many of its security holders have
agreed that, without the prior written consent of J.P. Morgan Securities Inc.,
during the period beginning from the date of this prospectus and continuing to
and including the date 180 days after the date of this prospectus they will not:
- offer, pledge, announce the intention to sell, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of common
stock or any securities of AdKnowledge which are substantially similar to
the common stock, including but not limited to any securities that are
convertible into or exercisable or exchangeable for, or that represent
the right to receive common stock or any such substantially similar
securities; or
- enter into any swap, option, future, forward or other agreement that
transfers, in whole or in part, the economic consequences of ownership of
common stock or any securities substantially similar to the common stock.
60
<PAGE> 66
The restrictions described in this paragraph shall not apply to;
- - the issuance of shares by AdKnowledge under its stock incentive plan or
employee stock purchase plan;
- - the grant by AdKnowledge of employee stock options;
- - the issuance of shares by AdKnowledge upon exercise of warrants outstanding on
the date of this prospectus; and
- - the issuance of common stock in connection with the transactions described in
this prospectus.
The underwriters have reserved for sale, at the initial public offering price,
shares of the common stock for some of our directors, officers, employees,
friends and family who have expressed an interest in purchasing such shares of
common stock in the offering. These persons are expected to purchase, in the
aggregate, not more than 7% of the common stock offered in the offering. The
number of shares available for sale to the general public in the offering will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered to the general public on the
same basis as other shares offered hereby.
We have agreed to indemnify the underwriters against certain liabilities, losses
and expenses, including liabilities under the Securities Act, or to contribute
to payments that the underwriters may be required to make in respect thereof.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot in connection with the offering,
creating a syndicate short position. In addition, the underwriters may bid for,
and purchase, shares of common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the common stock in the offering, if the syndicate repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
Prior to the offering, there has been no public market for the common stock. The
initial public offering price for the shares of common stock offered hereby will
be determined by agreement between us and the underwriters. Among the factors
considered in making such determination were the history of and the prospects
for the industry in which we compete, an assessment of our management, our
present operations, our historical results of operations and the trend of our
revenues and earnings, the prospects for our future earnings, the general
condition of the securities markets at the time of the offering and the prices
of similar securities of generally comparable companies. We cannot assure you
that an active trading market will develop for our common stock or that our
common stock will trade in the public market at or above the initial public
offering price.
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will be
passed upon for us by Brobeck, Phleger & Harrison LLP, San Diego, California. As
of the date of this prospectus, attorneys associated with Brobeck, Phleger &
Harrison LLP owned an aggregate of shares of common stock. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The financial statements of AdKnowledge Inc. as of December 31, 1997 and
December 31, 1998 and for the period from July 10, 1996 (date of inception) to
December 31, 1996 and for each of the two years in the period ended December 31,
1998 included in this prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of Focalink Communications, Inc. as of December 31,
1997 and for the year ended December 31, 1997 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
61
<PAGE> 67
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-1 (including the
exhibits, schedules and amendments to the registration statement) under the
Securities Act of 1933 with respect to the shares of common stock to be sold in
this offering. This prospectus does not contain all the information set forth in
the registration statement. For further information with respect to our company
and the shares of common stock to be sold in this offering, reference is made to
the registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
You may read and copy all or any portion of the registration statement or any
other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the Commission's Web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Upon approval of the common stock for the quotation on
the Nasdaq National Market, such reports, proxy and information statements and
other information may also be inspected at the offices of Nasdaq Operations,
1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our stockholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing unaudited interim financial information.
62
<PAGE> 68
ADKNOWLEDGE INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADKNOWLEDGE INC.
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
FOCALINK COMMUNICATIONS, INC.
Report of Independent Accountants........................... F-22
Balance Sheet............................................... F-23
Statement of Operations..................................... F-24
Statement of Shareholders' Equity........................... F-25
Statement of Cash Flows..................................... F-26
Notes to Financial Statements............................... F-27
</TABLE>
F-1
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of AdKnowledge Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of AdKnowledge Inc. at December 31, 1997 and
1998, and the results of its operations and cash flows for the period from July
10, 1996 (date of inception) to December 31, 1996 and for the years ended
December 31, 1997 and 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
San Jose, California
June 25, 1999
The reincorporation and the merger described in Note 12 to the financial
statements have not been consummated at August 27, 1999. When they have been
consummated, we will be in a position to furnish the above report:
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 27, 1999
F-2
<PAGE> 70
ADKNOWLEDGE INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------------------------------------
DECEMBER 31, PRO FORMA
-------------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 383,320 $ 1,164,577 $ 5,051,549
Short-term investments.................................... -- -- 1,504,088
Accounts receivable, net of allowance for doubtful
accounts of $114,245, $89,199 and $154,405 at December
31, 1997 and 1998 and June 30, 1999, respectively....... 456,771 528,501 1,109,746
Deposits.................................................. -- 206,540 85,433
Prepaid expenses and other current assets................. 2,299 293,454 296,920
----------- ------------ ------------
Total current assets............................... 842,390 2,193,072 8,047,736
Restricted cash............................................. 79,637 79,637 79,637
Related party notes receivable.............................. 512,751 625,023 642,501
Fixed assets................................................ 1,210,262 1,609,904 3,367,257
Goodwill, net............................................... 2,149,096 1,719,277 1,504,368
Other intangible assets, net................................ 1,007,000 671,333 503,500
Other assets................................................ 138,442 198,990 205,606
----------- ------------ ------------
Total assets....................................... $ 5,939,578 $ 7,097,236 $ 14,350,605
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit........................... $ 500,000 $ -- $ --
Accounts payable.......................................... 406,380 1,044,249 571,877
Accrued payroll and related liabilities................... 112,432 148,152 444,025
Other accrued liabilities................................. 327,348 152,565 477,811
Deferred revenue.......................................... 228,114 288,685 407,549
Related party payable..................................... 401,589 -- --
Capital lease obligations, current........................ 374,782 509,606 647,362
Notes payable, current.................................... 72,333 1,597,053 790,155
----------- ------------ ------------
Total current liabilities.......................... 2,422,978 3,740,310 3,338,779
Deferred revenue, long-term................................. -- 261,684 213,250
Other liabilities........................................... -- -- 62,056
Capital lease obligations, long-term........................ 515,674 902,546 1,542,741
Notes payable, long-term.................................... 132,609 535,557 867,382
----------- ------------ ------------
3,071,261 5,440,097 6,024,208
----------- ------------ ------------
Commitments (Note 8)
Stockholders' equity:
Convertible Preferred Stock: $.001 par value; 9,987,000
shares, 25,103,192 shares and 40,520,478 shares authorized
at December 31, 1997 and 1998 and June 30, 1999,
respectively; 9,494,377 shares, 23,926,995 shares and
39,482,552 shares issued and outstanding at December 31,
1997 and 1998 and June 30, 1999, respectively,
shares authorized and none issued and outstanding pro
forma..................................................... 9,494 23,927 39,483 --
(Aggregate liquidation preference: $17,548,703 at
December 31, 1998 and 31,548,704 at June 30, 1999)
Common Stock: $.001 par value; 25,000,000 shares,
38,896,808 shares and 55,479,522 shares authorized at
December 31, 1997 and 1998 and June 30, 1999,
respectively; 6,135,130 shares, 5,277,135 shares,
6,259,906 shares and 46,518,586 shares issued and
outstanding at December 31, 1997 and 1998, June 30, 1999
and pro forma, respectively............................... 6,135 5,277 6,260 46,519
Additional paid-in capital................................ 7,048,634 17,709,322 34,630,413 34,629,637
Note receivable from stockholder.......................... (38,365) (40,535) (41,619) (41,619)
Deferred stock-based compensation......................... (514,543) (2,140,265) (4,735,509) (4,735,509)
Unrealized loss on investments............................ -- -- (954) (954)
Accumulated deficit....................................... (3,643,038) (13,900,587) (21,571,677) (21,571,677)
----------- ------------ ------------ ------------
Total stockholders' equity......................... 2,868,317 1,657,139 8,326,397 8,326,397
----------- ------------ ------------ ------------
Total liabilities and stockholders' equity......... $ 5,939,578 $ 7,097,236 $ 14,350,605
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 71
ADKNOWLEDGE INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
FOR THE PERIOD
FROM JULY 10,
1996 (DATE OF FOR THE SIX MONTHS ENDED
INCEPTION) TO YEARS ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------------- --------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ -- $ 564,207 $ 2,421,382 $ 1,071,454 $ 1,636,234
Cost of revenues................... -- 209,001 3,109,543 1,442,875 2,522,928
---------- ----------- ------------ ----------- -----------
Gross profit (loss).............. -- 355,206 (688,161) (371,421) (886,694)
---------- ----------- ------------ ----------- -----------
Operating expenses:
Research and development......... 112,284 1,567,506 2,651,096 1,020,718 2,900,528
Sales and marketing.............. 24,061 574,752 2,963,007 1,265,581 2,099,835
General and administrative....... 26,689 265,455 2,281,452 1,075,604 943,505
Amortization of intangible
assets........................ -- -- 765,486 382,742 382,742
Stock-based compensation......... 564,369 97,717 806,712 484,907 311,304
Acquisition of in-process
research and development...... -- 804,000 -- -- --
---------- ----------- ------------ ----------- -----------
Total operating
expenses............... 727,403 3,309,430 9,467,753 4,229,552 6,637,914
---------- ----------- ------------ ----------- -----------
Loss from operations............... (727,403) (2,954,224) (10,155,914) (4,600,973) (7,524,608)
Interest income.................... 43 62,148 150,246 94,541 180,690
Interest expense................... (1,609) (21,993) (251,881) (114,984) (327,172)
---------- ----------- ------------ ----------- -----------
Net loss........................... $ (728,969) $(2,914,069) $(10,257,549) $(4,621,416) $(7,671,090)
========== =========== ============ =========== ===========
Net loss per share, basic and
diluted.......................... $ (0.39) $ (0.60) $ (1.27) $ (0.72) $ (0.61)
========== =========== ============ =========== ===========
Shares used in computing net loss
per share, basic and diluted..... 1,880,729 4,886,242 8,051,461 6,453,335 12,621,474
========== =========== ============ =========== ===========
Pro forma net loss per share, basic
and diluted...................... $ (0.35) $ (0.16)
============ ===========
Shares used in pro forma net loss
per common share calculation,
basic and diluted................ 29,146,430 49,336,944
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 72
ADKNOWLEDGE INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
CONVERTIBLE
PREFERRED STOCK NOTE
(NOTE 9) COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED
------------------------ ----------------------- PAID-IN FROM STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDER COMPENSATION
---------- ----------- ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock.......... -- $ -- 4,103,408 $ 4,103 $ 18,897 $ -- $ --
Issuance of Series A preferred
stock........................... 525,000 525 -- -- 104,475 -- --
Deferred stock-based compensation
related to options granted...... -- -- -- -- 175,220 -- (175,220)
Amortization of deferred
stock-based compensation........ -- -- -- -- -- -- 17,678
Stock-based compensation related
to restricted stock issuance.... -- -- -- -- 546,691 -- --
Net loss.......................... -- -- -- -- -- -- --
---------- ----------- ---------- ---------- ----------- -------- -----------
Balance at December 31, 1996...... 525,000 525 4,103,408 4,103 845,283 -- (157,542)
Issuance of Series B Convertible
Preferred Stock................. 5,512,000 5,512 -- -- 2,594,498 -- --
Issuance of Series C Convertible
Preferred Stock in connection
with acquisition................ 3,457,377 3,457 -- -- 2,839,651 -- --
Issuance of Common Stock in
connection with acquisition..... -- -- 336,909 337 15,555 -- --
Exercise of Common Stock
options......................... -- -- 1,694,813 1,695 51,422 (38,100) --
Issuance of warrants in connection
with acquisition................ -- -- -- -- 247,507 -- --
Interest accrued on note
receivable from stockholder..... -- -- -- -- -- (265) --
Deferred stock-based compensation
related to options granted...... -- -- -- -- 454,718 -- (454,718)
Amortization of deferred
stock-based compensation........ -- -- -- -- -- -- 97,717
Net loss.......................... -- -- -- -- -- -- --
---------- ----------- ---------- ---------- ----------- -------- -----------
Balance at December 31, 1997...... 9,494,377 9,494 6,135,130 6,135 7,048,634 (38,365) (514,543)
Issuance of Series D Convertible
Preferred Stock................. 11,636,298 11,636 -- -- 6,436,775 -- --
Issuance of Series D Convertible
Preferred Stock upon conversion
of notes payable................ 2,796,320 2,797 -- -- 1,548,792 -- --
Exercise of Common Stock
options......................... -- -- 309,535 310 18,025 -- --
Repurchase of Common Stock........ -- -- (1,167,530) (1,168) (47,748) -- --
Deferred stock-based compensation
related to options granted...... -- -- -- -- 2,432,434 -- (2,432,434)
Issuance of warrants in
conjunction with debt........... -- -- -- -- 272,410 -- --
Interest accrued on note
receivable from stockholder..... -- -- -- -- -- (2,170) --
Amortization of deferred
stock-based compensation........ -- -- -- -- -- -- 806,712
Net loss.......................... -- -- -- -- -- -- --
---------- ----------- ---------- ---------- ----------- -------- -----------
Balance at December 31, 1998...... 23,926,995 23,927 5,277,135 5,277 17,709,322 (40,535) (2,140,265)
Issuance of Series E Convertible
Preferred Stock, net of stock
issuance costs.................. 15,555,557 15,556 -- -- 13,910,118 -- --
Deferred stock compensation
related to options granted...... -- -- -- -- 2,906,548 -- (2,906,548)
Exercise of Common Stock
options......................... -- -- 1,073,045 1,073 56,224 -- --
Compensation related to
acceleration of vesting of
employee stock option........... -- -- -- -- 14,484 -- --
Repurchase of Common Stock........ -- -- (90,274) (90) (4,042) -- --
Issuance of warrants in
conjunction with debt........... -- -- -- -- 37,759 -- --
Interest accrued on note
receivable from stockholder..... -- -- -- -- -- (1,084) --
Amortization of deferred
stock-based compensation........ -- -- -- -- -- -- 311,304
Unrealized loss on investments.... -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- --
---------- ----------- ---------- ---------- ----------- -------- -----------
Balance at June 30, 1999
(unaudited)..................... 39,482,552 $ 39,483 6,259,906 $ 6,260 $34,630,413 $(41,619) $(4,735,509)
========== =========== ========== ========== =========== ======== ===========
<CAPTION>
------------------------------------------
UNREALIZED TOTAL
LOSS ON ACCUMULATED STOCKHOLDERS'
INVESTMENTS DEFICIT EQUITY
----------- ------------ -------------
<S> <C> <C> <C>
Issuance of common stock.......... $ -- $ -- $ 23,000
Issuance of Series A preferred
stock........................... -- -- 105,000
Deferred stock-based compensation
related to options granted...... -- -- --
Amortization of deferred
stock-based compensation........ -- -- 17,678
Stock-based compensation related
to restricted stock issuance.... -- -- 546,691
Net loss.......................... -- (728,969) (728,969)
----------- ------------ ------------
Balance at December 31, 1996...... -- (728,969) (36,600)
Issuance of Series B Convertible
Preferred Stock................. -- -- 2,600,010
Issuance of Series C Convertible
Preferred Stock in connection
with acquisition................ -- -- 2,843,108
Issuance of Common Stock in
connection with acquisition..... -- -- 15,892
Exercise of Common Stock
options......................... -- -- 15,017
Issuance of warrants in connection
with acquisition................ -- -- 247,507
Interest accrued on note
receivable from stockholder..... -- -- (265)
Deferred stock-based compensation
related to options granted...... -- -- --
Amortization of deferred
stock-based compensation........ -- -- 97,717
Net loss.......................... -- (2,914,069) (2,914,069)
----------- ------------ ------------
Balance at December 31, 1997...... -- (3,643,038) 2,868,317
Issuance of Series D Convertible
Preferred Stock................. -- -- 6,448,411
Issuance of Series D Convertible
Preferred Stock upon conversion
of notes payable................ -- -- 1,551,589
Exercise of Common Stock
options......................... -- -- 18,335
Repurchase of Common Stock........ -- -- (48,916)
Deferred stock-based compensation
related to options granted...... -- -- --
Issuance of warrants in
conjunction with debt........... -- -- 272,410
Interest accrued on note
receivable from stockholder..... -- -- (2,170)
Amortization of deferred
stock-based compensation........ -- -- 806,712
Net loss.......................... -- (10,257,549) (10,257,549)
----------- ------------ ------------
Balance at December 31, 1998...... -- (13,900,587) 1,657,139
Issuance of Series E Convertible
Preferred Stock, net of stock
issuance costs.................. -- -- 13,925,674
Deferred stock compensation
related to options granted...... -- -- --
Exercise of Common Stock
options......................... -- -- 57,297
Compensation related to
acceleration of vesting of
employee stock option........... -- -- 14,484
Repurchase of Common Stock........ -- -- (4,132)
Issuance of warrants in
conjunction with debt........... -- -- 37,759
Interest accrued on note
receivable from stockholder..... -- -- (1,084)
Amortization of deferred
stock-based compensation........ -- -- 311,304
Unrealized loss on investments.... (954) -- (954)
Net loss.......................... -- (7,671,090) (7,671,090)
----------- ------------ ------------
Balance at June 30, 1999
(unaudited)..................... $ (954) $(21,571,677) $ 8,326,397
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 73
ADKNOWLEDGE INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
FOR THE PERIOD
FROM JULY 10,
1996 (DATE OF FOR THE SIX MONTHS ENDED
INCEPTION) TO YEARS ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------------- -------------------------
1996 1997 1998 1998 1999
--------------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $(728,969) $(2,914,069) $(10,257,549) $(4,621,416) $(7,671,090)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 4,121 68,225 1,465,074 669,962 950,992
Provision for doubtful accounts........... -- 87,820 199,422 137,122 65,261
Net (gain) loss on disposal of property
and equipment.......................... -- -- 177,471 36,627 (1,187)
Forgiveness of related party note
receivable............................. -- -- 250,000 -- --
Noncash interest and other charges, net... -- -- (20,689) (16,525) 95,056
Stock-based compensation and other
compensation charges................... 564,369 97,717 806,712 484,907 325,788
Acquisition of in-process research and
development............................ -- 804,000 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable.................... (2,397) (304,398) (271,152) (579,003) (646,506)
Deposits............................... -- -- (206,540) (145,574) 121,107
Prepaid expenses and other current
assets............................... (5,700) 3,700 (187,996) (39,003) (489)
Accounts payable....................... 5,567 88,352 637,869 206,569 (472,372)
Accrued liabilities.................... 38,749 35,163 (139,063) (173,504) 621,119
Deferred revenue....................... -- 102,269 322,255 488,890 70,430
--------- ----------- ------------ ----------- -----------
Net cash used in operating
activities......................... (124,260) (1,931,221) (7,224,186) (3,531,248 (6,541,891)
--------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets................... (37,483) (366,959) (1,308,583) (429,724) (1,330,758)
Proceeds from sale of property and
equipment................................. -- -- 31,882 31,882 2,200
Purchases of short-term investments......... -- -- -- -- (1,505,042)
Issuance of related party notes
receivable................................ -- -- (325,000) (200,000) --
Decrease (increase) in other assets......... -- (9,100) 89,950 106,861 (49,064)
Increase in other liabilities............... -- -- -- -- 25,668
Increase in restricted cash................. -- (79,637) -- -- --
Cash acquired in acquisition of Focalink
Communications, Inc....................... -- 305,995 -- -- --
--------- ----------- ------------ ----------- -----------
Net cash used in investing
activities......................... (37,483) (149,701) (1,511,751) (490,981) (2,856,996)
--------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of loans to related parties........ -- (937,751) -- -- --
Proceeds from related party borrowings...... 250,000 150,000 1,150,000 1,150,000 --
Borrowings under capital lease
obligations............................... -- -- 949,968 -- --
Repayment of capital lease obligations...... -- -- (428,272) (177,994) (217,907)
Proceeds from line of credit................ -- 500,000 -- -- --
Proceeds from issuance of notes payable..... -- -- 1,500,000 -- 1,000,000
Repayment of notes payable.................. -- (117,391) (72,332) (36,166) (1,475,073)
Proceeds from issuance of Common Stock...... 23,000 53,117 18,335 2,221 57,297
Payment for repurchase of Common Stock...... -- -- (48,916) (44,738) (4,132)
Proceeds from issuance of Preferred Stock... 105,000 2,600,010 6,448,411 6,448,411 13,925,674
--------- ----------- ------------ ----------- -----------
Net cash provided by financing
activities......................... 378,000 2,247,985 9,517,194 7,341,734 13,285,859
--------- ----------- ------------ ----------- -----------
Net increase in cash and cash equivalents..... 216,257 167,063 781,257 3,299,505 3,886,972
Cash and cash equivalents at beginning of
period...................................... -- 216,257 383,320 383,320 1,164,577
--------- ----------- ------------ ----------- -----------
Cash and cash equivalents at end of period.... $ 216,257 $ 383,320 $ 1,164,577 $ 3,682,825 $ 5,051,549
========= =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 74
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
AdKnowledge Inc., formerly ClickOver, Inc. (the "Company"), is a provider of
comprehensive internet advertising management and analytic services for
marketers and advertising agencies.
The Company was incorporated in California on July 10, 1996 under the name of
ClickOver, Inc. On February 6, 1998, the Company changed its name to AdKnowledge
Inc.
Basis of presentation
The Company has incurred losses and negative cash flows from operations since
inception. The Company's activities have been primarily financed through private
placements of equity securities, subordinated debentures and capital lease
financing. Management is seeking to increase revenues through the marketing of
its products and services while exploring other venues to fund working capital
requirements. The Company will be required to raise additional capital through
the issuance of debt or equity securities and capital lease financing. Such
financing may not be available on terms satisfactory to AdKnowledge, if at all.
There can be no assurance that sufficient revenues will be achieved or
additional financing will be available.
Unaudited interim results
The accompanying interim financial statements as of June 30, 1999, and for the
six months ended June 30, 1998 and 1999 are unaudited. The unaudited interim
financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all adjustments,
which include only normal recurring adjustments necessary to present fairly the
Company's financial position as of June 30, 1999 and results of operations and
cash flows for the six months ended June 30, 1998 and 1999. The financial data
and other information disclosed in these notes to financial statements related
to these periods are unaudited. The results for the six months ended June 30,
1999 are not necessarily indicative of the results to be expected for the year
ending December 31, 1999.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Restricted cash
Cash balances of $79,637 at December 31, 1997 and 1998 and June 30, 1999 were
restricted from withdrawal and held by a bank in the form of certificates of
deposit. These certificates of deposit serve as collateral to a letter of credit
issued to the Company's landlord as a security deposit.
Fair value of financial instruments
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, receivables, deposits, borrowings under line of
credit, accounts payable and other accrued liabilities, and the current portion
of notes payable approximate fair value due to their short maturities.
F-7
<PAGE> 75
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
Carrying amounts of long-term notes payable and capital leases are considered to
approximate fair value based upon comparable market information available at the
respective balance sheet dates.
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash, cash equivalents and accounts receivable. The
Company deposits its cash and cash equivalents in domestic financial
institutions. The Company's accounts receivable are derived from revenue earned
from customers located in the U.S. AdKnowledge sells and grants credit for its
services to its customers without requiring collateral or third-party
guarantees. The Company monitors customers' payment history and establishes
reserves for bad debt as warranted.
At December 31, 1998, one customer accounted for 10% of total accounts
receivable.
Fixed assets
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally 3
to 5 years. Equipment acquired under capital leases is amortized on a
straight-line basis over the shorter of its lease term or estimated useful life,
generally three years. When fixed assets are retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the accounts and
the resulting gain or loss is included in income.
Long-lived assets
The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
the Company to review for impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable. When such an event occurs, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual disposition.
If the undiscounted expected future cash flows is less than the carrying amount
of the asset, an impairment loss is recognized. To date, no impairment loss has
been recognized.
Revenue recognition
For the year ended December 31, 1998, the Company's revenues were derived
primarily from the provision of ad delivery and associated management services
to its clients. The Company recognizes revenue at the time the services are
delivered, providing the Company does not have significant remaining obligations
and collection of the resulting receivable is probable. The Company recognizes
revenue from these services based on the number of advertisements delivered, as
well as from monthly usage fees for the Company's Web-based advertising
management system.
For the year ended December 31, 1997, the Company's revenues were derived
primarily from the sale of software licenses to Web publishers and were
recognized in accordance with the provisions of Statement of Position 91-1,
"Software Revenue Recognition." The Company recognized revenue from the sale of
software licenses upon shipment if remaining obligations were insignificant and
collection of the resulting receivable was probable. Revenue from software
maintenance contracts, including amounts unbundled from product sales, was
deferred and recognized ratably over the period of the contract.
Research and development costs
Research and development expenditures are charged to operations as incurred.
F-8
<PAGE> 76
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
Advertising costs
Costs related to advertising and promotion of products is charged to sales and
marketing expense as incurred. Advertising cost charged to expenses for the
period from July 10, 1996 (date of inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 were approximately none, $175,251 and
$292,218, respectively.
Income taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, which requires an asset and liability approach to
financial accounting and reporting for income taxes. Accordingly, deferred tax
assets and liabilities arise from the differences between the tax basis of an
asset or liability and their reported amounts in the financial statements, or
from the tax benefit of net operating loss carryforwards. Deferred tax amounts
are determined using the tax rates expected to be in effect when the taxes will
actually be paid or refunds received, as provided under currently enacted tax
law. Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation
expense is based on the difference, if any, on the date of the grant, between
the fair value of the Company's stock and the exercise price of the option. The
Company accounts for equity instruments issued to nonemployees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF")
96-18.
Comprehensive income
The Company adopted the provisions of SFAS No. 130, Reporting Comprehensive
Income. This statement requires companies to classify items of other
comprehensive income by their nature in the financial statements and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The Company had no comprehensive income items to report through December
31, 1998 and an insignificant amount of unrealized loss on investments in the
six months ended June 30, 1999.
Segment information
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS No. 131 supersedes FAS 14, "Financial Reporting for Segments
of a Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas,
and major customers. The Company conducts its business within one business
segment primarily within the U.S.
Certain risks and uncertainties
The Company's products and services are concentrated in the Internet advertising
industry which is characterized by rapid technological advances, changes in
customer requirements and evolving regulatory requirements and industry
standards. Any failure by the Company to anticipate or to respond adequately to
technological developments in its industry, changes in customer requirements or
changes in regulatory requirements or industry standards, or any significant
delays in the
F-9
<PAGE> 77
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
development or introduction of products or services, could have a material
adverse effect on the Company's business and operating results.
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. The adoption of this standard did not have
a material impact on the Company's results of operations, financial positions or
cash flows.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities". SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. As the Company has historically
expensed these costs, the adoption of SOP 98-5 did not have a significant impact
on its results of operations, financial positions or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. SFAS No. 133 is effective for fiscal
quarters beginning after June 15, 2000. The Company is evaluating the
requirements of SFAS No. 133.
NOTE 2--ACQUISITION OF FOCALINK COMMUNICATIONS, INC.:
On December 31, 1997, the Company completed its acquisition of Focalink
Communications, Inc. ("Focalink") for approximately $5,505,000, including
acquisition costs of $208,000 and liabilities assumed of $2,190,439. Focalink
was primarily engaged in the development of software tools to evaluate, place
and manage advertising campaigns on the Internet. The acquisition was accounted
for as a purchase and resulted in a one-time write-off of $804,000 for purchased
in-process research and development for which there was no alternative future
use and for which technological feasibility has not been established. The
balance of the purchase price in excess of tangible net assets acquired was
allocated to purchased technology and goodwill of $1,007,000 and $2,149,000,
respectively. The Company is amortizing the purchased technology and goodwill on
a straight-line basis over three and five years, respectively.
In connection with the acquisition, the Company issued 336,909 shares of Common
Stock and a total of 3,457,377 shares of Series C (issued as Series C-1, C-2 and
C-3) Convertible Preferred Stock valued at an aggregate of $2,859,000 in
exchange for the outstanding common and preferred stock of Focalink as well as
$4,367,000 of long term debt. The Company also issued warrants to purchase
176,197 shares of Series C Convertible Preferred Stock at prices ranging from
$1.80 to $7.02 per share and valued at $247,507.
The following (unaudited) pro forma summary represents the results of operation
as if the acquisition of Focalink had occurred at the beginning of the period
presented.
<TABLE>
<CAPTION>
-----------------------------
FOR THE
PERIOD FROM
JULY 10, 1996
(DATE OF
INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------- ------------
<S> <C> <C>
Pro forma net revenue...................................... $ 94,040 $1,777,911
Pro forma net loss......................................... $4,568,637 $9,840,178
</TABLE>
F-10
<PAGE> 78
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
In-process research and development charges of $804,000 were excluded from the
pro forma net loss for the year ended December 31, 1996. The pro forma results
are not necessarily indicative of what actually would have occurred if the
acquisition had been effected at the beginning of the period presented and may
not be indicative of future results.
NOTE 3--SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
----------------------------------------------------------------
FOR THE PERIOD
FROM JULY 10, FOR THE SIX MONTHS
1996 (DATE OF ENDED
INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------------- ---------------------
1996 1997 1998 1998 1999
-------------- ---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest......................... $ -- $ 21,993 $ 233,128 $ 114,984 $249,942
============== ========== ========== ========== ========
SUPPLEMENTAL NONCASH INVESTING AND FINANCING
ACTIVITY:
Noncash assets and liabilities acquired from
Focalink Communications, Inc.:
Net current liabilities..................... -- (380,303) -- -- --
Property and equipment, net................. -- 868,367 -- -- --
Goodwill.................................... -- 2,149,096 -- -- --
Other intangible assets..................... -- 1,007,000 -- -- --
Other assets................................ -- 129,342 -- -- --
Related party payable....................... -- (250,000) -- -- --
Capital leases.............................. -- (890,456) -- -- --
Issuance of Common Stock, Preferred Stock and
warrants for acquisition of Focalink
Communications, Inc......................... $ -- $3,106,507 $ -- $ -- $ --
============== ========== ========== ========== ========
Note receivable issued on exercise of stock
options..................................... $ -- $ 38,100 $ -- $ -- $ --
============== ========== ========== ========== ========
Interest accrued on note receivable from
stockholder................................. $ -- $ 265 $ 2,170 $ 1,084 $ 1,084
============== ========== ========== ========== ========
Property and equipment acquired under capital
leases...................................... $ -- $ -- $1,007,772 $ -- $995,858
============== ========== ========== ========== ========
Conversion of notes payable to Series D
Convertible Preferred Stock................. $ -- $ -- $1,551,589 $1,551,589 $ --
============== ========== ========== ========== ========
Conversion of borrowing under line of credit to
term note................................... $ -- $ -- $ 500,000 $ -- $ --
============== ========== ========== ========== ========
</TABLE>
NOTE 4--FIXED ASSETS:
<TABLE>
<CAPTION>
------------------------
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
FIXED ASSETS, NET:
Computer equipment and software........................... $1,109,710 $2,321,488
Furniture, fixtures and office equipment.................. 172,898 199,079
---------- ----------
1,282,608 2,520,567
Less: Accumulated depreciation and amortization........... (72,346) (910,663)
---------- ----------
$1,210,262 $1,609,904
========== ==========
</TABLE>
F-11
<PAGE> 79
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
Fixed assets includes $1,246,451 and $1,912,414 of assets under capital leases
at December 31, 1997 and 1998, respectively. Accumulated amortization of assets
under capital leases totaled $469,979 and $754,672 at December 31, 1997 and
1998, respectively.
NOTE 5--RELATED PARTY TRANSACTIONS:
At December 31, 1998, the Company had notes receivable from officers and
stockholders in the amounts of $40,535, (including interest) for the purchase of
common stock (included in stockholders' equity) and $625,023 which was borrowed
for other personal reasons. The notes bear interest at rates of 5.56% to 5.69%
and are due at various dates through March 31, 2002. Notes in the amount of
$275,599 are collateralized by a deed of trust on a residence and $389,959 of
the notes are collateralized by common stock of the Company. Notes in the amount
of $208,385 are without recourse, except to the extent of the common stock held
as collateral.
During the year ended December 31, 1998, the Company incurred $223,000 of
expenses for business consulting services rendered by two stockholders and one
former executive of the Company.
In addition, the Company issued 2,345,300 shares of Series D Preferred Stock in
March 1998 in exchange for a note payable to an investor in the amount of
$1,300,000. The note was issued in January 1998 with warrants to purchase
117,265 shares of common stock. The warrant was cancelled in connection with the
note conversion. The Company also assumed a loan in the amount of $251,589 from
an investor in connection with the acquisition of Focalink, which loan was
converted to 451,020 shares of Series D Preferred Stock in March 1998.
NOTE 6--INCOME TAXES:
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
------------------
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards.......................... $ 4,349 $ 6,367
Accruals and reserves..................................... 86 130
Research credits.......................................... 109 294
Depreciation.............................................. (148) 119
Other..................................................... 76 104
------- -------
4,472 7,014
------- -------
Valuation allowance......................................... (4,472) (7,014)
------- -------
$ -- $ --
======= =======
</TABLE>
Due to uncertainties surrounding the use of the deferred tax assets, a full
valuation allowance has been recorded.
At December 31, 1998, the Company had approximately $16 million of federal and
$15.8 million of state net operating loss carryforwards available to offset
future taxable income which expire in varying amounts between 1998 and 2011.
Under the Tax Reform Act of 1986, the amounts of and benefits from net operating
loss carryforwards may be impaired or limited in certain circumstances. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three year period. Given
the equity changes that have occurred during the years ended December 31, 1997
and 1998, the Company has likely incurred an ownership change and the
utilization of its net operating losses are subject to such limitations.
F-12
<PAGE> 80
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
NOTE 7--BORROWINGS:
The following amounts were outstanding at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
----------------------
DECEMBER 31,
----------------------
1997 1998
-------- ----------
<S> <C> <C>
Revolving line of credit, interest at prime plus 2% (9.75%
at December 31, 1997)(1).................................. $500,000 $ --
Equipment line of credit, interest at prime plus 2% (9.75%
at December 31, 1997)(1).................................. 204,942 --
Term loan payable monthly through February 2001, interest at
prime plus 2% (9.75% at December 31, 1998)(2)............. -- 500,000
Equipment loan payable monthly through October 2000,
interest at prime plus 2% (9.75% at December 31,
1998)(2).................................................. -- 132,610
Note payable under combined master lease, subordinated loan
agreement and letter of credit facility, interest at
13%(3).................................................... -- 1,500,000
</TABLE>
- ---------------
1. The revolving line of credit and equipment line of credit were converted into
the respective term and equipment loans in December 1998.
2. The term loan and equipment loan are subject to various financial covenants
with which the Company was in compliance at December 31, 1998
3. Under the combined master lease, subordinated loan agreement and line of
credit facility, the Company has an aggregate credit facility of
approximately $4,000,000. Amounts borrowed under this facility are
collateralized by substantially all of the Company's assets and are
subordinated to the Company's term and equipment loans. The agreement
contains various financial and operating covenants with which the Company was
in compliance at December 31, 1998. Under the agreement the Company has
obtained a letter of credit for $526,000 used as a deposit for the lease of
its corporate headquarters. If the letter of credit is drawn upon, the
Company will be required to repay the amount used over a two-year period with
interest at 14% per year. The Company is charged a facility fee equal to 1%
of the letter of credit balance per year.
Some of the debt and capital leases restrict the payment of dividends.
In February 1999, the Company repaid $1,250,000 of the Note payable and
converted the balance into a term note payable for $9,823 per month through
August 2001 with interest at 13%. In addition, the Company borrowed an
additional $1,000,000 in January 1999 with interest at 13%, and payable monthly
through August 2001.
Future minimum principal payments under notes payable at December 31, 1998, are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999........................................................ $ 1,597,053
2000........................................................ 451,760
2001........................................................ 83,797
-----------
2,132,610
Less current portion........................................ (1,597,053)
-----------
$ 535,557
===========
</TABLE>
F-13
<PAGE> 81
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
Future minimum principal payments under notes payable at June 30, 1999, are as
follows:
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31,
-------------
<S> <C>
1999........................................................ $ 387,519
2000........................................................ 809,343
2001........................................................ 460,675
----------
1,657,537
Less current portion........................................ (790,155)
----------
$ 867,382
==========
</TABLE>
NOTE 8--COMMITMENTS:
Capital and operating leases
In November 1998, the Company entered into a new operating lease agreement for
its corporate headquarters. This lease commenced in January 1999 and expires in
December 2004. The Company also leases other office space and equipment under
noncancelable operating and capital leases with various expiration dates through
2003.
Future minimum lease payments under noncancelable operating and capital leases
and future minimum sublease rental receipts under noncancelable operating leases
at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
------------------------------------
YEAR ENDED CAPITAL OPERATING SUBLEASE
DECEMBER 31, LEASES LEASES INCOME
------------ ---------- ---------- --------
<S> <C> <C> <C>
1999........................................................ $ 699,319 $1,322,281 $390,912
2000........................................................ 484,179 1,285,018 332,048
2001........................................................ 379,617 1,219,726 256,680
2002........................................................ 217,237 973,171 --
2003........................................................ -- 984,788 --
Thereafter.................................................. -- 1,017,068 --
---------- ---------- --------
Total minimum lease payments and sublease income............ 1,780,352 $6,802,052 $979,640
========== ========
Less: Amount representing interest.......................... (368,200)
----------
Present value of capital lease obligations.................. 1,412,152
Less: Current portion....................................... (509,606)
----------
Long-term portion of capital lease obligations.............. $ 902,546
==========
</TABLE>
F-14
<PAGE> 82
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
Future minimum lease payments under noncancelable operating and capital leases
and future minimum sublease rental receipts under noncancelable operating leases
at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
------------------------------------
PERIOD ENDED CAPITAL OPERATING SUBLEASE
DECEMBER 31, LEASES LEASES INCOME
------------ ---------- ---------- --------
<S> <C> <C> <C>
1999........................................................ $ 423,585 $ 662,115 $206,466
2000........................................................ 982,980 1,285,018 332,048
2001........................................................ 877,169 1,219,726 256,680
2002........................................................ 418,797 973,171 --
2003........................................................ -- 984,788 --
Thereafter.................................................. -- 1,017,068 --
---------- ---------- --------
Total minimum lease payments and sublease income............ 2,702,531 $6,141,886 $795,194
========== ========
Less: Amount representing interest.......................... (512,428)
----------
Present value of capital lease obligations.................. 2,190,103
Less: Current portion....................................... (647,362)
----------
Long-term portion of capital lease obligations.............. $1,542,741
==========
</TABLE>
In 1999 the Company entered into an agreement with an applications service
provider which requires payments of up to $603,000 through May 2002. This
agreement is cancellable upon specified conditions.
NOTE 9--CONVERTIBLE PREFERRED STOCK:
Convertible Preferred Stock at December 31, 1998 and June 30, 1999, consists of
the following:
<TABLE>
<CAPTION>
SERIES SHARES AMOUNT
------ ---------- ----------
<S> <C> <C>
A........................................................... 525,000 $ 105,000
B........................................................... 5,512,000 2,600,010
C-1......................................................... 569,525 468,644
C-2......................................................... 605,122 497,421
C-3......................................................... 2,282,730 1,877,043
D........................................................... 14,432,618 8,000,000
---------- ----------
December 31, 1998........................................... 23,926,995 13,548,118
E........................................................... 15,555,557 13,925,674
---------- ----------
June 30, 1999 39,482,552 27,473,792
========== ==========
</TABLE>
The holders of Convertible Preferred Stock have various rights and preferences
as follows:
Voting
Each share of Series A, B, C-1, C-2, C-3, D and E Convertible Preferred Stock
has voting rights equal to an equivalent number of shares of Common Stock into
which it is convertible and votes together as one class with the Common Stock.
As long as at least 25% of the shares of any Series of Convertible Preferred
Stock remain outstanding, the Company must obtain approval from a majority of
the holders of Convertible Preferred Stock in order to (1) amend the Articles of
Incorporation or by laws as related to Convertible Preferred Stock, (2) change
the authorized or issued number of shares of Convertible Preferred Stock, (3)
alter or change the rights, preferences or privileges of the shares of any
series of Preferred Stock so as to adversely affect the shares, (4) create a new
class of stock or effect a merger, consolidation or sale of assets where the
existing stockholders retain less than 50% of the voting stock of the surviving
entity.
F-15
<PAGE> 83
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
Dividends
Holders of Series A, B, C-1, C-2, C-3, D and E Convertible Preferred Stock are
entitled to receive noncumulative dividends at the per annum rate of $0.01,
$0.03, $0.05, $0.21, $0.12, $0.04 and $0.63 per share, respectively, when and if
declared by the Board of Directors. The holders of Series A, B, C-1, C-2, C-3, D
and E Convertible Preferred Stock will also be entitled to participate in
dividends on Common Stock, when and if declared by the Board of Directors, based
on the number of shares of Common Stock held on an as-if converted basis. No
dividends on Convertible Preferred Stock or Common Stock have been declared by
the Board of Directors from inception through December 31, 1998.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners of
the Company's Common Stock and Convertible Preferred Stock own less than 50% of
the resulting voting power of the surviving entity, the holders of Series A, B,
C-1, C-2, C-3, D and E Convertible Preferred Stock are entitled to receive an
amount of $0.20, $0.4717, $0.8451, $3.2981, $1.9129, $0.5543 and $0.90 per
share, respectively, plus any declared but unpaid dividends prior to and in
preference to any distribution to the holders of Common Stock. The remaining
assets, if any, shall be distributed until the Series A, B, C-1, C-2, C-3, D and
E shall have in the aggregate an amount equal to $0.80, $1.8868, $3.3804,
$13.1924, $7.6516, $2.2172 and $3.60 per share. Should the Company's legally
available assets be insufficient to satisfy the liquidation preferences, the
funds will be distributed pro rata in proportion to the Series A, B, C-1, C-2,
C-3, D and E Convertible Preferred Stock ownership.
Conversion
Each share of Series A, B, C-1, C-2, C-3, D and E Convertible Preferred Stock is
convertible into shares of Common Stock, at the option of the holder, according
to a conversion ratio and subject to adjustment for dilution. Each share of
Series A, B, C-1, C-2, C-3, D and E Convertible Preferred Stock automatically
converts into the number of shares of Common Stock into which such shares are
convertible at the then effective conversion ratio upon: (1) the closing of a
public offering of Common Stock at a per share price of not less than $1.6629
per share as of December 31, 1998 and $2.70 per share as at June 30, 1999 with
gross proceeds of not less than $10 million, (2) the consent of the holders of
the majority of Convertible Preferred Stock. At December 31, 1998 the Company
had reserved approximately 25 million shares of common stock for the conversion
of the preferred stock. In 1999 the number of shares of common stock reserved
for conversion of preferred stock was increased to approximately 42 million.
Warrants
At December 31, 1998, there were warrants to purchase 706,166 shares of Series D
Convertible Preferred Stock at prices ranging from $0.69 to $0.90 per share, and
warrants to purchase 176,197 shares of Series C Convertible Preferred Stock at
prices ranging from $1.80 to $7.02 per share outstanding and exercisable. The
Series C warrants were issued in connection with the acquisition of Focalink
(see Note 2) and expire through 2006. The fair value of these warrants, $247,507
(valued under the Black-Scholes model) was included in the purchase price. The
Series D warrants were issued in connection with the various financings in 1998
and expire at the earlier of 10 years from the issue date or five years from an
initial public offering of the Company's common stock. The fair value of these
warrants, $272,410 (valued under the Black-Scholes model), has been accounted
for as debt discount and has been included with other current and long term
assets. The Company amortized $18,753 of such discount in 1998.
In February 1999, in conjunction with leases entered into, the Company granted
the lender warrants to purchase 55,555 shares of Series E Convertible Preferred
Stock at $0.90 per share. These warrants expire at the earlier of 10 years from
the issue date or five years from an initial public offering of the Company's
common stock. The fair value of these warrants, $37,759 (valued under the
Black-Scholes model), has been accounted for as debt discount and has been
included with other current and long term assets.
F-16
<PAGE> 84
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
Restricted Stock Purchase Agreement
The Company sold Common Stock to certain employees under restricted purchase
agreements under which the Company had the right to repurchase the shares in the
event the employee terminated employment. In 1996, the repurchase right with
respect to 1,952,468 unvested shares was waived. As a result, $546,691 of
compensation expenses, equal to the difference between the purchase price of the
stock and the then current value, was charged to operations. The repurchase
right with respect to all other shares had expired at December 31, 1998.
NOTE 10--STOCK OPTION PLANS:
In 1996 and 1998, the Company adopted the 1996 and 1998 Stock Option Plans (the
"Plans"), respectively. The Plans provide for the granting of stock options to
employees, non-employee Board members and consultants of the Company. Options
granted under the Plan may be either incentive stock options or nonqualified
stock options. Incentive stock options ("ISO") may be granted only to Company
employees. Nonqualified stock options ("NSO") may be granted to Company
employees, non-employee Board members and consultants. The Company has reserved
7,521,592 and 1,372,286 shares of Common Stock for issuance under the 1996 Stock
Option Plan and the 1998 Stock Option Plan, respectively.
Options under the Plans may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date of
grant as determined by the Board of Directors, provided, however, that (i) the
exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% stockholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant
and the option term cannot exceed five years from the date of grant. Options are
exercisable immediately, subject to a right of repurchase by the Company of
unvested shares. To date, options granted generally vest over four years. At
December 31, 1997 and 1998, 629,426 and 1,238,682 shares of Common Stock,
including shares under unexercised options, were subject to repurchase,
respectively. There were no shares subject to repurchase at December 31, 1996.
During 1998, the Company recorded $35,263 of deferred stock compensation for the
fair value of 78,367 options granted in 1998 to non-employees (valued under the
Black-Scholes model). The compensation expense is being recognized over the
period of service.
F-17
<PAGE> 85
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
The following table summarizes information about stock options at December 31,
1996, 1997 and 1998:
<TABLE>
<CAPTION>
-------------------------------------------------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE NUMBER OF EXERCISE AGGREGATE EXERCISE
FOR GRANT OPTIONS PRICE PRICE PRICE
---------- ---------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Options reserved--1996 Stock Option Plan............ 3,321,592
Options granted..................................... (625,000) 625,000 $ 0.01 $ 6,250 $ 0.01
---------- ---------- --------
Balances, December 31, 1996......................... 2,696,592 625,000 6,250 0.01
Options reserved.................................... 200,000 -- --
Options granted..................................... (1,827,255) 1,827,255 0.01-0.0472 73,823 0.0402
Options exercised................................... -- (1,694,813) 0.01-0.0472 (53,117) 0.0313
Options canceled.................................... 63,000 (63,000) 0.0472 (2,972) 0.0472
---------- ---------- --------
Balances, December 31, 1997......................... 1,132,337 694,442 23,984 0.0345
Options reserved.................................... 4,000,000 -- --
Stock repurchases................................... 1,167,530 -- --
Options reserved--1998 Stock Option Plan............ 1,372,286 -- --
Options granted..................................... (6,345,885) 6,345,885 0.06 382,815 0.0603
Options exercised................................... -- (309,535) 0.0236-0.06 (18,335) 0.0592
Options canceled.................................... 873,295 (873,295) 0.0236-0.06 (50,783) 0.0582
---------- ---------- --------
Balances, December 31, 1998......................... 2,199,563 5,857,497 337,681 0.0576
Stock repurchases................................... 90,274 -- --
Options granted..................................... (2,124,891) 2,124,891 0.06-0.30 515,592 0.2709
Options exercised................................... -- (1,073,045) 0.0236-0.06 (57,297) 0.0534
Options canceled.................................... 1,262,516 (1,262,516) 0.0236-0.25 (84,292) 0.0668
---------- ---------- --------
Balances, June 30, 1999............................. 1,427,462 5,646,827 $771,684 $0.1367
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
------------------------------------
OPTIONS OUTSTANDING AND EXERCISABLE
AT DECEMBER 31, 1998
------------------------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE
PRICE OUTSTANDING LIFE PRICE
-------- ----------- ----------- --------
<S> <C> <C> <C>
$0.02360.................................................... 282,702 8.33 $0.02
$0.04717.................................................... 268,240 8.79 $0.05
$0.06000.................................................... 5,306,555 9.45 $0.06
---------
5,857,497
=========
</TABLE>
Under APB No. 25, compensation expense is recognized based on the amount by
which the fair value of the underlying common stock exceeds the exercise price
of the stock options at the measurement date, which in the case of employee
stock options is typically the date of grant. For financial reporting purposes,
the Company has determined that the deemed fair market value on the date of
grant of certain employee stock options was in excess of the exercise price of
the options. This amount is recorded as deferred stock-based compensation and is
classified as a reduction of stockholders' equity and is amortized as a charge
to operations over the vesting period of the applicable options. The vesting
period is generally four years. Consequently, the Company recorded deferred
stock-based compensation of $175,220, $454,718, $2,432,434, and $2,906,548
during the period from July 10, 1996 (date of inception) to December 31, 1996,
during the years ended December 31, 1997 and 1998, and during the six months
ended June 30, 1999, respectively. Amortization recognized for the
F-18
<PAGE> 86
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
period from July 10, 1996 (date of inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 and the six months ended June 30, 1999
totaled $17,678, $97,717, $806,712 and $311,304, respectively. The Company's
stock option grants and related deemed fair value are as follows:
<TABLE>
<CAPTION>
-----------------------------------------
WEIGHTED
NUMBER OF WEIGHTED AVERAGE
OPTIONS AVERAGE DEEMED
GRANTED EXERCISE PRICE FAIR VALUE
--------- -------------- ----------
<S> <C> <C> <C>
For the period from July 10, 1996 (date of inception) to
December 31, 1996:
Options granted at deemed fair value........................ -- $ -- $ --
Options granted below deemed fair value..................... 625,000 0.01 0.29
--------- ----- -----
Total............................................. 625,000 $0.01 $0.29
========= ===== =====
For the year ended December 31, 1997:
Options granted at deemed fair value........................ -- $ -- $ --
Options granted below deemed fair value..................... 1,827,255 0.04 0.29
--------- ----- -----
Total............................................. 1,827,255 0.04 0.29
========= ===== =====
For the year ended December 31, 1998:
Options granted at deemed fair value........................ -- $ -- $ --
Options granted below deemed fair value..................... 6,345,885 0.06 0.50
--------- ----- -----
Total............................................. 6,345,885 $0.06 $0.50
========= ===== =====
For the period ended June 30, 1999:
Options granted at deemed fair value........................ -- $ -- $ --
Options granted below deemed fair value..................... 2,124,891 0.27 1.89
--------- ----- -----
Total............................................. 2,124,891 $0.27 $1.89
========= ===== =====
</TABLE>
Pro forma stock-based compensation
The Company accounts for employee stock options under APB Opinion No. 25. Had
the Company determined compensation expense under SFAS No. 123, the effect on
the Company's net earnings would have been insignificant. These pro forma
results are not necessarily indicative of results which may be expected in the
future as additional grants are made each year and options vest over several
years. The weighted average fair value of the options and warrants granted or
modified for the period ended December 31, 1996, and the years ended December
31, 1997 and 1998 was $0.0022, $0.0086 and $0.0114, respectively.
The following weighted average assumptions were used in the above calculations:
<TABLE>
<CAPTION>
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk free interest rate..................................... 6.36% 6.23% 5.24%
Expected life............................................... 4 years 4 years 4 years
Volatility.................................................. -- -- --
Dividend yield.............................................. -- -- --
</TABLE>
F-19
<PAGE> 87
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
NOTE 11--EMPLOYEE BENEFIT PLAN:
In January 1, 1998, the Company adopted the savings plan under Section 401(k) of
the Internal Revenue Code of Focalink Communications, Inc. There were no
contributions made by the Company in 1998.
NOTE 12--SUBSEQUENT EVENTS (UNAUDITED):
In July 1999, the Company entered into noncancelable capital leases totaling
$349,534 which expire in 2003.
In August 1999, the Company entered into a subordinated loan agreement and
secured promissory note for $4,000,000. Amounts borrowed under this note are
collateralized by substantially all of the Company's assets and are subordinated
to the Company's term and equipment loans. Borrowings will be repaid in
thirty-six equal monthly payments of principal and interest at a rate of 13.3%
per annum, through September 2002. In connection with this note, the Company
paid a facility fee of $40,000 and granted the lender warrants to purchase up to
711,111 shares of Series E Convertible Preferred Stock at an exercise price
which shall be between $0.90 and $1.10 per share. These warrants expire at the
later of 10 years from the issue date or five years from an initial public
offering of the Company's common stock. The fair value of these warrants of
approximately $800,000 will be accounted for as debt discount and will be
included with other current and long-term assets.
In August 1999, the Company forgave a note receivable from an officer in an
aggregate amount of approximately $286,000, including accrued interest. Such
amount will be included in general and administrative expenses. Concurrent with
the forgiveness of this note, the Company issued the officer a note in the
amount of $143,000 for the purpose of enabling such officer to pay taxes
associated with the forgiveness of the related note. This note bears interest at
a rate of 5.43%, is collateralized by common stock of the Company and is payable
upon the earlier of the occurrence of certain specified events or in August
2002.
Subject to Board of Directors approval, the Company shall effect the merger of
its wholly owned subsidiary Focalink Communications, Inc. into AdKnowledge Inc.
These financial statements have been restated to retroactively give effect to
the merger.
Subject to Board of Directors and shareholder approval, the Company shall effect
the reincorporation of the Company in Delaware which will be accomplished
through a merger of the existing California corporation into a new Delaware
corporation. The ratio of exchange will be one share of the California
corporation to one share of the Delaware corporation. The common and preferred
stock will have a par value of $0.001. All share data has been restated in these
financial statements to retroactively give effect to the reincorporation.
NOTE 13--COMPUTATION OF NET LOSS PER SHARE:
Basic net loss per share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted net income per share is computed giving effect to all dilutive
potential common shares that were outstanding during the period. Dilutive
potential common equivalent shares consist of the incremental common shares
issuable upon exercise of stock options.
F-20
<PAGE> 88
ADKNOWLEDGE INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
A reconciliation of the numerator and denominator of basic and diluted net
income per share is provided as follows:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JULY 10, 1996
(DATE OF
INCEPTION) TO FOR THE SIX MONTHS
DECEMBER 31, YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------- --------------------------- --------------------------
1996 1997 1998 1998 1999
------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Numerator -- Net loss per share,
basic and diluted:
Net Loss.......................... $ (728,969) $(2,914,069) $(10,257,549) $(4,621,416) $(7,671,090)
========== =========== ============ =========== ===========
Denominator -- Net loss per share,
basic and diluted:
Weighted average common shares
outstanding.................... 1,880,729 4,886,242 8,051,461 6,453,335 12,621,474
========== =========== ============ =========== ===========
Net loss per share -- basic and
diluted........................... $ (0.39) $ (0.60) $ (1.27) $ (0.72) $ (0.61)
========== =========== ============ =========== ===========
Denominator -- Proforma Net loss per
share, basic and diluted:
Weighted average common shares
outstanding.................... 8,051,461 12,621,474
Conversion of preferred stock....... 21,094,969 36,715,410
------------ -----------
Proforma weighted average common
shares outstanding................ 29,146,430 49,336,944
============ ===========
Proforma net loss per share, basic
and diluted....................... $ (0.35) $ (0.16)
============ ===========
Options excluded from diluted net
loss per share calculation and
proforma net loss per share
calculation....................... 6250,000 694,442 5,857,497 3,810,348 5,646,827
========== =========== ============ =========== ===========
Warrants excluded from diluted
proforma net loss per share
calculation....................... 924,618 980,173
============ ===========
</TABLE>
F-21
<PAGE> 89
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Focalink Communications, Inc.
In our opinion, the accompanying balance sheet and the related statement of
operations, shareholders' equity and cash flows present fairly, in all material
respects, the financial position of Focalink Communications, Inc. at December
31, 1997, and the results of its operations and cash flows for the year ended
December 31, 1997 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------------------------------
San Jose, California
June 25, 1999
F-22
<PAGE> 90
FOCALINK COMMUNICATIONS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
------------
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 305,995
Accounts receivable, net of allowance for doubtful
accounts of $26,426
at December 31, 1997................................... 237,796
Prepaid expenses and other current assets................. 2,300
------------
Total current assets................................. 546,091
Property and equipment, net................................. 868,367
Other assets................................................ 129,342
------------
Total assets......................................... $ 1,543,800
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 312,461
Accrued payroll and related liabilities................... 58,187
Other accrued liabilities................................. 123,904
Deferred revenue.......................................... 125,845
Capital lease obligations, current........................ 374,782
------------
Total current liabilities............................ 995,179
Capital lease obligations, long-term........................ 515,674
Notes payable, long-term.................................... 5,027,000
------------
6,537,853
------------
Shareholders' equity:
Series A Preferred Stock: $0.001 par value; 2,500,000
shares authorized;
2,500,000 shares issued and outstanding................ 2,500
Series B Preferred Stock: $0.001 par value; 2,700,000
shares authorized;
2,656,250 shares issued and outstanding................ 2,656
Common Stock: $0.001 par value; 11,400,000 shares
authorized;
1,478,949 shares issued and outstanding................ 1,479
Additional paid in capital................................ 5,285,226
Note receivable from shareholder.......................... (10,000)
Accumulated deficit....................................... (10,275,914)
------------
Total shareholders' equity........................... (4,994,053)
------------
Total liabilities and shareholders' equity........... $ 1,543,800
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 91
FOCALINK COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Revenues.................................................... $ 1,213,704
Cost of revenues............................................ 591,448
-----------
Gross profit.............................................. 622,256
Operating Expenses:
Research and development.................................. 3,458,826
Sales and marketing....................................... 2,431,841
General and administrative................................ 676,981
-----------
Total operating expenses.......................... 6,567,648
-----------
Loss from operations........................................ (5,945,392)
Interest income............................................. 26,560
Interest expense............................................ (339,994)
-----------
Net loss.................................................... $(6,258,826)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 92
FOCALINK COMMUNICATIONS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PREFERRED STOCK A PREFERRED STOCK B COMMON STOCK ADDITIONAL
------------------ ----------------------- -------------------- PAID IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------ ---------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997......... 2,500,000 $2,500 2,656,250 $ 2,656 1,820,056 $ 1,821 $5,276,922
Issuance of common stock at
$0.01........................... -- -- -- -- 553,754 553 16,010
Repurchase of common stock at
$0.01 per share-- -- -- -- -- (906,053) (906) (8,154)
Stock options exercised at $0.04
per share-- -- -- -- -- 11,192 11 448
--------- ------ ---------- ---------- ---------- ------- ----------
Balances, December 31, 1997....... 2,500,000 $2,500 2,656,250 $ 2,656 1,478,949 $ 1,479 $5,285,226
========= ====== ========== ========== ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 93
FOCALINK COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
------------
YEARS ENDED
DECEMBER 31,
1997
------------
<S> <C>
CASH FLOWS FROM OPERATIONS:
Net loss.................................................. $(6,258,826)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 372,144
Allowance for doubtful account......................... 26,425
Change in assets and liabilities:
Accounts receivable.................................... (148,379)
Prepaids and other current assets...................... 342,867
Other assets........................................... (72,884)
Accounts payable....................................... 34,698
Deferred revenue....................................... 70,921
Accrued liabilities.................................... 524
-----------
Net cash used in operating activities............. (5,632,510)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (560,746)
-----------
Net cash used in investing activities............. (560,746)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from demand note payable......................... 5,027,000
Payment of demand note payable............................ (4,502)
Payments of principal under capital lease obligations..... 234,904
-----------
Cash provided by financing activities............. 5,257,402
-----------
Net (decrease) increase in cash and cash equivalents........ (935,854)
Cash and cash equivalents at beginning of year.............. 1,241,849
-----------
Cash and cash equivalents at end of year.................... $ 305,995
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Cash paid during the year for:
Interest............................................... $ 339,994
===========
Income tax............................................. $ 1,822
===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING
ACTIVITIES:
Acquisition of fixed assets through capital lease
obligations............................................ $ 462,672
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 94
FOCALINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- FORMATION AND BUSINESS OF THE COMPANY:
The Company
Focalink Communications ("the Company") is a provider of Web-based software
tools for evaluating, placing, and managing advertising campaigns on the Web.
Its main products are Smartbanner, which is a Web advertising campaign
management service and MarketMatch, which is a media planning tool. The Company
is in the development stage and since inception has devoted substantially all of
its efforts to developing its products, raising capital and hiring personnel.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity or
remaining maturity of three months or less at the time of purchase to be cash
equivalents, which include money market funds and commercial paper. The Company
has a certificate of deposit which is the deposit for its current facility.
Concentration of Credit Risk
The Company's cash and cash equivalents as of December 31, 1997 are deposited
with one U.S. financial institution. The balance of such deposits exceeds
federal insured amounts.
Fair Value of Financial Instruments:
The carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities approximate fair value due to their short
maturities. Based upon borrowing rates currently available to the Company for
loans with similar terms, the carrying value of capital lease obligations
approximate fair value.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the related assets, generally three to
five years. Leased assets are amortized on a straight-line basis over the lesser
of the estimated useful life or the lease term. Gains and losses upon asset
disposal are recognized in operations in the year of disposition.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax bases of assets and liabilities, measured at
tax rates that will be in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
Revenue Recognition
Revenues from subscriptions are recognized on a month-to-month basis. Revenues
from contracts are deferred and recognized ratably over the life of the contract
which is generally one year.
F-27
<PAGE> 95
FOCALINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Research and Development Expenditures
Research and development expenditures are charged to operations as incurred.
Advertising
The Company expenses advertising costs as incurred. Advertising costs for 1997
were $1,632,398.
NOTE 3 -- PROPERTY AND EQUIPMENT, NET:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
------------
DECEMBER 31,
1997
------------
<S> <C>
Furniture and fixture....................................... $ 88,010
Computer software and equipment............................. 1,255,911
----------
1,343,921
Less accumulated depreciation and amortization.............. 475,554
----------
$ 868,367
==========
</TABLE>
Property and equipment under capital leases consist of the following:
<TABLE>
<CAPTION>
------------
DECEMBER 31,
1997
------------
<S> <C>
Computer equipment.......................................... $1,158,271
Office equipment............................................ 86,078
----------
1,244,349
Less accumulated amortization............................... 469,979
----------
$ 774,370
==========
</TABLE>
NOTE 4 -- COMMITMENTS AND CAPITAL LEASE OBLIGATIONS:
The Company leases its current facilities under noncancelable operating leases
expiring through December 2002.
The Company has entered into an arrangement with a leasing company whereby the
leasing company reimburses the Company for purchases of property and equipment
through the use of an equipment lease line of credit.
F-28
<PAGE> 96
FOCALINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future minimum payments under these agreements are as follows:
<TABLE>
<CAPTION>
------------------------
OPERATING CAPITAL
LEASES LEASES
1997 1997
---------- ----------
<S> <C> <C>
Year Ended December 31,
1998........................................................ $ 315,531 $ 496,248
1999........................................................ 316,494 470,833
2000........................................................ 317,181 104,581
2001........................................................ 317,181 --
2002........................................................ 289,990 --
---------- ----------
Minimum lease payments...................................... $1,556,377 $1,071,662
Less amount representing interest........................... (181,206)
----------
Present value of minimum lease payments..................... 890,456
Less current portion........................................ (374,782)
----------
Amount due after one year................................... $ 515,674
==========
</TABLE>
The capital lease obligations, which expire through May 2000, are collateralized
by the related assets. Under the terms of the capital lease obligations, the
Company is responsible for taxes, insurance and maintenance costs.
Rent expense was $327,429 for the year ended December 31, 1997.
In conjunction with the capital leases, 29,269 warrants to purchase Series A
preferred stock were outstanding at December 31, 1997, 700,746 warrants to
purchase Series A-1 preferred stock were outstanding at December 31, 1997 and
43,438 warrants to purchase Series B preferred stock were outstanding at
December 31, 1997. These warrants expire on November 30, 2005 and June 30, 2006,
respectively.
NOTE 5 -- SHAREHOLDERS' EQUITY:
Common Stock
The Company had certain restricted stock purchase agreements with certain
employees. Under these agreements, the Company has the right to repurchase any
unvested shares upon termination of employment for a period up to 90 days from
the date of termination. As of December 31, 1997, 404,174 shares are unvested.
The shares will vest through 1999.
Convertible Preferred Stock
Dividends
The holders of shares of Series A and Series B preferred stock are entitled to
receive dividends, out of any assets legally available prior and in preference
to any declaration or payment of any dividend to the common stockholders, at the
rate of $0.0328 and $0.128 per share per annum, respectively or if greater,
amounts equal to dividends paid on the outstanding shares of common stock of the
Company, when and as declared by the Board of Directors. Such dividends are not
cumulative. After payment of the dividend preference, outstanding shares of
Series A and Series B preferred stock shall participate with shares of common
stock as to any additional declaration or payment of any dividend. As of
December 31, 1997, no dividends have been declared.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series A and Series B preferred
stock shall be entitled to receive, prior and in preference to any distribution
of any assets of the Company to the holders of common stock, an amount per share
equal to the sum of (i) $0.41 for each outstanding share of
F-29
<PAGE> 97
FOCALINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Series A preferred stock and $1.60 for each outstanding share of Series B
preferred stock and (ii) an amount equal to declared but unpaid dividends on
such shares. If upon the occurrence of such an event, the assets and funds
distributed among the holders of the Series A and Series B preferred stock shall
be insufficient to permit the payment of preferential amounts, then the entire
assets and funds of the Company legally available for distribution shall be
distributed ratably among the holders of the Series A and Series B preferred
stock in proportion to the aggregate liquidation preference for the shares of
such stock owned by each such holder.
Conversion
Each share of Series A and Series B preferred stock is convertible, at the
option of the holder, into such number of fully paid and nonassessable shares of
common stock as determined by dividing the applicable original issue price by
the conversion price applicable to such share in effect at the date of
conversion. Each share of Series A and Series B preferred stock shall
automatically be converted into shares of common stock immediately upon the
earlier of the closing of a firm commitment under written public offering in
which the public offering results in $10,000,000 or more in gross proceeds to
the Company and the per share price to the public which is at least $5.00. At
December 31, 1997, each share of Series A and Series B preferred stock can be
converted to one share of common stock, subject to adjustments under specific
circumstances. The Company has reserved a total of 5,126,250 shares of common
stock in the event of preferred stock conversion.
Redemption
The Series A and Series B preferred stock is not redeemable.
Voting rights
The holder of each share of Series A and Series B preferred stock is entitled to
one vote for each share of common stock into which such share of preferred stock
is convertible. Fractional voting rights resulting from fractional shares shall
be disregarded.
1995 Stock Option/Stock Issuance Plan
During 1995, the Company adopted the 1995 Stock Option Plan (the "Plan"). The
options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Board of Directors at the time of grant.
Options are granted at an exercise price determined by the Board of Directors.
Stock Purchase Rights may also be granted, either alone, in addition to, or in
tandem with other awards granted under the Plan.
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
OUTSTANDING OPTIONS
---------------------------------------------------
WEIGHTED
SHARES AGGREGATE AVERAGE
AVAILABLE NUMBER OF EXERCISE EXERCISE EXERCISE
FOR GRANT SHARES PRICE PRICE PRICE
---------- --------- ------------- --------- --------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1997................... 255,636 1,057,008 $0.04 - $0.16 $139,825 $0.13
Options reserved............................ 191,983 --
Options granted............................. (134,895) 134,895 0.16 21,583 $0.16
Options exercised........................... -- (11,192) 0.04 (448) 0.04
Options cancelled........................... 257,875 (257,875) 0.04 - 0.16 (32,579) 0.13
---------- --------- --------
Balances, December 31, 1997................. 570,599 922,836 $0.04 - $0.16 128,381 $0.14
========== ========= ========
</TABLE>
As of December 31, 1997, options to purchase 240,047 shares of common stock were
exercisable.
F-30
<PAGE> 98
FOCALINK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information with respect to stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
WEIGHTED
RANGE AVERAGE WEIGHTED WEIGHTED
OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.04 183,667 8.7 $0.04 112,917 $0.04
$0.16 739,169 9.5 $0.16 127,130 $0.16
------- -------
922,836 240,017
======= =======
</TABLE>
The following disclosures concerning the Company's stock option plan are
provided in accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." The Company accounts for the plan in
accordance with APB No. 25 and related Interpretations.
The fair value of each option grant has been estimated on the date of grant
using the minimum value method with the following weighted average assumptions
used for grants in 1997:
<TABLE>
<S> <C>
Risk free interest rate..................................... 6.23%
Expected life............................................... 5 years
</TABLE>
The weighted average fair value of the options granted in 1997 was $0.04.
NOTE 6 -- INCOME TAXES:
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using current tax laws and rates. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
At December 31, 1997, the Company has federal and state net operating loss
carryforwards of approximately $6,390,448 available to offset future regular and
alternative minimum taxable income, if any. These operating loss carryforwards
will expire between 2003 to 2011, if not utilized beforehand.
The difference between the effective tax rates at December 31, 1997 and the
statutory federal income tax rate is due to the operating losses not benefited.
For federal and state tax purposes, a portion of the Company's net operating
loss carryforwards may be subject to certain limitations on annual utilization
in case of a change in ownership, as defined by federal and state tax law.
Temporary differences which give rise to significant portions of deferred tax
assets and liabilities at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
-----------
1997
-----------
<S> <C>
DEFERRED TAX ASSETS AND LIABILITIES:
Net operating loss carryforwards.......................... $ 4,349,000
Capitalized research and development costs................ 86,000
Research and development credit........................... 109,000
Depreciation and amortization............................. (148,000)
Other..................................................... 76,000
-----------
4,472,000
Valuation allowance......................................... (4,472,000)
-----------
$ --
===========
</TABLE>
The Company has established a 100% valuation allowance against the deferred tax
asset due to uncertainties concerning their realization.
F-31
<PAGE> 99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant are as follows. All amounts other than
the SEC registration fee, the NASD filing fees and the Nasdaq National Market
listing fee are estimates.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee........................................ $
NASD filing fee.............................................
Nasdaq National Market listing fee..........................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Printing and engraving......................................
Blue sky fees and expenses (including legal fees)...........
Transfer agent fees.........................................
Miscellaneous...............................................
--------
Total............................................. $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to award,
or a corporation's board of directors to grant, indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933.
As permitted by the Delaware General Corporation Law, the Registrant's Second
Restated Certificate of Incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Registrant or our stockholders, (2) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (3) under section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases), or (4) for any transaction from which
the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the bylaws of the
Registrant provide that (1) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (2) the Registrant
may indemnify its other employees and agents as set forth in the Delaware
General Corporation Law, (3) the Registrant is required to advance expenses, as
incurred, to its directors and executive officers in connection with a legal
proceeding to the fullest extent permitted by the Delaware General Corporation
Law, subject to certain very limited exceptions and (4) the rights conferred in
the bylaws are not exclusive.
The Registrant has entered into indemnification agreements with each of its
directors and executive officers to give such directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
the Registrant's Amended and Restated Certificate of Incorporation and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to Section of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, bylaws and the indemnification
agreements entered into between the Registrant and each of its directors and
executive officers may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act of 1933.
II-1
<PAGE> 101
The Registrant has applied for liability insurance for its officers and
directors.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere in this prospectus:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement (draft dated ,
1999).....................................................
Form of Certificate of Incorporation of Registrant..........
Form of Bylaws of Registrant................................
Form of Indemnification Agreement...........................
Form of Indemnification Agreement...........................
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since August 1,
1996:
(1) The Registrant from time to time has granted stock options to employees and
consultants in reliance upon exemption from registration pursuant to either (1)
Section 4(2) of the Securities Act of 1933 or (2) Rule 701 promulgated under the
Securities Act of 1933. The following table sets forth certain information
regarding such grants:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
--------- --------------
<S> <C> <C>
August 1, 1996 to December 31, 1996......................... 625,000 $ 0.01
January 1, 1997 to December 31, 1997........................ 1,827,255 $0.01 - $0.047
January 1, 1998 to December 31, 1998........................ 6,345,885 $0.06 - $ 0.19
January 1, 1999 to August 12, 1999.......................... 2,303,891 $0.06 - $ 0.50
</TABLE>
For additional information concerning these transactions, please see
"Management -- Benefit Plans" in the prospectus included in this registration
statement.
(2) On September 5, 1996, we issued 525,000 shares of Series A preferred stock
for an aggregate consideration of $105,000.
(3) On March 14, 1997, we issued 5,512,000 shares of Series B preferred stock
for an aggregate consideration of $2,590,640.
(4) On December 31, 1997, we issued to the shareholders of Focalink in
connection with the acquisition of Focalink: 336,909 shares of Common Stock for
an aggregate consideration of $15,892; 569,525 shares of Series C-1 preferred
stock for an aggregate consideration of $468,338.02; 605,122 shares of Series
C-2 preferred stock for an aggregate consideration of $497,610.53; 2,282,730
shares of Series C-3 preferred stock for an aggregate consideration of
$1,877,159.45; warrants to purchase 6,667 shares of Series C-1 preferred stock
in consideration for exchanging Focalink warrants; warrants to purchase 9,894
shares of Series C-2 preferred stock in consideration for exchanging Focalink
warrants; and warrants to purchase 159,636 shares of Series C-3 preferred stock
in consideration for exchanging Focalink warrants.
(5) On March 4, 1998 and March 30, 1998, we issued 14,432,618 shares of Series D
preferred stock for an aggregate consideration of $7,937,940.
(6) On August 26, 1998, we issued a warrant to Phoenix Leasing Incorporated
exercisable for 76,305 shares of common stock at an exercise price of $0.69 per
share in consideration for entering into a loan agreement.
(7) On August 26, 1998, we issued a warrant to Robert A. Kingsbrook exercisable
for 8,479 shares of common stock at an exercise price of $0.69 per share in
consideration for entering into a loan agreement.
(8) On November 30, 1998, we issued a warrant to Comdisco, Inc. exercisable for
72,337 shares of common stock at an exercise price of $0.72715 per share in
consideration for entering into a letter of credit loan agreement.
(9) On November 30, 1998, we issued a warrant to Comdisco, Inc. exercisable for
515,712 shares of common stock at an exercise price of $0.72715 per share in
consideration for entering into a loan agreement.
(10) On December 29, 1998, we issued a warrant to Silicon Valley Bank
exercisable for 33,333 shares of common stock at an exercise price of $0.90 per
share in consideration for entering into a loan agreement.
II-2
<PAGE> 102
(11) On February 10, 1999, we issued a warrant to Comdisco, Inc. exercisable for
55,555 shares of common stock at an exercise price of $0.90 per share in
consideration for entering into an equipment leaseline.
(12) On February 10, 1999, we issued 15,555,557 shares of Series E Preferred
Stock for an aggregate purchase price of $14 million.
The above securities were offered and sold by the Registrant in reliance upon
exemptions from registration pursuant to either (1) Section 4(2) of the
Securities Act of 1933 as transactions not involving any public offering, or (2)
Rule 701 promulgated under the Securities Act of 1933. No underwriters were
involved in connection with the sales of securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger by and among ClickOver, Inc.,
Focalink Acquisition Corporation, Focalink Communications,
Inc., Cupertino National Bank & Trust, Mayfield VII and
Mayfield Associates Fund II, dated November 22, 1997.
3.1* Certificate of Incorporation, as amended.
3.2* Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering.
3.3* Bylaws, as amended.
3.4* Form of Restated Bylaws to be in effect upon the closing of
this offering.
4.1* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Series A Preferred Stock Purchase Agreement, dated September
5, 1996.
10.2 Series B Preferred Stock Purchase Agreement, dated March 14,
1997.
10.3 Series D Preferred Stock Purchase Agreement, dated March 4,
1998.
10.4 Series E Preferred Stock Purchase Agreement, dated February
10, 1999.
10.5 Amended and Restated Investor Rights Agreement, dated
February 10, 1999.
10.6* Senior Loan and Security Agreement between us and Phoenix
Leasing Incorporated, dated August 26, 1998.
10.7* Subordinated Loan and Security Agreement between us and
Comdisco, Inc., dated November 30, 1998.
10.8* L.O.C. Subordinated Loan and Security Agreement between us
and Comdisco, Inc., dated November 30, 1998.
10.9* Master Lease Agreement between us and Comdisco dated
November 30, 1998.
10.10* Loan and Security Agreement between us and Silicon Valley
Bank, dated December 29, 1998.
10.11* Loan and Security Agreement between us, MMC/GATX Partnership
No. 1 and Comdisco, Inc., dated August 20, 1999.
10.12* Lease Agreement between us and Harbor Investment Partners,
dated November 20, 1998.
10.13* Office Lease between us and ADS Bayshore Associates, dated
September 17, 1996.
10.14* Sublease between us and Whitelight Systems, Inc., dated
January 13, 1999.
10.15* Lease between us and Stanford BMW, dated April 25, 1997.
10.16* Lease between us and Bar Building Associates Joint Venture,
dated May 9, 1997, as addended.
10.17* Agreement between us and i-traffic, dated December 23, 1998.
10.18* Form of Employee Confidentiality and Inventions Agreement.
10.19* Form of Indemnification Agreement between us and each of our
directors.
10.20* Form of Indemnification Agreement between us and each of our
officers.
10.21 1996 Stock Option Plan.
10.22 1996 Stock Option Plan Form of Incentive Stock Option
Agreement.
10.23 1996 Stock Option Plan Form of Nonqualified Stock Option
Agreement.
10.24 1996 Stock Option Plan Form of Stock Purchase Agreement.
10.25 1998 Stock Option/Stock Issuance Plan.
</TABLE>
II-3
<PAGE> 103
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.26 1998 Stock Option/Stock Issuance Plan Form of Stock Option
Agreement.
10.27 1998 Stock Option/Stock Issuance Plan Form of Stock Purchase
Agreement.
10.28 1998 Stock Option/Stock Issuance Plan Form of Stock Issuance
Agreement.
10.29 1998 Stock Option/Stock Issuance Plan Form of Notice of
Grant.
23.1 Independent Accountants' Consent.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page on Page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts and Reserves
Schedules other than that listed above are either not required or the
information required to be furnished therein is included elsewhere in the
financial statements.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933 the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424 (b)(1) or (4), or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933 each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Palo Alto, California, on this 27th
day of August, 1999.
ADKNOWLEDGE INC.
By: /s/ SCOTT L. KAUFFMAN
---------------------------------------------
Scott L. Kauffman, President and Chief
Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of AdKnowledge Inc. (the
"Company"), hereby severally constitute and appoint Scott L. Kauffman, with full
powers of substitution and resubstitution, our true and lawful attorney in fact,
with full powers to him to sign for us, in our names and in the capacities
indicated below, the Registration Statement on Form S-1 field with the SEC, and
any and all amendments to said Registration Statement (including post-effective
amendments), and any registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933 in connection with the registration under such Act of
the Company's equity securities, and to file or cause to be filed the same, with
all exhibits thereto and other documents in connection therewith, with the SEC,
granting unto said attorney, and full power and authority to do and perform each
and every act and thing necessary or appropriate to be done in connection
therewith, as fully to all intents and purposes as he might or could do in
person, and hereby ratifying and confirming all that said attorney, or his
substitute or substitutes, shall do or cause to be done by virtue of this Power
Attorney.
Pursuant to the requirements of the Securities Act of 1933 this Registration
Statement has been signed by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
</TABLE>
<TABLE>
/s/ SCOTT L. KAUFFMAN
- --------------------------------------------- President and Chief Executive Officer
Scott L. Kauffman (principal executive officer) and a Director August 27, 1999
<S> <C> <C>
/s/ KIMBERLY A. FINDER
- --------------------------------------------- Secretary and Director of Finance (principal
Kimberly A. Finder financial and accounting officer) August 27, 1999
/s/ PHILIPPE CASES
- ---------------------------------------------
Philippe Cases Director August 27, 1999
/s/ SAMANTHA MCCUEN
- ---------------------------------------------
Samantha McCuen Director August 27, 1999
/s/ STEVEN ESKENAZI
- ---------------------------------------------
Steven Eskenazi Director August 27, 1999
/s/ RUSSELL SIEGELMAN
- ---------------------------------------------
Russell Siegelman Director August 27, 1999
</TABLE>
II-5
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of AdKnowledge Inc.
Our audits of the financial statements referred to in our report dated June 25,
1999 on page F-2 also included an audit of the financial statement schedule
listed in Item 16(b) of this Form S-1. In our opinion, the financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related financial statements.
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 25, 1999
S-1
<PAGE> 106
SCHEDULE II -- PURSUANT TO REGULATION S-X RULE 12-09
ADKNOWLEDGE INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------
DEDUCTIONS
BALANCE AT ADDITIONS ADDITIONS (CHARGES BALANCES
BEGINNING (CHARGES TO (ACQUIRED AGAINST AT END
DESCRIPTION OF PERIOD EXPENSES) RESERVES) RESERVES) OF PERIOD
----------- ---------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For the period from July 10, 1996 (date of
inception)
to December 31, 1996
Allowance for doubtful accounts............... $ -- $ -- $ -- $ -- $ --
==== ==== ==== ==== ====
Year ended December 31, 1997
Allowance for doubtful accounts............... $ -- $ 88 26 $ -- $114
==== ==== ==== ==== ====
Year ended December 31, 1998
Allowance for doubtful accounts............... $114 $199 $ -- $224 $ 89
==== ==== ==== ==== ====
</TABLE>
S-2
<PAGE> 107
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger by and among ClickOver, Inc.,
Focalink Acquisition Corporation, Focalink Communications,
Inc., Cupertino National Bank & Trust, Mayfield VII and
Mayfield Associates Fund II, dated November 22, 1997.
3.1* Certificate of Incorporation, as amended.
3.2* Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering.
3.3* Bylaws, as amended.
3.4* Form of Restated Bylaws to be in effect upon the closing of
this offering.
4.1* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Series A Preferred Stock Purchase Agreement, dated September
5, 1996.
10.2 Series B Preferred Stock Purchase Agreement, dated March 14,
1997.
10.3 Series D Preferred Stock Purchase Agreement, dated March 4,
1998.
10.4 Series E Preferred Stock Purchase Agreement, dated February
10, 1999.
10.5 Amended and Restated Investor Rights Agreement, dated
February 10, 1999.
10.6* Senior Loan and Security Agreement between us and Phoenix
Leasing Incorporated, dated August 26, 1998.
10.7* Subordinated Loan and Security Agreement between us and
Comdisco, Inc., dated November 30, 1998.
10.8* L.O.C. Subordinated Loan and Security Agreement between us
and Comdisco, Inc., dated November 30, 1998.
10.9* Master Lease Agreement between us and Comdisco dated
November 30, 1998.
10.10* Loan and Security Agreement between us and Silicon Valley
Bank, dated December 29, 1998.
10.11* Loan and Security Agreement between us, MMC/GATX Partnership
No. 1 and Comdisco, Inc., dated August 20, 1999.
10.12* Lease Agreement between us and Harbor Investment Partners,
dated November 20, 1998.
10.13* Office Lease between us and ADS Bayshore Associates, dated
September 17, 1996.
10.14* Sublease between us and Whitelight Systems, Inc., dated
January 13, 1999.
10.15* Lease between us and Stanford BMW, dated April 25, 1997.
10.16* Lease between us and Bar Building Associates Joint Venture,
dated May 9, 1997, as addended.
10.17* Agreement between us and i-traffic, dated December 23, 1998.
10.18* Form of Employee Confidentiality and Inventions Agreement.
10.19* Form of Indemnification Agreement between us and each of our
directors.
10.20* Form of Indemnification Agreement between us and each of our
officers.
10.21 1996 Stock Option Plan.
10.22 1996 Stock Option Plan Form of Incentive Stock Option
Agreement.
10.23 1996 Stock Option Plan Form of Nonqualified Stock Option
Agreement.
10.24 1996 Stock Option Plan Form of Stock Purchase Agreement.
10.25 1998 Stock Option/Stock Issuance Plan.
10.26 1998 Stock Option/Stock Issuance Plan Form of Stock Option
Agreement.
10.27 1998 Stock Option/Stock Issuance Plan Form of Stock Purchase
Agreement.
10.28 1998 Stock Option/Stock Issuance Plan Form of Stock Issuance
Agreement.
10.29 1998 Stock Option/Stock Issuance Plan Form of Notice of
Grant.
23.1 Independent Accountants' Consent.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page on Page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CLICKOVER, INC.,
FOCALINK ACQUISITION CORPORATION,
FOCALINK COMMUNICATIONS, INC.,
CUPERTINO NATIONAL BANK & TRUST,
MAYFIELD VII
AND
MAYFIELD ASSOCIATES FUND II
Dated as of November 22, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I THE MERGER........................................................................... 1
1.1 The Merger........................................................................... 1
1.2 Effective Time....................................................................... 2
1.3 Effect of the Merger................................................................. 2
1.4 Articles of Incorporation; Bylaws.................................................... 2
1.5 Directors and Officers............................................................... 2
1.6 Consideration to Be Issued; Effect on Capital Stock.................................. 2
1.7 Surrender of Certificates and Notes.................................................. 6
1.8 Certificate of Focalink Securityholder Agent; Release................................ 8
1.9 No Further Rights in Focalink Capital Stock or Focalink Debt......................... 9
1.10 Waiver of Right to Receive ClickOver Capital Stock................................... 9
1.11 Lost, Stolen or Destroyed Focalink Certificates...................................... 9
1.12 Tax Consequences..................................................................... 9
1.13 Taking of Necessary Action; Further Action........................................... 10
1.14 Definition of Knowledge.............................................................. 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF FOCALINK........................................... 10
2.1 Organization of Focalink............................................................. 10
2.2 Focalink Capital Structure........................................................... 10
2.3 Subsidiaries......................................................................... 11
2.4 Authority............................................................................ 11
2.5 Focalink Financial Statements........................................................ 12
2.6 No Undisclosed Liabilities........................................................... 12
2.7 No Changes........................................................................... 13
2.8 Tax and Other Returns and Reports.................................................... 14
2.9 Restrictions on Business Activities.................................................. 16
2.10 Title to Properties; Absence of Liens and Encumbrances............................... 16
2.11 Intellectual Property................................................................ 16
2.12 Agreements, Contracts and Commitments................................................ 18
2.13 Interested Party Transactions........................................................ 19
2.14 Compliance with Laws................................................................. 19
2.15 Litigation........................................................................... 19
2.16 Insurance............................................................................ 20
2.17 Minute Books......................................................................... 20
2.18 Relationships With Suppliers and Licensors........................................... 20
2.19 Trade Secrets........................................................................ 20
2.20 Environmental Matters................................................................ 20
2.21 Brokers' and Finders' Fees: Third Party Expenses..................................... 22
2.22 Permits and Licenses................................................................. 22
2.23 Employee Matters and Benefit Plans................................................... 22
2.24 Employees............................................................................ 25
2.25 Representation Complete.............................................................. 25
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CLICKOVER AND
MERGER SUB........................................................................... 26
3.1 Organization, Standing and Power..................................................... 26
3.2 Capital Structure.................................................................... 26
3.3 Subsidiaries......................................................................... 27
3.4 Authority............................................................................ 27
3.5 ClickOver Financial Statements....................................................... 28
3.6 No Undisclosed Liabilities........................................................... 28
3.7 No Changes........................................................................... 28
3.8 Tax and Other Returns and Reports.................................................... 30
3.9 Restrictions on Business Activities.................................................. 31
3.10 Title to Properties; Absence of Liens and Encumbrances............................... 32
3.11 Intellectual Property................................................................ 32
3.12 Agreements, Contracts and Commitments................................................ 33
3.13 Interested Party Transactions........................................................ 35
3.14 Compliance with Laws................................................................. 35
3.15 Litigation........................................................................... 35
3.16 Insurance............................................................................ 35
3.17 Minute Books......................................................................... 36
3.18 Relationships With Suppliers and Licensors........................................... 36
3.19 Trade Secrets........................................................................ 36
3.20 Environmental Matters................................................................ 36
3.21 Brokers' and Finders' Fees: Third Party Expenses..................................... 37
3.22 Permits and Licenses................................................................. 37
3.23 Employee Matters and Benefit Plans................................................... 37
3.24 Employees............................................................................ 40
3.25 Representation Complete.............................................................. 40
ARTICLE IV CONDUCT BY FOCALINK PRIOR TO THE EFFECTIVE TIME...................................... 41
4.1 Conduct of Business of Focalink...................................................... 41
4.2 No Solicitation...................................................................... 43
ARTICLE V ADDITIONAL AGREEMENTS................................................................ 44
5.1 Sale of Shares; Shareholder Matters.................................................. 44
5.2 Access to Information................................................................ 46
5.3 Confidentiality...................................................................... 46
5.4 Intellectual Property................................................................ 46
5.5 Expenses............................................................................. 46
5.6 Public Disclosure.................................................................... 47
5.7 Consents............................................................................. 47
5.8 FIRPTA Compliance.................................................................... 47
5.9 Reasonable Efforts................................................................... 47
5.10 Notification of Certain Matters...................................................... 47
5.11 Certain Benefit Plans................................................................ 48
5.12 Voting Agreement..................................................................... 48
5.13 Additional Documents and Further Assurances.......................................... 48
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
5.14 ClickOver Board of Directors......................................................... 48
5.15 Future Amendment to ClickOver Articles............................................... 48
ARTICLE VI CONDITIONS TO THE MERGER............................................................. 48
6.1 Conditions to Obligations of Each Party to Effect the Merger......................... 48
6.2 Additional Conditions to Obligations of Focalink..................................... 49
6.3 Additional Conditions to Obligations of ClickOver.................................... 50
ARTICLE VII ESCROW.................................................................................... 52
7.1 Escrow Period........................................................................ 52
7.2 Escrow Arrangements.................................................................. 52
ARTICLE VIII LIABILITY OF CLICKOVER................................................................... 59
8.1 Claims Against ClickOver............................................................. 59
8.2 Resolution of Conflicts; Arbitration................................................. 60
8.3 Limitation of Liability.............................................................. 60
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.......................................................... 61
9.1 Termination.......................................................................... 61
9.2 Effect of Termination................................................................ 62
9.3 Amendment............................................................................ 62
9.4 Extension; Waiver.................................................................... 62
ARTICLE X GENERAL PROVISIONS.......................................................................... 62
10.1 Survival of Representations, Warranties and Agreements............................... 62
10.2 Notices.............................................................................. 63
10.3 Interpretation....................................................................... 64
10.4 Counterparts......................................................................... 64
10.5 Entire Agreement: Assignment......................................................... 64
10.6 Severability......................................................................... 65
10.7 Other Remedies....................................................................... 65
10.8 Governing Law........................................................................ 65
10.9 Rules of Construction................................................................ 65
10.10 Dispute Resolution................................................................... 65
</TABLE>
iii
<PAGE> 5
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
Exhibit A Form of Amended and Restated Articles of Incorporation
Exhibit B Addresses of holders of Focalink Capital Stock
Exhibit C Form of Shareholder Questionnaire and Release
Exhibit D Form of Shareholder Voting Agreement
Exhibit E Form of Legal Opinion of Counsel to ClickOver
Exhibit F Form of Amendment No. 1 to Investor Rights Agreement
Exhibit G Form of Legal Opinion of Counsel to Focalink
Exhibit H Form of Right of First Refusal Agreement
</TABLE>
iv
<PAGE> 6
INDEX OF FOCALINK SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
1.6(c) List of Warrantholders
1.6(e) List of Debtors
1.14(a) Directors, Officers and Employees with Knowledge
2.2(a) List of Shareholders
2.2(b) List of Option/Warrantholders
2.4 Authority
2.5 Focalink Financials
2.6 No Undisclosed Liabilities
2.7 No Changes
2.8 Tax and Other Returns and Reports
2.10(a) Title to Properties
2.10(b) Absence of Liens and Encumbrances
2.11 Intellectual Property
2.11(c) Proceedings Related to Intellectual Property
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches and Defaults
2.13 Interested Party Transactions
2.15 Litigation
2.16 Insurance
2.19 Trade Secrets
2.20 Environmental Matters
2.21 Brokers and Finders Fees: Third-Party Expenses
2.22 Permits and Licenses
2.23(b) Benefit Plans
2.23(d) Employee Plan Compliance
2.23(g) No Post Employment Obligations
2.23(h)(i)&(ii) Effect of Transaction
2.23(j) Labor
4.1(m) Severance Agreements
5.12 Shareholders Signing Voting Agreements
6.2(c) Third Party Consents Required of Focalink
6.3(j) Focalink Debt
</TABLE>
v
<PAGE> 7
INDEX OF CLICKOVER SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
1.14(b) Directors, Officers and Employees with Knowledge
3.2(a) Shareholder List
3.2(b) Option and Warrant Holder List
3.4 Authority
3.5 ClickOver Financials
3.6 Undisclosed Liabilities
3.7 No Changes
3.8 Tax Returns and Audits
3.9 Restrictions on Business Activities
3.10(a) Leased Real Property
3.10(b) Liens on Property
3.11 Intellectual Property
3.12(a) Agreements, Contracts and Commitments
3.12(b) Alleged Breach of Contracts
3.13 Interested Party Transactions
3.15 Litigation
3.16 Insurance
3.19 Exceptions to Trade Secrets
3.21 Brokers and Finders Fees: Third-Party Expenses
3.22 Permits and Licenses
3.23(b) Employee Plan and Employee Agreements
3.23(d) Employee Plan Compliance
3.23(g) Post Employment Obligations
3.23(h)(i) Effect of Transaction
3.23(h)(ii) Excess Parachute Payments
3.23(j) Labor
6.3(c) Third Party Consents Required of ClickOver
</TABLE>
vi
<PAGE> 8
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of November 22, 1997 by and among ClickOver Inc., a California
corporation ("ClickOver"), Focalink Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of ClickOver ("Merger Sub"), Focalink
Communications, Inc., a California corporation ("Focalink"), Cupertino National
Bank & Trust ("Cupertino"), Mayfield VII and Mayfield Associates Fund II
(together with Mayfield VII, "Mayfield").
RECITALS
A. The Boards of Directors of each of Focalink, ClickOver and Merger
Sub believe it is in the best interests of each company and their respective
shareholders that ClickOver acquire Focalink through the statutory merger of
Merger Sub with and into Focalink (the "Merger"), and in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of Focalink ("Focalink Capital Stock") and all of the debt of
Focalink outstanding immediately prior to the Effective Time not expressly
assumed by ClickOver shall be converted into shares of capital stock of
ClickOver ("ClickOver Capital Stock"), all outstanding options to purchase
Focalink Capital Stock shall be cancelled and all outstanding warrants to
acquire shares of Focalink Capital Stock shall be converted into warrants to
acquire shares of ClickOver Capital Stock.
C. A portion of the shares of ClickOver Capital Stock otherwise
issuable by ClickOver in connection with the Merger shall be placed in escrow by
ClickOver, the release of which amount shall be contingent upon certain events
and conditions, all as set forth in Article VII hereof.
D. ClickOver and Focalink desire to make certain representations and
warranties and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Corporations Code of California ("California Law"),
Merger Sub shall be merged with and
1
<PAGE> 9
into Focalink, the separate corporate existence of Merger Sub shall cease, and
Focalink shall continue as the surviving corporation and as a wholly-owned
subsidiary of ClickOver. Focalink as the surviving corporation after the Merger
is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 9.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than five (5) business days,
following satisfaction or waiver of the conditions set forth in Article VI, at
the offices of Brobeck, Phleger & Harrison LLP, 2200 Geng Road, Palo Alto, CA
94303, unless another place or time is agreed to by ClickOver and Focalink. The
date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing an Agreement or Certificate of Merger (or like
instrument) with the Secretary of State of the State of California (the "Merger
Agreement"), in accordance with the relevant provisions of applicable law (the
time of confirmation by the Secretary of State of the State of California of
such filing being referred to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
Merger Sub and Focalink shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Merger Sub and Focalink shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) Unless otherwise determined by mutual agreement of
ClickOver and Focalink prior to the Effective Time, the Articles of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Articles of Incorporation.
(b) Unless otherwise determined by mutual agreement of
ClickOver and Focalink prior to the Effective Time, the Bylaws of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 Consideration to Be Issued; Effect on Capital Stock. The
consideration to be issued by ClickOver in the Merger shall be the number of
shares of ClickOver Capital Stock
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and the warrants to acquire shares of ClickOver Capital Stock as set forth in
this Section 1.6 (the "Consideration"), all of which shall be delivered to the
holders of Focalink Capital Stock as described in Section 1.7 below. No
adjustment shall be made to the Consideration issued in the Merger as a result
of any cash proceeds received by Focalink from the date hereof to the Effective
Time pursuant to the exercise of options, warrants or other rights to acquire
Focalink Capital Stock. Subject to the terms and conditions of this Agreement,
as of the Effective Time, by virtue of the Merger and without any action on the
part of Focalink or the holder of any shares of Focalink Capital Stock (the
"Focalink Shareholders"), the following shall occur:
(a) Focalink Capital Stock. At the Effective Time, each share
of Focalink Capital Stock issued and outstanding immediately prior to the
Effective Time shall be canceled and extinguished and be converted automatically
into a right to receive shares of ClickOver Capital Stock. Except for the shares
of ClickOver Capital Stock contributed to the Escrow Fund (as defined in Section
7.2(a)) on behalf of the Participating Shareholders (as defined below), at the
Effective Time each holder of Focalink Capital Stock shall be entitled to
receive the number of shares of ClickOver Capital Stock as described below:
(i) Common Stock. Each share of Focalink Common
Stock issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for that number of validly issued, fully paid and
nonassessable shares of ClickOver Common Stock equal to the Exchange Ratio. Each
stock certificate of Focalink evidencing ownership of any such shares of
Focalink Common Stock shall, as of the Effective Time, evidence ownership of
such shares of ClickOver Common Stock, provided, however, that if any holder of
Focalink Common Stock does not have a fully vested interest in such shares of
Focalink Common Stock, then the shares of Clickover Common Stock issuable to the
respective holder shall be subject to the same vesting schedule so that the
number of shares of Common Stock of ClickOver vest in the same proportion as the
number of shares of Focalink which would have vested multiplied by the Exchange
Ratio.
(ii) Preferred Stock. Each share of Focalink Series A
Preferred Stock, Series B Preferred Stock and Series A-1 Preferred Stock issued
and outstanding immediately prior to the Effective Time shall be converted into
and exchanged for that number of validly issued, fully paid and nonassessable
shares of ClickOver Series C-1 Preferred Stock, Series C-2 Preferred Stock and
Series C-3 Preferred Stock, respectively, equal to the Exchange Ratio. Each
stock certificate of Focalink evidencing ownership of any such shares of
Focalink Series A Preferred Stock, Series B Preferred Stock and Series A-1
Preferred Stock shall, as of the Effective Time, evidence ownership of such
shares of ClickOver Series C-1 Preferred Stock, Series C-2 Preferred Stock and
Series C-3 Preferred Stock, respectively. The rights, privileges and preferences
of the ClickOver Series C-1 Preferred Stock, Series C-2 Preferred Stock and
Series C-3 Preferred Stock will be as stated in ClickOver's Amended and Restated
Articles of Incorporation substantially in the form attached hereto as Exhibit A
which shall be filed with the Secretary of State of the State of California
prior to the Closing with any modifications to the amount of the preferences of
the ClickOver Series C-1 Preferred Stock, Series C-2 Preferred Stock and Series
C-3 Preferred
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Stock approved by both the Board of Directors of Focalink and the Board of
Directors of ClickOver (the "Filed Articles").
(b) Focalink Debt. At the Effective Time, all Focalink Debt
(as defined below) outstanding immediately prior to the Effective Time shall be
converted into and exchanged for that number of validly issued, fully paid and
nonassessable shares of ClickOver Series C-3 Preferred Stock equal to the
Exchange Ratio multiplied by the quotient obtained by dividing the total amount
of such Focalink Debt by the Effective Issue Price (as defined below). All of
the promissory notes or similar instruments held by Cupertino and Mayfield
evidencing the Focalink Debt shall, as of the Effective Time, evidence ownership
of such shares of ClickOver Series C-3 Preferred Stock. The rights, privileges
and preferences of the ClickOver Series C-3 Preferred Stock will be as stated in
the Filed Articles.
(c) Warrants. At the Effective Time, the warrants to purchase
shares of Focalink Capital Stock listed on Schedule 1.6(c) then outstanding
(each a "Focalink Warrant") shall be assumed by ClickOver in accordance with the
provisions described below:
(i) At the Effective Time, each Focalink Warrant
shall be, in connection with the Merger, assumed by ClickOver. Each Focalink
Warrant so assumed by ClickOver under this Agreement shall continue to have, and
be subject to, the same terms and conditions set forth in the respective
agreement governing such Focalink Warrant immediately prior to the Effective
Time, except that (A) each such Focalink Warrant to purchase Focalink Series A
Preferred Stock shall be exercisable for that number of whole shares of
ClickOver Series C-1 Preferred Stock equal to the product of the number of
shares of Focalink Series A Preferred Stock that were issuable upon exercise of
such Focalink Warrant immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded to the nearest whole number of shares of ClickOver
Series C-1 Preferred Stock, with one-half share being rounded up, at that
exercise price per share equal to the quotient determined by dividing the
exercise price per share at which such Focalink Warrant was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded to the
nearest whole cent, with one-half cent being rounded up, (B) each such Focalink
Warrant to purchase Focalink Series B Preferred Stock shall be exercisable for
that number of whole shares of ClickOver Series C-2 Preferred Stock equal to the
product of the number of shares of Focalink Series B Preferred Stock that were
issuable upon exercise of such Focalink Warrant immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded to the nearest whole
number of shares of ClickOver Series C-2 Preferred Stock, with one-half share
being rounded up, at that exercise price per share equal to the quotient
determined by dividing the exercise price per share at which such Focalink
Warrant was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded to the nearest whole cent, with one-half cent being rounded up,
and (C) each such Focalink Warrant to purchase Focalink Series A-1 Preferred
Stock shall be exercisable for that number of whole shares of ClickOver Series
C-3 Preferred Stock equal to the product of the number of shares of Focalink
Series A-1 Preferred Stock that were issuable upon exercise of such Focalink
Warrant immediately prior to the Effective Time multiplied by the Exchange
Ratio, rounded to the nearest whole number of shares of ClickOver Series C-3
Preferred Stock, with one-half share being rounded up, at that exercise price
per share equal to the quotient determined by dividing the exercise price per
share at which such Focalink
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Warrant was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded to the nearest whole cent, with one-half cent being rounded up.
(ii) Promptly following the Effective Time, ClickOver
will issue to each holder of an outstanding Focalink Warrant a document
evidencing the foregoing assumption of such Focalink Warrant by ClickOver.
(d) Fractional Shares. No fraction of a share of ClickOver
Capital Stock will be issued in the Merger, but in lieu thereof, each holder of
shares of Focalink Capital Stock or Focalink Debt who would otherwise be
entitled to a fraction of a share of ClickOver Common Stock, Series C-1
Preferred Stock, Series C-2 Preferred Stock or Series C-3 Preferred Stock (after
aggregating all the fractional shares of ClickOver Common Stock, Series C-1
Preferred Stock, Series C-2 Preferred Stock or Series C-3 Preferred Stock by
class and series of such shares to be received by such holder) shall be entitled
to receive, without any interest, from ClickOver an amount of cash (rounded to
the nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the value of one share of ClickOver Common Stock, Series C-1 Preferred
Stock, Series C-2 Preferred Stock or Series C-3 Preferred Stock, as the case may
be. For purposes of this Section only, the value of each share of ClickOver
Common Stock shall be equal to ten percent (10%) of the Series C-3 Liquidation
Price (as defined in the Filed Articles), the value of each share of ClickOver
Series C-1 Preferred Stock shall be equal to the Series C-1 Liquidation Price
(as defined in the Filed Articles), the value of each share of ClickOver Series
C-2 Preferred Stock shall be equal to the Series C-2 Liquidation Price (as
defined in the Filed Articles) and the value of each share of ClickOver Series
C-3 Preferred Stock shall be equal to the Series C-3 Liquidation Price (as
defined in the Filed Articles).
(e) Assumption of Debt. At the Effective Time, ClickOver shall
assume those debts and liabilities, and only those debts and liabilities, of
Focalink listed on Schedule 1.6(e) (the "Assumed Debt").
(f) Stock Options. No options to purchase shares of Focalink
Capital Stock, whether outstanding under Focalink's 1995 Stock Plan (the
"Focalink Plan") or otherwise (each a "Focalink Option"), shall be assumed by
ClickOver in the Merger and all such Focalink Options shall be cancelled and
extinguished as of the Effective Time without any action on the part of
Focalink, ClickOver or any holder of a Focalink Option.
(g) Definitions.
(A) ClickOver Total Shares. The "ClickOver
Total Shares" shall mean that number of shares of Clickover Capital Stock that
are outstanding immediately prior to the Effective Time, plus that number of
shares of ClickOver Capital Stock issuable upon exercise of all options and
warrants to purchase ClickOver Capital Stock that are outstanding immediately
prior to the Effective Time.
(B) Focalink Total Shares. The "Focalink
Total Shares" shall mean that number of shares of Focalink Capital Stock that
are outstanding immediately prior
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to the Effective Time, plus that number of shares of Focalink Capital Stock
issuable upon exercise of all Focalink Options that are outstanding at the close
of business on the day immediately preceding the Closing Date, plus that number
of shares of Focalink Capital Stock issuable upon exercise of all Focalink
Warrants outstanding immediately prior to the Effective Time, plus that number
of shares of Focalink Capital Stock that would have been issued and outstanding
immediately prior to the Effective Time if all of the Focalink Debt had been
converted into Focalink Capital Stock at the Effective Issue Price immediately
prior to the Effective Time.
(C) Focalink Debt. The "Focalink Debt" shall
mean all of the outstanding principal plus all accrued but unpaid interest,
whether matured or unmatured, owing by Focalink to Cupertino and/or Mayfield
immediately prior to the Effective Time other than the Assumed Debt.
(D) Exchange Ratio. The "Exchange Ratio"
shall mean the quotient obtained by dividing (x) 0.25 times the ClickOver Total
Shares by (y) 0.75 times the Focalink Total Shares.
(E) Effective Issue Price. The "Effective
Issue Price" shall be the price per share at which shares of Focalink Capital
Stock would be issued to enable a holder of $2,000,000 of the Focalink Debt to
receive twenty-five percent (25%) of the total Focalink Capital Stock
outstanding immediately prior to the Effective Time (including in the
calculation of such Focalink Capital Stock all shares of Focalink Capital Stock
issuable upon exercise of all outstanding options and warrants to acquire
Focalink Capital Stock), if all of such Focalink Debt were converted into shares
of Focalink Capital Stock immediately prior to the Effective Time.
(F) Escrow Amount. The "Escrow Amount" shall
be that number of shares of ClickOver Common Stock equal to 0.20 times the total
number of shares of ClickOver Common Stock issued at the Closing to the
Participating Shareholders (as defined below) plus that number of shares of
Preferred Stock of ClickOver equal to 0.20 times the total number of shares of
Preferred Stock of ClickOver issued at the Closing to the Participating
Shareholders, excluding shares issuable upon exercise of Focalink Warrants
assumed by ClickOver.
(G) Participating Shareholders. The
"Participating Shareholders" shall be Mayfield and those shareholders of
Focalink Capital Stock who have consented to depositing their proportionate
share of the Escrow Amount into the Escrow Fund, provided, however, that
Cupertino shall not be obligated to deposit any shares of ClickOver Capital
Stock it receives in the Merger into the Escrow Fund.
1.7 Surrender of Certificates and Notes.
(a) ClickOver to Provide Capital Stock. Promptly after the
Effective Time, ClickOver shall make available the aggregate number of shares of
ClickOver Capital Stock issuable pursuant to Section 1.6 in exchange for
outstanding shares of Focalink Capital Stock
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and the Focalink Debt; provided that, on behalf of the Participating
Shareholders, ClickOver shall deposit into an escrow account a number of shares
of ClickOver Capital Stock equal to the Escrow Amount out of the aggregate
number of shares of ClickOver Capital Stock otherwise issuable to such
Participating Shareholders pursuant to Section 1.6.
(b) Exchange Procedures.
(i) Focalink Capital Stock. Prior to the Effective
Time, each Focalink Shareholder shall surrender to ClickOver, or to such other
agent or agents as may be appointed by ClickOver, all certificate(s)
representing shares of Focalink Capital Stock (the "Focalink Certificates") duly
completed and validly executed in accordance with the instructions thereto. Upon
surrender of all Focalink Certificates for cancellation the holder of each
Focalink Certificate shall be entitled to receive in exchange therefore
certificate(s) representing the number of whole shares of ClickOver Capital
Stock plus cash in lieu of fractional shares in accordance with Section 1.6,
less, in the case of each Participating Shareholder, the number of shares of
ClickOver Capital Stock to be deposited in the Escrow Fund on such Participating
Shareholder's behalf pursuant to Article VII. Subject to the provisions of
Section 1.7(b)(iii) below, as soon as practicable after the Effective Time
ClickOver shall cause to be mailed to each Focalink Shareholder to the
respective address listed on Exhibit B a certificate or certificates
representing the shares of ClickOver Capital Stock (the "ClickOver
Certificates") issuable to such Focalink Shareholder in the Merger; thereafter
the Focalink Certificates so surrendered shall be canceled.
(ii) Focalink Debt. Prior to or at the Effective
Time, Cupertino and Mayfield shall each surrender to ClickOver, or to such other
agent or agents as may be appointed by ClickOver, for cancellation any evidence
of the Focalink Debt (the "Focalink Notes") or shall execute an instrument of
cancellation in form and substance acceptable to ClickOver. In addition,
Cupertino and Mayfield shall each deliver to ClickOver a properly executed Form
UCC-2 termination statement and any other documents required to release any
security interest that Cupertino and/or Mayfield may have in any of the assets
of Focalink. Upon surrender of all Focalink Notes for cancellation, Cupertino
and Mayfield shall each be entitled to receive in exchange therefore
certificate(s) representing the number of whole shares of ClickOver Capital
Stock plus cash in lieu of fractional shares in accordance with Section 1.6,
less, in the case of Mayfield, the number of shares of ClickOver Capital Stock
to be deposited in the Escrow Fund on Mayfield's behalf pursuant to Article VII.
Subject to the provisions of Section 1.7(b)(iii) below, as soon as practicable
after the Effective Time ClickOver shall cause to be mailed to Cupertino and
Mayfield to the respective address listed in Section 10.2 the ClickOver
Certificates issuable to them in the Merger in exchange for the cancellation of
the Focalink Debt; thereafter the Focalink Notes so surrendered shall be
canceled.
(iii) Deposit of Escrow Amount. As soon as
practicable after the Effective Time, and subject to and in accordance with the
provisions of Article VII hereof, ClickOver shall cause to be distributed to the
Escrow Agent (as defined in Article VII) a certificate or certificates
representing the number of shares of ClickOver Capital Stock equal to the Escrow
Amount, which certificate or certificates shall be registered in the name of the
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Escrow Agent. Such shares shall be beneficially owned by the Participating
Shareholders on whose behalf such shares were deposited in the Escrow Fund and
shall be available to compensate ClickOver as provided in Article VII.
(c) Distributions with Respect to Unexchanged Shares or Notes.
No dividends or other distributions with respect to ClickOver Capital Stock
declared or made after the Effective Time and with a record date after the
Effective Time will be paid to the holder of any unsurrendered Focalink
Certificate or Focalink Note with respect to the shares of ClickOver Capital
Stock represented thereby until the holder of record of such Focalink
Certificate or Focalink Note shall surrender such Focalink Certificate or
Focalink Note. Subject to applicable law, following surrender of any such
Focalink Certificate or Focalink Note, there shall be paid to the record holder
of the ClickOver Certificates representing whole shares of ClickOver Capital
Stock issued in exchange therefore, without interest, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such whole shares
of ClickOver Capital Stock.
(d) Transfers of Ownership. If any ClickOver Certificate is to
be issued in a name other than that in which the Focalink Certificate or
Focalink Note surrendered in exchange therefore is registered, it will be a
condition of the issuance thereof that the Focalink Certificate or Focalink Note
so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange will have paid to
ClickOver or any agent designated by it any transfer or other taxes required by
reason of the issuance of a ClickOver Certificate in any name other than that of
the registered holder of the Focalink Certificate or Focalink Note surrendered,
or established to the satisfaction of ClickOver or any agent designated by it
that such tax has been paid or is not payable.
(e) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, neither ClickOver nor any other party to this Agreement shall
be liable to a holder of shares of ClickOver Capital Stock or Focalink Capital
Stock or Focalink Note for any amount not distributed to such holder if such
holder fails to present his or her Focalink Certificate or Focalink Note to
ClickOver for exchange within two (2) years after the Effective Time.
1.8 Focalink Certificate; Release.
(a) Certificate. At or prior to the Closing, Focalink shall
deliver to ClickOver a certificate signed on behalf of Focalink by the chief
executive office and chief financial officer of Focalink (the "Focalink
Certificate") identifying each of the holders of Focalink Capital Stock,
Focalink Warrants and the Focalink Debt and the portion of the Consideration
that each such holder is entitled to receive pursuant to Section 1.6 above.
ClickOver shall be entitled to rely without investigation on the information set
forth in the Focalink Certificate in delivering the Consideration to the holders
of Focalink Capital Stock, Focalink Warrants and the Focalink Debt.
Notwithstanding anything to the contrary in this Agreement, ClickOver shall not
be obligated to deliver any portion of the Consideration to the holders of
Focalink Capital Stock, Focalink Warrants and/or the Focalink Debt unless and
until Focalink shall have delivered the Focalink Certificate to ClickOver.
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(b) Release. Focalink, for itself, and each of its officers,
directors, shareholders, partners, agents, administrators, representatives,
affiliates, predecessors in interest, successors and assigns, hereby
unconditionally and forever releases and discharges ClickOver, each of its
subsidiaries (including the Surviving Corporation), and each of their respective
officers, directors, stockholders, partners, agents, administrators,
representatives, affiliates, predecessors in interest, successors and assigns
(the "Released Parties") of and from any and all claims, causes of action,
liabilities, obligations, costs and expenses of every kind and nature
whatsoever, at law or in equity, whether contractual, common law, statutory,
federal, state or otherwise, known or unknown, suspected or unsuspected, direct
or derivative, which now exists or may exist at any time in the future based
upon or relating in any manner to the amount of the Consideration pursuant to
Section 1.6 or any dispute with respect to the interpretation of the manner in
which the Consideration is to be distributed pursuant to Section 1.7. This
release shall not apply to ClickOver's obligation to deliver the Consideration
to the holders of Focalink Capital Stock, Focalink Warrants and the Focalink
Debt in accordance with the information contained in the Focalink Certificate.
1.9 No Further Rights in Focalink Capital Stock or Focalink Debt. All
shares of ClickOver Capital Stock issued upon the surrender for exchange of
shares of Focalink Capital Stock and the Focalink Debt in accordance with the
terms hereof (including any cash paid in respect thereof) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Focalink Capital Stock and all rights associated with such Focalink Debt, and
there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Focalink Capital Stock or any amounts of
Focalink Debt which were outstanding immediately prior to the Effective Time.
1.10 Waiver of Right to Receive ClickOver Capital Stock. If Focalink
Certificates or Focalink Notes are presented to ClickOver for any reason within
two (2) years after the Effective Time, the Focalink Certificates and Focalink
Notes shall be canceled and exchanged as provided in this Article 1. Each holder
of a Focalink Certificate or a Focalink Note waives any right to have ClickOver,
and ClickOver shall have no obligation to, exchange any Focalink Certificate or
Focalink Note presented to ClickOver more than two (2) years after the Effective
Time.
1.11 Lost, Stolen or Destroyed Focalink Certificates. In the event any
Focalink Certificates shall have been lost, stolen or destroyed, ClickOver shall
issue in exchange for such lost, stolen or destroyed Focalink Certificates, upon
the making of an affidavit of that fact by the holder thereto, such shares of
ClickOver Capital Stock and cash for a fractional share, if any, as may be
required pursuant to Section 1.6; provided, however, that ClickOver may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Focalink Certificates to deliver a bond
in such sum as it may reasonably direct as indemnity against any claim that may
be made against ClickOver with respect to the Focalink Certificates alleged to
have been lost, stolen or destroyed.
1.12 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code.
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1.13 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Merger Sub and Focalink, the officers and directors of
Merger Sub and Focalink are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
1.14 Definition of Knowledge. The term "Knowledge of Focalink" shall
mean the actual knowledge at or prior to the Closing and that knowledge which
they should, as reasonably prudent business persons, have acquired and
maintained, of those directors, officers and employees of Focalink set forth on
Schedule 1.14(a). The term "Knowledge of ClickOver" shall mean the actual
knowledge at or prior to the Closing and that knowledge which they should, as
reasonably prudent business persons, have acquired and maintained, of those
directors, officers and employees of ClickOver set forth on Schedule 1.14(b).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FOCALINK
Focalink hereby represents and warrants to ClickOver and Merger Sub,
subject to such exceptions as are specifically disclosed in the disclosure
letter (referencing the appropriate schedule or section number) supplied by
Focalink to ClickOver (the "Focalink Schedules") and dated as of the date
hereof, as follows:
2.1 Organization of Focalink. Focalink is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Focalink has the corporate power to own, operate and lease its properties and to
carry on its business as now being conducted. Focalink is duly qualified or
licensed to conduct its business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have, or would reasonably be expected to have, a material adverse effect on the
business, assets (including intangible assets), financial condition, results of
operations, liabilities or prospects of Focalink (hereinafter referred to as a
"Material Adverse Effect on Focalink"). Focalink has delivered a true and
correct copy of its Articles of Incorporation and Bylaws, each as amended to
date, to ClickOver.
2.2 Focalink Capital Structure.
(a) The authorized capital stock of Focalink consists of
11,400,000 shares of Common Stock, and 8,200,000 shares of Preferred Stock, of
which 2,500,000 shares are designated as Series A Preferred Stock, 2,700,000
shares are designated as Series B Preferred Stock and 3,000,000 shares are
designated as Series A-1 Preferred Stock. As of the date hereof, there are
1,472,699 shares of Common Stock outstanding, 2,500,000 shares of Series A
Preferred Stock outstanding, 2,656,250 shares of Series B Preferred Stock
outstanding and no shares of Series A-1 Preferred Stock outstanding. Focalink
Capital Stock is held of record
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<PAGE> 18
by the persons, with the addresses of record and in the amounts set forth on
Schedule 2.2(a). All outstanding shares of Focalink Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
Focalink or any agreement to which Focalink is a party or by which it is bound.
(b) Focalink has reserved 1,537,187 shares of Common Stock for
issuance to employees and consultants pursuant to the Focalink Plan, of which
922,836 shares are subject to outstanding, unexercised options, 570,599 shares
remain available for future grant and 43,752 shares have been issued pursuant to
the exercise of options issued under the Focalink Plan. Focalink has reserved
(i) no shares of Common Stock for issuance upon exercise of outstanding Focalink
Options granted outside the Focalink Plan and (ii) 773,453 shares of Focalink
Capital Stock for issuance upon exercise of the Focalink Warrants. Schedule
2.2(b) sets forth for each outstanding Focalink Option and Focalink Warrant, the
name of the holder of such Focalink Option or Focalink Warrant, the domicile
address of such holder, the number of shares of Focalink Capital Stock subject
to such Focalink Option or Focalink Warrant, the exercise price of such Focalink
Option and Focalink Warrant and the vesting schedule for such Focalink Option
and Focalink Warrant, including the extent vested to date and whether the
exercisability of such Focalink Option and Focalink Warrant will be accelerated
and become exercisable by reason of the transactions contemplated by this
Agreement. Except for the Focalink Options and Focalink Warrants described in
Schedule 2.2(b), there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which Focalink is a party or by
which it is bound obligating Focalink to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of Focalink or obligating Focalink to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. The holders of
Focalink Options and Focalink Warrants have been or will be given, or shall have
properly waived, any required notice prior to the Merger, and all such rights
will be terminated at or prior to the Effective Time. As a result of the Merger,
ClickOver will be the record and sole beneficial owner of all capital stock of
Focalink and rights to acquire or receive such capital stock.
2.3 Subsidiaries. Focalink does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority. Subject only to the requisite approval of the Merger and
this Agreement by the Focalink Shareholders, Focalink has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The vote required of the Focalink Shareholders
to duly approve the Merger and this Agreement is (i) a majority of all issued
and outstanding Focalink Capital Stock, and (ii) greater than 50% of each class
of all issued and outstanding Focalink Capital Stock. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Focalink, subject only to the approval of the Merger and this Agreement by the
Focalink
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Shareholders. Focalink's Board of Directors has unanimously approved the Merger
and this Agreement. This Agreement has been duly executed and delivered by
Focalink and constitutes the valid and binding obligation of Focalink,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies. Except as set forth on Schedule 2.4, subject
only to the approval of the Merger and this Agreement by Focalink's
shareholders, the execution and delivery of this Agreement by Focalink does not,
and, as of the Effective Time, the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the Articles
of Incorporation or Bylaws of Focalink or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Focalink or its properties or assets. No consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other federal, state,
country, local or foreign governmental authority, instrumentality, agency or
commission ("Governmental Entity") or any third party (so as not to trigger any
Conflict) is required by or with respect to Focalink in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Merger Agreement with the
California Secretary of State, (ii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and (iii) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Schedule 2.4.
2.5 Focalink Financial Statements.
(a) Schedule 2.5 sets forth (i) Focalink's audited balance
sheet as of December 31, 1996 (the "Focalink Balance Sheet"), and the related
audited statements of operations and cash flows for the twelve-month period then
ended, and (ii) Focalink's unaudited balance sheet as of October 31, 1997 and
the related unaudited statements of operations and cash flows for the ten-month
period then ended (collectively, the "Focalink Financials"). The Focalink
Financials are correct in all material respects and have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
basis consistent throughout the periods indicated and consistent with each
other. The Focalink Financials present fairly the financial condition and
operating results of Focalink as of the dates and during the periods indicated
therein, subject to normal year-end adjustments, which adjustments will not be
material in amount or significance.
2.6 No Undisclosed Liabilities. To the Knowledge of Focalink, except as
set forth in Schedule 2.6, Focalink does not have any liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (whether or
not required to be reflected in financial statements in
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accordance with GAAP), which individually or in the aggregate, has not been
reflected in the Focalink Financials.
2.7 No Changes. Except as set forth in Schedule 2.7, since the date of
the Focalink Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by Focalink except in the ordinary course of
business as conducted on the date of the Focalink Balance Sheet and consistent
with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of Focalink;
(c) capital expenditures or commitments by Focalink, either
individually or in the aggregate, exceeding $10,000;
(d) destruction of, damage to or loss of any material assets,
business or customers of Focalink (whether or not covered by insurance);
(e) labor trouble or claims of wrongful discharge or other
unlawful labor practices or actions;
(f) resignation or termination of any key officers or
employees of Focalink, and to the Knowledge of Focalink, no impending
resignation or termination of employment of any such officer or employee;
(g) revaluation by Focalink of any of its assets;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of Focalink, or any direct
or indirect redemption, purchase or other acquisition by Focalink of any
Focalink Capital Stock;
(i) sale, lease, license or other disposition of any of the
assets or properties of Focalink, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(j) except as contemplated herein, amendment or termination of
any material contract, agreement or license to which Focalink is a party or by
which it is bound;
(k) loans by Focalink to any person or entity, incurring by
Focalink of any indebtedness, guaranteeing by Focalink of any indebtedness,
issuance or sale of any debt securities of Focalink or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(l) waiver or release of any right or claim of Focalink,
including any write-off or other compromise of any account receivable of
Focalink;
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(m) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of Focalink or its affairs;
(n) notice of any claim of ownership by a third party of any
Focalink Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by Focalink of any third party's intellectual property rights;
(o) issuance or sale by Focalink of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefore,
or of any other of its securities;
(p) change in pricing or royalties set or charged by Focalink
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Focalink Intellectual Property Rights to Focalink;
(q) event or condition of any character that has had or could
be reasonably expected to have a Material Adverse Effect on Focalink; or
(r) negotiation or agreement by Focalink or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (q) (other than negotiations with ClickOver and its representatives
regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or, collectively, "Taxes" means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, exercise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in
Schedule 2.8:
(i) Focalink as of the Effective Time will have
prepared and filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
all Taxes concerning or attributable to Focalink or its operations and such
Returns are true and correct in all material respects and have been completed in
accordance with applicable law.
(ii) Focalink as of the Effective Time: (A) will have
paid or accrued all material Taxes it is required to pay or accrue and (B) will
have withheld with respect to its employees all material federal and state
income taxes, FICA, FUTA and other material Taxes required to be withheld.
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(iii) Focalink has not been delinquent in the payment
of any Tax nor is there any material Tax deficiency outstanding, proposed or
assessed against Focalink, nor has Focalink executed any waiver of any statute
of limitations on or extending the period for the assessment or collection of
any Tax.
(iv) To the Knowledge of Focalink, no audit or other
examination of any Return of Focalink is currently in progress, nor has Focalink
been notified of any request for such an audit or other examination.
(v) Focalink does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against in accordance with GAAP on the Focalink Balance Sheet, whether asserted
or unasserted, contingent or otherwise, and to the Knowledge of Focalink, is
unaware of any basis of the assertion of any such liability attributable to
Focalink, its assets or operations.
(vi) Focalink has provided to ClickOver copies of all
federal and state income and all state sales and use Tax Returns for all periods
since the date of Focalink's incorporation.
(vii) There are (and as of immediately following the
Effective Time there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("Liens") on the assets of Focalink
relating to or attributable to Taxes, except for liens for Taxes not yet due and
payable.
(viii) To the Knowledge of Focalink, there is no
basis for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of Focalink.
(ix) None of Focalink's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of
Focalink that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G of the Code.
(xi) Focalink has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by Focalink.
(xii) Focalink is not a party to a tax sharing or
allocation agreement nor does Focalink owe any amount under any such agreement.
(xiii) Focalink is not, and has not been at any time,
a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
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(xiv) Focalink's tax basis in its assets for purposes
of determining its future amortization, depreciation and other federal income
tax deductions is accurately reflected on Focalink's tax books and records.
2.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which Focalink is a party or otherwise binding upon Focalink which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of Focalink, any acquisition of property (tangible or
intangible) by Focalink or the conduct of business by Focalink. Without limiting
the foregoing, Focalink has not entered into any agreement under which Focalink
is restricted from selling, licensing or otherwise distributing any of its
products or services to any class of customers, in any geographic area, during
any period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) Focalink does not own any real property, nor has it ever
owned any real property. Schedule 2.10(a) sets forth a list of all real property
currently leased by Focalink, the name of the lessor, the date of the lease and
each amendment thereto and, with respect to any current lease, the aggregate
annual rental and/or other fees payable under any such lease. All such current
leases are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) Focalink has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
and intangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens (as defined in Section
2.8(b)(vii)), except as reflected in the Focalink Financials or in Schedule
2.10(b) and except for liens for Taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
2.11 Intellectual Property.
(a) Focalink owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights, and any applications therefore, and tangible or intangible
proprietary information or material that are used in the business of Focalink as
currently conducted or as proposed to be conducted by Focalink (the "Focalink
Intellectual Property Rights").
(b) Schedule 2.11 sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefore, included in Focalink
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Focalink Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all
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registered owners. Schedule 2.11 sets forth a complete list of all licenses,
sublicenses and other agreements as to which Focalink is a party and pursuant to
which Focalink or any other person is authorized to use any Focalink
Intellectual Property Right (excluding object code end user licenses granted to
end-users in the ordinary course of business that permit use of software
products without a right to modify, distribute or sublicense the same ("End-User
Licenses")) or trade secret of Focalink, and includes the identity of all
parties thereto, a description of the nature and subject matter thereof, the
applicable royalty or other fees and the term thereof. The execution and
delivery of this Agreement by Focalink, and the consummation of the transactions
contemplated hereby, will neither cause Focalink to be in violation or default
under any such license, sublicense or agreement, nor entitle any other party to
any such license, sublicense or agreement to terminate or modify such license,
sublicense or agreement. Except as set forth in Schedule 2.11, Focalink is the
sole and exclusive owner or licensee of, with all right, title and interest in
and to (free and clear of any liens or encumbrances), Focalink Intellectual
Property Rights, and has sole and exclusive rights (and is not contractually
obligated to pay any compensation to any third party in respect thereof) to the
use thereof or the material covered thereby in connection with the services or
products in respect to which Focalink Intellectual Property Rights are being
used.
(c) Except as set forth on Schedule 2.11(c), no claims with
respect to Focalink's Intellectual Property Rights have been asserted or are, to
the Knowledge of Focalink, threatened by any person, nor are there any valid
grounds for any bona fide claims, (i) to the effect that the manufacture, sale,
licensing or use of any of the products of Focalink infringes on any copyright,
patent, trade mark, service mark, trade secret or other proprietary right, (ii)
against the use by Focalink of any trademarks, service marks, trade names, trade
secrets, copyrights, maskworks, patents, technology, know-how or computer
software programs and applications used in Focalink's business as currently
conducted or as proposed to be conducted by Focalink, or (iii) challenging the
ownership by Focalink, validity or effectiveness of any of Focalink Intellectual
Property Rights. All registered trademarks, service marks and copyrights held by
Focalink are valid and subsisting. Focalink has not infringed, and to the
Knowledge of Focalink, the business of Focalink as currently conducted or as
proposed to be conducted does not infringe, any copyright, patent, trademark,
service mark, trade secret or other proprietary right of any third party. To the
Knowledge of Focalink, there is no material unauthorized use, infringement or
misappropriation of any of Focalink Intellectual Property Rights by any third
party, including any employee or former employee of Focalink. No Focalink
Intellectual Property Right or product of Focalink is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the licensing
thereof by Focalink. Each employee, consultant or contractor of Focalink has
executed a proprietary information and confidentiality agreement substantially
in Focalink's standard form, a copy of which Focalink has delivered to
ClickOver. All software included in Focalink Intellectual Property Rights is
original with Focalink and has been either created by employees of Focalink, by
consultants or contractors on a work-for-hire basis or by consultants or
contractors who have created such software themselves and have assigned all
rights they may have had in such software to Focalink.
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2.12 Agreements, Contracts and Commitments.
(a) Except as set forth on Schedule 2.12(a), Focalink does not
have, is not a party to nor is it bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, pension,
profit sharing or retirement plans, or any other employee benefit plans or
arrangements;
(iv) any employment or consulting agreement, contract
or commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to Focalink;
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased or accrue, or the
vesting of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any benefits
which will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any material agreement, contract or commitment
under which it has limited or restricted its right to compete with any person in
any material respect;
(viii) any agreement of indemnification or guaranty;
(ix) any agreement, contract or commitment containing
any covenant limiting the freedom of Focalink to engage in any line of business
or to compete with any person;
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $10,000;
(xi) any agreement, contract or commitment relating
to the disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of Focalink's business (except for the
transactions provided for in this Agreement);
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(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other arrangements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof;
(xiii) any purchase order or contract for the
purchase of raw materials involving $10,000 or more;
(xiv) any distribution, joint marketing or
development agreement;
(xv) any assignment, license or other agreement with
respect to any form of intangible property; or,
(xvi) any other agreement, contract or commitment
that involves $10,000 or more or is not cancelable without penalty within thirty
(30) days.
(b) Except for such alleged breaches, violations and defaults,
and events that would constitute a breach, violation or default with the lapse
of time, giving of notice, or both, all of which are noted in Schedule 2.12(b),
Focalink has not materially breached, violated or defaulted under, or received
notice that it has materially breached, violated or defaulted under, any of the
terms or conditions of any agreement, contract or commitment required to be set
forth on Schedule 2.11 or Schedule 2.12(a) (any such agreement, contract or
commitment, a "Focalink Contract"). Each Focalink Contract is in full force and
effect and, except as otherwise disclosed in Schedule 2.12(b), to the Knowledge
of Focalink is not subject to any default thereunder by any party obligated to
Focalink pursuant thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, no officer, director or shareholder of Focalink (nor any ancestor,
sibling, descendant or spouse of any of such persons, or any trust, partnership
or corporation in which any of such persons has or has had an interest), has or
has had, directly or indirectly, (i) an economic interest in any entity which
furnished or sold, or furnishes or sells, services or products that Focalink
furnishes or sells or proposes to furnish or sell, (ii) an economic interest in
any entity that purchases from or sells or furnishes to Focalink any goods or
services or (iii) a beneficial interest in any contract or agreement set forth
in Schedule 2.11 or Schedule 2.12(a); provided, that ownership of no more than
one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "economic interest in any entity" for
purposes of this Section 2.13.
2.14 Compliance with Laws. Focalink has complied in all material
respects with, is not in material violation of, and has not received any notices
of material violation with respect to, any foreign, federal, state or local
statute, law or regulation.
2.15 Litigation. To the Knowledge of Focalink, except as set forth in
Schedule 2.15 there is no action, suit or proceeding of any nature pending or
threatened against Focalink, its properties or any of its officers or directors,
in their respective capacities as such. To the Knowledge of Focalink, except as
set forth in Schedule 2.15 there is no investigation pending or threatened
against Focalink, its properties or any of its officers or directors by or
before
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any governmental entity. To the Knowledge of Focalink, Schedule 2.15 sets forth,
with respect to any pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages, claims or other remedy requested. To the Knowledge of
Focalink, no governmental entity has at any time challenged or questioned the
legal right of Focalink to conduct its business as it is currently being
conducted.
2.16 Insurance. All insurance policies maintained by Focalink are
identified in Schedule 2.16 and are valid and enforceable, and there is no claim
by Focalink pending under any of such policies as to which coverage has been
questioned, denied or disputed by the underwriters of such policies. All
premiums due and payable under all such policies have been paid and Focalink is
otherwise in material compliance with the terms of such policies. To the
Knowledge of Focalink, there is no threatened termination of, or material
premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of Focalink made available to
counsel for ClickOver are the only minute books of Focalink and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and shareholders or actions by written consent since the time of incorporation
of Focalink. Focalink is in full compliance with all of the terms and provisions
of its Articles of Incorporation and Bylaws.
2.18 Relationships With Suppliers and Licensors. No current supplier to
Focalink has notified it of an intention to terminate or substantially alter its
existing business relationship with Focalink nor has any licensor under a
license agreement with Focalink notified Focalink of an intention to terminate
or substantially alter Focalink's rights under such license.
2.19 Trade Secrets. Focalink has taken reasonable security measures to
protect the confidentiality of its trade secrets. All current and past employees
or consultants of Focalink, who, either alone or in concert with others,
developed, invented, discovered, derived, programmed or designed such trade
secrets, or who have or had access to information disclosing such trade secrets,
have entered into confidentiality and non-disclosure agreements with Focalink
(the "Focalink Trade Secret Agreements"). Any exception which has been taken to
the Focalink Trade Secrets Agreements (for example an employee or consultant
excluding a prior invention) is described in Schedule 2.19, including the
exception taken and the employee taking such exception. To the Knowledge of
Focalink, neither Focalink, nor its employees or its consultants have caused any
of Focalink's trade secrets to become part of the public knowledge or
literature, nor has Focalink, its employees or consultants permitted any such
trade secrets to be used, divulged or appropriated for the benefit of persons to
the material detriment of Focalink.
2.20 Environmental Matters.
(a) Focalink is not in violation of any federal, state or
local Environmental Law (as defined below), which violation could reasonably be
expected to result in a material liability to Focalink or its properties and
assets. Neither Focalink nor, to the Knowledge of
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Focalink, any third party, has used, released, discharged, generated,
manufactured, produced, stored, or disposed of in, on, under or about its owned
or leased property or other assets, or transported thereto or therefrom, any
Hazardous Materials (as defined below) in a manner that could reasonably be
expected to subject Focalink to a material liability under any Environmental
Law; there are no underground tanks, whether operative or temporarily or
permanently closed, located on its owned or leased property or other assets;
there are no polychlorinated biphenyls ("PCBs") or items containing PCBs used,
stored or present at, on or, to the Knowledge of Focalink, near its owned or
leased property or assets; and there is or has been no condition, circumstance,
action, activity or event that could reasonably be expected to form the basis of
any violation of, or material liability to Focalink under, any local, state or
Federal Environmental Law.
(b) There is no proceeding, investigation or inquiry by any
local, state or Federal governmental authority or any non-governmental third
party with respect to the presence or release of such Hazardous Materials in,
on, from or to Focalink's owned or leased property and, to the Knowledge of
Focalink, no such proceedings are threatened or contemplated by any such
governmental authorities or non-governmental third parties.
(c) For purposes of this Agreement, (i) "Environmental Law"
means the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended (42 U.S.C. Sections 9601, et seq.) ("CERCLA"); the Federal
Clean Water Act (33 U.S.C. Section 1251, et seq.); the Federal Clean Air Act (42
U.S.C. Section 7401); the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. Section 136 et seq.); the Toxic Substances Control Act (15 U.S.C. Section
2601 et seq.); the Resource Conservation and Recovery Act (42 U.S.C. Section
6901 et seq.) ("RCRA"); and the Emergency Planning and Community Right to Know
Act (42 U.S.C. Section 11001 et seq.), together with applicable state and local
laws of similar substance, and (ii) "Hazardous Materials" shall mean substances
defined as "hazardous substances," "hazardous materials," or "toxic substances"
in CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801,
et seq.) and RCRA; those substances defined as "hazardous waste," "hazardous
materials" or "regulated substances" by RCRA; those substances defined as
"hazardous waste," "extremely hazardous waste" or "restricted hazardous waste"
under Sections 25115, 25117 or 25122.7 of the California Health and Safety Code;
those substances listed under Article 9 or defined as "hazardous" or "extremely
hazardous" pursuant to Article 11 of Title 22 of the California Administrative
Code, Division 4, Chapter 20; those substances designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317); those substances regulated as a hazardous chemical
substance or mixture or as an imminently hazardous chemical substance or mixture
pursuant to Section 6 or 7 of the Toxic Substances Control Act (15 U.S.C.
Sections 2605, 2606); those substances defined as a pesticide pursuant to
Section 136(u) of the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. Section 136(u)); those substances defined as hazardous waste constituents
in 40 CFR 260.10, specifically including Appendix VII and VIII of Subpart D of
40 CFR 261; and those substances defined by the Atomic Energy Act of 1954, as
amended (42 U.S.C. Sections 3011, et seq., as amended) as a source,
special nuclear or by-product material; and in the regulations adopted and
publications promulgated pursuant to said laws.
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2.21 Brokers' and Finders' Fees: Third Party Expenses. Except as set
forth on Schedule 2.21, Focalink has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Schedule 2.21 sets forth the principal terms
and conditions of any agreement, written or oral, with respect to such fees.
Schedule 2.21 sets forth Focalink's current reasonable estimate of all Third
Party Expenses (as defined in Section 5.5) expected to be incurred by Focalink
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby.
2.22 Permits and Licenses. Schedule 2.22 contains a complete and
correct copy of (i) each pending application or registration for governmental
approval and each governmental approval held by Focalink to import, export,
store, market and sell Focalink's products or services, and (ii) the most recent
report by or on behalf of any governmental body involving or relating to any
facility inspection of Focalink's facilities. Except as set forth in Schedule
2.22, (i) Focalink possesses such governmental approvals from all governmental
bodies necessary to permit the operation of its business in the manner as the
same is currently conducted, and to operate, own or occupy its properties, (ii)
there have been no product recalls, field corrective activity, warning letters
or administrative actions by any governmental body, and (iii) to the Knowledge
of Focalink (aa) there is no administrative action pending or threatened for the
revocation of any such governmental approval and (bb) assuming the obtaining of
the authorizations, consents, approvals and other actions listed in Schedule
2.22, no governmental approval by any governmental body having jurisdiction over
the operation of Focalink's businesses, whether in whole or in part, will be
revoked, or become ineffective or subject to revocation, as a consequence of the
transactions contemplated by this Agreement.
2.23 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.23(a)(i) below (which definition shall apply
only to this Section 2.23), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with Focalink within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(iii) "Focalink Employee Plan" shall refer to any
plan, program, policy, practice, contract, agreement or other arrangement
providing for compensation, severance, termination pay, performance awards,
stock or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded and
whether or not legally binding, including without limitation, each "employee
benefit plan" within the meaning of Section 3(3) of ERISA, which is or has been
maintained, contributed to, or required to be contributed to, by Focalink or any
Affiliate for the benefit of
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any "Employee" (as defined below), and pursuant to which Focalink or any
Affiliate has or may have any material liability contingent or otherwise;
(iv) "Employee" shall mean any current, former or
retired employee, officer, or director of Focalink or any Affiliate;
(v) "Employee Agreement" shall refer to each
management, employment, severance, consulting, relocation, repatriation,
expiration, visas, work permit or similar agreement or contract between Focalink
or any Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as defined in Section
3(37) of ERISA; and
(viii) "Pension Plan" shall refer to each Focalink
Employee Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(b) Schedule. Schedule 2.23(b) contains an accurate and
complete list of each Focalink Employee Plan and each Employee Agreement.
Focalink does not have any plan or commitment, whether legally binding or not,
to establish any new Focalink Employee Plan or Employee Agreement, to modify any
Focalink Employee Plan or Employee Agreement (except to the extent required by
law or to conform any such Focalink Employee Plan or Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
ClickOver in writing, or as required by this Agreement), or to enter into any
Focalink Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. Focalink has provided to ClickOver (i) correct
and complete copies of all documents embodying or relating to each Focalink
Employee Plan and each Employee Agreement including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Focalink Employee Plan; (iii) the three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each Focalink Employee Plan
or related trust; (iv) if the Focalink Employee Plan is funded, the most recent
annual and periodic accounting of Focalink Employee Plan assets; (v) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Focalink Employee Plan; (vi) all IRS determination letters and rulings relating
to Focalink Employee Plans and copies of all applications and correspondence to
or from the IRS or the Department of Labor ("DOL") with respect to any Focalink
Employee Plan; (vii) all communications material to any Employee or Employees
relating to any Focalink Employee Plan and any proposed Focalink Employee Plans,
in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which
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would result in any material liability to Focalink; and (viii) all registration
statements and prospectuses prepared in connection with each Focalink Employee
Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
2.23(d), (i) Focalink has performed in all material respects all obligations
required to be performed by it under each Focalink Employee Plan, and each
Focalink Employee Plan has been established and maintained in all materials
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) no "prohibited transaction," within the meaning of
Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to
any Focalink Employee Plan; (iii) there are no actions, suits or claims pending,
or, to the Knowledge of Focalink, threatened or anticipated (other than routine
claims for benefits) against any Focalink Employee Plan or against the assets of
any Focalink Employee Plan; (iv) each Focalink Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to Focalink, ClickOver or any of its Affiliates
(other than ordinary administration expenses typically incurred in a termination
event); (v) there are no inquiries or proceedings pending or, to the Knowledge
of Focalink, threatened by the IRS or DOL with respect to any Focalink Employee
Plan; and (vi) Focalink is not subject to any penalty or tax with respect to any
Focalink Employee Plan under Section 402(i) of ERISA or Section 4975 through
4980 of the Code.
(e) Pension Plans. Focalink does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has Focalink contributed
to or been required to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in
Schedule 2.23(g), no Focalink Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee benefits to any Employee upon
his or her retirement or termination of employment for any reason, except as may
be required by statute, and Focalink has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute.
(h) Effect of Transaction.
(i) Except as set forth on Schedule 2.23(h)(i), the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Focalink Employee
Plan, Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
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(ii) Except as set forth on Schedule 2.23(h)(ii), no
payment or benefit of which will or may be made by Focalink, ClickOver or any of
their respective Affiliates with respect to any Employee will be characterized
as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the
Code.
(i) Employment Matters. Focalink (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries, and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against Focalink
is pending or, to the Knowledge of Focalink, threatened. Except as set forth in
Schedule 2.23(j), Focalink is not involved in or, to the Knowledge of Focalink,
threatened with, any labor dispute, grievance, or litigation relating to labor,
safety or discrimination matters involving any Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would, individually or in the aggregate, result
in liability to Focalink in excess of $10,000. Focalink has not engaged in any
unfair labor practices within the meaning of the National Labor Relations Act
which would, individually or in the aggregate, directly or indirectly result in
a liability to Focalink in excess of $10,000. Except as set forth in Schedule
2.23(j), Focalink is not presently, nor has it been in the past, a party to, or
bound by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by
Focalink. To the Knowledge of Focalink, no labor union is attempting to organize
the employees of Focalink into one or more collective bargaining units.
2.24 Employees. To the Knowledge of Focalink, no employees of Focalink
are in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by Focalink
because of the nature of the business conducted or presently proposed to be
conducted by Focalink or due to the use of trade secrets or proprietary
information of others.
2.25 Representation Complete. None of the representations or warranties
made by Focalink (as modified by the Focalink Schedules), nor any statement made
in any schedule or certificate furnished by Focalink pursuant to this Agreement,
or furnished in or in connection with documents mailed or delivered to the
Focalink Shareholders in connection with soliciting their consent to this
Agreement and the Merger, contains or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
to
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state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CLICKOVER AND MERGER SUB
ClickOver and Merger Sub hereby represent and warrant to Focalink,
subject to such exceptions as are specifically disclosed in the disclosure
letter (referencing the appropriate schedule or section number) supplied by
ClickOver to Focalink (the "ClickOver Schedules") and dated as of the date
hereof, as follows:
3.1 Organization, Standing and Power. ClickOver is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of ClickOver and
Merger Sub has the corporate power to own, operate and lease its properties and
to carry on its business as now being conducted. Each of ClickOver and Merger
Sub is duly qualified or licensed to conduct its business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have, or would reasonably be expected to have, a material
adverse effect on the business, assets (including intangible assets), financial
condition, results of operations, liabilities or prospects of ClickOver
(hereinafter referred to as a "Material Adverse Effect on ClickOver"). ClickOver
has delivered a true and correct copy of its Articles of Incorporation and
Bylaws, each as amended to date, to Focalink.
3.2 Capital Structure.
(a) The authorized capital stock of ClickOver currently
consists of shares of 14,000,000 Common Stock, and 6,037,000 shares of Preferred
Stock, of which 525,000 shares are designated as Series A Preferred Stock and
5,512,000 shares are designated as Series B Preferred Stock. As of the date
hereof, there are 5,856,721 shares of Common Stock outstanding, 525,000 shares
of Series A Preferred Stock outstanding and 5,512,000 shares of Series B
Preferred Stock outstanding. ClickOver Capital Stock is held of record by the
persons, with the addresses of record and in the amounts set forth on Schedule
3.2(a). All issued and outstanding shares of ClickOver Capital Stock are duly
authorized, validly issued, fully paid and non-assessable.
(b) ClickOver has reserved 2,650,000 shares of Common Stock
for issuance to employees and consultants pursuant to its Stock Option Plan (the
"ClickOver Plan"), of which 622,942 shares are subject to outstanding,
unexercised options, 945,338 shares remain available for future grant and
1,081,720 shares have been issued pursuant to the exercise of options issued
under the ClickOver Plan. Schedule 3.2(b) sets forth for each outstanding option
to purchase shares of ClickOver Capital Stock (a "ClickOver Option") or warrant
to purchase shares of ClickOver Capital Stock (a "ClickOver Warrant"), the name
of the holder of such ClickOver Option or ClickOver Warrant, the domicile
address of such holder, the
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number of shares of Common Stock subject to such ClickOver Option or ClickOver
Warrant, the exercise price of such ClickOver Option or ClickOver Warrant and
the vesting schedule for such ClickOver Option or ClickOver Warrant, including
the extent vested to date and whether the exercisability of such ClickOver
Option or ClickOver Warrant will be accelerated and become exercisable by reason
of the transactions contemplated by this Agreement. Except for ClickOver Options
and ClickOver Warrants described in Schedule 3.2(b), there are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which ClickOver is a party or by which it is bound obligating ClickOver
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of ClickOver or
obligating ClickOver to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. The holders of ClickOver Options and ClickOver Warrants
have been or will be given, or shall have properly waived, any required notice
prior to the Merger, and all such rights will be terminated at or prior to the
Effective Time.
(c) The authorized capital stock of Merger Sub consists of 100
shares of Common Stock, all of which, as of the date hereof, are issued and
outstanding and are held by ClickOver.
3.3 Subsidiaries. Except for Merger Sub, ClickOver does not have and
has never had any subsidiaries or affiliated companies and does not otherwise
own and has never otherwise owned any shares of capital stock or any interest
in, or control, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity. Merger Sub was incorporated
in contemplation of the Merger and has had no operations as of the date hereof.
3.4 Authority. Subject only to the requisite approval of the Merger and
this Agreement by ClickOver's shareholders, ClickOver and Merger Sub have all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The vote required of
ClickOver's shareholders to duly approve the Merger and this Agreement is (i) a
majority of all issued and outstanding ClickOver Capital Stock, and (ii) greater
than 50% of each class of all issued and outstanding ClickOver Capital Stock.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of ClickOver, subject only to the approval of the
Merger and this Agreement by ClickOver's shareholders. ClickOver's Board of
Directors and Merger Sub's Board of Directors have unanimously approved the
Merger and this Agreement. This Agreement has been duly executed and delivered
by ClickOver and Merger Sub and constitutes the valid and binding obligation of
ClickOver and Merger Sub, enforceable in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies. Except as set forth
on Schedule 3.4, subject only to the approval of the Merger and this Agreement
by ClickOver's shareholders, the execution and delivery of this Agreement by
ClickOver does not, and, as of
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the Effective Time, the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the Articles
of Incorporation or Bylaws of ClickOver or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to ClickOver or its properties or assets. No consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other federal, state,
country, local or foreign governmental authority, instrumentality, agency or
commission ("Governmental Entity") or any third party (so as not to trigger any
Conflict) is required by or with respect to ClickOver in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Merger Agreement with the
California Secretary of State, (ii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and (iii) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Schedule 3.4.
3.5 ClickOver Financial Statements.
(a) Schedule 3.5 sets forth ClickOver's unaudited balance
sheet as of October 31, 1997 (the "ClickOver Balance Sheet"), and the related
unaudited statements of operations and cash flows for the ten-month period then
ended (collectively, the "ClickOver Financials"). The ClickOver Financials are
correct in all material respects and have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a basis consistent
throughout the periods indicated and consistent with each other, except that the
unaudited ClickOver Financials do not contain all of the footnotes required by
GAAP. The ClickOver Financials present fairly the financial condition and
operating results of ClickOver as of the dates and during the periods indicated
therein, subject to normal year-end adjustments, which adjustments will not be
material in amount or significance.
3.6 No Undisclosed Liabilities. To the Knowledge of ClickOver, except
as set forth in Schedule 3.6, ClickOver does not have any liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in financial statements in accordance
with GAAP), which individually or in the aggregate, has not been reflected in
the ClickOver Financials.
3.7 No Changes. Except as set forth in Schedule 3.7, since the date of
the ClickOver Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by ClickOver except in the ordinary course of
business as conducted on the date of the ClickOver Balance Sheet and consistent
with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of ClickOver;
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(c) capital expenditure or commitment by ClickOver, either
individually or in the aggregate, exceeding $10,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of ClickOver (whether or not by covered by insurance);
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) resignation or termination of any key officers or
employees of ClickOver, and to the Knowledge of ClickOver, no impending
resignation or termination of employment of any such officer or employee;
(g) revaluation by ClickOver of any of its assets;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to the ClickOver Capital Stock, or any direct or
indirect redemption, purchase or other acquisition by ClickOver of any ClickOver
Capital Stock;
(i) sale, lease, license or other disposition of any of the
assets or properties of ClickOver, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(j) except as contemplated herein, amendment or termination of
any material contract, agreement or license to which ClickOver is a party or by
which it is bound;
(k) loans by ClickOver to any person or entity, incurring by
ClickOver of any indebtedness, guaranteeing by ClickOver of any indebtedness,
issuance or sale of any debt securities of ClickOver or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(l) waiver or release of any right or claim of ClickOver,
including any write-off or other compromise of any account receivable of
ClickOver;
(m) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of ClickOver or its affairs;
(n) notice of any claim of ownership by a third party of any
ClickOver Intellectual Property Rights (as defined in Section 3.11 below) or of
infringement by ClickOver of any third party's intellectual property rights;
(o) issuance or sale by ClickOver of any of its shares of
ClickOver Capital Stock, or securities exchangeable, convertible or exercisable
therefore, or of any other of its securities;
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(p) change in pricing or royalties set or charged by ClickOver
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed ClickOver Intellectual Property Rights to ClickOver;
(q) event or condition of any character that has had or could
be reasonably expected to have a Material Adverse Effect on ClickOver; or
(r) negotiation or agreement by ClickOver or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (q) (other than negotiations with Focalink and its representatives
regarding the transactions contemplated by this Agreement).
3.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or, collectively, "Taxes" means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, exercise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule
3.8:
(i) ClickOver as of the Effective Time will have
prepared and filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
all Taxes concerning or attributable to ClickOver or its operations and such
Returns are true and correct in all material respects and have been completed in
accordance with applicable law.
(ii) ClickOver as of the Effective Time: (A) will
have paid or accrued all material Taxes it is required to pay or accrue and (B)
will have withheld with respect to its employees all material federal and state
income taxes, FICA, FUTA and other material Taxes required to be withheld.
(iii) ClickOver has not been delinquent in the
payment of any Tax nor is there any material Tax deficiency outstanding,
proposed or assessed against ClickOver, nor has ClickOver executed any waiver of
any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) To the Knowledge of ClickOver, no audit or other
examination of any Return of ClickOver is currently in progress, nor has
ClickOver been notified of any request for such an audit or other examination.
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(v) ClickOver does not have any liabilities for
unpaid federal, state, local and foreign Taxes which have not been accrued or
reserved against in accordance with GAAP on the ClickOver Balance Sheet, whether
asserted or unasserted, contingent or otherwise, and to the Knowledge of
ClickOver, is unaware of any basis of the assertion of any such liability
attributable to ClickOver, its assets or operations.
(vi) ClickOver has provided to Focalink copies of all
federal and state income and all state sales and use Tax Returns for all periods
since the date of ClickOver's incorporation.
(vii) There are (and as of immediately following the
Effective Time there will be) no Liens on the assets of ClickOver relating to or
attributable to Taxes.
(viii) To the Knowledge of ClickOver, there is no
basis for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of ClickOver.
(ix) None of ClickOver's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of
ClickOver that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 162 of the
Code.
(xi) ClickOver has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by ClickOver.
(xii) ClickOver is not a party to a tax sharing or
allocation agreement nor does ClickOver owe any amount under any such agreement.
(xiii) ClickOver is not, and has not been at any
time, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiv) ClickOver's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on ClickOver's tax books and
records.
3.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which ClickOver is a party or otherwise binding upon ClickOver which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of ClickOver, any acquisition of property (tangible or
intangible) by ClickOver or the conduct of business by ClickOver. Without
limiting the foregoing, ClickOver has not entered into any agreement under which
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ClickOver is restricted from selling, licensing or otherwise distributing any of
its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
3.10 Title to Properties; Absence of Liens and Encumbrances.
(a) ClickOver owns no real property, nor has it ever owned any
real property. Schedule 3.10(a) sets forth a list of all real property currently
leased by ClickOver, the name of the lessor, the date of the lease and each
amendment thereto and, with respect to any current lease, the aggregate annual
rental and/or other fees payable under any such lease. All such current leases
are in full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) ClickOver has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens except as reflected in the ClickOver
Financials or in Schedule 3.10(b) and except for liens for Taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which are not
material in character, amount or extent, and which do not materially detract
from the value, or materially interfere with the present use, of the property
subject thereto or affected thereby.
3.11 Intellectual Property.
(a) ClickOver owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights, and any applications therefore, and tangible or intangible
proprietary information or material that are used in the business of ClickOver
as currently conducted or as proposed to be conducted by ClickOver (the
"ClickOver Intellectual Property Rights").
(b) Schedule 3.11 sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefore, included in ClickOver
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such ClickOver Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners. Schedule 3.11 sets forth a complete list of all
licenses, sublicenses and other agreements as to which ClickOver is a party and
pursuant to which ClickOver or any other person is authorized to use any
ClickOver Intellectual Property Right (excluding object code end user licenses
granted to end-users in the ordinary course of business that permit use of
software products without a right to modify, distribute or sublicense the same
("End-User Licenses")) or trade secret of ClickOver, and includes the identity
of all parties thereto, a description of the nature and subject matter thereof,
the applicable royalty or other fees and the term thereof. The execution and
delivery of this Agreement by ClickOver, and the consummation of the
transactions contemplated hereby, will neither cause ClickOver to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other
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party to any such license, sublicense or agreement to terminate or modify such
license, sublicense or agreement. Except as set forth in Schedule 3.11,
ClickOver is the sole and exclusive owner or licensee of, with all right, title
and interest in and to (free and clear of any liens or encumbrances), ClickOver
Intellectual Property Rights, and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect to which ClickOver Intellectual Property
Rights are being used.
(c) No claims with respect to ClickOver's Intellectual
Property Rights have been asserted or are, to the Knowledge of ClickOver,
threatened by any person, nor are there any valid grounds for any bona fide
claims, (i) to the effect that the manufacture, sale, licensing or use of any of
the products of ClickOver infringes on any copyright, patent, trade mark,
service mark, trade secret or other proprietary right, (ii) against the use by
ClickOver of any trademarks, service marks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how or computer software
programs and applications used in ClickOver's business as currently conducted or
as proposed to be conducted by ClickOver, or (iii) challenging the ownership by
ClickOver, validity or effectiveness of any of ClickOver Intellectual Property
Rights. All registered trademarks, service marks and copyrights held by
ClickOver are valid and subsisting. ClickOver has not infringed, and to the
Knowledge of ClickOver, the business of ClickOver as currently conducted or as
proposed to be conducted does not infringe, any copyright, patent, trademark,
service mark, trade secret or other proprietary right of any third party. To the
Knowledge of ClickOver, there is no material unauthorized use, infringement or
misappropriation of any of ClickOver Intellectual Property Rights by any third
party, including any employee or former employee of ClickOver. No ClickOver
Intellectual Property Right or product of ClickOver is subject to any
outstanding decree, order, judgment, or stipulation restricting in any manner
the licensing thereof by ClickOver. Each employee, consultant or contractor of
ClickOver has executed a proprietary information and confidentiality agreement
substantially in ClickOver's standard form, a copy of which ClickOver has
delivered to Focalink. All software included in ClickOver Intellectual Property
Rights is original with ClickOver and has been either created by employees of
ClickOver, by consultants or contractors on a work-for-hire basis or by
consultants or contractors who have created such software themselves and have
assigned all rights they may have had in such software to ClickOver.
3.12 Agreements, Contracts and Commitments.
(a) Except as set forth on Schedule 3.12(a), ClickOver does
not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, pension,
profit sharing or retirement plans, or any other employee benefit plans or
arrangements;
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(iv) any employment or consulting agreement, contract
or commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to ClickOver;
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased or accrue, or the
vesting of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any material agreement, contract or commitment
under which it has limited or restricted its right to compete with any person in
any material respect;
(viii) any agreement of indemnification or guaranty;
(ix) any agreement, contract or commitment containing
any covenant limiting the freedom of ClickOver to engage in any line of business
or to compete with any person;
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $10,000;
(xi) any agreement, contract or commitment relating
to the disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of ClickOver's business (except to the
transactions provided for in this Agreement);
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other arrangements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof;
(xiii) any purchase order or contract for the
purchase of raw materials involving $10,000 or more;
(xiv) any distribution, joint marketing or
development agreement;
(xv) any assignment, license or other agreement with
respect to any form of intangible property; or,
(xvi) any other agreement, contract or commitment
that involves $10,000 or more or is not cancelable without penalty within thirty
(30) days.
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(b) Except for such alleged breaches, violations and defaults,
and events that would constitute a breach, violation or default with the lapse
of time, giving of notice, or both, all of which are noted in Schedule 3.12(b),
ClickOver has not materially breached, violated or defaulted under, or received
notice that it has materially breached, violated or defaulted under, any of the
terms or conditions of any agreement, contract or commitment required to be set
forth on Schedule 3.11 or Schedule 3.12(a) (any such agreement, contract or
commitment, a "ClickOver Contract"). Each ClickOver Contract is in full force
and effect and, except as otherwise disclosed in Schedule 3.12(b), to the
Knowledge of ClickOver is not subject to any default thereunder by any party
obligated to ClickOver pursuant thereto.
3.13 Interested Party Transactions. Except as set forth on Schedule
3.13, no officer, director or shareholder of ClickOver (nor any ancestor,
sibling, descendant or spouse of any of such persons, or any trust, partnership
or corporation in which any of such persons has or has had an interest), has or
has had, directly or indirectly, (i) an economic interest in any entity which
furnished or sold, or furnishes or sells, services or products that ClickOver
furnishes or sells or proposes to furnish or sell, (ii) an economic interest in
any entity that purchases from or sells or furnishes to, ClickOver, any goods or
services or (iii) a beneficial interest in any contract or agreement set forth
in Schedule 3.11 or Schedule 3.12(a); provided, that ownership of no more than
one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "economic interest in any entity" for
purposes of this Section 3.13.
3.14 Compliance with Laws. ClickOver has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation.
3.15 Litigation. To the Knowledge of ClickOver, except as set forth in
Schedule 3.15 there is no action, suit or proceeding of any nature pending or
threatened against ClickOver, its properties or any of its officers or
directors, in their respective capacities as such. To the Knowledge of
ClickOver, except as set forth in Schedule 3.15 there is no investigation
pending or threatened against ClickOver, its properties or any of its officers
or directors by or before any governmental entity. To the Knowledge of
ClickOver, Schedule 3.15 sets forth, with respect to any pending or threatened
action, suit, proceeding or investigation, the forum, the parties thereto, the
subject matter thereof and the amount of damages, claims or other remedy
requested. To the Knowledge of ClickOver, no governmental entity has at any time
challenged or questioned the legal right of ClickOver to conduct its business as
it is currently being conducted.
3.16 Insurance. All insurance policies maintained by ClickOver are
identified in Schedule 3.16 and are valid and enforceable, and there is no claim
by ClickOver pending under any of such policies as to which coverage has been
questioned, denied or disputed by the underwriters of such policies. All
premiums due and payable under all such policies have been paid and ClickOver is
otherwise in material compliance with the terms of such policies. To the
Knowledge of ClickOver, there is no threatened termination of, or material
premium increase with respect to, any of such policies.
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3.17 Minute Books. The minute books of ClickOver made available to
counsel for Focalink are the only minute books of ClickOver and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and shareholders or actions by written consent since the time of incorporation
of ClickOver. ClickOver is in full compliance with all of the terms and
provisions of its Articles of Incorporation and Bylaws.
3.18 Relationships With Suppliers and Licensors. No current supplier to
ClickOver has notified it of an intention to terminate or substantially alter
its existing business relationship with ClickOver nor has any licensor under a
license agreement with ClickOver notified ClickOver of an intention to terminate
or substantially alter ClickOver's rights under such license.
3.19 Trade Secrets. ClickOver has taken reasonable security measures to
protect the confidentiality of its trade secrets. All current and past employees
or consultants of ClickOver, who, either alone or in concert with others,
developed, invented, discovered, derived, programmed or designed such trade
secrets, or who have or had access to information disclosing such trade secrets,
have entered into confidentiality and non-disclosure agreements with ClickOver
(the "ClickOver Trade Secret Agreements"). Any exception which has been taken to
the ClickOver Trade Secrets Agreements (for example an employee or consultant
excluding a prior invention) is described in Schedule 3.19, including the
exception taken and the employee taking such exception. To the Knowledge of
ClickOver, neither ClickOver, nor its employees or its consultants have caused
any of ClickOver's trade secrets to become part of the public knowledge or
literature, nor has ClickOver, its employees or consultants permitted any such
trade secrets to be used, divulged or appropriated for the benefit of persons to
the material detriment of ClickOver.
3.20 Environmental Matters.
(a) ClickOver is not in violation of any Federal, state or
local Environmental Law, which violation could reasonably be expected to result
in a material liability to ClickOver or its properties and assets. Neither
ClickOver nor, to the Knowledge of ClickOver, any third party, has used,
released, discharged, generated, manufactured, produced, stored, or disposed of
in, on, under or about its owned or leased property or other assets, or
transported thereto or therefrom, any Hazardous Materials in a manner that could
reasonably be expected to subject ClickOver to a material liability under any
Environmental Law. To the Knowledge of ClickOver, there are no underground
tanks, whether operative or temporarily or permanently closed, located on its
owned or leased property or other assets. There are no PCBs or items containing
PCBs used, stored or present at, on or, to the Knowledge of ClickOver, near its
owned or leased property or assets. To the Knowledge of ClickOver, there is or
has been no condition, circumstance, action, activity or event that could
reasonably be expected to form the basis of any violation of, or material
liability to ClickOver under, any local, state or Federal Environmental Law.
(b) There is no proceeding, investigation or inquiry by any
local, state or Federal governmental authority or any non-governmental third
party with respect to the presence or release of such Hazardous Materials in,
on, from or to ClickOver's owned or
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leased property and to the Knowledge of ClickOver no such proceedings are
threatened or contemplated by any such governmental authorities or
non-governmental third parties.
3.21 Brokers' and Finders' Fees: Third Party Expenses. Except as set
forth on Schedule 3.21, ClickOver has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Schedule 3.21 sets forth the principal terms
and conditions of any agreement, written or oral, with respect to such fees.
Schedule 3.21 sets forth ClickOver's current reasonable estimate of all Third
Party Expenses (as defined in Section 5.5) expected to be incurred by ClickOver
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby.
3.22 Permits and Licenses. Schedule 3.22 contains a complete and
correct copy of (i) each pending application or registration for governmental
approval and each governmental approval held by ClickOver to import, export,
store, market and sell ClickOver's products or services, and (ii) the most
recent report by or on behalf of any governmental body involving or relating to
any facility inspection of ClickOver facilities. Except as set forth in Schedule
3.22, (i) ClickOver possesses such governmental approvals from all governmental
bodies necessary to permit the operation of its business in the manner as the
same is currently conducted, and to operate, own or occupy its properties, (ii)
there have been no product recalls, field corrective activity, warning letters
or administrative actions by any governmental body, and (iii) to the Knowledge
of ClickOver (aa) there is no administrative action pending or threatened for
the revocation of any such governmental approval and (bb) assuming the obtaining
of the authorizations, consents, approvals and other actions listed in Schedule
3.22, no governmental approval by any governmental body having jurisdiction over
the operation of ClickOver's businesses, whether in whole or in part, will be
revoked, or become ineffective or subject to revocation, as a consequence of the
transactions contemplated by this Agreement.
3.23 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 3.23(a)(i) below (which definition shall apply
only to this Section 3.23), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with ClickOver within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(iii) "ClickOver Employee Plan" shall refer to any
plan, program, policy, practice, contract, agreement or other arrangement
providing for compensation, severance, termination pay, performance awards,
stock or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded
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or unfunded and whether or not legally binding, including without limitation,
each "employee benefit plan" within the meaning of Section 3(3) of ERISA, which
is or has been maintained, contributed to, or required to be contributed to, by
ClickOver or any Affiliate for the benefit of any "Employee" (as defined below),
and pursuant to which ClickOver or any Affiliate has or may have any material
liability contingent or otherwise;
(iv) "Employee" shall mean any current, former or
retired employee, officer, or director of ClickOver or any Affiliate;
(v) "Employee Agreement" shall refer to each
management, employment, severance, consulting, relocation, repatriation,
expiration, visas, work permit or similar agreement or contract between
ClickOver or any Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as defined in Section
3(37) of ERISA; and
(viii) "Pension Plan" shall refer to each ClickOver
Employee Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(b) Schedule. Schedule 3.23(b) contains an accurate and
complete list of each ClickOver Employee Plan and each Employee Agreement,
together with a schedule of all liabilities, whether or not accrued, under each
such ClickOver Employee Plan or Employee Agreement. ClickOver does not have any
plan or commitment, whether legally binding or not, to establish any new
ClickOver Employee Plan or Employee Agreement, to modify any ClickOver Employee
Plan or Employee Agreement (except to the extent required by law or to conform
any such ClickOver Employee Plan or Employee Agreement to the requirements of
any applicable law, in each case as previously disclosed to Focalink in writing,
or as required by this Agreement), or to enter into any ClickOver Employee Plan
or Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.
(c) Documents. ClickOver has provided to Focalink (i) correct
and complete copies of all documents embodying or relating to each ClickOver
Employee Plan and each Employee Agreement including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each ClickOver Employee Plan; (iii) the three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each ClickOver Employee Plan
or related trust; (iv) if the ClickOver Employee Plan is funded, the most recent
annual and periodic accounting of the ClickOver Employee Plan assets; (v) the
most recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
ClickOver Employee Plan; (vi) all IRS determination letters and rulings relating
to ClickOver Employee Plans and copies of all applications and correspondence to
or from the IRS or the Department of Labor ("DOL") with respect to any ClickOver
Employee Plan; (vii) all communications material to
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any Employee or Employees relating to any ClickOver Employee Plan and any
proposed ClickOver Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to ClickOver; and (viii) all registration statements and
prospectuses prepared in connection with each ClickOver Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
3.23(d), (i) ClickOver has performed in all material respects all obligations
required to be performed by it under each ClickOver Employee Plan, and each
ClickOver Employee Plan has been established and maintained in all materials
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) no "prohibited transaction," within the meaning of
Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to
any ClickOver Employee Plan; (iii) there are no actions, suits or claims
pending, or, to the Knowledge of ClickOver, threatened or anticipated (other
than routine claims for benefits) against any ClickOver Employee Plan or against
the assets of any ClickOver Employee Plan; (iv) each ClickOver Employee Plan can
be amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to ClickOver, Focalink or any of
its Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (v) there are no inquiries or proceedings pending or,
to the Knowledge of ClickOver, threatened by the IRS or DOL with respect to any
ClickOver Employee Plan; and (vi) ClickOver is not subject to any penalty or tax
with respect to any ClickOver Employee Plan under Section 402(i) of ERISA or
Section 4975 through 4980 of the Code.
(e) Pension Plans. ClickOver does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 4.12 of the Code.
(f) Multiemployer Plans. At no time has ClickOver contributed
to or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in
Schedule 3.23(g), no ClickOver Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee benefits to any Employee upon
his or her retirement or termination of employment for any reason, except as may
be required by statute, and ClickOver has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute.
(h) Effect of Transaction.
(i) Except as set forth on Schedule 3.23(h)(i), the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under
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any ClickOver Employee Plan, Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) Except as set forth on Schedule 3.23(h)(ii), no
payment or benefit of which will or may be made by ClickOver or Focalink or any
of their respective Affiliates with respect to any Employee will be
characterized as an "excess parachute payment," within the meaning of Section
280G(b)(1) of the Code.
(i) Employment Matters. ClickOver (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries, and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against ClickOver
is pending or, to the Knowledge of ClickOver, threatened. Except as set forth in
Schedule 3.23(j), ClickOver is not involved in or, to the Knowledge of
ClickOver, threatened with, any labor dispute, grievance, or litigation relating
to labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in a liability to ClickOver in excess of $10,000. ClickOver
has not engaged in any unfair labor practices within the meaning of the National
Labor Relations Act which would, individually or in the aggregate, directly or
indirectly result in a liability to ClickOver in excess of $10,000. Except as
set forth in Schedule 3.23(j), ClickOver is not presently, nor has it been in
the past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by ClickOver. To the Knowledge of ClickOver, no labor union is
attempting to organize the employees of ClickOver into one or more collective
bargaining units.
3.24 Employees. To the Knowledge of ClickOver, no employees of
ClickOver are in violation of any term of any employment contract, patent
disclosure agreement, non-competition agreement, or any restrictive covenant to
a former employer relating to the right of any such employee to be employed by
ClickOver because of the nature of the business conducted or presently proposed
to be conducted by ClickOver or due to the use of trade secrets or proprietary
information of others.
3.25 Representation Complete. None of the representations or warranties
made by ClickOver (as modified by the ClickOver Schedules), nor any statement
made in any schedule
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or certificate furnished by ClickOver pursuant to this Agreement, or furnished
in or in connection with documents mailed or delivered to the shareholders of
ClickOver in connection with soliciting their consent to this Agreement and the
Merger, contains or will contain at the Effective Time, any untrue statement of
a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE IV
CONDUCT BY FOCALINK PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Focalink. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Focalink agrees (except to the extent that
ClickOver shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors and others having business
dealings with it, all with the goal of preserving unimpaired its goodwill and
ongoing business at the Effective Time. Focalink shall promptly notify ClickOver
of any event or occurrence or emergency not in the ordinary course of its
business, and any material event involving or adversely affecting Focalink or
its business. Except as expressly contemplated by this Agreement, Focalink shall
not, without the prior written consent of ClickOver:
(a) Enter into any commitment, activity or transaction not in
the ordinary course of business;
(b) Transfer to any person or entity any rights to any
Focalink Intellectual Property (other than pursuant to end-user licenses in the
ordinary course of business);
(c) Enter into or amend any agreements pursuant to which any
other party is granted manufacturing, marketing, distribution or similar rights
of any type or scope with respect to any products or services of Focalink;
(d) Amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the Focalink Schedules;
(e) Commence any litigation or any dispute resolution process;
(f) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Focalink Capital Stock, or
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split, combine or reclassify any Focalink Capital Stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of Focalink Capital Stock, or repurchase, redeem or
otherwise acquire, directly or indirectly, any shares of Focalink Capital Stock
(or options, warrants or other rights exercisable for Focalink Capital Stock);
(g) Except for the issuance of shares of Focalink Capital
Stock upon exercise or conversion of presently outstanding Focalink Options or
Focalink Warrants, issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase of or propose the purchase of,
any shares of Focalink Capital Stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(h) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of Focalink;
(j) Fail in any material respect to comply with any laws,
ordinances, regulations or other governmental restrictions applicable to
Focalink;
(k) Sell, lease, license or otherwise dispose of any of its
properties or assets except in the ordinary course of business and consistent
with past practice;
(l) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of Focalink or guarantee
any debt securities of others;
(m) Grant any severance or termination pay to any director,
officer, employee or consultant, except payments made pursuant to standard
written agreements outstanding on the date hereof (which agreements are
disclosed on Schedule 4.1(m));
(n) Adopt or amend any employee benefit plan, program, policy
or arrangement, or enter into any employment contract, extend any employment
offer, pay or agree to pay any special bonus or special remuneration to any
director, employee or consultant, or increase the salaries or wage rates of its
employees;
(o) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business and consistent with past practice;
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(p) Pay, discharge or satisfy, in an amount in excess of
$10,000, in any one case, or $25,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Focalink Financial
Statements;
(q) Take any action that could jeopardize the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the Code;
(r) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(s) Enter into any strategic alliance, joint development or
joint marketing arrangement or agreement;
(t) Fail to pay or otherwise satisfy its monetary obligations
as they become due, except such as are being contested in good faith;
(u) Waive or commit to waive any rights with a value in excess
of $10,000, in any one case, or $25,000 in the aggregate;
(v) Cancel, materially amend or renew any insurance policy
other than in the ordinary course of business;
(w) Alter, or enter into any commitment to alter, its interest
in any corporation, association, joint venture, partnership or business entity
in which Focalink directly or indirectly holds any interest on the date hereof;
or
(x) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (w) above, or any other action that
would prevent Focalink from performing or cause Focalink not to perform its
covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time or the
date of termination of this Agreement pursuant to the provisions of Section 9.1
hereof, Focalink, Cupertino and Mayfield will not (nor will Focalink permit any
of Focalink's officers, directors, shareholders, agents, representatives or
affiliates to), directly or indirectly, take any of the following actions with
any party other than to ClickOver and its designees: (a) solicit, initiate,
entertain, or encourage any proposals or offers from, or conduct discussions
with or engage in negotiations with, any person relating to any possible
acquisition of Focalink (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its or their capital
stock or assets or any equity interest in Focalink; (b) provide information with
respect to it to any person, other than ClickOver, relating to, or otherwise
cooperate with, facilitate or encourage any effort or attempt by any such person
with regard to, any possible acquisition of Focalink (whether by way of merger,
purchase of
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capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in Focalink; (c) enter into
an agreement with any person, other than ClickOver, providing for the
acquisition of Focalink (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its or their capital
stock or assets or any equity interest in Focalink; or (d) make or authorize any
statement, recommendation or solicitation in support of any possible acquisition
of Focalink (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in Focalink by any person, other than by
ClickOver. Focalink shall immediately cease and cause to be terminated any such
contacts or negotiations with third parties relating to any such transaction or
proposed transaction. In addition to the foregoing, if Focalink receives prior
to the Effective Time or the termination of this Agreement any offer or proposal
relating to any of the above, Focalink shall immediately notify ClickOver
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
ClickOver may reasonably request. Except as contemplated by this Agreement,
disclosure by Focalink of the terms hereof (other than the prohibition of this
section) shall be deemed to be a violation of this Section 4.2. The provisions
of this Section 4.2 shall not prohibit Cupertino from exercising its rights and
remedies under Sections 8.3, 8.4, 8.5 or 8.6 of that certain Loan and Security
Agreement dated as of March 13, 1997 between Cupertino and Focalink based upon a
default under any such Section that does not exist as of the date of this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Sale of Shares; Shareholder Matters.
(a) Sale of Shares. The parties hereto acknowledge and agree
that the shares of ClickOver Capital Stock issuable to the holders of Focalink
Capital Stock and the Focalink Debt pursuant to Section 1.6 hereof shall
constitute "restricted securities" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"). The certificates for shares of
ClickOver Capital Stock to be issued in the Merger shall bear appropriate
legends to identify such privately placed shares as being restricted under the
Securities Act and to comply with applicable state securities laws. It is
acknowledged and understood that ClickOver is relying upon the written
representations made by each Focalink Shareholder and each holder of any
Focalink Debt in the Shareholder Questionnaire in determining the availability
of exemptions from the registration and qualification provisions of applicable
securities laws for the issuance of the ClickOver Capital Stock in the Merger.
(b) Shareholder Questionnaire. Focalink will cause each
Focalink Shareholder and each holder of any Focalink Debt to execute and deliver
to ClickOver a Shareholder Questionnaire and Release in the form attached hereto
as Exhibit C (the "Shareholder Questionnaire").
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(c) Focalink Shareholder Approval. As promptly as practicable
after the execution of this Agreement, Focalink shall submit this Agreement and
the transactions contemplated hereby to its shareholders for approval and
adoption as provided by California Law and its Articles of Incorporation and
Bylaws. Focalink shall use reasonable efforts to solicit and obtain the written
consent of the Focalink Shareholders to approve the Merger and this Agreement
and to enable the Closing to occur as promptly as practicable. In connection
with such shareholder approval as soon as practicable after the execution of
this Agreement, Focalink shall prepare, with the cooperation of ClickOver, an
Information Statement for purposes of soliciting such written consent of the
Focalink Shareholders. The Information Statement shall also constitute a
disclosure document for the offer and sale of the shares of ClickOver Capital
Stock to be received by the holders of Focalink's Capital Stock in the Merger.
Focalink shall use its best efforts, with the cooperation of ClickOver, to cause
such Information Statement to be distributed to the Focalink Shareholders no
later than November 26, 1997. Each of ClickOver and Focalink agrees to provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for inclusion in the Information
Statement or in any amendments or supplements thereto, and to cause its counsel
and auditors to cooperate with the other's counsel and auditors in the
preparation of the Information Statement. Each of the parties hereto will
promptly advise the other party in writing if at any time prior to the Effective
Time either Focalink or ClickOver shall obtain knowledge of any facts that might
make it necessary or appropriate to amend or supplement the Information
Statement in order to make the statements contained therein not misleading or to
comply with applicable law. The Information Statement shall contain the
unanimous recommendation of the Board of Directors of Focalink that the Focalink
Shareholders approve the Merger and this Agreement and the transactions
contemplated hereby and the conclusion of the Board of Directors that the terms
and conditions of the Merger are fair and reasonable to the Focalink
Shareholders. Anything to the contrary contained herein notwithstanding,
Focalink shall not include in the Information Statement any information with
respect to ClickOver or its affiliates or associates, the form and content of
which information shall not have been approved by ClickOver prior to such
inclusion. Focalink shall use its best efforts to obtain the consent of all of
its shareholders to depositing the Escrow Amount into the Escrow Fund.
(d) ClickOver Shareholder Approval. As promptly as practicable
after the execution of this Agreement, ClickOver shall submit this Agreement and
the transactions contemplated hereby to its shareholders for approval and
adoption as provided by California Law and its Articles of Incorporation and
Bylaws. ClickOver shall use reasonable efforts to solicit and obtain the written
consent of its shareholders to approve the Merger and this Agreement and to
enable the Closing to occur as promptly as practicable. In connection with such
shareholder approval as soon as practicable after the execution of this
Agreement, ClickOver shall prepare, with the cooperation of Focalink, an
Information Statement for purposes of soliciting such written consent of the
ClickOver Shareholders. The Information Statement shall contain the unanimous
recommendation of the Board of Directors of ClickOver that the ClickOver
Shareholders approve the Merger and this Agreement and the transactions
contemplated hereby and the conclusion of the Board of Directors that the terms
and conditions of the Merger are fair and reasonable to the ClickOver
Shareholders.
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Anything to the contrary contained herein notwithstanding, ClickOver shall not
include in the Information Statement any information with respect to Focalink or
its affiliates or associates, the form and content of which information shall
not have been approved by Focalink prior to such inclusion.
(e) Additional Assurances. Each of Focalink and ClickOver
shall use its best efforts to cause its respective shareholders to execute and
deliver such instruments and do and perform such acts and things as may be
necessary or desirable for complying with all applicable securities laws and
state corporate law.
5.2 Access to Information. Focalink and ClickOver shall each afford the
other and its accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time to
(a) all of its properties, books, contracts, commitments and records, and (b)
all other information concerning its business, properties and personnel (subject
to restrictions imposed by applicable law) as the other may reasonably request,
subject to reasonable limits on access to technical and other non-public
information. No information or knowledge obtained in any investigation pursuant
to this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein.
5.3 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to Section
5.2, or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential; provided,
however, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law, (c) became known to the
public through no fault of such party, (d) is later lawfully acquired by such
party from other sources, (e) is required to be disclosed by order of court or
government agency with subpoena powers or (f) which is required to be disclosed
in the course of any litigation between any of the parties hereto.
5.4 Intellectual Property. ClickOver and Focalink each agree that prior
to the Merger, any and all intellectual property, including trade secrets,
created or developed by either party shall remain the exclusive property of the
party who created or developed such property, notwithstanding the sharing of
information prior to the Merger.
5.5 Expenses. At the Closing, ClickOver shall pay all reasonable legal
and accounting fees and expenses incurred by Focalink in connection with the
Merger; provided, however, that Mayfield shall pay all reasonable fees and
expenses incurred (i) by Focalink in connection with the restructuring of the
Focalink Debt and (ii) by Cupertino in connection with the Merger. If the Merger
is not consummated, all fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties ("Third Party
Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby shall be the obligation
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of the respective party incurring such fees and expenses, provided, however,
that Cupertino's expenses shall remain the responsibility of Mayfield.
5.6 Public Disclosure. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
specific terms of this Agreement shall be made by any party to this Agreement
unless approved by Focalink and ClickOver prior to release, provided that such
approval shall not be unreasonably withheld.
5.7 Consents. Each of Focalink and ClickOver shall use reasonable
efforts to obtain the consents, waivers and approvals under any of the Focalink
Contracts or ClickOver Contracts, respectively, as may be required in connection
with the Merger (all of such consents, waivers and approvals are set forth in
the Focalink Schedules and the ClickOver Schedules, respectively) so as to
preserve all rights of and benefits to the Surviving Corporation thereunder.
5.8 FIRPTA Compliance. On or prior to the Closing Date, Focalink shall
deliver to ClickOver a properly executed statement in a form reasonably
acceptable to ClickOver for purposes of satisfying ClickOver's obligations under
Treasury Regulation Section 1.1445- 2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
ensure that its representations and warranties remain true and correct in all
material respects, and to take promptly, or cause to be taken, all actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided, however, that ClickOver shall not be required to agree
to any divestiture by ClickOver or affiliates of shares of capital stock or any
business, assets or property of ClickOver or its affiliates or Focalink or its
affiliates, or the imposition of any material limitation on the ability of any
of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
5.10 Notification of Certain Matters. Focalink and ClickOver shall each
give prompt notice to the other of (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which is likely to cause any of its
representations or warranties contained in this Agreement to be untrue or
inaccurate at or prior to the Effective Time and (ii) its failure to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.10 shall not limit or otherwise affect any remedies available to
the other.
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5.11 Certain Benefit Plans. ClickOver shall take such reasonable
actions as are necessary to allow eligible employees of Focalink that are hired
by ClickOver to participate in the benefit programs of ClickOver as soon as
practicable after the Effective Time.
5.12 Voting Agreement. Focalink shall deliver or cause to be delivered
to ClickOver, concurrently with the execution of this Agreement, from each
person listed on Schedule 5.12, an executed Voting Agreement in the form
attached hereto as Exhibit D (the "Voting Agreements"), agreeing, among other
things, to vote in favor of the Merger and against any competing proposals.
5.13 Additional Documents and Further Assurances. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.14 ClickOver Board of Directors. ClickOver shall use reasonable
efforts to ensure that the Board of Directors of ClickOver, effective upon the
Closing, will consist of Russell Siegelman, Scott Kauffman, Thomas Churchill and
Yogen Dalal.
5.15 Future Amendment to ClickOver Articles. In the event that, as part
of the first equity financing of ClickOver after the Closing of the Merger in
which the total proceeds received by ClickOver are $3,000,000 or more, ClickOver
issues a new series of ClickOver Preferred Stock that has price-based
antidilution protection for issuances of equity securities by ClickOver at less
than 25/32 of the Effective Issue Price (as defined in the Filed Articles) of
the ClickOver Series C-3 Preferred Stock, ClickOver shall use its reasonable
efforts to obtain the approval of its board of directors and shareholders to
amend the Filed Articles to provide price-based antidilution protection for the
ClickOver Series C-3 Preferred Stock for issuances of equity securities by
ClickOver at less than 25/32 of the Effective Issue Price (as defined in the
Filed Articles) of the ClickOver Series C-3 Preferred Stock.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of Focalink, ClickOver and Merger Sub to effect the
Merger shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Shareholder Approvals of the Merger. This Agreement and
the Merger shall have been approved and adopted by the Focalink Shareholders by
the requisite vote under applicable law and Focalink's Articles of Incorporation
and by the shareholders of ClickOver by the requisite vote under applicable law
and ClickOver's Articles of Incorporation.
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(b) Other Shareholder Approvals. If required by law, any other
agreement or document shall have been approved and adopted by the Focalink
Shareholders by the requisite vote under applicable law and Focalink's Articles
of Incorporation and/or by the shareholders of ClickOver by the requisite vote
under applicable law and ClickOver's Articles of Incorporation, including,
without limitation, the approval of the Filed Articles by the shareholders of
ClickOver.
(c) Government Approvals. All approvals of governments and
governmental agencies necessary to consummate the transactions hereunder shall
have been received.
(d) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
6.2 Additional Conditions to Obligations of Focalink. The obligations
of Focalink to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Focalink:
(a) Representations and Warranties. The representations and
warranties of ClickOver and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall have
been true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on ClickOver; and Focalink shall have received a certificate to such
effect signed on behalf of ClickOver by the chief executive officer and chief
financial officer of ClickOver.
(b) Agreements and Covenants. ClickOver shall have performed
or compiled in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by ClickOver on or prior to
the Effective Time, and Focalink shall have received a certificate to such
effect signed by the chief executive officer and chief financial officer of
ClickOver.
(c) Third Party Consents. Focalink shall have been furnished
with evidence satisfactory to it that ClickOver has obtained the consents,
approvals and waivers set forth in Schedule 6.2(c).
(d) Legal Opinion. Focalink shall have received a legal
opinion from Brobeck, Phleger & Harrison LLP, counsel to ClickOver, in
substantially the form attached hereto as Exhibit E, as the same may be amended
by the mutual agreement of Focalink and ClickOver.
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(e) Amendment of Investor Rights Agreement. ClickOver and the
holders of a majority of the Registrable Securities (as defined in that certain
Investor Rights Agreement dated March 14, 1997 (the "Investor Rights
Agreement")) shall have executed the Amendment No. 1 to the Investor Rights
Agreement substantially in the form attached hereto as Exhibit F.
(f) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
liabilities, financial condition or results of operations of ClickOver since the
date of the ClickOver Balance Sheet.
(g) Director Voting Agreement. KPCB shall have executed and
delivered a voting agreement (the "Director Voting Agreement") whereby, for so
long as Mayfield and Cupertino together hold in the aggregate ten percent (10%)
or more of the outstanding ClickOver Capital Stock on a fully diluted basis,
KPCB shall agree to vote all of its shares of ClickOver Capital Stock now or
hereafter owned by it for Yogen Dalal as a director of ClickOver.
6.3 Additional Conditions to Obligations of ClickOver. The obligations
of ClickOver to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by ClickOver:
(a) Representations and Warranties. The representations and
warranties of Focalink contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall have
been true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on Focalink; and ClickOver shall have received a certificate to such
effect signed on behalf of Focalink by the chief executive officer and chief
financial officer of Focalink.
(b) Agreements and Covenants. Focalink shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be preformed or complied with by it on or prior to the
Effective Time, and ClickOver shall have received a certificate to such effect
signed by the chief executive officer and chief financial officer of Focalink.
(c) Third Party Consents. ClickOver shall have been furnished
with evidence satisfactory to it that Focalink has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) Legal Opinion. ClickOver shall have received a legal
opinion from Latham & Watkins, legal counsel to Focalink, in substantially the
form attached hereto as Exhibit G, as the same may be amended by the mutual
agreement of ClickOver and Focalink.
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(e) Shareholder Questionnaire. Each of Focalink's Shareholders
and each holder of any Focalink Debt shall have delivered to ClickOver an
executed Shareholder Questionnaire which shall be in full force and effect.
(f) Purchaser Representative. There shall be a Purchaser
Representative, as defined in Regulation D under the Securities Act, reasonably
satisfactory to ClickOver representing each of the Focalink Shareholders and
each holder of any Focalink Debt who are not "accredited" as defined in
Regulation D, and such Purchaser Representative shall have executed
documentation reasonably satisfactory to ClickOver.
(g) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
liabilities, financial condition or results of operations of Focalink since the
date of the Focalink Balance Sheet.
(h) Dissenters' Rights. No holders of the outstanding shares
of Focalink Capital Stock shall have exercised, nor shall they have any
continued right to exercise, appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
(i) Exemption from Registration; Permit. In the judgment of
ClickOver's counsel (a) an exemption from registration under Section 4(2) or
Regulation D of the Securities Act shall be available for the issuance of
ClickOver Capital Stock and any other securities issued by ClickOver in the
Merger and (b) an exemption from registration and qualification under any
applicable state securities laws shall be available for the issuance of
ClickOver Capital Stock and any other securities issued by ClickOver in the
Merger or ClickOver shall have obtained a permit qualifying the issuance of such
ClickOver Capital Stock and other securities.
(j) Limited Focalink Trade Debt. At the Effective Time,
Focalink shall have no outstanding debts or liabilities other than (i) those
accounts payable, debts and liabilities, and for the stated amounts, set forth
in Schedule 6.3(j), and (ii) the Focalink Debt which shall be converted to
shares of Preferred Stock of ClickOver at the Closing.
(k) Focalink Employees and Burn Rate. At the Effective Time,
Focalink shall have no more than 26 full and part-time employees and Focalink's
aggregate operating expenses shall have been no greater than $300,000 for the
month of November 1997.
(l) Restructure of Focalink Debt. ClickOver shall have
received from Focalink documents or other evidence satisfactory to ClickOver in
the opinion of ClickOver's counsel showing that Mayfield has purchased from
Cupertino a portion of the Focalink Debt so that the outstanding principal
amount of the Focalink Debt held by Cupertino has been reduced to $2,000,000.
(m) Delivery of Focalink Certificates. The Focalink
Shareholders shall have delivered to ClickOver all original Focalink
Certificates.
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(n) Delivery of Focalink Notes; Release of Security Interest.
Cupertino and Mayfield shall have delivered to ClickOver the Focalink Notes or
shall have executed an instrument of cancellation in form and substance
acceptable to ClickOver. In addition, Cupertino and Mayfield shall have
delivered to ClickOver a properly executed Form UCC-2 termination statement and
any other documents required to release any security interest that Cupertino
and/or Mayfield may have in any of the assets of Focalink.
(o) Waiver of Rights to Purchase Additional Focalink Capital
Stock. ClickOver shall have received from Focalink documents or other evidence
satisfactory to ClickOver in the opinion of ClickOver's counsel showing that
Cupertino and Mayfield have waived all of each such party's respective right (i)
to purchase an increased number of shares of Focalink Capital Stock and (ii) to
purchase such Focalink Capital Stock at a price per share less than the Series
C-3 Liquidation Price (as defined in the Filed Articles) multiplied by the
Exchange Ratio, which rights may have accrued because of Focalink's failure to
pay the outstanding principal and interest of any Focalink Notes held by
Cupertino or Mayfield.
(p) Right of First Refusal Agreement. Cupertino and Mayfield
shall have executed the Right of First Refusal Agreement substantially in the
form attached hereto as Exhibit H.
(q) Cancellation of Outstanding Focalink Options. All
outstanding Focalink Options shall terminate immediately as of the Effective
Time.
(r) Director Voting Agreement. Cupertino and Mayfield each
shall have executed and delivered the Director Voting Agreement.
ARTICLE VII
ESCROW
7.1 Escrow Period. Subject to the following requirements, the Escrow
Fund (as defined below) shall be in existence immediately following the Closing
Date and terminate at 5:00 p.m., California time, on the first anniversary of
the Closing Date (the "Escrow Period"), provided that the Escrow Period shall
not terminate with respect to such amount that is necessary in the reasonable
judgment of ClickOver, subject to the objection of the Focalink Securityholder
Agent (as defined in Section 7.2(h)) and the subsequent arbitration of the
matter in the manner provided in Section 7.2(e) hereof, to satisfy any
unsatisfied claims concerning facts and circumstances existing prior to the
termination of such Escrow Period specified in any ClickOver Certificate
delivered to the Escrow Agent (as defined below) prior to termination of such
Escrow Period.
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time, the Participating
Shareholders will be deemed to have received and deposited with the Escrow Agent
(as defined below)
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shares of ClickOver Common Stock and ClickOver Preferred Stock (plus any
additional shares as may be issued upon any stock split, stock dividend or
recapitalization effected by ClickOver after the Effective Time) without any act
of any Participating Shareholder. As soon as practicable after the Effective
Time, the Escrow Amount, without any act of any Participating Shareholder, will
be deposited with an institution acceptable to ClickOver and the Focalink
Securityholder Agent as Escrow Agent (the "Escrow Agent"), such deposit to
constitute an escrow fund (the "Escrow Fund") to be governed by the terms set
forth herein and at ClickOver's cost and expense. The portion of the Escrow
Amount contributed on behalf of each Participating Shareholder shall be in
proportion to the aggregate ClickOver Common Stock and ClickOver Preferred Stock
which such holder would otherwise be entitled to receive under Section 1.6. No
portion of the Escrow Amount shall be contributed in respect of any Focalink
Warrants. Subject to the limits of Section 7.2(g) below, the Escrow Fund shall
be available to compensate ClickOver for any claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses, and expenses of investigation and defense (hereinafter
individually a "Loss" and collectively "Losses") incurred by ClickOver, its
officers, directors, or affiliates (including the Surviving Corporation)
directly or indirectly as a result of any inaccuracy or breach of a
representation or warranty of Focalink contained in Article II herein (as
modified by the Focalink Schedules), or any failure by Focalink to perform or
comply with any covenant contained herein. ClickOver and Focalink each
acknowledge that such Losses, if any, would relate to the unresolved
contingencies existing at the Effective Time, which, if resolved at the
Effective Time would have led to a reduction in the aggregate Merger
consideration.
(b) Distribution Upon Termination of Escrow Period. Upon
termination of the Escrow Period, the Escrow Agent shall deliver to the
Participating Shareholders the remaining portion of the Escrow Fund except for
any amount that is necessary to satisfy any unsatisfied claims, as determined in
accordance with Section 7.1. Deliveries of Escrow Amounts to the Participating
Shareholders pursuant to this Section 7.2(b) shall be made in proportion to
their respective original contributions to the Escrow Fund.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the
Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of ClickOver
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of ClickOver Common Stock or other
equity securities issued or distributed by ClickOver (including shares issued
upon a stock split, stock dividend or recapitalization effected by ClickOver
after the Effective Time) ("New Shares") in respect of ClickOver Common Stock or
ClickOver Preferred Stock in the Escrow Fund which have not been released from
the Escrow Fund shall be added to the Escrow Fund and become a part thereof.
Cash dividends on ClickOver Common Stock or ClickOver Preferred Stock shall not
be added to the Escrow Fund but shall be distributed to the Participating
Shareholders who are the beneficial owners thereof.
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(iii) Each Participating Shareholder shall have
voting rights with respect to the shares of ClickOver Common Stock and ClickOver
Preferred Stock contributed to the Escrow Fund by such Participating Shareholder
(and any voting securities added to the Escrow Fund in respect of such shares of
ClickOver Common Stock and ClickOver Preferred Stock).
(d) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on
or before the last day of the Escrow Period of a certificate signed by any
officer of ClickOver (a "ClickOver Certificate"): (A) stating that ClickOver has
paid or properly accrued or reasonably anticipates that it will have to pay or
accrue Losses, and (B) specifying in reasonable detail the individual items of
Losses included in the amount so stated, the date each such item was paid or
properly accrued, or the basis for such anticipated liability, and the nature of
the misrepresentation, breach of warranty or covenant to which such item is
related, the Escrow Agent shall, subject to the provisions of Section 7.2(e)
hereof, deliver to ClickOver out of the Escrow Fund, as promptly as practicable,
shares of ClickOver Common Stock and ClickOver Preferred Stock held in the
Escrow Fund in an amount equal to such Losses, and on behalf of each
Participating Shareholder in proportion to the total value of the shares of
ClickOver Common Stock and ClickOver Preferred Stock deposited in the Escrow
Fund on behalf of such Participating Shareholder (with the value of all shares
in the Escrow Fund being determined as provided in Section 7.2(d)(ii) below),
provided, however, that ClickOver shall not be entitled to make any claim
against the Escrow Fund until the aggregate amount of the Losses claimed by
ClickOver exceeds $50,000.
(ii) For purposes of determining the number of shares
of ClickOver Capital Stock to be delivered to ClickOver out of the Escrow Fund
pursuant to Section 7.2(d)(i) hereof, the value of each share of ClickOver
Common Stock shall be valued at ten percent (10%) of the Series C-3 Liquidation
Price (as defined in the Filed Articles), the value of each share of ClickOver
Series C-1 Preferred Stock shall be valued at the Series C-1 Liquidation Price
(as defined in the Filed Articles), the value of each share of ClickOver Series
C-2 Preferred Stock shall be valued at the Series C-2 Liquidation Price (as
defined in the Filed Articles) and the value of each share of ClickOver Series
C-3 Preferred Stock shall be valued at the Series C-3 Liquidation Price (as
defined in the Filed Articles).
(e) Objections of Claims. At the time of delivery of any
ClickOver Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Focalink Securityholder Agent and for a period of
thirty (30) days after such delivery, the Escrow Agent shall make no delivery to
ClickOver of any shares of ClickOver Common Stock or ClickOver Preferred Stock
held in the Escrow Fund pursuant to Section 7.2(d) hereof unless the Escrow
Agent shall have received written authorization from the Focalink Securityholder
Agent to make such delivery. After the expiration of such thirty (30) day
period, the Escrow Agent shall make delivery of shares of ClickOver Common Stock
and ClickOver Preferred Stock from the Escrow Fund in accordance with Section
7.2(d) hereof, provided that no such payment or delivery may be made if the
Focalink Securityholder Agent shall object in a written statement to the claim
made in the ClickOver Certificate, and such
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statement shall have been delivered to the Escrow Agent prior to the expiration
of such thirty (30) day period.
(f) Resolution of Conflicts; Arbitration.
(i) If the Focalink Securityholder Agent shall object
in writing to any claim or claims made in any ClickOver Certificate, the
Focalink Securityholder Agent and ClickOver shall attempt in good faith to agree
upon the rights of the respective parties with respect to each of such claims.
If the Focalink Securityholder Agent and ClickOver should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and distribute shares of ClickOver Common Stock and
ClickOver Preferred Stock from the Escrow Fund in accordance with the terms
thereof.
(ii) If no such agreement can be reached after good
faith negotiation, either ClickOver or the Focalink Securityholder Agent may
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. ClickOver and the Focalink Securityholder Agent
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator. The arbitrators shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole judgment of the
arbitrators, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrators shall rule upon motions to
compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the extent as a court of competent law
or equity, should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of a majority of the three arbitrators
as to the validity and amount of any claim in such ClickOver Certificate shall
be binding and conclusive upon the parties to this Agreement, and
notwithstanding anything in Section 7.2(e) hereof, the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold payments
out of the Escrow Fund in accordance therewith. Such decision shall be written
and shall be supported by written findings of fact and conclusions which shall
set forth the award, judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Santa Clara County, California under the rules then
in effect of the American Arbitration Association. For purposes of this Section
7.2(f)(iii), in any arbitration hereunder in which any claim or the amount
thereof stated in the ClickOver Certificate is at issue, ClickOver shall be
deemed to be the Non-Prevailing Party in the event that the arbitrators award
ClickOver less than the sum of one-half (1/2) of the disputed amount plus any
amounts not in dispute; otherwise, the Participating Shareholders as represented
by the Focalink Securityholder Agent shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own expenses,
the fees of each arbitrator, the administrative costs of the arbitration and the
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expenses, including without limitation, reasonable attorneys' fees and costs,
incurred by the other party to the arbitration.
(g) Limitation of Liability. In no event will the
Participating Shareholders be liable (i) for any claims alleging incidental,
consequential, special or indirect damages (including without limitation, any
damages arising from the loss of business, data, profits or goodwill) incurred
or suffered by ClickOver with respect to this Agreement or the transactions
contemplated hereby, even if the Participating Shareholders have been apprised
of the likelihood of any such claim and (ii) for any damages incurred or
suffered by ClickOver unless such claim is received by the Participating
Shareholders in accordance with Section 7.2(d)(i) within one year after the
Closing Date. Focalink shall not be liable to ClickOver for any amounts, in the
aggregate, which exceed the value of the ClickOver Capital Stock placed in
escrow pursuant to Article VII of this Agreement with the value of such
ClickOver Capital Stock being determined in accordance with the provisions of
Section 7.2(d)(ii).
(h) Focalink Securityholder; Power of Attorney.
(i) In the event that the Merger is approved,
effective upon such vote, and without further act of any Participating
Shareholder, Yogen Dalal shall be appointed as agent and attorney-in-fact (the
"Focalink Securityholder Agent") for and on behalf of the Participating
Shareholders, to give and receive notices and communications, to authorize
delivery to ClickOver of shares of ClickOver Common Stock and ClickOver
Preferred Stock from the Escrow Fund in satisfaction of claims by ClickOver, to
object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Focalink Securityholder Agent
for the accomplishment of the foregoing. Such agency may be changed by the
Participating Shareholders from time to time upon not less than thirty (30) days
prior written notice to ClickOver; provided that the Focalink Securityholder
Agent may not be removed unless holders of two-thirds in interest of the Escrow
Fund (based on the value of the shares in the Escrow Fund determined pursuant to
Section 7.2(d)(ii)) agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of the Focalink Securityholder Agent may be
filled by approval of the holders of a majority in interest of the Escrow Fund.
No bond shall be required of the Focalink Securityholder Agent, and the Focalink
Securityholder Agent shall not receive compensation for his or her services.
Notice or communications to or from the Focalink Securityholder Agent shall
constitute notice to or from each of the Participating Shareholders.
(ii) The Focalink Securityholder Agent shall not be
liable for any act done or omitted hereunder as Focalink Securityholder Agent
while acting in good faith and in the exercise of reasonable judgement. The
Participating Shareholders shall severally indemnify the Focalink Securityholder
Agent and hold the Focalink Securityholder Agent harmless against any loss,
liability or expense incurred without negligence or bad faith on the part of the
Focalink Securityholder Agent and arising out of or in connection with the
acceptance or administration of the Focalink Securityholder Agent's duties
hereunder,
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including the reasonable fees and expenses of any legal counsel retained by the
Focalink Securityholder Agent.
(i) Actions of the Focalink Securityholder Agent. A decision,
act, consent or instruction of the Focalink Securityholder Agent shall
constitute a decision of all the Participating Shareholders and shall be final,
binding and conclusive upon each of such Participating Shareholders, and the
Escrow Agent and ClickOver may rely upon any such decision, act, consent or
instruction of the Focalink Securityholder Agent as being the decision, act,
consent or instruction of each and every such Participating Shareholder. The
Escrow Agent and ClickOver are hereby relieved from any liability to any person
for any acts done by them in accordance with such decision, act, consent or
instruction of the Focalink Securityholder Agent.
(j) Third Party Claims. In the event ClickOver becomes aware
of a third party claim which ClickOver believes may result in a demand against
the Escrow Fund, ClickOver shall notify the Focalink Securityholder Agent of
such claim, and the Focalink Securityholder Agent, as representative for the
Participating Shareholders, shall be entitled, at the Participating
Shareholders' expense, to participate in any defense of such claim. ClickOver
shall have the right in its sole discretion to settle any such claim; provided,
however, that except with the consent of the Focalink Securityholder Agent, no
settlement of any such claim with third party claimants shall be determinative
of the amount of any claims against the Escrow Fund. In the event that the
Focalink Securityholder Agent has consented to any such settlement, the Focalink
Securityholder Agent shall have no power or authority to object under any
provision of this Article VII to the amount of any claim by ClickOver against
the Escrow Fund with respect to such settlement.
(k) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
ClickOver and the Focalink Securityholder Agent, and may rely and shall be
protected in relying or refraining from acting on any instruction reasonably
believed to be genuine and to have been signed or presented by the proper party
or parties. The Escrow Agent shall not be liable for any act done or omitted
hereunder as Escrow Agent while acting in good faith and in the exercise of
reasonable judgment, and any act done or omitted pursuant to the advice of
counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized
to comply with and obey orders, judgments or decrees of any court of law,
notwithstanding any notices, warning or other communications form any party or
any other person to the contrary. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without justification.
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(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent. The Escrow Agent shall not incur any such liability for (A) any act or
failure to act made or omitted in good faith, or (B) any action taken or omitted
in reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with legal counsel in connection with
the Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by it in good faith in accordance with the
advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to
this Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of ClickOver Common Stock and Click Over
Preferred Stock and may wait for settlement of any such controversy by final
appropriate legal proceedings or other means as, in the Escrow Agent's
discretion, the Escrow Agent may require, despite what may be set forth
elsewhere in this Agreement. In such event, the Escrow Agent will not be liable
for damage. Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and shares of ClickOver Common Stock and ClickOver
Preferred Stock held in the Escrow Fund except all cost, expenses, charges and
reasonable attorneys' fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon initiating
such action, the Escrow Agent shall be fully released and discharged of and from
all obligations and liability imposed by the terms of this Agreement.
(vii) The parties and their respective successors and
assigns agree jointly and severally to indemnify and hold the Escrow Agent
harmless against all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation and reasonable attorneys' fees and
disbursements that may be imposed on the Escrow Agent or incurred by the Escrow
Agent in connection with the performance of his or her duties under
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this Agreement, including but not limited to any litigation arising from this
Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to the parties; provided,
however, that no such resignation shall become effective until the appointment
of a successor escrow agent which shall be accomplished as follows: the parties
shall use their best efforts to mutually agree on a successor escrow agent
within thirty (30) days after receiving such notice. If the parties fail to
agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business in
the State of California. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent. The Escrow
Agent shall be discharged from any further duties and liability under this
Agreement.
(l) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by ClickOver. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, reasonable attorneys' fees and expenses occasioned by such
default, delay, controversy or litigation.
ClickOver promises to pay these sums upon demand.
ARTICLE VIII
LIABILITY OF CLICKOVER
8.1 Claims Against ClickOver. Any claim or claims by any Focalink
Shareholder or any holder of any Focalink Debt (the "Claimant") against
ClickOver arising out of this Agreement or the transactions contemplated hereby
shall be set forth in writing, stating with reasonable detail the factual and
legal basis for such claim(s) and the individual dollar amount of such claim(s),
and shall be delivered to ClickOver on or before the first anniversary of the
Closing Date. The liability of ClickOver for any such claim shall be determined
in the manner provided in this Article VIII and shall be subject to the limits
set forth in Section 8.3. Nothing in this Article VIII shall grant or be
construed to grant any rights, including but not limited to any third party
beneficiary rights, to any Focalink Shareholder or any holder of any Focalink
Debt that they do not otherwise have.
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8.2 Resolution of Conflicts; Arbitration.
(a) Within thirty (30) days of receiving a claim or claims
from any Claimant, ClickOver shall notify the Claimant in writing whether it
objects to the claim(s). In the case ClickOver shall so object in writing to any
claim or claims, ClickOver and the Claimant shall attempt in good faith to agree
upon the rights of the respective parties with respect to each of such claims.
If the Claimant and ClickOver shall so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties. If no such agreement can
be reached after good faith negotiation, either ClickOver or the Claimant may
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. ClickOver and the Claimant shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrators shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrators, to discover
relevant information from the other party about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys' fees and
costs, to the extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim by the Claimant shall be binding and conclusive
upon the Claimant and ClickOver. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
(b) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara County, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 8.2(b), in any arbitration
hereunder in which any claim or the amount thereof is at issue, the Claimant
shall be deemed to be the Non-Prevailing Party in the event that the arbitrators
award the Claimant less than the sum of one-half (1/2) of the disputed amount
plus any amounts not in dispute; otherwise, ClickOver shall be deemed to be the
Non- Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its
own expenses, the fees of each arbitrator, the administrative costs of the
arbitration and the expenses, including without limitation, reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
8.3 Limitation of Liability. In no event will ClickOver be liable to
Focalink or any Focalink Shareholder or any holder of any Focalink Debt (i) for
any claims alleging incidental, consequential, special or indirect damages
(including without limitation, any damages arising from the loss of business,
data, profits or goodwill) incurred or suffered by Focalink, the Focalink
Shareholder or the holder of any Focalink Debt with respect to this Agreement or
the transactions contemplated hereby, even if ClickOver has been apprised of the
likelihood of any such claim and (ii) for any damages incurred or suffered by
Focalink,
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the Focalink Shareholder or the holder of any Focalink Debt unless such claim is
received by ClickOver in accordance with Section 8.1 within one year after the
Closing Date. Focalink, any Focalink Shareholder or the holder of any Focalink
Debt shall not be entitled to make any claim against ClickOver until the
aggregate amount of the losses claimed by Focalink, all Focalink Shareholders
and all holders of any Focalink Debt exceeds $50,000. ClickOver shall not be
liable to Focalink, any Focalink Shareholder or the holder of any Focalink Debt
for any amounts, in the aggregate, which exceed the value of the ClickOver
Capital Stock placed in escrow pursuant to Article VII of this Agreement with
the value of such ClickOver Capital Stock being determined in accordance with
the provisions of Section 7.2(d)(ii).
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual written consent of Focalink and ClickOver;
(b) by ClickOver or Focalink if: (i) the Effective Time has
not occurred before 5:00 p.m. (Pacific time) on December 31, 1997 (provided that
the right to terminate this Agreement under this clause 9.1(b)(i) shall not be
available to pay any party whose willful failure to fulfill any obligation
hereunder has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date); (ii) there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger; or (iii) there shall be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any governmental
entity that would make consummation of the Merger illegal;
(c) by ClickOver or Focalink if there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Merger, by any governmental entity, which would: (i)
prohibit ClickOver's ownership or operation of all or any portion of the
business of Focalink or (ii) compel ClickOver to dispose of or hold separate all
or a portion of the business or assets of Focalink or ClickOver as a result of
the Merger;
(d) by ClickOver if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Focalink and (i) such breach has not been cured within five (5)
business days after written notice to Focalink (provided that, no cure period
shall be required for a breach which by its nature cannot be cured), and (ii) as
a result of such breach the conditions set forth in Section 6.3(a) or 6.3(b), as
the case may be, would not then be satisfied; or
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(e) by Focalink if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of ClickOver and (i) such breach has not been cured within five (5)
business days after written notice to ClickOver (provided that, no cure period
shall be required for a breach which by its nature cannot be cured), and (ii) as
a result of such breach the conditions set forth in Section 6.2(a) or 6.2(b), as
the case may be, would not then be satisfied.
When action is taken to terminate this Agreement pursuant to this
Section 9.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action. Mayfield and
Cupertino shall have no right to terminate this Agreement.
9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of ClickOver, Merger
Sub, Focalink, Mayfield or Cupertino, or their respective officers, directors,
partners or shareholders, provided that each party shall remain liable for any
breaches of this Agreement prior to its termination; and provided further that
the provisions of Sections 5.3, 5.4 and 5.5 of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
9.3 Amendment. Except as is otherwise required by applicable law after
the shareholders of Focalink and ClickOver approve this Agreement, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time,
ClickOver, on the one hand, and Focalink (with the consent of Mayfield and
Cupertino), on the other, may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations, Warranties and Agreements. All
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and shall (except to the extent that survival is
necessary to effectuate the intent of such provisions) terminate on the first
anniversary of the Closing Date.
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10.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given upon (a) personal delivery to the party to
be notified, (b) upon facsimile transmission to the party to be notified at the
facsimile number indicated for such party below, if any, upon confirmation of
transmission or (c) one (1) day after deposit with a reputable overnight courier
service or three (3) days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party at the following address (or at
such other address for a party as shall be specified by like notice):
(a) If to ClickOver, to:
ClickOver, Inc.
3045 Park Boulevard, Suite 200
Palo Alto, CA 94306
Attention: President
Telephone No: (650) 617-6800
Facsimile No: (650) 617-6900
With a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, CA 92101
Attention: John A. Denniston
Telephone: (619) 234-1966
Facsimile: (619) 234-3848
(b) If to Focalink, to:
Focalink Communications, Inc.
2191 East Bayshore Road, First Floor
Palo Alto, CA 94303
Attention: Ron Kovas
Telephone: (650) 842-0660
Facsimile: (650) 842-0665
With a copy to:
Latham & Watkins
75 Willow Road
Menlo Park, California
Attention: Allen Morgan
Telephone: (650) 328-4600
Facsimile: (650) 463-2600
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(c) If to Cupertino, to:
Cupertino National Bank & Trust
3 Palo Alto Square, Suite 150
Palo Alto, CA 94306
Attention: John Krogstad
Telephone No: (650) 813-3815
Facsimile No: (650) 843-6969
(d) If to Mayfield:
Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Attention: Yogen Dalal
Telephone No.: (650) 854-5560
Facsimile No.: (650) 854-5712
(e) If to the Focalink Securityholder Agent:
Yogen Dalal
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Attention: Yogen Dalal
Telephone No.: (650) 854-5560
Facsimile No.: (650) 854-5712
10.3 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.5 Entire Agreement: Assignment. This Agreement, the Schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
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10.6 Severability. In the event that any provision of this Agreement or
the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonable
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by any party of any one remedy will not preclude
the exercise of any other remedy.
10.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto agrees that process may be served upon them
in any manner authorized by the laws of the State of California for such persons
and waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
10.9 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
10.10 Dispute Resolution.
(a) If this Agreement is terminated and the Merger is
abandoned at any time prior to the Effective Time, any dispute arising from or
specifically related to this Agreement or any alleged breach thereof, or with
respect to any of the transactions or events contemplated hereby, and if the
parties, after attempting to resolve the dispute in good faith by referring the
dispute to a corporate officer or partner of each party, have not been able to
resolve the dispute, the parties agree to endeavor first to settle the dispute
in an amicable manner by non-binding mediation in Santa Clara County, California
before a retired judge of a Federal District Court or California Superior Court,
or some similarly qualified, mutually agreeable individual. The parties shall
bear the costs of such mediation equally.
(b) If the dispute is not resolved by mediation pursuant to
Section 10.10(a) above, or if the parties fail to agree upon a mediator within
thirty (30) days after their failure to resolve the dispute, or either party
declines mediation, the dispute shall be settled by arbitration which shall be
conducted in accordance with the rules and procedures of American Arbitration
Association ("AAA") then in effect with respect to commercial disputes and shall
be held in Palo Alto, California. The dispute shall be heard before a panel of
three arbitrators unless the parties agree in writing to a hearing by a sole
arbitrator. In the case of a panel of
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three arbitrators, ClickOver and Focalink will each select one arbitrator within
ten (10) days and such arbitrators shall jointly select a third arbitrator. If
the two arbitrators are unable to agree upon the third arbitrator within ten
(10) days of their appointment, the parties hereby consent to the selection of
the third arbitrator by the AAA administrator. The arbitrators shall determine
all issues regarding such dispute, including without limitation, procedure,
discovery, arbitrability and waiver. The arbitrators shall have the discretion
to order a prehearing exchange of information by the parties, including, without
limitation, production of requested documents, exchange of summaries of
testimony by proposed witnesses and examination by deposition of parties. The
parties shall instruct the arbitrators to render their decision no later than
ninety (90) days after submission of the dispute, which decision shall be in
writing and shall specify the factual and legal bases for the award. The
arbitration of such issues, including the determination of any amount of damages
suffered by any party hereto by reason of acts or omissions of the other party,
shall be final and binding upon all parties. Judgment on the arbitration award
may be entered in any court having jurisdiction thereof. Notwithstanding the
foregoing, the arbitrator or arbitrators shall not be authorized to award
punitive damages with respect to any such claim or controversy, nor shall any
party seek punitive damages relating to any matter under, arising out of or
relating to this Agreement under any circumstances. Except as otherwise set
forth in the Agreement, the cost of any arbitration or mediation hereunder,
including the cost of the record or transcripts thereof, if any, administrative
fees, and all other fees involved including reasonable attorneys' fees incurred
by the party determined by the arbitrators to be the prevailing party, shall be
paid by the party determined by the arbitrators not to be the prevailing party,
or otherwise allocated in an equitable manner as determined by the arbitrators.
(c) Notwithstanding any other provision of this Section 10.10
to the contrary, the parties hereto agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity. The prevailing party shall be entitled to
recover from the other party reasonable attorneys' fees and costs in connection
with any such proceedings.
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IN WITNESS WHEREOF, ClickOver, Merger Sub, Focalink, Cupertino,
Mayfield VII, Mayfield Associates Fund II and the Focalink Securityholder Agent
have each caused this Agreement to be executed by their duly authorized
respective officers, all as of the date first written above.
CLICKOVER, INC. FOCALINK COMMUNICATIONS, INC.
By:_______________________________ By: __________________________
Name: Name:
Title: Title:
FOCALINK ACQUISITION CORPORATION CUPERTINO NATIONAL BANK &
TRUST
By:_______________________________ By: __________________________
Name: Name:
Title: Title:
MAYFIELD VII MAYFIELD ASSOCIATES FUND II
By:_______________________________ By: __________________________
Name: Name:
Title: Title:
FOCALINK SECURITYHOLDER
AGENT
By: _______________________________
Name:
Title:
67
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SCHEDULE 1.14(a
DIRECTORS, OFFICERS AND EMPLOYEES OF FOCALINK WITH KNOWLEDGE
Yogen Dalal
Ronald A. Kovas
Peggy Wiley
Peter Kools
John Mracek
Walter Kupiec
Roberta Greenspan
Jennifer Dormoy
Drew Shulz
Dave Zinman
68
<PAGE> 76
SCHEDULE 1.14(b
DIRECTORS, OFFICERS AND EMPLOYEES OF CLICKOVER WITH KNOWLEDGE
Russell Siegelman
Scott Kauffman
Thomas Churchill
Chih-Chao Lam
Thi Thumasathit
John Worthington
Scott Ernst
Steve Findley
69
<PAGE> 77
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF CLICKOVER, INC.
A CALIFORNIA CORPORATION
The undersigned Scott Kauffman and Thi Thumasathit hereby certify that:
ONE: They are the President and Assistant Secretary, respectively, of
ClickOver, Inc., a California corporation.
TWO: The Articles of Incorporation of this corporation are hereby amended
and restated to read in full as follows:
ARTICLE I
The name of this corporation is ClickOver, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. Classes of Stock. This 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 which the corporation shall have
authority to issue is 35,000,000 shares. The total number of shares of Common
Stock which the corporation is authorized to issue is 25,000,000. The total
number of shares of Preferred Stock which the corporation is authorized to issue
is 10,000,000, of which 525,000 shares shall be Series A Preferred Stock,
5,512,000 shares shall be Series B Preferred Stock, 580,000 shares shall be
Series C-1 Preferred Stock, 620,000 shares shall be Series C-2 Preferred Stock
and 2,750,000 shares shall be Series C-3 Preferred Stock.
B. Rights, Preferences and Restrictions of the Preferred Stock. The rights,
preferences, privileges and restrictions granted to and imposed on the Preferred
Stock are as set forth below in this Article III(B). The Board of Directors of
this corporation (the "Board") is hereby authorized to fix or alter the rights,
preferences, privileges, and restrictions granted to or imposed upon additional
series of Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or of any of them. Subject to compliance with the
applicable protective voting rights which have been or may be granted to the
Preferred Stock or any series thereof in Certificates of Determination or this
corporation's
<PAGE> 78
Articles of Incorporation ("Protective Provisions"), but notwithstanding any
other rights of the Preferred Stock or any series thereof, the rights,
privileges, preferences, and restrictions of any such additional series may be
subordinated to, pari passu with, or senior to any of those of any present or
future class or series of Preferred Stock or Common Stock. Subject to compliance
with any applicable Protective Provisions, the Board is also authorized to
increase or decrease the number of shares of any series prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. If any shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
1. Dividend Provisions
(a) Subject to the rights of any additional series of Preferred
Stock that may from time to time come into existence, the holders of outstanding
shares of Preferred Stock shall be entitled to receive dividends at the rate of
$0.01 per share per annum for the Series A Preferred Stock, $0.03 per share per
annum for the Series B Preferred Stock, $0.05 per share per annum for the Series
C-1 Preferred Stock, $0.21 per share per annum for the Series C-2 Preferred
Stock and $0.12 per share per annum for the Series C-3 Preferred Stock, out of
any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Common Stock of this corporation payable when, as and if
declared by a unanimous vote or consent of the Board. Such dividends shall not
be cumulative. Declared but unpaid dividends with respect to an outstanding
share of Preferred Stock shall, upon conversion of such share to Common Stock,
be paid to the extent assets are legally available therefor either in cash or in
Common Stock (valued at the fair market value on the date of payment as
determined by the Board). Any amounts for which such assets are not legally
available shall be paid promptly as assets become legally available therefor.
(b) After payment of any such dividends, any additional dividends
or distributions shall be distributed among all holders of Common Stock and all
holders of Preferred Stock in proportion to the number of shares of Common Stock
which would be held by each such holder if all outstanding shares of Preferred
Stock were converted to Common Stock at the then effective conversion rate.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of any
additional series of Preferred Stock that may from time to time come into
existence, the holders of the outstanding shares of Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of the corporation to the holders of Common Stock by reason of their
ownership thereof, (i) for the Series A Preferred Stock, an amount per share
equal to $0.20 for each outstanding share of Series A Preferred Stock, (ii) for
the Series B
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Preferred Stock, an amount per share equal to $0.4717 for each outstanding share
of Series B Preferred Stock, (iii) for the Series C-1 Preferred Stock, an amount
per share equal to $0.8451 for each outstanding share of Series C-1 Preferred
Stock (the "Series C-1 Liquidation Price"), (iv) for the Series C-2 Preferred
Stock, an amount per share equal to $3.2981 for each outstanding share of Series
C-2 Preferred Stock (the "Series C-2 Liquidation Price"), and (v) for the Series
C-3 Preferred Stock, an amount per share equal to $1.9129 for each outstanding
share of Series C-3 Preferred Stock (the "Series C-3 Liquidation Price"). If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the outstanding shares of Preferred Stock shall be insufficient
to permit the payment to such holders of the full aforesaid preferential
amounts, then, subject to the rights of any additional series of Preferred Stock
that may from time to time come into existence, the entire assets and funds of
the corporation legally available for distribution shall be distributed ratably
among the holders of the outstanding shares of Preferred Stock in proportion to
the preferential amount each such holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required by
subparagraph (a) of this Section 2 and any other distribution that may be
required with respect to any additional series of Preferred Stock that may from
time to time come into existence, the remaining assets of the corporation
available for distribution to shareholders shall be distributed among the
holders of Preferred Stock and Common Stock pro rata based on the number of
shares of Common Stock held by each (assuming conversion of all such outstanding
shares of Preferred Stock) until, (i) with respect to the holders of Series A
Preferred Stock, such holders shall have received an aggregate of $0.80 per
share (including amounts paid pursuant to subsection (a) of this Section 2),
(ii) with respect to the holders of Series B Preferred Stock, such holders shall
have received an aggregate of $1.8868 per share (including amounts paid pursuant
to subsection (a) of this Section 2), (iii) with respect to the holders of
Series C-1 Preferred Stock, such holders shall have received an aggregate of
$3.3804 per share (including amounts paid pursuant to subsection (a) of this
Section 2), (iv) with respect to the holders of Series C-2 Preferred Stock, such
holders shall have received an aggregate of $13.1924 per share (including
amounts paid pursuant to subsection (a) of this Section 2) and (v) with respect
to the holders of Series C-3 Preferred Stock, such holders shall have received
an aggregate of $7.6516 per share (including amounts paid pursuant to subsection
(a) of this Section 2); thereafter, subject to the rights of any additional
series of Preferred Stock that may from time to time come into existence, if
assets remain in this corporation, the holders of the Common Stock of this
corporation shall receive all of the remaining assets of this corporation pro
rata based on the number of shares of Common Stock held by each.
(c) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include, (A) the acquisition of the corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's shareholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as
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consideration for the corporation's acquisition or sale or otherwise) hold at
least 50% of the voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by
the corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to an investment letter or
other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through
NASDAQ-NMS, the value shall be deemed to be the average of the closing prices of
the securities on such exchange over the thirty-day period ending three (3) days
prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock, voting together as a single class.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Preferred Stock, voting together as a single class.
(iii) in the event the requirements of this subsection 2(c)
are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this subsection 2(c) have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of outstanding shares of Preferred
Stock shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days
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prior to the closing of such transaction, whichever is earlier, and shall also
notify such holders in writing of the final approval of such transaction. The
first of such notices shall describe the material terms and conditions of the
impending transaction and the provisions of this Section 2, and the corporation
shall thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
corporation has given the first notice provided for herein or sooner than ten
(10) days after the corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the holders of a majority of the voting power of all then
outstanding shares of Preferred Stock that are entitled to such notice rights or
similar notice rights, voting together as a single class.
(v) The rights granted pursuant to this subsection 2(c) are
in addition to the rights granted pursuant to Section 5 herein.
3. Redemption. The Preferred Stock is not redeemable.
4. Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Effective Issue Price (as defined
below) for such series of Preferred Stock by the Conversion Price applicable to
such series, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. The Effective Issue Price for the
Series A Preferred Stock shall be $0.20 per share; the Effective Issue Price for
the Series B Preferred Stock shall be $0.4717 per share; the Effective Issue
Price for the Series C-1 Preferred Stock and Series C-2 Preferred Stock shall be
$0.8451 per share; and the Effective Issue Price for the Series C-3 Preferred
Stock shall be $1.9129 per share. The initial Conversion Price per share for
each series shall be the Effective Issue Price for such series; provided,
however, that the Conversion Price shall be subject to adjustment as set forth
in subsection 4(d).
(b) Automatic Conversion. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for the respective series of Preferred Stock immediately
upon the earlier of (A) except as provided below in subsection 4(c), the
corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which was not less than $1.9129 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and $10 million in the aggregate or (B) the date specified by
written consent or agreement of the holders of at least a majority of the then
outstanding shares of Preferred Stock, voting together as a single class.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, such holder
shall
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surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for such Preferred Stock, and shall
give written notice to this corporation at its principal corporate office, of
the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of such Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
A, Series B, Series C-1, Series C-2 and Series C-3 Preferred Stock shall be
subject to adjustment from time to time as follows:
(i) (A) (1) If the corporation shall issue, after the date
upon which any shares of Series C-3 Preferred Stock were first issued (the
"Purchase Date"), any Additional Stock (as defined below) without consideration
or for a consideration per share less than the Conversion Price for the Series
A, Series B, Series C-1 and/or Series C-2 Preferred Stock in effect immediately
prior to the issuance of such Additional Stock, the Conversion Price of the
Series A, Series B, Series C-1 and/or Series C-2 Preferred Stock in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this clause d(i)) be adjusted to a price determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of Common Stock that the aggregate consideration received
by the corporation for such issuance would purchase at such Conversion Price and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of such
Additional Stock.
(2) If the corporation shall issue, after the
Purchase Date, any Additional Stock without consideration or for a consideration
per share less than the Conversion Price for the Series C-3 Preferred Stock in
effect immediately prior to the issuance of such Additional Stock, the
Conversion Price for the Series C-3 Preferred Stock in effect immediately prior
to the each such issuance shall forthwith (except as otherwise provided in this
clause d(i)) be adjusted to a price determined by multiplying such
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Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock that the aggregate consideration received by
the corporation for such issuance would purchase at such Conversion Price and
the denominator of which shall be the lesser of, or, if both such clauses are
equal, then the denominator shall be equal to, (I) the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
shares of such Additional Stock or (II) the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock that the aggregate consideration received by the corporation for
such issuance would purchase at twenty-five thirty-seconds (25/32) of the
Effective Issue Price for the Series C-3 Preferred Stock (adjusted solely for
calculations under this clause (d)(i)(A)(2) to reflect subsequent stock
dividends, stock splits or recapitalizations).
(B) No adjustment of the Conversion Price for any
series of Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of 3 years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subsections (E)(3)
and (E)(4), no adjustment of such Conversion Price pursuant to this subsection
4(d)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board
irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights
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were issued and for a consideration equal to the consideration (determined in
the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)), if any, received
by the corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights (without taking into account
potential antidilution adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of each series of Preferred Stock to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of each series of Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
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(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E))
by this corporation after the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof;
(B) shares of Common Stock issuable or issued to
employees, consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board at any time when the
total number of shares of Common Stock so issuable or issued (and not
repurchased at cost by the corporation in connection with the termination of
employment) does not exceed 2,850,000;
(C) Common Stock issued upon conversion of shares of
Preferred Stock;
(D) up to 100,000 shares of Common Stock issued to
banks or equipment lessors, provided such issuances are for other than primarily
equity financing purposes and approval by the Board; and
(E) up to 250,000 shares of Common Stock issued in
connection with business combinations or corporate partnering agreements
approved by the Board.
(iii) In the event the corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the Conversion
Price of each series of Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be increased in proportion to such increase in the aggregate
number of shares of Common Stock outstanding and those issuable with respect to
such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for each series of Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series
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shall be decreased in proportion to such decrease in the aggregate number of
shares of Common Stock outstanding.
(e) Other Distributions. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the holders of
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of
Preferred Stock shall thereafter be entitled to receive upon conversion of such
series of Preferred Stock the number of shares of stock or other securities or
property of the corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion of the Preferred Stock would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 4 with respect to the rights
of the holders of Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price then
in effect and the number of shares issuable upon conversion of the Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
(g) No Impairment. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock and against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion
of any share or shares of Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
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(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of a series of Preferred Stock pursuant to this Section
4, this corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of such Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for such series of Preferred Stock at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of such
series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least 20 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, this corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to these Articles of
Incorporation.
(k) Notices. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his or her address appearing on the books
of this corporation.
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5. Voting Rights.
(a) The holder of each outstanding share of Preferred Stock shall
have the right to one vote for each share of Common Stock into which such
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock and shall be entitled, notwithstanding any
provision hereof, to notice of any shareholders' meeting in accordance with the
bylaws of this corporation, and shall be entitled to vote, together with holders
of Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote. Fractional votes shall not, however, be permitted and
any fractional voting rights available on an as-converted basis (after
aggregating all shares into which such outstanding shares of Preferred Stock
held by each holder could be converted) shall be rounded to the nearest whole
number (with one-half being rounded upward).
(b) Notwithstanding the provisions of Section 5(a) above, so long
as 2,650,000 shares of Series B Preferred Stock remain outstanding (as adjusted
for subsequent reverse stock splits, recapitalizations and the like), the
holders of Series B Preferred Stock, voting as a separate class, shall be
entitled to elect one (1) director of the corporation (the "Series B Director").
At any meeting held for the purpose of electing or nominating directors, the
presence in person or by proxy of the holders of a majority of the Series B
Preferred Stock then outstanding shall constitute a quorum of the Series B
Preferred Stock for the election or nomination of the Series B Director. A
vacancy in the directorship elected solely by the holders of Series B Preferred
Stock shall be filled only by vote of the holders of Series B Preferred Stock.
6. Protective Provisions. Subject to the rights of any additional
series of Preferred Stock which may from time to time come into existence, so
long as at least twenty-five percent (25%) of the shares of any series of
Preferred Stock remain outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of a majority of the then outstanding shares of Series A, Series B,
Series C-1, Series C-2 and Series C-3 Preferred Stock, voting together as a
single class:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
(b) alter or change the rights, preferences or privileges of the
shares of any series of Preferred Stock so as to adversely affect the shares;
(c) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security having a preference over, or being on a parity with, any
then existing series of Preferred Stock with respect to voting, dividends,
redemption or upon liquidation; or
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<PAGE> 89
(d) amend the corporation's Articles of Incorporation or bylaws.
7. Status of Converted Stock. In the event any shares of Preferred
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be cancelled and shall not be issuable by the corporation. The Articles of
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when, as and if
declared by the unanimous vote or written consent of the Board, out of any
assets of the corporation legally available therefor, such dividends as may be
declared from time to time by the Board.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article III.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. Except in the election of a director by the holders
of Series B Preferred Stock as provided in Section 5(b) of Division (B) of this
Article III, the holder of each share of Common Stock shall have the right to
one vote, and shall be entitled to notice of any shareholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.
ARTICLE IV
A. The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
B. The corporation is authorized, to the fullest extent permissible under
California law, to provide indemnification of agents (as defined in Section 317
of the California Corporations Code) through bylaw provisions, agreements with
the agents, vote of shareholders or disinterested directors, or otherwise in
excess of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject only to applicable limits set forth in
Section 204 of the California Corporations Code with respect to actions for
breach of duty to the corporation and its shareholders.
* * *
THREE: The foregoing amendment and restatement has been approved by the
Board.
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FOUR: The foregoing amendment and restatement was approved by the holders
of the requisite number of shares of the corporation in accordance with Sections
902 and 903 of the California General Corporation Law; the total number of
outstanding shares of each class entitled to vote with respect to the foregoing
amendment and restatement was 5,836,721 shares of Common Stock, 525,000 shares
of Series A Preferred Stock and 5,512,000 shares of Series B Preferred Stock.
The number of shares voting in favor of the foregoing amendment and restatement
equaled or exceeded the vote required, such required vote being (a) a majority
of the outstanding shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock, voting together as a single class, and (b) a majority of the
outstanding shares of Series A Preferred Stock and Series B Preferred Stock,
voting together as a single class.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 91
IN WITNESS WHEREOF, the undersigned have executed this certificate on
December __, 1997.
_____________________________________
Scott Kauffman, President
_____________________________________
Thi Thumasathit, Assistant Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Amended and Restated Articles of Incorporation and know the
contents thereof, and that the statements therein are true.
Executed at Palo Alto, California, on December __, 1997.
_____________________________________
Scott Kauffman, President
_____________________________________
Thi Thumasathit, Assistant Secretary
[SIGNATURE PAGE TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF CLICKOVER, INC.]
<PAGE> 92
SHAREHOLDER VOTING AGREEMENT
This Shareholder Voting Agreement (the "Agreement") is made and entered
into as of December 31, 1997 by and among ClickOver, Inc., a California
corporation ("ClickOver"), Focalink Communications, Inc., a California
corporation ("Focalink"), and the undersigned shareholder (the "Shareholder") of
Focalink. Capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed to them in the Merger Agreement (as defined below).
RECITALS
A. Concurrently with the execution of this Agreement, ClickOver,
Focalink Acquisition Corporation, a California corporation and a wholly-owned
subsidiary of ClickOver ("Merger Sub"), and Focalink have entered into an
Agreement and Plan of Merger, dated November 22, 1997 (the "Merger Agreement"),
which provides, among other things, for the merger (the "Merger") of Merger Sub
with and into Focalink. Pursuant to the Merger Agreement, all of the issued and
outstanding shares of capital stock of Focalink (the "Focalink Capital Stock")
and all of the outstanding warrants to acquire shares of Focalink Capital Stock
will be converted into the right to receive shares of the capital stock of
ClickOver (the "ClickOver Capital Stock") and warrants to acquire shares of
ClickOver Capital Stock, respectively.
B. The Shareholder is the beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) with
the right to vote or to direct the vote of such number of shares of Focalink
Capital Stock as indicated on the signature page of this Agreement (the
"Shares").
C. In consideration of the execution of the Merger Agreement by
ClickOver, the Shareholder agrees to restrict the transfer or disposition of any
of the Shares, or any other shares of Focalink Capital Stock acquired by the
Shareholder hereafter and prior to the Expiration Date (as defined in Section
1.1 below), agrees to vote or to direct the vote of the Shares and any other
such shares of Focalink Capital Stock so as to facilitate consummation of the
Merger, and agrees to grant ClickOver an irrevocable proxy to vote the Shares
and any other such shares of Focalink Capital Stock upon the terms and subject
to the conditions set forth herein.
D. As additional consideration for ClickOver's execution of the Merger
Agreement, the Shareholder agrees that twenty percent (20%) of all ClickOver
Capital Stock received by that Shareholder as part of the Merger will be
automatically deposited into and governed by the terms of an Escrow Fund
established under the Merger Agreement without any further act or approval of
the Shareholder.
<PAGE> 93
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the promises and
covenants contained herein and other good and valuable consideration the receipt
of which is hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE. The Shareholder agrees, during
the period beginning on the date hereof and ending on the Expiration Date, not
to transfer, sell, exchange, pledge or otherwise dispose of or encumber
(collectively, "Transfer") any of the Shares or any New Shares (as defined in
Section 1.2 below). As used herein, the term "Expiration Date" shall mean the
earlier to occur of (i) such date and time as the Merger shall become effective
in accordance with the terms and provisions of the Merger Agreement or (ii) the
termination of the Merger Agreement in accordance with its terms.
1.2 NEW SHARES. The Shareholder agrees that any shares of
Focalink Capital Stock that the Shareholder purchases or with respect to which
the Shareholder otherwise acquires beneficial ownership with the right to vote
or direct the voting of such shares, after the date of this Agreement and prior
to the Expiration Date (collectively, the "New Shares"), shall be subject to the
terms and conditions of this Agreement to the same extent as if they constituted
Shares.
2. AGREEMENT TO VOTE SHARES. At every meeting of the shareholders of
Focalink called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the shareholders
of Focalink with respect to any of the following, the Shareholder shall vote or
direct the vote of the Shares and any New Shares: (i) in favor of approval of
the Merger Agreement and the Merger and in favor of any matter that could
reasonably be expected to facilitate the Merger and (ii) against approval of any
proposal made in opposition to or in competition with consummation of the Merger
and the Merger Agreement, against any merger, consolidation, sale of assets,
reorganization or recapitalization of Focalink with any party other than
ClickOver and its affiliates and against any liquidation or winding up of
Focalink (each of the foregoing is referred to as an "Opposing Proposal").
3. NON-SOLICITATION AGREEMENT. The Shareholder agrees, prior to the
Expiration Date, not to directly or indirectly take any of the following actions
with any party other than ClickOver and its affiliates, agents and
representatives and their designees: (i) solicit or encourage submission of any
inquiries, proposals or offers by any person, entity or group (other than
ClickOver, Merger Sub and their affiliates, agents and representatives), or (ii)
participate in any discussions or negotiations with, or disclose any information
concerning Focalink to, or afford any access to the properties, books or records
of Focalink to, or otherwise assist, facilitate or encourage, or enter into any
agreement or understanding with, any person, entity or group (other than
ClickOver, Merger Sub and their affiliates, agents and representatives), in
connection with any Acquisition Proposal. For the purposes of this Agreement, an
"Acquisition Proposal" shall
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<PAGE> 94
mean any inquiry or proposal relating to (i) any merger, consolidation, sale of
substantial assets or similar transactions involving Focalink (other than sales
of assets or inventory in the ordinary course of business), or (ii) any sale of
equity interests in Focalink (including without limitation by way of a tender
offer or an exchange offer) other than pursuant to exercise of outstanding
options and warrants. In addition, subject to the other provisions of this
Section, from and after the date of this Agreement until the Expiration Date,
Shareholder agrees not to directly or indirectly through any of its directors,
officers, employees, representatives, investment bankers, agents or affiliates,
make or authorize any statement, recommendation or solicitation in support of
any Acquisition Proposal made by any person, entity or group (other than
ClickOver and/or Merger Sub). Upon execution of this Agreement, Shareholder
agrees to immediately cease any and all existing activities, discussions or
negotiations with any parties (other than ClickOver, Merger Sub, and their
affiliates, agents and representatives) conducted heretofore with respect to any
of the foregoing. In the event that the Shareholder receives from any third
party any offer or indication of interest (whether made in writing or otherwise)
regarding any of the transactions referred to in the foregoing sentence, or any
request for information about Focalink with respect to any of the foregoing,
then the Shareholder shall promptly communicate to ClickOver the material terms
of each such offer, indication of interest, or request, including the identity
of the third party.
4. IRREVOCABLE PROXY. Concurrently with the execution of this
Agreement, the Shareholder agrees to deliver to ClickOver a proxy in the form
attached as Annex A (the "Proxy"), which shall be irrevocable to the extent
provided in Section 705 of the General Corporation Law of the State of
California, covering the total number of Shares and New Shares of capital stock
of Focalink beneficially owned (as such term is defined in Rule 13d-3 under the
Exchange Act) by the Shareholder set forth therein.
5. ESCROW FUND. The Shareholder hereby agrees that twenty percent (20%)
of all ClickOver Capital Stock received by that Shareholder as part of the
Merger will be automatically deposited into and governed by the terms of an
Escrow Fund established under the Merger Agreement without any further act or
approval of the Shareholder.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER. The
Shareholder represents, warrants and covenants to ClickOver as follows: the
Shareholder: (i) is the beneficial owner of the Shares, which at the date of
this Agreement and at all times up until the Expiration Date will be free and
clear of any liens, claims, options, charges or other encumbrances, (ii) does
not beneficially own any shares of Focalink Capital Stock other than the Shares
(excluding shares as to which Shareholder currently disclaims beneficial
ownership in accordance with applicable law), and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement and the
Proxy.
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<PAGE> 95
7. COVENANTS OF FOCALINK. Focalink hereby agrees and covenants that:
(a) Focalink will not and will not cause its stock transfer
agent to, register the transfer of any of the Shares or New Shares on the stock
transfer ledger of Focalink at any time prior to the termination of this
Agreement pursuant to Section 10; and
(b) Focalink agrees that any shares of Focalink Capital Stock
(including Focalink Common Stock) that the Shareholder purchases or with respect
to which the Shareholder otherwise acquires beneficial ownership after the date
of this Agreement and prior to the termination of this Agreement pursuant to
Section 10 shall be considered "New Shares" and subject to each of the terms and
conditions of this Agreement.
8. ADDITIONAL DOCUMENTS. The Shareholder and Focalink hereby covenant
and agree to execute and deliver any additional documents reasonably necessary
or desirable to carry out the purpose and intent of this Agreement.
9. CONSENT AND WAIVER. The Shareholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreement to which the Shareholder is a party or pursuant to
any rights the Shareholder may have.
10. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
11. MISCELLANEOUS.
11.1 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
11.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor any
of the rights, interests or obligations of the parties hereto may be assigned by
any of the parties without the prior written consent of the other parties.
11.3 AMENDMENTS AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except by the execution and delivery
of a written agreement executed by the parties hereto.
11.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties
acknowledge that ClickOver will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
the Shareholder set forth herein. Therefore,
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<PAGE> 96
it is agreed that, in addition to any other remedies that may be available to
ClickOver upon any such violation, ClickOver shall have the right to enforce
such covenants and agreements by specific performance, injunctive relief or by
any other means available to ClickOver at law or in equity.
11.5 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to ClickOver, to:
ClickOver, Inc.
3045 Park Boulevard, Suite 200
Palo Alto, California 94306
Attention: Scott Kauffman, President
Telephone No.: (650) 617-6800
Facsimile No.: (650) 617-6900
With a copy to:
Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101-3532
Attention: John A. Denniston
Telephone No.: (619) 234-1966
Facsimile No.: (619) 234-3848
(b) If to Focalink, to:
Focalink Communications, Inc.
2191 East Bayshore Road, First Floor
Palo Alto, California 94303
Attention: Ronald A. Kovas, President
Telephone No.: (650) 842-0660
Facsimile No.: (650) 842-0665
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<PAGE> 97
With a copy to:
Latham & Watkins
75 Willow Road
Menlo Park, California 94025
Attention: Allen Morgan
Telephone No.: (650) 328-4600
Facsimile No.: (650) 463-2600
(c) If to the Shareholder, to the address set forth
on the last page hereof.
11.6 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement
shall be governed by, construed and enforced in accordance with the internal
laws of the State of California, without giving effect to any choice or conflict
of law provision or rule (whether of the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California. Focalink and the Shareholder irrevocably
submit to the jurisdiction of any state or federal court sitting in the county
of Santa Clara, California in any action or proceeding arising out of or related
to this Agreement, and hereby irrevocably agree that all claims in respect of
such action or proceeding may be heard and determined in such state or federal
court. The Shareholder hereby irrevocably consents to the service of process
which may be served in any such action or proceeding by certified mail, return
receipt requested, by delivering a copy of such process to the Shareholder or by
any other method permitted by law.
11.7 ENTIRE AGREEMENT. This Agreement and the Proxy contain
the entire understanding of the parties in respect of the subject matter hereof
and supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
11.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
11.9 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 98
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
CLICKOVER, INC. SHAREHOLDER
Name:_____________________
By:____________________________ By:_______________________
Name:
Title: Title:____________________
Shareholder's Address for Notice:
FOCALINK COMMUNICATIONS, INC.
By:_____________________________
Name:
Title: Shares beneficially owned:
_____ shares of Focalink Common Stock
_____ shares of Focalink Series A Preferred Stock
_____ shares of Focalink Series B Preferred Stock
_____ shares of Focalink Series A-1 Preferred
Stock
[SIGNATURE PAGE TO SHAREHOLDER VOTING AGREEMENT]
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<PAGE> 99
Annex A
IRREVOCABLE PROXY
TO VOTE
FOCALINK STOCK
The undersigned shareholder of Focalink Communications, Inc., a
California corporation ("Focalink"), hereby irrevocably (to the fullest extent
permitted by Section 705 of the General Corporation Law of the State of
California) appoints the directors on the Board of Directors of ClickOver, Inc.,
a California corporation ("ClickOver"), and each of them, as the sole and
exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the fullest extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of Focalink which now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of Focalink issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the terms
of this Proxy. The Shares beneficially owned by the undersigned shareholder of
Focalink as of the date of this Proxy are listed on the final page of this
Proxy, along with the number(s) of the share certificate(s) which represent such
Shares. Upon the undersigned's execution of this Proxy, any and all prior
proxies given by the undersigned with respect to any Shares are hereby revoked
and the undersigned agrees not to grant any subsequent proxies with respect to
the Shares until after the Expiration Date (as defined below).
This Proxy is granted pursuant to that certain Shareholder Voting
Agreement, dated as of November __, 1997, by and among ClickOver, Focalink and
the undersigned shareholder (the "Shareholder Agreement"), and is granted in
consideration of ClickOver entering into that certain Agreement and Plan of
Merger, dated as of November __, 1997 (the "Merger Agreement"), by and among
ClickOver, Focalink Acquisition Corporation, a California corporation and a
wholly-owned subsidiary of ClickOver ("Merger Sub"), Focalink, and others. The
Merger Agreement provides, among other things, for the merger of Merger Sub with
and into Focalink in accordance with its terms (the "Merger"), and the
undersigned shareholder will be receiving the capital stock of ClickOver under
the Merger. As used herein, the term "Expiration Date" shall mean the earlier to
occur of (i) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Merger Agreement or (ii) the
termination of the Merger Agreement in accordance with its terms.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents pursuant to Section 603 of the General Corporation Law of the
State of California) at every annual, special or adjourned meeting of the
shareholders
A-1
<PAGE> 100
of Focalink and in every written consent in lieu of any such meeting: (a) in
favor of approval of the Merger Agreement and the Merger and in favor of any
matter that could reasonably be expected to facilitate the Merger and (b)
against approval of any proposal made in opposition to or in competition with
the consummation of the Merger and the Merger Agreement, against any merger,
consolidation, sale of assets, reorganization or recapitalization of Focalink
with any party other than ClickOver and its affiliates and against any
liquidation or winding up of Focalink. The attorneys and proxies named above may
not exercise this Irrevocable Proxy on any other matter except as provided in
clauses (a) and (b) above. The undersigned shareholder may vote the Shares on
all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is irrevocable (to the fullest extent permitted by Section
705 of the General Corporation Law of the State of California). This Proxy shall
terminate, and be of no further force and effect, automatically upon the
Expiration Date.
Dated: November __, 1997
Signature of Shareholder: ____________________
Print Name of Shareholder: ___________________
Shares beneficially owned: Certificate Nos.
- -------------------------- ----------------
_____ shares of Focalink Common Stock ______________________
_____ shares of Focalink Series A Preferred Stock ______________________
_____ shares of Focalink Series B Preferred Stock ______________________
_____ shares of Focalink Series A-1 Preferred Stock ______________________
A-2
<PAGE> 101
CLICKOVER INC.
AMENDMENT NO. 1 TO THE INVESTOR RIGHTS AGREEMENT
This Amendment No. 1 ("Amendment") to the Investors' Rights Agreement
dated March 14, 1997 (the "Agreement") is made as of December __, 1997 by and
among ClickOver, Inc., a California corporation (the "Company"), each of the
individuals and entities listed on Schedule A to the Agreement, as amended (the
"Existing Shareholders"), and each of the individuals and entities listed as New
Shareholders on the signature page to this Amendment (the "New Shareholders").
Capitalized terms used herein which are not defined herein shall have the
definition ascribed to them in the Agreement.
RECITALS
A. The Company, Focalink Acquisition Corporation, Focalink
Communications, Inc. ("Focalink"), Mayfield VII, Mayfield Associates Fund II and
Cupertino National Bank & Trust have executed a certain Agreement and Plan of
Merger, dated November 22, 1997 (the "Merger Agreement"), pursuant to which a
wholly-owned subsidiary of ClickOver will merge with and into Focalink (the
"Merger").
B. Pursuant to the Merger Agreement, among other things, the Company
shall issue to the New Shareholders shares of the Company's Series C-1 Preferred
Stock, Series C- 2 Preferred Stock and Series C-3 Preferred Stock.
C. As a condition to the Merger, the Existing Shareholders and the
Company are willing to enter into this Amendment to permit the New Shareholders
to become a party to the Agreement, as amended.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the
promises and covenants contained herein and other good and valuable
consideration the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. ADDITIONAL PARTIES TO THE AGREEMENT. The New Shareholders hereby
enter into and become parties to the Agreement. Schedule A to the Agreement is
hereby amended to include the New Shareholders.
2. AMENDMENTS TO AGREEMENT.
2.1 The New Shareholders and the Existing Shareholders are
collectively referred to as "Investors" for the purposes of the Agreement, as
amended hereby.
2.2 Section 1.1(f) of the Agreement is amended in its entirety
to read as follows:
<PAGE> 102
"(f) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series B Preferred
Stock, Series C-1 Preferred Stock, Series C-2 Preferred Stock and
Series C-3 Preferred Stock and (ii) any 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
such Series B Preferred Stock, Series C-1 Preferred Stock, Series C-2
Preferred Stock, Series C-3 Preferred Stock or Common Stock, excluding
in all cases, however, any Registrable Securities sold by a person in a
transaction in which his or her rights under this Section 1 are not
assigned."
3. CONSENT. Each Existing Shareholder, on behalf of himself or herself
and the other Investors under the Agreement, (a) consents to adding the New
Shareholders as parties to the Agreement, and (b) consents to the registration
rights hereby provided the New Shareholders, which consent is given pursuant to
Section 3.7 of the Agreement.
4. EFFECT OF AMENDMENT. Except as amended and set forth above, the
Agreement shall continue in full force and effect. In the event of any
inconsistency between the terms of the Agreement and this Amendment, the terms
of this Amendment shall govern and control.
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each which will be deemed an original, and all of which together
shall constitute one instrument.
6. SEVERABILITY. If one or more provisions of this Amendment are held
to be unenforceable under applicable law, such provision shall be excluded from
this Amendment and the balance of the Amendment shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7. ENTIRE AGREEMENT. This Amendment, together with the Agreement,
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
8. GOVERNING LAW. This Amendment shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 103
This Amendment is hereby executed as of the date first above written.
CLICKOVER, INC., a California corporation
By: _________________________________
Scott Kauffman, President
Address: 3045 Park Boulevard, Suite 200
Palo Alto, California 94306
Existing Shareholders:
KLEINER PERKINS CAUFIELD & BYERS VIII
By: KPCB VIII Associates, its General
Partner
By: _____________________________
Name: _______________________
Title: ______________________
KPCB INFORMATION SCIENCES ZAIBATSU
FUND II
By: KPCB VII Associates, its General
Partner
By: _____________________________
Name: _______________________
Title: ______________________
KPCB JAVA FUND
By: KPCB VIII Associates, its General
Partner
By: _____________________________
Name: _______________________
Title: ______________________
Address: c/o Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025-7020
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE
INVESTOR RIGHTS AGREEMENT]
<PAGE> 104
__________________________
Fah-Chun Cheong
Address: 240 Exeter Avenue
San Carlos, CA 94070
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE
INVESTOR RIGHTS AGREEMENT]
<PAGE> 105
______________________________
Thomas Churchill
Address: 136 Churchill Street
Palo Alto, CA 94301
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE
INVESTOR RIGHTS AGREEMENT]
<PAGE> 106
______________________________
Chih-Chao Lam
Address: 525 View Street
Mountain View, CA 94041
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE
INVESTOR RIGHTS AGREEMENT]
<PAGE> 107
______________________________
Chih-Ming Lam
Address: 525 View Street
Mountain View, CA 94041
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE
INVESTOR RIGHTS AGREEMENT]
<PAGE> 108
______________________________
Dale Thoms
Address: 3303 Kimberly Way
San Mateo, CA 94403
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE
INVESTOR RIGHTS AGREEMENT]
<PAGE> 109
______________________________
Ken Tidwell
Address: 914 S. Springer Road
Los Altos, CA 94024
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE
INVESTOR RIGHTS AGREEMENT]
<PAGE> 110
New Shareholders:
CUPERTINO NATIONAL BANK & TRUST
By:____________________________
Name:__________________________
Title:_________________________
Address: _________________________________
_________________________________
MAYFIELD VII
By:____________________________
Name:__________________________
Title:_________________________
MAYFIELD ASSOCIATES FUND II
By:____________________________
Name:__________________________
Title:_________________________
MAYFIELD SOFTWARE PARTNERS
By:____________________________
Name:__________________________
Title:_________________________
Address: _________________________________
_________________________________
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE
INVESTOR RIGHTS AGREEMENT]
<PAGE> 111
CMP MEDIA, INC.
By:____________________________
Name:__________________________
Title:_________________________
Address: _________________________________
_________________________________
_____________________________
Allen L. Morgan
Address: _________________________________
_________________________________
WS INVESTMENT COMPANY 95B
By:____________________________
Name:__________________________
Title:_________________________
Address: _________________________________
_________________________________
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE
INVESTOR RIGHTS AGREEMENT]
<PAGE> 112
SCHEDULE A
List of Existing Shareholders
Kleiner Perkins Caufield & Byers VIII
KPCB Information Sciences
Zaibatsu Fund II
KPCB Java Fund
Fah-Chun Cheong
Thomas Churchill
Chih-Chao Lam
Chih-Ming Lam
Dale Thoms
Ken Tidwell
A-1
<PAGE> 113
CLICKOVER, INC.
RIGHT OF FIRST REFUSAL AGREEMENT
This Right of First Refusal Agreement (the "Agreement") is made as of
December __, 1997, by and among ClickOver, Inc., a California corporation
("ClickOver"), Cupertino National Bank & Trust ("Cupertino"), Kleiner Perkins
Caufield & Byers VIII ("KPCB"), Mayfield VII and Mayfield Associates Fund II
(together with Mayfield VII, "Mayfield").
RECITALS
A. Cupertino has previously loaned the principal amount of $3,000,000
(the "Loan") to Focalink Communications, Inc., a California corporation
("Focalink"), and in connection with the Loan, received warrants to purchase up
to 600,000 shares of Focalink Series A-1 Preferred Stock.
B. ClickOver, Focalink, Mayfield and Cupertino have executed that
certain Agreement and Plan of Merger, dated as of November 22, 1997 (the "Merger
Agreement"), pursuant to which a wholly-owned subsidiary of ClickOver will merge
with and into Focalink (the "Merger").
C. In connection with the Merger, Mayfield has agreed to purchase from
Cupertino $1,000,000 of the principal amount of the Loan and warrants to
purchase up to 200,000 shares of Focalink Series A-1 Preferred Stock.
D. In connection with the Merger, among other things, Cupertino has
agreed at the closing of the Merger (i) to cancel all of the principal and
interest outstanding under its portion of the Loan in exchange for 1,045,555
shares of ClickOver Preferred Stock (as defined below) and (ii) to receive
ClickOver Warrants (as defined below) to purchase up to 90,505 shares of
ClickOver Preferred Stock in exchange for its remaining warrants to purchase up
to 400,000 shares of Focalink Series A-1 Preferred Stock.
E. In order to induce Mayfield to purchase a portion of the Loan from
Cupertino and to induce KPCB, a major shareholder of ClickOver, to vote in favor
of the Merger, Cupertino is willing to grant Mayfield and KPCB rights of first
refusal with respect to all Stock (as defined below) it will receive in the
Merger.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
a. "Stock" shall mean all shares of ClickOver Preferred Stock
and all
<PAGE> 114
ClickOver Warrants received by Cupertino in the Merger, all shares of ClickOver
Preferred Stock issued upon exercise of the ClickOver Warrants and all shares of
ClickOver Common Stock issued upon conversion of any such ClickOver Preferred
Stock.
b. "ClickOver Preferred Stock" shall mean ClickOver's Series
C-3 Preferred Stock.
c. "ClickOver Warrants" shall mean warrants to purchase shares
of ClickOver's Series C-3 Preferred Stock.
d. "ClickOver Common Stock" shall mean ClickOver's Common
Stock.
e. "Next Qualified Equity Financing" shall mean the next
equity financing involving the receipt by ClickOver of at least $3,000,000.
2. Right of First Refusal.
a. Notice to ClickOver, Mayfield and KPCB.
(1) In the event Cupertino desires to sell or
transfer any Stock, Cupertino shall deliver a notice in writing by certified
mail ("Notice") to ClickOver, Mayfield and KPCB stating (A) its bona fide
intention to sell or transfer such Stock, (B) the number of shares of such Stock
to be sold or transferred, (C) the price, if any, for which it proposes to sell
or transfer such Stock, (D) the name of the proposed purchaser or transferee and
(E) all other terms of the proposed transaction.
(2) In the event the proposed transfer is partially
or completely in exchange for assets other than cash, then such assets shall be
deemed to have a cash value in the amount determined by ClickOver's Board of
Directors (the "Board") in its sole good faith, in which case such cash value
ascertained by the Board, when added to any cash to be exchanged and then
divided by the number of shares of Stock to be transferred, shall be deemed the
price per share set forth in the Notice. In the event of a gift, property
settlement or other transfer in which the proposed purchaser or transferee is
not paying the full price for the Stock, the price shall be deemed to be the
fair market value of the Stock as determined in good faith by the Board.
b. Mayfield Right of First Refusal. Mayfield shall have an
exclusive, irrevocable option (the "Mayfield Option"), at any time within ten
(10) days of receipt of the Notice (the "Mayfield Option Period"), to elect to
purchase all (but not less than all) of the Stock to which the Notice refers at
the price per share specified in the Notice (as determined in Section 2(a)).
Mayfield shall exercise the Mayfield Option by written notice signed by a duly
authorized partner of Mayfield and delivered or mailed to Cupertino and
ClickOver (the "Mayfield Settlement Notice"), which notice shall specify the
time, place and date for settlement of such purchase.
c. Mayfield Settlement. Within thirty (30) days of receipt of
the Mayfield
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<PAGE> 115
Settlement Notice, Cupertino must deliver to ClickOver all certificates for the
Stock being acquired by Mayfield, together with proper assignments in blank of
the Stock with signatures properly guaranteed and with such other documents as
may be required by ClickOver to provide reasonable assurance that each necessary
endorsement is genuine and effective, and Mayfield must thereupon deliver to
Cupertino full cash payment for the Stock being acquired, provided that if the
terms of payment set forth in the Notice were other than cash against delivery,
Mayfield shall pay for the Stock on the same terms and conditions set forth in
the Notice.
d. KPCB Right of First Refusal. In the event that Mayfield
does not exercise the Mayfield Option, upon the expiration of the Mayfield
Option Period Cupertino shall promptly give written notice to KPCB of Mayfield's
nonexercise of the Mayfield Option, which notice shall enclose the Notice (the
"KPCB Notice"). KPCB shall then have an exclusive, irrevocable option (the "KPCB
Option"), at any time within ten (10) days of receipt of the KPCB Notice, to
elect to purchase all (but not less than all) of the Stock to which the Notice
refers at the price per share specified in the Notice (as determined in Section
2(a)). KPCB shall exercise the KPCB Option by written notice signed by a duly
authorized partner of KPCB and delivered or mailed to Cupertino and ClickOver
(the "KPCB Settlement Notice"), which notice shall specify the time, place and
date for settlement of such purchase.
e. KPCB Settlement. Within thirty (30) days of receipt of the
KPCB Settlement Notice, Cupertino must deliver to ClickOver all certificates for
the Stock being acquired by KPCB, together with proper assignments in blank of
the Stock with signatures properly guaranteed and with such other documents as
may be required by ClickOver to provide reasonable assurance that each necessary
endorsement is genuine and effective, and KPCB must thereupon deliver to
Cupertino full cash payment for the Stock being acquired, provided that if the
terms of payment set forth in the Notice were other than cash against delivery,
KPCB shall pay for the Stock on the same terms and conditions set forth in the
Notice.
f. Assignment of Mayfield Option and KPCB Option. Mayfield may
assign its rights under this Section 2 to (i) any of its limited partners, (ii)
any entity related to or affiliated with Mayfield, (iii) KPCB or (iv) any entity
affiliated with KPCB and KPCB may assign its rights under this Section 2 to (w)
any of its limited partners, (x) any entity related to or affiliated with KPCB,
(y) Mayfield or (z) any entity affiliated with Mayfield.
3. Termination of Rights of First Refusal. The rights of first refusal
under Section 2 of this Agreement shall terminate upon the first to occur of the
following events: (a) the liquidation, dissolution or indefinite cessation of
the business operations of ClickOver; (b) the execution by ClickOver of a
general assignment for the benefit of creditors or the appointment of a receiver
or trustee to take possession of all or substantially all of the property and
assets of ClickOver; (c) upon the effective date of a bona fide firm commitment
underwritten public offering of ClickOver's Common Stock registered under the
Securities Act of 1933, as amended, on Form S-1 (or any successor form
designated by the Securities and Exchange Commission); or (d) upon the transfer
of any Stock as to which Mayfield and KPCB have elected not to exercise their
rights under Section 2 and, in such event, the rights
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<PAGE> 116
of first refusal under Section 2 shall terminate only with respect to the Stock
so transferred.
4. Exempt Transfers. Notwithstanding the rights of first refusal set
forth in Section 2 of this Agreement, Cupertino may transfer all or any part of
its Stock (i) to its Affiliates, where "Affiliates" means any other person or
entity that, directly or indirectly, through one or more intermediaries, is in
control of, is controlled by, or is under common control with Cupertino, and
(ii) to its successors in interest; provided, however, any transfer of Stock
made pursuant to the provisions of this Section shall be subject to the
following (i) prior to the completion of such transfer, each such transferee
shall have executed documents in form and substance satisfactory to KPCB and
Mayfield, evidenced by KPCB's and Mayfield's written acknowledgement of such
satisfaction, assuming the obligations of Cupertino under this Agreement with
respect to the transferred Stock and (ii) such transferred Stock shall remain
subject to the provisions of this Agreement, and the transferee shall be treated
as Cupertino for purposes of this Agreement.
5. Restriction on Transfer. Unless exempted under Section 4 of this
Agreement, Cupertino, Mayfield and KPCB each agree not to sell, pledge,
hypothecate or otherwise transfer all or any part of their Stock until the
earlier of (a) February 28, 1998, or (b) the closing date of ClickOver's Next
Qualified Equity Financing; provided, however, that the foregoing restriction
shall not prohibit any transfers of the Stock from Mayfield or KPCB to any of
their respective affiliates as long as such affiliates agree to be bound by the
restrictions of this Section 5.
6. Legends; Stop Transfer Instructions.
a. Legends. Each certificate representing shares of Stock now
or hereafter owned by Cupertino shall be endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT
TO THE PROVISIONS OF A RIGHT OF FIRST REFUSAL AGREEMENT, AS
THE SAME MAY BE AMENDED FROM TIME TO TIME, AMONG THE PARTIES
NAMED THEREIN, A COPY OF WHICH IS AVAILABLE AT THE PRINCIPAL
OFFICE OF THE ISSUER OF SUCH SHARES."
b. Stop Transfer Instructions. Cupertino agrees that ClickOver
may instruct its transfer agent to impose transfer restrictions on the shares
represented by certificates bearing the legend referred to in Section 4(a) above
to enforce the provisions of this Agreement and ClickOver agrees to promptly do
so. The legend shall be removed upon termination of this Agreement.
7. Miscellaneous.
a. Notices. All notices and other communications hereunder
shall be in
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<PAGE> 117
writing and shall be deemed given upon (i) personal delivery to the party to be
notified, (ii) upon facsimile transmission to the party to be notified at the
facsimile number indicated for such party below, if any, upon confirmation of
transmission or (iii) one (1) day after deposit with a reputable overnight
courier service or three (3) days after deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party at the following
address (or at such other address for a party as shall be specified by like
notice):
If to ClickOver, to:
ClickOver, Inc.
3045 Park Boulevard, Suite 200
Palo Alto, CA 94306
Attention: President
Telephone No: (650) 617-6800
Facsimile No: (650) 617-6900
With a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, CA 92101
Attention: John A. Denniston
Telephone: (619) 234-1966
Facsimile: (619) 234-3848
If to Cupertino, to:
Cupertino National Bank & Trust
3 Palo Alto Square, Suite 150
Palo Alto, CA 94306
Attention: John Krogstad
Telephone No: (650) 813-3815
Facsimile No: (650) 843-6969
If to Mayfield:
Mayfield Fund
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Attention: Yogen Dalal
Telephone No.: (650) 854-5560
Facsimile No.: (650) 854-5712
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<PAGE> 118
If to KPCB:
Kleiner, Perkins, Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Attention: Russell Siegelman
Telephone No.: (650) 233-3377
Facsimile No.: (650) 233-0300
b. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
c. Entire Agreement. This Agreement and the documents and
instruments and other agreements among the parties hereto referenced herein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof;
and (b) are not intended to confer upon any other person any rights or remedies
hereunder.
d. Amendment. Any provision of this Agreement may be amended
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only by the written consent
of all of the parties hereto.
e. Assignment of Rights. This Agreement and the rights and
obligations of the parties hereunder shall inure to benefit of, and be binding
upon, their respective successors, permitted assigns and legal representatives.
f. Severability. In the event that any provision of this
Agreement or the application thereof becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonable to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
g. Other Remedies. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by any party of any one remedy
will not preclude the exercise of any other remedy.
h. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless of
the laws that might
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<PAGE> 119
otherwise govern under applicable principles of conflicts of laws thereof. Each
of the parties hereto agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction and such process.
i. Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
j. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
k. Ownership. Cupertino represents and warrants that it is the
sole legal and beneficial owner of the Stock subject to this Agreement and that
no other person or entity has any interest in such Stock.
l. Attorneys' Fees. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing parties in
such dispute shall be entitled to recover from the losing party all reasonable
fees, costs and expenses of enforcing any right of such prevailing parties under
or with respect to this Agreement, including without limitation, the reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-7-
<PAGE> 120
The foregoing Agreement is hereby executed as of the date first above
written.
CLICKOVER, INC.
By:__________________________________
Its:_________________________________
CUPERTINO NATIONAL BANK &
TRUST
By:__________________________________
Its:_________________________________
MAYFIELD VII
By:__________________________________
Its:_________________________________
MAYFIELD ASSOCIATES FUND II
By:__________________________________
Its:_________________________________
KLEINER PERKINS CAUFIELD &
BYERS VIII
By: KPCB VIII Associates, its General
Partner
By:____________________________
Name:__________________________
Title:_________________________
[SIGNATURE PAGE TO RIGHT OF FIRST REFUSAL AGREEMENT]
<PAGE> 121
December 31, 1997
Focalink Communications, Inc.
2191 East Bayshore Road, First Floor
Palo Alto, CA 94303
Ladies and Gentlemen:
We have acted as counsel for ClickOver, Inc., a California
corporation ("Parent"), in connection with the merger of its wholly-owned
subsidiary, Focalink Acquisition Corporation, a California corporation ("Merger
Sub"), with and into Focalink Communications, Inc., a California corporation
(the "Company"), pursuant to the Agreement and Plan of Merger dated as of
November 22, 1997 by and among Parent, Merger Sub, the Company, Cupertino
National Bank & Trust, Mayfield VII and Mayfield Associates Fund II (the "Merger
Agreement"). This opinion is being rendered to you pursuant to Section 6.2(d) of
the Merger Agreement. Capitalized terms used herein and not otherwise defined
shall have the meanings given to them in the Merger Agreement.
In connection with this opinion, we have examined originals,
or copies certified or otherwise identified to our satisfaction, of such
documents, corporate records, certificates, including certificates of public
officials, and other instruments as we have deemed necessary or advisable for
purposes of this opinion, including those relating to the authorization,
execution and delivery of the Merger Agreement.
In such examination and review we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies. As to any facts material to the
opinions hereinafter expressed which we did not independently establish or
verify, we have relied without investigation upon certificates, statements and
representations of representatives of Parent.
Whenever a statement herein is qualified by the expressions
"known to us," "to our knowledge," "we are not aware" or a similar phrase or
expression with respect to our knowledge of matters of fact, it is intended to
mean that our knowledge is based upon the records, documents, instruments and
certificates described above and the current actual knowledge of the
<PAGE> 122
Focalink Communications, Inc. December 31, 1997
Page 2
attorneys in our firm who have devoted substantive attention to the transactions
contemplated by the Merger Agreement (but not including any constructive or
imputed notice of any information) and that we have not otherwise undertaken any
independent investigations for the purpose of rendering this opinion.
This opinion relates solely to the laws of the State of
California and applicable federal laws of the United States, and we express no
opinion with respect to the effect or applicability of the laws of other
jurisdictions.
Based upon our examination of and reliance upon the foregoing
and subject to the limitations, exceptions, qualifications and assumptions set
forth below and except as set forth in the Merger Agreement or the Schedule of
Exceptions thereto, we are of the opinion that as of the date hereof:
1. Each of Parent and Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Each of Parent and Merger Sub has the requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as, to our knowledge, it is presently being conducted.
2. Each of Parent and Merger Sub has the requisite corporate
power and authority to enter into the Merger Agreement, to perform its
obligations thereunder and to consummate the transactions contemplated thereby.
The execution and delivery of the Merger Agreement, the performance by Parent
and Merger Sub of their obligations thereunder and the consummation of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action on the part of Parent and its shareholders and Merger
Sub and its sole shareholder. The Merger Agreement has been duly and validly
authorized, executed and delivered by Parent and Merger Sub, and has been
approved by the Board of Directors of Parent and its shareholders and by the
Board of Directors of Merger Sub and its sole shareholder.
3. The capitalization of Parent is as follows:
(a) Preferred Stock. 10,000,000 shares of Preferred
Stock (the "Preferred Stock"), of which (i) 525,000 shares have been designated
Series A Preferred Stock, to our knowledge 525,000 of which are currently issued
and outstanding, (ii) 5,512,000 shares have been designated Series B Preferred
Stock, to our knowledge 5,512,000 of which are currently issued and outstanding,
(iii) 580,000 shares have been designated Series C-1 Preferred Stock, some or
all of which may be issued pursuant to the Merger Agreement, (iv) 620,000 shares
have been designated Series C-2 Preferred Stock, some or all of which may be
issued pursuant to the Merger Agreement and (v) 2,750,000 shares have been
designated Series C-3 Preferred Stock, some or all of which may be issued
pursuant to the Merger Agreement. Such 525,000 shares of outstanding Series A
Preferred Stock and such 5,512,000 shares of outstanding
<PAGE> 123
Focalink Communications, Inc. December 31, 1997
Page 3
Series B Preferred Stock have been duly authorized and validly issued, are
nonassessable and are fully paid.
(b) Common Stock. 25,000,000 shares of Common Stock
(the "Common Stock"), to our knowledge 5,856,721 of which are currently issued
and outstanding. Such 5,856,721 shares of outstanding Common Stock have been
duly authorized and validly issued, are nonassessable, and are fully paid.
(c) The Common Stock issuable upon conversion of the
Series C-1, Series C-2 and Series C-3 Preferred Stock to be issued at the
Closing has been duly and validly reserved for issuance and, when and if issued
upon such conversion in accordance with Parent's Amended and Restated Articles
of Incorporation, will be validly issued, fully paid and nonassessable.
(d) Except for (i) the conversion privileges of the
outstanding shares of Series A and Series B Preferred Stock; (ii) the conversion
privileges of the Series C-1, Series C-2 and Series C-3 Preferred Stock to be
issued at the Closing; (iii) outstanding options to purchase 622,942 shares of
Common Stock pursuant to the ClickOver Plan; and (iv) the outstanding Focalink
Warrants to be assumed by ClickOver at the Closing, to our knowledge, there are
no preemption rights, options, warrants, conversion privileges or other rights
(or agreements for any such rights) outstanding to purchase or otherwise obtain
from Parent any of Parent's equity securities.
4. Immediately prior to the Effective Time, the capital stock
of Merger Sub consists of 100 shares of Common Stock, all of which are issued
and outstanding and are held by Parent.
5. The shares of Parent Common and Preferred Stock to be
issued and delivered pursuant to the Merger Agreement have been duly authorized
and will, when issued in accordance with the terms of the Merger Agreement, be
validly issued, fully paid and nonassessable.
6. Neither the execution or delivery by Parent and Merger Sub
of the Merger Agreement nor the consummation by Parent and Merger Sub at the
Closing of the transactions contemplated thereby will (i) violate any provision
of the Amended and Restated Articles of Incorporation or the Bylaws of Parent or
the Articles of Incorporation or the Bylaws of Merger Sub, (ii) violate or be in
conflict with any federal or California laws which to our knowledge are
applicable to Parent or Merger Sub, or (iii) to our knowledge, violate or
contravene any judgment, decree, injunction or order of any federal or
California court having jurisdiction over Parent or Merger Sub or their
properties.
<PAGE> 124
Focalink Communications, Inc. December 31, 1997
Page 4
7. Based solely on a search of the civil court dockets of
Santa Clara and San Mateo Municipal Courts and Santa Clara and San Mateo
Superior Courts, we are not aware that there is any action, proceeding or
governmental investigation pending, or threatened in writing, against Parent or
Merger Sub which questions the validity or enforceability of the Merger
Agreement or the right of Parent or Merger Sub to enter into the Merger
Agreement.
Our opinions expressed above are specifically subject to the
following limitations, exceptions, qualifications and assumptions:
(A) We express no opinion as to Parent's or Merger Sub's
compliance or noncompliance with applicable federal or state antifraud or
antitrust statutes, laws, rules and regulations.
(B) We express no opinion as to the past, present or future
fair market value of Parent Preferred or Common Stock and/or Company Preferred
or Common Stock.
(C) Our opinions in paragraph 3 above as to the number of
issued and outstanding shares of Common Stock and Preferred Stock and to the
effect that such shares have been validly issued and are fully paid and
nonassessable, and as to the number of shares of Common Stock subject to
outstanding options and warrants are based solely on our review of Parent's
stock records made available to us and an Officers' Certificate of Parent.
(D) Our opinions in clause (ii) of paragraph 6 above are
limited to laws and regulations normally applicable to transactions of the type
contemplated in the Merger Agreement and do not extend to licenses, permits and
approvals necessary for the conduct of Parent's or Merger Sub's business. In
addition and without limiting the previous sentence, we express no opinion
herein with respect to the effect of any land use, environmental or similar law.
Further, we express no opinion as to the effect of or compliance with any state
or federal laws or regulations applicable to the transactions contemplated by
the Merger Agreement because of the nature of the business of any party thereto
other than Parent and Merger Sub.
(E) We express no opinion as to the effect of subsequent
issuances of securities of Parent to the extent that notwithstanding its
reservation of shares Parent may issue so many shares of Common Stock that there
are not enough remaining authorized but unissued shares of Common Stock for the
conversion of the Preferred Stock (or may issue securities which by antidilution
adjustment so reduce the Conversion Price of the Preferred Stock and/or other
derivative securities that the outstanding shares of the Preferred Stock become
convertible for more shares of Common Stock than remain authorized but
unissued).
<PAGE> 125
Focalink Communications, Inc. December 31, 1997
Page 5
This opinion is rendered as of the date first written above
solely for your benefit in connection with the Merger Agreement and may not be
delivered to, quoted or relied upon by any person other than you, or for any
other purpose, without our prior written consent. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to Parent or Merger
Sub. We assume no obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 126
Focalink Communications, Inc. December 31, 1997
Page 6
C:\BPHSD\TEH\0222768.04
BPH LEGAL OPINION TO BE DELIVERED TO
FOCALINK COMMUNICATIONS, INC. AT CLOSING
<PAGE> 1
EXHIBIT 10.1
CLICKOVER, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Issue of Preferred Stock............................................................1
1.1 Issuance of Preferred Stock..................................................1
1.2 Closing......................................................................1
2. Definitions.........................................................................2
2.1 "Material Adverse Event".....................................................2
2.2 "Subsidiary".................................................................2
3. Representations and Warranties of the Company to Investors..........................2
3.1 Corporate Organization and Authority.........................................3
3.2 Capitalization...............................................................3
3.3 Subsidiaries.................................................................4
3.4 Authorization................................................................4
3.5 Corporate Power..............................................................4
3.6 Validity of Shares...........................................................5
3.7 No Conflict with Other Instruments...........................................5
3.8 No Defaults, Violations, or Conflicts........................................6
3.9 Private Offering.............................................................6
3.10 Employee Confidential Information and Inventions Agreement...................6
3.11 Brokers and Finders..........................................................6
4. Representations and Warranties of the Investors.....................................7
4.1 Authorization................................................................7
4.2 Brokers and Finders..........................................................7
4.3 Investment...................................................................7
4.4 No Public Market.............................................................7
4.5 Limitations on Transferability...............................................8
4.6 Experience...................................................................9
4.7 Legends......................................................................9
5. Conditions of Investors' Obligations at Closing....................................10
5.1 Representations and Warranties..............................................10
5.2 Performance.................................................................10
5.3 Qualifications..............................................................10
5.4 Restated Articles...........................................................10
5.5 Proceedings Satisfactory; Compliance Certificate............................11
5.6 Stock Restriction Agreements................................................11
6. Conditions of the Company's Obligations at Closing.................................11
6.1 Representations and Warranties..............................................11
6.2 Blue Sky Compliance.........................................................11
6.3 Restated Articles...........................................................11
6.4 Legal Matters...............................................................12
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS (Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
7. Post-Closing Covenants of the Company..............................................12
7.1 Securities Laws Compliance..................................................12
7.2 Employee Confidential Information and Inventions Agreement..................12
7.3 Stock Purchase and Restriction Agreements...................................12
7.4 Stock Plans.................................................................13
8. Miscellaneous......................................................................13
8.1 Entire Agreement; Successors and Assigns....................................13
8.2 Governing Law...............................................................13
8.3 Counterparts................................................................13
8.4 Headings....................................................................14
8.5 Notices.....................................................................14
8.6 Survival of Warranties......................................................14
8.7 Amendment of Agreement......................................................14
8.8 California Securities Laws..................................................15
8.9 Finders Fees................................................................15
8.10 Expenses....................................................................15
</TABLE>
ii
<PAGE> 4
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is made as of August __, 1996, by and among ClickOver, Inc., a
California corporation (the "Company"), and the Investors listed in Schedule 1.1
attached hereto (the "Investors").
R E C I T A L S
A. The Board of Directors of the Company has adopted the Amended
and Restated Articles of Incorporation ("Restated Articles") in the form
attached hereto as Exhibit A which, among other matters, establish the rights,
preferences and privileges of the Company's no par value Series A Preferred
Stock (the "Preferred Stock").
B. The Company desires to issue up to Five Hundred Twenty-Five
Thousand (525,000) shares of Preferred Stock to the Investors, and the Investors
desire to purchase up to Five Hundred Twenty-Five Thousand (525,000) shares of
Preferred Stock, on the terms and subject to the conditions set forth in this
Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. Issue of Preferred Stock.
1.1 Issuance of Preferred Stock. The Company shall issue to the
Investors and the Investors shall obtain from the Company, at an issue price of
$0.20 per share, a total of up to Five Hundred Twenty-Five Thousand (525,000)
shares of Series A Preferred Stock (the "Shares"). The number of Shares to be
purchased by each Investor is set forth opposite the name of each Investor on
Schedule 1.1.
1.2 Closing. The closing of the purchase and sale of the Shares
shall take place at the offices of Heller, Ehrman, White & McAuliffe, 525
University Avenue, Palo Alto,
<PAGE> 5
California 94301-1900, on August 21, 1996, at 3:00 p.m. (the "Closing") or at
such other place and time as the Company and a majority of the Investors
mutually agree. At the Closing, each Investor shall each purchase that number of
Shares designated in Schedule 1.1 to be purchased by such Investor for the
purchase price set forth in Schedule 1.1. At the Closing, the Company will
deliver to each Investor a certificate representing the Shares which such
Investor is obtaining at the Closing against delivery to the Company by such
Investor at the Closing of (a) an executed counterpart of this Agreement, and
(b) the issue price of such shares as set forth in Schedule 1.1 by wire
transfer, cancellation of indebtedness, or by a check payable to the Company.
2. Definitions. For purposes of this Agreement:
2.1 "Material Adverse Event" shall mean an occurrence having a
consequence that either (a) is materially adverse as to the business,
properties, prospects, or financial condition of the Company or materially
changes the equity ownership of the Company, or (b) is reasonably foreseeable,
and if it were to occur might materially adversely affect the business,
properties, prospects, or financial condition of the Company.
2.2 "Subsidiary" means any corporation more than 50% of whose
stock (measured by virtue of voting rights) in the aggregate is owned by the
Company.
3. Representations and Warranties of the Company to Investors. Except as
set forth in the Schedule of Exceptions attached as Exhibit B, the Company
hereby represents and warrants to each Investor that:
3.1 Corporate Organization and Authority. The Company:
(a) is a corporation duly organized, validly existing,
authorized to exercise all its corporate powers, rights and privileges, and in
good standing in the State of California;
2
<PAGE> 6
(b) has the corporate power and corporate authority to own
and operate its properties and to carry on its business as now conducted and as
proposed to be conducted; and
(c) is qualified as a foreign corporation in all
jurisdictions in which such qualification is required; provided, however, that
the Company need not be qualified in a jurisdiction in which its failure to
qualify would not have a material adverse effect on the, business, properties,
prospects or financial condition of the Company.
3.2 Capitalization. Immediately prior to the Closing, the
authorized capital of the Company shall consist of: Twelve Million (12,000,000)
shares of Common Stock, of which Four Million One Hundred Three Thousand Four
Hundred Eight (4,103,408) are issued and outstanding as of the Closing Date and
held by the persons and in the amounts set forth in Exhibit B and Three Million
(3,000,000) shares of Preferred Stock (the "Preferred") of which Five Hundred
Twenty-Five Thousand (525,000) have been designated Series A Preferred. No
shares of Preferred are issued and outstanding. The Series A Preferred shall
have the rights, preferences, privileges, and restrictions set forth in the
Restated Articles. The outstanding shares have been duly authorized and validly
issued (including, without limitation, issued in compliance with applicable
federal and state securities laws), fully-paid, and non-assessable. Except as
set forth herein or in Exhibit B, there are no outstanding warrants, options,
conversion privileges, preemptive rights, or other rights or agreements to
purchase or otherwise acquire or issue any equity securities of the Company, nor
has the issuance of any of the aforesaid rights to acquire securities of the
Company been authorized. The Company is not a party or subject to any agreement
or understanding, and, to the Company's knowledge, there is no agreement or
3
<PAGE> 7
understanding between any persons and/or entities, which affects or relates to
the voting or giving of written consents with respect to any security or by a
director of the Company.
3.3 Subsidiaries. The Company does not presently own, have any
investment in, or control, directly or indirectly, any Subsidiaries,
associations, or other business entities. The Company is not a participant in
any joint venture or partnership.
3.4 Authorization. All corporate action on the part of the
Company, its officers, directors, and stockholders necessary for the
authorization, execution, delivery, and performance of all obligations under
this Agreement and for the authorization, issuance, and delivery of the Shares
and of the Common Stock issuable upon conversion of the Shares has been taken,
and this Agreement constitute legally binding and valid obligations of the
Company enforceable in accordance with their terms.
3.5 Corporate Power. The Company will have at each Closing Date
all requisite legal and corporate power and authority to execute and deliver the
Agreement, to sell and issue the Shares hereunder, to issue the Common Stock
issuable upon conversion of the Shares, and to carry out and perform its
obligations under the terms of the Agreement.
3.6 Validity of Shares. The Shares, when issued, sold, and
delivered in accordance with the terms and for the consideration expressed in
this Agreement, will be duly and validly issued (including, without limitation,
issued in compliance with applicable federal and state securities laws) and
non-assessable. The Common Stock issuable upon conversion of the Shares has been
duly and validly reserved and, assuming such Common Stock is issued to the
Investors, upon issuance in accordance with the Restated Articles will be duly
and validly issued (including, without limitation, issued in compliance with all
applicable federal and state securities laws) and non-assessable and will be
free of any liens or encumbrances other than any
4
<PAGE> 8
liens or encumbrances created by or imposed thereon by the holders; provided,
however, that the Shares (and the Common Stock issuable upon conversion thereof)
shall be subject to restrictions on transfer under state and/or federal
securities laws. The Shares and Common Stock issuable upon conversion of the
Shares are not subject to any preemptive rights or rights of first refusal,
except as otherwise so agreed to by the holders thereof.
3.7 No Conflict with Other Instruments. The execution, delivery,
and performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice: (i) any provision of the Company's Restated
Articles or Bylaws; (ii) any provision of any judgment, decree, or order to
which the Company is a party or by which it is bound; (iii) any material
contract, obligation, or commitment to which the Company is a party or by which
it is bound; or (iv) to the Company's knowledge, any statute, rule, or
governmental regulation applicable to the Company.
3.8 No Defaults, Violations, or Conflicts. The company is not in
violation of any term or provision of any charter provision, bylaw, or any
material term or provision of any indebtedness, mortgage, indenture, contract,
agreement, judgment, or to the Company's knowledge, any decree, order, statute,
rule, or regulation applicable to the Company where such violation, or
violations in the aggregate, is a Material Adverse Event.
3.9 Private Offering. The Company agrees that neither the Company
nor anyone acting on its behalf will offer any of the Shares or any similar
securities for issuance or sale to, or solicit any offer to acquire any of the
same from, anyone or take any other action so as to make the issuance and sale
of the Shares subject to the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act").
5
<PAGE> 9
3.10 Employee Confidential Information and Inventions Agreement.
Each officer, employee, and consultant of the Company has executed and delivered
to the Company an Employee Confidential Information and Inventions Agreement
substantially in the form of Exhibit 7.2. The Company, after reasonable
investigation, is not aware that any of its employees, officers, or consultants
is in violation thereof, and the Company will use its best efforts to prevent
any such violation.
3.11 Brokers and Finders. The Company has not retained any
investment banker, broker, or finder in connection with the transactions
contemplated by this Agreement.
4. Representations and Warranties of the Investors. Each Investor
represents and warrants to the Company as follows:
4.1 Authorization. When executed and delivered by Investor, and
assuming execution and delivery by the Company, the Agreement will each
constitute a valid obligation of such Investor, enforceable in accordance with
their respective terms.
4.2 Brokers and Finders. Investor has not retained any investment
banker, broker, or finder in connection with the transactions contemplated by
this Agreement.
4.3 Investment. This Agreement is made with Investor in reliance
upon its representation to the Company, which by Investor's execution of this
Agreement Investor hereby confirms, that the Shares to be received by Investor
will be acquired for investment for Investor's own account, not as a nominee or
agent, and not with a view to the sale or distribution of any part thereof, and
that Investor has no present intention of selling, granting any participation
in, or otherwise distributing the same. By executing this Agreement, Investor
further represents that it has no contract, undertaking, agreement, or
arrangement with any person to sell, transfer, or grant participation to such
person or to any third person, with respect to any of the Shares.
6
<PAGE> 10
4.4 No Public Market. Investor understands and acknowledges that
the offering of the Shares pursuant to this Agreement will not be registered
under the Securities Act on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration pursuant to Section
4(2) of the Securities Act, and that the Company's reliance upon such exemption
is predicated upon Investor's representations set forth in this Agreement.
Investor further understands that no public market now exists for any of the
securities issued by the Company and that the Company has made no assurances
that a public market will ever exist for the Company's securities
4.5 Limitations on Transferability. Investor covenants that in no
event will it dispose of any of the Shares (other than pursuant to Rule 144
promulgated by the Securities and Exchange Commission ("Commission") under the
Securities Act ("Rule 144") or any similar or analogous rule) unless and until
(i) Investor shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (ii), if requested by the Company,
Investor shall have furnished the Company with an opinion of counsel
satisfactory in form and substance to the Company and the Company's counsel to
the effect that (x) such disposition will not require registration under the
Securities Act and (y) appropriate action necessary for compliance with the
Securities Act and any applicable state, local, or foreign law has been taken.
Notwithstanding the limitations set forth in the foregoing sentence, if Investor
is a partnership it may transfer Shares to its constituent partners or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner or transfer by gift, will, or intestate
succession to any such partner's spouse or lineal descendants or ancestors
without the necessity of registration or opinion of counsel if the transferee
agrees in writing to be subject to the terms
7
<PAGE> 11
of this Agreement to the same extent if such transferee were an Investor;
provided, however, that Investor hereby covenants not to effect such transfer if
such transfer either would invalidate the securities laws exemptions pursuant to
which the Shares were originally offered and sold or would itself require
registration under the Securities Act or applicable state securities laws. Each
certificate evidencing the Shares transferred as above provided shall bear the
appropriate restrictive legend set forth in Section 4.7 below, except that such
certificate shall not bear such legend if the transfer was made in compliance
with Rule 144 or if the opinion of counsel referred to above is to the further
effect that such legend is not required in order to establish compliance with
any provisions of the Securities Act.
4.6 Experience. Investor represents that: (i) it has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its prospective investment in the Shares;
(ii) it believes it has received all the information it has requested from the
Company and considers necessary or appropriate for deciding whether to obtain
the Shares; (iii) it has had the opportunity to discuss the Company's business,
management, and financial affairs with its management, (iv) it has the ability
to bear the economic risks of its prospective investment; and (v) it is able,
without materially impairing its financial condition, to hold the Shares for an
indefinite period of time and to suffer a complete loss on its investment. The
foregoing, however, does not modify the representations and warranties of the
Company in Section 3 of this Agreement or the right of the Investor to rely
thereon.
4.7 Legends.
(a) All certificates for the Shares shall bear the following
legend:
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended ("Act"). Such securities may not
be
8
<PAGE> 12
transferred unless a Registration Statement under the Act is in effect
as to such transfer or, in the opinion of counsel for the Company,
registration under the Act is unnecessary in order for such transfer to
comply with the Act or unless sold pursuant to Rule 144 of the Act."
(b) The certificates evidencing the Shares shall also bear
any legend required by the Commissioner of Corporations of the State of
California or required pursuant to any state, local, or foreign law
governing such securities.
5. Conditions of Investors' Obligations at Closing. The obligations of
each Investor under Section 1 of this Agreement are subject to the fulfillment
at or before the Closing of each of the following conditions, any of which may
be waived in writing by such Investor:
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 3 shall be true on and as of the
Closing with the same effect as if made on and as of the Closing.
5.2 Performance. The Company shall have performed or fulfilled
all agreements, obligations, and conditions contained herein required to be
performed or fulfilled by the Company before the Closing.
5.3 Qualifications. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or
any state that are required in connection with the lawful issuance and sale of
the Shares pursuant to this Agreement shall be duly obtained effective as of the
Closing.
5.4 Restated Articles. The Company shall have filed its Restated
Articles with the Secretary of State of the State of California, which Restated
Articles shall be in full force and effect on the Closing Date.
5.5 Proceedings Satisfactory; Compliance Certificate. All
corporate and legal proceedings taken by the Company in connection with the
transactions contemplated by this
9
<PAGE> 13
Agreement and all documents and papers relating to such transactions shall be
satisfactory in all material respects to the Investors, in the reasonable
exercise of their judgment. The Company shall have delivered to the Investors a
certificate dated as of the Closing, signed by the Company's President,
certifying that the conditions set forth in Sections 5.1, 5.2, and 5.6 have been
satisfied.
5.6 Stock Restriction Agreements. Each holder of Common Stock
shall have executed and delivered to the Company a Stock Restriction Agreement
substantially in the form of Exhibit 5.6 attached hereto.
6. Conditions of the Company's Obligations at Closing. The obligations
of the Company under Section 1 of this Agreement are subject to the fulfillment
at or before the Closing of each of the following conditions, any of which may
be waived in writing by the Company:
6.1 Representations and Warranties. The representations and
warranties of the Investors contained in Section 4 shall be true on and as of
the Closing with the same effect as though said representations and warranties
had been made on and as of the Closing.
6.2 Blue Sky Compliance. The Company shall have complied with and
be effective under the securities laws of the State of California and any other
applicable states as necessary to offer and sell the Shares to the Investors.
6.3 Restated Articles. The Restated Articles shall have been
filed with the Secretary of State of the State of California and shall be in
full force and effect on the Closing Date.
10
<PAGE> 14
6.4 Legal Matters. All material matters of a legal nature
which pertain to this Agreement and the transactions contemplated hereby shall
have been reasonably approved by counsel to the Company.
7.Post-Closing Covenants of the Company.
7.1 Securities Laws Compliance. The Company shall, within 15
days after the Closing, file a notice of the sale of the Shares to the Investors
pursuant to Section 25102(f) of the California Corporations Code, and shall make
any filings necessary under the securities or Blue Sky laws of any other
applicable jurisdiction.
7.2 Employee Confidential Information and Inventions
Agreement. Unless otherwise determined by the unanimous vote of the Board of
Directors, the Company shall require all future officers, directors, and
employees of, and consultants to, the Company to execute and deliver an Employee
Confidential Information and Inventions Agreement in substantially the form of
Exhibit 7.2.
7.3 Stock Purchase and Restriction Agreement. The Company
shall cause all future purchasers of, and all future holders of options to
purchase, shares of the Company's Common Stock to execute and deliver Stock
Purchase and Restriction Agreements or Stock Option Agreements substantially in
the form of Exhibit 5.6 and providing for four-year vesting or such other period
as approved from time to time by the Board of Directors.
7.4 Stock Plans. The Company may sell shares of stock and
grant options to employees, advisors, officers, and directors of, and
consultants to, the Company only pursuant to a customary stock option plan, or
pursuant to such other arrangements, contracts, or plans as are recommended by
management and approved by the Board of Directors.
11
<PAGE> 15
7.5 Registration Rights. The Company shall grant to the
Investors piggyback registration rights on a pari passu basis with any piggyback
registration rights granted to the investors in the Company's next round of
equity financing.
8 Miscellaneous.
8.1 Entire Agreement; Successors and Assigns. This Agreement
constitutes the entire contract between the Company and the Investors relative
to the subject matter hereof. Any previous agreement between the Company and the
Investors is superseded by this Agreement. Subject to the exceptions
specifically set forth in this Agreement, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors, and assigns of the parties.
8.2 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, excluding
those laws that direct the application of the laws of another jurisdiction.
8.3 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.
8.4 Headings. The headings of the Sections of this Agreement are
for convenience and shall not by themselves determine the interpretation of this
Agreement.
8.5 Notices. Any notice required or permitted hereunder shall
be given in writing and shall be conclusively deemed effectively given upon
personal delivery or delivery by courier, or five days after deposit in the
United States mail, by registered or certified mail, postage prepaid, addressed
to the Company or the Investors, as the case may be, as set forth
12
<PAGE> 16
below its name on the signature page of this Agreement, or at such other address
as the Company or such Investor may designate by ten (10) days' advance written
notice to the other.
8.6 Survival of Warranties. The warranties and representations
of the parties contained in or made pursuant to this Agreement shall survive for
one year after the execution and delivery of this Agreement and the Closing;
provided, however, that such representations and warranties need only be
accurate as of the date of such execution and delivery and as of the Closing.
8.7 Amendment of Agreement. Any provision of this Agreement
may be amended by a written instrument signed by the Company and by persons
holding at least a majority of the aggregate of (a) the then outstanding Shares
(assuming conversion to Common Stock at the conversion rate then in effect) and
(b) the then outstanding shares of Common Stock into which the shares of
Preferred Stock have been converted, other than shares of Common Stock which
have been sold to the public.
8.8 California Securities Laws. 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 SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
13
<PAGE> 17
8.9 Finders Fees. Each of the Company and the Investors will
indemnify the other against all liabilities incurred by the indemnifying party
with respect to claims related to investment banking or finders fees in
connection with the transactions contemplated by this Agreement, arising out of
arrangements between the party asserting such claims and the indemnifying party,
and all costs and expenses (including reasonable fees of counsel) of
investigating and defending such claims.
8.10 Expenses. The Company and the Investors will bear their
respective legal and other fees and expenses with respect to this Agreement and
the transactions contemplated hereby.
14
<PAGE> 18
13
IN WITNESS WHEREOF, the parties hereto have executed this Series
A Preferred Stock Purchase Agreement as of the day and year first above written.
COMPANY:
CLICKOVER, INC.,
a California corporation
By: /s/ Thomas Churchill
-------------------------------------
Thomas Churchill, President
Address: 525 Alma
Palo Alto, CA 94301
INVESTORS:
/s/ Thomas Churchill
-----------------------------------------
Thomas Churchill
/s/ Chih-Chao Lam
-----------------------------------------
Chih-Chao Lam
/s/ Fah-Chun Cheong
-----------------------------------------
Fah-Chun Cheong
/s/ Andrew Kwee
-----------------------------------------
Andrew Kwee
/s/ Chi Kiong Chen
-----------------------------------------
Chi Kiong Chen
/s/ Ping Cheng
-----------------------------------------
Ping Cheng
15
<PAGE> 19
EXHIBITS AND SCHEDULES
Section
Exhibit A Amended and Restated Articles of Incorporation
Exhibit B Schedule of Exceptions to Representations and Warranties
Exhibit 5.6 Stock Restriction Agreement
Exhibit 7.2 Employee Confidential Information and Inventions Agreement
Schedule 1.1 Schedule of Investors
<PAGE> 20
SCHEDULE 1.1
Schedule of Investors
<TABLE>
<CAPTION>
Name of Investor Number of Shares Purchase Price
- ---------------- ---------------- --------------
<S> <C> <C>
Thomas Churchill 75,000 $ 15,000.00
Address: c/o ClickOver
525 Alma Street
Palo Alto, CA 94301
Chi-Chao Lam 75,000 15,000.00
Address: c/o ClickOver
525 Alma Street
Palo Alto, CA 94301
Fah-Chun Cheong 150,000 30,000.00
Address:
---------------------
---------------------
---------------------
Andrew Kwee 100,000 20,000.00
Address: 225 South 18th Street
Apt. 1515
Philadelphia, PA 19103
Chi Kiong Chen 100,000 20,000.00
Address: 2 Blachford Court
Oakland, CA 94611
Ping Cheng 25,000 5,000.00
-------- -----------
Address: 150 Clinton Park
San Francisco, CA 94117
525,000 $105,000.00
</TABLE>
17
<PAGE> 21
EXHIBIT B
SCHEDULE OF EXCEPTIONS
TO REPRESENTATIONS AND WARRANTIES
This Schedule of Exceptions set forth exceptions to the representations
and warranties specified in Section 3 of the Agreement. Unless the context
otherwise requires, all capitalized terms herein have the same meaning as
defined in the Agreement. The Section numbers indicated herein refer to Sections
in the Agreement; however, the exceptions set forth herein shall apply to any of
the representations and warranties where appropriate.
3.2 Capitalization
a) Common Stock. The Company has issued shares of Common Stock to each
of the following persons in the amounts set forth by their name.
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER NUMBER OF SHARES
------------------- ----------------
<S> <C>
Thomas Churchill 1,982,961
Chih-Chao Lam 1,321,974
Fah-chun Cheong 198,473
Thi Thumasathit 600,000
</TABLE>
Substantially all of such shares are subject to a right of repurchase in
favor of the Company upon the termination of employment with the Company. Except
with respect to the shares held by Mr. Cheong, this right expires (i) with
respect to 25% of the shares one year after the commencement of employment, and
quarterly thereafter with respect to a ratable portion of the remaining shares,
and (ii) with respect to all shares upon an acquisition of the Company and with
respect to an additional 25% of the shares (12 months additional vesting) upon a
termination other than for cause. For Mr. Cheong, the right of repurchase
expires with respect to 50% of the shares after one year and quarterly
thereafter with respect to an additional 12.5% of the shares. Expiration of the
right of repurchase will be accelerated by 12 months upon termination other than
for cause and with respect to all shares upon an acquisition.
<PAGE> 22
b) Options for Common Stock. In addition, the Company has granted
options for the purchase of shares of its Common Stock to the persons and in the
amounts set forth below:
<TABLE>
<CAPTION>
NUMBER OF
NAME POSITION SHARES VESTING(1)
- ---- -------- --------- ----------
<S> <C> <C> <C>
Dale Thoms Senior 170,000 Four years; one year cliff;
Programmer quarterly thereafter (with
acceleration of rate prior
to closing of Series B
financing)
Ming Lam Systems 10,000 Immediate
Administrator
Ping Cheng Graphics 90,000 Quarterly over two years
Designer
Ken Tidwell Senior 200,000(2) Four years; one year Cliff,
Engineer quarterly thereafter
</TABLE>
- ----------
(1) Vesting of the options to Mr. Thomas and Mr. Tidwell will be
accelerated with respect to 50% of the shares that are unvested at the time of
an acquisition.
(2) Vesting of 20,000 of the shares covered by this option is contingent
on achievement of a certain performance milestone.
<PAGE> 23
HELLER EHRMAN WHITE & MCAULIFFE
ATTORNEYS
A PARTNERSHIP OF PROFESSIONAL CORPORATIONS
August 8, 1996
ClickOver, Inc.
[91604-0960]
(415) 324-7102
FEDERAL EXPRESS
Mr. Jeff Robinson
GKL Corporate Search, Inc.
Park Plaza Professional Center
1303 J Street, Suite 320
Sacramento, CA 95814-2936
Amended and Restated
Articles of Incorporation - ClickOver, Inc.
Dear Jeff:
Enclosed you will find an original and two copies of the Amended and
Restated Articles of Incorporation of ClickOver, Inc. (the "Articles").
Upon the filing of the Articles, please return two (2) certified copies
via overnight delivery and provide telephone confirmation of filing. Your
attention to this matter is greatly appreciated.
Very truly yours,
/s/ Paul D. Little
Paul D. Little
Corporate Legal Assistant
Enclosures
cc (w/o enclosures):
Matthew P. Quilter, Esq.
EXHIBIT A
<PAGE> 24
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CLICKOVER, INC.
Thomas Churchill and Thi Thumasathit certify that:
1. They are the President and Assistant Secretary, respectively
of ClickOver, Inc., a California corporation.
2. The Articles of Incorporation of this Corporation are hereby
amended and restated in full to read as follows:
FIRST:
The name of this corporation is ClickOver, Inc.
SECOND:
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THIRD:
This corporation's initial agent for service of process is Mr.
Thomas Churchill, 525 Alma Avenue, Palo Alto, CA 94301.
FOURTH:
This corporation is authorized to issue two classes of shares,
which shall be known as Common Stock and Preferred Stock. The total number of
shares of Common Stock which this corporation is authorized to issue is
12,000,000 and the total number of shares of Preferred Stock which this
corporation is authorized to issue is 3,000,000. The Preferred Stock may be
issued from time to time in one or more series. The Board of Directors is
authorized within the limitations and restrictions stated in these Amended and
Restated Articles of Incorporation (i) to determine and alter the rights,
preferences, privileges, and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock and the number of shares constituting any
such series and the designation thereof, or any of them; and (ii) to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any such series subsequent to the issue of shares of
that series. If the number of shares of any series of Preferred Stock shall be
so decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series. Five Hundred Twenty-Five Thousand
<PAGE> 25
(525,000) of the shares of Preferred Stock are designated Series A Preferred
Stock (hereinafter referred to as "Series A Preferred"). The term "Preferred
Stock" shall hereafter refer to the Series A Preferred.
FIFTH:
The relative rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes of the shares of capital stock
or the holders thereof are as follows:
1. Dividend Preference. The holders of Preferred Stock shall be entitled
to receive, pari passu out of funds legally available therefor, dividends on
each outstanding share of Series A Preferred at an annual rate of $0.01 for each
share of Series A Preferred hold by them payable when and as declared by the
Board, in preference and priority to the payment of dividends on any shares of
Common Stock (other than those payable solely in Common Stock or involving the
repurchase of shares of Common Stock from terminated employees, officers,
directors or consultants pursuant to contractual arrangements). After payment of
such dividends, dividends may be declared and paid to the holders of Common
Stock, provided that no dividends shall be paid on the Common Stock at a rate
greater than that paid on any series of Preferred Stock based on the number of
shares of Common Stock into which a series of Preferred is convertible on the
date of the dividend. The dividends payable to the holders of Series A Preferred
shall not be cumulative, and no right shall accrue to the holders of Series A
Preferred by reason of the fact that dividends on the Series A Preferred are not
declared or paid in any previous fiscal year of the corporation, whether or not
the earnings of the corporation in that previous fiscal year were sufficient to
pay such dividends in whole or in part.
2. Liquidation Preference. In the event of any liquidation, dissolution
or winding up of the corporation (a "Liquidation Event"), whether voluntary or
not, distributions to the shareholders of the corporation shall be made in the
following manner:
(a) Prior to and in preference to any distribution to the holders
of Common Stock, the holders of Preferred Stock shall be entitled to receive,
for each share of Series A Preferred, an amount equal to the sum of (i) $0.20
(the "Original Series A Issue Price") and (ii) all declared but unpaid dividends
with respect to such shares of Series A Preferred (collectively, the "Series A
Preference").
(b) If upon the occurrence of a Liquidation Event, the assets and
funds available for distribution among the holders of Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Preferred Stock in proportion to the total preferential amount
owed to each such holder.
(c) After payment has been made to the holders of the Preferred
Stock of the full amounts to which they shall be entitled as aforesaid, the
remaining assets of the corporation available for distribution to shareholders
shall be distributed ratably among the holders of Common stock based on the
number of shares Common Stock held by each.
-2-
<PAGE> 26
(d) A sale of all or substantially all of the assets of the
corporation, or the acquisition of this corporation by another entity by means
of consolidation or merger resulting in the exchange of the outstanding shares
of this corporation for securities or other consideration issued, or caused to
be issued, by the acquiring corporation or corporations and pursuant to which
the shareholders of this corporation (determined prior to such event) do not
hold more than 50% of the voting power of the surviving corporation, shall be a
Liquidation Event within the meaning of this Section 2.
(e) Each holder of Preferred Stock shall be deemed to have
consented, for purposes of Sections 502, 503, and 506 of the California
Corporations Code, to distributions made by the corporation in connection with
the repurchase of shares of Common Stock issued to or held by officers,
directors or employees of, or consultants to, the corporation or its
subsidiaries upon termination of their employment or services pursuant to
agreements (whether now existing or hereafter entered into) providing for the
right of said repurchase between the corporation and such persons.
(f) The value of securities and property paid or distributed
pursuant to this Section 2 shall be computed at fair market value at the time of
payment to the corporation or at the time made available to shareholders, all as
determined by the Board of Directors in the good faith exercise of its
reasonable business judgment, provided that (i) if such securities are listed on
any established stock exchange or a national market system, their fair market
value shall be the closing sales price for such securities as quoted on such
system or exchange (or the largest such exchange) for the date the value is to
be determined (or if there are no sales for such date, then for the last
preceding business day on which there were sales), as reported in the Wall
Street Journal or similar publication, and (ii) if such securities are regularly
quoted by a recognized securities dealer but selling prices are not reported,
their fair market value shall be the mean between the high bid and low asked
prices for such securities on the date the value is to be determined (or if
there are no quoted prices for such date, then for the last preceding business
day on which there were quoted prices).
(g) Nothing hereinabove set forth shall affect in any way the
right of each holder of Preferred Stock to convert such shares at any time and
from time to time into Common Stock in accordance with Section 4 hereof.
3. Voting Rights. Except as otherwise required by law or hereunder, the
holder of each share of Common Stock issued and outstanding shall have one vote
and the holder of each share of Preferred Stock shall be entitled to the number
of votes equal to the number of shares of Common Stock into which such share of
Preferred Stock could be converted at the record date for determination of the
shareholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited, such votes to be counted together with all other
shares of stock of the company having general voting power and not separately as
a class. Fractional votes by the holders of Preferred Stock shall not, however,
be permitted and any fractional voting rights shall (after aggregating all
shares into which shares of Preferred Stock held by each holder could be
converted) be rounded
-3-
<PAGE> 27
to the nearest whole number. Holders of Common Stock and Preferred Stock shall
be entitled to notice of any shareholders' meeting in accordance with the Bylaws
of the corporation.
4. Conversion Rights. The holders of Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the corporation or any transfer agent
for such Series A Preferred. Each share of Series A Preferred shall be
convertible into such number of fully-paid and non-assessable shares of Common
Stock as is determined by dividing the Original Series A Issue Price (as set
forth in Section 2(a) hereof) by the Series A Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. The initial Series A
Conversion Price shall be $0.20. The initial Series A Conversion Price shall be
subject to adjustment as hereinafter provided.
(b) Automatic Conversion. Each share of Series A Preferred shall
automatically be converted into shares of Common Stock at the Series A
Conversion Price then in effect upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the corporation to the public at an aggregate
offering price to the public of greater than $10,000,000 (the "Automatic
Conversion"). In the event of the Automatic Conversion of the Preferred Stock
upon a public offering as aforesaid, the person(s) entitled to receive the
Common Stock issuable upon such conversion of Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the corporation shall
pay cash equal to such fraction multiplied by the then effective Conversion
Price for such series. Before any holder of Preferred Stock shall be entitled to
convert the same into full shares of Common Stock and to receive certificates
therefor, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to the corporation at such office
that he elects to convert the same; provided, however, that in the event of an
automatic conversion pursuant to section 4(b), the outstanding shares of
Preferred Stock shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the corporation or its transfer agent, and provided
further that the corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such automatic conversion
unless the certificates evidencing such shares of Preferred Stock are either
delivered to the corporation or its transfer agent as provided above, or the
holder notifies the corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the corporation to indemnify the corporation from any loss incurred by it in
connection with such certificates. The corporation shall, as soon as practicable
after such delivery, or such agreement and indemnification in the case of a lost
certificate, issue and deliver at such office to such holder of Preferred Stock,
a certificate or certificates for the number of
-4-
<PAGE> 28
shares of Common Stock to which he shall be entitled as aforesaid and a check
payable to the holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, or in the
case of Automatic Conversion on the date of closing of the offering, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Price.
(i) Adjustments for Dividends, Splits, Subdivisions,
Combinations or Consolidation of Common Stock. In the event the outstanding
shares of Common Stock shall be increased by stock dividend payable in Common
Stock, stock split, subdivision or other similar transaction into a greater
number of shares of Common Stock, the Series A Conversion Price then in effect
shall, concurrently with the effectiveness of such event, be decreased in
proportion to the percentage increase in the outstanding number of shares of
Common Stock. In the event the outstanding shares of Common Stock shall be
decreased by reverse stock split, combination, consolidation, or other similar
transaction into a lesser number of shares of Common Stock, the Series A
Conversion Price then in effect shall, concurrently with the effectiveness of
such event, be increased in proportion to the percentage decrease in the
outstanding number of shares of Common Stock.
(ii) Adjustments for Other Distributions. In the event the
corporation at any time are from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the corporation other than shares of
Common Stock and other than as otherwise adjusted in this Section 4, then and in
each such event provision shall be made so that the holders of Preferred Stock
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the corporation
which they would have received had their Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 4 with respect to the rights of the holders of the Preferred Stock.
(iii) Adjustments for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon conversion of the Preferred
Stock shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares provided for above), the Series A Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted such that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would
-5-
<PAGE> 29
have been subject to receipt by the holders upon conversion of such Series A
Preferred immediately before that change.
(e) No Impairment. Except as provided in Section 5, the
corporation will not, by amendment of its Articles of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue, or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the corporation but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Series A Preferred against
impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price pursuant to this
Section 4, the corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The corporation shall, upon the written request at any time of any holder
of Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of the Preferred Stock.
(g) Notices of Record Date. In the event that this corporation
shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, this corporation shall send to the
holders of the Preferred Stock:
(1) at least 20 days prior written notice of the
date on which a record shall be taken for such dividend, distribution, or
subscription rights (and specifying the
-6-
<PAGE> 30
date on which the holders of Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the matters referred to in (iii) and
(iv) above; and
(2) in the case of the matters referred to in
(iii) and (iv) above, at least 20 days prior written notice of the date when the
same shall take place (and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event or the record date for
the determination of such holders if such record date is earlier).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of this corporation.
(h) Issue Taxes. The corporation shall pay any and all issue and
other taxes (other than income taxes) that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of shares of Preferred
Stock pursuant hereto; provided, however, that the corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
(i) Reservation of Stock Issuable Upon Conversion. The
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stork to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to its Articles of
Incorporation.
(j) Status of Converted Stock. In case any series of Preferred
Stock shall be converted pursuant to this Section 4, the shares so converted
shall resume the status of authorized but unissued shares of Preferred Stock
undesignated as to series.
5. Covenants. In addition to any other rights provided by law, this
corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of more than 50% of the outstanding shares of Preferred
Stock:
(a) amend or repeal any provision of, or add any provision to,
this corporation's Articles of Incorporation if such action would materially and
adversely alter or change the preferences, rights, privileges, or powers of, or
the restrictions provided for the benefit of, the Preferred Stock;
-7-
<PAGE> 31
(b) authorize or issue shares of any class or series of stock
having any preference or priority as to dividends or redemption rights,
liquidation preferences, conversion rights or voting rights, superior to any
preference or priority of the Preferred Stock;
(c) reclassify any shares of capital stock of this corporation
into shares having any preference or priority as to dividends or redemption
rights, liquidation preferences, conversion rights or voting rights, superior to
any preference or priority of the Preferred Stock; or
(d) merge or consolidate the corporation with any other
corporation or corporations (other than with a wholly-owned subsidiary of the
corporation) or effect any other transaction or series of related transactions,
in either case resulting in the shareholders of the corporation (determined
prior to such event) holding 50% or less in interest of the outstanding voting
securities of the surviving corporation, or sell, lease, assign, transfer or
convey all or substantially all of the assets of the corporation.
6. Residual Rights. All rights accruing to the outstanding shares of the
corporation not expressly provided for to the contrary herein shall be vested in
the Common Stock.
SIXTH:
The liability of the directors of this corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. This
corporation is also authorized, to the fullest extent permissible under
California law, to indemnify its agents (as defined in Section 317 of the
California Corporations Code), whether by bylaw, agreement or otherwise, for
breach of duty to this corporation and its shareholders in excess of that
expressly permitted by Section 317 and to advance defense expenses to its agents
in connection with such matters as they are incurred. If, after the effective
date of this Article Sixth, California law is amended in a manner which permits
a corporation to limit the monetary or other liability of its directors or to
authorize indemnification of, or advancement of such defense expenses to, its
directors or other persons, in any such case to a greater extent than is
permitted on such effective date, the references in this Article to "California
law" shall to that extent be deemed to refer to California law as so amended.
3. The foregoing Amendment and Restatement of Articles of Incorporation
has been duly approved by the Board of Directors.
4. The foregoing Amendment and Restatement of Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the Code. The total number of outstanding shares of the
Corporation is 4,103,408. The number of shares voting in favor of the amendment
equaled or exceeded the vote required the percentage vote was more than 50%.
-8-
<PAGE> 32
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated: July 31, 1996
/s/ Thomas Churchill
------------------------------------
Thomas Churchill, President
/s/ Thi Thumasathit
------------------------------------
Thi Thumasathit,
Assistant Secretary
-9-
<PAGE> 33
CLICKOVER, INC.
EMPLOYEE CONFIDENTIAL INFORMATION AND
INVENTIONS AGREEMENT
In partial consideration and as a condition of my employment or
continued employment with ClickOver, Inc., a California corporation (which
together with any parent, subsidiary, affiliate, or successor is hereinafter
referred to as the "Company" or "ClickOver") and effective as of the date that
my employment with the Company first commenced, I hereby agree as follows:
1. NONCOMPETITION
During my employment with the Company, I will perform for the
Company such duties as it may designate from time to time and will devote my
full time and best efforts to the business of the Company and will not, without
the prior written approval of (i) an officer of the company if I am not an
executive officer of the Company or (ii) the Board of Directors of the Company
if I am an executive officer of the Company, (a) engage in any other
professional employment or consulting, or (b) directly or indirectly participate
in or assist any business which is a current or potential supplier, customer, or
competitor of the Company.
2. CONFIDENTIALITY OBLIGATION
I will hold all ClickOver Confidential Information in confidence
and will not disclose, use, copy, publish, summarize, or remove from ClickOver's
premises any Confidential Information, except (a) as necessary to carry out my
assigned responsibilities as a ClickOver employee, and (b) after termination of
my employment, only as specifically authorized in writing by an officer of
ClickOver. "Confidential Information" is all information related to any aspect
of ClickOver's business which is either information not known by actual or
potential competitors of the Company or is proprietary information of the
Company, whether of a technical nature or otherwise. Confidential Information
includes inventions, ideas, designs, computer programs, circuits, schematics,
formulas, algorithms, trade secrets, works of authorship, mask works,
developmental or experimental work, processes, techniques, improvements,
know-how, data, financial information and forecasts, product plans, marketing
plans and strategies, and customer lists.
3. INFORMATION OF OTHERS
I will safeguard and keep confidential the proprietary
information of customers, vendors, consultants, and other parties with which
ClickOver does business to the same extent as if it were ClickOver Confidential
Information. I will not, during my employment with the Company or otherwise, use
or disclose to the Company any confidential, trade secret, or other proprietary
information or material of any previous employer or other person, and I will not
bring onto the Company's premises any unpublished document or any other property
belonging to any former employer without the written consent of that former
employer.
EXHIBIT 7.2
<PAGE> 34
4. COMPANY PROPERTY
All papers, records, data, notes, drawings, files, documents,
samples, devices, products, equipment, and other materials, including copies,
relating to ClickOver's business that I possess or create as a result of my
ClickOver employment, whether or not confidential, are the sole and exclusive
property of ClickOver. In the event of the termination of my employment, I will
promptly deliver all such materials to ClickOver and will sign and deliver to
the Company the "Termination Certificate" attached hereto as Exhibit A.
5. OWNERSHIP OF INVENTIONS
All inventions, ideas, designs, circuits, schematics, formulas,
algorithms, trade secrets, works of authorship, mask works, developments,
processes, techniques, improvements, and related know-how which result from work
performed by me, alone or with others, on behalf of ClickOver or from access to
ClickOver Confidential Information or property whether or not patentable,
copyrightable, or qualified for mask work protection (collectively "Inventions")
shall be the property of ClickOver, and, to the extent permitted by law, shall
be "works made for hire." I hereby assign and agree to assign to ClickOver or
its designee, without further consideration, my entire right, title, and
interest in and to all Inventions (other than those which qualify under Section
2870 of the California Labor Code), including all rights to obtain, register,
perfect, and enforce patents, copyrights, mask work rights, and other
intellectual property protection for Inventions. I will disclose promptly and in
writing to the individual designated by ClickOver or to my immediate supervisor
all Inventions which I have made or reduced to practice. During my employment
and for four years after, I will assist ClickOver (at its expense) to obtain and
enforce patents, copyrights, mask work rights, and other forms of intellectual
property protection on Inventions.
6. EXCLUDED INVENTIONS
Attached as Schedule 6 is a list of all inventions, improvements,
and original works of authorship which I desire to exclude from this Agreement,
each of which has been made or reduced to practice by me prior to my employment
by ClickOver. I will not incorporate any such items in any works of authorship
or other Inventions that result from work performed by me for the company. If no
list is attached to this Agreement, there are no inventions to be excluded at
the time of my signing of this Agreement. I understand that this Agreement
requires disclosure, but not assignment, of any invention that qualifies under
Section 2870 of the California Labor Code, which is set forth in full in Exhibit
C and reads in pertinent part as follows:
"(a) Any provision in an employment agreement which provides that
an employee shall assign, or offer to assign, any of his or her
rights in an invention to his or her employer shall not apply to
an invention that the employee developed entirely an his or her
own time without using the employer's equipment, supplies,
facilities, or trade secret information except for those
inventions that either:
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<PAGE> 35
(1) Relate at the time of conception or reduction to
practice of the invention to the employer's business, or actual
or demonstrably anticipated research or development of the
employer, or
(2) Result from any work performed by the
employee for the employer."
7. PATENT APPLICATIONS
If ClickOver files an original United States patent application
covering any invention of which I am a named inventor, I will receive an
inventor's fee of $100.
8. PRIOR CONTRACTS
I represent that there are no other contracts to assign
inventions that are now in existence between any other person or entity and me.
I further represent that I have no other employments, consultancies, or
undertakings which would restrict and impair my performance of this Agreement.
9. AGREEMENTS WITH THE UNITED STATES GOVERNMENT AND OTHER THIRD PARTIES
I acknowledge that the Company from time to time may have
agreements with other persons or with the United States Government or agencies
thereof which impose obligations or restrictions on the Company regarding
Inventions made during the course of work under such agreements or regarding the
confidential nature of such work. I agree to be bound by all such obligations or
restrictions and to take all action necessary to discharge the obligations of
the Company thereunder.
10. NO SOLICITATION
During the term of my employment with the Company, and for a
period of one year following its termination for any reason, I will not, without
the Company's express written consent, either on my own behalf or on behalf of
another: (i) contact or solicit employees of the Company for the purpose of
hiring them; or (ii) solicit the business of any client, customer, or licensee
of the Company. I acknowledge that the provisions of this Section 10 are
reasonable and necessary measures designed to protect the Confidential
Information of the Company.
11. NO EMPLOYMENT AGREEMENT
I agree that unless specifically provided in another writing
signed by me and an officer of the Company, my employment by the Company is not
for a definite period of time. Rather, my employment relationship with the
Company is one of employment at will and my continued employment is not
obligatory by either myself or the Company.
-3-
<PAGE> 36
12. MISCELLANEOUS
12.1 Governing Law
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California excluding those laws that
direct the application of the laws of another jurisdiction.
12.2 Enforcement
If any provision of this Agreement shall be determined to
be invalid or unenforceable for any reason, it shall be adjusted rather than
voided, if possible, in order to achieve the intent of the parties to the extent
possible. In any event, all other provisions of this Agreement shall be deemed
valid and enforceable to the full extent possible.
12.3 Injunctive Relief; Consent to Jurisdiction
I acknowledge and agree that damages will not be an
adequate remedy in the event of a breach of any of my obligations under this
Agreement. I therefore agree that the Company shall be entitled (without
limitation of any other rights or remedies otherwise available to the Company)
to obtain an injunction from any court of competent jurisdiction prohibiting the
continuance or recurrence of any breach of this Agreement. I hereby submit
myself to the jurisdiction and venue of the courts of the State of California
for purposes of any such action. I further agree that service upon me in any
such action or proceeding may be made by first class mail, certified or
registered, to my address as last appearing on the records of the Company.
12.4 Arbitration
I further agree that the Company, at its option, may elect
to submit any dispute or controversy arising out of this Agreement for final
settlement by arbitration conducted in Santa Clara County in accordance with the
then existing rules of the American Arbitration Association, and judgment upon
the award rendered by the arbitrators shall be specifically enforceable and may
be entered in any court having jurisdiction thereof.
12.5 Attorneys' Fees
If any party seeks to enforce its rights under this
Agreement by legal proceedings or otherwise, the non-prevailing party shall pay
all costs and expenses of the prevailing party.
12.6 Waiver
The waiver by the Company of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach of the same or any other provision hereof.
-4-
<PAGE> 37
12.7 Binding Effect
This Agreement shall be binding upon and shall inure to
the benefit of the successors, executors, administrators, heirs,
representatives, and assigns of the parties.
12.8 Headings
The Section headings herein are intended for reference and
shall not by themselves determine the construction or interpretation of this
Agreement.
12.9 Entire Agreement; Modifications
This Employee Confidential Information and Inventions
Agreement contains the entire agreement between the Company and the undersigned
employee concerning the subject matter hereof and supersedes any and all prior
and contemporaneous negotiations, correspondence, understandings, and
agreements, whether oral or written, respecting that subject matter. All
modifications to this Agreement must be in writing and signed by the party
against whom enforcement of such modification is sought.
-5-
<PAGE> 38
IN WITNESS WHEREOF, I have executed this Employee Confidential
Information and Inventions Agreement as of the___ day of __________________,
1996.
-----------------------------------------
Name:
------------------------------------
Please Print
RECEIPT ACKNOWLEDGED:
CLICKOVER, INC.
By:
------------------------------
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<PAGE> 39
EXHIBIT A
CLICKOVER, INC.
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed to
return, any papers, records, data, notes, drawings, files, documents, samples,
devices, products, equipment, and other materials, including reproductions of
any of the aforementioned items, belonging to ClickOver, Inc., its subsidiaries,
affiliates, successors, or assigns (together, the "Company").
I further certify that I have complied with all the terms of the Company's
Confidential Information and Inventions Agreement signed by me, including the
reporting of any inventions and original works of authorship (as defined
therein) conceived or made by me (solely or jointly with others) covered by that
agreement.
I further agree that, in compliance with the Confidential Information and
Inventions Agreement, I will hold in confidence and will not disclose, use,
copy, publish, or summarize any Confidential Information (as defined in the
Confidential Information and Inventions Agreement) of the Company or of any of
its customers, vendors, consultants, and other parties with which it does
business.
Date: ____________________
____________________________________
Employee's Signature
____________________________________
Type/Print Employee's Name
-7-
<PAGE> 40
EXHIBIT B
CLICKOVER, INC.
(Excluded Inventions, Improvements, and
Original Works of Authorship)
Identifying Number
Title Date Or Brief Description
- ----- ---- --------------------
-8-
<PAGE> 41
EXHIBIT C
CLICKOVER, INC.
California Labor Code Section 2870. Application of provision providing that
employee shall assign or offer to assign rights in invention to employer.
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that
the employee developed entirely on his or her own time without using the
employer's equipment, supplies, facilities, or trade secret information
except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require
an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against
the public policy of this state and is unenforceable.
Amended Stats 1986 ch 647 Section 5.
-9-
<PAGE> 42
CLICKOVER, INC.
FOUNDERS' RESTRICTED STOCK PURCHASE AGREEMENT
THIS FOUNDERS' RESTRICTED STOCK PURCHASE AGREEMENT (the "Agreement") is
made and entered into as of this 11th day of July, 1996 (the "Effective Date")
between ClickOver, Inc., a California corporation (the "Company"), and 1-
("Founder").
1. Purchase of Shares.
Subject to the terms and conditions of this Agreement and the
Contribution to Controlled Corporation Agreement attached hereto as Exhibit A,
Founder is purchasing 2- (3-) shares of the Company's no par value Common Stock
(the "Shares") from the Company, and the Company hereby sells the Shares to
Founder for the consideration set forth in Exhibit A.
2. Market Standoff.
Founder agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act of 1933, as
amended (the "Securities Act"), Founder shall not sell or otherwise transfer any
Shares or other securities of the Company during such period (not to exceed 180
days) following the effective date of a registration statement of the Company
filed under the Securities Act as may be requested by the representative of the
underwriters; provided, however, that such restriction shall apply only to the
first two registration statements of the Company to become effective under the
Securities Act which include securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Act. The Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of each such period.
3. Vesting; Company Right to Repurchase; Acceleration.
3.1 Vesting. As of the Effective Date, none of the Shares will be
deemed "Vested"; rather all of the Shares will be deemed "Unvested." Although
all of the Shares will entitle the Founder to all of the rights accorded to a
holder of Common Stock of the Company, those Shares which are Unvested remain
subject to repurchase by the Company pursuant to Section 3.2 below; such
Unvested Shares will become Vested on the following schedule: 4- of the Shares
will become Vested 6-; and, thereafter, 5- additional Shares will become Vested,
on a cumulative basis, every three months thereafter, such that as of 7-, all of
the Shares will have become Vested.
3.2 Company Right to Repurchase Unvested Shares. In the event
that Founder is no longer employed or retained by the Company or any of its
affiliates as either a director, an officer or an employee, or in any such
capacity, for any reason whatsoever (whether due to death, total disability,
voluntary resignation, involuntary termination or any other reason), then for a
period of 90 days after the date of such event the Company will have an
assignable right, but not an obligation, to repurchase any Shares owned by
Founder that remain Unvested as
EXHIBIT 5.6
<PAGE> 43
of such termination event (after giving effect to any accelerated vesting
provided in Section 3.3 below) for a price equal to $0.01 per share, subject to
appropriate adjustment for stock splits, stock dividends and combinations;
provided that if the Company determines that exercise of its right to repurchase
could cause the Company to cease to qualify as a "small business" under Section
1202 of the Internal Revenue Code as to prior or subsequent stock issuances by
the Company and if the Company so notifies Founder within such 90-day period,
the Company may (a) exercise its right of repurchase set forth in this Section 3
by written notice to Founder at any time within one year after the date on which
Founder ceases to serve and provided further, that if the Company so notifies
Founder, during the period between the date of receipt of such notice and the
earlier of exercise of the Company's right to repurchase and expiration of such
one-year period, Founder hereby grants the Chairman of the Board (or in the
absence of a Chairman, the Chief Executive Officer) of the Company, with full
power of substitution, an irrevocable proxy to vote such shares (or execute a
written consent) on all matters submitted to a vote of shareholders, or (b)
assign all or a portion of its right as determined by the Board of Directors. If
the Company (or its assignees) exercises its right of repurchase, Founder shall,
if necessary, endorse and deliver to the Company (or its assignees) the stock
certificates representing the Shares being repurchased, and the Company (or its
assignees) shall pay Founder the total repurchase price in cash upon such
delivery. Founder shall cease to have any rights with respect to such
repurchased Shares immediately upon receipt of the repurchase price.
3.3 Acceleration of Vesting upon Certain Events. Notwithstanding
the Vesting provisions set forth in Section 3.1 above:
In the event of a Sale of the Company, then 100% of the Shares
that are Unvested as of the consummation of such Sale will become Vested
immediately prior to such consummation. For such purposes, the term "Sale of the
Company" means any sale, lease or disposition of all or substantially all of the
assets of the Company, or any merger or consolidation of the Company with or
into any other corporation or corporations or other entity, or any other
corporate reorganization where the shareholders of the Company immediately prior
to such event do not retain at least 50% of the voting power of and interest in
the successor entity, or any transaction or series of related transactions in
which more than 50% of the Company's voting power is transferred.
3.4 Repurchase Payment. If, at the time of repurchase, any notes
are outstanding which represent any portion of the purchase price of the Shares,
the Repurchase Price shall be paid first by cancellation of any obligation for
accrued but unpaid interest under such notes, next by cancellation of principal
under such notes, and finally by payment of cash.
4. Right of First Refusal.
The Shares shall be subject to a right of first refusal by the
Company in the event that Founder or any transferee of the Shares proposes to
sell, pledge, or otherwise transfer the Shares or any interest in the Shares to
any person or entity. Any holder of the Shares desiring to transfer the Shares
or any interest in the Shares shall give a written notice to the Company
describing the proposed transfer, including the number of Shares proposed to be
transferred, the price and terms at which such Shares are proposed to be
transferred, and the name and address of
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<PAGE> 44
the proposed transferee. Unless otherwise agreed by the Company and the holder
of such Shares, repurchases by the Company under this Section shall be at the
proposed price and terms, including the number of Shares to be repurchased,
specified in the notice to the Company. The Company's rights under this Section
shall be freely assignable. If the Company fails to exercise its right of first
refusal within 30 days from the date on which the Company receives the
shareholder's notice, the shareholder may, within the next 90 days, conclude a
transfer to the proposed transferee of the exact number of Shares covered by
that notice on terms not more favorable to the transferee than those described
in the notice. Any subsequent proposed transfer shall again be subject to the
Company's right of first refusal. If the Company exercises its right of first
refusal, the shareholder shall endorse and deliver to the Company the stock
certificates representing the Shares being repurchased and the Company shall
promptly pay the shareholder the total repurchase price. The holder of the
Shares being repurchased shall cease to have any rights with respect to such
Shares immediately upon receipt of the repurchase price. The right of first
refusal set forth in this Section shall terminate upon the earlier of (i)
consummation of an underwritten public offering of the company's Common Stock
registered under the Securities Act, or (ii) registration of the Company's
Common Stock under the Securities Exchange Act of 1934, as amended.
5. Representations and Acknowledgements of Founder.
Founder hereby represents, warrants, acknowledges, and agrees
that:
(a) Investment. Founder is acquiring the Shares for Founder's own
account and not with a view to or for sale in connection with any distribution
of the Shares. Founder understands that he must bear the economic risk of the
investment for an indefinite period of time because the Shares have not been
registered under the Securities Act or qualified under the California Corporate
Securities Law of 1968 or the securities laws of any other state.
(b) Investment Experience: Pre-existing Relationship. Founder has
(i) a pre-existing personal or business relationship with the Company or one or
more of its directors that is of a nature and duration which enable him to be
aware of the character, business acumen, and general business and financial
circumstances of the Company or the director(s) with whom such relationship
exists and (ii) such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the purchase of the
Shares.
(c) Limited Operating History. Founder is aware that the Company
has only recently been formed and has conducted only limited business activities
to date.
(d) Speculative Investment. Founder's investment in the Company
represented by the Shares is highly speculative in nature and is subject to a
high degree of risk of loss in whole or in part; the amount of such investment
is within Founder's risk capital means and is not so great in relation to
Founder's total financial resources as would jeopardize the personal financial
needs of Founder or Founder's family in the event such investment were lost in
whole or in part.
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<PAGE> 45
(e) Tax Advice. The Company has made no warranties or
representations to Founder with respect to the income tax consequences of the
transactions contemplated by this Agreement and Founder is in no manner relying
on the Company or its representatives for an assessment of any tax consequences
related to ownership, purchase, or disposition of the Shares. Founder shall
assume full responsibility for all such consequences and for the preparation and
filing of all tax returns and elections which may or must be filed in connection
with such Shares.
(f) Unregistered Securities.
(i) Founder must bear the economic risk of investment for
an indefinite period of time because the Shares have not been registered under
the Securities Act and therefore cannot and will not be sold unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. The Company has made no agreements, covenants, or
undertakings whatsoever to register any of the shares under the Securities Act.
The Company has made no representations, warranties, or covenants whatsoever as
to whether any exemption from the Securities Act, including without limitation
any exemption for limited sales in routine brokers' transactions pursuant to
Rule 144 under the Securities Act, will become available and any such exemption
pursuant to Rule 144, if available at all, will not be available unless: (x) a
public trading market then exists in the Company's Common Stock, (y) adequate
information as to the Company's financial and other affairs and operations is
then available to the public, and (z) all other terms and conditions of Rule 144
have been satisfied. Founder understands that the resale provisions of Rule 701
will not apply until 90 days after the Company becomes subject to the reporting
obligations of the securities Exchange Act of 1934 (typically upon the effective
date of a public offering).
(ii) Transfer of the Shares has not been registered or
qualified under any applicable state law regulating securities and therefore the
Shares cannot and will not be sold unless they are subsequently registered or
qualified under any such law or an exemption therefrom is available. The Company
has made no agreements, covenants, or undertakings whatsoever to register or
qualify any of the Shares under any such law. The Company has made no
representations, warranties, or covenants whatsoever as to whether any exemption
from any such law will become available.
(g) Public Trading. The Common Stock is not presently
publicly traded, and the Company has made no representation, covenant, or
agreement as to whether any such market for the Common Stock will develop.
6. Legends.
Stock certificates evidencing the Shares may bear such
restrictive legends as the Company and the Company's counsel deem necessary or
advisable under applicable law or pursuant to this Agreement, including without
limitation, the following legends:
"The Securities represented hereby may be subject to a
right of repurchase by the Company pursuant to the provisions of
the Restricted Stock Purchase Agreement between the Company and
the original purchaser of such Securities,
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<PAGE> 46
should the person initially issued these Securities cease to be
employed by and/or render services as a consultant to the
Company or any affiliate thereof, and such securities may not be
sold or otherwise transferred if such securities are subject to
such right of repurchase."
"The Securities represented hereby are subject to
restrictions on transfer for a period of 180 days following the
effective date of a registration statement under the Securities
Act of 1933, as amended, for an offering of the Company's
securities pursuant to the market standoff provisions of the
Restricted Stock Purchase Agreement between the Company and the
original purchaser of such securities."
"The Securities represented hereby are subject to a right
of first refusal in favor of the Company pursuant to a Restricted
Stock Purchase Agreement between the Company and the original
purchaser of such Securities, and may not be sold or otherwise
transferred except in compliance with the terms of such right of
first refusal."
"The Securities represented hereby have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"). Such Securities may not be transferred unless
a Registration Statement under the Securities Act is in effect as
to such transfer or, in the opinion of counsel for the Company,
such transfer may be made pursuant to Rule 144 or registration
under the Securities Act is otherwise unnecessary in order for
such transfer to comply with the Securities Act."
7. Binding Effect.
Subject to the limitations set forth in this Agreement, this
Agreement shall be binding upon, and inure to the benefit of, the executors,
administrators, heirs, legal representatives, successors, and assigns of the
parties hereto.
8. Taxes.
Founder shall execute and deliver to the Company with this
executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Election Pursuant to Section 83(b) of the Internal Revenue Code (the
"Acknowledgment") attached hereto as Exhibit 8A and a copy of the Election
Pursuant to Section 83(b) of the Code, attached hereto as Exhibit 8B, if Founder
has indicated in the Acknowledgment his or her decision to make such an
election. Founder should consult his tax advisor to determine if there is a
comparable election to file in the state of his or her residence and whether
such filing is desirable under the circumstances.
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<PAGE> 47
9. Damages.
Founder shall be liable to the Company for all costs and damages,
including incidental and consequential damages, resulting from a disposition of
shares which is not in conformity with the provisions of this Agreement.
10. Governing Law.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California excluding those laws that direct the
application of the laws of another jurisdiction.
11. Notices.
All notices and other communications under this Agreement shall
be in writing. Unless and until Founder is notified in writing to the contrary,
all notices, communications, and documents directed to the Company and related
to the Agreement, if not delivered by hand, shall be mailed, addressed as
follows:
ClickOver, Inc.
525 Alma Street
Palo Alto, CA 94301
Attention: President
Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for Founder and related to this
Agreement, if not delivered by hand, shall be mailed to Founder's last known
address as shown on the Company's books. Notices and communications shall be
mailed by certified mail, return receipt requested, postage prepaid. All
mailings and deliveries related to this Agreement shall be deemed received only
when actually received, if by personal delivery, and two business days after
mailing, if by mail.
12. Entire Agreement.
This Agreement constitutes the entire agreement of the parties
pertaining to the purchase of the Shares by Founder from the Company, and
supersedes all prior and contemporaneous agreements, representations, and
understandings of the parties.
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<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have executed this
Restricted Stock Purchase Agreement as of the date and year first above written.
CLICKOVER, INC.
By:______________________________________
Thomas Churchill, President
FOUNDER
Founder's spouse indicates by the execution of this Agreement his
or her consent to be bound by the terms herein as to his or her interests,
whether as community property or otherwise, if any, in the Shares hereby
purchased.
_________________________________________
Founder's Spouse
The Certificate for the Shares is to
be registered as follows:
_________________________________________
_________________________________________
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<PAGE> 49
EXHIBIT 5A
ACKNOWLEDGMENT AND STATEMENT
OF DECISION REGARDING ELECTION
PURSUANT TO Section 83(b) OF
THE INTERNAL REVENUE CODE
The undersigned (which term includes the undersigned's spouse), a
purchaser of 3- shares of Common Stock of ClickOver, Inc., a California
corporation (the "Company") and a party to a Restricted Stock Purchase Agreement
with the Company (the "Agreement"), hereby states as follows:
1. The undersigned acknowledges receipt of a copy of the Agreement. The
undersigned has carefully reviewed the Agreement.
2. The undersigned either [check as applicable]:
____ (a) has consulted, and has been fully advised by, the
undersigned's own tax advisor,
_________________________, whose business address
is _________________________________, regarding
the federal, state, and local tax consequences of
purchasing shares under the Agreement, and
particularly regarding the advisability of making
elections pursuant to Section 83(b) of the
Internal Revenue Code of 1986 (the "Code"), and
pursuant to the corresponding provisions, if any,
of applicable state laws; or
_____ (b) has knowingly chosen not to consult such a tax
advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
_____ (a) to make an election pursuant to Section 83(b)
of the Code and is submitting to the Company,
together with the undersigned's executed
Agreement, an executed form which is attached as
Exhibit 8B to the Agreement; or
_____ (b) not to make an election pursuant to Section 83(b)
of the Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares and execution of
the Agreement in connection therewith or of the making or failure to make an
election pursuant to Section 83(b) of the Code or the corresponding provisions,
if any, of applicable state law.
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<PAGE> 50
5. The undersigned is also submitting to the Company, together with the
Agreement, an executed original of an election, if any is made, of the
undersigned pursuant to provisions of state law corresponding to Section 83(b)
of the Code, if any, which are applicable to the undersigned's purchase of
shares under the Agreement.
Date: _______________ __________________________________
Date: _______________ __________________________________
[Spouse]
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<PAGE> 1
EXHIBIT 10.2
CLICKOVER, INC.
SERIES B PREFERRED
STOCK PURCHASE AGREEMENT
March 14,1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale of Stock...........................................................1
1.1 Sale and Issuance of Series B Preferred Stock.................................1
1.2 Closing.......................................................................1
2. Representations and Warranties of the Company........................................1
2.1 Organization, Good Standing, and Qualification................................1
2.2 Capitalization and Voting Rights..............................................2
2.3 Subsidiaries..................................................................2
2.4 Authorization.................................................................2
2.5 Valid Issuance of Preferred Stock.............................................3
2.6 Governmental Consents.........................................................3
2.7 Offering......................................................................3
2.8 Litigation....................................................................3
2.9 Proprietary Information.......................................................3
2.10 Patents and Trademarks........................................................4
2.11 Compliance with Other Instruments.............................................4
2.12 Agreements; Action............................................................4
2.13 Related-Party Transactions....................................................5
2.14 Registration Rights...........................................................5
2.15 Corporate Documents...........................................................5
2.16 Title to Property and Assets..................................................5
2.17 Employee Benefit Plans........................................................5
2.18 Insurance.....................................................................5
2.19 Employment Matters............................................................6
2.20 Disclosure....................................................................6
3. Representations and Warranties of the Investors......................................6
3.1 Authorization.................................................................6
3.2 Purchase Entirely for Own Account.............................................6
3.3 Disclosure of Information.....................................................6
3.4 Investment Experience.........................................................6
3.5 Restricted Securities.........................................................7
3.6 Further Limitations on Disposition............................................7
3.7 Legends. I...................................................................7
3.8 Further Representations by Foreign Investors..................................8
4. California Commissioner of Corporations..............................................8
4.1 Corporate Securities Law......................................................8
5. Conditions of Investor's Obligations at Closing......................................8
5.1 Representations and Warranties................................................8
5.2 Performance...................................................................8
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5.3 Compliance Certificate........................................................8
5.4 Qualifications................................................................8
5.5 Board of Directors............................................................9
5.6 Restated Articles.............................................................9
5.7 Investor Rights Agreement.....................................................9
5.8 Management Rights Letter......................................................9
5.9 Opinion of Company Counsel....................................................9
6. Conditions of the Company's Obligations at Closing...................................9
6.1 Representations and Warranties................................................9
6.2 Payment of Purchase Price.....................................................9
6.3 Qualifications................................................................9
6.4 Restated Articles.............................................................9
6.5 Investor Rights Agreement.....................................................9
7. Miscellaneous.......................................................................10
7.1 Survival of Warranties.......................................................10
7.2 Successors and Assigns.......................................................10
7.3 Governing Law................................................................10
7.4 Counterparts.................................................................10
7.5 Titles and Subtitles.........................................................10
7.6 Notices......................................................................10
7.7 Finder's Fee.................................................................10
7.8 Expenses.....................................................................10
7.9 Amendments and Waivers.......................................................11
7.10 Severability.................................................................11
7.11 Aggregation of Stock.........................................................11
7.12 Entire Agreement.............................................................11
</TABLE>
SCHEDULE A Schedule of Investors
EXHIBIT A Amended and Restated Articles of Incorporation
EXHIBIT B Investor Rights Agreements
EXHIBIT C Opinion of Company Counsel
ii
<PAGE> 4
SERIES B PREFERRED
STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT is made as of
the 14th day of March, 1997, by and among ClickOver, Inc., a California
corporation (the "Company"), and the investors listed on Schedule A hereto, each
of which is herein referred to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series B Preferred Stock.
(a) The Company shall adopt and file with
the Secretary of State of the State of California on or before the Closing (as
defined below) the Amended and Restated Articles of Incorporation in the form
attached hereto as Exhibit A (the "Restated Articles").
(b) Subject to the terms and conditions of
this Agreement, each Investor agrees, severally, to purchase at the Closing and
the Company agrees to sell and issue to each Investor at the Closing, that
number of shares of the Company's Series B Preferred Stock set forth opposite
each Investor's name on Schedule A hereto for the purchase price set forth
thereon.
1.2 Closing. The purchase and sale of the Series B
Preferred Stock shall take place at the offices of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, 155 Constitution, Menlo Park, California,
at 1:00 P.M., on March 14, 1997, or at such other time and place as the Company
and Investors acquiring in the aggregate more than half the shares of Series B
Preferred Stock sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Closing"). At the Closing, the
Company shall deliver to each Investor a certificate representing the Series B
Preferred Stock that such Investor is purchasing against payment of the purchase
price therefor by check, wire transfer, cancellation of indebtedness, or any
combination thereof. In the event that payment by an Investor is made, in whole
or in part, by cancellation of indebtedness, then such Investor shall surrender
to the Company for cancellation at the Closing any evidence of such indebtedness
or shall execute an instrument of cancellation in form and substance acceptable
to the Company.
2. Representations and Warranties of the Company. The
Company hereby represents and warrants to each Investor, except as set forth on
a Schedule of Exceptions (the "Schedule of Exceptions") furnished to each
Investor, which exceptions shall be deemed to be representations and warranties
as if made hereunder, the following:
2.1 Organization, Good Standing, and Qualification.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power and authority to carry on its business as now conducted. The
Company is duly qualified to transact business and is in good standing in each
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jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization and Voting Rights. Assuming the
filing of the Restated Articles and the consummation of the transactions
contemplated herein, the authorized capital of the Company consists, or will
consist as of the Closing, of:
(a) Preferred Stock. 6,037,000 shares of
Preferred Stock (the "Preferred Stock"), of which 525,000 shares have been
designated Series A Preferred Stock (the "Series A Preferred Stock"), all of
which shall be issued and outstanding, and 5,512,000 shares have been designated
Series B Preferred Stock (the "Series B Preferred Stock"), all of which shall be
issued and outstanding. The rights, privileges and preferences of the Series A
Preferred Stock and the Series B Prefer-red Stock will be as stated in the
Company's Restated Articles.
(b) Common Stock. 14,000,000 shares of
common stock ("Common Stock"), of which 4,776,001 shares shall be issued and
outstanding.
(c) Except for (A) the conversion privileges
of the Series A Preferred Stock, (B) the conversion privileges of the Series B
Preferred Stock to be issued under this Agreement, and (C) 2,650,000 shares of
Common Stock reserved for issuance, either directly or through options, to
employees, directors and consultants to the Company, of which 75,000 shares of
Common Stock are currently committed to employees of the Company, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. Except as provided in the Restated Articles, the
Company is not a party or subject to any agreement or understanding, and, to the
Company's knowledge, there is no agreement or understanding between any persons
and/or entities, which affects or relates to the voting or giving of written
consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own
or control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part
of the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Investor Rights
Agreement, the performance of all obligations of the Company hereunder and
thereunder, and the authorization, issuance (or reservation for issuance), sale
and delivery of the Series B Preferred Stock being sold hereunder and the Common
Stock issuable upon conversion of the Series B Preferred Stock has been taken or
will be taken prior to the Closing, and this Agreement and the Investor Rights
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Investor Rights Agreement may be
limited by applicable federal or state securities laws.
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2.5 Valid Issuance of Preferred Stock. The Series B
Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investor Rights Agreement
and under applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Series B Preferred Stock purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Restated Articles, will be duly and validly
issued, fully paid, and nonassessable and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Investor Rights Agreement and under applicable state and federal securities
laws.
2.6 Governmental Consents. No consent, approval,
order or authorization of, or registration, qualification, designation,
declaration or filing with, any federal, state or local governmental authority
on the part of the Company is required in connection with the consummation of
the transactions contemplated by this Agreement, except for the filing pursuant
to Section 25102(f) of the California Corporate Securities Law of 1968, as
amended, and the rules thereunder, which filing will be effected within 15 days
of the sale of the Series B Preferred Stock hereunder.
2.7 Offering. Subject in part to the truth and
accuracy of each Investor's representations set forth in Section 3 of this
Agreement, (i) the offer, sale and issuance of the Series B Preferred Stock as
contemplated by this Agreement are exempt from the registration requirements of
the Act, and neither the Company nor any authorized agent acting on its behalf
will take any action hereafter that would cause the loss of such exemption and
(ii) the Series B Preferred Stock that is being purchased by the Investors
hereunder will be issued in compliance with all applicable federal and state
securities laws.
2.8 Litigation. There is no action, suit, proceeding
or investigation pending or, to the Company's knowledge, currently threatened
against the Company that questions the validity of this Agreement, the Investor
Rights Agreement or the right of the Company to enter into such agreements, or
to consummate the transactions contemplated hereby or thereby, or that might
result either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions, suits, proceedings or investigations
pending or threatened (or any basis therefore known to the Company) involving
the prior employment of any employees of the Company, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. The Company is not party or subject to the
provisions of any order, writ, injunction, judgment or proceeding or
investigation by the Company currently pending or that the Company intends to
initiate.
2.9 Proprietary Information. Each key employee,
officer and consultant (with respect to software developers only) of the Company
has executed a Proprietary Information and Inventions Agreement in substantially
the form provided to special counsel to
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the Investors. The Company is not aware that any of its employees are in
violation of such agreements.
2.10 Patents and Trademarks. To its knowledge, the
Company has sufficient license, title or ownership of all patents, trademarks,
service marks, trade names and copyrights necessary for its business without any
conflict with or infringement of the rights of others. The Company has not
received any communications alleging that the Company has violated any of the
patents, trademarks, service marks, trade names or copyrights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employees' best efforts to promote the interests of the Company or that would
conflict with the business of the Company as now conducted. Except for
inventions that may be licensed by the Company without charge, the Company does
not believe it is or will be necessary to utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company.
2.11 Compliance with Other Instruments. To its
knowledge, the Company is not in violation or default in any material respect of
any provision of its Restated Articles or Bylaws, or in any material respect of
any instrument, judgment, order, writ, decree or contract to which it is a party
or by which it is bound, or, to its knowledge, of any provision of any federal
or state statute, rule or regulation applicable to the Company. The execution,
delivery and performance of this Agreement and the Investor Rights Agreement,
and the consummation of the transactions contemplated hereby and thereby will
not result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event that results in the creation of any lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture, or
non renewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations or any of its assets or
properties.
2.12 Agreements; Action.
(a) Except for agreements explicitly
contemplated hereby and by the Investor Rights Agreement, there are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors, affiliates, or any affiliate thereof.
(b) The Schedule of Exceptions contains a
list of all agreements of the Company that involves current obligations of the
Company or any other party thereto in excess of $50,000 and the loss of which
would have a material adverse effect on the business of the Company.
(c) The Company has not (i) declared or paid
any dividends or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less than $50,000,
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in excess of $100,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(d) For the purposes of subsection (c)
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company or the Subsidiaries have reason to
believe are affiliated therewith) shall be aggregated for the purpose of meeting
the individual minimum dollar amounts of such subsections.
(e) The Company is not a party to and is not
bound by any contract, agreement or instrument, or subject to any restriction
under its Restated Articles or Bylaws that adversely affects its business, its
properties or its financial condition as now conducted or as proposed to be
conducted.
2.13 Related-Party Transactions. No employee,
officer, or director of the Company or member of his or her immediate family is
indebted to the Company, nor is the Company indebted (or committed to make loans
or extend or guarantee credit) to any of them. To the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. No member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
material contract with the Company.
2.14 Registration Rights. Except as provided in the
Investor Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.15 Corporate Documents. The Restated Articles and
Bylaws of the Company are in the form provided to special counsel for the
Investors.
2.16 Title to Property and Assets. The Company owns
its property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens that arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and, to the Company's knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
2.17 Employee Benefit Plans. The Company does not
have any Employee Benefit Plan as defined in the Employee Retirement Income
Security Act of 1974.
2.18 Insurance. The Company has in full force and
effect fire and casualty insurance policies, with extended coverage, sufficient
in amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed.
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2.19 Employment Matters. The Company is not aware
that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing. The employment of
each officer and employee of the Company is terminable at the will of the
Company.
2.20 Disclosure. To the Company's knowledge, neither
this Agreement, the Investor Rights Agreement, nor any other statements or
certificates made or delivered in connection herewith or therewith contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading in light of the
circumstances under which they were made.
3. Representations and Warranties of the Investors. Each
Investor hereby represents and warrants that:
3.1 Authorization. Such Investor has full power and
authority to enter into this Agreement and the Investor Rights Agreement, and
each such Agreement constitutes its valid and legally binding obligation,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investor Rights Agreement may be limited by
applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This
Agreement is made with such Investor in reliance upon such Investor's
representation to the Company, which by such Investor's execution of this
Agreement such Investor hereby confirms, that the Series B Preferred Stock to be
received by such Investor and the Common Stock issuable upon conversion thereof
(collectively, the "Securities") will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing or disposing of the same. By executing this Agreement, such
Investor further represents that such Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
3.3 Disclosure of Information. Such Investor
believes it has received all the information it considers necessary or
appropriate for deciding whether to purchase the Series B Preferred Stock. Such
Investor further represents that it has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Series B Preferred Stock and the business, properties, prospects
and financial condition of the Company. The foregoing, however, does not limit
or modify the representations and warranties of the Company in Section 2 hereto
or the right of the Investors to rely thereon.
3.4 Investment Experience. Such Investor
acknowledges that it is able to fend for itself, can bear the economic risk of
its investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of
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the investment in the Series B Preferred Stock. If other than an individual,
Investor also represents it has not been organized for the purpose of acquiring
the Series B Preferred Stock.
3.5 Restricted Securities. Such Investor understands
that the Securities it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Act, only in certain limited circumstances. In
this connection, such Investor represents that it is familiar with SEC Rule 144,
as presently in effect, and understands the resale limitations imposed thereby
and by the Act.
3.6 Further Limitations on Disposition. Without in
any way limiting the representations set forth above, such Investor further
agrees not to make any disposition of all or any portion of the Securities
unless and until the transferee has agreed in writing for the benefit of the
Company to be bound by this Section 3 and Section 7 of this Agreement and the
Investor Rights Agreement, and:
(a) There is then in effect a Registration
Statement under the Act covering such proposed disposition and such disposition
is made in accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified
the Company of the proposed disposition and shall have furnished the Company
with a detailed statement of the circumstances surrounding the proposed
disposition, and (ii) if reasonably requested by 'the Company, such Investor
shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of such shares under the Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(c) Notwithstanding the provisions of
paragraphs (a) and (b) above, no such registration statement or opinion of
counsel shall be necessary for a transfer by an Investor that is a, partnership
to a partner of such partnership or a retired partner of such partnership who
retires after the date hereof, or to the estate of any such partner or retired
partner or the transfer by gift, will or intestate succession of any partner to
his or her spouse or to the siblings, lineal descendants or ancestors of such
partner or his or her spouse if the transferee agrees in writing to be subject
to the terms hereof to the same extent as if he or she were an original Investor
hereunder.
3.7 Legends. It is understood that the certificates
evidencing the Securities may bear one or all of the following legends:
(a) "These securities have not been
registered under the Securities Act of 1933, as amended. They may not be sold,
offered for sale, pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under such Act or an opinion
of counsel satisfactory to the Company that such registration is not required or
unless sold pursuant to Rule 144 of such Act."
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(b) Any legend required by the laws of the
State of California, including any legend required by the California Department
of Corporations and Sections 417 and 418 of the California Corporations Code.
3.8 Further Representations by Foreign Investors. If
an Investor is not a United States person, such Investor hereby represents that
he or she has satisfied himself or herself as to the full observance of the laws
of his or her jurisdiction in connection with any invitation to subscribe for
the Securities or any use of this Agreement, including (i) the legal
requirements within his jurisdiction for the purchase of the Securities, (ii)
any foreign exchange restrictions applicable to such purchase, (iii) any
governmental or other consents that may need to be obtained, and (iv) the income
tax and other tax consequences, if any, that may be relevant to the purchase,
holding, redemption, sale, or transfer of the Securities. Such Investor's
subscription and payment for, and his or her continued beneficial ownership of
the Securities, will not violate any applicable securities or other laws of his
or her jurisdiction.
4. California Commissioner of Corporations.
4.1 Corporate Securities Law. THE SALE OF THE
SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR
SUCH SECURITIES PRIOR TO SUCH 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 SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
5. Conditions of Investor's Obligations at Closing. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
5.1 Representations and Warranties. The
representations and warranties of the Company contained in Section 2 shall be
true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
5.2 Performance. The Company shall have performed
and complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
5.3 Compliance Certificate. The President of the
Company shall deliver to each Investor at the Closing a certificate stating that
the conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.4 Qualifications. All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are
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required in connection with the lawful issuance and sale of the Securities
pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
5.5 Board of Directors. The directors of the Company
shall be Thomas Churchill and Russell Siegelman, and there shall be one vacancy.
5.6 Restated Articles. The Restated Articles shall
have been duly adopted by the Company by all necessary corporate action of its
Board of Directors and shareholders, and shall have been duly filed with the
Secretary of State of the State of California and become legally effective.
5.7 Investor Rights Agreement. The Company and each
Investor shall have entered into the Investor Rights Agreement in the form
attached hereto as Exhibit B.
5.8 Management Rights Letter. The Company shall have
executed and delivered a management rights letter to Kleiner Perkins Caufield &
Byers VIII.
5.9 Opinion of Company Counsel. Each Investor shall
have received from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel for the Company, an opinion, dated as of the Closing, in the form
attached hereto as Exhibit C.
6. Conditions of the Company's Obligations at Closing. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
6.1 Representations and Warranties. The
representations and warranties of the Investor contained in Section 3 shall be
true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investor shall
have delivered the purchase price specified in Section 1.1(b).
6.3 Qualifications. All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
6.4 Restated Articles. The Restated Articles shall
have been duly adopted by the Company by all necessary corporate action of its
Board of Directors and shareholders, and shall have been duly filed with the
Secretary of State of the State of California and become legally effective.
6.5 Investor Rights Agreement. The Company and each
Investor shall have entered into the Investor Rights Agreement in the form
attached hereto as Exhibit B.
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7. Miscellaneous.
7.1 Survival of Warranties. The warranties,
representations and covenants of the Company and Investors contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing and shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of the Investors or the
Company.
7.2 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 Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
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.
7.3 Governing Law. This Agreement shall be governed
by and construed under the laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California.
7.4 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.
7.5 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.
7.6 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given to the party so
notified in writing and shall be deemed effectively given upon personal
delivery, upon delivery by confirmed facsimile or electronic transmission (with
duplicate original sent by United States mail) or three business days after
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
7.7 Finder's Fee. Each party represents that it
neither is nor will be obligated for any finders' fee or commission in
connection with this transaction. Each Investor agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which such Investor or any of its
officers, partners, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless each Investor from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
7.8 Expenses. Irrespective of whether the Closing is
effected, the Company shall pay all costs and expenses that it incurs with
respect to the negotiation,
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execution, delivery and performance of this Agreement. If the Closing is
effected, the Company shall reimburse the reasonable fees and expenses of
special counsel for the Investors, such reimbursement not to exceed $10,000. If
any action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the Investor Rights Agreement or the Restated Articles, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
7.9 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
a majority of the Common Stock issued or issuable upon conversion of the Series
B Preferred Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
7.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.11 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.
7.12 Entire Agreement. This Agreement and the
documents referred to herein constitute the entire agreement among the parties
and no party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
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IN WITNESS WHEREOF, the parties have executed this Series B
Preferred Stock Purchase Agreement as of the date first above written.
CLICKOVER, INC.
By: /s/ Thomas Churchill
--------------------------------------
Thomas Churchill, President
Address: 525 Alma Street
Palo Alto, CA 94301
<PAGE> 16
INVESTORS:
KLEINER PERKINS CAUFIELD & BYERS VIII
By: KPCB VIII Associates, its General Partner
By: /s/ Brook H. Byers
-------------------------------------------
Name: Brook H. Byers
-----------------------------------------
Title: General Partner
----------------------------------------
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By: KPCB VIII Associates, its General Partner
By: /s/ Brook H. Byers
-------------------------------------------
Name: Brook H. Byers
-----------------------------------------
Title: General Partner
----------------------------------------
KPCB JAVA FUND
By: KPCB VIII Associates, its General Partner
By: /s/ Brook H. Byers
-------------------------------------------
Name: Brook H. Byers
-----------------------------------------
Title: General Partner
----------------------------------------
Address: c/o Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025-7020
SIGNATURE PAGE TO CLICKOVER, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 17
/s/ Fah-Chun Cheong
-------------------------------------------
Fah-Chun Cheong
Address: 240 Exeter Ave.
San Carlos, CA 94070
SIGNATURE PAGE TO CLICKOVER, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 18
/s/ Thomas Churchill
-------------------------------------------
Thomas Churchill
Address: 130 Churchill Street
Palo Alto, CA 94301
SIGNATURE PAGE TO CLICKOVER, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 19
/s/ Chih-Chao Lam
-------------------------------------------
Chih-Chao Lam
Address: 525 View Street
Mountain View, CA 94041
SIGNATURE PAGE TO CLICKOVER, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 20
/s/ Chih-Ming Lam
-------------------------------------------
Chih-Ming Lam
Address: 525 View Street
Mountain View, CA 94041
SIGNATURE PAGE TO CLICKOVER, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 21
/s/ Dale Thoms
-------------------------------------------
Dale Thoms
Address: 3303 Kimberly Way
San Mateo, CA 94403
SIGNATURE PAGE TO CLICKOVER, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 22
/s/ Ken Tidwell
-------------------------------------------
Ken Tidwell
Address: 914 S. Spring Rd.
Los Altos, CA 94024
SIGNATURE PAGE TO CLICKOVER, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 23
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OF SERIES B AGGREGATE
INVESTOR PREFERRED STOCK PURCHASE PRICE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
KPCB Java Fund 3,710,000 $1,750,007.00
Kleiner Perkins Caufield & Byers VIII 1,457,500 $ 687,502.75
KPCB Information Sciences
Zaibatsu Fund II 132,500 $ 62,500.25
------------- -------------
Subtotal 5,300,000 $2,500,010.00
------------- -------------
Fah-Chun Cheong 53,000 $ 25,000.10
Thomas Churchill 10,600 $ 5,000.02
Chih-Chao Lam 42,400 $ 20,000.08
Chih-Ming Lam 42,400 $ 20,000.08
Dale Thoms 42,400 $ 20,000.08
Ken Tidwell 21,200 $ 10,000.04
------------- -------------
Subtotal 212,000 $ 100,000.40
------------- -------------
TOTAL 5,512,000 $2,600,010.40
============= =============
</TABLE>
<PAGE> 24
EXHIBIT A
Amended and Restated Articles of Incorporation
<PAGE> 25
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
CLICKOVER, INC.
a California corporation
The undersigned Thomas Churchill and Thi Thumasathit hereby
certify that:
ONE: They are the President and Assistant Secretary,
respectively, of ClickOver, Inc., a California corporation.
TWO: The Articles of Incorporation of this corporation are
hereby amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is ClickOver, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the, trust
company business or the practice of a profession permitted to be incorporated by
the California Corporations Code.
ARTICLE III
A. Classes of Stock. This corporation is authorized to
issue two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the corporation is
authorized to issue is twenty million thirty-seven thousand (20,037,000) shares.
Fourteen million (14,000,000) shares shall be Common Stock and six million
thirty-seven thousand (6,037,000) shares shall be Preferred Stock.
B. Rights, Preferences and Restrictions of the Preferred
Stock. The Preferred Stock may be issued from time to time in series. The
rights, preferences, privileges and restrictions granted to and imposed on the
Series A Preferred Stock (the "Series A Preferred Stock"), which series shall
consist of five hundred twenty-five thousand (525,000) shares, and the Series B
Preferred Stock (the "Series B Preferred Stock"), which series shall consist of
five million five hundred twelve thousand (5,512,000) shares, are as set forth
below in this Article III(B). The Board of Directors of this corporation (the
"Board") is hereby authorized to fix or alter the rights, preferences,
privileges, and restrictions granted to or imposed upon additional series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or of any of them. Subject to compliance with the
applicable protective voting rights which have been or may be granted to the
Preferred Stock or any series thereof in Certificates of Determination or this
corporation's Articles of Incorporation ("Protective Provisions"), but
notwithstanding any other rights of the Preferred Stock or any series thereof,
the rights, privileges, preferences, and restrictions of any such additional
series may be subordinated to, pari passu with, or senior to any of those of any
present or future class or series
<PAGE> 26
of Preferred Stock or Common Stock. Subject to compliance with any applicable
Protective Provisions, the Board is also authorized to increase or decrease the
number of shares of any series prior or subsequent to the issue of that series,
but not below the number of shares of such series then outstanding. In case any
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
1. Dividend Provisions.
(a) Subject to the rights of series of Preferred
Stock that may from time to time come into existence, the holders of shares of
Series A Preferred Stock and Series B Preferred Stock shall be entitled to
receive dividends at the rate of $0.01 per share per annum for the Series A
Preferred Stock and at the rate of $0.03 per share per annum for the Series B
Preferred Stock, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of this corporation) on the Common Stock of this corporation payable when,
as and if declared by a unanimous vote or consent of the Board of Directors.
Such dividends shall not be cumulative. Declared but unpaid dividends with
respect to a share of Series A Preferred Stock or Series B Preferred Stock
shall, upon conversion of such share to Common Stock, be paid to the extent
assets are legally available therefor either in cash or in Common Stock (valued
at the fair market value on the date of payment as determined by the Board of
Directors of this corporation). Any amounts for which assets are not legally
available shall be paid promptly as assets become legally available therefor.
(b) After payment of any such dividends, any
additional dividends or distributions shall be distributed among all holders of
Common Stock and all holders of Series A Preferred Stock and Series B Preferred
Stock in proportion to the number of shares of Common Stock which would be held
by each such holder if all shares of Series A Preferred Stock and Series B
Preferred Stock were converted to Common Stock at the then effective conversion
rate.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of this corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, the holders of Series A Preferred Stock and Series B Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of this corporation to the holders of Common Stock by reason of
their ownership thereof, (i) for the Series A Preferred Stock, an amount per
share equal to $0.20 for each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price"), and (ii) for the Series B Preferred Stock, an
amount per share equal to $0.4717 for each outstanding share of Series B
Preferred Stock (the "Original Series B Issue Price"). If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Series A Preferred Stock and Series B Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then, subject to the rights of series of Preferred Stock that may from time to
time come into existence, the entire assets and funds of the corporation legally
liable for distribution shall be distributed ratably among the holders of the
Series A Preferred
2
<PAGE> 27
Stock and Series B Preferred Stock in proportion to the preferential amount each
such holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required
by subparagraph (a) of this Section 2 and any other distribution that may be
required with respect to series of Preferred Stock that may from time to time
come into existence, the remaining assets of the corporation available for
distribution to shareholders shall be distributed among the holders of Series A
Preferred Stock, Series B Preferred Stock and Common Stock pro rata based on the
number of shares of Common Stock held by each (assuming conversion of all such
Series A Preferred Stock and Series B Preferred Stock) until, (i) with respect
to the holders of Series A Preferred Stock, such holders shall have received an
aggregate of $0.80 per share (including amounts paid pursuant to subsection (a)
of this Section 2) and (ii) with respect to the holders of Series B Preferred
Stock, such holders shall have received an aggregate of $1.8868 per share
(including amounts paid pursuant to subsection (a) of this Section 2);
thereafter, subject to the rights of series of Preferred Stock that may from
time to time come into existence, if assets remain in this corporation, the
holders of the Common Stock of this corporation shall receive all of the
remaining assets of this corporation pro rata based on the number of shares of
Common Stock held by each.
(c) (i) For purposes of this Section 2, a
liquidation, dissolution or winding up of this corporation shall be deemed to be
occasioned by, or to include, (A) the acquisition of the corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation but, excluding
any merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's shareholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
(ii) In any of such events, if the
consideration received by the corporation is other than cash, its value will be
deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to
investment letter or other similar restrictions on free marketability covered by
(B) below:
(1) If traded on a
securities exchange or through NASDAQ-NMS, the value shall be deemed to be the
average of the closing prices of the securities on such exchange over the
thirty-day period ending three (3) days prior to the closing;
(2) If actively traded over-
the-counter, the value shall be deemed to be the average of the closing bid or
sale prices (whichever is applicable) over the thirty-day period ending three
(3) days prior to the closing; and
3
<PAGE> 28
(3) If there is no active
public market, the value shall be the fair market value thereof, as mutually
determined by the corporation and the holders of at least a majority of the
voting power of all then outstanding shares of Preferred Stock.
(B) The method of valuation of
securities subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue of a
shareholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value determined as above in (A) (1), (2)
or (3) to reflect the approximate fair market value thereof, as mutually
determined by the corporation and the holders of at least a majority of the
voting power of all then outstanding shares of such Preferred Stock.
(iii) In the event the requirements of this
subsection 2(c) are not complied with, this corporation shall forthwith either:
(A) cause such closing to be
postponed until such time as the requirements of this Section 2 have been
complied with; or
(B) cancel such transaction, in
which event the rights, preferences and privileges of the holders of the Series
A Preferred Stock and the Series B Preferred Stock shall revert to and be the
same as such rights, preferences and privileges existing immediately prior to
the date of the first notice referred to in subsection 2(c)(iv) hereof.
(iv) The corporation shall give each holder
of record of Series A Preferred Stock and Series B Preferred Stock written
notice of such impending transaction not later than twenty (20) days prior to
the shareholders' meeting called to approve such transaction, or twenty (20)
days prior to the closing of such transaction, whichever is earlier, and shall
also notify such holders in writing of the final approval of such transaction.
The first of such notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 2, and the
corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty (20)
days after the corporation has given the first notice provided for herein or
sooner than ten (10) days after the corporation has given notice of any material
changes provided for herein; provided, however, that such periods may be
shortened upon the written consent of the holders of Preferred Stock that are
entitled to such notice rights or similar notice rights and that represent at
least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
(v) This Section 2(c) shall not effect the
rights set forth in Section 5 herein.
3. Redemption. The Preferred Stock is not redeemable.
4. Conversion. The holders of the Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A
Preferred Stock and Series B Preferred Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share, at
the office of this corporation or any transfer agent for
4
<PAGE> 29
such stock, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Original Issue Price for such series by
the Conversion Price applicable to such series, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion.
The initial Conversion Price per share for each series shall be the Original
Issue Price for such series; provided, however, that the Conversion Price shall
be subject to adjustment as set forth in subsection 4(d).
(b) Automatic Conversion. (i) Each share of Series B
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such series of Preferred Stock
immediately upon the earlier of (A) except as provided below in subsection 4(c),
the corporation's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which was not less than $1.4151
per share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $10 million in the aggregate or (B) the date specified by
written consent or agreement of the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock.
(ii) Each share of Series A Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such series of Preferred Stock immediately upon
the earlier of (A) except as provided below in subsection 4(c), the
corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which was not less than $1.84 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $10 million in the aggregate or (B) the date specified by
written consent or agreement of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of
Series A Preferred Stock or Series B Preferred Stock shall be entitled to
convert the same into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of this
corporation or of any transfer agent for the Series A Preferred Stock or Series
B Preferred Stock, and shall give written notice to this corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series A
Preferred Stock or Series B Preferred Stock, or to the nominee or nominees of
such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A Preferred Stock or Series B
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Series A Preferred Stock or Series B
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock upon conversion of the Series
A Preferred Stock or Series B Preferred Stock
5
<PAGE> 30
shall not be deemed to have converted such Series A Preferred Stock or Series B
Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of Preferred Stock
for Certain Dilutive Issuances, Splits and Combinations. The Conversion Price of
the Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue,
after the date upon which any shares of Series B Preferred Stock were first
issued (the "Purchase Date" with respect to such series), any Additional Stock
(as defined below) without consideration or for a consideration per share less
than the Conversion Price for such series in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for such series in
effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock that the aggregate
consideration received by the corporation for such issuance would purchase at
such Conversion Price and the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance plus the number
of shares of such Additional Stock.
(B) No adjustment of the Conversion
Price for the Series A Preferred Stock or Series B Preferred Stock shall be made
in an amount less than one cent per share, provided that any adjustments which
are not required to be made by reason of this sentence shall be carried forward
and shall be either taken into account in any subsequent adjustment made prior
to 3 years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of 3 years from the date of the
event giving rise to the adjustment being carried forward. Except to the limited
extent provided for in subsections (E)(3) and (E)(4), no adjustment of such
Conversion Price pursuant to this subsection 4(d)(1) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of
the Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance
(whether before, on or after the applicable Purchase Date) of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
6
<PAGE> 31
following provisions shall apply for all purposes of this subsection 4(d)(i) and
subsection 4(d)(ii):
(1) The aggregate maximum
number of shares of Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability, including without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by
the corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights (without taking into account
potential antidilution adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum
number of shares of Common Stock deliverable upon conversion of or in exchange
(assuming the satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the passage of time, but without
taking into account potential antidilution adjustments) for any such convertible
or exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the corporation (without
taking into account potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any
change in the number of shares of Common Stock deliverable or in the
consideration payable to this corporation upon exercise of such options or
rights or upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the Series A Preferred
Stock and Series B Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of
any such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such convertible
or exchangeable securities, the Conversion Price of the Series A Preferred Stock
and Series B Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities which remain
in effect) actually issued upon
7
<PAGE> 32
the exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of
Common Stock deemed issued and the consideration deemed paid therefor pursuant
to subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares
of Common Stock issued (or deemed to have been issued pursuant to subsection
4(d)(i)(E)) by this corporation after the Purchase Date other than
(A) Common Stock issued pursuant to
a transaction described in subsection 4(d)(iii) hereof;
(B) shares of Common Stock issuable
or issued to employees consultants, directors or vendors (if in transactions
with primarily non-financing purposes) of this corporation directly or pursuant
to a stock option plan or restricted stock plan approved by the Board of
Directors of this corporation at any time when the total number of shares of
Common Stock so issuable or issued (and not repurchased at cost by the
corporation in connection with the termination of employment) does not exceed
2,650,000;
(C) Common Stock issued upon
conversion of shares of Preferred Stock;
(D) up to 100,000 shares of Common
Stock issued to banks or equipment lessors, provided such issuances are for
other than primarily equity financing purposes and approval by the Board of
Directors; and
(E) up to 250,000 shares of Common
Stock issued in connection with business combinations or corporate partnering
agreements approved by the Board of Directors.
(iii) In the event the corporation should at
any time or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock and Series B Preferred
Stock shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.
8
<PAGE> 33
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock and Series B
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this
corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in subsection
4(d)(iii), then, in each such case for the purpose of this subsection 4(e), the
holders of the Series A Preferred Stock and Series B Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the corporation into
which their shares of Series A Preferred Stock or Series B Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time
to time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2) provision shall be made so that the
holders of the Series A Preferred Stock and Series B Preferred Stock shall
thereafter be entitled to receive upon conversion of such series of Preferred
Stock the number of shares of stock or other securities or property of the
corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Series A
Preferred Stock and Series B Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock and Series B Preferred Stock) shall
be applicable after that event as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock and Series B
Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A Preferred Stock or
Series B Preferred Stock, and the number of shares of Common Stock to be issued
shall be rounded to the nearest whole share. Whether or not fractional shares
are issuable upon such conversion shall be determined on the basis of the total
number of shares of Preferred Stock the holder is at the time converting into
9
<PAGE> 34
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment
or readjustment of the Conversion Price of Series A Preferred Stock or Series B
Preferred Stock pursuant to this Section 4, this corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series A Preferred Stock
and Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock or Series B Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion Price for such series
of Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of such series of Preferred Stock.
(i) Notices of Record Date. In the event of any
taking by this corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least 20 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion.
This corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock and
Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Preferred Stock and Series B Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock and Series B Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to these articles.
(k) Notices. Any notice required by the provisions
of this Section 4 to be given to the holders of shares of Series A Preferred
Stock or Series B Preferred Stock shall be deemed given if deposited in the
United States mail, postage prepaid, and addressed to each holder of record at
his address appearing on the books of this corporation.
5. Voting Rights.
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<PAGE> 35
(a) The holder of each share of Series A Preferred
Stock and Series B Preferred Stock shall have the right to one vote for each
share of Common Stock into which such Preferred Stock could then be converted,
and with respect to such vote, such holder shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock, and
shall be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
Fractional votes shall not, however, be permitted and any fractional voting
rights available on an as-converted basis (after aggregating all shares into
which shares of Series A Preferred Stock and Series B Preferred Stock held by
each holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
(b) So long as 2,650,000 shares of Series B
Preferred Stock remain outstanding (as adjusted for subsequent reverse stock
splits, recapitalizations and the like), one member of the Board of Directors of
this corporation shall be elected by the holders of the Series B Preferred
Stock, voting as a single class.
6. Protective Provisions. Subject to the rights of series
of Preferred Stock which may from time to time come into existence, so long as
at least twenty-five percent (25%) of the shares of Series A Preferred Stock and
Series B Preferred Stock remain outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of Preferred Stock which is entitled, other than solely by law, to
vote with respect to the matter (including, without limitation, the Series A
Preferred Stock and Series B Preferred Stock), and which Preferred Stock
represents at least a majority of the voting power of the then outstanding
shares of such Preferred Stock:
(a) sell, convey, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the corporation is
disposed of;
(b) alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock or Series B Preferred Stock
so as to affect adversely the shares;
(c) authorize or issue, or obligate itself to issue,
any other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series A Preferred Stock or Series B Preferred Stock with
respect to voting, dividends, redemption or upon liquidation;
(d) amend the corporation's Articles of
Incorporation or bylaws.
7. Status of Converted Stock. In the event any shares of
Series A Preferred Stock or Series B Preferred Stock shall be converted pursuant
to Section 4 hereof, the
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<PAGE> 36
shares so converted shall be cancelled and shall not be issuable by the
corporation. The Articles of Incorporation of this corporation shall be
appropriately amended to effect the corresponding reduction in the corporation's
authorized capital stock.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders
of all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when,
as and if declared by the unanimous vote or written consent of the Board of
Directors, out of any assets of the corporation legally available therefor, such
dividends as may be declared from time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article IIII
hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
shareholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE IV
A. The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
B. This corporation is authorized, to the fullest extent
permissible under California law, to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with the agents, vote of shareholders or disinterested
directors, or otherwise in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the corporation and its shareholders.
* * *
THREE: The foregoing amendment and restatement has been approved
by the Board of Directors of said corporation.
FOUR: The foregoing amendment and restatement was approved by
the holders of the requisite number of shares of said corporation in accordance
with Sections 902 and 903 of the California General Corporation Law; the total
number of outstanding shares of each class entitled to vote with respect to the
foregoing amendment and restatement was 4,776,001 shares of Common Stock and
525,000 shares of Series A Preferred Stock. The number of shares voting in favor
of the foregoing amendment and restatement equaled or exceeded the vote
required, such required vote being (i) a majority of the outstanding shares of
Common Stock and Series A
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<PAGE> 37
Preferred Stock, voting together, as a single class, (ii) a majority of the
outstanding shares of Series A Preferred Stock, voting as a single series, and
(iii) a majority of the outstanding shares of Common Stock, voting as a single
class.
13
<PAGE> 38
EXHIBIT B
Investor Rights Agreements
<PAGE> 39
CLICKOVER, INC.
INVESTOR RIGHTS AGREEMENT
March 14, 1997
<PAGE> 40
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Registration Rights.....................................................................1
1.1 Definitions..................................................................1
1.2 Request for Registration.....................................................2
1.3 Company Registration.........................................................3
1.4 Obligations of the Company...................................................4
1.5 Furnish Information..........................................................5
1.6 Expenses of Registration.....................................................5
1.7 Blank........................................................................6
1.8 Underwriting Requirements....................................................6
1.9 Delay of Registration........................................................6
1.10 Indemnification..............................................................6
1.11 Reports Under Securities Exchange Act of 1934................................8
1.12 Form S-3 Registration........................................................9
1.13 Assignment of Registration Rights...........................................10
1.14 "Market Stand-Off" Agreement................................................10
1.15 Termination of Registration Rights..........................................11
2. Covenants of the Company................................................................11
2.1 Delivery of Financial Statements............................................11
2.2 Delivery of Additional Information..........................................11
2.3 Inspection..................................................................12
2.4 Termination of Information and Inspection Covenants.........................12
2.5 Confidentiality of Information..............................................12
2.6 Chief Executive Officer.....................................................12
3. Miscellaneous...........................................................................12
3.1 Successors and Assigns......................................................12
3.2 Governing Law...............................................................13
3.3 Counterparts................................................................13
3.4 Titles and Subtitles........................................................13
3.5 Notices.....................................................................13
3.6 Expenses....................................................................13
3.7 Amendments and Waivers......................................................13
3.8 Severability................................................................13
3.9 Aggregation of Stock........................................................13
3.10 Entire Agreement; Amendment; Waiver.........................................13
Schedule A Schedule of Investors
</TABLE>
(i)
<PAGE> 41
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT is made as of the 14th day of
March, 1997, by and between ClickOver, Inc., a California corporation (the
"Company"), and the investors listed on Schedule A hereto, each of which is
herein referred to as an "Investor."
RECITALS
WHEREAS, the Company and the Investors are parties to that
certain Series B Preferred Stock Purchase Agreement of even date herewith (the
"Series B Stock Purchase Agreement"); and
WHEREAS, in order to induce the Company to enter into the Series
B Stock Purchase Agreement and to induce the Investors to invest funds in the
Company pursuant to the Series B Stock Purchase Agreement, the Investors and the
Company hereby agree that this Agreement shall govern the rights of the
Investors to cause the Company to register shares of Common Stock issuable to
the Investors and certain other matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933,
as amended.
(b) The term "Form S-3" means such form under the
Act as in effect on the date hereof or any registration form under the Act
subsequently adopted by the Securities and Exchange Commission (the "SEC") which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(c) 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.
(d) The term "1934 Act" shall mean the Securities
Exchange Act of 1934, as amended.
(e) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
(f) The term "Registrable Securities" means (i) the
Common Stock issuable or issued upon conversion of the Series B Preferred Stock
and (ii) any 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 shares referenced in (i) above, excluding in all cases,
however, any
<PAGE> 42
Registrable Securities sold by a person in a transaction in which his or her
rights under this Section 1 are not assigned.
(g) 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.
1.2 Request for Registration.
(a) If the Company shall receive at any time after
the earlier of March 14, 2002, or (ii) twelve (12) 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 a SEC Rule 145 transaction), a written request from
the Holders of at least thirty percent (30%) of the Registrable Securities then
outstanding that the Company file a registration statement under the Act for a
public offering in which the aggregate proceeds from the offering would exceed
$10,000,000, then the Company shall:
(i) within ten (10) days of the receipt
thereof, give written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in
any event shall use its best efforts to effect within 120 days of the receipt of
such request, the registration under the Act of all Registrable Securities which
the Holders request to be registered, subject to the limitations of subsection
1.2(b), within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 3.5 hereof.
(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 subsection 1.2(a)
and the Company shall include such information in the written notice referred to
in subsection 1.2(a). The underwriter will be selected by the Company and shall
be reasonably acceptable to a majority in interest of the Initiating Holders. 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. 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
2
<PAGE> 43
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 President 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 shareholders 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 taking action
with respect to such filing for a period of at least 90 days after receipt of
the request of the Initiating Holders; provided, however, the Company may not
exercise 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
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date
sixty (60) days prior to the Company's good faith estimate of the date of filing
of, and ending on a date one 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.
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 shareholders other than the Holders)
any of its stock or other securities 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, a
registration on any form which 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 or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities which are also being registered), 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 hereof, the Company
shall, subject to the provisions of Section 1.8 hereof, cause to be registered
under the Act all of the Registrable Securities that each such Holder has
requested to be registered.
3
<PAGE> 44
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 a period of up to
ninety (90) days.
(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.
(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 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.
(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.
(1) Provided such securities are being sold
through underwriters, use its best efforts to furnish, at the request of any
Holder requesting registration of
4
<PAGE> 45
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, (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 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
and to the Holders requesting registration of Registrable Securities.
1.5 Furnish Information.
(a) 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 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.
(b) The Company shall have no obligation with
respect to any registration requested pursuant to Section 1.2 or Section 1.12
if, due to the operation of subsection 1.5(a), 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 Registration. The Company shall bear and pay
all expenses incurred in connection with a registration requested pursuant to
Sections 1.2, 1.3 and 1.12, including (without limitation) all registration,
filing, qualification, printer's and accounting fees and counsel for the
Company, but excluding underwriter discounts and commissions relating to
Registrable Securities and the fees and disbursements of counsel for the selling
Holders; 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; provided further that if such
withdrawal is due to a material adverse change in the business of the Company
that Holders were not previously aware of, then Holders shall not be required to
pay any such expenses and shall not forfeit as provided above any rights to one
demand registration pursuant to Section 1.2.
1.7 This section intentionally left blank.
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
5
<PAGE> 46
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 shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible 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, which 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 shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities in which
case the selling shareholders may be excluded if the underwriters make the
determination described above and no other shareholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a shareholder
exercising a demand registration right similar to that granted in Section 1.2 be
excluded from such offering. For purposes of the preceding sentence concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders 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 shareholder," and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder," 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 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, or the 1934 Act or other federal or state securities laws,
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 1934 Act or other federal or
state securities laws, or any rule or regulation promulgated under the Act, or
the 1934 Act or other federal or state securities laws; and the Company will pay
to each such Holder,
6
<PAGE> 47
underwriter or controlling person 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.
(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, or the 1934 Act or other federal or
state securities laws, 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 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 gross proceeds from the offering received 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 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 so to 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.
7
<PAGE> 48
(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. 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;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the 1934 Act;
(c) 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 1934 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 (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;
and
8
<PAGE> 49
(d) take such action as is necessary to allow the
Holders to use Form S-3.
1.12 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders 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 price to the public (net of any underwriters'
discounts or commissions) of less than $500,000; 3) if the Company shall furnish
to the Holders a certificate signed by the President 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 shareholders 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 at least 90 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 month period; (4) if the Company has,
within the twelve 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; (5) if the Company has already effected three registrations on Form S-3
for the Holders pursuant to this Section 1.2; or (6) 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. Registrations effected pursuant to this
Section 1.12 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 of such securities who, after such assignment or transfer, holds at
least 100,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
9
<PAGE> 50
recapitalizations), provided: (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 transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1. 14 below;
and (c) 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.
1.14 "Market Stand-Off" Agreement. Each Investor hereby
agrees that, during the period of duration specified by the Company and an
underwriter of common stock or other securities of the Company, following the
effective date of 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 which was
not acquired directly in the public market or in a public offering by the
Company, except common stock included in such registration; provided, however,
that:
(a) such Market Stand-Off shall terminate after the
Company has effected two registrations under the Act;
(b) all officers and directors of the Company and
all other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements; and
(c) such market stand-off time period shall not
exceed 180 days.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.15 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1, and all such
rights shall terminate, 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 if all shares of Registrable Securities held or
entitled to be held upon conversion by such Holder may immediately be sold under
Rule 144 during any 90-day period, or on such date after the closing of such
sale of securities as all shares of Registrable Securities held or entitled to
be held upon conversion by such Holder may immediately be sold under Rule 144
during any 90-day period.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall
deliver to each Holder:
(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
10
<PAGE> 51
balance sheet of the Company and statement of shareholder'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 by nationally
recognized independent accountants;
(b) as soon as practicable, but in any event within
forty-five (45) 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, an
unaudited balance sheet, an unaudited statement of cash flows and a statement of
shareholder's equity as of the end of such fiscal quarter; and
(c) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request,
provided, however, that the Company shall not be obligated under this subsection
(c) or any other subsection of Section 2.1 to provide information which it deems
in good faith to be a trade secret or similar confidential information.
2.2. Delivery of Additional Information. The Company shall
deliver to each Holder who holds at least 500,000 shares of Registrable
Securities:
(a) within twenty (20) days of the end of each
month, an unaudited income statement and statement of cash flows and balance
sheet for and as of the end of such month, in reasonable detail; provided,
however, that the Company's obligation under this subsection 2.2(a) shall not
commence until the end of the third month from the date hereof, and
(b) as soon as practicable, but in any event thirty
(30) days prior to the end of each fiscal year, a business plan for the next
fiscal year.
2.3. Inspection. The Company shall permit each Investor, at
such 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 Investor; provided, however, that the Company shall not be
obligated pursuant to this Section 2.3 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information; and, provided further, that the Investors coordinate their
visitations and inspections so as to minimize the disruptions and interruptions
to the Company.
2.4. Termination of Information and Inspection Covenants. The
covenants set forth in subsections 2.2(a) and (b) and Section 2.3 shall
terminate as to Investors and be of no further force or effect when the 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 is consummated or when the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
2.5. Confidentiality of Information. The information provided
pursuant to Sections 2.1 and 2.2 shall be used by each Holder or any permitted
assignee of each Holder solely in furtherance of its interests as an investor in
the Company, and such Holder and any permitted assignee of such Holder shall
maintain the confidentiality of all information of the
11
<PAGE> 52
Company obtained under Sections 2.1 and 2.2, unless such information (i) was
known by such Holder or permitted assignee prior to its disclosure to them by
the Company, (ii) is disclosed to such Holder or permitted assignee without
restriction as a matter of right by a third party not affiliated with or working
for the Company, or (iii) has become publicly available through no fault of such
Investor or permitted assignee. Notwithstanding the foregoing, a Holder may
disclose, if applicable, (i) to Holder's general and limited partners, or (ii)
Holder's board of Directors or executive officers such information provided that
such general or limited partners, or such Board of Directors or executive
officers agree to be bound by the terms of this Section 2.5.
2.6. Chief Executive Officer. The Company shall recruit and
hire a Chief Executive Officer that is acceptable to at least a majority of the
Holders within six (6) months from the date hereof.
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 shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties 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 shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
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 under this Agreement shall be given in writing and shall be deemed
effectively given upon (i) personal delivery to the party to be notified, (ii)
five (5) days following deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties, or (iii) facsimile with confirmed receipt.
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.
12
<PAGE> 53
3.7. Amendments and Waiver. 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
a majority of the Registrable Securities then outstanding. 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, whether or not such holder is fact
consented to such amendment or waiver.
3.8. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9. Aggregation of Stock. All shares of Registrable
Securities 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.
3.10. Entire Agreement; Amendment; Waiver. This Agreement
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof.
IN WITNESS WHEREOF, the parties have executed this Investor
Rights Agreement as of the date first above written.
CLICKOVER, INC.
By:
-------------------------------------
Thomas Churchill, President
Address: 525 Alma Street.
Palo Alto, CA 94301
SIGNATURE PAGE TO
INVESTOR RIGHTS AGREEMENT
<PAGE> 54
INVESTORS:
KLEINER PERKINS CAUFIELD & BYERS VIII
By: KPCB VII Associates, it General Partner
By:
--------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By: KPCB VII Associates, its General Partner
By:
--------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
KPCB JAVA FUND
By:
--------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
Address: c/o Kleiner Perkins Caufield & Byers
2750 San Hill Road
Menlo Park, CA 94025-7020
SIGNATURE PAGE TO
INVESTOR RIGHTS AGREEMENT
<PAGE> 55
------------------------------------------------
Fah-Chun Cheong
Address:
------------------------------------------------
------------------------------------------------
SIGNATURE PAGE TO
INVESTOR RIGHTS AGREEMENT
<PAGE> 56
------------------------------------------------
Thomas Churchill
Address:
------------------------------------------------
------------------------------------------------
SIGNATURE PAGE TO
INVESTOR RIGHTS AGREEMENT
<PAGE> 57
------------------------------------------------
Chih-Chao Lam
Address:
------------------------------------------------
------------------------------------------------
SIGNATURE PAGE TO
INVESTOR RIGHTS AGREEMENT
<PAGE> 58
------------------------------------------------
Chih-Ming Lam
Address:
------------------------------------------------
------------------------------------------------
SIGNATURE PAGE TO
INVESTOR RIGHTS AGREEMENT
<PAGE> 59
------------------------------------------------
Dale Thoms
Address:
------------------------------------------------
------------------------------------------------
SIGNATURE PAGE TO
INVESTOR RIGHTS AGREEMENT
<PAGE> 60
------------------------------------------------
Ken Tidwell
Address:
------------------------------------------------
------------------------------------------------
SIGNATURE PAGE TO
INVESTOR RIGHTS AGREEMENT
<PAGE> 61
SCHEDULE A
SCHEDULE OF INVESTORS
KPCB Java Fund
Kleiner Perkins Caufield & Byers VIII
KPCB Information Sciences Zaibatsu Fund II
Fah-Chun Cheong
Thomas Churchill
Chih-Chao Lam
Chih-Ming Lam
Dale Thoms
Ken Tidwell
S-1
<PAGE> 62
EXHIBIT C
Opinion of Company Counsel
<PAGE> 63
March 14, 1997
To the Investors Listed on the Schedule
of Investors to the ClickOver, Inc.
Series B Preferred Stock Purchase Agreement
Dated March 14, 1997
Ladies and Gentlemen:
We have acted as counsel for ClickOver, Inc., a California
corporation (the "Company"), in connection with the issuance and sale of shares
of its Series B Preferred Stock pursuant to the ClickOver, Inc. Series B
Preferred Stock Purchase Agreement dated March 14, 1997 (the "Stock Purchase
Agreement") between the Company and you. This opinion is being rendered to you
pursuant to Section 5.9 of the Stock Purchase Agreement in connection with the
Closing of the sale of the Series B Preferred Stock. Capitalized terms not
otherwise defined in this opinion have the meaning given them in the Stock
Purchase Agreement.
In connection with the opinions expressed herein we have made
such examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Stock
Purchase Agreement and upon certificates and statements of government officials
and of officers of the Company. We have also examined originals or copies of
such corporate documents or records of the Company as we have considered
appropriate for the opinions expressed herein. We have assumed for the purposes
of this opinion that the signatures on documents and instruments examined by us
are authentic, that each document is what it purports to be, and that all
documents submitted to us as copies conform with the originals, which facts we
have not independently verified.
In rendering this opinion we have also assumed: (A) that the
Stock Purchase Agreement and the Investor Rights Agreement of even date herewith
by and among the Company and you (the "Investor Rights Agreement") have been
duly and validly executed and delivered by you or on your behalf and constitute
valid, binding and enforceable obligations upon you; (B) that the
representations and warranties made in the Stock Purchase Agreement by you are
true and correct; (C) that any wire transfers, drafts or checks tendered by you
will be honored; (D) if you are a corporation or other entity, that you have
filed any required state franchise, income or similar tax returns and have paid
any required state franchise, income or taxes; and (E) that there are no
extrinsic agreements or understandings among the parties similar to the Stock
Purchase Agreement and Investor Rights Agreement that would modify or interpret
the terms of the Stock Purchase Agreement and the Investor Rights Agreement or
the respective rights or obligations of the parties thereunder.
As used in this opinion, the expression "we are not aware" or
the phrase "to our knowledge" means as to matters of fact that, based on the
actual knowledge of individual attorneys within the firm principally responsible
for handling current matters for the Company and after an examination of
documents referred to herein and after inquiries of certain officers of
<PAGE> 64
To the Investors Listed on the Schedule
of Investors to the ClickOver, Inc.
Series B Preferred Stock Purchase Agreement
Dated March 14, 1997
the Company, we find no reason to believe that the opinions expressed herein are
factually incorrect; but beyond that we have made no factual investigation for
the purposes of rendering this opinion. Specifically, but without limitation, we
have made no inquiries of securities holders or employees of the Company.
This opinion relates solely to the laws of the State of
California and the federal law of the United States and we express no opinion
with respect to the effect or application of any other laws. Special rulings of
authorities administering such laws or opinions of other counsel have not been
sought or obtained.
Based upon our examination of and reliance upon the foregoing
and subject to the limitations, exceptions, qualifications and assumptions set
forth below and except as set forth in the Stock Purchase Agreement or the
Schedule of Exceptions relating thereto, we are of the opinion that as of the
date hereof:
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, and the
Company has the requisite corporate power and authority to own its properties
and conduct its business.
2. The Company has the requisite corporate power and
authority to execute, deliver and perform the Stock Purchase Agreement and the
Investor Rights Agreement. Each of the foregoing has been duly and validly
authorized by the Company, duly executed and delivered by an authorized officer
of the Company and constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company according to its terms; provided,
however, that no opinion is expressed with respect to the enforceability of the
indemnity obligations of Section 1.10 of the Investor Rights Agreement.
3. We are not aware that there is any action, proceeding or
governmental investigation pending against the Company that questions the
validity of the Stock Purchase Agreement or the Investor Rights Agreement, or
the right of the Company or its officers or directors to enter into such Stock
Purchase Agreement or Investor Rights Agreement, nor are we aware of any
litigation pending against the Company.
Our opinions expressed above are specifically subject to the
following limitations, exceptions, qualifications and assumptions:
(A) The effect of bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting the relief of debtors
or the rights and remedies of creditors generally, including without limitation
the effect of statutory or other law regarding fraudulent conveyances and
preferential transfers.
(B) We express no opinion as to the Company's compliance or
noncompliance with applicable federal or state antifraud or antitrust statutes,
laws, rules and regulations.
<PAGE> 65
To the Investors Listed on the Schedule
of Investors to the ClickOver, Inc.
Series B Preferred Stock Purchase Agreement
Dated March 14, 1997
(C) Limitations imposed by state law, federal law or general
equitable principles upon the specific enforceability of any of the remedies,
covenants or other provisions of any applicable agreement and upon the
availability of injunctive relief or other equitable remedies, regardless of
whether enforcement of any such agreement is considered a proceeding in equity
or at law.
(D) The effect of court decisions, invoking statutes or
principles of equity, which have held that certain covenants and provisions of
agreements are unenforceable where enforcement of such covenants or provisions
under the circumstances would violate the enforcing party's implied covenant of
good faith and fair dealing.
(E) The unenforceability under certain circumstances of
provisions indemnifying a party against, or requiring contributions toward, that
party's liability for its own wrongful or negligent acts, or where
indemnification or contribution is contrary to public policy. In this regard, we
advise you that in the opinion of the Securities and Exchange Commission,
indemnification of directors, officers and controlling persons of an issuer
against liabilities arising under the Securities Act of 1933, as amended, is
against public policy and is therefore unenforceable.
(F) The effect of California law, federal law or equitable
principles that limits the amount of attorneys' fees that can be recovered under
certain circumstances.
(G) The effect of Section 1717 of the California Civil Code,
which provides that, where a contract permits one party to the contract to
recover attorneys' fees, the prevailing party in any action to enforce any
provision of the contract shall be entitled to recover its reasonable attorneys'
fees.
(H) The effect of Chapter Five, Chapter Thirteen and Chapter
Eighteen of Division One of the California Corporations Code or any other
California law, federal law or equitable principles restricting in certain
circumstances distributions by a corporation to its shareholders, relating to
dissenters' rights or relating to involuntary dissolution.
(I) The effect of subsequent issuances of securities of the
Company, to the extent that further issuances that may be integrated with the
securities issued at the Closing may include purchasers which do not meet the
definition of "accredited investors" under Rule 501 of Regulation D and
equivalent definitions under state securities or "blue sky" laws, and to the
extent that the Company may issue so many shares of Common Stock that there are
not enough remaining authorized but unissued shares of Common Stock for the
conversion of the Series B Preferred Stock (or may issue securities which so
reduce the Conversion Price of the Series B Preferred Stock that the outstanding
shares of the Series B Preferred Stock become convertible for more shares of
Common Stock than remain authorized but unissued).
<PAGE> 66
To the Investors Listed on the Schedule
of Investors to the ClickOver, Inc.
Series B Preferred Stock Purchase Agreement
Dated March 14, 1997
This opinion is rendered as of the date first written above
solely for your benefit in connection with the Stock Purchase Agreement and may
not be delivered to, quoted or relied upon by any person other than you, or for
any other purpose, without our prior written consent. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company. We
assume no obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinions expressed herein.
Very truly yours,
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
<PAGE> 1
EXHIBIT 10.3
ADKNOWLEDGE INC.
SERIES D PREFERRED
STOCK PURCHASE AGREEMENT
March 4, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale of Stock ....................................... 1
1.1 Sale and Issuance of Series D Preferred Stock .............. 1
1.2 Closings ................................................... 1
2. Representations and Warranties of the Company .................... 2
2.1 Organization, Good Standing and Qualification .............. 2
2.2 Capitalization and Voting Rights ........................... 2
2.3 Subsidiaries ............................................... 3
2.4 Authorization .............................................. 3
2.5 Valid Issuance of Series D Preferred Stock ................. 3
2.6 Governmental Consents ...................................... 4
2.7 Offering ................................................... 4
2.8 Litigation ................................................. 4
2.9 Proprietary Information .................................... 5
2.10 Patents and Trademarks ..................................... 5
2.11 Compliance with Other Instruments .......................... 5
2.12 Agreements ................................................. 5
2.13 Related-Party Transactions ................................. 6
2.14 Registration Rights ........................................ 6
2.15 Corporate Documents ........................................ 7
2.16 Title to Property and Assets ............................... 7
2.17 Employee Benefit Plans ..................................... 7
2.18 Insurance .................................................. 7
2.19 Employment Matters ......................................... 7
2.20 Small Business Concern ..................................... 7
2.21 Disclosure ................................................. 7
2.22 Taxes ...................................................... 8
2.23 Stock Issuances to Founders and Employees .................. 8
2.24 Financial Statement ........................................ 8
2.25 Changes in Conditions ...................................... 8
2.26 Environmental and Safety Laws .............................. 9
3. Representations and Warranties of the Investors .................. 9
3.1 Authorization .............................................. 9
3.2 Purchase Entirely for Own Account .......................... 9
3.3 Disclosure of Information .................................. 9
3.4 Investment Experience ...................................... 9
3.5 Restricted Securities ...................................... 10
3.6 Further Limitations on Disposition ......................... 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
3.7 Legends .................................................... 10
3.8 Further Representations by Foreign Investors ............... 11
4. California Commissioner of Corporations .......................... 11
4.1 Corporate Securities Law ................................... 11
5. Conditions of Investors' Obligations at each Closing ............. 11
5.1 Representations and Warranties ............................. 11
5.2 Performance ................................................ 11
5.3 Compliance Certificate ..................................... 12
5.4 Qualifications ............................................. 12
5.5 Board of Directors ......................................... 12
5.6 Restated Articles .......................................... 12
5.7 Amended and Restated Investor Rights Agreement ............. 12
5.8 Co-Sale Agreement .......................................... 12
5.9 Opinion of Company Counsel ................................. 12
5.10 Consent and Waivers ........................................ 12
5.11 Proceedings and Documents .................................. 12
6. Conditions of the Company's Obligations at each Closing ............. 13
6.1 Representations and Warranties ............................. 13
6.2 Payment of Purchase Price .................................. 13
6.3 Performance ................................................ 13
6.4 Qualifications ............................................. 13
6.5 Restated Articles .......................................... 13
6.6 Amended and Restated Investor Rights Agreement ............. 13
6.7 Co-Sale Agreement .......................................... 13
7. Miscellaneous .................................................... 13
7.1 Survival of Warranties ..................................... 13
7.2 Successors and Assigns ..................................... 13
7.3 Governing Law .............................................. 14
7.4 Counterparts ............................................... 14
7.5 Titles and Subtitles ....................................... 14
7.6 Notices .................................................... 14
7.7 Finder's Fee ............................................... 14
7.8 Expenses ................................................... 14
7.9 Amendments and Waivers ..................................... 15
7.10 Severability ............................................... 15
7.11 Aggregation of Stock ....................................... 15
7.12 Entire Agreement ........................................... 15
</TABLE>
ii
<PAGE> 4
List of Schedules
Schedule A Schedule of Investors
Schedule B Schedule of Exceptions
List of Exhibits
Exhibit A Amended and Restated Articles of Incorporation
Exhibit B Amended and Restated Investor Rights Agreements
Exhibit C Co-Sale Agreement
iii
<PAGE> 5
SERIES D PREFERRED
STOCK PURCHASE AGREEMENT
This Series D Preferred Stock Purchase Agreement (the "Agreement") is made
this 4th day of March 1998, by and among AdKnowledge Inc., a California
corporation (the "Company"), and the investors listed on the Schedule of
Investors attached hereto as Schedule A, each of which is herein referred to as
an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 Sale and Issuance of Series D Preferred Stock.
(a) The Company shall adopt and file with the
Secretary of State of the State of California on or before the First Closing (as
defined below) the Amended and Restated Articles of Incorporation in the form
attached hereto as Exhibit A (the "Restated Articles").
(b) Subject to the terms and conditions of this
Agreement, each Investor agrees, severally and not jointly, to purchase at each
Closing (as defined below) and the Company agrees to sell and issue to each
Investor, severally and not jointly, at each Closing that number of shares of
the Company's Series D Preferred Stock set forth opposite each Investor's name
on Schedule A hereto under the headings "First Closing" and "Second Closing,"
respectively, for the purchase price set forth thereon.
1.2 Closings.
(a) The first purchase and sale of the Series D
Preferred Stock will take place at the offices of Brobeck, Phleger & Harrison,
Two Embarcadero Place, 2200 Geng Road, Palo Alto, California, at 10:00 a.m. on
March 4, 1998, or at such other time and place as the Company and Investors
acquiring in the aggregate more than half the shares of Series D Preferred Stock
sold pursuant hereto shall mutually agree in writing (the "First Closing").
(b) The second purchase and sale of the Series D
Preferred Stock will take place at the offices of Brobeck, Phleger & Harrison,
Two Embarcadero Place, 2200 Geng Road, Palo Alto, California, at 10:00 a.m. on
March 4, 1998, or at such other time and place as the Company and Investors
acquiring in the aggregate more than half the shares of Series D Preferred Stock
sold pursuant hereto shall mutually agree in writing (the "Second Closing" and
collectively with the First Closing, a "Closing").
(c) At each Closing, the Company shall deliver to each
Investor a certificate representing the shares of Series D Preferred Stock that
such Investor is purchasing against payment of the purchase price therefor by
check, wire transfer, cancellation
<PAGE> 6
of indebtedness or such other form of payment as shall be mutually agreed upon
by such Investor and the Company. In the event that payment by an Investor is
made, in whole or in part, by cancellation of indebtedness, then such Investor
shall surrender to the Company for cancellation at such Closing any evidence of
such indebtedness or shall execute an instrument of cancellation in form and
substance reasonably acceptable to the Company.
2. Representations and Warranties of the Company. The Company
hereby represents and warrants to each investor, except as set forth on a
Schedule of Exceptions (the "Schedule of Exceptions") attached hereto as
Schedule B, which exceptions shall be deemed to be representations and
warranties as if made hereunder, the following:
2.1 Organization, Good Standing and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California and has all requisite corporate power
and authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties. The Company has the requisite corporate power to own and
operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted and possesses all governmental and
other permits, licenses and other authorizations to own its properties as now
owned and to carry on its business as presently conducted and as proposed to be
conducted. The Company has made available to each Investor or its special
counsel true, correct and complete copies of the Company's Articles of
Incorporation and Bylaws, each as amended to date.
2.2 Capitalization and Voting Rights. Assuming the filing of
the Restated Articles and the consummation of the transactions contemplated
herein, the authorized capital of the Company consists, or will consist as of
the First Closing, of:
(a) Preferred Stock. 24,103,192 shares of Preferred
Stock (the "Preferred Stock"), of which 525,000 shares have been designated
Series A Preferred Stock (the "Series A Preferred Stock"), all of which shall be
issued and outstanding, 5,512,000 shares have been designated Series B Preferred
Stock (the "Series B Preferred Stock"), all of which shall be issued and
outstanding, 576,192 shares have been designated Series C-1 Preferred Stock (the
"Series C-1 Preferred Stock"), 569,525 of which shall be issued and outstanding,
615,016 shares have been designated Series C-2 Preferred Stock (the "Series C-2
Preferred Stock"), 605,122 of which shall be issued and outstanding, 2,442,366
shares have been designated Series C-3 Preferred Stock (the "Series C-3
Preferred Stock"), 2,282,730 of which shall be issued and outstanding, and
14,432,618 shares have been designated Series D Preferred Stock (the "Series D
Preferred Stock"), all of which may be sold pursuant to this Agreement. The
rights, privileges and preferences of the Series A, Series B, Series C-1, Series
C-2, Series C-3 and Series D Preferred Stock will be as stated in the Company's
Restated Articles.
(b) Common Stock. 37,396,808 shares of common stock
("Common Stock"), of which 6,079,945 shares shall be issued and outstanding.
2
<PAGE> 7
(c) Except for (A) the conversion privileges of the
Series A, Series B, Series C-1, Series C-2, Series C-3 and Series D Preferred
Stock, (B) the rights of first offer provided in Paragraph 2.6 of the Amended
and Restated Investor Rights Agreement of even date herewith in the form
attached hereto as Exhibit B, by and among the Company and certain investors
(the "Amended and Restated Investor Rights Agreement"), (C) a total of 6,890,049
shares of Common Stock (including 40,049 shares which were repurchased after the
sale of the Series B Preferred Stock) have been reserved for issuance, either
directly or through options, to employees, directors and consultants to the
Company, of which 1,008,084 shares of Common Stock have been issued upon
exercise of options and 1,872,442 shares of Common Stock are currently committed
to employees of the Company pursuant to outstanding options, (D) warrants to
purchase 6,667 shares of Series C-1 Preferred Stock, (E) warrants to purchase
9,894 shares of Series C-2 Preferred Stock, and (F) warrants to purchase 159,636
shares of Series C-3 Preferred Stock, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from the Company of any shares of its capital stock.
Except as provided in the Restated Articles, the Company is not a party or
subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written consents with
respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership or similar arrangement.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Amended and
Restated Investor Rights Agreement, the Co-Sale Agreement (attached hereto as
Exhibit C) and any other agreement to which the Company is a party the execution
and delivery of which is contemplated hereby (collectively referred to hereafter
as the "Ancillary Agreements"), the performance of all obligations of the
Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Series D Preferred Stock
being sold hereunder and the Common Stock issuable upon any conversion of the
Series D Preferred Stock as provided in the Restated Articles has been taken or
will be taken prior to the First Closing, and this Agreement and all of the
Ancillary Agreements constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Amended and Restated
Investor Rights Agreement may be limited by applicable federal or state
securities laws.
2.5 Valid Issuance of Series D Preferred Stock. The Series D
Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed
3
<PAGE> 8
herein, will be duly and validly issued, fully paid and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement, the Amended and Restated Investor Rights Agreement and under
applicable state and federal securities laws. The Common Stock issuable upon
conversion of the Series D Preferred Stock purchased under this Agreement has
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Restated Articles, will be duly and validly issued, fully
paid and nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Amended and Restated Investor
Rights Agreement and under applicable state and federal securities laws. No
shareholder of the Company has any right of first refusal or any preemptive
rights in connection with the issuance and sale of the Series D Preferred Stock.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, which filing will be effected within fifteen (15) days of the
sale of the Series D Preferred Stock hereunder.
2.7 Offering. Subject in part to the truth and accuracy of
each Investor's representations set forth in Section 3 of this Agreement, (i)
the offer, sale and issuance of the Series D Preferred Stock as contemplated by
this Agreement are exempt from the registration requirements of the Act, and
neither the Company nor any authorized agent acting on its behalf will take any
action hereafter that would cause the loss of such exemption and (ii) the Series
D Preferred Stock that is being purchased by the Investors hereunder will be
issued in compliance with all applicable federal and state securities laws.
2.8 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened against the Company that questions the validity of this Agreement,
the Ancillary Agreement or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse changes in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions, suits, proceedings or
investigations pending or threatened (on any basis known to the Company)
involving the prior employment of any employees of the Company, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or that the Company
intends to initiate.
4
<PAGE> 9
2.9 Proprietary Information. Each current and former
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement in substantially the form provided to the
Investors. The Company is not aware that any of its employees, officers or
consultants are in violation of such agreements.
2.10 Patents and Trademarks. The Company has sufficient
license, title or ownership of all trademarks, service marks, trade names and
copyrights, and to its knowledge, the Company has sufficient license, title or
ownership of all patents necessary for its business as now conducted without any
conflict with or infringement of the rights of others. The Company is not aware
of and has not received any communications alleging that the Company has
violated any of the patents, trademarks, service marks, trade names or
copyrights of any other person or entity. The Company is not aware that any of
its employees is obligated under or in violation of any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employees' best efforts to promote the
interests of the Company or that would conflict with the business of the Company
as now conducted. Except for inventions that may be licensed by the Company
without charge, the Company does not believe that it is or will be necessary to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws, or in any material respect of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound
or, to its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Company. The execution, delivery and performance of
this Agreement, the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any material lien, charge or encumbrance upon any assets of
the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal
of any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties, which
would have a material adverse effect on the Company.
2.12 Agreements.
(a) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or by which it is bound that may involve
(i) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company, (ii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
or (iii) indemnification by the Company with respect to infringement of
proprietary rights.
5
<PAGE> 10
(b) Except for agreements explicitly contemplated
hereby and by the Ancillary Agreements, there are no agreements, understandings
or proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(c) The Schedule of Exceptions contains a list of all
agreements of the Company that involves current obligations of the Company or
any other party thereto in excess of $50,000 and the loss of which would have a
material adverse effect on the business of the Company.
(d) The Company has not (i) declared or paid any
dividends or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(e) For the purposes of subsection (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company or the Subsidiaries have reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
(f) The Company is not a party to and is not bound by
any contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws that adversely affects its business, its properties
or its financial condition as now conducted or as proposed to be conducted.
2.13 Related-Party Transactions. No employee, officer or
director of the Company, or member of his or her immediate family, is indebted
to the Company, nor is the Company indebted (or committed to make loans or
extend or guarantee credit) to any of them. To the best of the Company's
knowledge, none of such persons has any direct or indirect ownership interest in
any firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation that competes
with the Company, except that employees, officers, or directors of the Company
and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. No member of the immediate family
of any officer or director of the Company is directly or indirectly interested
in any material contract with the Company.
2.14 Registration Rights. Except as provided in the Amended
and Restated Investor Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity.
6
<PAGE> 11
2.15 Corporate Documents. The Restated Articles and Bylaws of
the Company are in the form provided to the Investors.
2.16 Title to Property and Assets. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens that arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and, to the best of the Company's
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.
2.17 Employee Benefit Plans. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.18 Insurance. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.19 Employment Matters. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing. Subject to
general principles related to wrongful termination of employees, the employment
of each officer and employee of the Company is terminable at the will of the
Company.
2.20 Small Business Concern. The Company, together with its
"affiliates" (as that term is defined in 13 C.F.R. Section 121.401), is a "small
business concern" within the meaning of the Small Business Investment Act of
1958, as amended, and the regulations promulgated thereunder, including 13
C.F.R. Section 121.301(c)(1). The information set forth in SBA Forms 480, 652
and Part A of 1031 prepared or furnished or to be furnished by the Company is
accurate and complete in all material respects. The Company is not an owner of
five percent (5%) or more of any lender which is a "Licensee" under the Small
Business Investment Act of 1958, as amended. No portion of the proceeds from the
sale of the Series D Preferred Stock has been or will be used for any purpose in
contravention of any of the provisions of Part 107 of Title 13 of the Code of
Federal Regulations.
2.21 Disclosure. To the Company's knowledge, neither this
Agreement, the Ancillary Agreements, nor any other statements or certificates
made or delivered in connection herewith or therewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading in light of the circumstances
under which they were made. The Company has fully provided each Investor with
all the information that such Investor has requested for deciding whether to
purchase the Series D Preferred Stock. To the Company's knowledge, there are no
facts which (individually or in the aggregate) materially adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company that
7
<PAGE> 12
have not been set forth in this Agreement, the Exhibits hereto, the Restated
Investor Rights Agreement or the Co-Sale Agreement.
2.22 Taxes. The Company has paid, or made provision for
payment of, all taxes which have or may have become due pursuant to income tax
returns required to be filed by it or pursuant to any assessment which has been
received by it. No federal or state income or sales tax return of the Company
has been audited, no deficiency assessment or proposed adjustment of the
Company's United States income tax, state or municipal taxes or sales taxes is
pending and the Company has no knowledge of any proposed liability for any tax
to be imposed on its property or assets. To the best of the Company's knowledge,
all individuals who have purchased shares of the Company's Common Stock have
timely filed elections under Section 83(b) of the Internal Revenue Code and any
analogous provisions of applicable state tax laws.
2.23 Stock Issuances to Founders and Employees. Prior
issuances of securities to the Company to founders and employees have been made
pursuant to stock purchase or stock option agreements that have been approved by
the Company's Board of Directors which provide for (i) vesting over a period of
at least forty-eight (48) months, (ii) no acceleration of vesting upon an
initial public offering or acquisition of the Company, and (iii) a right of
first refusal in favor of the Company in the event of certain transfers of
shares to third parties, and including a "market stand-off" provision
substantially similar to that set forth in Section 1.13 of the Restated
Investment Rights Agreement.
2.24 Financial Statement. The Company has provided to the
Investors or to their special counsel the unaudited balance sheets as of
December 31, 1997 for AdKnowledge Inc. (formerly named ClickOver, Inc.) and
Focalink Communications, Inc. (such balance sheets being collectively referred
to herein as the "Balance Sheets"). The Balance Sheets (A) have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis (except that the unaudited Balance Sheets do not contain
footnotes and certain other statements required by GAAP), (B) are in accordance
with the books and records of the Company, and (C) present fairly the financial
condition of the Company at the date or dates therein indicated and the results
of operations for the periods therein specified. Except as set forth in the
Balance Sheets, the Company has no material known liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to December 31, 1997 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under GAAP to be reflected in the Balance Sheets, which, in both cases,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company. Except as disclosed in the Balance Sheets, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
GAAP.
2.25 Changes in Conditions. Since December 31, 1997, there
has not been any change in the assets or liabilities of the Company from that
reflected in the Balance
8
<PAGE> 13
Sheets except changes in the ordinary course of business which have not been in
the aggregate materially adverse to the Company.
2.26 Environmental and Safety Laws. To the best of the
Company's knowledge, the Company is not in violation of any applicable statute,
law or regulation relating to the environment or occupational health and safety,
the violation of which would materially adversely affect the Company, and to the
best of the Company's knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
3. Representations and Warranties of the Investors. Each
Investor, severally and not jointly, hereby represents and warrants that:
3.1 Authorization. The Investor has full power and authority
to enter into this Agreement and the Ancillary Agreements, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Amended and Restated Investor Rights Agreement may be limited
by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is
made with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series D Preferred Stock to be received by such
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
or disposing of the same. By executing this Agreement, such Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series D Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series D Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 hereto or the right
of the Investors to rely thereon.
3.4 Investment Experience. Such Investor acknowledges that
it is an investor in securities of companies in the development stage and that
it is able to fend for
9
<PAGE> 14
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Series D Preferred Stock. If other
than an individual, Investor also represents it has not been organized for the
purpose of acquiring the Series D Preferred Stock.
3.5 Restricted Securities. Such Investor understands that
the securities it is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Act, only in certain limited circumstances. In this
connection, such Investor represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
3.6 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3 and Section 7 of this Agreement and the Amended and Restated
Investor Rights Agreement, and:
(a) There is then in effect a Registration Statement
under the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the Act. The
Company, however, will not require opinions of counsel for transactions made
pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a)
and (b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor that is a partnership to a partner of
such partnership or a retired partner of such partnership who retires after the
date hereof, or to the estate of any such partner or retired partner or the
transfer by gift, will or intestate succession of any partner to his or her
spouse or to the siblings, lineal descendants or ancestors of such partner or
his or her spouse if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if he or she were an original Investor hereunder.
3.7 Legends. It is understood that the certificates
evidencing the Securities may bear one or all of the following legends:
(a) "These securities have not been registered under
the Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities
10
<PAGE> 15
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code, and
any other legend required by applicable state securities and blue sky laws.
3.8 Further Representations by Foreign Investors. If an
Investor is not a United States person, such Investor hereby represents that he
or she has satisfied himself or herself as to the full observance of the laws of
his or her jurisdiction in connection with any invitation to subscribe for the
Securities or any use of this Agreement, including (i) the legal requirements
within his jurisdiction for the purchase of the Securities, (ii) any foreign
exchange restrictions applicable to such purchase, (iii) any governmental or
other consents that may need to be obtained, and (iv) the income tax and other
tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale, or transfer of the Securities. Such Investor's subscription
and payment for, and his or her continued beneficial ownership of the
Securities, will not violate any applicable securities or other laws of his or
her jurisdiction.
4. CALIFORNIA COMMISSIONER OF CORPORATIONS.
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES
THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH
SECURITIES PRIOR TO SUCH 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 SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
5. Conditions of Investors' Obligations at each Closing. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the First Closing of each of the
following conditions:
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
First Closing with the same effect as though such representations and warranties
had been made on and as of the date of such First Closing.
5.2 Performance. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the First Closing. The Company's business and assets shall not have been
adversely affected in any material way prior to the First Closing.
11
<PAGE> 16
5.3 Compliance Certificate. The President of the Company
shall deliver to each Investor at the First Closing a certificate stating that
the conditions specified in Sections 5.1, 5.2 and 5.10 have been fulfilled.
5.4 Qualifications. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the securities pursuant to this Agreement shall be duly obtained and
effective as of the First Closing.
5.5 Board of Directors. The directors of the Company shall
be Yogen Dalal, Russell Siegelman, Scott Kauffman, and Steve Eskenazi.
5.6 Restated Articles. The Restated Articles shall have been
duly adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with the Secretary of
State of the State of California and become legally effective.
5.7 Amended and Restated Investor Rights Agreement. The
Company, each other Investor and the holders of a majority in interest of the
Company's Series A, Series B, Series C-1, Series C-2 and Series C-3 Preferred
Stock, voting together as a class, shall have entered into the Amended and
Restated Investor Rights Agreement in the form attached hereto as Exhibit B.
5.8 Co-Sale Agreement. The Company, each other Investor and
each Shareholder (as defined therein) shall have entered into the Co-Sale
Agreement in the form attached hereto as Exhibit C.
5.9 Opinion of Company Counsel. Each Investor shall have
received from Brobeck, Phleger & Harrison LLP, counsel for the Company, an
opinion, dated as of the First Closing of form and content satisfactory to
special counsel for the Investors.
5.10 Consent and Waivers. The Company shall have obtained any
and all consents (including all governmental or regulatory consents, approvals
or authorizations required in connection with the valid execution and delivery
of this Agreement, the Restated Investor Rights Agreement or the Co-Sale
Agreement), permits and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement, the Restated Investor Rights
Agreement or the Co-Sale Agreement.
5.11 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the First
Closing hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to the Investors and
their special counsel, and the Investors and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
12
<PAGE> 17
6. Conditions of the Company's Obligations at each Closing. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the First Closing of each of the following
conditions by that Investor:
6.1 Representations and Warranties. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the First Closing with the same effect as though such representations and
warranties had been made on and as of the First Closing.
6.2 Payment of Purchase Price. Each Investor shall have
delivered the purchase price specified in Section 1.1(b).
6.3 Performance. Each Investor shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by the Investors on
or before the First Closing.
6.4 Qualifications. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the First Closing.
6.5 Restated Articles. The Restated Articles shall have been
duly adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with the Secretary of
State of the State of California and become legally effective.
6.6 Amended and Restated Investor Rights Agreement. Each
Investor and the holders of a majority in interest of the Company's Series A,
Series B, Series C-1, Series C-2 and Series C-3 Preferred Stock, voting together
as a class, shall have entered into the Investor Rights Agreement in the form
attached hereto as Exhibit B.
6.7 Co-Sale Agreement. Each Investor and Shareholder (as
defined therein) shall have entered into the Co-Sale Agreement in the form
attached hereto as Exhibit C.
7. MISCELLANEOUS.
7.1 Survival of Warranties. The warranties, representations
and covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closings and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
7.2 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 Securities).
13
<PAGE> 18
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties 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.
7.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
7.4 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.
7.5 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.
7.6 Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given to the party so notified in
writing and shall be deemed effectively given upon personal delivery, upon
delivery by confirmed facsimile or electronic transmission (with duplicate
original sent by United States mail) or three business days after deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party on the signature page hereof, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
7.7 Finder's Fee. Each party represents that it neither is
nor will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
7.8 Expenses. Irrespective of whether the Closings are
effected, the Company and each Investor shall each pay their respective costs
and expenses incurred with respect to the negotiation, execution, delivery and
performance of this Agreement. If the First Closing is effected, the Company
shall reimburse the reasonable fees and expenses of special counsel for the
Investors, such reimbursement not to exceed $10,000. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
Ancillary Agreements or the Restated Articles, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
14
<PAGE> 19
7.9 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
a majority of the Common Stock issued or issuable upon conversion of the Series
D Preferred Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
7.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.11 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.
7.12 Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
[Remainder of This Page Intentionally Left Blank]
15
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By: /s/ SCOTT KAUFFMAN
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS:
---------------------------------------
By:
-----------------------------------
Title:
--------------------------------
Address:
---------------------------------------
---------------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: WALDEN-SBIC, L.P.
---------------------------------------
By: /s/ GEORGE SARLO
-----------------------------------
Title: GEORGE SARLO, GENERAL PARTNER
--------------------------------
Address: 750 Battery Street, 7th Floor
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: WALDEN TECHNOLOGY VENTURES II, L.P.
---------------------------------------
By: /s/ GEORGE SARLO
-----------------------------------
Title: GEORGE SARLO, GENERAL PARTNER
--------------------------------
Address: 750 Battery Street, 7th Floor
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: WALDEN EDB PARTNERS, L.P.
---------------------------------------
By: /s/ GEORGE SARLO
-----------------------------------
Title: GEORGE SARLO, GENERAL PARTNER
--------------------------------
Address: 750 Battery Street, 7th Floor
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: WALDEN JAPAN PARTNERS, L.P.
---------------------------------------
By: /s/ GEORGE SARLO
-----------------------------------
Title: GEORGE SARLO, GENERAL PARTNER
--------------------------------
Address: 750 Battery Street, 7th Floor
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: WALDEN MEDIA & INFORMATION
TECHNOLOGY , L.P.
---------------------------------------
By: /s/ GEORGE SARLO
-----------------------------------
Title: GEORGE SARLO, GENERAL PARTNER
--------------------------------
Address: 750 Battery Street, 7th Floor
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 26
KLEINER PERKINS CAUFIELD & BYERS VIII
By: KPCB VIII Associates, Its General Partner
By: /s/ BROOK BYERS
-------------------------------------------
Name: Brook Byers
-----------------------------------------
Title: General Partner
----------------------------------------
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By: KPCB VII Associates, Its General Partner
By: /s/ BROOK BYERS
-------------------------------------------
Name: Brook Byers
-----------------------------------------
Title: General Partner
----------------------------------------
KPCB JAVA FUND
By: KPCB VIII Associates, Its General Partner
By: /s/ BROOK BYERS
-------------------------------------------
Name: Brook Byers
-----------------------------------------
Title: General Partner
----------------------------------------
Address: c/o Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025-7020
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: PARTECH U.S. PARTNERS III C.V.
---------------------------------------
By: Philippe Cases
-----------------------------------
Title: General Partner
--------------------------------
Address: c/o Partech International
50 California Street, Suite 3200
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: PARVEST U.S. PARTNERS II C.V.
---------------------------------------
By: Vincent Worms
-----------------------------------
Title: General Partner
--------------------------------
Address: c/o Partech International
50 California Street, Suite 3200
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: DOUBLE BLACK DIAMOND II LLC
---------------------------------------
By: Vincent Worms
-----------------------------------
Title: Managing Member
--------------------------------
Address: c/o Partech International
50 California Street, Suite 3200
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 30
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: ALMANORI LIMITED
---------------------------------------
By: Vincent Worms
-----------------------------------
Title: Director
--------------------------------
Address: c/o Partech International
50 California Street, Suite 3200
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: MULTINVEST LIMITED
---------------------------------------
By: Vincent Worms
-----------------------------------
Title: General Partner
--------------------------------
Address: c/o Partech International
50 California Street, Suite 3200
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 32
MAYFIELD VII
By: [Signature Illegible]
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
MAYFIELD ASSOCIATES FUND II
By: [Signature Illegible]
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address: c/o Mayfield Funds
2800 Sand Hill Road, #250
Menlo Park, CA 94025
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: Asian Venture Capital Investment Corp.
---------------------------------------
By: [Signature Illegible]
-----------------------------------
Title: President
--------------------------------
Address: 750 Battery Street, Suite 700
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: InfoTech Ventures Ltd.
O, W & W Investments Ltd.
---------------------------------------
By: [Signature Illegible]
-----------------------------------
Title: Managing Director
--------------------------------
Address: 750 Battery Street, Suite 700
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Series D
Preferred Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
-----------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: TWG Investment LDC
---------------------------------------
By: [Signature Illegible]
-----------------------------------
Title: Director
--------------------------------
Address: 750 Battery Street, Suite 700
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 36
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF SHARES AGGREGATE
OF SERIES D PURCHASE
INVESTORS PREFERRED STOCK PRICE
--------- --------------- -------------
<S> <C> <C>
FIRST CLOSING
Walden-SBIC, L.P. 1,226,773 $ 680,000.27
Walden Technology Ventures II, L.P. 306,693 $ 169,999.93
Walden EDB Partners, L.P. 451,020 $ 250,000.39
Walden Japan Partners, L.P. 451,020 $ 250,000.39
Walden Media & Information Technology 3,608,154 $1,999,999.77
KPCB Java Fund 1,658,712 $ 919,424.06
Kleiner Perkins Caufield & Byers VIII 651,637 $ 361,202.39
KPCB Information Sciences Zaibatsu Fund II 59,240 $ 32,836.73
Partech U.S. Partners III C.V 2,706,116 $1,500,000.10
Parvest U.S. Partners II C.V 721,631 $ 400,000.06
Double Black Diamond II LLC 180,408 $ 100,000.15
Almanori Limited 90,204 $ 50,000.08
Multinvest Limited 45,102 $ 25,000.04
Mayfield VII 705,322 $ 390,959.98
Mayfield Associates Fund II 37,122 $ 20,576.72
Subtotal: 12,899,154 $7,150,001.06
SECOND CLOSING
InfoTech Ventures Ltd. 541,223 $ 299,999.91
Asian Venture Capital Investment Corp. 375,248 $ 207,999.97
TWG Investment LDC 346,382 $ 191,999.54
O, W & W Investments Ltd. 270,611 $ 149,999.68
Subtotal: 1,533,464 $ 849,999.10
TOTALS: 14,432,618 $8,000,000.16
</TABLE>
<PAGE> 37
EXHIBIT A
Amended and Restated Articles of Incorporation
<PAGE> 38
EXHIBIT B
Amended and Restated Investor Rights Agreements
<PAGE> 39
EXHIBIT C
Co-Sale Agreement
<PAGE> 40
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF ADKNOWLEDGE INC
A CALIFORNIA CORPORATION
The undersigned Scott Kauffman and Thi Thumasathit hereby certify
that:
ONE: They are the President and Assistant Secretary, respectively,
of AdKnowledge Inc., a California corporation.
TWO: The Articles of Incorporation of this corporation are hereby
amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is AdKnowledge Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. Classes of Stock. This 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 which the corporation
shall have authority to issue is 61,500,000 shares. The total number of shares
of Common Stock which the corporation is authorized to issue is 37,396,808. The
total number of shares of Preferred Stock which the corporation is authorized to
issue is 24,103,192, of which 525,000 shares shall be Series A Preferred Stock,
5,512,000 shares shall be Series B Preferred Stock, 576,192 shares shall be
Series C-1 Preferred Stock, 615,016 shares shall be Series C-2 Preferred Stock,
2,442,366 shares shall be Series C-3 Preferred Stock, and 14,432,618 shares
shall be Series D Preferred Stock.
B. Rights, Preferences and Restrictions of the Preferred Stock. The
rights, preferences, privileges and restrictions granted to and imposed on the
Preferred Stock are as set forth below in this Article III(B).
1. Dividend Provisions.
(a) The holders of outstanding shares of Preferred Stock
shall be entitled to receive dividends at the rate of $0.01 per share per annum
for the Series A Preferred Stock, $0.03 per share per annum for the Series B
Preferred Stock, $0.05 per share per annum for the Series C-1 Preferred Stock,
$0.21 per share per annum for the Series C-2 Preferred Stock, $0.12 per share
per annum for the Series C-3 Preferred Stock and $0.04 per share per annum for
<PAGE> 41
the Series D Preferred Stock, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this corporation) on the Common Stock of this
corporation payable when, as and if declared by the Board of Directors (the
"Board"). Such dividends shall not be cumulative. Declared but unpaid dividends
with respect to an outstanding share of Preferred Stock shall, upon conversion
of such share to Common Stock, be paid to the extent assets are legally
available therefor either in cash or in Common Stock (valued at the fair market
value on the date of payment as determined by the Board). Any amounts for which
such assets are not legally available shall be paid promptly as assets become
legally available therefor.
(b) After payment of any such dividends, any additional
dividends or distributions shall be distributed among all holders of Common
Stock and all holders of Preferred Stock in proportion to the number of shares
of Common Stock which would be held by each such holder if all outstanding
shares of Preferred Stock were converted to Common Stock at the then effective
conversion rate.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding
up of this corporation, either voluntary or involuntary, the holders of the
outstanding shares of Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the corporation to the
holders of Common Stock by reason of their ownership thereof, (i) for the Series
A Preferred Stock, an amount per share equal to $0.20 for each outstanding share
of Series A Preferred Stock, (ii) for the Series B Preferred Stock, an amount
per share equal to $0.4717 for each outstanding share of Series B Preferred
Stock, (iii) for the Series C-1 Preferred Stock, an amount per share equal to
$0.8451 for each outstanding share of Series C-1 Preferred Stock (the "Series
C-1 Liquidation Price"), (iv) for the Series C-2 Preferred Stock, an amount per
share equal to $3.2981 for each outstanding share of Series C-2 Preferred Stock
(the "Series C-2 Liquidation Price"), (v) for the Series C-3 Preferred Stock, an
amount per share equal to $1.9129 for each outstanding share of Series C-3
Preferred Stock (the "Series C-3 Liquidation Price") and (vi) for the Series D
Preferred Stock, an amount per share equal to $0.5543 for each outstanding share
of Series D Preferred Stock (the "Series D Liquidation Price"). If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the outstanding shares of Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then, the entire assets and funds of the corporation legally available for
distribution shall be distributed ratably among the holders of the outstanding
shares of Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required by
subparagraph (a) of this Section 2, the remaining assets of the corporation
available for distribution to shareholders shall be distributed among the
holders of Preferred Stock and Common Stock pro rata based on the number of
shares of Common Stock held by each (assuming conversion of all such outstanding
shares of Preferred Stock) until, (i) with respect to the holders of Series A
Preferred Stock, such holders shall have received an aggregate of $0.80 per
share (including amounts paid pursuant to subsection (a) of this Section 2),
(ii) with respect to the holders of Series B Preferred Stock, such holders shall
have received an aggregate of $1.8868 per share
-2-
<PAGE> 42
(including amounts paid pursuant to subsection (a) of this Section 2), (iii)
with respect to the holders of Series C-1 Preferred Stock, such holders shall
have received an aggregate of $3.3804 per share (including amounts paid pursuant
to subsection (a) of this Section 2), (iv) with respect to the holders of Series
C-2 Preferred Stock, such holders shall have received an aggregate of $13.1924
per share (including amounts paid pursuant to subsection (a) of this Section 2),
(v) with respect to the holders of Series C-3 Preferred Stock, such holders
shall have received an aggregate of $7.6516 per share (including amounts paid
pursuant to subsection (a) of this Section 2) and (vi) with respect to the
holders of Series D Preferred Stock, such holders shall have received an
aggregate of $2.2172 per share (including amounts paid pursuant to subsection
(a) of this Section 2); thereafter, if assets remain in this corporation, the
holders of the Common Stock of this corporation shall receive all of the
remaining assets of this corporation pro rata based on the number of shares of
Common Stock held by each.
(c) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include, (A) the acquisition of the corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's shareholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration
received by the corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not subject to an investment
letter or other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or
through NASDAQ-NMS, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three (3) days prior to the closing;
(2) If actively traded over-the-counter,
the value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty-day period ending three (3) days prior
to the closing; and
(3) If there is no active public market,
the value shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock, voting together as a single class.
(B) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a shareholder's status as an
affiliate or former affiliate) shall be to make an
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appropriate discount from the market value determined as above in (A) (1), (2)
or (3) to reflect the approximate fair market value thereof, as mutually
determined by the corporation and the holders of at least a majority of the
voting power of all then outstanding shares of Preferred Stock, voting together
as a single class.
(iii) In the event the requirements of this subsection
2(c) are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until
such time as the requirements of this subsection 2(c) have been complied with;
or
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of outstanding shares of
Preferred Stock shall revert to and be the same as such rights, preferences and
privileges existing immediately prior to the date of the first notice referred
to in subsection 2(c)(iv) hereof.
(iv) The corporation shall give each holder of record
of Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of a majority
of the voting power of all then outstanding shares of Preferred Stock that are
entitled to such notice rights or similar notice rights, voting together as a
single class.
(v) The rights granted pursuant to this subsection
2(c) are in addition to the rights granted pursuant to Section 5 herein.
3. Redemption. The Preferred Stock is not redeemable.
4. Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Effective Issue Price (as defined
below) for such series of Preferred Stock by the Conversion Price applicable to
such series, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. The Effective Issue Price for the
Series A Preferred Stock shall be $0.20 per share; the Effective Issue Price for
the Series B Preferred Stock shall be $0.4717 per share; the Effective Issue
Price for the Series C-1 Preferred Stock and Series C-2 Preferred Stock shall be
$0.8451 per share; the Effective Issue Price for the Series C-3 Preferred Stock
shall be
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$1.9129 per share; and the Effective Issue Price for the Series D Preferred
Stock shall be $0.5543 per share. The initial Conversion Price per share for
each series shall be the Effective Issue Price for such series; provided,
however, that the Conversion Price shall be subject to adjustment as set forth
in subsection 4(d).
(b) Automatic Conversion. Each share of Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for the respective series of Preferred Stock
immediately upon the earlier of (A) except as provided below in subsection 4(c),
the corporation's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which was not less than $1.6629
per share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and $10 million in the aggregate or (B) the date specified by
written consent or agreement of the holders of at least a majority of the then
outstanding shares of Preferred Stock, voting together as a single class.
(c) Mechanics of Conversion. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of this corporation or of any transfer agent for such Preferred
Stock, and shall give written notice to this corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock upon conversion of such Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for
Certain Dilutive Issuances, Splits and Combinations. The Conversion Price of the
Series A, Series B, Series C-1, Series C-2, Series C-3 and Series D Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) (A) (1) With respect to the issuance of any
shares of the Series D Preferred Stock only, if the corporation shall issue any
shares of Series D Preferred Stock without consideration or for a consideration
per share less than the Conversion Price for the Series A, Series B, Series C-1
and/or Series C-2 Preferred Stock in effect
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immediately prior to the issuance of such shares of Series D Preferred Stock,
the Conversion Price of the Series A, Series B, Series C-1 and/or Series C-2
Preferred Stock in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause d(i)) be adjusted to a
price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock
that the aggregate consideration received by the corporation for such issuance
would purchase at such Conversion Price and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of such Series D Preferred Stock.
(2) With respect to the issuance of any
shares of the Series D Preferred Stock only, if the corporation shall issue any
shares of Series D Preferred Stock without consideration or for a consideration
per share less than the Conversion Price for the Series C-3 Preferred Stock in
effect immediately prior to the issuance of such shares of Series D Preferred
Stock, the Conversion Price for the Series C-3 Preferred Stock in effect
immediately prior to the each such issuance shall forthwith (except as otherwise
provided in this clause d(i)) be adjusted to a price determined by multiplying
such Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of Common Stock that the aggregate consideration received
by the corporation for such issuance would purchase at such Conversion Price and
the denominator of which shall be the lesser of, or, if both such clauses are
equal, then the denominator shall be equal to, (I) the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
shares of such Series D Preferred Stock or (II) the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of shares
of Common Stock that the aggregate consideration received by the corporation for
such issuance would purchase at twenty-five thirty-seconds (25/32) of the
Effective Issue Price for the Series C-3 Preferred Stock (adjusted solely for
calculations under this clause (d)(i)(A)(2) to reflect subsequent stock
dividends, stock splits or recapitalizations).
(3) Except with respect to the issuance of
any shares of the Series D Preferred Stock (which is provided for in the
immediately preceding clauses d(i)(A)(1) and d(i)(A)(2)), if the corporation
shall issue, after the date upon which any shares of the Series D Preferred
Stock were first issued (the "Purchase Date"), any Additional Stock (as defined
below) without consideration or for a consideration per share less than the
Conversion Price for the Series A, Series B, Series C-1, Series C-2 Preferred
Stock, Series C-3 Preferred Stock and/or Series D Preferred Stock in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
of the Series A, Series B, Series C-1, Series C-2 Preferred Stock, Series C-3
Preferred Stock and/or Series D Preferred Stock in effect immediately prior to
each such issuance shall forthwith (except as otherwise provided in this clause
d(i)) be adjusted to a price determined by multiplying such Conversion Price by
a fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock that the aggregate consideration received by the corporation for
such issuance would purchase at such Conversion Price and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of such Additional Stock.
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(B) No adjustment of the Conversion Price for
any series of Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of 3 years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subsections (E)(3)
and (E)(4), no adjustment of such Conversion Price pursuant to this subsection
4(d)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board irrespective of any accounting treatment.
(E) In the case of the issuance (whether before,
on or after the Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares
of Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by the corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange for (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be
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received by the corporation (without taking into account potential antidilution
adjustments) upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the
number of shares of Common Stock deliverable or in the consideration payable to
this corporation upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities, including, but
not limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of each series of Preferred Stock to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of each series of Preferred Stock,
to the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock, or any obligation to issue any share of stock or other security of the
corporation convertible into or exchangeable for Common Stock, issued (or deemed
to have been issued pursuant to subsection 4(d)(i)(E)) by this corporation after
the Purchase Date other than:
(A) Common Stock issued pursuant to a
transaction described in subsection 4(d)(iii) hereof;
(B) shares of Common Stock issuable or issued to
employees, consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board at any time when the
total number of shares of Common Stock so issuable or issued (and not
repurchased at cost by the corporation in connection with the termination of
employment) does not exceed 6,850,000;
(C) Common Stock issued upon conversion of
shares of Preferred Stock;
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(D) up to 100,000 shares of Common Stock issued
to banks or equipment lessors, provided such issuances are for other than
primarily equity financing purposes and approval by the Board;
(E) up to 250,000 shares of Common Stock issued
in connection with business combinations or corporate partnering agreements
approved by the Board; and
(F) 14,432,618 shares of Series D Preferred
Stock issued pursuant to that certain Series D Preferred Stock Purchase
Agreement dated on or about February 27, 1998.
(iii) In the event the corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the Conversion
Price of each series of Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be increased in proportion to such increase in the aggregate
number of shares of Common Stock outstanding and those issuable with respect to
such Common Stock Equivalents.
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for each series of Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in the aggregate number of shares of Common Stock outstanding.
(e) Other Distributions. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the holders of
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be
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made so that the holders of Preferred Stock shall thereafter be entitled to
receive upon conversion of such series of Preferred Stock the number of shares
of stock or other securities or property of the corporation or otherwise, to
which a holder of Common Stock deliverable upon conversion of the Preferred
Stock would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number of
shares issuable upon conversion of the Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment
of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock and against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of a series of Preferred Stock pursuant to
this Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of such Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price for such series of Preferred Stock at
the time in effect, and (C) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of such series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by
this corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least 20 days prior
to the date specified therein, a notice
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specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, this corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to these Articles of
Incorporation.
(k) Notices. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his or her address appearing on the books
of this corporation.
5. Voting Rights.
(a) The holder of each outstanding share of Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock and shall be entitled, notwithstanding any
provision hereof, to notice of any shareholders' meeting in accordance with the
bylaws of this corporation, and shall be entitled to vote, together with holders
of Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote. Fractional votes shall not, however, be permitted and
any fractional voting rights available on an as-converted basis (after
aggregating all shares into which such outstanding shares of Preferred Stock
held by each holder could be converted) shall be rounded to the nearest whole
number (with one-half being rounded upward).
(b) Notwithstanding the provisions of Section 5(a) above, so
long as 2,650,000 shares of Series B Preferred Stock remain outstanding (as
adjusted for subsequent stock splits, recapitalizations and the like), the
holders of Series B Preferred Stock, voting as a separate class, shall be
entitled to elect one (1) director of the corporation (the "Series B Director").
At any meeting held for the purpose of electing or nominating directors, the
presence in person or by proxy of the holders of a majority of the Series B
Preferred Stock then outstanding shall constitute a quorum of the Series B
Preferred Stock for the election or nomination of the Series B Director. A
vacancy in the directorship elected solely by the holders of Series B Preferred
Stock shall be filled only by vote of the holders of Series B Preferred Stock.
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(c) Notwithstanding the provisions of Section 5(a) above, so
long as 7,216,309 shares of Series D Preferred Stock remain outstanding (as
adjusted for subsequent stock splits, recapitalizations and the like), the
holders of Series D Preferred Stock, voting as a separate class, shall be
entitled to elect one (1) director of the corporation (the "Series D Director").
At any meeting held for the purpose of electing or nominating directors, the
presence in person or by proxy of the holders of a majority of the Series D
Preferred Stock then outstanding shall constitute a quorum of the Series D
Preferred Stock for the election or nomination of the Series D Director. A
vacancy in the directorship elected solely by the holders of Series D Preferred
Stock shall be filled only by vote of the holders of Series D Preferred Stock.
6. Protective Provisions. So long as at least twenty-five percent
(25%) of the shares of any series of Preferred Stock remain outstanding, this
corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of a majority of the then
outstanding shares of Series A, Series B, Series C-1, Series C-2, Series C-3 and
Series D Preferred Stock, voting together as a single class:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of;
(b) alter or change the rights, preferences or privileges of
the shares of any series of Preferred Stock so as to adversely affect the
shares;
(c) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, any then existing series of Preferred Stock with respect to voting,
dividends, redemption or upon liquidation; or
(d) amend the corporation's Articles of Incorporation or
bylaws.
7. Status of Converted Stock. In the event any shares of
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be cancelled and shall not be issuable by the corporation. The
Articles of Incorporation of this corporation shall be appropriately amended to
effect the corresponding reduction in the corporation's authorized capital
stock.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when, as and if
declared by the Board, out of any assets of the corporation legally available
therefor, such dividends as may be declared from time to time by the Board.
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2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article III.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. Except in the election of a director by the
holders of Series B Preferred Stock and by the holders of Series D Preferred
Stock as provided in Sections 5(b) and 5(c) of Division (B) of this Article III,
the holder of each share of Common Stock shall have the right to one vote, and
shall be entitled to notice of any shareholders' meeting in accordance with the
bylaws of this corporation, and shall be entitled to vote upon such matters and
in such manner as may be provided by law.
ARTICLE IV
A. The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
B. The corporation is authorized, to the fullest extent permissible
under California law, to provide indemnification of agents (as defined in
Section 317 of the California Corporations Code) through bylaw provisions,
agreements with the agents, vote of shareholders or disinterested directors, or
otherwise in excess of the indemnification otherwise permitted by Section 317 of
the California Corporations Code, subject only to applicable limits set forth in
Section 204 of the California Corporations Code with respect to actions for
breach of duty to the corporation and its shareholders.
* * *
THREE: The foregoing amendment and restatement has been approved by
the Board.
FOUR: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of the corporation in accordance with
Sections 902 and 903 of the California General Corporation Law; the total number
of outstanding shares of each class entitled to vote with respect to the
foregoing amendment and restatement was 6,178,968 shares of Common Stock,
525,000 shares of Series A Preferred Stock, 5,512,000 shares of Series B
Preferred Stock, 569,525 shares of Series C-1 Preferred Stock, 605,122 shares of
Series C-2 Preferred Stock and 2,282,730 shares of Series C-3 Preferred Stock.
The number of shares voting in favor of the foregoing amendment and restatement
equaled or exceeded the vote required, such required vote being (a) a majority
of the outstanding shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C-1 Preferred Stock, Series C-2 Preferred Stock and
Series C-3 Preferred Stock, voting together as a single class, (b) a majority of
the outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C-1 Preferred Stock, Series C-2 Preferred Stock and Series C-3 Preferred
Stock, voting together as a single class, and (c) a majority of the outstanding
shares of Common Stock, voting as a single class.
-13-
<PAGE> 53
IN WITNESS WHEREOF, the undersigned have executed this certificate
on February __, 1998.
----------------------------------------
Scott Kauffman, President
----------------------------------------
Thi Thumasathit, Assistant Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Amended and Restated Articles of Incorporation and know the
contents thereof, and that the statements therein are true.
Executed at Palo Alto, California, on February __, 1998.
----------------------------------------
Scott Kauffman, President
----------------------------------------
Thi Thumasathit, Assistant Secretary
[SIGNATURE PAGE TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF ADKNOWLEDGE INC.]
<PAGE> 54
ADKNOWLEDGE INC.
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
MARCH 4, 1998
<PAGE> 55
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Registration Rights.....................................................1
1.1 Definitions.......................................................1
1.2 Request for Registration..........................................2
1.3 Company Registration..............................................3
1.4 Obligations of the Company........................................4
1.5 Furnish Information...............................................5
1.6 Expenses of Registration..........................................5
1.7 Underwriting Requirements.........................................6
1.8 Delay of Registration.............................................6
1.9 Indemnification...................................................6
1.10 Reports Under Securities Exchange Act of 1934.....................8
1.11 Form S-3 Registration.............................................9
1.12 Assignment of Registration Rights................................10
1.13 "Market Stand-Off"Agreement......................................10
1.14 Termination of Registration Rights...............................10
2. Covenants of the Company...............................................11
2.1 Delivery of Financial Statements.................................11
2.2 Delivery of Additional Information...............................11
2.3 Inspection.......................................................11
2.4 Termination of Information and Inspection Covenants..............11
2.5 Confidentiality of Information...................................12
2.6 Right of First Offer.............................................12
3. Miscellaneous..........................................................13
3.1 Successors and Assigns...........................................13
3.2 Governing Law....................................................13
3.3 Counterparts.....................................................13
3.4 Titles and Subtitles.............................................13
3.5 Notices..........................................................13
3.6 Expenses.........................................................14
3.7 Amendments and Waivers...........................................14
3.8 Severability.....................................................14
3.9 Aggregation of Stock.............................................14
3.10 Entire Agreement.................................................14
</TABLE>
i
<PAGE> 56
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (the
"Agreement") is made as of the 4th day of March, 1998, by and between
AdKnowledge Inc., a California corporation (the "Company"), and the investors
listed on Schedule A hereto, each of which is herein referred to as an
"Investor."
RECITALS
WHEREAS, certain of the Investors (the "Existing Investors") hold
shares of the Company's Series A, B, Series C-1, Series C-2 and Series C-3
Preferred Stock and are parties to an Investor Rights Agreement, dated March 14,
1997, as amended by Amendment No. 1 to the Investor Rights Agreement, dated
December 31, 1997, between the Company and such Existing Investors (the "Prior
Agreement");
WHEREAS, certain of the Investors (the "Series D Investors") and the
Company are parties to the Series D Preferred Stock Purchase Agreement of even
date herewith, which provides for the sale and issuance of Series D Preferred
Stock to such Series D Investors; and
WHEREAS, in order to induce the Company to enter into the Series D
Preferred Stock Purchase Agreement and to induce the Series D Investors to
invest funds in the Company pursuant to the Series D Stock Purchase Agreement,
the Investors and the Company hereby agree that the Prior Agreement shall be
superseded and replaced in its entirety by this Agreement and that this
Agreement shall govern the rights of the Investors to cause the Company to
register shares of Common Stock issuable to the investors and certain other
matters as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission (the "SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.12 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
(e) The term "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in
<PAGE> 57
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series B, Series C-1, Series
C-2, Series C-3 and/or Series D Preferred Stock, (ii) except with respect to
Sections 1.2 and 1.11, the Common Stock issuable or issued upon conversion of
the Series A Preferred Stock and (iii) any 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 referenced in (i) or (ii)
above, excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which his or her rights under this Section 1 are not
assigned.
(g) 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.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the
earlier of (i) March 4, 2003, or (ii) twelve (12) 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 a SEC Rule 145 transaction), a written request from
the Holders of at least thirty percent (30%) of the Registrable Securities then
outstanding that the Company file a registration statement under the Act for a
public offering in which the aggregate proceeds from the offering would exceed
$10,000,000, then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in any event
shall use its best efforts to effect within 120 days of the receipt of such
request, the registration under the Act of all Registrable Securities which the
Holders request to be registered, subject to the limitations of subsection
1.2(b), within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 3.5 below.
(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 subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. 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
2
<PAGE> 58
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. 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 President 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 shareholders 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 taking action
with respect to such filing for a period of at least 90 days after receipt of
the request of the Initiating Holders; provided, however, the Company may not
exercise this deferral right more than once in any twelve (12) 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 registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one 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 1.11 below.
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 shareholders other than the Holders) any of its
stock or other securities 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, a registration
on any form which 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 or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time,
3
<PAGE> 59
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 hereof, the Company shall,
subject to the provisions of Section 1.7 hereof, 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 a period of up to ninety (90) days.
(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.
(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 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.
(g) Cause all such Registrable Securities registered
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
4
<PAGE> 60
(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) Provided such securities are being sold through
underwriters, 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, (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
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 and to the Holders requesting registration of Registrable
Securities.
1.5 Furnish Information.
(a) 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 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.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.11 if, due to the
operation of subsection 1.5(a), 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
1.11(b)(2), whichever is applicable.
1.6 Expenses of Registration. The Company shall bear and pay all
expenses incurred in connection with a registration requested pursuant to
Sections 1.2, 1.3 and 1.11, including without limitation, all registration,
filing and qualification fees, printer's and accounting fees and the Company's
legal fees, but excluding underwriter discounts and commissions relating to the
Registrable Securities and the fees and disbursements of counsel for the selling
Holders; 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; provided further that if such
withdrawal is due to a material adverse change in the business of the Company
that the Holders were not previously aware of at the time of their request and
the Holders withdraw their request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Holders
shall not be required to pay any such expenses and shall not forfeit as provided
above any rights to one demand registration pursuant to Section 1.2.
5
<PAGE> 61
1.7 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 shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible 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, which 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 shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities in which
case the selling shareholders may be excluded if the underwriters make the
determination described above and no other shareholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a shareholder
exercising a demand registration right similar to that granted in Section 1.2 be
excluded from such offering or (iii) the Company limit the number of Registrable
Securities to be included in a registration pursuant to this Agreement in order
to include shares held by shareholders with no registration rights. For purposes
of the preceding sentence concerning apportionment, for any selling shareholder
which is a holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and shareholders 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 shareholder," and any pro-rata reduction with respect to such
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling shareholder," as defined in this sentence.
1.8 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.
1.9 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 1934 Act, against any losses, claims,
damages or liabilities (joint or several) to which they may become subject under
the Act, or the 1934 Act or other federal or state securities laws, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
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
6
<PAGE> 62
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 1934 Act, other federal or
state securities laws, or any rule or regulation promulgated under the Act, the
1934 Act or other federal or state securities laws; and the Company will pay to
each such Holder, underwriter or controlling person 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 1.9(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.
(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 1934 Act or other federal or state
securities laws, 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 any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 1.9(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 1.9(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 1.9(b)
exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.9 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 1.9, 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 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
7
<PAGE> 63
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 1.9, but the omission so to 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 1.9. No indemnifying party,
in the defense of any such claim or litigation, shall, except with the consent
of each indemnified party, consent to entry of any judgment or entry into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party a release from all liability
in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.9
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. 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 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10 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;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act;
8
<PAGE> 64
(c) 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 1934 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 (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;
and
(d) take such action as is necessary to allow the Holders to
use Form S-3.
1.11 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders 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 1.11: (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 $500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President 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
shareholders 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 at least 90 days after receipt of the
request of the Holder or Holders under this Section 1.11; 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 1.11; (5) if the Company has
already effected three registrations on Form S-3 for the Holders pursuant to
this Section 1.2; or (6) 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.
9
<PAGE> 65
(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. Registrations effected pursuant to this
Section 1.11 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.12 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 of such securities who, after such assignment or transfer, holds at
least 100,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided: (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 transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.13 below,
and (c) 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.
1.13 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
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 which was not acquired directly in the
public market or in a public offering by the Company, except common stock
included in such registration; provided, however, that:
(a) all executive officers and directors of the Company
enter into similar agreements; and
(b) such market stand-off time period shall not exceed 180
days.
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.
1.14 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1, and all such
rights shall terminate, (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) on such date after the
closing of such sale of securities as all shares of Registrable Securities held
or entitled to be held upon conversion by such Holder may immediately be sold
under Rule 144 during any 90-day period.
10
<PAGE> 66
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver to
each 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, a statement of
shareholder's equity as of the end of such year, and a statement of cash flows
for such year, which reports shall be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP") and audited by
nationally recognized independent accountants;
(b) as soon as practicable, but in any event within
forty-five (45) 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, an
unaudited balance sheet, an unaudited statement of cash flows and a statement of
shareholder's equity as of the end of such fiscal quarter; and
(c) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request;
provided, however, that the Company shall not be obligated under this subsection
(c) or any other subsection of Section 2.1 to provide information which it deems
in good faith to be a trade secret or similar confidential information.
2.2 Delivery of Additional Information. The Company shall deliver
to each Holder who holds at least 500,000 shares of Registrable Securities:
(a) within twenty (20) days of the end of each month, an
unaudited income statement, statement of cash flows and balance sheet for and as
of the end of such month, in reasonable detail; provided, however, that the
Company's obligation under this subsection 2.2(a) shall not commence until the
end of the third month from the date hereof; and
(b) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a business plan for the next fiscal
year.
2.3 Inspection. The Company shall permit each Investor, at such
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 Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.3 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information;
provided, further, that the Investors coordinate their visitations and
inspections so as to minimize the disruptions and interruptions to the Company.
2.4 Termination of Information and Inspection Covenants. The
covenants set forth in subsections 2.2(a) and (b) and Section 2.3 shall
terminate as to Investors and be of no further force or effect when the 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 is consummated or when the Company first
becomes subject to
11
<PAGE> 67
the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.5 Confidentiality of Information. The information provided
pursuant to Sections 2.1 and 2.2 shall be used by each Holder or any permitted
assignee of each Holder solely in furtherance of its interests as an investor in
the Company, and such Holder and any permitted assignee of such Holder shall
maintain the confidentiality of all information of the Company obtained under
Sections 2.1 and 2.2, unless such information (i) was known by such Holder or
permitted assignee prior to its disclosure to them by the Company, (ii) is
disclosed to such Holder or permitted assignee without restriction as a matter
of right by a third party not affiliated with or working for the Company, or
(iii) has become publicly available through no fault of such Investor or
permitted assignee. Notwithstanding the foregoing, a Holder may disclose, if
applicable, (i) to Holder's general and limited partners, or (ii) Holder's Board
of Directors or executive officers such information provided that such general
or limited partners, or such Board of Directors or executive officers agree to
be bound by the terms of this Section 2.5.
2.6 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.6, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.6, an Investor includes
any general partners and affiliates of an Investor. An Investor shall be
entitled to apportion the right of first offer hereby granted it among itself
and its partners and 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 Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investor 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 20 calendar days after receipt of the Notice, the
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 of the Series B, Series C-1, Series C-2, Series C-3 or
Series D Preferred Stock then held, by such Investor bears to the total number
of shares of Common Stock of the Company then outstanding (assuming full
conversion of all convertible securities), issued and held, or issuable upon
conversion of the Series B, Series C-1, Series C-2, Series C-3 or Series D
Preferred Stock, then held by all Investors. The Company shall promptly, in
writing, inform each Investor that purchases all the shares available to it
("Fully-Exercising Investor") of any other Investor's failure to do likewise.
During the ten-day period commencing after receipt of such information, each
Fully-Exercising Investor shall be entitled to obtain that portion of the Shares
for which Investors were entitled to subscribe but which were not subscribed for
by the Investors which is equal to the proportion that the number of shares of
Common Stock issued and held, or issuable upon conversion of Series B, Series
C-1, Series C-2, Series C-3 or Series D Preferred Stock then held, by such
Fully-Exercising Investor bears to the
12
<PAGE> 68
total number of shares of Common Stock issued and held, or issuable upon
conversion of the Series B, Series C-1, Series C-2, Series C-3 or Series D
Preferred Stock then held, by all Fully-Exercising Investors who wish to
purchase some of the unsubscribed shares.
(c) If all Shares which Investors are entitled to obtain
pursuant to subsection 2.6(b) are not elected to be obtained as provided in
subsection 2.6(b) hereof, the Company may, during the 60-day period following
the expiration of the period provided in subsection 2.6(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable 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 30
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
Investors in accordance herewith.
(d) The right of first offer in this Section 2.6 shall not
be applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor) to Company employees, directors, officers, or consultants for the
primary purpose of soliciting or retaining their employment or services, (ii) to
or after consummation of a bona fide, firmly underwritten public offering of
shares of Common Stock, registered under the Act pursuant to registration
statement on Form S-1, (iii) the issuance of Common Stock pursuant to the
conversion of the Series B, Series C-1, Series C-2, Series C-3 or Series D
Preferred Stock, or (iv) 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.
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 shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
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 shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
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 under this Agreement shall be given in writing and shall be deemed
effectively given upon
13
<PAGE> 69
personal delivery to the party to be notified, (ii) five (5) days following
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties, or (iii) facsimile with confirmed receipt.
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
a majority of the Registrable Securities then outstanding. 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, whether or not such holder
consented to such amendment or waiver.
3.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities
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
3.10 Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 70
IN WITNESS WHEREOF, the parties have executed this Investor Rights
Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
------------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
SERIES D INVESTORS ----------------------------------------
By:
------------------------------------
Title:
---------------------------------
Address:
----------------------------------------
----------------------------------------
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 71
EXISTING INVESTORS: KLEINER PERKINS CAUFIELD & BYERS VIII
By: KPCB VIII Associates, Its General Partner
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By: KPCB VII Associates, Its General Partner
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
KPCB JAVA FUND
By: KPCB VIII Associates, Its General Partner
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Address: c/o Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025-7020
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 72
MAYFIELD VII
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
MAYFIELD ASSOCIATES FUND II
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
MAYFIELD SOFTWARE PARTNERS
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Address: c/o Mayfield Funds
2800 Sand Hill Road, #250
Menlo Park, CA 94025
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 73
SCHEDULE A
INVESTORS
Kleiner Perkins Caufield & Byers VIII
KPCB Information Sciences Zaibatsu Fund II
KPCB Java Fund
Fah-Chun Cheong
Thomas Churchill
Chih-Chao Lam
Chih-Ming Lam
Dale Thoms
Ken Tidwell
Andrew Kwee
Chi Kiong Chen
Ping Chen
Mayfield VII
Mayfield Associates Fund II
Mayfield Solftware Partners
CMP Media, Inc.
Allen L. Morgan
WS Investment Company 95B
Walden-SBIC, L.P.
Walden Technology Ventures II, L.P.
Walden EDB Partners, L.P.
Walden Japan Partners, L.P.
Walden Media & Info. Tech.
Partech U.S. Partners III C.V.
Parvest U.S. Partners II C.V.
Double Black Diamond II LLC
Almanori Limited
Multinvest Limited
InfoTech Ventures Ltd.
Asian Venture Capital Investment Corp.
TWG Investment LDC
O, W & W Investments Ltd.
A-1
<PAGE> 74
CO-SALE AGREEMENT
This Co-Sale Agreement (the "Agreement") is made this 4th day of
March, 1998 by and among AdKnowledge Inc., a California corporation (the
"Company"), the holders of shares of the Company's Common Stock listed on
Exhibit A hereto (the "Shareholders," which term includes each Shareholder's
heirs, executors, guardians, successors and assigns), and the holders of the
Company's Series D Preferred Stock listed on Exhibit B hereto (the "Investors").
WHEREAS, each of the Shareholders is the beneficial owner of the
number of shares of the Company's Common Stock listed on Exhibit A hereto (the
"Stock," which term for purposes of this Agreement also includes any additional
shares of Common Stock of the Company now owned or hereafter acquired by any
Shareholder).
WHEREAS, the Shareholders and the Company acknowledge that they are
entering into this Agreement as an inducement to and in consideration of the
purchase of shares of the Series D Preferred Stock of the Company by the
Investors pursuant to that certain Series D Preferred Stock Purchase Agreement
of even date herewith by and among the Company and such Investors.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties agree as follows:
1. Definitions.
(a) "Preferred Stock" shall mean the Company's outstanding
Series A, Series B, Series C-1, Series C-2, Series C-3 and Series D Preferred
Stock.
(b) "Common Stock" shall mean (i) the Company's Common
Stock, (ii) shares of Common Stock issued or issuable upon conversion of the
Company's outstanding Preferred Stock, (iii) shares of Common Stock issuable
upon exercise of outstanding options to the extent such options are then
exercisable and/or the stock issuable thereupon would not be subject to
repurchase by the Company, and (iv) shares of Common Stock issuable upon
conversion of any outstanding convertible securities.
2. Sales by Shareholders.
(a) Subject to any right of first refusal in favor of the
Company, if any Shareholder proposes to sell or transfer any shares of Stock in
one or more related transactions which will result in (i) the transfer of 50,000
or more shares of Stock by such Shareholder or (ii) the transferee of such
shares holding more than fifty percent (50%) of the Common Stock, then such
Shareholder shall promptly give written notice (the "Notice") to the Company and
to the Investors at least twenty (20) days prior to the closing of such sale or
transfer. The Notice shall describe in reasonable detail the proposed sale or
transfer including, without limitation, the number of shares of Stock to be sold
or transferred, the nature of such sale or transfer, the consideration to be
paid, and the name and address of each prospective purchaser or transferee. In
the event that the sale or transfer is being made pursuant to the provisions or
paragraph 3(a) or 3(b) hereof, the Notice shall state under which paragraph the
sale or transfer is being made.
<PAGE> 75
(b) Each Investor shall have the right, exercisable upon
written notice to such Shareholder within ten (10) days after receipt of the
Notice, to participate in such sale of Stock on the same terms and conditions.
To the extent one or more of the Investors exercise such right of participation
in accordance with the terms and conditions set forth below, the number of
shares of Stock that the Shareholder may sell in the transaction shall be
correspondingly reduced.
(c) Each Investor may sell all or any part of that number of
shares of Stock equal to the product obtained by multiplying (i) the aggregate
number of shares of Stock covered by the Notice by (ii) a fraction the numerator
of which is the number of shares of Common Stock owned by the Investor at the
time of the sale or transfer and the denominator of which is the total number of
shares of Common Stock outstanding at the time of the sale or transfer.
(d) If any Investor fails to elect to fully participate in
such Shareholder's sale pursuant to this Section 2, the Shareholder shall
promptly give notice of such failure to the Investors who did so elect (the
"Participants"). Such notice may be made by telephone if confirmed in writing
within two (2) days. The Participants shall have five (5) days from the date
such notice was given to agree to sell their pro rata share of the unsold
portion. For purposes of this paragraph, a Participant's pro rata share of an
unsold portion shall be the ratio of (x) the number of shares of Common Stock
held by such Participant to (y) the total number of shares of Common Stock held
by all the Participants and the Shareholder.
(e) Each Participant shall effect its participation in the
sale by promptly delivering to the Shareholder for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer, which
represent:
(i) the type and number of shares of Common Stock
which such Participant elects to sell; or
(ii) that number of shares of Series D Preferred Stock
which is at such time convertible into the number of shares of Common Stock
which such Participant elects to sell; provided, however, that if the
prospective purchaser objects to the delivery of Series D Preferred Stock in
lieu of Common Stock, such Participant shall convert such Preferred Stock into
Common Stock and deliver Common Stock as provided in subparagraph 2(e)(i) above.
The Company agrees to make any such conversion concurrent with the actual
transfer of such shares to the purchaser.
(f) The stock certificate or certificates that the
Participant delivers to the Shareholder pursuant to paragraph 2(e) shall be
transferred to the prospective purchaser in consummation of the sale of the
Stock pursuant to the terms and conditions specified in the Notice, and the
Shareholder shall concurrently therewith remit to such Participant that portion
of the sale proceeds to which such Participant is entitled by reason of its
participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares or
other securities from a Participant exercising its rights of co-sale hereunder,
the Shareholder shall not sell to such prospective purchaser or purchasers any
Stock unless and until, simultaneously with such sale, the Shareholder shall
purchase such shares
2.
<PAGE> 76
or other securities from such Participant for the same consideration and on the
same terms and conditions as the proposed transfer described in the Notice.
(g) The exercise or non-exercise of the rights of the
Participants hereunder to participate in one or more sales of Stock made by the
Shareholder shall not adversely affect their rights to participate in subsequent
sales of Stock subject to paragraph 2(a).
(h) If none of the Investors elect to participate in the
sale of the Stock subject to the Notice, the Shareholder may, not later than
sixty (60) days following delivery to the Company and each of the Investors of
the Notice, conclude a transfer of not less than all of the Stock covered by the
Notice on terms and conditions not more favorable to the transferor than those
described in the Notice. Any proposed transfer on terms and conditions more
favorable than those described in the Notice, as well as any subsequent proposed
transfer of any of the Stock by the Shareholder, shall again be subject to the
co-sale rights of the Investors and shall require compliance by the Shareholder
with the procedures described in this Section 2.
3. Exempt Transfers.
(a) Notwithstanding the foregoing, the co-sale rights of the
Investors shall not apply to (i) any pledge of Stock made pursuant to a bona
fide loan transaction that creates a mere security interest, (ii) any transfer
to the ancestors, descendants or spouse or to trusts for the benefit of such
persons or a Shareholder; or (iii) any bona fide gift; provided that (A) the
transferring Shareholder shall inform the Investors of such pledge, transfer or
gift prior to effecting it and (B) the pledgee, transferee or donee shall
furnish the Investors with a written agreement to be bound by and comply with
all provisions of this Agreement. Such transferred Stock shall remain "Stock"
hereunder, and such pledgee, transferee or donee shall be treated as a
"Shareholder" for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section
2 shall not apply to the sale of any Stock (i) to the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), (ii) to the Company pursuant to a stock restriction agreement
between the Shareholder and the Company which provides the Company with the
right to repurchase such Stock upon the occurrence of certain events, or (iii)
if prior to such sale, the Shareholder held less than five percent (5%) of the
Company's outstanding shares or the Shareholders collectively held less than ten
percent (10%) of the Company's outstanding shares.
4. Prohibited Transfers.
(a) In the event a Shareholder should sell any Stock in
contravention of the co-sale rights of the Investors under this agreement (a
"Prohibited Transfer"), the Investors, in addition to such other remedies as may
be available at law, in equity or hereunder, shall have the put option provided
below, and the Shareholder shall be bound by the applicable provisions of such
option.
(b) In the event of a Prohibited Transfer, each Investor
shall have the right to sell to the Shareholder the type and number of shares of
Stock equal to the number of shares each Investor would have been entitled to
transfer to the purchaser under Section 2(c)
3.
<PAGE> 77
hereof had the Prohibited Transfer been effected pursuant to and in compliance
with the terms hereof. Such sale shall be made on the following terms and
conditions:
(i) The price per share at which the shares are to be
sold to the Shareholder shall be equal to the price per share paid by the
purchaser to the Shareholder in the Prohibited Transfer. The Shareholder shall
also reimburse each Investor for any and all fees and expense, including legal
fees and expenses, incurred pursuant to the exercise or the attempted exercise
of the Investor's rights under Section 2.
(ii) Within ninety (90) days after the later of the
dates on which the Investor (A) received notice of the Prohibited Transfer or
(B) otherwise become aware of the Prohibited Transfer, each Investor shall, if
exercising the option created hereby, deliver to the Shareholder the certificate
or certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) The Shareholder shall, upon receipt of the
certificate or certificates for the shares to be sold by an Investor, pursuant
to this subparagraph 4(b), pay the aggregate purchase price therefor and the
amount of reimbursable fees and expenses, as specified in subparagraph 4(b)(i),
in cash or by other means acceptable to the Investor.
(iv) Notwithstanding the foregoing, any attempt by a
Shareholder to transfer Stock in violation of Section 2 hereof shall be void and
the Company agrees it will not effect such a transfer nor will it treat any
alleged transferee as the holder of such shares without the written consent of a
majority in interest of the Investors.
5. Legend.
(a) Each certificate representing shares of Stock now or
hereafter owned by the Shareholders or issued to any person in connection with a
transfer pursuant to Section 3(a) hereof shall be endorsed with the following
legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE
SHAREHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE CORPORATION."
(b) Each Shareholder agrees that the Company may instruct
its transfer agent to impose transfer restrictions on the shares represented by
certificates bearing the legend referred to in Section 5(a) above to enforce the
provisions of this Agreement and the Company agrees to promptly do so. The
legend shall be removed upon termination of this Agreement.
4.
<PAGE> 78
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
6.2 Amendment. Any provision may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (i) as to the
Company, only by the Company, (ii) as to the Investors, by persons holding more
than fifty percent (50%) in interest of the Common Stock held by the Investors
and their assignees, pursuant to Section 6.3 hereof, and (iii) as to each
Shareholder, such Shareholder, provided that any Investor may waive any of his
rights hereunder without obtaining the consent of any other Investor. Any
amendment or waiver effected in accordance with clauses (i), (ii) and (iii) of
this paragraph shall be binding upon each Investor, its successors and assigns,
the Company and the Shareholder in question.
6.3 Assignment of Rights. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
The rights of the Investors hereunder are only assignable (i) by each of such
Investors to any other Investor or (ii) to an assignee or transferee who
acquires all of the Common Stock purchased by an Investor or at least 50,000
shares of Common Stock.
6.4 Term. This Co-Sale Agreement shall terminate upon the earlier
of (i) the closing of a firm commitment underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of the Company's Common Stock at a price
per share of not less than $1.67 (as adjusted for stock splits, reverse stock
splits and the like effected after the date of this Agreement) and an aggregate
offering price of not less than $10,000,000, (ii) the closing of the Company's
sale of all or substantially all of its assets or the acquisition of the Company
by another entity by means of merger or consolidation resulting in the exchange
of the outstanding shares of the Company's capital stock for securities or
consideration issued, or caused to be issued, by the acquiring entity or its
subsidiary, (iii) such time as the Investors hold an aggregate of less than
7,000,000 shares of Common Stock, and (iv) the execution by the Company of a
general assignment for the benefit of creditors or the appointment of a receiver
or trustee to take possession of the property and assets of the Company.
6.5 Ownership. Each Shareholder represents and warrants that he is
the sole legal and beneficial owner of the shares of stock subject to this
Co-Sale Agreement and that no other person has any interest (other than a
community property interest) in such shares.
6.6 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given upon personal delivery to the
party to be notified or five (5) days after deposit in the United States mail,
by registered or certified
5.
<PAGE> 79
mail, postage prepaid and properly addressed to the party to be notified as set
forth on the signature page hereof or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties hereto.
Notwithstanding the foregoing, the telephone notice permitted by Section 2(d)
shall be effective at the time it is given.
6.7 Severability. In the event one or more of the provisions of
this Co-Sale Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Co-Sale Agreement, and this
Co-Sale Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
6.8 Attorney Fees. In the event that any dispute among the parties
to this Co-Sale Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Co-Sale Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
6.9 Counterparts. This Co-Sale 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.
6.10 Stock Split. All references to numbers of shares in this
Agreement shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
6.11 Aggregation of Stock. All shares of Common 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6.
<PAGE> 80
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
ADKNOWLEDGE INC.
By:
------------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS:
By:
------------------------------------
Title:
---------------------------------
Address:
-------------------------------
-------------------------------
7.
<PAGE> 81
MAYFIELD VII
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
MAYFIELD ASSOCIATES FUND II
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address: c/o Mayfield Fund
2800 Sand Hill Road, #250
Menlo Park, CA 94025
[SIGNATURE PAGE TO CO-SALE AGREEMENT]
8.
<PAGE> 82
KLEINER PERKINS CAUFIELD & BYERS VIII
By: KPCB VIII Associates, Its General Partner
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By: KPCB VII Associates, Its General Partner
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
KPCB JAVA FUND
By: KPCB VIII Associates, Its General Partner
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Address: c/o Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025-7020
[SIGNATURE PAGE TO CO-SALE AGREEMENT]
9.
<PAGE> 83
SHAREHOLDERS:
----------------------------------------------
Scott Kauffman
Address:
-------------------------------------
-------------------------------------
-----------------------------------------------
Thi Thumasathit
Address:
-------------------------------------
-------------------------------------
[SIGNATURE PAGE TO CO-SALE AGREEMENT]
10.
<PAGE> 84
Exhibit A
Shareholder List
Scott Kauffman
Thi Thumasathit
<PAGE> 85
Exhibit B
Investor List
KPCB Java Fund
KPCB VIII
KPCB Info Sciences Zaibatsu II
Mayfield VII
Mayfield Associates Fund II
Mayfield Software Partners
Walden-SBIC, L.P.
Walden Technology Ventures II, L.P.
Walden EDB Partners, L.P.
Walden Japan Partners, L.P.
Walden Media & Info. Tech.
Partech U.S. Partners III C.V.
Parvest U.S. Partners II C.V.
Double Black Diamond II LLC
Almanori Limited
Multinvest Limited
InfoTech Ventures Ltd.
Asian Venture Capital Investment Corp.
TWG Investment LDC
O, W & W Investments Ltd.
<PAGE> 86
CONSENT OF SPOUSE
I, _________________________, the spouse of ______________________,
one of the shareholders referred to as a "Shareholder" in the foregoing Co-Sale
Agreement, dated March ___, 1998, acknowledge that I have read the foregoing
Agreement and that I know its contents. I am aware that by its provisions if I
and/or my spouse agree to sell all or part of the shares of the Company held of
record by either or both of us, including my community interest in such shares,
if any, co-sale rights (as described in the Agreement) must be granted to the
Investors (as defined in the Agreement) by the seller. I hereby agree that those
shares and my interest in them, if any, are subject to the provisions of the
Agreement and that I will take no action at any time to hinder operation of, or
violate, the Agreement.
Signature: _____________________________
Effective: March __, 1998 Print Name: ____________________________
<PAGE> 1
EXHIBIT 10.4
ADKNOWLEDGE INC.
SERIES E PREFERRED
STOCK PURCHASE AGREEMENT
February 10, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Purchase And Sale Of Stock...........................................................................1
1.1 Sale and Issuance of Series E Preferred Stock...................................................1
1.2 Closings........................................................................................1
2. Representations and Warranties of the Company........................................................2
2.1 Organization, Good Standing and Qualification...................................................2
2.2 Capitalization and Voting Rights................................................................2
2.3 Subsidiaries....................................................................................3
2.4 Authorization...................................................................................3
2.5 Valid Issuance of Series E Preferred Stock......................................................4
2.6 Governmental Consents...........................................................................4
2.7 Offering........................................................................................4
2.8 Litigation......................................................................................4
2.9 Proprietary Information.........................................................................5
2.10 Patents and Trademarks..........................................................................5
2.11 Compliance with Other Instruments...............................................................5
2.12 Agreements......................................................................................6
2.13 Related-Party Transactions......................................................................6
2.14 Registration Rights.............................................................................7
2.15 Corporate Documents.............................................................................7
2.16 Title to Property and Assets....................................................................7
2.17 Employee Benefit Plans..........................................................................7
2.18 Insurance.......................................................................................7
2.19 Employment Matters..............................................................................7
2.20 Small Business Concern..........................................................................8
2.21 Disclosure......................................................................................8
2.22 Taxes...........................................................................................8
2.23 Stock Issuances to Founders and Employees.......................................................8
2.24 Financial Statements............................................................................9
2.25 Changes in Conditions...........................................................................9
2.26 Environmental and Safety Laws...................................................................9
2.27 Customers and Suppliers.........................................................................9
2.28 Year 2000 Problem..............................................................................10
3. Representations and Warranties of the Investors.....................................................10
3.1 Authorization..................................................................................10
3.2 Purchase Entirely for Own Account..............................................................10
3.3 Disclosure of Information......................................................................11
3.4 Investment Experience..........................................................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.5 Restricted Securities..........................................................................11
3.6 Further Limitations on Disposition.............................................................11
3.7 Legends........................................................................................12
3.8 Further Representations by Foreign Investors...................................................12
4. California Commissioner of Corporations.............................................................12
4.1 Corporate Securities Law.......................................................................12
5. Conditions of Investors' Obligations at Each Closing................................................13
5.1 Representations and Warranties.................................................................13
5.2 Performance....................................................................................13
5.3 Compliance Certificate.........................................................................13
5.4 Qualifications.................................................................................13
5.5 Board of Directors.............................................................................13
5.6 Restated Articles..............................................................................13
5.7 Amended and Restated Investor Rights Agreement.................................................14
5.8 Amended and Restated Co-Sale Agreement.........................................................14
5.9 Voting Agreement...............................................................................14
5.10 Opinion of Company Counsel.....................................................................14
5.11 Consent and Waivers............................................................................14
5.12 Total Proceeds.................................................................................14
5.13 Other Fees and Expenses........................................................................14
5.14 SBA............................................................................................14
5.15 Proceedings and Documents......................................................................15
6. Conditions of the Company's Obligations at Each Closing.............................................15
6.1 Representations and Warranties.................................................................15
6.2 Payment of Purchase Price......................................................................15
6.3 Performance....................................................................................15
6.4 Qualifications.................................................................................15
6.5 Restated Articles..............................................................................15
6.6 Amended and Restated Investor Rights Agreement.................................................15
6.7 Amended and Restated Co-Sale Agreement.........................................................16
7. Miscellaneous.......................................................................................16
7.1 Survival of Warranties.........................................................................16
7.2 Successors and Assigns.........................................................................16
7.3 Governing Law..................................................................................16
7.4 Counterparts...................................................................................16
7.5 Titles and Subtitles...........................................................................16
7.6 Notices........................................................................................16
7.7 Finder's Fee...................................................................................17
7.8 Use of Proceeds................................................................................17
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.9 Expenses.......................................................................................17
7.10 Amendments and Waivers.........................................................................17
7.11 Severability...................................................................................18
7.12 Aggregation of Stock...........................................................................18
7.13 Entire Agreement...............................................................................18
</TABLE>
List of Schedules
Schedule A Schedule of Investors
Schedule B Schedule of Exceptions
List of Exhibits
Exhibit A Amended and Restated Articles of Incorporation
Exhibit B Amended and Restated Investor Rights Agreements
Exhibit C Amended and Restated Co-Sale Agreement
Exhibit D Voting Agreement
iii
<PAGE> 5
SERIES E PREFERRED
STOCK PURCHASE AGREEMENT
This Series E Preferred Stock Purchase Agreement (the "Agreement") is
made this 10th day of February, 1999 by and among AdKnowledge Inc., a California
corporation (the "Company"), and the investors listed on the Schedule of
Investors attached hereto as Schedule A, each of which is herein referred to as
an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase And Sale Of Stock.
1.1 Sale and Issuance of Series E Preferred Stock.
(a) The Company shall adopt and file with the
Secretary of State of the State of California on or before the First Closing (as
defined below) the Amended and Restated Articles of Incorporation in the form
attached hereto as Exhibit A (the "Restated Articles").
(b) Subject to the terms and conditions of this
Agreement, each Investor agrees, severally, to purchase at each Closing (as
defined below) and the Company agrees to sell and issue to each Investor at each
Closing that number of shares of the Company's Series E Preferred Stock set
forth opposite each Investor's name on Schedule A thereto under the headings
"First Closing" and "Second Closing," respectively, for the purchase price set
forth thereon.
1.2 Closings.
(a) The first purchase and sale of the Series E
Preferred Stock shall take place at the offices of Brobeck, Phleger & Harrison
LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California, at 1:00 p.m.
on February 10, 1999, or at such other time and place as the Company and the
Investors acquiring in the aggregate more than half the shares of Series E
Preferred Stock being sold pursuant to this Agreement shall mutually agree upon
orally or in writing (the "First Closing").
(b) The second purchase and sale of the Series E
Preferred Stock will take place no later than 1:00 p.m. on February 10, 1999,
and at such time and place as the Company and Investors acquiring in the
aggregate more than half the shares of Series E Preferred Stock sold pursuant
hereto shall mutually agree in writing (the "Second Closing" and collectively
with the First Closing, a "Closing").
(c) At each Closing, the Company shall deliver to
each Investor a certificate representing the shares of Series E Preferred Stock
that such Investor is purchasing against payment of the purchase price therefor
by check, wire transfer, cancellation of indebtedness or any combination
thereof. In the event that payment by an Investor is made, in whole or in part,
by cancellation of indebtedness, then such Investor shall surrender to the
1
<PAGE> 6
Company for cancellation at such Closing any evidence of such indebtedness or
shall execute an instrument of cancellation in form and substance acceptable to
the Company.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor, except as set forth on a Schedule of
Exceptions (the "Schedule of Exceptions") attached hereto as Schedule B, which
exceptions shall be deemed to be representations and warranties as if made
hereunder, the following (for purposes of Sections 2.6 through 2.28, references
to the "Company" shall include the Company and any predecessors and subsidiaries
of the Company):
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties. The Company has the requisite corporate power to own and
operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted and possesses all governmental and
other permits, licenses and other authorizations to own its properties as now
owned and to carry on its business as presently conducted and as proposed to be
conducted. The Company has made available to each Investor or its special
counsel true, correct and complete copies of the Company's Articles of
Incorporation and Bylaws, each as amended to date.
2.2 Capitalization and Voting Rights. Assuming the filing of
the Restated Articles and the consummation of the transactions contemplated
herein, the authorized capital of the Company consists, or will consist as of
the First Closing, of:
(a) Preferred Stock. 40,520,478 shares of Preferred
Stock (the "Preferred Stock"), of which 525,000 shares have been designated
Series A Preferred Stock (the "Series A Preferred Stock"), all of which shall be
issued and outstanding, 5,512,000 shares have been designated Series B Preferred
Stock (the "Series B Preferred Stock"), all of which shall be issued and
outstanding, 576,192 shares have been designated Series C-1 Preferred Stock (the
"Series C-1 Preferred Stock"), 569,525 of which shall be issued and outstanding,
615,016 shares have been designated Series C-2 Preferred Stock (the "Series C-2
Preferred Stock"), 605,122 of which shall be issued and outstanding, 2,442,366
shares have been designated Series C-3 Preferred Stock (the "Series C-3
Preferred Stock"), 2,282,730 of which shall be issued and outstanding,
15,138,784 shares have been designated Series D Preferred Stock (the "Series D
Preferred Stock"), 14,432,618 of which shall be issued and outstanding, and
15,711,120 shares have been designated Series E Preferred Stock ("Series E
Preferred Stock"), up to 15,555,557 of which may be sold pursuant to this
Agreement. The rights, privileges and preferences of the Series A, Series B,
Series C-1, Series C-2, Series C-3, Series D and Series E Preferred Stock will
be as stated in the Company's Restated Articles.
(b) Common Stock. 55,479,522 shares of common stock
("Common Stock"), of which 6,174,563 shares shall be issued and outstanding.
2
<PAGE> 7
(c) Except for (A) the conversion privileges of the
Series A, Series B, Series C-1, Series C-2, Series C-3, Series D and Series E
Preferred Stock, (B) the rights of first offer provided in Paragraph 2.6 of the
Amended and Restated Investor Rights Agreement of even date herewith in the form
attached hereto as Exhibit B, by and among the Company and certain investors
(the "Amended and Restated Investor Rights Agreement"), (C) a total of 7,159,632
shares of Common Stock have been reserved for issuance, either directly or
through options, to employees, directors and consultants to the Company, of
which 4,884,977 shares of Common Stock are currently committed to employees of
the Company pursuant to outstanding options, (D) warrants to purchase 6,667
shares of Series C-1 Preferred Stock, (E) warrants to purchase 9,894 shares of
Series C-2 Preferred Stock, (F) warrants to purchase 159,636 shares of Series
C-3 Preferred Stock, (G) warrants to purchase 706,166 shares of Series D
Preferred Stock and (H) warrants to purchase 55,555 shares of Series E Preferred
Stock which may be issued after the Closings, there are not outstanding any
options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. Except as provided in the Restated Articles, the Company is not a
party or subject to any agreement or understanding, and, to the Company's
knowledge, there is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership or similar arrangement.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Amended and
Restated Investor Rights Agreement, the Amended and Restated Co-Sale Agreement
(attached hereto as Exhibit C) (the "Amended and Restated Co-Sale Agreement"),
and the Voting Agreement (attached hereto as Exhibit D) (the "Voting Agreement")
and any other agreement to which the Company is a party the execution and
delivery of which is contemplated hereby (collectively referred to hereafter as
the "Ancillary Agreements"), the performance of all obligations of the Company
hereunder and thereunder, and the authorization, issuance (or reservation for
issuance), sale and delivery of the Series E Preferred Stock being sold
hereunder and the Common Stock issuable upon any conversion of the Series E
Preferred Stock as provided in the Restated Articles has been taken or will be
taken prior to the First Closing, and this Agreement and all of the Ancillary
Agreements constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Amended and Restated Investor Rights
Agreement may be limited by applicable federal or state securities laws.
2.5 Valid Issuance of Series E Preferred Stock. The Series E
Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly
3
<PAGE> 8
and validly issued, fully paid and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement, the Amended and Restated Investor Rights Agreement and under
applicable state and federal securities laws. The Common Stock issuable upon
conversion of the Series E Preferred Stock purchased under this Agreement has
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Restated Articles, will be duly and validly issued, fully
paid and nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Amended and Restated Investor
Rights Agreement and under applicable state and federal securities laws. No
shareholder of the Company has any right of first refusal or any preemptive
rights in connection with the issuance and sale of the Series E Preferred Stock.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, which filing will be effected within fifteen (15) days of the
sale of the Series E Preferred Stock hereunder.
2.7 Offering. Subject in part to the truth and accuracy of
each Investor's representations set forth in Section 3 of this Agreement, (i)
the offer, sale and issuance of the Series E Preferred Stock as contemplated by
this Agreement are exempt from the registration requirements of the Act, and
neither the Company nor any authorized agent acting on its behalf will take any
action hereafter that would cause the loss of such exemption and (ii) the Series
E Preferred Stock that is being purchased by the Investors hereunder will be
issued in compliance with all applicable federal and state securities laws.
2.8 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened against the Company that questions the validity of this Agreement,
the Ancillary Agreements or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse changes in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions, suits, proceedings or
investigations pending or threatened (on any basis known to the Company)
involving the prior employment of any employees of the Company, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or that the Company
intends to initiate.
2.9 Proprietary Information. Each current and former employee,
officer and consultant of the Company has executed a Proprietary Information and
Inventions
4
<PAGE> 9
Agreement in substantially the form provided to the Investors. The Company is
not aware that any of its employees, officers or consultants are in violation of
such agreements.
2.10 Patents and Trademarks. The Company has sufficient
license, title or ownership of all trademarks, service marks, trade names and
copyrights, and to its knowledge, the Company has sufficient license, title or
ownership of all patents necessary for its business as now conducted without any
conflict with or infringement of the rights of others. The Company is not aware
of and has not received any communications alleging that the Company has
violated any of the patents, trademarks, service marks, trade names or
copyrights of any other person or entity. The Company is not aware that any of
its employees is obligated under or in violation of any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employees' best efforts to promote the
interests of the Company or that would conflict with the business of the Company
as now conducted or proposed to be conducted. Except for inventions that may be
licensed by the Company without charge, the Company does not believe that it is
or will be necessary to utilize any inventions of any of its employees (or
people it currently intends to hire) made prior to their employment by the
Company.
2.11 Compliance with Other Instruments. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws, or in any material respect of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound
or, to its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Company. The execution, delivery and performance of
this Agreement, the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any material lien, charge or encumbrance upon any assets of
the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal
of any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties, which
would have a material adverse effect on the Company.
2.12 Agreements.
(a) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or by which it is bound that may involve
(i) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company, other than agreements entered into by the Company
in the ordinary course of business; (ii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or services,
or (iii) indemnification by the Company with respect to infringement of
proprietary rights.
(b) Except for agreements explicitly contemplated
hereby and by the Ancillary Agreements, there are no agreements, understandings
or proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
5
<PAGE> 10
(c) The Schedule of Exceptions contains a list of all
agreements of the Company that involves current obligations, or would reasonably
involve future obligations, of the Company or any other party thereto in excess
of $150,000 per annum or the loss of which would otherwise have a material
adverse effect on the business of the Company.
(d) The Company has not (i) declared or paid any
dividends or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness, for money
borrowed or any other liabilities, which is currently outstanding, individually
in excess of $50,000 or, in the case of outstanding indebtedness and/or
liabilities individually less than $50,000, in excess of $100,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(e) For the purposes of subsections (c) and (d)
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
(f) The Company is not a party to and is not bound by
any contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws that adversely affects its business, its properties
or its financial condition as now conducted or as proposed to be conducted.
2.13 Related-Party Transactions. No employee, officer or
director of the Company, or member of his or her immediate family, is indebted
to the Company, nor is the Company indebted (or committed to make loans or
extend or guarantee credit) to any of them. To the best of the Company's
knowledge, none of such persons has any direct or indirect ownership interest in
any firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation that competes
with the Company, except that employees, officers, or directors of the Company
and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. No member of the immediate family
of any officer or director of the Company is directly or indirectly interested
in any material contract with the Company.
2.14 Registration Rights. Except as provided in the Amended
and Restated Investor Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity.
2.15 Corporate Documents. The Restated Articles and Bylaws of
the Company are in the form provided to the Investors.
2.16 Title to Property and Assets. The Company has good and
marketable title to its property and assets free and clear of all mortgages,
liens, loans and encumbrances, except such encumbrances and liens that arise in
the ordinary course of business and do not materially impair the Company's
ownership or use of such property or assets. With
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<PAGE> 11
respect to the property and assets it leases, the Company is in compliance with
such leases and, to the best of the Company's knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances. All of the Company's
properties and assets are, in all material respects, in good operating and
usable condition, subject to normal wear and tear.
2.17 Employee Benefit Plans. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.18 Insurance. The Company has in full force and effect
workers' compensation, fire, casualty, and liability insurance policies, with
extended coverage, and other insurance all in such amounts and covering such
risks as is reasonable and prudent in view of the business and operations of the
Company and in any event no less extensive than is customarily maintained by
companies of established reputation engaged in the same or similar businesses
and sufficient in amount (subject to reasonable deductibles) to allow it to
replace any of its properties that might be damaged or destroyed.
2.19 Employment Matters. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing. Subject to
general principles related to wrongful termination of employees, the employment
of each officer and employee of the Company is terminable at the will of the
Company.
2.20 Small Business Concern. The Company, together with its
"affiliates" (as that term is defined in 13 C.F.R. Section 121.401), is a "small
business concern" within the meaning of the Small Business Investment Act of
1958, as amended, and the regulations promulgated thereunder, including 13
C.F.R. Section 121.301(c)(1). The information set forth in SBA Forms 480, 652
and Part A of 1031 prepared or furnished or to be furnished by the Company is
accurate and complete in all material respects. The Company is not an owner of
five percent (5%) or more of any lender which is a "Licensee" under the Small
Business Investment Act of 1958, as amended. No portion of the proceeds from the
sale of the Series E Preferred Stock has been or will be used for any purpose in
contravention of any of the provisions of Part 107 of Title 13 of the Code of
Federal Regulations.
2.21 Disclosure. To the Company's knowledge, neither this
Agreement, the Ancillary Agreements, nor any other statements or certificates
made or delivered in connection herewith or therewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading in light of the circumstances
under which they were made. The Company has fully provided each Investor with
all the information that such Investor has requested for deciding whether to
purchase the Series E Preferred Stock. To the Company's knowledge, there are no
facts which (individually or in the aggregate) materially adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company that have not been set forth in this Agreement, the Exhibits hereto,
the Amended and Restated Investor Rights Agreement or the Amended and Restated
Co-Sale Agreement. To the extent any financial projections were prepared by
management of the Company, such projections were prepared in good faith and
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<PAGE> 12
based upon assumptions that the Company believes are reasonable; however, the
Company does not warrant that it will achieve such financial projections.
2.22 Taxes. The Company has paid, or made provision for
payment of, all taxes which have or may have become due pursuant to income tax
returns required to be filed by it or pursuant to any assessment which has been
received by it and all such tax returns have been timely filed. No federal or
state income or sales tax return of the Company has been audited, no deficiency
assessment or proposed adjustment of the Company's United States income tax,
state or municipal taxes or sales taxes is pending and the Company has no
knowledge of any proposed liability for any tax to be imposed on its property or
assets. To the best of the Company's knowledge, all individuals who have
purchased shares of the Company's Common Stock have timely filed elections under
Section 83(b) of the Internal Revenue Code and any analogous provisions of
applicable state tax laws.
2.23 Stock Issuances to Founders and Employees. Prior
issuances of securities of the Company to founders and employees have been made
pursuant to stock purchase or stock option agreements that have been approved by
the Company's Board of Directors which provide for (i) vesting over a period of
at least forty-eight (48) months, (ii) no acceleration of vesting upon an
initial public offering or acquisition of the Company, and (iii) a right of
first refusal in favor of the Company in the event of certain transfers of
shares to third parties, and including a "market stand-off" provision
substantially similar to that set forth in Section 1.13 of the Amended and
Restated Investor Rights Agreement.
2.24 Financial Statements. The Company has provided to the
Investors or to their special counsel the unaudited balance sheet as of December
31, 1998 and statements of income and cash flow for the twelve-month period
ended December 31, 1998 of the Company (collectively referred to herein as the
"Financial Statements"). The Financial Statements (A) are complete and correct
in all material respects and have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis (except
that they do not contain footnotes and certain other statements required by
GAAP), (B) are in accordance with the books and records of the Company, and (C)
present fairly the financial condition of the Company at the date or dates
therein indicated and the results of operations for the periods therein
specified. Except as set forth in the Financial Statements, the Company has no
material known liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to December 31, 1998 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under GAAP to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP.
2.25 Changes in Conditions. Since December 31, 1998, there has
not been any change in the assets or liabilities of the Company from that
reflected in the Financial Statements except changes in the ordinary course of
business which have not been in the aggregate materially adverse to the Company.
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<PAGE> 13
2.26 Environmental and Safety Laws. To the best of the
Company's knowledge, the Company is not in violation of any applicable statute,
law or regulation relating to the environment or occupational health and safety,
the violation of which would materially adversely affect the Company, and to the
best of the Company's knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
2.27 Customers and Suppliers. Except as set forth in the
Schedule of Exceptions, no customer or supplier of the Company, the loss of
which would have a Material Adverse Effect on the Company, has notified the
Company of its intention to terminate its relationship with the Company.
2.28 Year 2000 Problem. The Company has (i) initiated a review
and assessment of all areas within its and each of its subsidiaries' business
and operations (including those materially affected by suppliers, vendors and
customers) that could be materially adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by the Company or
any of its subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving dates after December 31, 1999), (ii) used its
reasonable efforts to develop a plan and timeline for addressing the Year 2000
Problem on a timely basis, and (iii) to date, implemented in all material
respects that plan in accordance with that timetable. Based on the foregoing,
the Company believes that all computer applications that are material to its and
its subsidiaries' business and operations are reasonably expected on a timely
basis to be able to perform properly date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year 2000 Compliant"), except to
the extent that a failure to do so could not reasonably be expected to have
Material Adverse Effect.
3. Representations and Warranties of the Investors. Each Investor,
severally and not jointly, hereby represents and warrants that:
3.1 Authorization. The Investor has full power and authority
to enter into this Agreement and the Ancillary Agreements, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Amended and Restated Investor Rights Agreement may be limited
by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series E Preferred Stock to be received by such
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
or disposing of the same. By executing this Agreement, such Investor further
represents that such Investor does not have any contract, undertaking, agreement
or
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<PAGE> 14
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series E Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series E Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 hereto or the right
of the Investors to rely thereon.
3.4 Investment Experience. Such Investor acknowledges that it
is an investor in securities of companies in the development stage and that it
is able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series E
Preferred Stock. If other than an individual, Investor also represents it has
not been organized for the purpose of acquiring the Series E Preferred Stock.
3.5 Restricted Securities. Such Investor understands that the
securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.6 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless:
(a) There is then in effect a Registration Statement
under the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company
of the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the Act and
(iii) except in the case of a sale under Rule 144, the transferee has agreed in
writing for the benefit of the Company to be bound by this Section 3 of this
Agreement, the Amended and Restated Investor Rights Agreement, the Amended and
Restated Co-Sale Agreement and the Voting Agreement provided and to the extent
this Section and such agreements are then applicable. The Company, however, will
not require opinions of counsel for transactions made pursuant to Rule 144
except in unusual circumstances.
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<PAGE> 15
(c) Notwithstanding the provisions of paragraphs (a)
and (b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor that is a partnership to a partner of
such partnership or a retired partner of such partnership who retires after the
date hereof, or to the estate of any such partner or retired partner or the
transfer by gift, will or intestate succession of any partner to his or her
spouse or to the siblings, lineal descendants or ancestors of such partner or
his or her spouse if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if he or she were an original Investor hereunder.
3.7 Legends. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
(a) "These securities have not been registered under
the Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code, and
any other legend required by applicable state securities and blue sky laws.
3.8 Further Representations by Foreign Investors. If an
Investor is not a United States person, such Investor hereby represents that he
or she has satisfied himself or herself as to the full observance of the laws of
his or her jurisdiction in connection with any invitation to subscribe for the
Securities or any use of this Agreement, including (i) the legal requirements
within his jurisdiction for the purchase of the Securities, (ii) any foreign
exchange restrictions applicable to such purchase, (iii) any governmental or
other consents that may need to be obtained, and (iv) the income tax and other
tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale, or transfer of the Securities. Such Investor's subscription
and payment for, and his or her continued beneficial ownership of the
Securities, will not violate any applicable securities or other laws of his or
her jurisdiction.
4. California Commissioner of Corporations.
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH 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 SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
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<PAGE> 16
5. Conditions of Investors' Obligations at Each Closing. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the First Closing of each of the
following conditions:
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
First Closing with the same effect as though such representations and warranties
had been made on and as of the date of such First Closing.
5.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the First
Closing. The Company's business and assets shall not have been adversely
affected in any material way prior to the First Closing.
5.3 Compliance Certificate. The President of the Company shall
deliver to each Investor at the First Closing a certificate stating that the
conditions specified in Sections 5.1, 5.2 and 5.11 have been fulfilled.
5.4 Qualifications. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the securities pursuant to this Agreement shall be duly obtained and
effective as of the First Closing.
5.5 Board of Directors. Effective upon the First Closing, the
directors of the Company shall be Russell Siegelman, Scott Kauffman, Steve
Eskenazi, Philippe Cases and Samantha McCuen.
5.6 Restated Articles. The Restated Articles shall have been
duly adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with the Secretary of
State of the State of California and become legally effective.
5.7 Amended and Restated Investor Rights Agreement. The
Company, each other Investor and the holders of a majority in interest of the
Company's Series B, Series C-1, Series C-2, Series C-3 and Series D Preferred
Stock, voting together as a class, shall have entered into the Amended and
Restated Investor Rights Agreement in the form attached hereto as Exhibit B.
5.8 Amended and Restated Co-Sale Agreement. The Company, each
other Investor and each Shareholder (as defined therein) shall have entered into
the Amended and Restated Co-Sale Agreement in the form attached hereto as
Exhibit C.
5.9 Voting Agreement.
The Company and each other Series E Investor (as defined therein)
shall have entered into the Voting Agreement in the form attached hereto as
Exhibit D.
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<PAGE> 17
5.10 Opinion of Company Counsel. Each Investor shall have
received from Brobeck, Phleger & Harrison LLP, counsel for the Company, an
opinion, dated as of the First Closing in form and content satisfactory to
special counsel for the Investors.
5.11 Consent and Waivers. The Company shall have obtained any
and all consents (including all governmental or regulatory consents, approvals
or authorizations required in connection with the valid execution and delivery
of this Agreement, the Amended and Restated Investor Rights Agreement or the
Amended and Restated Co-Sale Agreement), permits and waivers necessary or
appropriate for consummation of the transactions contemplated by this Agreement,
the Amended and Restated Investor Rights Agreement or the Amended and Restated
Co-Sale Agreement.
5.12 Total Proceeds. At least $11,000,000 in aggregate
proceeds to the Company shall have been subscribed for at the First Closing.
5.13 Other Fees and Expenses.
The Company shall have paid or reimbursed all fees and expenses that it
is required to reimburse as of the First Closing pursuant to Section 7.9 hereof.
5.14 SBA. The Company shall have provided each Investor that
is a Small Business Investment Company with such documentation and
certifications as shall be necessary to comply with the rules and regulations of
the Small Business Administration, including appropriate size status
declarations and assurance of compliance declarations.
5.15 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the First
Closing hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to the Investors and
their special counsel, and the Investors and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
6. Conditions of the Company's Obligations at Each Closing. The
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before each Closing of each of the following conditions by
that Investor:
6.1 Representations and Warranties. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the First Closing.
6.2 Payment of Purchase Price. Each Investor shall have
delivered the purchase price specified in Section 1.1(b).
6.3 Performance. Each Investor shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by the Investors on
or before the Closing.
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<PAGE> 18
6.4 Qualifications. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6.5 Restated Articles. The Restated Articles shall have been
duly adopted by the Company's shareholders, and shall have been duly filed with
the Secretary of State of the State of California and become legally effective.
6.6 Amended and Restated Investor Rights Agreement. Each
Investor and the holders of a majority in interest of the Company's Series B,
Series C-1, Series C-2, Series C-3 and Series D Preferred Stock, voting together
as a class, shall have entered into the Amended and Restated Investor Rights
Agreement in the form attached hereto as Exhibit B.
6.7 Amended and Restated Co-Sale Agreement. Each Investor and
Shareholder (as defined therein) shall have entered into the Amended and
Restated Co-Sale Agreement in the form attached hereto as Exhibit C.
7. Miscellaneous.
7.1 Survival of Warranties. The warranties, representations
and covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closings and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
7.2 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 Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties 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.
7.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
7.4 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.
7.5 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.
7.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given to the party so notified in
writing and shall be deemed effectively given upon personal delivery, upon
delivery by confirmed facsimile or
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<PAGE> 19
electronic transmission (with duplicate original sent by United States mail) or
three business days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
7.7 Finder's Fee. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
7.8 Use of Proceeds. The net proceeds to the Company at the
Closings shall be used for working capital, capital expenditures and the
retirement of existing debt. Any use of the net proceeds for an acquisition by
the Company of another corporate or similar entity shall require approval by the
Company's Board of Directors.
7.9 Expenses. Irrespective of whether the Closings are
effected, the Company and each Investor shall each pay their respective costs
and expenses incurred with respect to the negotiation, execution, delivery and
performance of this Agreement. If the First Closing is effected, the Company
shall reimburse the reasonable fees and expenses of special counsel for the
Investors plus reasonable expenses incurred by the Investors to perform due
diligence on the Company, such reimbursements not to exceed $50,000 in the
aggregate. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the Ancillary Agreements or the Restated
Articles, the prevailing party shall be entitled to reasonable attorney's fees,
costs and necessary disbursements in addition to any other relief to which such
party may be entitled.
7.10 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
a majority of the Common Stock issued or issuable upon conversion of the Series
E Preferred Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
7.11 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
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<PAGE> 20
7.12 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.
7.13 Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Series E Preferred
Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By: /s/ SCOTT KAUFFMAN
------------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
FIRST CLOSING INVESTORS: SANDLER CAPITAL IV PARTNERS, L.P.
By: Sandler Capital Management, a General
Partner
By: MJDM Corp., a General Partner
By:_______________________________________
Name:_____________________________________
Title:____________________________________
SANDLER CAPITAL IV FTE PARTNERS, L.P.
By: Sandler Capital Management, a General
Partner
By: MJDM Corp., a General Partner
By:_______________________________________
Name:_____________________________________
Title:____________________________________
Address: __________________________________________
__________________________________________
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Series E Preferred
Stock Purchase Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
------------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
FIRST CLOSING INVESTORS: SANDLER CAPITAL IV PARTNERS, L.P.
By: Sandler Capital Management, a General
Partner
By: MJDM Corp., a General Partner
By: /s/ EDWARD G. GRINACOFF
---------------------------------------
Name: Edward G. Grinacoff
-----------------------------------
Title: President
-----------------------------------
SANDLER CAPITAL IV FTE PARTNERS, L.P.
By: Sandler Capital Management, a General
Partner
By: MJDM Corp., a General Partner
By: /s/ EDWARD G. GRINACOFF
---------------------------------------
Name: Edward G. Grinacoff
-----------------------------------
Title: President
-----------------------------------
Address: 767 Fifth Avenue, 5th Floor
-------------------------------------------
New York, NY 10158
-------------------------------------------
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 23
WHEATLEY PARTNERS, L.P.
By: /s/ [Signature Illegible]
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address:
-----------------------------------------
-----------------------------------------
WHEATLEY FOREIGN PARTNERS, L.P.
By: /s/ [Signature Illegible]
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address:
-----------------------------------------
-----------------------------------------
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 24
WALDEN-SBIC, L.P
By: /s/ GEORGE SARLO
---------------------------------------
George Sarlo
General Partner
WALDEN TECHNOLOGY VENTURES II, L.P.
By: /s/ GEORGE SARLO
---------------------------------------
George Sarlo
General Partner
WALDEN EDB PARTNERS, L.P.
By: /s/ LIP-BU TAN
---------------------------------------
Lip-Bu Tan
General Partner
WALDEN JAPAN PARTNERS, L.P.
By: /s/ LIP-BU TAN
---------------------------------------
Lip-Bu Tan
General Partner
WALDEN MEDIA & INFORMATION TECHNOLOGY, L.P.
By: /s/ STEVE ESKENAZI
---------------------------------------
Steve Eskenazi
General Partner
Address: 750 Battery Street, 7th Floor
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 25
KLEINER PERKINS CAUFIELD & BYERS VIII
By: /s/ BROOK BYERS
---------------------------------------
Brook Byers
General Partner
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By: /s/ BROOK BYERS
---------------------------------------
Brook Byers
General Partner
KPCB JAVA FUND
By: /s/ BROOK BYERS
---------------------------------------
Brook Byers
General Partner
KPCB VIII FOUNDERS FUND
By: /s/ BROOK BYERS
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address: c/o Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025-702
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 26
MULTINVEST LIMITED
By: /s/ PHILIPPE CASES
---------------------------------------
Philippe Cases
Atty-in-fact
PARTECH EUROPE PARTNERS III C.V.
By: /s/ PHILIPPE CASES
---------------------------------------
Name: Philippe Cases
-------------------------------------
Title: General Partner
------------------------------------
AXA U.S. GROWTH FUND LLC
By: /s/ PHILIPPE CASES
---------------------------------------
Name: Philippe Cases
-------------------------------------
Title: Member
------------------------------------
PARRALLEL CAPITAL I LLC
By: /s/ PHILIPPE CASES
---------------------------------------
Name: Philippe Cases
-------------------------------------
Title: Member
------------------------------------
45TH PARRALLEL
By: /s/ PHILIPPE CASES
---------------------------------------
Name: Philippe Cases
-------------------------------------
Title: Member
------------------------------------
Address: c/o Partech International
50 California Street, Suite 3200
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 27
PARTECH U.S. PARTNERS III C.V.
By: /s/ PHILIPPE CASES
---------------------------------------
Philippe Cases
General Partner
PARVEST U.S. PARTNERS II C.V.
By: /s/ PHILIPPE CASES
---------------------------------------
Philippe Cases
Atty-in-fact
DOUBLE BLACK DIAMOND II LLC
By: /s/ PHILIPPE CASES
---------------------------------------
Philippe Cases
Atty-in-fact
ALMANORI LIMITED
By: /s/ PHILIPPE CASES
---------------------------------------
Philippe Cases
Atty-in-fact
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 28
TECHNO VII (A) LIMITED PARTNERSHIP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
TECHNO VII (B) LIMITED PARTNERSHIP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
TECHNO VIII LIMITED PARTNERSHIP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
BROBECK PHLEGER & HARRISON LLP
By: /s/ JOHN DENNISTON
---------------------------------------
Name: John Denniston
-------------------------------------
Title: Partner
------------------------------------
/s/ JOHN DENNISTON
------------------------------------------
John A. Denniston
------------------------------------------
Craig S. Andrews
------------------------------------------
Thomas E. Hornish
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 29
TECHNO VII (A) LIMITED PARTNERSHIP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
TECHNO VII (B) LIMITED PARTNERSHIP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
TECHNO VIII LIMITED PARTNERSHIP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
BROBECK PHLEGER & HARRISON LLP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
------------------------------------------
John A. Denniston
/s/ CRAIG S. ANDREWS
------------------------------------------
Craig S. Andrews
------------------------------------------
Thomas E. Hornish
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 30
TECHNO VII (A) LIMITED PARTNERSHIP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
TECHNO VII (B) LIMITED PARTNERSHIP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
TECHNO VIII LIMITED PARTNERSHIP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
BROBECK PHLEGER & HARRISON LLP
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
------------------------------------------
John A. Denniston
------------------------------------------
Craig S. Andrews
/s/ THOMAS E. HORNISH
------------------------------------------
Thomas E. Hornish
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 31
SECOND CLOSING INVESTORS: INFOTECH VENTURES LTD.
By: /s/ LIP-BU TAN
---------------------------------------
Name: Lip-Bu Tan
-------------------------------------
Title: Director
------------------------------------
O, W & W INVESTMENTS LTD.
By: /s/ LIP-BU TAN
---------------------------------------
Name: Lip-Bu Tan
-------------------------------------
Title: Director
------------------------------------
Address: 750 Battery Street, Suite 700
San Francisco, CA 94111
[SIGNATURE PAGE TO SERIES E PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 32
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF SHARES AGGREGATE
OF SERIES E PURCHASE
INVESTORS PREFERRED STOCK PRICE
--------- --------------- -----
<S> <C> <C>
FIRST CLOSING
Sandler Capital IV Partners, L.P. 3,937,778 $3,544,000.20
Sandler Capital IV FTE Partners, L.P. 1,617,778 $1,456,000.20
Wheatley Partners, L.P. 2,048,658 $1,843,792.20
Wheatley Foreign Partners, L.P. 173,564 $156,207.60
Walden-SBIC, L.P. 186,168 $167,551.20
Walden Technology Ventures II, L.P. 46,514 $41,862.60
Walden EDB Partners, L.P. 68,479 $61,631.10
Walden Japan Partners, L.P. 68,479 $61,631.10
Walden Media & Information Technology 618,304 $556,473.60
KPCB Java Fund 555,556 $500,000.40
Kleiner Perkins Caufield & Byers VIII 498,889 $449,000.10
KPCB Information Sciences Zaibatsu Fund II 27,778 $25,000.20
KPCB VIII Founders Fund 28,889 $26,000.10
Partech U.S. Partners III C.V. 1,444,444 $1,299,999.60
Partech Europe Partners III C.V. 444,444 $399,999.60
Parvest U.S. Partners II C.V. 222,222 $199,999.80
Axa U.S. Growth Fund LLC 1,000,000 $900,000.00
Parallel Capital I LLC 1,111,111 $999,999.90
45th Parallel 55,556 $50,000.40
Double Black Diamond II LLC 32,222 $28,999.80
Almanori Limited 15,556 $14,000.40
Multinvest Limited 7,778 $7,000.20
Techno VII(A) Limited Partnership 109,546 $98,591.40
Techno VII(B) Limited Partnership 500,783 $450,704.70
Techno VIII Limited Partnership 500,783 $450,704.70
Brobeck Phleger & Harrison LLP 80,000 $72,000.00
John A. Denniston 16,375 $14,737.50
Craig S. Andrews 7,368 $6,631.20
Thomas E. Hornish 7,368 $6,631.20
---------- --------------
Subtotal:
SECOND CLOSING
InfoTech Ventures Ltd. 82,152 $73,936.80
O, W & W Investments Ltd. 41,015 $36,913.50
---------- --------------
Subtotal:
TOTALS: 15,555,557 $14,000,001.30
========== ==============
</TABLE>
SCH-A
<PAGE> 33
EXHIBIT A
Amended and Restated Articles of Incorporation
A-1
<PAGE> 34
EXHIBIT B
Amended and Restated Investor Rights Agreements
B-1
<PAGE> 35
EXHIBIT C
Amended and Restated Co-Sale Agreement
C-1
<PAGE> 36
EXHIBIT D
Voting Agreement
D-1
<PAGE> 37
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF ADKNOWLEDGE INC.
A CALIFORNIA CORPORATION
The undersigned Scott Kauffman and Kimberly A. Finder hereby certify
that:
ONE: They are the President and Secretary, respectively, of
AdKnowledge Inc., a California corporation.
TWO: The Articles of Incorporation of this corporation are hereby
amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is AdKnowledge Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. Classes of Stock. This 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 which the corporation shall have
authority to issue is 96,000,000 shares. The total number of shares of Common
Stock which the corporation is authorized to issue is 55,479,522. The total
number of shares of Preferred Stock which the corporation is authorized to issue
is 40,520,478, of which 525,000 shares shall be Series A Preferred Stock,
5,512,000 shares shall be Series B Preferred Stock, 576,192 shares shall be
Series C-1 Preferred Stock, 615,016 shares shall be Series C-2 Preferred Stock,
2,442,366 shares shall be Series C-3 Preferred Stock, 15,138,784 shares shall be
Series D Preferred Stock and 15,711,120 shares shall be Series E Preferred
Stock.
B. Rights, Preferences and Restrictions of the Preferred Stock. The rights,
preferences, privileges and restrictions granted to and imposed on the Preferred
Stock are as set forth below in this Article III(B).
1. Dividend Provisions.
(a) The holders of outstanding shares of Preferred Stock shall be
entitled to receive dividends at the rate of $0.01 per share per annum for the
Series A Preferred Stock, $0.03 per share per annum for the Series B Preferred
Stock, $0.05 per share per annum for the Series C-1 Preferred Stock, $0.21 per
share per annum for the Series C-2 Preferred Stock,
<PAGE> 38
$0.12 per share per annum for the Series C-3 Preferred Stock, $0.04 per share
per annum for the Series D Preferred Stock, and $0.063 per share per annum for
the Series E Preferred Stock, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this corporation) on the Common Stock of this
corporation payable when, as and if declared by the Board of Directors (the
"Board"). Such dividends shall not be cumulative. Declared but unpaid dividends
with respect to an outstanding share of Preferred Stock shall, upon conversion
of such share to Common Stock, be paid to the extent assets are legally
available therefor either in cash or in Common Stock (valued at the fair market
value on the date of payment as determined by the Board). Any amounts for which
such assets are not legally available shall be paid promptly as assets become
legally available therefor.
(b) After payment of any such dividends, any additional
dividends or distributions shall be distributed among all holders of Common
Stock and all holders of Preferred Stock in proportion to the number of shares
of Common Stock which would be held by each such holder if all outstanding
shares of Preferred Stock were converted to Common Stock at the then effective
conversion rate.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding
up of this corporation, either voluntary or involuntary, the holders of the
outstanding shares of Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the corporation to the
holders of Common Stock by reason of their ownership thereof, (i) for the Series
A Preferred Stock, an amount per share equal to $0.20 for each outstanding share
of Series A Preferred Stock, (ii) for the Series B Preferred Stock, an amount
per share equal to $0.4717 for each outstanding share of Series B Preferred
Stock, (iii) for the Series C-1 Preferred Stock, an amount per share equal to
$0.8451 for each outstanding share of Series C-1 Preferred Stock (the "Series
C-1 Liquidation Price"), (iv) for the Series C-2 Preferred Stock, an amount per
share equal to $3.2981 for each outstanding share of Series C-2 Preferred Stock
(the "Series C-2 Liquidation Price"), (v) for the Series C-3 Preferred Stock, an
amount per share equal to $1.9129 for each outstanding share of Series C-3
Preferred Stock (the "Series C-3 Liquidation Price"), (vi) for the Series D
Preferred Stock, an amount per share equal to $0.5543 for each outstanding share
of Series D Preferred Stock (the "Series D Liquidation Price") and (vii) for the
Series E Preferred Stock, an amount per share equal to $0.90 for each
outstanding share of Series E Preferred Stock (the "Series E Liquidation
Price"). If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the outstanding shares of Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the outstanding shares of Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required by
subparagraph (a) of this Section 2, the remaining assets of the corporation
available for distribution to shareholders shall be distributed among the
holders of Preferred Stock and Common Stock pro rata based on the number of
shares of Common Stock held by each (assuming conversion of all
-2-
<PAGE> 39
such outstanding shares of Preferred Stock) until, (i) with respect to the
holders of Series A Preferred Stock, such holders shall have received an
aggregate of $0.80 per share (including amounts paid pursuant to subsection (a)
of this Section 2), (ii) with respect to the holders of Series B Preferred
Stock, such holders shall have received an aggregate of $1.8868 per share
(including amounts paid pursuant to subsection (a) of this Section 2), (iii)
with respect to the holders of Series C-1 Preferred Stock, such holders shall
have received an aggregate of $3.3804 per share (including amounts paid pursuant
to subsection (a) of this Section 2), (iv) with respect to the holders of Series
C-2 Preferred Stock, such holders shall have received an aggregate of $13.1924
per share (including amounts paid pursuant to subsection (a) of this Section 2),
(v) with respect to the holders of Series C-3 Preferred Stock, such holders
shall have received an aggregate of $7.6516 per share (including amounts paid
pursuant to subsection (a) of this Section 2), (vi) with respect to the holders
of Series D Preferred Stock, such holders shall have received an aggregate of
$2.2172 per share (including amounts paid pursuant to subsection (a) of this
Section 2) and (vii) with respect to the holders of Series E Preferred Stock,
such holders shall have received an aggregate of $3.60 per share (including
amounts paid pursuant to subsection (a) of this Section 2); thereafter, if
assets remain in this corporation, the holders of the Common Stock of this
corporation shall receive all of the remaining assets of this corporation pro
rata based on the number of shares of Common Stock held by each.
(c) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include, (A) the acquisition of the corporation by another entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's shareholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration
received by the corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not subject to an investment letter
or other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or
through NASDAQ-NMS, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three (3) days prior to the closing;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty-day period ending three (3) days prior
to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by the
corporation and the holders
-3-
<PAGE> 40
of at least a majority of the voting power of all then outstanding shares of
Preferred Stock, voting together as a single class.
(B) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a shareholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market value determined as above in (A) (1), (2) or (3) to reflect the
approximate fair market value thereof, as mutually determined by the corporation
and the holders of at least a majority of the voting power of all then
outstanding shares of Preferred Stock, voting together as a single class.
(iii) In the event the requirements of this subsection
2(c) are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such
time as the requirements of this subsection 2(c) have been complied with; or
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of outstanding shares of
Preferred Stock shall revert to and be the same as such rights, preferences and
privileges existing immediately prior to the date of the first notice referred
to in subsection 2(c)(iv) hereof.
(iv) The corporation shall give each holder of record
of Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of a majority
of the voting power of all then outstanding shares of Preferred Stock that are
entitled to such notice rights or similar notice rights, voting together as a
single class.
(v) The rights granted pursuant to this subsection 2(c)
are in addition to the rights granted pursuant to Section 5 herein.
3. Redemption. The Preferred Stock is not redeemable.
4. Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Effective
-4-
<PAGE> 41
Issue Price (as defined below) for such series of Preferred Stock by the
Conversion Price applicable to such series, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion. The Effective
Issue Price for the Series A Preferred Stock shall be $0.20 per share; the
Effective Issue Price for the Series B Preferred Stock shall be $0.4717 per
share; the Effective Issue Price for the Series C-1 Preferred Stock and Series
C-2 Preferred Stock shall be $0.8451 per share; the Effective Issue Price for
the Series C-3 Preferred Stock shall be $1.9129 per share; the Effective Issue
Price for the Series D Preferred Stock shall be $0.5543 per share; and the
Effective Issue Price for the Series E Preferred Stock shall be $0.90 per share.
The initial Conversion Price per share for each series shall be the Effective
Issue Price for such series; provided, however, that the Conversion Price shall
be subject to adjustment as set forth in subsection 4(d).
(b) Automatic Conversion. Each share of Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for the respective series of Preferred Stock
immediately upon the earlier of (A) except as provided below in subsection 4(c),
the corporation's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which was not less than $2.70 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and $10 million in the aggregate or (B) the date specified by
written consent or agreement of (i) the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series C-3 Preferred
Stock and Series D Preferred Stock, voting together as a single class and (ii)
the holders of at least 51% of the then outstanding shares of Series E Preferred
Stock.
(c) Mechanics of Conversion. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of this corporation or of any transfer agent for such Preferred
Stock, and shall give written notice to this corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock upon conversion of such Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for
Certain Dilutive Issuances, Splits and Combinations. The Conversion Price of the
Series A, Series B,
-5-
<PAGE> 42
Series C-1, Series C-2, Series C-3, Series D and Series E Preferred Stock shall
be subject to adjustment from time to time as follows:
(i) (A) (1) With respect to the issuance of any shares
of the Series D Preferred Stock only, if the corporation shall issue, or be
deemed to have issued, any shares of Series D Preferred Stock without
consideration or for a consideration per share less than the Conversion Price
for the Series A, Series B, Series C-1 and/or Series C-2 Preferred Stock in
effect immediately prior to the issuance of such shares of Series D Preferred
Stock, the Conversion Price of the Series A, Series B, Series C-1 and/or Series
C-2 Preferred Stock in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause d(i)) be adjusted to a
price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock
that the aggregate consideration received by the corporation for such issuance
would purchase at such Conversion Price and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of such Series D Preferred Stock.
(2) With respect to the issuance of any
shares of the Series D Preferred Stock only, if the corporation shall issue, or
be deemed to have issued, any shares of Series D Preferred Stock without
consideration or for a consideration per share less than the Conversion Price
for the Series C-3 Preferred Stock in effect immediately prior to the issuance
of such shares of Series D Preferred Stock, the Conversion Price for the Series
C-3 Preferred Stock in effect immediately prior to the each such issuance shall
forthwith (except as otherwise provided in this clause d(i)) be adjusted to a
price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock
that the aggregate consideration received by the corporation for such issuance
would purchase at such Conversion Price and the denominator of which shall be
the lesser of, or, if both such clauses are equal, then the denominator shall be
equal to, (I) the number of shares of Common Stock outstanding immediately prior
to such issuance plus the number of shares of such Series D Preferred Stock or
(II) the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock that the aggregate
consideration received by the corporation for such issuance would purchase at
twenty-five thirty-seconds (25/32) of the Effective Issue Price for the Series
C-3 Preferred Stock (adjusted solely for calculations under this clause
(d)(i)(A)(2) to reflect subsequent stock dividends, stock splits or
recapitalizations).
(3) Except with respect to the issuance, or
deemed issuance, of any shares of the Series D Preferred Stock (which is
provided for in the immediately preceding clauses d(i)(A)(1) and d(i)(A)(2)), if
the corporation shall issue, after the date upon which any shares of the Series
E Preferred Stock were first issued (the "Purchase Date"), any Additional Stock
(as defined below) without consideration or for a consideration per share less
than the Conversion Price for the Series A, Series B, Series C-1, Series C-2,
Series C-3, Series D and/or Series E Preferred Stock in effect immediately prior
to the issuance of such Additional Stock, the Conversion Price of the Series A,
Series B, Series C-1, Series C-2, Series C-3, Series D and/or Series E Preferred
Stock in effect immediately prior to each such issuance
-6-
<PAGE> 43
shall forthwith (except as otherwise provided in this clause d(i)) be adjusted
to a price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock
that the aggregate consideration received by the corporation for such issuance
would purchase at such Conversion Price and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for any
series of Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of 3 years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subsections (E)(3)
and (E)(4), no adjustment of such Conversion Price pursuant to this subsection
4(d)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board irrespective of any accounting treatment.
(E) In the case of the issuance (whether before,
on or after the Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by the corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for (assuming the
satisfaction
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<PAGE> 44
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number
of shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of each series of Preferred Stock to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of each series of Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock, or any obligation to issue any share of stock or other security of the
corporation convertible into or exchangeable for Common Stock, issued (or deemed
to have been issued pursuant to subsection 4(d)(i)(E)) by this corporation after
the Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof;
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<PAGE> 45
(B) shares of Common Stock issuable or issued to
employees, consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this corporation directly or pursuant to a stock
option plan or restricted stock plan approved by the Board at any time when the
total number of shares of Common Stock so issuable or issued (and not
repurchased at cost by the corporation in connection with the termination of
employment) does not exceed 8,042,060 (including 5,872,894 shares of Common
Stock issuable upon exercise of options outstanding as of the Purchase Date);
(C) Common Stock issued upon conversion of shares
of Preferred Stock;
(D) up to 100,000 shares of Common Stock issued to
banks or equipment lessors, provided such issuances are for other than primarily
equity financing purposes and are approved by the Board;
(E) up to 250,000 shares of Common Stock issued in
connection with business combinations or corporate partnering agreements
approved by the Board; and
(F) shares of Series D Preferred Stock.
(iii) In the event the corporation should at any time
or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the Conversion Price of each series of Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase in
the aggregate number of shares of Common Stock outstanding and those issuable
with respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for each series of Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in the aggregate number of shares of Common Stock outstanding.
(e) Other Distributions. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the
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<PAGE> 46
holders of Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of the corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of
Preferred Stock shall thereafter be entitled to receive upon conversion of such
series of Preferred Stock the number of shares of stock or other securities or
property of the corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion of the Preferred Stock would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 4 with respect to the rights
of the holders of Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price then
in effect and the number of shares issuable upon conversion of the Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
(g) No Impairment. This corporation will not, by amendment
of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock and against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of a series of Preferred Stock pursuant to
this Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of such Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price for such series of Preferred Stock at
the time in effect, and (C) the number of shares of Common Stock and the
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<PAGE> 47
amount, if any, of other property which at the time would be received upon the
conversion of such series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by
this corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least 20 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, this corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to these Articles of
Incorporation.
(k) Notices. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his or her address appearing on the books
of this corporation.
5. Voting Rights.
(a) The holder of each outstanding share of Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock and shall be entitled, notwithstanding any
provision hereof, to notice of any shareholders' meeting in accordance with the
bylaws of this corporation, and shall be entitled to vote, together with holders
of Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote. Fractional votes shall not, however, be permitted and
any fractional voting rights available on an as-converted basis (after
aggregating all shares into which such outstanding shares of Preferred Stock
held by each holder could be converted) shall be rounded to the nearest whole
number (with one-half being rounded upward).
(b) Notwithstanding the provisions of Section 5(a) above, so
long as 2,650,000 shares of Series B Preferred Stock remain outstanding (as
adjusted for subsequent stock splits, recapitalizations and the like), the
holders of Series B Preferred Stock, voting as a
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<PAGE> 48
separate class, shall be entitled to elect one (1) director of the corporation
(the "Series B Director"). At any meeting held for the purpose of electing or
nominating directors, the presence in person or by proxy of the holders of a
majority of the Series B Preferred Stock then outstanding shall constitute a
quorum of the Series B Preferred Stock for the election or nomination of the
Series B Director. A vacancy in the directorship elected solely by the holders
of Series B Preferred Stock shall be filled only by vote of the holders of
Series B Preferred Stock.
(c) Notwithstanding the provisions of Section 5(a) above, so
long as 7,216,309 shares of Series D Preferred Stock remain outstanding (as
adjusted for subsequent stock splits, recapitalizations and the like), the
holders of Series D Preferred Stock, voting as a separate class, shall be
entitled to elect one (1) director of the corporation (the "Series D Director").
At any meeting held for the purpose of electing or nominating directors, the
presence in person or by proxy of the holders of a majority of the Series D
Preferred Stock then outstanding shall constitute a quorum of the Series D
Preferred Stock for the election or nomination of the Series D Director. A
vacancy in the directorship elected solely by the holders of Series D Preferred
Stock shall be filled only by vote of the holders of Series D Preferred Stock.
(d) Notwithstanding the provisions of Section 5(a) above, so
long as 25% of the shares of Series E Preferred Stock outstanding on the date of
the original issuance thereof remain outstanding (as adjusted for subsequent
stock splits, recapitalizations and the like), the holders of Series E Preferred
Stock, voting as a separate class, shall be entitled to elect one (1) director
of the corporation (the "Series E Director"). At any meeting held for the
purpose of electing or nominating directors, the presence in person or by proxy
of the holders of a majority of the Series E Preferred Stock then outstanding
shall constitute a quorum of the Series E Preferred Stock for the election or
nomination of the Series E Director. A vacancy in the directorship elected
solely by the holders of Series E Preferred Stock shall be filled only by vote
of the holders of Series E Preferred Stock, and the holders of the Series E
Preferred Stock shall be entitled to remove the Series E Director, with or
without cause.
6. Protective Provisions.
(a) So long as at least twenty-five percent (25%) of the
shares of any series of Preferred Stock remain outstanding, this corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of a majority of the then outstanding shares of
Series A, Series B, Series C-1, Series C-2, Series C-3, Series D and Series E
Preferred Stock, voting together as a single class:
(i) sell, convey, or otherwise dispose of or encumber
all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any transaction or
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<PAGE> 49
series of related transactions in which more than fifty percent (50%) of the
voting power of the corporation is disposed of;
(ii) alter or change the rights, preferences or
privileges of the shares of any series of Preferred Stock so as to adversely
affect the shares;
(iii) authorize or issue, or obligate itself to issue,
any other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, any then existing series of Preferred Stock with respect to voting,
dividends, redemption or upon liquidation; or
(iv) amend the corporation's Articles of Incorporation
or bylaws.
(b) So long as at least twenty-five percent (25%) of the
shares of Series E Preferred Stock remain outstanding, this corporation shall
not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least 51% of the then outstanding shares
of Series E Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the shares of Series E Preferred Stock so as to adversely affect
the shares; or
(ii) authorize or issue, or obligate itself to issue,
any other equity security, including any other security convertible into or
exercisable for, any equity security having a preference over, or being on a
parity with, the Series E Preferred Stock, but junior to any other series of
Preferred Stock, with respect to voting, dividends, redemption or upon
liquidation.
7. Status of Converted Stock. In the event any shares of
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be cancelled and shall not be issuable by the corporation. The
Articles of Incorporation of this corporation shall be appropriately amended to
effect the corresponding reduction in the corporation's authorized capital
stock.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when, as and if
declared by the Board, out of any assets of the corporation legally available
therefor, such dividends as may be declared from time to time by the Board.
2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article III.
3. Redemption. The Common Stock is not redeemable.
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<PAGE> 50
4. Voting Rights. Except as provided herein with respect to the
rights of the Preferred Stock or any series thereof to vote as a separate class
or series on any matter, the holder of each share of Common Stock shall have the
right to one vote, and shall be entitled to notice of any shareholders' meeting
in accordance with the bylaws of this corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.
ARTICLE IV
A. The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
B. The corporation is authorized, to the fullest extent permissible under
California law, to provide indemnification of agents (as defined in Section 317
of the California Corporations Code) through bylaw provisions, agreements with
the agents, vote of shareholders or disinterested directors, or otherwise in
excess of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject only to applicable limits set forth in
Section 204 of the California Corporations Code with respect to actions for
breach of duty to the corporation and its shareholders.
* * *
THREE: The foregoing amendment and restatement has been approved by
the Board.
FOUR: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of the corporation in accordance with
Sections 902 and 903 of the California General Corporation Law; the total number
of outstanding shares of each class entitled to vote with respect to the
foregoing amendment and restatement was 5,292,135 shares of Common Stock,
525,000 shares of Series A Preferred Stock, 5,512,000 shares of Series B
Preferred Stock, 569,525 shares of Series C-1 Preferred Stock, 605,122 shares of
Series C-2 Preferred Stock, 2,282,730 shares of Series C-3 Preferred Stock and
14,432,618 shares of Series D Preferred Stock. The number of shares voting in
favor of the foregoing amendment and restatement equaled or exceeded the vote
required, such required vote being (a) a majority of the outstanding shares of
Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C-1
Preferred Stock, Series C-2 Preferred Stock, Series C-3 Preferred Stock and
Series D Preferred Stock, voting together as a single class, (b) a majority of
the outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C-1 Preferred Stock, Series C-2 Preferred Stock, Series C-3 Preferred
Stock and Series D Preferred Stock, voting together as a single class, and (c) a
majority of the outstanding shares of Common Stock, voting as a single class.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 51
IN WITNESS WHEREOF, the undersigned have executed this certificate on
______________, 1999.
_____________________________________
Scott Kauffman, President
_____________________________________
Kimberly A. Finder, Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Amended and Restated Articles of Incorporation and know the
contents thereof, and that the statements therein are true.
Executed at Palo Alto, California, on __________, 1999.
_____________________________________
Scott Kauffman, President
_____________________________________
Kimberly A. Finder, Secretary
[SIGNATURE PAGE TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF ADKNOWLEDGE INC.]
<PAGE> 52
AMENDED AND RESTATED CO-SALE AGREEMENT
This Amended and Restated Co-Sale Agreement (the "Agreement") is made
this 10th day of February, 1999 by and among AdKnowledge Inc., a California
corporation (the "Company"), the holders of shares of the Company's Common Stock
listed on Exhibit A hereto (the "Shareholders," which term includes each
Shareholder's heirs, executors, guardians, successors and assigns), and the
holders of the Company's Series D Preferred Stock and Series E Preferred Stock
listed on Exhibit B hereto (the "Investors").
WHEREAS, each of the Shareholders is the beneficial owner of the number
of shares of the Company's Common Stock listed on Exhibit A hereto (the "Stock,"
which term for purposes of this Agreement also includes any additional shares of
Common Stock of the Company now owned or hereafter acquired by any Shareholder).
WHEREAS, certain of the Investors hold shares of the Company's Series D
Preferred Stock ("Series D Investors") and are parties to a Co-Sale Agreement
dated March 4, 1998, between the Company, each of the Shareholders and the
Series D Investors (the "Prior Agreement").
WHEREAS, certain of the Investors (the "Series E Investors") and the
Company are parties to the Series E Preferred Stock Purchase Agreement of even
date herewith, which provides for the sale and issuance of the Series E
Preferred Stock to such Series E Investors.
WHEREAS, in order to induce the Company to enter into the Series E
Preferred Stock Purchase Agreement and to induce the Series E Investors to
invest funds in the Company pursuant to the Series E Preferred Stock Purchase
Agreement, the Investors, the Shareholders and the Company agree that the Prior
Agreement shall be amended and restated by this Agreement and this Agreement
shall govern the rights of the Investors, Shareholders and the Company as to the
certain matters set forth herein in accordance with Section 6.2 of the Prior
Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties agree as follows:
1. Definitions.
(a) "Preferred Stock" shall mean the Company's outstanding Series
A, Series B, Series C-1, Series C-2, Series C-3, Series D and Series E Preferred
Stock.
(b) "Common Stock" shall mean (i) the Company's Common Stock,
(ii) shares of Common Stock issued or issuable upon conversion of the Company's
outstanding Preferred Stock, (iii) shares of Common Stock issuable upon exercise
of outstanding options to the extent such options are then exercisable and/or
the stock issuable thereupon would not be subject to repurchase by the Company,
and (iv) shares of Common Stock issuable upon conversion of any outstanding
convertible securities.
<PAGE> 53
2. Sales by Shareholders.
(a) Subject to any right of first refusal in favor of the
Company, if any Shareholder proposes to sell or transfer any shares of Stock in
one or more related transactions which will result in (i) the transfer of 50,000
or more shares of Stock by such Shareholder or (ii) the transferee of such
shares holding more than fifty percent (50%) of the Common Stock, then such
Shareholder shall promptly give written notice (the "Notice") to the Company and
to the Investors at least twenty (20) days prior to the closing of such sale or
transfer. The Notice shall describe in reasonable detail the proposed sale or
transfer including, without limitation, the number of shares of Stock to be sold
or transferred, the nature of such sale or transfer, the consideration to be
paid, and the name and address of each prospective purchaser or transferee. In
the event that the sale or transfer is being made pursuant to the provisions or
paragraph 3(a) or 3(b) hereof, the Notice shall state under which paragraph the
sale or transfer is being made.
(b) Each Investor shall have the right, exercisable upon written
notice to such Shareholder within ten (10) days after receipt of the Notice, to
participate in such sale of Stock on the same terms and conditions. To the
extent one or more of the Investors exercise such right of participation in
accordance with the terms and conditions set forth below, the number of shares
of Stock that the Shareholder may sell in the transaction shall be
correspondingly reduced.
(c) Each Investor may sell all or any part of that number of
shares of Stock equal to the product obtained by multiplying (i) the aggregate
number of shares of Stock covered by the Notice by (ii) a fraction the numerator
of which is the number of shares of Common Stock owned by the Investor at the
time of the sale or transfer and the denominator of which is the total number of
shares of Common Stock outstanding at the time of the sale or transfer.
(d) If any Investor fails to elect to fully participate in such
Shareholder's sale pursuant to this Section 2, the Shareholder shall promptly
give notice of such failure to the Investors who did so elect (the
"Participants"). Such notice may be made by telephone if confirmed in writing
within two (2) days. The Participants shall have five (5) days from the date
such notice was given to agree to sell their pro rata share of the unsold
portion. For purposes of this paragraph, a Participant's pro rata share of an
unsold portion shall be the ratio of (x) the number of shares of Common Stock
held by such Participant to (y) the total number of shares of Common Stock held
by all the Participants and the Shareholder.
(e) Each Participant shall effect its participation in the sale
by promptly delivering to the Shareholder for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer, which
represent:
(i) the type and number of shares of Common Stock which such
Participant elects to sell; or
(ii) that number of shares of Series D Preferred Stock or
Series E Preferred Stock which is at such time convertible into the number of
shares of Common
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<PAGE> 54
Stock which such Participant elects to sell; provided, however, that if the
prospective purchaser objects to the delivery of Series D Preferred Stock or
Series E Preferred Stock in lieu of Common Stock, such Participant shall convert
such Preferred Stock into Common Stock and deliver Common Stock as provided in
subparagraph 2(e)(i) above. The Company agrees to make any such conversion
concurrent with the actual transfer of such shares to the purchaser.
(f) The stock certificate or certificates that the Participant
delivers to the Shareholder pursuant to paragraph 2(e) shall be transferred to
the prospective purchaser in consummation of the sale of the Stock pursuant to
the terms and conditions specified in the Notice, and the Shareholder shall
concurrently therewith remit to such Participant that portion of the sale
proceeds to which such Participant is entitled by reason of its participation in
such sale. To the extent that any prospective purchaser or purchasers prohibits
such assignment or otherwise refuses to purchase shares or other securities from
a Participant exercising its rights of co-sale hereunder, the Shareholder shall
not sell to such prospective purchaser or purchasers any Stock unless and until,
simultaneously with such sale, the Shareholder shall purchase such shares or
other securities from such Participant for the same consideration and on the
same terms and conditions as the proposed transfer described in the Notice.
(g) The exercise or non-exercise of the rights of the
Participants hereunder to participate in one or more sales of Stock made by the
Shareholder shall not adversely affect their rights to participate in subsequent
sales of Stock subject to paragraph 2(a).
(h) If none of the Investors elect to participate in the sale of
the Stock subject to the Notice, the Shareholder may, not later than sixty (60)
days following delivery to the Company and each of the Investors of the Notice,
conclude a transfer of not less than all of the Stock covered by the Notice on
terms and conditions not more favorable to the transferor than those described
in the Notice. Any proposed transfer on terms and conditions more favorable than
those described in the Notice, as well as any subsequent proposed transfer of
any of the Stock by the Shareholder, shall again be subject to the co-sale
rights of the Investors and shall require compliance by the Shareholder with the
procedures described in this Section 2.
3. Exempt Transfers.
(a) Notwithstanding the foregoing, the co-sale rights of the
Investors shall not apply to (i) any pledge of Stock made pursuant to a bona
fide loan transaction that creates a mere security interest, (ii) any transfer
to the ancestors, descendants or spouse or to trusts for the benefit of such
persons or a Shareholder; or (iii) any bona fide gift; provided that (A) the
transferring Shareholder shall inform the Investors of such pledge, transfer or
gift prior to effecting it and (B) the pledgee, transferee or donee shall
furnish the Investors with a written agreement to be bound by and comply with
all provisions of this Agreement. Such transferred Stock shall remain "Stock"
hereunder, and such pledgee, transferee or donee shall be treated as a
"Shareholder" for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 2
shall not apply to the sale of any Stock (i) to the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), (ii) to the Company pursuant to a stock restriction
3
<PAGE> 55
agreement between the Shareholder and the Company which provides the Company
with the right to repurchase such Stock upon the occurrence of certain events,
or (iii) if prior to such sale, the Shareholder held less than five percent (5%)
of the Company's outstanding shares or the Shareholders collectively held less
than ten percent (10%) of the Company's outstanding shares.
4. Prohibited Transfers.
(a) In the event a Shareholder should sell any Stock in
contravention of the co-sale rights of the Investors under this agreement (a
"Prohibited Transfer"), the Investors, in addition to such other remedies as may
be available at law, in equity or hereunder, shall have the put option provided
below, and the Shareholder shall be bound by the applicable provisions of such
option.
(b) In the event of a Prohibited Transfer, each Investor shall
have the right to sell to the Shareholder the type and number of shares of Stock
equal to the number of shares each Investor would have been entitled to transfer
to the purchaser under Section 2(c) hereof had the Prohibited Transfer been
effected pursuant to and in compliance with the terms hereof. Such sale shall be
made on the following terms and conditions:
(i) The price per share at which the shares are to be sold
to the Shareholder shall be equal to the price per share paid by the purchaser
to the Shareholder in the Prohibited Transfer. The Shareholder shall also
reimburse each Investor for any and all fees and expense, including legal fees
and expenses, incurred pursuant to the exercise or the attempted exercise of the
Investor's rights under Section 2.
(ii) Within ninety (90) days after the later of the dates on
which the Investor (A) received notice of the Prohibited Transfer or (B)
otherwise become aware of the Prohibited Transfer, each Investor shall, if
exercising the option created hereby, deliver to the Shareholder the certificate
or certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) The Shareholder shall, upon receipt of the certificate
or certificates for the shares to be sold by an Investor, pursuant to this
subparagraph 4(b), pay the aggregate purchase price therefor and the amount of
reimbursable fees and expenses, as specified in subparagraph 4(b)(i), in cash or
by other means acceptable to the Investor.
(iv) Notwithstanding the foregoing, any attempt by a
Shareholder to transfer Stock in violation of Section 2 hereof shall be void and
the Company agrees it will not effect such a transfer nor will it treat any
alleged transferee as the holder of such shares without the written consent of a
majority in interest of the Investors.
5. Legend.
(a) Each certificate representing shares of Stock now or
hereafter owned by the Shareholders or issued to any person in connection with a
transfer pursuant to Section 3(a) hereof shall be endorsed with the following
legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF
4
<PAGE> 56
THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED CO-SALE AGREEMENT BY
AND BETWEEN THE SHAREHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF
STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
(b) Each Shareholder agrees that the Company may instruct its
transfer agent to impose transfer restrictions on the shares represented by
certificates bearing the legend referred to in Section 5(a) above to enforce the
provisions of this Agreement and the Company agrees to promptly do so. The
legend shall be removed upon termination of this Agreement.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
6.2 Amendment. Any provision may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (i) as to the
Company, only by the Company, (ii) as to the Investors, by persons holding more
than fifty percent (50%) in interest of the Common Stock held by the Investors
and their assignees, pursuant to Section 6.3 hereof, and (iii) as to each
Shareholder, such Shareholder, provided that any Investor may waive any of his
rights hereunder without obtaining the consent of any other Investor. Any
amendment or waiver effected in accordance with clauses (i), (ii) and (iii) of
this paragraph shall be binding upon each Investor, its successors and assigns,
the Company and the Shareholder in question.
6.3 Assignment of Rights. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
The rights of the Investors hereunder are only assignable (i) by each of such
Investors to any other Investor or (ii) to an assignee or transferee who
acquires all of the Common Stock purchased by an Investor or at least 50,000
shares of Common Stock.
6.4 Term. This Co-Sale Agreement shall terminate upon the earlier
of (i) the closing of a firm commitment underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of the Company's Common Stock at a price
per share of not less than $2.70 (as adjusted for stock splits, reverse stock
splits and the like effected after the date of this Agreement) and an aggregate
offering price of not less than $10,000,000, (ii) the closing of the Company's
sale of all or substantially all of its assets or the acquisition of the Company
by another entity by means of merger or consolidation resulting in the exchange
of the outstanding shares of the Company's capital stock for securities or
consideration issued, or caused to be issued, by the acquiring entity or its
subsidiary, (iii) such time as the Investors and their assignees, pursuant to
Section 6.3
5
<PAGE> 57
hereof, hold an aggregate of less than 5,000,000 shares of Common Stock, and
(iv) the execution by the Company of a general assignment for the benefit of
creditors or the appointment of a receiver or trustee to take possession of the
property and assets of the Company.
6.5 Ownership. Each Shareholder represents and warrants that he
is the sole legal and beneficial owner of the shares of stock subject to this
Agreement and that no other person has any interest (other than a community
property interest) in such shares.
6.6 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given upon personal delivery to the
party to be notified or five (5) days after deposit in the United States mail,
by registered or certified mail, postage prepaid and properly addressed to the
party to be notified as set forth on the signature page hereof or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties hereto. Notwithstanding the foregoing, the telephone notice
permitted by Section 2(d) shall be effective at the time it is given.
6.7 Severability. In the event one or more of the provisions of
this Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
6.8 Attorney Fees. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
6.9 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.
6.10 Stock Split. All references to numbers of shares in this
Agreement shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
6.11 Aggregation of Stock. All shares of Common 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 58
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
ADKNOWLEDGE INC.
By:
------------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
INVESTORS: SANDLER CAPITAL IV PARTNERS, L.P.
By: Sandler Capital Management, a
General Partner
By: MJDM Corp., a General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
SANDLER CAPITAL IV FTE PARTNERS, L.P.
By: Sandler Capital Management, a
General Partner
By: MJDM Corp., a General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address:
-------------------------------------------
-------------------------------------------
[SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT]
<PAGE> 59
WHEATLEY PARTNERS, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address:
-------------------------------------------
-------------------------------------------
WHEATLEY FOREIGN PARTNERS, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address:
-------------------------------------------
-------------------------------------------
[SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT]
<PAGE> 60
WALDEN-SBIC, L.P
By:
------------------------------------
George Sarlo
General Partner
WALDEN TECHNOLOGY VENTURES II, L.P.
By:
------------------------------------
George Sarlo
General Partner
WALDEN EDB PARTNERS, L.P.
By:
------------------------------------
Lip-Bu Tan
General Partner
WALDEN JAPAN PARTNERS, L.P.
By:
------------------------------------
Lip-Bu Tan
General Partner
WALDEN MEDIA & INFORMATION TECHNOLOGY, L.P.
By:
------------------------------------
Steve Eskenazi
General Partner
Address: 750 Battery Street, 7th Floor
San Francisco, CA 94111
[SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT]
<PAGE> 61
KLEINER PERKINS CAUFIELD & BYERS VIII
By:
------------------------------------
Brook Byers
General Partner
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By:
------------------------------------
Brook Byers
General Partner
KPCB JAVA FUND
By:
------------------------------------
Brook Byers
General Partner
KPCB VIII
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
KPCB VIII FOUNDERS FUND
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: c/o Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025-702
[SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT]
<PAGE> 62
PARTECH U.S. PARTNERS III C.V.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
PARVEST U.S. PARTNERS II C.V.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
DOUBLE BLACK DIAMOND II LLC
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
ALMANORI LIMITED
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
MULTINVEST LIMITED
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
[SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT]
<PAGE> 63
PARTECH EUROPE PARTNERS III C.V.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
AXA U.S. GROWTH FUND LLC
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
PARRALLEL CAPITAL I LLC
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
45TH PARRALLEL
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: c/o Partech International
50 California Street, Suite 3200
San Francisco, CA 94111
[SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT]
<PAGE> 64
TECHNO VII (A) LIMITED PARTNERSHIP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
TECHNO VII (B) LIMITED PARTNERSHIP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
TECHNO VIII LIMITED PARTNERSHIP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
BROBECK PHLEGER & HARRISON LLP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
---------------------------------------
John A. Denniston
---------------------------------------
Craig S. Andrews
---------------------------------------
Thomas E. Hornish
[SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT]
<PAGE> 65
INFOTECH VENTURES LTD.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
O, W & W INVESTMENTS LTD.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: 750 Battery Street, Suite 700
San Francisco, CA 94111
[SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT]
<PAGE> 66
MAYFIELD VII
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
MAYFIELD ASSOCIATES FUND II
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
MAYFIELD SOFTWARE PARTNERS
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: c/o Mayfield Fund
2800 Sand Hill Road, #250
Menlo Park, CA 94025
[SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT]
<PAGE> 67
SHAREHOLDERS:
--------------------------------------------------
Scott Kauffman
Address:
-------------------------------------------
-------------------------------------------
---------------------------------------------------
Thi Thumasathit
Address:
-------------------------------------------
-------------------------------------------
[SIGNATURE PAGE TO AMENDED AND RESTATED CO-SALE AGREEMENT]
<PAGE> 68
Exhibit A
Shareholder List
Scott Kauffman
<PAGE> 69
Exhibit B
Investor List
Sandler Capital IV Partners, L.P.
Sandler Capital IV FTE Partners, L.P.
GEO Capital
Kleiner Perkins Caulfield & Byers VIII
KPCB Info Sciences Zaibatsu II
KPCB Java Fund
KPCB VIII
KPCB VIII Founders Fund
Mayfield VII
Mayfield Associates Fund II
Mayfield Software Partners
Walden-SBIC, L.P.
Walden Technology Ventures II, L.P.
Walden EDB Partners, L.P.
Walden Japan Partners, L.P.
Walden Media & Info. Tech.
Partech U.S. Partners III C.V.
Parvest U.S. Partners II C.V.
Double Black Diamond II LLC
Almanori Limited
Multinvest Limited
Partech Europe Partners III C.V.
Axa U.S. Growth Fund LLC
Parallel Capital I LLC
45th Parallel
Techno VII (A) Limited Partnership
Techno VII (B) Limited Partnership
Techno VIII Limited Partnership
Brobeck Phleger & Harrision LLP
John A. Denniston
Craig S. Andrews
Thomas E. Hornish
InfoTech Ventures Ltd.
Asian Venture Capital Investment Corp.
TWG Investment LDC
O, W & W Investments Ltd.
<PAGE> 70
CONSENT OF SPOUSE
I, __________________________, the spouse of _______________________,
one of the shareholders referred to as a "Shareholder" in the foregoing Amended
and Restated Co-Sale Agreement, dated February ___, 1999, acknowledge that I
have read the foregoing Agreement and that I know its contents. I am aware that
by its provisions if I and/or my spouse agree to sell all or part of the shares
of the Company held of record by either or both of us, including my community
interest in such shares, if any, co-sale rights (as described in the Agreement)
must be granted to the Investors (as defined in the Agreement) by the seller. I
hereby agree that those shares and my interest in them, if any, are subject to
the provisions of the Agreement and that I will take no action at any time to
hinder operation of, or violate, the Agreement.
Signature: _____________________
Effective: February ___, 1999 Print Name _____________________
<PAGE> 71
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made as of the 10th day of
February 1999, by and among AdKnowledge Inc., a California corporation (the
"Company") and the persons identified on Exhibit A attached hereto (the "Series
E Investors").
RECITALS
A. The Series E Investors desire to purchase shares of the Company's
Series E Preferred Stock (the "Series E Shares") and the Company desires to sell
such shares to the Series E Investors;
B. The Company and the Series E Investors acknowledge that they are
entering into this Agreement as an inducement to and in consideration of the
purchase of the Series E Shares by the Series E Investors pursuant to that
certain Series E Preferred Stock Purchase Agreement dated as of the date hereof
among the Company and the Series E Investors (the "Purchase Agreement").
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:
1. Agreement to Vote for Sandler Capital IV Partners, L.P. Nominee.
a. During the term of this Agreement, each of the Series E
Investors agrees to vote all of the Series E Shares now or hereafter owned by it
to elect to the Company's Board of Directors the nominee (the "Sandler Nominee")
of Sandler Capital IV Partners, L.P. ("Sandler") to fill that director seat to
be elected by the holders of the Series E Shares in accordance with the
Company's Articles of Incorporation.
b. Prior to each election of directors of the Company, Sandler
shall designate the Sandler Nominee in writing to the Company. The Company shall
promptly notify each of the Series E Investors of such nominee. Any vacancy
occurring because of the death, resignation, removal or disqualification of the
Sandler Nominee shall be filled according to this Section 1.
c. During the term of this Agreement, Sandler may, in its sole
discretion, elect to remove from the Company's Board of Directors any incumbent
Sandler Nominee who occupies a board seat and/or designate a new Sandler Nominee
for election to such board seat. In the event of such a removal and/or
designation of a new Sandler Nominee under this subsection, the Series E
Investors shall vote their shares of the Company's capital stock as provided in
this Section 1 to cause: (i) the removal from the Company's Board of Directors
of the Sandler Nominee so designated for removal by Sandler and (ii) the
election to the Company's Board of Directors of any new Sandler Nominee so
designated for election to the Company's Board of Directors by Sandler.
<PAGE> 72
2. Covenants of the Company and Series E Investors. The Company and the
Series E Investors agree to use their reasonable efforts to ensure that the
rights given to the Series E Investors hereunder are effective. Such reasonable
efforts shall include, without limitation, the use of the Company's reasonable
efforts to cause the nomination of the Sandler Nominee to be elected as the
directors of the Company at each election of the Board of Directors. Neither the
Company nor the Series E Investors shall, by any voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be performed
hereunder by the Company or the Series E Investors, respectively, but shall at
all times in good faith assist in the carrying out of all of the provisions of
this Agreement and shall use their reasonable efforts to protect the respective
rights of each party hereto against impairment.
3. Successor and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the executors, administrators, legal
representatives, heirs, successors and assigns of the parties hereto; provided,
however, that any transferee of any shares of stock of the Company affected by
this Agreement shall be required, as a condition precedent to acquiring such
shares, to first agree in writing to be bound by all the terms and conditions of
this Agreement applicable to such transferee's transferor; and, provided
further, that no rights under this Agreement may be assigned apart from the
related shares of the Company's capital stock.
4. Legends. Each certificate representing Series E Preferred Stock of
the Company that is subject to this Agreement shall be endorsed by the Company
with the following legend:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT (A COPY
OF WHICH MAY BE OBTAINED FROM THE ISSUER), AND BY ACCEPTING ANY
INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE
DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID
VOTING AGREEMENT.
5. Other Rights. Except as provided by this Agreement, each Series E
Investor shall exercise the full voting rights of a shareholder with respect to
the Series E Shares.
6. Termination. This Agreement shall terminate upon the earlier of (i)
the consummation of the Company's initial public offering on a firm underwriting
basis, (ii) the closing of a consolidation or merger of the Company with or into
any other corporation or corporations, or a sale, conveyance or disposition of
all or substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed, or (iii) ten (10) years from
the date of this Agreement.
7. Amendments and Waivers. Any term hereof may be amended and the
observance of any term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and (a) with respect to the rights of Sandler, Sandler;
or (b) with respect to the rights of the Series E Investors, the holders of a
majority of the Series E Shares then held by the Series E Investors. Any
amendment
-2-
<PAGE> 73
or waiver so effected shall be binding upon the Company, Sandler and
all of the Series E Investors and their successors and permitted assigns.
8. Entire Agreement. This Agreement constitutes the entire agreement
among the parties with regard to the subject hereof, and this Agreement
supersedes any and all prior negotiations, correspondence, understandings and
agreements among the parties respecting the subject matter hereof.
9. 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 held to 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
Agreement.
10. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
11. Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified by hand or
professional courier service, five (5) days after deposit with the United States
Post Office, by registered or certified mail, postage prepaid, or one (1) day
after deposit with a nationally recognized overnight delivery service, postage
prepaid, and addressed to the party to be notified at the address indicated for
such party on the signature page hereof, or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties.
12. Equitable Remedies. The Company and the Series E Investors each
acknowledge and agree that the legal remedies available to each party in the
event any party violates the covenants and agreements made in this Agreement
would be inadequate and that each party shall be entitled, without posting any
bond or other security, to temporary, preliminary, and permanent injunctive
relief, specific performance and other equitable remedies in the event of such a
violation, in addition to any other remedies which such party may have at law or
in equity.
13. Counterparts. This Agreement may be executed in any number
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE> 74
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year hereinabove first written.
THE COMPANY:
ADKNOWLEDGE INC.
By:
------------------------------------
Scott L. Kauffman,
Chief Executive Officer
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
SERIES E INVESTORS: SANDLER CAPITAL IV PARTNERS, L.P.
By: Sandler Capital Management, a
General Partner
By: MJDM Corp., a General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
SANDLER CAPITAL IV FTE PARTNERS, L.P.
By: Sandler Capital Management, a
General Partner
By: MJDM Corp., a General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address:
-------------------------------------------
-------------------------------------------
[SIGNATURE PAGE TO VOTING AGREEMENT]
<PAGE> 75
WHEATLEY PARTNERS, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address:
-------------------------------------------
-------------------------------------------
WHEATLEY FOREIGN PARTNERS, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address:
-------------------------------------------
-------------------------------------------
[CONTINUED SIGNATURE PAGE TO VOTING AGREEMENT]
<PAGE> 76
WALDEN-SBIC, L.P
By:
------------------------------------
George Sarlo
General Partner
WALDEN TECHNOLOGY VENTURES II, L.P.
By:
------------------------------------
George Sarlo
General Partner
WALDEN EDB PARTNERS, L.P.
By:
------------------------------------
Lip-Bu Tan
General Partner
WALDEN JAPAN PARTNERS, L.P.
By:
------------------------------------
Lip-Bu Tan
General Partner
WALDEN MEDIA & INFORMATION TECHNOLOGY, L.P.
By:
------------------------------------
Steve Eskenazi
General Partner
Address: 750 Battery Street, 7th Floor
San Francisco, CA 94111
[CONTINUED SIGNATURE PAGE TO VOTING AGREEMENT]
<PAGE> 77
KLEINER PERKINS CAUFIELD & BYERS VIII
By:
------------------------------------
Brook Byers
General Partner
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By:
------------------------------------
Brook Byers
General Partner
KPCB JAVA FUND
By:
------------------------------------
Brook Byers
General Partner
KPCB VIII FOUNDERS FUND
By:
------------------------------------
Address: c/o Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025-702
[CONTINUED SIGNATURE PAGE TO VOTING AGREEMENT]
<PAGE> 78
PARTECH U.S. PARTNERS III C.V.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
PARVEST U.S. PARTNERS II C.V.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
DOUBLE BLACK DIAMOND II LLC
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
ALMANORI LIMITED
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
MULTINVEST LIMITED
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
[CONTINUED SIGNATURE PAGE TO VOTING AGREEMENT]
<PAGE> 79
PARTECH EUROPE PARTNERS III C.V.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
AXA U.S. GROWTH FUND LLC
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
PARRALLEL CAPITAL I LLC
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
45TH PARRALLEL
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: c/o Partech International
50 California Street, Suite 3200
San Francisco, CA 94111
[CONTINUED SIGNATURE PAGE TO VOTING AGREEMENT]
<PAGE> 80
TECHNO VII (A) LIMITED PARTNERSHIP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
TECHNO VII (B) LIMITED PARTNERSHIP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
TECHNO VIII LIMITED PARTNERSHIP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
BROBECK PHLEGER & HARRISON LLP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
--------------------------------------
John A. Denniston
--------------------------------------
Craig S. Andrews
--------------------------------------
Thomas E. Hornish
[CONTINUED SIGNATURE PAGE TO VOTING AGREEMENT]
<PAGE> 81
INFOTECH VENTURES LTD.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
O, W & W INVESTMENTS LTD.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: 750 Battery Street, Suite 700
San Francisco, CA 94111
[CONTINUED SIGNATURE PAGE TO VOTING AGREEMENT]
<PAGE> 82
EXHIBIT A
SERIES E INVESTORS
Sandler Capital IV Partners, L.P.
Sandler Capital IV FTE Partners, L.P.
Geo Capital
Walden-SBIC, L.P.
Walden Technology Ventures II, L.P.
Walden EDB Partners, L.P.
Walden Japan Partners, L.P.
Walden Media & Information Technology
KPCB Java Fund
Kleiner Perkins Caufield & Byers VIII
KPCB Information Sciences Zaibatsu Fund II
KPCB VIII Founders Fund
Partech U.S. Partners III C.V.
Partech Europe Partners III C.V.
Parvest U.S. Partners II C.V.
Axa U.S. Growth Fund LLC
Parallel Capital I LLC
45th Parallel
Double Black Diamond II LLC
Almanori Limited
Multinvest Limited
Techno VII(A) Limited Partnership
Techno VII(B) Limited Partnership
Techno VIII Limited Partnership
Brobeck Phleger & Harrison LLP
John A. Denniston
Craig S. Andrews
Thomas E. Hornish
InfoTech Ventures Ltd.
Asian Venture Capital Investment Corp.
TWG Investment LDC
O, W & W Investments Ltd.
<PAGE> 83
ADKNOWLEDGE INC.
VOTING AGREEMENT
FEBRUARY 10, 1999
<PAGE> 84
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Agreement to Vote for Sandler Capital IV Partners, L.P.Nominee...........1
2. Covenants of the Company and Series E Investors..........................2
3. Successor and Assigns....................................................2
4. Legends..................................................................2
5. Other Rights.............................................................2
6. Termination..............................................................2
7. Amendments and Waivers...................................................3
8. Entire Agreement.........................................................3
9. Severability.............................................................3
10. Governing Law............................................................3
11. Notices..................................................................3
12. Equitable Remedies.......................................................3
13. Counterparts.............................................................4
</TABLE>
<PAGE> 1
Exhibit 10.5
ADKNOWLEDGE INC.
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
FEBRUARY 10, 1999
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TABLE OF CONTENTS
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Page
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1. Registration Rights.........................................................1
1.1 Definitions........................................................1
1.2 Request for Registration...........................................2
1.3 Company Registration...............................................4
1.4 Obligations of the Company.........................................4
1.5 Furnish Information................................................5
1.6 Expenses of Registration...........................................6
1.7 Underwriting Requirements..........................................6
1.8 Delay of Registration..............................................7
1.9 Indemnification....................................................7
1.10 Reports Under Securities Exchange Act of 1934......................9
1.11 Form S-3 Registration.............................................10
1.12 Assignment of Registration Rights.................................10
1.13 "Market Stand-Off"Agreement.......................................11
1.14 Termination and/or Suspension of Registration Rights..............11
2. Covenants of the Company...................................................12
2.1 Delivery of Financial Statements..................................12
2.2 Delivery of Additional Information................................12
2.3 Inspection........................................................12
2.4 Termination of Information and Inspection Covenants...............13
2.5 Confidentiality of Information....................................13
2.6 Right of First Offer..............................................13
3. Miscellaneous..............................................................14
3.1 Successors and Assigns............................................14
3.2 Governing Law.....................................................14
3.3 Counterparts......................................................15
3.4 Titles and Subtitles..............................................15
3.5 Notices...........................................................15
3.6 Expenses..........................................................15
3.7 Amendments and Waivers............................................15
3.8 Severability......................................................15
3.9 Aggregation of Stock..............................................16
3.10 Entire Agreement..................................................16
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AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (the "Agreement")
is made as of the 10th day of February, 1999, by and between AdKnowledge Inc., a
California corporation (the "Company"), and the investors listed on Schedule A
hereto, each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, certain of the Investors (the "Existing Investors") hold
shares of the Company's Series A, B, Series C-1, Series C-2, Series C-3 and
Series D Preferred Stock and are parties to an Amended and Restated Investor
Rights Agreement dated March 4, 1998, between the Company and such Existing
Investors (the "Prior Agreement");
WHEREAS, certain of the Investors (the "Series E Investors") and the
Company are parties to the Series E Preferred Stock Purchase Agreement of even
date herewith, which provides for the sale and issuance of Series E Preferred
Stock to such Series E Investors; and
WHEREAS, in order to induce the Company to enter into the Series E
Preferred Stock Purchase Agreement and to induce the Series E Investors to
invest funds in the Company pursuant to the Series E Stock Purchase Agreement,
the Investors and the Company hereby agree that the Prior Agreement shall be
superseded and replaced in its entirety by this Agreement and that this
Agreement shall govern the rights of the Investors to cause the Company to
register shares of Common Stock issuable to the investors and certain other
matters as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission (the "SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.12 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The term "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in
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compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series B, Series C-1, Series C-2,
Series C-3, Series D and/or Series E Preferred Stock, (ii) except with respect
to Sections 1.2 and 1.11, the Common Stock issuable or issued upon conversion of
the Series A Preferred Stock and (iii) any 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 referenced in (i) or (ii)
above, excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which his or her rights under this Section 1 are not
assigned.
(g) 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.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of
(i) February 10, 2004, or (ii) twelve (12) 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 a SEC Rule 145 transaction), a written request from
the Holders of at least thirty percent (30%) of the Registrable Securities then
outstanding that the Company file a registration statement under the Act for a
public offering in which the aggregate proceeds from the offering would exceed
$10,000,000, then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in any event shall
use its best efforts to effect within 120 days of the receipt of such request,
the registration under the Act of all Registrable Securities which the Holders
request to be registered, subject to the limitations of subsection 1.2(b),
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 3.5 below.
(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 subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. 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
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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. 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 President 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 shareholders 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 taking action
with respect to such filing for a period not greater than 90 days after receipt
of the request of the Initiating Holders; provided, however, the Company may not
exercise this deferral right more than once in any twelve (12) 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 registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one 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 1.11 below.
(e) Notwithstanding the foregoing, and provided that none of the
holders of the Common Stock issuable or issued upon conversion of the Series E
Preferred Stock requesting registration pursuant to this Section 1.2(e)
previously participated in either of the two registrations referred to above, if
the Company shall receive a written request from the holders of at least
fifty-one percent (51%) of the Common Stock issuable or issued upon conversion
of the Series E Preferred Stock that the Company file a registration statement
under the Act for a public offering in which the aggregate proceeds from the
offering would exceed $10,000,000, then the
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Company shall, in the same manner as otherwise provided in this Section 1.2,
give written notice to the holders of the Registrable Securities and use its
best efforts to effect a registration of all Registrable Securities which the
Holders request to be registered.
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 shareholders other than the Holders) any of its stock or
other securities 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, a registration on
any form which 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 or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), 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 hereof, the Company shall, subject to the
provisions of Section 1.7 hereof, 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 a period of up to ninety (90) days.
(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.
(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 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
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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.
(g) Cause all such Registrable Securities registered 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 hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.
(i) Provided such securities are being sold through underwriters,
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, (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 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 and to the Holders requesting registration of Registrable
Securities.
1.5 Furnish Information.
(a) 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 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.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.11 if, due to the
operation of subsection 1.5(a), 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
1.11(b)(2), whichever is applicable.
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1.6 Expenses of Registration. The Company shall bear and pay all
expenses incurred in connection with a registration requested pursuant to
Sections 1.2, 1.3 and 1.11, including without limitation, all registration,
filing and qualification fees, printer's and accounting fees and the Company's
legal fees, but excluding underwriter discounts and commissions relating to the
Registrable Securities and the fees and disbursements of counsel for the selling
Holders; 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; provided further that if such
withdrawal is due to a material adverse change in the business of the Company
that the Holders were not previously aware of at the time of their request and
the Holders withdraw their request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Holders
shall not be required to pay any such expenses and shall not forfeit as provided
above any rights to one demand registration pursuant to Section 1.2.
1.7 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 shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible 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, which 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 shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities in which
case the selling shareholders may be excluded if the underwriters make the
determination described above and no other shareholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a shareholder
exercising a demand registration right similar to that granted in Section 1.2 be
excluded from such offering or (iii) the Company limit the number of Registrable
Securities to be included in a registration pursuant to this Agreement in order
to include shares held by shareholders with no registration rights. For purposes
of the preceding sentence concerning apportionment, for any selling shareholder
which is a holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and shareholders 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 shareholder," and any pro-rata reduction with respect to such
"selling shareholder" shall be based upon the
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aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "selling shareholder," as defined in this
sentence.
1.8 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.
1.9 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 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the Act,
or the 1934 Act or other federal or state securities laws, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) 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 1934 Act, other federal or state
securities laws, or any rule or regulation promulgated under the Act, the 1934
Act or other federal or state securities laws; and the Company will pay to each
such Holder, underwriter or controlling person 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 1.9(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.
(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 1934 Act or other federal or state
securities laws, 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 any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 1.9(b), in connection
with investigating or defending any such loss, claim, damage, liability or
action;
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provided, however, that the indemnity agreement contained in this subsection
1.9(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 1.9(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 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 1.9, 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 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
1.9, but the omission so to 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 1.9. No indemnifying party, in the defense of
any such claim or litigation, shall, except with the consent of each indemnified
party, consent to entry of any judgment or entry into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party a release from all liability in respect to
such claim or litigation.
(d) If the indemnification provided for in this Section 1.9 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. 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.
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(f) The obligations of the Company and Holders under this Section
1.9 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 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;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act;
(c) 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 1934 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 (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;
and
(d) take such action as is necessary to allow the Holders to use
Form S-3.
1.11 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders 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 1.11: (1) if Form S-3 is
not available for such offering by the Holders; (2)
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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
$500,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President 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 shareholders 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 not greater than 90 days
after receipt of the request of the Holder or Holders under this Section 1.11;
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 1.11; (5) if
the Company has already effected three registrations on Form S-3 for the Holders
pursuant to this Section 1.11; or (6) 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. Registrations effected pursuant to this
Section 1.11 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.12 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 of such securities who, after such assignment or transfer, holds at
least 100,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided: (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 transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.13 below,
and (c) 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.
1.13 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
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 which was not acquired directly in the
public market or in a public offering by the Company, except common stock
included in such registration; provided, however, that:
10
<PAGE> 13
(a) all executive officers and directors of the Company enter
into similar agreements; and
(b) such market stand-off time period shall not exceed 180 days.
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.
1.14 Termination and/or Suspension of Registration Rights. No Holder
shall be entitled to exercise any right provided for in this Section 1, and all
such rights shall (i) terminate 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 and/or (ii) be suspended on
such date after the closing of such sale of securities as all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any 90-day period and shall
remain suspended as long as all such shares of Registrable Securities may be
sold under Rule 144 during any 90-day period.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver to
each 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, a statement of shareholder's
equity as of the end of such year, and a statement of cash flows for such year,
which reports shall be in reasonable detail, prepared in accordance with
generally accepted accounting principles ("GAAP") and audited by nationally
recognized independent accountants;
(b) as soon as practicable, but in any event within forty-five
(45) 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, an unaudited balance
sheet, an unaudited statement of cash flows and a statement of shareholder's
equity as of the end of such fiscal quarter; and
(c) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request; provided, however, that
the Company shall not be obligated under this subsection (c) or any other
subsection of Section 2.1 to provide information which it deems in good faith to
be a trade secret or similar confidential information.
2.2 Delivery of Additional Information. The Company shall deliver to
each Holder who holds at least 500,000 shares of Registrable Securities:
(a) within twenty (20) days of the end of each month, an
unaudited income statement, statement of cash flows and balance sheet for and as
of the end of such month,
11
<PAGE> 14
in reasonable detail; provided, however, that the Company's obligation under
this subsection 2.2(a) shall not commence until the end of the third month from
the date hereof; and
(b) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a business plan for the next fiscal year.
2.3 Inspection. The Company shall permit each Investor, at such
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 Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.3 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information;
provided, further, that the Investors coordinate their visitations and
inspections so as to minimize the disruptions and interruptions to the Company.
2.4 Termination of Information and Inspection Covenants. The covenants
set forth in subsections 2.2(a) and (b) and Section 2.3 shall terminate as to
Investors and be of no further force or effect when the 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 is consummated or when the Company first becomes subject to
the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.5 Confidentiality of Information. The information provided pursuant
to Sections 2.1 and 2.2 shall be used by each Holder or any permitted assignee
of each Holder solely in furtherance of its interests as an investor in the
Company, and such Holder and any permitted assignee of such Holder shall
maintain the confidentiality of all information of the Company obtained under
Sections 2.1 and 2.2, unless such information (i) was known by such Holder or
permitted assignee prior to its disclosure to them by the Company, (ii) is
disclosed to such Holder or permitted assignee without restriction as a matter
of right by a third party not affiliated with or working for the Company, or
(iii) has become publicly available through no fault of such Investor or
permitted assignee. Notwithstanding the foregoing, a Holder may disclose, if
applicable, (i) to Holder's general and limited partners, or (ii) Holder's Board
of Directors or executive officers such information provided that such general
or limited partners, or such Board of Directors or executive officers agree to
be bound by the terms of this Section 2.5.
2.6 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.6, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.6, an Investor includes
any general partners and affiliates of an Investor. An Investor shall be
entitled to apportion the right of first offer hereby granted it among itself
and its partners and 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
12
<PAGE> 15
Company shall first make an offering of such Shares to each Investor in
accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investor 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 20 calendar days after receipt of the Notice, the
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 of the Series B, Series C-1, Series C-2, Series C-3,
Series D or Series E Preferred Stock then held, by such Investor bears to the
total number of shares of Common Stock of the Company then outstanding (assuming
full conversion of all convertible securities), issued and held, or issuable
upon conversion of the Series B, Series C-1, Series C-2, Series C-3, Series D or
Series E Preferred Stock, then held by all Investors. The Company shall
promptly, in writing, inform each Investor that purchases all the shares
available to it ("Fully-Exercising Investor") of any other Investor's failure to
do likewise. During the ten-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares for which Investors were entitled to subscribe but which
were not subscribed for by the Investors which is equal to the proportion that
the number of shares of Common Stock issued and held, or issuable upon
conversion of Series B, Series C-1, Series C-2, Series C-3, Series D or Series E
Preferred Stock then held, by such Fully-Exercising Investor bears to the total
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series B, Series C-1, Series C-2, Series C-3, Series D or Series E Preferred
Stock then held, by all Fully-Exercising Investors who wish to purchase some of
the unsubscribed shares.
(c) If all Shares which Investors are entitled to obtain pursuant
to subsection 2.6(b) are not elected to be obtained as provided in subsection
2.6(b) hereof, the Company may, during the 60-day period following the
expiration of the period provided in subsection 2.6(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable 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 30
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
Investors in accordance herewith.
(d) The right of first offer in this Section 2.6 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor) to Company employees, directors, officers, or consultants for the
primary purpose of soliciting or retaining their employment or services, (ii) to
or after consummation of a bona fide, firmly underwritten public offering of
shares of Common Stock, registered under the Act pursuant to registration
statement on Form S-1, (iii) to the issuance of Common Stock pursuant to the
conversion of the Series B, Series C-1, Series C-2, Series C-3, Series D or
Series E Preferred Stock, 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.
13
<PAGE> 16
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 shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
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 shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
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 under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, (ii) five
(5) days following deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties, or (iii) facsimile with confirmed receipt.
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 (i) the holders of a majority of the
Registrable Securities then outstanding and (ii) the holders of at least
fifty-one percent (51%) of the shares of the Series E Preferred Stock then
outstanding with respect to any amendment or waiver adversely affecting the
rights of the Series E Preferred 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, whether or not such holder consented to
such amendment or waiver.
14
<PAGE> 17
3.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities 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
3.10 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.
[Remainder of This Page Intentionally Left Blank]
15
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Investor
Rights Agreement as of the date first above written.
COMPANY: ADKNOWLEDGE INC.
By:
------------------------------------
Scott Kauffman
President
Address: 2191 Bayshore, Suite 100
Palo Alto, CA 94303
SERIES E INVESTORS AND/OR SANDLER CAPITAL IV PARTNERS, L.P.
EXISTING INVESTORS By: Sandler Capital Management, a
General Partner
By: MJDM Corp., a General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
SANDLER CAPITAL IV FTE PARTNERS, L.P.
By: Sandler Capital Management, a General
Partner
By: MJDM Corp., a General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address:
-------------------------------------------
-------------------------------------------
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 19
WHEATLEY PARTNERS, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address:
-------------------------------------------
-------------------------------------------
WHEATLEY FOREIGN PARTNERS, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address:
-------------------------------------------
-------------------------------------------
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 20
KLEINER PERKINS CAUFIELD & BYERS VIII
By:
------------------------------------
Brook Byers
General Partner
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By:
------------------------------------
Brook Byers
General Partner
KPCB JAVA FUND
By:
------------------------------------
Brook Byers
General Partner
KPCB VIII FOUNDERS FUND
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: c/o Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025-702
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 21
WALDEN-SBIC, L.P
By:
------------------------------------
George Sarlo
General Partner
WALDEN TECHNOLOGY VENTURES II, L.P.
By:
------------------------------------
George Sarlo
General Partner
WALDEN EDB PARTNERS, L.P.
By:
------------------------------------
Lip-Bu Tan
General Partner
WALDEN JAPAN PARTNERS, L.P.
By:
------------------------------------
Lip-Bu Tan
General Partner
WALDEN MEDIA & INFORMATION TECHNOLOGY, L.P.
By:
------------------------------------
Steve Eskenazi
General Partner
Address: 750 Battery Street, 7th Floor
San Francisco, CA 94111
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 22
PARTECH U.S. PARTNERS III C.V.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
PARVEST U.S. PARTNERS II C.V.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
DOUBLE BLACK DIAMOND II LLC
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
ALMANORI LIMITED
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
MULTINVEST LIMITED
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 23
PARTECH EUROPE PARTNERS III C.V.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
AXA U.S. GROWTH FUND LLC
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
PARRALLEL CAPITAL I LLC
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
45TH PARRALLEL
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: c/o Partech International
50 California Street, Suite 3200
San Francisco, CA 94111
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 24
TECHNO VII (A) LIMITED PARTNERSHIP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
TECHNO VII (B) LIMITED PARTNERSHIP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
TECHNO VIII LIMITED PARTNERSHIP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
BROBECK PHLEGER & HARRISON LLP
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
---------------------------------------
John A. Denniston
---------------------------------------
Craig S. Andrews
---------------------------------------
Thomas E. Hornish
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 25
INFOTECH VENTURES LTD.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
O, W & W INVESTMENTS LTD.
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: 750 Battery Street, Suite 700
San Francisco, CA 94111
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 26
MAYFIELD VII
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
MAYFIELD ASSOCIATES FUND II
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
MAYFIELD SOFTWARE PARTNERS
By:
------------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: c/o Mayfield Funds
2800 Sand Hill Road, #250
Menlo Park, CA 94025
[SIGNATURE PAGE TO AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT]
<PAGE> 27
SCHEDULE A
INVESTORS
Kleiner Perkins Caufield & Byers VIII
KPCB VIII Founders Fund
KPCB Information Sciences Zaibatsu Fund II
KPCB Java Fund
Fah-Chun Cheong
Thomas Churchill
Chih-Chao Lam
Chih-Ming Lam
Dale Thoms
Ken Tidwell
Andrew Kwee
Chi Kiong Chen
Ping Chen
Mayfield VII
Mayfield Associates Fund II
Mayfield Solftware Partners
CMP Media, Inc.
Allen L. Morgan
WS Investment Company 95B
Walden-SBIC, L.P.
Walden Technology Ventures II, L.P.
Walden EDB Partners, L.P.
Walden Japan Partners, L.P.
Walden Media & Info. Tech.
Partech U.S. Partners III C.V.
Partech Europe Partners III C.V
Parvest U.S. Partners II C.V.
Axa U.S. Growth Fund LLC
Parallel Capital I LLC
45th Parallel
Double Black Diamond II LLC
Almanori Limited
Multinvest Limited
InfoTech Ventures Ltd.
Asian Venture Capital Investment Corp.
TWG Investment LDC
O, W & W Investments Ltd.
Sandler Capital IV Partners, L.P.
Sandler Capital IV FTE Partners, L.P.
Geo Capital
Techno VII(A) Limited Partnership
Techno VII(B) Limited Partnership
A-1
<PAGE> 28
Techno VIII Limited Partnership
Brobeck Phleger & Harrison LLP
John A. Denniston
Craig S. Andrews
Thomas E. Hornish
A-2
<PAGE> 1
EXHIBIT 10.21
1996 STOCK OPTION PLAN
OF
CLICKOVER, INC.
1. PURPOSES OF THE PLAN
The purposes of the 1996 Stock Option Plan (the "Plan") of
ClickOver, Inc., a California corporation (the "Company"), are to:
(a) Encourage selected employees, directors and consultants to
improve operations and increase profits of the Company;
(b) Encourage selected employees, directors and consultants to
accept or continue employment or association with the Company or its Affiliates;
and
(c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") may be "incentive
stock options" ("ISOs") intended to satisfy the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a full-time
employee of the Company or of any Affiliate (as defined below) of the Company is
eligible to receive NQOs or ISOs under this Plan. Every person who at the date
of grant is a consultant to, or non-employee director of, the Company or any
Affiliate (as defined below) of the Company is eligible to receive NQOs under
this Plan. The term "Affiliate" as used in the Plan means a parent or subsidiary
corporation as defined in the applicable provisions (currently Sections 424(e)
and (f), respectively) of the Code. The term "employee" includes an officer or
director who is an employee, of the Company. The term "consultant" includes
persons employed by, or otherwise affiliated with, a consultant.
3. STOCK SUBJECT TO THIS PLAN
Subject to the provisions of Section 6.1.1 of the Plan, the total
number of shares of stock which may be issued under options granted pursuant to
this Plan shall not exceed 3,321,592 shares of Common Stock. The shares covered
by the portion of any grant under the Plan which expires unexercised shall
become available again for grants under the Plan.
4. ADMINISTRATION
(a) This Plan shall be administered by the Board of Directors of
the Company (the "Board") or, either in its entirety or only insofar as required
pursuant to Section 4(b) hereof, by a committee (the "Committee") of at least
two Board members to which
<PAGE> 2
administration of the Plan, or of part of the Plan, is delegated (in either
case, the "Administrator").
(b) From and after such time as the Company registers a class of
equity securities under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), it is intended that this Plan shall be
administered in accordance with the disinterested administration requirements of
Rule 16b-3 promulgated by the Securities and Exchange Commission ("Rule 16b-3"),
or any successor rule thereto.
(c) Subject to the other provisions of this Plan, the
Administrator shall have the authority, in its discretion: (i) to grant Options;
(ii) to determine the fair market value of the Common Stock subject to Options;
(iii) to determine the exercise price of Options granted; (iv) to determine the
persons to whom, and the time or times at which, Options shall be granted, and
the number of shares subject to each Option; (v) to interpret this Plan; (vi) to
prescribe, amend, and rescind rules and regulations relating to this Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) the exercise
date of any Option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an Option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
(d) All questions of interpretation, implementation, and
application of this Plan shall be determined by the Administrator. Such
determinations shall be final and binding on all persons.
(e) With respect to persons subject to Section 16 of the Exchange
Act, if any, transactions under this Plan are intended to comply with the
applicable conditions of Rule 16b-3, or any successor rule thereto. To the
extent any provision of this Plan or action by the Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator. Notwithstanding the above, it shall be
the responsibility of such persons, not of the Company or the Administrator, to
comply with the requirements of Section 16 of the Exchange Act; and neither the
Company nor the Administrator shall be liable if this Plan or any transaction
under this Plan fails to comply with the applicable conditions of Rule 16b-3 or
any successor rule thereto, or if any such person incurs any liability under
Section 16 of the Exchange Act.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan after ten years
from the date of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written stock option
agreement, in form satisfactory to the Company, executed by the Company and the
person to whom such Option is granted; provided, however, that the failure by
the Company, the optionee,
-2-
<PAGE> 3
or both to execute such an agreement shall not invalidate the granting of an
Option, although the exercise of each option shall be subject to Section 6.1.3.
(c) The stock option agreement shall specify whether each Option
it evidences is a NQO or an ISO.
(d) Subject to Section 6.3.3 with respect to ISOs, the
Administrator may approve the grant of Options under this Plan to persons who
are expected to become employees, directors or consultants of the Company, but
are not employees, directors or consultants at the date of approval.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms
and conditions set forth in Section 6.1. NQOs shall be also subject to the terms
and conditions set forth in Section 6.2, but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All
Options granted under this Plan shall be subject to the following terms and
conditions:
6.1.1 Changes in Capital Structure. Subject to Section
6.1.2, if the stock of the Company is changed by reason of a stock split,
reverse stock split, stock dividend, or recapitalization, combination or
reclassification, appropriate adjustments shall be made by the Board in (a) the
number and class of shares of stock subject to this Plan and each Option
outstanding under this Plan, and (b) the exercise price of each outstanding
Option; provided, however, that the Company shall not be required to issue
fractional shares as a result of any such adjustments. Each such adjustment
shall be subject to approval by the Board in its sole discretion.
6.1.2 Corporate Transactions. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
optionee at least 30 days prior to such proposed action. To the extent not
previously exercised, all Options will terminate immediately prior to the
consummation of such proposed action. In the event of a merger or consolidation
of the Company with or into another corporation or entity in which the Company
does not survive, or in the event of a sale of all or substantially all of the
assets of the Company in which the shareholders of the Company receive
securities of the acquiring entity or an affiliate thereof, all Options shall be
assumed or equivalent options shall be substituted by the successor corporation
(or other entity) or a parent or subsidiary of such successor corporation (or
other entity). If such successor does not agree to assume the Options or to
substitute equivalent options therefor, unless the Administrator shall determine
otherwise, the Options will expire upon such event.
6.1.3 Time of Option Exercise. Subject to Section 5 and
Section 6.3.4, Options granted under this Plan shall be exercisable (a)
immediately as of the effective date of the stock option agreement granting the
Option, or (b) in accordance with a schedule related to the date of the grant of
the option, the date of first employment, or such other date as may be set by
the Administrator (in any case, the "Vesting Base Date") and specified in the
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<PAGE> 4
written stock option agreement relating to such Option; provided, however, that
the right to exercise an Option must vest at the rate of at least 20% per year
over five years from the date the Option was granted. In any case, no Option
shall be exercisable until a written stock option agreement in form satisfactory
to the Company is executed by the Company and the optionee.
6.1.4 Option Grant Date. Except in the case of advance
approvals described in Section 5(d), the date of grant of an Option under this
Plan shall be the date as of which the Administrator approves the grant.
6.1.5 Nonassignability of Option Rights. No Option granted
under this Plan shall be assignable or otherwise transferable by the optionee
except by will or by the laws of descent and distribution. During the life of
the optionee, an Option shall be exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full,
in cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is given to the Company, and proceeds of any payment shall
constitute general funds of the Company. At the time an Option is granted or
exercised, the Administrator, in the exercise of its absolute discretion after
considering any tax or accounting consequences, may authorize any one or more of
the following additional methods of payment:
(a) Acceptance of the optionee's full recourse
promissory note for all or part of the Option price, payable on such terms and
bearing such interest rate as determined by the Administrator (but in no event
less than the minimum interest rate specified under the Code at which no
additional interest would he imputed), which promissory note may be either
secured or unsecured in such manner as the Administrator shall approve
(including, without limitation, by a security interest in the shares of the
Company); and
(b) Delivery by the optionee of Common Stock
already owned by the optionee for all or part of the Option price, provided the
value (determined as set forth in Section 6.1.11) of such Common Stock is equal
on the date of exercise to the Option price, or such portion thereof as the
optionee is authorized to pay by delivery of such stock; provided, however, that
if an optionee has exercised any portion of any Option granted by the Company by
delivery of Common Stock, the optionee may not, within six months following such
exercise, exercise any Option granted under this Plan by delivery of Common
Stock without the consent of the Administrator.
6.1.7 Termination of Employment.
(a) If for any reason other than death or
disability, an optionee ceases to be employed by the Company or any of its
Affiliates (such event being called a "Termination"), Options held at the date
of Termination (to the extent then exercisable) may be exercised in whole or in
part at any time within three months of the date of such Termination, or such
other period of not less than thirty days after the date of such Termination as
is specified in the Option Agreement (but in no event after the Expiration
Date); provided, that if such exercise of the Option would result in liability
for the optionee under Section 16(b) of the Exchange Act, then such three-month
period automatically shall be extended until the tenth day following the
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<PAGE> 5
last date upon which optionee has any liability under Section 16(b) (but in no
event after the Expiration Date).
(b) If an optionee dies while employed by the
Company or an Affiliate or within the period that the Option remains exercisable
after Termination, Options then held (to the extent then exercisable) may be
exercised, in whole or in part, by the optionee, by the optionee's personal
representative, or by the person to whom the Option is transferred by devise or
the laws of descent and distribution, at any time within twelve months after the
death of the optionee, or such other period of not less than six months from the
date of Termination as is specified in the Option Agreement (but in no event
after the Expiration Date).
(c) If an optionee ceases to be employed by the
Company as a result of his or her disability, the optionee may, but only within
six (6) months from the date of Termination (and in no event after the
Expiration Date), exercise the Option to the extent otherwise entitled to
exercise it at the date of Termination; provided, however, that if such
disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code, in the case of an ISO such ISO shall automatically convert to an NQO
on the day three months and one day following such Termination. To the extent
that the optionee was not entitled to exercise the Option at the date of
Termination or if the optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) For purposes of this Section 6.1.7,
"employment" includes service as a director or as a consultant. For purposes of
this Section 6.1.7, an optionee's employment shall not be deemed to terminate by
reason of sick leave, military leave, or other leave of absence approved by the
Administrator, if the period of any such leave does not exceed 90 days or, if
longer, if the optionee's right to reemployment by the Company or any Affiliate
is guaranteed either contractually or by statute.
6.1.8 Repurchase of Stock. At the option of the
Administrator, the stock to be delivered pursuant to the exercise of any Option
granted to an employee, director or consultant under this Plan may be subject to
a right of repurchase in favor of the Company with respect to any employee, or
director or consultant whose employment, or director or consulting relationship
with the Company is terminated. Such right of repurchase either:
(a) shall be at the Option exercise price and (i)
shall lapse at the rate of at least 20% per year over five years from the date
the Option is granted (without regard to the date it becomes exercisable), and
must be exercised for cash or cancellation of purchase money indebtedness within
90 days of such termination and (ii) if the right is assignable by the Company,
the assignee must pay the Company upon assignment of the right (unless the
assignee is a 100% owned subsidiary of the Company or is an Affiliate) cash
equal to the difference between the Option exercise price and the value
(determined as set forth in Section 6.1.11) of the stock to be purchased if the
Option exercise price is less than such value; or
(b) shall be at the higher of the Option exercise
price or the value (determined as set forth in Section 6.1.11) of the stock
being purchased on the date of
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<PAGE> 6
termination, and must be exercised for cash or cancellation of purchase money
indebtedness within 90 days of termination of employment, and such right shall
terminate when the Company's securities become publicly traded.
Determination of the number of shares subject to any such right
of repurchase shall be made as of the date the employee's employment by,
director's director relationship with, or consultant's consulting relationship
with, the Company terminates, not as of the date that any Option granted to such
employee, director or consultant is thereafter exercised.
6.1.9 Withholding and Employment Taxes. At the time of
exercise of an Option or at such other time as the amount of such obligations
becomes determinable (the "Tax Date"), the optionee shall remit to the Company
in cash all applicable federal and state withholding and employment taxes. If
authorized by the Administrator in its sole discretion after considering any tax
or accounting consequences, an optionee may elect to (i) deliver a promissory
note on such terms as the Administrator deems appropriate, (ii) tender to the
Company previously owned shares of Stock or other securities of the Company, or
(iii) have shares of Common Stock which are acquired upon exercise of the Option
withheld by the Company to pay some or all of the amount of tax that is required
by law to be withheld by the Company as a result of the exercise of such Option,
subject to the following limitations:
(a) Any election pursuant to clause (iii) above by
an optionee subject to Section 16 of the Exchange Act shall either (x) be made
at least six months before the Tax Date and shall be irrevocable; or (y) shall
be made in (or made earlier to take effect in) any ten-day period beginning on
the third business day following the date of release for publication of the
Company's quarterly or annual summary statements of earnings and shall be
subject to approval by the Administrator, which approval may be given at any
time after such election has been made. In addition, in the case of (y), the
Option shall be held at least six months prior to the Tax Date.
(b) Any election pursuant to clause (ii) above,
where the optionee is tendering Common Stock issued pursuant to the exercise of
an Option, shall require that such shares be held at least six months prior to
the Tax Date.
Any of the foregoing limitations may be waived (or
additional limitations may be imposed) by the Administrator, in its sole
discretion, if the Administrator determines that such foregoing limitations are
not required (or that such additional limitations are required) in order that
the transaction shall be exempt from Section 16(b) of the Exchange Act pursuant
to Rule 16b-3, or any successor rule thereto. In addition, any of the foregoing
limitations may be waived by the Administrator, in its sole discretion, if the
Administrator determines that Rule 16b-3, or any successor rule thereto, is not
applicable to the exercise of the Option by the optionee or for any other
reason.
Any securities tendered or withheld in accordance with
this Section 6.1.9 shall be valued by the Company as of the Tax Date.
6.1.10 Other Provisions. Each Option granted under
this Plan may contain such other terms, provisions, and conditions not
inconsistent with this Plan as may be
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<PAGE> 7
determined by the Administrator, and each ISO granted under this Plan shall
include such provisions and conditions as are necessary to qualify the Option as
an "incentive stock option" within the meaning of Section 422 of the Code. If
Options provide for a right of first refusal in favor of the Company with
respect to stock acquired by employees, directors or consultants, such Options
shall provide that the right of first refusal shall terminate upon the earlier
of (i) the closing of the Company's initial registered public offering to the
public generally, or (ii) the date ten years after the grant date as set forth
in Section 6.1.4.
6.1.11 Determination of Value. For purposes of the Plan,
the value of Common Stock or other securities of the Company shall be determined
as follows:
(a) If the stock of the Company is listed on any
established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation 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 largest such exchange) for the date
the value is to be determined (or if there are no sales for such date, then for
the last preceding business day on which there were sales), as reported in the
Wall Street Journal or similar publication.
(b) If the stock of the Company is 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
stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).
(c) In the absence of an established market for the
stock, the fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company's net worth, prospective earning
power, dividend-paying capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in the Company's industry, the
Company's position in the industry and its management, and the values of stock
of other corporations in the same or a similar line of business.
6.1.12 Option Term. Subject to Section 6.3.5, no Option
shall be exercisable more than ten years after the date of grant, or such lesser
period of time as is set forth in the stock option agreement (the end of the
maximum exercise period stated in the stock option agreement is referred to in
this Plan as the "Expiration Date").
6.1.13 Exercise Price. The exercise price of any Option
granted to any person who owns, directly or by attribution under the Code
currently Section 424(d), stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or of any Affiliate
(a "Ten Percent Stockholder") shall in no event be less than 110% of the fair
market value (determined in accordance with Section 6.1.11) of the stock covered
by the Option at the time the Option is granted.
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<PAGE> 8
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:
6.2.1 Exercise Price. Except as set forth in Section
6.1.13, the exercise price of a NQO shall be not less than 85% of the fair
market value (determined in accordance with Section 6.1.11) of the stock subject
to the Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section
6.1.13, the exercise price of an ISO shall be determined in accordance with the
applicable provisions of the Code and shall in no event be less than the fair
market value (determined in accordance with Section 6.1.11) of the stock covered
by the Option at the time the Option is granted.
6.3.2 Disqualifying Dispositions. If stock acquired by
exercise of an ISO granted pursuant to this Plan is disposed of in a
"disqualifying disposition" within the meaning of Section 422 of the Code, the
holder of the stock immediately before the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the Option as the Company may reasonably
require.
6.3.3 Grant Date. If an ISO is granted in anticipation of
employment as provided in Section 5(d), the Option shall be deemed granted,
without further approval, on the date the grantee assumes vesting the employment
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for Options granted on that date.
6.3.4 Vesting. Notwithstanding any other provision of this
Plan, ISOs granted under all incentive stock option plans of the Company and its
subsidiaries may not "vest" for more than $100,000 in fair market value of stock
(measured on the grant dates(s)) in any calendar year. For purposes of the
preceding sentence, an Option "vests" when it first becomes exercisable. If, by
their terms, such ISOs taken together would vest to a greater extent in a
calendar year, and unless otherwise provided by the Administrator, the vesting
limitation described above shall be applied by deferring the exercisability of
those ISOs or portions of ISOs which have the highest per share exercise prices;
but in no event shall more than $100,000 in fair market value of stock (measured
on the grant date(s)) vest in any calendar year. The ISOs or portions of ISOs
whose exercisability is so deferred shall become exercisable on the first day of
the first subsequent calendar year during which they may be exercised, as
determined by applying these same principles and all other provisions of this
Plan including those relating to the expiration and termination of ISOs. In no
event, however, will the operation of this Section 6.3.4 cause an ISO to vest
before its terms or, having vested, cease to be vested.
6.3.5 Term. Notwithstanding Section 6.1.12, no ISO granted
to any Ten Percent Stockholder shall be exercisable more than five years after
the date of grant.
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<PAGE> 9
7. MANNER OF EXERCISE
(a) An optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price as provided in Section 6.1.6. The date the Company
receives written notice of an exercise hereunder accompanied by payment of the
exercise price will be considered as the date such Option was exercised.
(b) Promptly after receipt of written notice of exercise of an
Option, the Company shall, without stock issue or transfer taxes to the optionee
or other person entitled to exercise the Option, deliver to the optionee or such
other person a certificate or certificates for the requisite number of shares of
stock. An optionee or permitted transferee of an optionee shall not have any
privileges as a shareholder with respect to any shares of stock covered by the
Option until the date of issuance (as evidenced by the appropriate entry on the
books of the Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Option granted thereunder shall
interfere with or limit in any way the right of the Company or of any of its
Affiliates to terminate any optionee's employment or consulting at any time, nor
confer upon any optionee any right to continue in the employ of, or consult
with, the Company or any of its Affiliates.
9. FINANCIAL INFORMATION
The Company shall provide to each optionee during the period such
optionee holds an outstanding Option, and to each holder of Common Stock
acquired upon exercise of Options granted under the Plan for so long as such
person is a holder of such Common Stock, annual financial statements of the
Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall include, at a
minimum, a balance sheet and an income statement, and shall be delivered as soon
as practicable following the end of the Company's fiscal year.
10. CONDITIONS UPON ISSUANCE OF SHARES.
Shares of Common Stock shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended (the "Securities Act").
11. NONEXCLUSIVITY OF THE PLAN.
The adoption of the Plan shall not be construed as creating any
limitations on the power of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options other than under the Plan.
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<PAGE> 10
12. MARKET STANDOFF.
Each Optionee, if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the company under the Securities Act shall not
sell or otherwise transfer any shares of Common Stock acquired upon exercise of
Options during the 180-day period following the effective date of a registration
statement of the company filed under the Securities Act; provided, however, that
such restriction shall apply only to the first two registration statements of
the Company to become effective under the Securities Act which 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 restriction
until the end of such 180-day period.
13. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue
this Plan. Without the consent of an optionee, no amendment, alteration,
suspension or discontinuance may adversely affect outstanding Options except to
conform this Plan and ISOs granted under this Plan to the requirements of
federal or other tax laws relating to incentive stock options. No amendment,
alteration, suspension or discontinuance shall require shareholder approval
unless (a) shareholder approval is required to preserve incentive stock option
treatment for federal income tax purposes, or (b) the Board otherwise concludes
that shareholder approval is advisable.
14. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board
provided, however, that no Option shall be exercisable unless and until written
consent of the shareholders of the Company, or approval of shareholders of the
Company voting at a validly called shareholders' meeting, is obtained within 12
months after adoption by the Board. If such shareholder approval is not obtained
within such time, Options granted hereunder shall terminate and be of no force
and effect from and after expiration of such 12-month period. Options may be
granted and exercised under this Plan only after there has been compliance with
all applicable federal and state securities laws.
Plan adopted by the Board of Directors on August 31, 1996.
Plan approved by Shareholders on August 31, 1996.
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EXHIBIT 10.22
CLICKOVER, INC.
STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
(A) Name of Optionee:__________________________________
(B) Grant Date:________________________________________
(C) Number of Shares:__________________________________
(D) Exercise Price:____________________________________
(E) Vesting Base Date:_________________________________
(F) Effective Date:____________________________________
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement"), is made
and entered into as of the date set forth in item F above (the "Effective Date")
between ClickOver, Inc., a California corporation (the "Company") and the person
named in Item A above ("Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option; Vesting.
1.1 Grant. The Company hereby grants to Optionee pursuant
to the Company's Stock Option Plan (the "Plan"), a copy of which is attached to
this Agreement as Exhibit 1, an incentive stock option (the "ISO") to purchase
all or any part of an aggregate of the number of shares (the "ISO Shares") of
the Company's Common Stock (as defined in the Plan) listed in item C above on
the terms and conditions set forth herein and in the Plan, the terms and
conditions of the Plan being hereby incorporated into this Agreement by
reference.
1.2 Vesting Base Date. The parties hereby establish the
date set forth in Item E above as the Vesting Base Date (as defined in Section
5.1 below).
2. Exercise Price. The exercise price for purchase of each share
of Common Stock covered by this ISO shall be the price set forth in Item D
above.
3. Term. Unless otherwise specified on Exhibit 3 attached hereto,
if any (the absence of such exhibit indicating that no such exhibit was
intended), this ISO shall expire as provided in Section 6.1.12 of the Plan.
4. Adjustment of ISOs. The Company shall adjust the number and
kind of shares and the exercise price thereof in certain circumstances in
accordance with the provisions of Section 6.1.1 of the Plan.
5. Exercise of Options.
5.1 Vesting; Time of Exercise. This ISO shall be
exercisable according to the schedule set forth on Exhibit 5.1 attached hereto.
Such schedule shall commence as of the date set forth in Item (E) above (the
"Vesting Base Date").
<PAGE> 2
5.2 Exercise After Termination of Status as an Employee,
Director or Consultant. In the event of termination of Optionee's continuous
status as an employee, director or consultant, this ISO may be exercised only in
accordance with the provisions of Section 6.1.7 of the Plan.
5.3 Manner of Exercise. Optionee may exercise this ISO, or
any portion of this ISO, by giving written notice to the Company at its
principal executive office, to the attention of the officer of the Company
designated by the Plan Administrator, accompanied by a copy of the Stock Option
Plan Stock Purchase Agreement in substantially the form attached hereto as
Exhibit 5.3 executed by Optionee (or at the option of the Company such other
form of stock purchase agreement as shall then be acceptable to the Company),
payment of the exercise price and payment of any applicable withholding or
employment taxes. The date the Company receives written notice of an exercise
hereunder accompanied by payment will be considered as the date this ISO was
exercised.
5.4 Payment. Except as provided in Exhibit 5.4 attached
hereto, if any (the absence of such exhibit indicating that no exhibit was
intended), payment may be made for ISO Shares purchased at the time written
notice of exercise of the ISO is given to the Company, by delivery of cash,
check, previously owned shares of Common Stock (provided that delivery of
previously owned shares may not be made more than once in any six-month period),
or a full recourse promissory note equal to up to 90% of the exercise price and
payable over no more than five years. The proceeds of any payment shall
constitute general funds of the Company.
5.5 Delivery of Certificate. Promptly after receipt of
written notice of exercise of the ISO, the Company shall, without stock issue or
transfer taxes to the Optionee or other person entitled to exercise, deliver to
the Optionee or other person a certificate or certificates for the requisite
number of ISO Shares. An Optionee or transferee of an Optionee shall not have
any privileges as a shareholder with respect to any ISO Shares covered by the
option until the date of issuance of a stock certificate.
6. Nonassignability of ISO. This ISO is not assignable or
transferable by Optionee except by will or by the laws of descent and
distribution. During the life of Optionee, the ISO is exercisable only by the
Optionee. Any attempt to assign, pledge, transfer, hypothecate or otherwise
dispose of this ISO in a manner not herein permitted, and any levy of execution,
attachment, or similar process on this ISO, shall be null and void.
7. Company's Repurchase Rights. The ISO Shares arising from
exercise of this ISO shall be subject to a right of repurchase in favor of the
Company,(the "Right of Repurchase") to the extent set forth on Exhibit 7
attached hereto (the absence of such exhibit indicating that no such exhibit was
intended and that the ISO shall be subject to the limitations set forth on
Exhibit 5-1). If the Optionee's employment with the Company terminates before
the Right of Repurchase lapses in accordance with Exhibit 7, the Company may
purchase ISO Shares subject to the Right of Repurchase (either by payment of
cash or by cancellation of purchase money indebtedness) for an amount equal to
the price the Optionee paid for such ISO Shares (exclusive of any taxes paid
upon acquisition of the stock) by giving notice at any time within the later of
(a) 30 days after the acquisition of the ISO Shares upon option exercise, or (b)
90 days after such termination of employment that the Company is exercising its
right of
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<PAGE> 3
repurchase. The Company shall include with such notice payment in full in cash
or by evidence of cancellation of purchase money indebtedness. The Optionee may
not dispose of or transfer ISO Shares while such shares are subject to the Right
of Repurchase and any such attempted transfer shall be null and void.
8. Company's Right of First Refusal.
8.1 Right of First Refusal. In the event that the Optionee
proposes to sell, pledge, or otherwise transfer any ISO Shares or any interest
in such shares to any person or entity, the Company shall have a right of first
refusal (the "Right of First Refusal") with respect to such ISO Shares. If
Optionee desires to transfer ISO Shares, Optionee shall give a written notice
(the "Transfer Notice") to the Company describing fully the proposed transfer,
including the number of ISO Shares proposed to be transferred, the proposed
transfer price, and the name and address of the proposed transferee. The
Transfer Notice shall be signed both by Optionee and by the proposed transferee
and must constitute a binding commitment of both such parties for the transfer
of such ISO Shares. The Company may elect to purchase all, but not less than
all, of the ISO Shares subject to the Transfer Notice by delivery of a notice of
exercise of the Company's Right of First Refusal within 30 days after the date
the Transfer Notice is delivered to the Company. The purchase price paid by the
Company shall be the price per share equal to the proposed per share transfer
price, and shall be paid to the Optionee within 60 days after the date the
Transfer Notice is received by the Company, unless a longer period for payment
was offered by the proposed transferee, in which case the Company shall pay the
purchase price within such longer period. The Company's rights under this
Section 8.1 shall be freely assignable, in whole or in part. Notwithstanding the
foregoing, the Right of First Refusal does not apply to a transfer of shares by
gift or devise to the Optionee's immediate family (i.e., parents, spouse or
children or to a trust for the benefit of the Optionee or any of the Optionee's
immediate family members), but does apply to any subsequent transfer of such
shares by such immediate family members.
8.2 Transfer of ISO Shares. If the Company fails to
exercise the Right of First Refusal within 30 days after the date the Transfer
Notice is delivered to the Company, the Optionee may, not later than 75 days
following delivery to the Company of the Transfer Notice, conclude a transfer of
the ISO Shares subject to the Transfer Notice on the terms and conditions
described in the Transfer Notice. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed transfer by the Optionee, shall again be subject to the Right of First
Refusal and shall require compliance by the Optionee with the procedure
described in Section 8.1 of this Agreement. If the Company exercises the Right
of First Refusal, the parties shall consummate the sale of ISO Shares on the
terms, other than price, as applicable under Section 8.1, set forth in the
Transfer Notice; provided, however, in the event the Transfer Notice provides
for payment for the ISO Shares other than in cash, the Company shall have the
option of paying for the ISO Shares by paying in cash the present value of the
consideration described in the Transfer Notice; and further provided that if the
value of noncash consideration is to be paid and the Optionee disagrees with the
value determined by the Company, the Optionee may request an independent
appraisal by an appraiser acceptable to the Optionee and the Company, the costs
of such appraisal to be borne equally by the Optionee and the Company.
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<PAGE> 4
8.3 Binding Effect. The Right of First Refusal shall inure
to the benefit of the successors and assigns of the Company and shall be binding
upon any transferee of ISO Shares other than a transferee acquiring ISO Shares
in a transaction where the Company failed to exercise the Right of First Refusal
(a "Free Transferee") or a transferee of a Free Transferee.
8.4 Termination of Company's Right of First Refusal.
Notwithstanding anything in this Section 8, the Company shall have no Right of
First Refusal, and Optionee shall have no obligation to comply with the
procedures in Sections 8.1 through 8.3 after the earlier of (i) the closing of
the Company's initial public offering to the public generally, or (ii) the date
ten (10) years after the Effective Date.
9. Market Standoff. Optionee hereby agrees that if so requested
by the Company or any representative of the underwriters in connection with any
registration of the offering of the securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), Optionee shall not
sell or otherwise transfer the ISO Shares for a period of 180 days following the
effective date of a Registration Statement filed under the Securities Act;
provided that such restrictions shall only apply to the first two registration
statements of the Company to become effective under the Securities Act which
include securities to be sold on behalf of the Company in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to the ISO Shares subject to the foregoing
restrictions until the end of each such 180-day period.
10. Restriction on Issuance of Shares.
10.1 Legality of Issuance. The Company shall not be
obligated to sell or issue any ISO Shares pursuant to this Agreement if such
sale or issuance, in the opinion of the Company and the Company's counsel, might
constitute a violation by the Company of any provision of law, including without
limitation the provisions of the Securities Act.
10.2 Registration or Qualification of Securities. The
Company may, but shall not be required to, register or qualify the sale of this
ISO or any ISO Shares under the Securities Act or any other applicable law. The
Company shall not be obligated to take any affirmative action in order to cause
the grant or exercise of this option or the issuance or sale of any ISO Shares
pursuant thereto to comply with any law.
11. Restriction on Transfer. Regardless whether the sale of the
ISO Shares has been registered under the Securities Act or has been registered
or qualified under the securities laws of any state, the Company may impose
restrictions upon the sale, pledge, or other transfer of ISO Shares (including
the placement of appropriate legends on stock certificates) if, in the judgment
of the Company and the Company's counsel, such restrictions are necessary or
desirable in order to achieve compliance with the provisions of the Securities
Act, the securities laws of any state, or any other law, or if the Company does
not desire to have a trading market develop for its securities.
-4-
<PAGE> 5
12. Stock Certificate. Stock certificates evidencing ISO Shares
may bear such restrictive legends as the Company and the Company's counsel deem
necessary or advisable under applicable law or pursuant to this Agreement.
13. Disqualifying Dispositions. If stock acquired by exercise of
this ISO is disposed of within two years after the Effective Date or within one
year after date of such exercise (as determined under Section 5.3 of this
Agreement), the Optionee immediately prior to the disposition shall promptly
notify the Company in writing of the date and terms of the disposition and shall
provide such other information regarding the disposition as the Company may
reasonably require.
14. Representations, Warranties, Covenants, and Acknowledgments
of Optionee Upon Exercise of ISO. Optionee hereby agrees that in the event that
the Company and the Company's counsel deem it necessary or advisable in the
exercise of their discretion, the issuance of ISO Shares may be conditioned upon
certain representations, warranties, and acknowledgments by the person
exercising the ISO (the "Purchaser"), including, without limitation, those set
forth in Sections 14.1 through 14.8 inclusive:
14.1 Investment. Purchaser is acquiring the ISO Shares for
Purchaser's own account, and not for the account of any other person. Purchaser
is acquiring the ISO Shares for investment and not with a view to distribution
or resale thereof except in compliance with applicable laws regulating
securities.
14.2 Business Experience. Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company
evidenced by purchase of the ISO Shares.
14.3 Relation to Company. Purchaser is presently an
officer, director, or other employee of, or consultant to the Company, and in
such capacity has become personally familiar with the business, affairs,
financial condition, and results of operations of the Company.
14.4 Access to Information. Purchaser has had the
opportunity to ask questions of, and to receive answers from, appropriate
executive officers of the Company with respect to the terms and conditions of
the transaction contemplated hereby and with respect to the business, affairs,
financial condition, and results of operations of the Company. Purchaser has had
access to such financial and other information as is necessary in order for
Purchaser to make a fully-informed decision as to investment in the Company by
way of purchase of the ISO Shares, and has had the opportunity to obtain any
additional information necessary to verify any of such information to which
Purchaser has had access.
14.5 Speculative Investment. Purchaser's investment in the
Company represented by the ISO Shares is highly speculative in nature and is
subject to a high degree of risk of loss in whole or in part. The amount of such
investment is within Purchaser's risk capital means and is not so great in
relation to Purchaser's total financial resources as would jeopardize the
personal financial needs of Purchaser or Purchaser's family in the event such
investment were lost in whole or in part.
14.6 Registration. Purchaser must bear the economic risk
of investment for an indefinite period of time because the sale to Purchaser of
the ISO Shares has not been
-5-
<PAGE> 6
registered under the Securities Act and the ISO Shares cannot be transferred by
Purchaser unless such transfer is registered under the Securities Act or an
exemption from such registration is available. The Company has made no
agreements, covenants, or undertakings whatsoever to register the transfer of
any of the ISO Shares under the Securities Act. The Company has made no
representations, warranties, or covenants whatsoever as to whether any exemption
from the Securities Act, including without limitation any exemption for limited
sales in routine brokers' transactions pursuant to Rule 144, will be available;
if the exemption under Rule 144 is available at all, it may not be available
until at least two years after payment of cash for the ISO Shares and not then
unless: (i) a public trading market then exists in the Company's common stock;
(ii) adequate information as to the Company's financial and other affairs and
operations is then available to the public; and (iii) all other terms and
conditions of Rule 144 have been satisfied. Purchaser understands that the
resale provisions of Rule 701 will not apply until 90 days after the Company
becomes subject to the reporting obligations of the Securities Exchange Act of
1934 (typically 90 days after the effective date of an initial public offering).
14.7 Public Trading. None of the Company's securities is
presently publicly traded, and the Company has made no representation, covenant,
or agreement as to whether there will be a public market for any of its
securities.
14.8 Tax Advice. The Company has made no warranties or
representations to Purchaser with respect to the income tax consequences of the
transactions contemplated by the agreement pursuant to which the ISO Shares will
be purchased and Purchaser is in no manner relying on the Company or its
representatives for an assessment of such tax consequences.
15. Assignment; Binding Effect. Subject to the limitations set
forth in this Agreement, this Agreement shall be binding upon and inure to the
benefit of the executors, administrators, heirs, legal representatives, and
successors of the parties hereto; provided, however, that Optionee may not
assign any of Optionee's rights under this Agreement.
16. Damages. Optionee shall be liable to the Company for all
costs and damages, including incidental and consequential damages, resulting
from a disposition of ISO Shares which is not in conformity with the provisions
of this Agreement.
17. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California excluding
those laws that direct the application of the laws of another jurisdiction.
18. Notices. All notices and other communications under this
Agreement shall be in writing. Unless and until the Optionee is notified in
writing to the contrary, all notices, communications, and documents directed to
the Company and related to the Agreement, if not delivered by hand, shall be
mailed, addressed as follows:
ClickOver, Inc.
524 Alma _____
Palo Alto, CA 94301
Attention: President
-6-
<PAGE> 7
Unless and until the company is notified in writing to the contrary, all
notices, communications, and documents intended for the Optionee and related to
this Agreement, if not delivered by hand, shall be mailed to Optionee's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two business days after mailing, if by mail.
IN WITNESS WHEREOF, the parties have executed this Incentive
Stock Option Agreement as of the Effective Date.
CLICKOVER, INC.
By:______________________________________
Title:___________________________________
The Optionee hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.
_________________________________________
Optionee
Dated:___________________________________
Optionee's spouse indicates by the execution of this Incentive Stock Option
Agreement his or her consent to be bound by the terms thereof as to his or her
interests, whether as community property or otherwise, if any, in the option
granted hereunder, and in any ISO Shares purchased pursuant to this Agreement.
_________________________________________
Optionee's Spouse
-7-
<PAGE> 8
EXHIBITS
Exhibit 1 Stock Option Plan
Exhibit 3
(if applicable) Expiration of Incentive Stock Option
Exhibit 5.1 Time of Exercise
Exhibit 5.3 Stock Option Plan Stock Purchase Agreement
Exhibit 5.4
(if applicable) Payment
Exhibit 7 Right of Repurchase
(if applicable)
-8-
<PAGE> 9
EXHIBIT 5.1 OF THE INCENTIVE STOCK
OPTION AGREEMENT
The ISO shall be exercisable with respect to twenty-five percent
(25%) of the total number of ISO Shares one year after the Vesting Base Date
and, thereafter, with respect to an additional 1/48 of such shares at the end of
each month after the first anniversary of the Vesting Base Date, so that all of
the ISO Shares may be purchased on and after the fourth anniversary of the
Vesting Base Date.
Initialled by: CLICKOVER, INC.
By:______________________________________
Title:___________________________________
Optionee:________________________________
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<PAGE> 10
EXHIBIT 5.1 OF THE INCENTIVE STOCK
OPTION AGREEMENT
The ISO shall be exercisable with respect to the total number of
ISO Shares on the Effective Date, subject to the Right of Repurchase set forth
in Exhibit 7.
Executed by: CLICKOVER, INC.
By:______________________________________
Title:___________________________________
Optionee:________________________________
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<PAGE> 11
EXHIBIT 7 OF THE INCENTIVE STOCK
OPTION AGREEMENT
[All] of the ISO Shares are subject to the Right of Repurchase.
The Right of Repurchase shall expire with respect to ______ of the [total number
of] ISO Shares one year after the Vesting Base Date and, thereafter, with
respect to an additional ________ of the ISO Shares at the end of each month
after the first anniversary of the Vesting Base Date, so that all of the ISO
Shares may be purchased on and after the fourth anniversary of the Vesting Base
Date.
Executed by: CLICKOVER, INC.
By:______________________________________
Title:___________________________________
Optionee:________________________________
-11-
<PAGE> 1
EXHIBIT 10.23
CLICKOVER, INC.
STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
(A) Name of Optionee: `
(B) Grant Date:
(C) Number of Shares:
(D) Exercise Price:
(E) Vesting Base Date:
(F) Effective Date:
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement"), is
made and entered into as of the date set forth in Item F above (the "Effective
Date") between ClickOver, Inc., a California corporation (the "Company") and the
person named in Item A above ("Optionee).
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option; Vesting Base Date.
1.1 Grant. The Company hereby grants to Optionee
pursuant to the Company's Stock Option Plan (the "Plan"), a copy of which is
attached to this Agreement as Exhibit 1, a nonqualified stock option (the "NQO")
to purchase all or any part of an aggregate of the number of shares (the NQO
Shares") of the Company's Common Stock (as defined in the Plan) listed in Item C
above on the terms and conditions set forth herein and in the Plan, the terms
and conditions of the Plan being hereby incorporated into this Agreement by
reference.
1.2 Vesting Base Date. The parties hereby establish
the date set forth in Item E above as the Vesting Base Date (as defined in
Section 5.1 below).
2. Exercise Price. The exercise price for purchase of each
share of Common Stock covered by this NQO shall be the price set forth in Item D
above.
3. Term. Unless otherwise specified on Exhibit 3 attached
hereto, if any (the absence of such exhibit indicating that no such exhibit was
intended), this NQO shall expire as provided in Section 6.1.12 of the Plan.
4. Adjustment of NQOS. The Company shall adjust the number
and kind of shares and the exercise price thereof in certain circumstances in
accordance with the provisions of Section 6.1.1 of the Plan.
5. Exercise of Options.
5.1 Vesting; Time of Exercise. This NQO shall be
exercisable according to the schedule set forth on Exhibit 5.1 attached hereto.
Such schedule shall commence as of the date set forth in Item (E) above (the
"Vesting Base Date").
<PAGE> 2
5.2 Exercise After Termination of Status as an
Employee, Director or Consultant. In the event of termination of Optionee's
continuous status as an employee, director or consultant, this NQO may be
exercised only in accordance with the provisions of Section 6.1.7 of the Plan.
5.3 Manner of Exercise. Optionee may exercise this
NQO, or any portion of this NQO, by giving written notice to the Company at its
principal executive office, to the attention of the officer of the Company
designated by the Plan Administrator, accompanied by a copy of the Stock option
Plan Stock Purchase Agreement in substantially the form attached hereto as
Exhibit 5.3 executed by Optionee (or at the option of the Company such other
form of stock purchase agreement as shall then be acceptable to the Company),
payment of the exercise price and payment of any applicable withholding or
employment taxes. The date the Company receives written notice of an exercise
hereunder accompanied by payment will be considered as the date this NQO was
exercised.
5.4 Payment. Except as provided in Exhibit 5.4
attached hereto, if any (the absence of such exhibit indicating that no exhibit
was intended), payment may be made for NQO Shares purchased at the time written
notice of exercise of the NQO is given to the Company, by delivery of cash,
check, previously owned shares of Common Stock (provided that delivery of
previously owned shares may not be made other than once in any six-month
period), or a full recourse promissory note equal to up to 90% of the exercise
price and payable over no more than five years. The proceeds of any payment
shall constitute general funds of the Company.
5.5 Delivery of Certificate. Promptly after receipt
of written notice of exercise of the NQO, the Company shall, without stock issue
or transfer taxes to the Optionee or other person entitled to exercise, deliver
to the Optionee or other person a certificate or certificates for the requisite
number of NQO Shares. An Optionee or transferee of an Optionee shall not have
any privileges as shareholder with respect to any NQO Shares covered by the
option until the date of issuance of a stock certificate.
6. Nonassignability of NQO. This NQO is not assignable or
transferable by Optionee except by will or by the laws of descent and
distribution. During the life of Optionee, the NQO is exercisable only by the
Optionee. Any attempt to assign, pledge, transfer, hypothecate or otherwise
dispose of this NQO in a manner not herein permitted, and any levy of execution,
attachment, or similar process on this NQO, shall be null and void.
2
<PAGE> 3
7. Company's Right of Repurchase Upon Termination of
Employment. The NQO Shares arising from exercise of this NQO shall be subject to
a right of repurchase in favor of the Company (the "Right of Repurchase") to the
extent set forth on Exhibit 7 attached hereto (the absence of such exhibit
indicating that no such exhibit was intended and that the NQO shall be subject
to the limitations set forth on Exhibit 5.1). If the Optionee's employment with
the Company terminates before the Right of Repurchase lapses in accordance with
Exhibit 7, the Company may purchase NQO Shares subject to the Right of
Repurchase (either by payment of cash or by cancellation of purchase money
indebtedness) for an amount equal to the price the Optionee paid for such NQO
Shares (exclusive of any taxes paid upon acquisition of the stock) by giving
notice at any time within the later of (a) 30 days after the acquisition of the
NQO Shares upon option exercise, or (b) 90 days after such termination of
employment that the Company is exercising its right of repurchase. The Company
shall include with such notice payment in full in cash or by evidence of
cancellation of purchase money indebtedness. The optionee may not dispose of or
transfer NQO Shares while such shares are subject to the Right of Repurchase and
any such attempted transfer shall be null and void.
8. Company's Right of First Refusal.
8.1 Right of First Refusal. In the event that the
optionee proposes to sell, pledge, or otherwise transfer any NQO Shares or any
interest in such shares to any person or entity, the Company shall have a right
of first refusal (the "Right of First Refusal") with respect to such NQO Shares.
If optionee desires to transfer NQO Shares, Optionee shall give a written notice
(the "Transfer Notice") to the Company describing fully the proposed transfer,
including the number of NQO Shares proposed to be transferred, the proposed
transfer price, and the name and address of the proposed transferee. The
Transfer Notice shall be signed both by Optionee-and by the proposed transferee
and must constitute a binding commitment of both such parties for the transfer
of such NQO Shares. The Company may elect to purchase all, but not less than
all, of the NQO Shares subject to the Transfer Notice by delivery of a notice of
exercise of the Company's Right of First Refusal within 30 days after the date
the Transfer Notice is delivered to the Company. The purchase price paid by the
Company shall be-the price per share equal to the proposed per share transfer
price, and shall be paid to the Optionee within 60 days after the date the
Transfer Notice is received by the Company, unless a longer period for payment
was offered by the proposed transferee, in which case the Company shall pay the
purchase price within such longer period. The Company's rights under this
Section 8.1 shall be freely assignable, in whole or in part. Notwithstanding the
foregoing, the Right of First Refusal does not apply to a transfer of shares by
gift or devise to the Optionee's immediate family (i.e., parents, spouse or
children or to a trust for the benefit of the Optionee or any of the Optionee's
immediate family members), but does apply to any subsequent transfer of such
shares by such immediate family members.
3
<PAGE> 4
8.2 Transfer of NQO Shares. If the Company fails to
exercise the Right of First Refusal within 30 days after the date the Transfer
Notice is delivered to the Company, the optionee may, not later than 75 days
following delivery to the Company of the Transfer Notice, conclude a transfer of
the NQO Shares subject to the Transfer Notice on the terms and conditions
described in the Transfer Notice. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed transfer by the optionee, shall again be subject to the Right of First
Refusal and shall require compliance by the Optionee with the procedure
described in Section 8.1 of this Agreement. If the Company exercises the Right
of First Refusal, the parties shall consummate the sale of NQO Shares on the
terms, other than price, as applicable under Section 8.1, set forth in the
Transfer Notice; provided, however, in the event the Transfer Notice provides
for payment for the NQO Shares other than in cash, the Company shall have the
option of paying for the NQO Shares by paying in cash the present value of the
consideration described in the Transfer Notice; and further provided that if the
value of noncash consideration is to be paid, and the Optionee disagrees with
the value determine by the Company, the Optionee may request an independent
appraisal by an appraiser acceptable to the Optionee and the Company, the costs
of such appraisal to be borne equally by the Optionee and the Company.
8.3 Binding Effect. The Right of First Refusal shall
inure to the benefit of the successors and assigns of the Company and shall be
binding upon any transferee of NQO Shares other than a transferee acquiring NQO
Shares in a transaction where the Company failed to exercise the Right of First
Refusal (a "Free Transferee") or a transferee of a Free Transferee.
8.4 Termination of Company's Right of First Refusal.
Notwithstanding anything in this Section 8, the Company shall have no Right of
First Refusal, and Optionee shall have no obligation to comply with the
procedures in Sections 8.1 through 8.3 after the earlier of (i) the closing of
the Company's initial public offering to the public generally or (ii) the date
is ten (10) years after the Effective Date.
9. Market Standoff. Optionee hereby agrees that if so
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of the securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), Optionee shall not
sell or otherwise transfer the NQO Shares for a period of 180 days following the
effective date of a Registration Statement filed under the Securities Act;
provided that such restrictions shall apply only to the first two registration
statements of the Company to become effective under the Securities Act which
include securities to be sold on behalf of the Company in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to the NQO Shares subject to the foregoing
restrictions until the end of each such 180-day period.
10. Restriction on Issuance of Shares.
10.1 Legality of Issuance. The Company shall not be
obligated to sell or issue any NQO Shares pursuant to this Agreement if such
sale or issuance, in the opinion of the Company and the Company's counsel, might
constitute a violation by the Company of any provision of law, including without
limitation the provisions of the Securities Act.
4
<PAGE> 5
10.2 Registration or Qualification of Securities. The
Company may, but shall not be required to, register or qualify the sale of this
NQO or any NQO Shares under the Securities Act or any other applicable law. The
Company shall not be obligated to take any affirmative action in order to cause
the grant or exercise of this option or the issuance or sale of any NQO Shares
pursuant thereto to comply with any law.
11. Restriction on Transfer. Regardless whether the sale of
the NQO Shares has been registered under the Securities Act or has been
registered or qualified under the securities laws of any state, the Company may
impose restrictions upon the sale, pledge, or other transfer of NQO Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Company and the Company's counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of the
Securities Act, the securities laws of any state, or any other law, or if the
Company does not desire to have a trading market develop for its securities.
12. Stock Certificate Restrictive Legends. Stock
certificates evidencing NQO Shares may bear such restrictive legends as the
Company and the Company's counsel deem necessary or advisable under applicable
law or pursuant to this Agreement.
13. Representations, Warranties, Covenants, and
Acknowledgements of Optionee Upon Exercise of NQO. Optionee hereby agrees that
in the event that the Company and the Company's counsel deem it necessary or
advisable in the exercise of their discretion, the issuance of NQO Shares may be
conditioned upon certain representations, warranties, and acknowledgments by the
person exercising the NQO (the "Purchaser"), including, without limitation,
those set forth in Sections 13.1 through 13.8 inclusive:
13.1 Investment. Purchaser is acquiring the NQO
Shares for Purchaser's own account, and not for the account of any other person.
Purchaser is acquiring the NQO Shares for investment and not with a view to
distribution or resale thereof except in compliance with applicable laws
regulating securities.
13.2 Business Experience. Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company
evidenced by purchase of the NQO Shares.
13.3 Relation to Company. Purchaser is presently an
officer, director, or other employee of, or consultant to the Company, and in
such capacity has become personally familiar with the business, affairs,
financial condition, and results of operations of the Company.
13.4 Access to Information. Purchaser has had the
opportunity to ask questions of, and to receive answers from, appropriate
executive officers of the Company with respect to the terms and conditions of
the transaction contemplated hereby and with respect to the business, affairs,
financial condition, and results of operations of the Company. Purchaser has had
access to such financial and other information as is necessary in order for
Purchaser to make a fully-informed decision as to investment in the Company by
way of purchase of the NQO Shares, and has had the opportunity to obtain any
additional information necessary to verify any of such information to which
Purchaser has had access.
5
<PAGE> 6
13.5 Speculative Investment. Purchaser's investment
in the Company represented by the NQO Shares is highly speculative in nature and
is subject to a high degree of risk of loss in whole or in part. The amount of
such investment is within Purchaser's risk capital means and is not so great in
relation to Purchaser's total financial resources as would jeopardize the
personal financial needs of Purchaser or Purchaser's family in the event such
investment were lost in whole or in part.
13.6 Registration. Purchaser must bear the economic
risk of investment for an indefinite period of time because the sale to
Purchaser of the NQO Shares has not been registered under the Securities Act and
the NQO Shares cannot be transferred by Purchaser unless such transfer is
registered under the Securities Act or an exemption from such registration is
available. The Company has made no agreements, covenants, or undertakings
whatsoever to register the transfer of any of the NQO Shares under the
Securities Act. The Company has made no representations, warranties, or
covenants whatsoever as to whether any exemption from the Securities Act,
including without limitation any exemption for limited sales in routine brokers,
transactions pursuant to Rule 144, will be available; if the exemption under
Rule 144 is available at all, it may not be available until at least two years
after payment of cash for the NQO Shares and not then unless: (i) a public
trading market then exists in the Company's Common Stock; (ii) adequate
information as to the Company's financial and other affairs and operations is
then available to the public; and (iii) all other terms and conditions of Rule
144 have been satisfied. Purchaser understands that the resale provisions of
Rule 701 will not apply until 90 days after the Company becomes subject to the
reporting obligations of the Securities Exchange Act of 1934 (typically 90 days
after the effective date of an initial public offering).
13.7 Public Trading. None of the Company's securities
is presently publicly traded, and the Company has made no representation,
covenant, or agreement as to whether there will be a public market for any of
its securities.
13.8 Tax Advice. The Company has made no warranties
or representations to Purchaser with respect to the income tax consequences of
the transactions contemplated by the agreement pursuant to which the NQO Shares
will be purchased and Purchaser is in no manner relying on the Company or its
representatives for an assessment of such tax consequences.
14. Assignment; Binding Effect. Subject to the limitations
set forth in this Agreement, this Agreement shall be binding upon and inure to
the benefit of the executors, administrators, heirs, legal representatives, and
successors of the parties hereto; provided, however, that Optionee may not
assign any of Optionee's rights under this Agreement.
15. Damages. Optionee shall be liable to the Company for all
costs and damages, including incidental and consequential damages, resulting
from a disposition of NQO Shares which is not in conformity with the provisions
of this Agreement.
16. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California excluding
those laws that direct the application of the laws of another jurisdiction.
6
<PAGE> 7
17. Notices. All notices and other communications under this
Agreement shall be in writing. Unless and until the Optionee is notified in
writing to the contrary, all notices, communications, and documents directed to
the Company and related to the Agreement, if not delivered by hand, shall be
mailed, addressed As follows:
ClickOver; Inc.
524 Alma ___________
Palo Alto, CA 94301
Attention: President
Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for the Optionee and related to
this Agreement, if not delivered by hand, shall be mailed to optionee's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two business days after mailing, if by mail.
IN WITNESS WHEREOF, the parties have executed this Nonqualified
Stock Option Agreement as of the Effective Date.
CLICKOVER, INC.
By:_____________________________________
Title:__________________________________
The optionee hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.
________________________________________
Optionee
Dated:__________________________________
Optionee's spouse indicates by the execution of this Nonqualified Stock Option
Agreement his or her consent to be bound by the terms thereof as to his or her
interests, whether as community property or otherwise, if any, in the option
granted hereunder, and in any NQO Shares purchased pursuant to this Agreement.
________________________________________
Optionee's Spouse
7
<PAGE> 8
EXHIBITS
Exhibit 1 Stock Option Plan
Exhibit 3
(if applicable) Expiration of Nonqualified Stock Option
Exhibit 5.1 Time of Exercise
Exhibit 5.3 Stock Option Plan Stock Purchase Agreement
Exhibit 5.4
(if applicable) Payment
Exhibit 7.
(if applicable) Right of Repurchase
<PAGE> 9
EXHIBIT I OF THE NONQUALIFIED STOCK
OPTION AGREEMENT
STOCK OPTION PLAN
The 1995 Stock Option Plan of Clickover, Inc. is contained in
its entirety as Exhibit C-1.
<PAGE> 10
EXHIBIT 5.1 OF THE NONQUALIFIED STOCK
OPTION AGREEMENT
The NQO shall be exercisable with respect to twenty-five percent
(25%) of the total number of NQO Shares one year after the Vesting Base Date
and, thereafter, with respect to an additional 1/48 of such shares at the end of
each month after the first anniversary of the Vesting Base Date, so that all of
the NQO Shares may be purchased on and after the fourth anniversary of the
Vesting Base Date.
Initialled by: CLICKOVER, INC.
By:_____________________________________
Title:__________________________________
Optionee:_______________________________
<PAGE> 11
EXHIBIT 5.3 OF THE NONQUALIFIED STOCK
OPTION AGREEMENT
STOCK OPTION PLAN
STOCK PURCHASE AGREEMENT
ClickOver, Inc.'s Stock Option Plan Stock Purchase Agreement is
contained in its entirety as Exhibit C-4.
<PAGE> 1
EXHIBIT 10.24
CLICKOVER, INC.
STOCK OPTION PLAN
STOCK PURCHASE AGREEMENT
(A) Name of Purchaser:_____________________________
(B) Number of Plan Shares:_________________________
(C) Exercise Price:________________________________
(D) Purchase Price:________________________________
(E) Date of Option Agreement:______________________
(F) Effective Date:________________________________
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of the date set forth in Item F above (the "Effective Date") between
ClickOver, Inc., a California corporation (the "Company"), and the person named
in Item A above (the "Purchaser").
THE PARTIES AGREE AS FOLLOWS:
1. Purchase of Shares. Pursuant to the Company's Stock Option Plan (the
"Plan") and to a stock option agreement ("Option Agreement") between the parties
dated the date set forth in Item E above, the Company hereby sells to Purchaser,
and Purchaser hereby buys from the Company, that number of shares (the "Plan
Shares") of the Company's Common Stock (as defined in the Plan) set forth in
Item B above on the terms and conditions set forth herein and in the Plan and
the Option Agreement, the terms and conditions of the Plan and the Option
Agreement being hereby incorporated into this Agreement by reference.
2. Purchase Price. Purchaser shall purchase the Plan Shares from the
Company, and the Company shall sell the Plan Shares to Purchaser, at a price per
share as set forth in Item C above (the "Exercise Price"), for a total purchase
price as set forth in Item D above (the "Purchase Price").
3. Manner of Payment. Purchaser shall pay the Purchase Price of the Plan
Shares by delivery of cash, check, previously owned shares of Common Stock
(provided that delivery of previously owned shares may not be made more than
once in any six-month period), or a full recourse promissory note equal to up to
90% of the Purchase Price and payable over no more than five years (or in the
manner set forth in Exhibit 5.4 to the Option Agreement evidencing the option,
the absence of any Exhibit 5.4 indicating that no such exhibit was intended).
4. Company's Right of Repurchase Upon Termination of Employment. The
Plan Shares are subject to a right of repurchase in favor of the Company (the
"Right of Repurchase") to the extent set forth on Exhibit 7 of the Option
Agreement (the absence of Exhibit 7 in the Option Agreement indicating that no
such exhibit was intended). If the Purchaser's employment, consulting or service
as a director with the Company terminates before the Right of Repurchase lapses
in accordance with Exhibit 7 of the Option Agreement, the Company may purchase
stock subject to the Right of Repurchase (either by payment of cash or by
cancellation of purchase money indebtedness) for an amount equal to the price
the Optionee paid for such Plan Shares
<PAGE> 2
(exclusive of any taxes paid upon acquisition of the stock) by giving notice at
any time within the later of (a) 30 days after the acquisition of the Plan
Shares upon option exercise, or (b) 90 days after such termination of employment
that the Company is exercising its right of repurchase. The Company shall
include with such notice payment in full in cash or by evidence of cancellation
of purchase money indebtedness. The Purchaser may not dispose of or transfer
Plan Shares while such shares are subject to the Right of Repurchase and any
such attempted transfer shall be null and void.
5. Company's Right of First Refusal Respecting Plan Shares.
5.1 Right of First Refusal. In the event that Purchaser proposes
to sell, pledge, or otherwise transfer any Plan Shares or any interest in such
shares to a bona-fide third party offeror, the Company shall have a right of
first refusal (the "Right of First Refusal") with respect to such Plan Shares.
If Purchaser desires to transfer Plan Shares, Purchaser shall give a written
notice (the "Transfer Notice") to the Company describing fully the proposed
transfer, including the number of Plan Shares proposed to be transferred, the
proposed transfer price, and the name and address of the bona-fide third party
offeror. The Transfer Notice shall be signed both by Purchaser and by the
bona-fide third party offeror and must constitute a binding commitment of both
such parties for the transfer of such Plan Shares. The Company may elect to
purchase the Plan Shares subject to the Transfer Notice by delivery of a notice
of exercise of the Company's Right of First Refusal within 30 days after the
date the Transfer Notice is delivered to the Company. The purchase price paid by
the Company shall be the price per share equal to the proposed per share
transfer price, and shall be paid to the Purchaser within 60 days after the date
the Transfer Notice is received by the Company, unless a longer period for
payment was offered by the bona-fide third party offeror, in which case the
Company shall pay the purchase price within such longer period. The Company's
rights under this Section 5.1 shall be freely assignable, in whole or in part.
Notwithstanding the foregoing, the Right of First Refusal does not apply to a
transfer of Plan Shares by gift or devise to the Purchaser's immediate family
(i.e., parents, spouse or children or to a trust for the benefit of the
Purchaser or any of the Purchaser's immediate family members), but does apply to
any subsequent transfer of such Plan Shares by such immediate family members.
5.2 Transfer of Plan Shares. If the Company fails to exercise the
Right of First Refusal within 30 days after the date the Transfer Notice is
delivered to the Company, Purchaser may, not later than 75 days following
delivery to the Company of the Transfer Notice, conclude a transfer of the Plan
Shares subject to the Transfer Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms and conditions different
from those described in the Transfer Notice, as well as any subsequent proposed
transfer by Purchaser, shall again be subject to the Company's Right of First
Refusal and shall require compliance by Purchaser with the procedure described
in Section 5.1 of this Agreement. If the Company exercises the Right of First
Refusal, the parties shall consummate the sale of Plan Shares on the terms,
other than price, as applicable under Section 5.1, set forth in the Transfer
Notice, subject; provided, however, in the event the Transfer Notice provides
for payment for the Plan Shares other than in cash, the Company shall have the
option of paying for the Plan Shares by paying in cash the present value of the
consideration described in the Transfer Notice; and further provided that if the
value of noncash consideration is to be paid, and the Optionee disagrees with
the value determined by the Company, the Optionee may request an independent
appraisal by an appraiser
2
<PAGE> 3
acceptable to the Optionee and the Company, the costs of such appraisal to be
borne equally by the Optionee and the Company. If, at the time of exercise of
the right of first refusal, any notes are outstanding which represent any
portion of the Purchase Price of the Plan Shares, the repurchase price shall be
paid first by cancellation of any obligation for accrued but unpaid interest
under such notes, next by cancellation of principal under such notes, and
finally by payment of cash.
5.3 Binding Effect of Right of First Refusal. The Company's Right of
First Refusal shall inure to the benefit of the successors and assigns of the
Company and shall be binding upon any transferee of Plan Shares other than a
transferee acquiring Plan Shares in a transaction where the Company failed to
exercise the Right of First Refusal (a "Free Transferee") or a transferee of a
Free Transferee.
5.4 Termination of Company's Right of First Refusal. Notwithstanding
anything in this Section 5, the Company shall have no Right of First Refusal,
and Purchaser shall have no obligation to comply with the procedures in Sections
5.1 through 5.3, after the earlier of (a) the closing of the Company's initial
registered public offering to the public generally, or (b) the date ten (10)
years after the Effective Date of the Option Agreement.
6. Stock Certificate Restrictive Legends. Stock certificates evidencing
Plan Shares may bear such restrictive legends as the Company and the Company's
counsel deem necessary or advisable under applicable law or pursuant to this
Agreement.
7. Representations, Warranties, Covenants, and Acknowledgements of
Purchaser. Purchaser hereby represents, warrants, covenants, acknowledges, and
agrees that:
7.1 Investment. Purchaser is acquiring the Plan Shares for
Purchaser's own account, and not for the account of any other person. Purchaser
is acquiring the Plan Shares for investment and not with a view to distribution
or resale thereof except in compliance with applicable laws regulating
securities.
7.2 Business Experience. Purchaser is capable of evaluating the
merits and risks of Purchaser's investment in the Company evidenced by the
purchase of the Plan Shares.
7.3 Relation of Company. Purchaser is presently an officer,
director, or employee of, or consultant to, the Company and in such capacity has
become personally familiar with the business, affairs, financial condition, and
results of operations of the Company.
7.4 Access to Information. Purchaser has had the opportunity to
ask questions of, and to receive answers from, appropriate executive officers of
the Company with respect to the terms and conditions of the transactions
contemplated hereby and with respect to the business, affairs, financial
condition, and results of operations of the Company. Purchaser has had access to
such financial and other information as is necessary in order for Purchaser to
make a fully-informed decision as to investment in the Company by way of
purchase of the Plan Shares, and has had the opportunity to obtain any
additional information necessary to verify any of such information to which
Purchaser has had access. Purchaser acknowledges that all financial information
concerning the Company that has been or will be provided to Purchaser is
Confidential Information within the meaning of the Employee Confidential
Information and
3
<PAGE> 4
Inventions Agreement between Purchaser and the Company and is subject to the
obligation of confidentiality and other restrictions and limitations set forth
therein.
7.5 Speculative Investment. Purchaser's investment in the Company
represented by the Plan Shares is highly speculative in nature and is subject to
a high degree of risk of lose in whole or in part. The amount of such investment
is within Purchaser's risk capital means and is not so great in relation to
Purchaser's total financial resources as would jeopardize the personal financial
needs of Purchaser or Purchaser's family in the event such investment were lost
in whole or in part.
7.6 Registration. Purchaser may bear the economic risk of
investment for an indefinite period of time because the sale to Purchaser of the
Plan Shares has not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and the Plan Shares cannot be transferred by Purchaser
unless such transfer is registered under the Securities Act or an exemption from
such registration is available. The Company has made no agreements, covenants or
undertakings whatsoever to register the transfer of any of the Shares under the
Securities Act. The Company has made no representations, warranties, or
covenants whatsoever as to whether any exemption from the Securities Act,
including without limitation any exemption for limited sales in routine brokers'
transactions pursuant to Rule 144, will be available; if the exemption under
Rule 144 is available at all, it will not be available until at least two years
after payment of cash for the Plan Shares and not then unless: (a) a public
trading market then exists in the Company's common stock; (b) adequate
information as to the Company's financial and other affairs and operations is
then available to the public; and (c) all other terms and conditions of Rule 144
have been satisfied. Purchaser understands that the resale provisions of Rule
701 will not apply until 90 days after the Company becomes subject to the
reporting obligations of the Securities Exchange Act of 1934 (typically upon the
effective date of an initial public offering).
7.7 Public Trading. None of the Company's securities is presently
publicly traded, and the Company has made no representation, covenant, or
agreement as to whether there will be a public market for any of its securities.
7.8 Tax Advice. The Company has made no warranties or
representations to Purchaser with respect to the income tax consequences of the
transactions contemplated by this Agreement and Purchaser is in no manner
relying on the Company or its representatives for an assessment of such tax
consequences. Purchaser shall execute and deliver to the Company a copy of the
Acknowledgment and Statement of Decision Regarding Election Pursuant to Section
83(b) of the Internal Revenue Code (the "Acknowledgment") attached hereto as
Exhibit 7A and a copy of the Election Pursuant to Section 83(b) of the Code,
attached hereto as Exhibit 7B, if Purchaser has indicated in the Acknowledgment
his or her decision to make such an election. Purchaser will consult with his or
her tax advisor to determine if there is a comparable election to file in the
state of his or her residence and whether such filing is desirable under the
circumstances.
8. Binding Effect. Subject to the limitations set forth in this
Agreement, this Agreement shall be binding upon, and inure to the benefit of,
the executors, administrators, heirs, legal representatives, successors, and
assigns of the parties hereto.
4
<PAGE> 5
9. Damages. Purchaser shall be liable to the Company for all costs and
damages, including incidental and consequential damages, resulting from a
disposition of Plan Shares which is not in conformity with the provisions of
this Agreement.
10. Disqualifying Dispositions of ISO Stock. If stock acquired by
exercise of an ISO (as defined in Section 1 of the Plan) is disposed of within
two years after the Effective Date (as defined in the Option Agreement) or
within one year after such exercise, Purchaser immediately prior to the
disposition shall promptly notify the Company in writing of the date and terms
of the disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.
11. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California excluding those laws that
direct the application of the laws of another jurisdiction.
12. Notices. All notices and other communications under this Agreement
shall be in writing. Unless and until Purchaser is notified in writing to the
contrary, all notices, communications, and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:
ClickOver, Inc.
524 Alma ____________
Attention: President
Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for Purchaser and related to
this Agreement, if not delivered by hand, shall be mailed to Purchaser's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two business days after mailing, if by mail.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the day and year first above written.
CLICKOVER, INC.
By: _____________________________________
Title: __________________________________
6
<PAGE> 7
Purchaser hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.
Purchaser ___________________________________
Purchaser's spouse indicates by the execution of this Agreement his or
her consent to be bound by the terms herein as to his or her interests, whether
as community property or otherwise, if any, in the Plan Shares hereby purchased.
Purchaser's Spouse____________________________________
7
<PAGE> 8
Exhibits
- --------
Exhibit 7A Acknowledgment Regarding Election Pursuant to
Section 83(b)
Exhibit 7B Section 83(b) Election
<PAGE> 9
ACKNOWLEDGEMENT AND STATEMENT
OF DECISION REGARDING ELECTION
PURSUANT TO SECTION 83(b) OF
THE INTERNAL REVENUE CODE
The undersigned (which term includes the undersigned's spouse), a
purchaser of _____________ shares of Common Stock of ClickOver, Inc. (the
"Company") pursuant to an option granted under the Company's Stock Option Plan
(the "Plan"), hereby states as follows:
1. The undersigned acknowledges receipt of a copy of a Stock Purchase
Agreement by and between the undersigned and the Company (the "Agreement")
effecting the purchase of shares, which the undersigned has carefully reviewed.
2. The undersigned either [check as applicable]:
_____ (a) has consulted, and has been fully advised by, the
undersigned's own tax advisor, _____________________, whose business address is
_____________________, regarding the income tax consequences of purchasing
shares under the Agreement, and particularly regarding the advisability of
making an election pursuant to Section 83(b) of the Internal Revenue Code of
1986, as amended (the "Code"), and pursuant to the corresponding provisions, if
any, of applicable state laws (including without limitation Section 17122.7(b)
of the California Revenue and Taxation Code, as amended (the "Rev. & Tax. Code")
if applicable); or
_____ (b) has knowingly chosen not to consult a tax advisor.
3. The undersigned hereby avers that, with respect to the purchase of
shares, the undersigned [check as applicable]:
_____ (a) will make an election under Section 83(b) solely for
purposes of Section 56(b)(3) of the Code (and analogous state law, if any)
relating to the Alternative Minimum Tax, and a "protective" election under
Section 83(b) (and analogous state law, if any) for all other income tax
purposes;
_____ (b) will not make an election under Section 83(b) of the
Code (and analogous state law, if any) for any purpose.
4. with respect to any election under Section 83(b) of the Code,
"protective" or otherwise, indicated in paragraph (3), above, the undersigned
herewith submits an executed copy of the appropriate form of election and
acknowledges that copies thereof have been duly and timely filed with the
appropriate offices of the Internal Revenue Service and applicable state taxing
authorities and that the undersigned will attach a copy of the form of election
to the undersigned's federal income tax return for the year of the purchase and,
if required, to the undersigned's state income tax return(s) for the same
period.
5. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of
Exhibit 7A-1
<PAGE> 10
the undersigned's purchase of shares under the Agreement or of the making or
failure to make an election pursuant to Section 83(b) of the Code or the
corresponding provisions, if any, of applicable state law.
Date:____________________________ _________________________________________
(Purchaser)
Date:____________________________ _________________________________________
Spouse
Exhibit 7A-2
<PAGE> 11
ELECTION PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE WITH RESPECT TO PROPERTY
TRANSFERRED IN CONNECTION WITH THE PERFORMANCE OF SERVICES
The undersigned hereby makes the election, modified to the extent
described in Paragraph 9 below, authorized by Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations thereunder,
with respect to shares of Common Stock of ClickOver, Inc. (the "Company")
described below acquired by the undersigned on the date shown below. To the
extent permitted, this election shall also serve as an election under analogous
state law. As required by the Treasury Regulations under Section 83(b), the
undersigned supplies herewith the following information:
1. The undersigned's name and address are:
Name:_______________________________________
Address:____________________________________
_____________________________________
2. The undersigned has taxpayer identification number ___-___-____.
3. The property with respect to which this protective election is
made consists of _____________ shares of Common Stock, no par
value, of the Company.
4. The date on which the above-described property was transferred to
the undersigned was _____________ 19__.
5. As of the date of transfer, the property was subject to the
following substantial risk of forfeiture:
_________________________________________________________________
_________________________________________________________________
6. The fair market value of the property at the time of transfer
(determined without regard to any restrictions other than
restrictions which by their terms will never lapse) was $____ per
share.
7. The amount paid for the property by the undersigned was $____ per
share.
8. A copy of this election has been furnished to the Company, and a
copy of this election will be attached to the undersigned's
federal income tax return for the year to which this election
relates.
Exhibit 7B
<PAGE> 12
9. If the property was acquired by the exercise of an Incentive
Stock Option within the meaning of Section 422 of the Code then,
except in the event of a "disqualifying disposition" of the
property, this election is protective only and does not
constitute an agreement to report or include as income subject to
federal income tax amounts which, but for this election, are not
so reportable or includible.
Date:___________________________ _________________________________________
(Purchaser)
Exhibit 7B
<PAGE> 13
CLICKOVER, INC.
ADMINISTRATION OF EMPLOYEE STOCK OPTION PLAN
I. Board of Directors Approval on August 31, 1996.
II. Shareholder Approval - Received _______________________.
III. Board of Directors, or a Committee appointed by the Board to administer
the Plan, grants options to employees, including officers and directors
who are also employees.
A. Terms of options granted to be specified in the Board or
Committee minutes:
1. Name of Optionee.
2. Grant date.
3. Whether an option is an ISO or an NSO.
4. Exercisability:(1) subject to vesting or immediately
exercisable; if the option is subject to a vesting
schedule limiting exercisability, set forth the vesting
schedule on Exhibit 5.1 to the Option Agreement. If the
option is immediately exercisable and the Option Shares
are then subject to a right of repurchase, do not use
Exhibit 5.1 but rather use Exhibit 7 to establish the
dates on which the repurchase right lapses. The Vesting
Base Date (generally the date employment commenced or
the date of option grant) should be noted on page 1 of
the Option Agreement.
5. Term of option (if shorter than maximum term permitted
by Plan).
6. Option price.
(a) ISO: must equal fair market value on the grant
date.
(b) NSO: must equal at least 85% of fair market
value on the grant date.
(c) ISO and NSO: must equal 110% of fair market
value if Optionee is shareholder owning more
than 10% of ClickOver, Inc.'s Common Stock.
IV. Stock Option Agreement.
- --------
(1) Aggregate fair market value (determined as of the grant date) of ISOs
first becoming exercisable within a calendar year may not exceed
$100,000. (N.B. This limit is tested by multiplying (i) the number of
shares first becoming exercisable in a calendar year, and (ii) the per
share exercise price, and determining whether or not this number is
greater than $100,000.00.)
<PAGE> 14
A. NSO or ISO Option Agreement (either being referred to as "Option
Agreement") depending on nature of grant.
1. Attach copy of Option Plan (marked as Exhibit 1) to the
appropriate Option Agreement as well as a copy of the
proper Stock Purchase Agreement (marked Exhibit 5.3).
Separate Exhibits 5.1 and 7 have been prepared for options
which are subject to vesting and those which are
immediately exercisable but subject to a right of
repurchase.
2. If term of option is other than ten years, create Exhibit
3 to specify the other term.
B. Company, Optionee and, if applicable, spouse of Optionee (for
purposes of community property law) should all sign two copies of
the Option Agreement. Company and Optionee each retain one
executed original. Forward one copy to HEW&M for placement in
Company's corporate files. The "Effective Date" is the date of
the Option Agreement and cannot precede the Grant Date.
C. Be sure that the Option Agreement contains the exercise vesting
schedule or right of repurchase desired (i.e. prepare Exhibit 5.1
or 7 as appropriate).
V. Exercise of Option by Optionee.
A. Stock Purchase Agreement
1. Attach copy of Option Plan marked as Exhibit 1A and copy
of Option Agreement (executed pursuant to V, above) marked
as Exhibit 1B.
2. If an Optionee is acquiring shares that will be subject to
the Company's Right of Repurchase then Optionee and, if
applicable, spouse of Optionee, complete Acknowledgment,
and Optionee completes three copies of Section 83(b)
Election (Exhibits 7A and 7B to Stock Purchase Agreement)
if Optionee has chosen to make such an Election.
(a) Acknowledgment to be retained in Company files.
(b) Original Section 83(b) election must be filed
within 30 days of exercise with IRS office where
Optionee files tax returns. There is no "cure" for
failure to file on time.
NOTE: PROOF OF MAILING IS IMPORTANT: COMPANY SHOULD SEND
TO COUNSEL IMMEDIATELY UPON EXECUTION OF STOCK PURCHASE
AGREEMENT A COPY OF THE ACKNOWLEDGMENT AND ONE ORIGINAL
OF SECTION 83(b) ELECTION FOR FILING WITH IRS.
(c) Company should keep one original of Section
83(b) Election.
2
<PAGE> 15
(d) Optionee should keep one original of Section 83(b)
Election to be attached to Optionee's federal and
state personal income tax return for year of option
exercise.
(e) It is suggested that employees who are California
residents file a comparable election with the
Franchise Tax Board. Optionees who are not
residents of California should be told to consult
their own tax advisers as to the need or
advisability of filing any election in their state
of residence.
B. Stock Certificate. Optionee gets share certificate.
1. Share certificate to be prepared by counsel must bear
restrictive legends set forth in the Stock Purchase
Agreement.
2. Each certificate must be signed by the President (or Vice
President) and Secretary (or Assistant Secretary) of the
Company.
3. Each Optionee should be required to acknowledge receipt of
the share certificate (a sample form of receipt is
attached as Sample VI (B) (3).
C. NSOs only: Company must either withhold from Optionee's paycheck
the amount of tax required to be withheld by the Company arising
from exercise of the option (the amount of income being based on
the difference, if any, between the exercise price and the fair
market value, on the exercise date, of the stock purchased by
Optionee) or get check from Optionee for the amount of tax.
D. ISOs only: Establish a procedure whereby Optionees notify the
Company of any "disqualifying dispositions" of stock purchased
pursuant to an ISO (disposition within two years after ISO grant
or one year after exercise of the ISO).
E. Right of First Refusal. Each Optionee exercising option should be
advised of the Company's right of first refusal pursuant to the
Stock Purchase Agreement in the event Optionee wishes to sell any
of the shares.
VI. Termination of Employment.
A. Optionee may exercise option within time period permitted by
Plan.
B. Company may exercise repurchase right, if applicable, by giving
notice to Optionee in manner and within time permitted by Option
Plan and the Stock Purchase Agreement.
C. Optionee keeps any vested portion of stock and returns any
unvested or repurchased portion of stock to Company, requiring
cancellation of old share certificate(s) and issuance of new
certificate(s).
3
<PAGE> 16
VII. Each action taken by Company or Optionee with respect to the Stock
Option Plan should be recorded on a Stock Option Plan Ledger, a sample
of which is attached. If the Company wishes to exercise its rights of
first refusal (or the right of repurchase (See VI.B)), counsel should be
notified in order to carry out such purchase in compliance with the
California Corporations Code.
4
<PAGE> 17
RECEIPT
[Name of Purchasing Optionee] hereby acknowledges receipt from
ClickOver, Inc., a California corporation, of share certificate No. _____ for
_______________ shares of Common Stock, this ____day of _______________, 19__.
[To be Signed by Purchasing Optionee]
Sample V (B) (3)
<PAGE> 18
Employee Stock Option Plan Ledger
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Comments
(Termination
Vesting No. Exercise Exercise Shares Certificate Shares Repurchase,
Employee Grant Date Base Date of Shares Price Date Purchased Number Returned Balance Split, Grant)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Sample V (B) (3)
<PAGE> 1
EXHIBIT 10.25
ADKNOWLEDGE INC.
1998 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Option/Stock Issuance Plan is intended to promote
the interests of AdKnowledge Inc., a California corporation, by providing
eligible persons in the Corporation's employ or service with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to continue in such employ
or service.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity
programs:
(i) the Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued shares
of Common Stock directly, either through the immediate purchase of such
shares or as a bonus for services rendered the Corporation (or any Parent
or Subsidiary).
B. The provisions of Articles One and Four shall apply to both
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or
all administrative functions otherwise exercisable by the Board may be delegated
to the Committee. Members of the Committee shall serve for such period of time
as the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such
<PAGE> 2
interpretations of, the Plan and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or stock issuance thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as
follows:
(i) Employees,
(ii) non-employee members of the Board or the
non-employee members of the board of directors of any Parent or
Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine,
(i) with respect to the grants made under the Option Grant Program, which
eligible persons are to receive the option grants, the time or times when
those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares
and the maximum term for which the option is to remain outstanding, and
(ii) with respect to stock issuances made under the Stock Issuance
Program, which eligible persons are to receive such stock issuances, the
time or times when those issuances are to be made, the number of shares to
be issued to each Participant, the vesting schedule (if any) applicable to
the issued shares and the consideration to be paid by the Participant for
such shares.
C. Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Option Grant Program or to effect stock
issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
9,885,788 shares. Such authorized share reserve is comprised of (i) 3,321,592
shares of Common Stock available for issuance under the Corporation's 1996 Stock
Option Plan, including the shares subject to the outstanding options under such
plan and the additional shares available for future grant thereunder, plus (ii)
an additional increase of 6,564,196 shares.
B. Shares of Common Stock subject to outstanding options
(including options incorporated into this plan from the 1996 Stock Option Plan)
shall be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently repurchased
by the Corporation, at the option exercise or direct issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan.
2.
<PAGE> 3
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option (including options
incorporated into this Plan from the 1996 Stock Option Plan) in order to prevent
the dilution or enlargement of benefits thereunder. The adjustments determined
by the Plan Administrator shall be final, binding and conclusive. In no event
shall any such adjustments be made in connection with the conversion of one or
more outstanding shares of the Corporation's preferred stock into shares of
Common Stock.
3.
<PAGE> 4
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be less
than eighty-five percent (85%) of the Fair Market Value per share of
Common Stock on the option grant date.
(ii) If the person to whom the option is granted is a
10% Shareholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Four and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12 of the 1934 Act at the time the option is exercised, then the
exercise price may also be paid as follows:
(i) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable instructions (A) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (B) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
4.
<PAGE> 5
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option grant. However, no option shall have a term in excess of
ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for
any reason other than death, Disability or Misconduct, then the Optionee
shall have a period of three (3) months following the date of such
cessation of Service during which to exercise each outstanding option held
by such Optionee.
(ii) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period of six (6) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding
option, then the personal representative of his or her estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance shall have a six (6)-month
period following the date of the Optionee's death to exercise such option.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the date of
the Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding with respect to any and all option shares for
which the option is not otherwise at the time exercisable or in which the
Optionee is not otherwise at that time vested.
(vi) Should Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to remain outstanding.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is
to remain exercisable following Optionee's cessation of Service or death
from the limited period
5.
<PAGE> 6
otherwise in effect for that option to such greater period of time as the
Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the Optionee
would have vested under the option had the Optionee continued in Service.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become the
recordholder of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. The Plan Administrator may not impose a vesting schedule upon
any option grant or the shares of Common Stock subject to that option which is
more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur not later than one (1) year after the option grant date.
However, such limitation shall not be applicable to any option grants made to
individuals who are officers of the Corporation, non-employee Board members or
independent consultants.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options may, to
the extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
6.
<PAGE> 7
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. The Plan does not provide for automatic acceleration of
unvested shares in the event of a Corporate Transaction. In the event of a
Corporate Transaction, all Incentive Options shall be assumed or equivalent
options shall be substituted by the successor corporation (or other entity) or a
parent or subsidiary of such successor corporation (or other entity). If such
successor does not agree to assume the Incentive Options or to substitute
equivalent options therefor, unless the Plan Administration shall determine
otherwise, such options will expire upon such event.
B. In the event of the proposed dissolution or liquidation of the
Company, the Plan Administrator shall notify each Optionee at least thirty (30)
days prior to such proposed action. To the extent not previously exercised, all
Incentive Options will terminate immediately prior to consummation of such
proposed action.
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class
7.
<PAGE> 8
of securities available for issuance under the Plan following the consummation
of such Corporate Transaction and (ii) the exercise price payable per share
under each outstanding option, provided the aggregate exercise price payable for
such securities shall remain the same.
D. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
8.
<PAGE> 9
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issue date. However, the purchase
price per share of Common Stock issued to a 10% Shareholder shall not be less
than one hundred and ten percent (110%) of such Fair Market Value.
2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, with initial vesting to
occur not later than one (1) year after the issuance date. Such limitation shall
not apply to any Common Stock issuances made to the officers of the Corporation,
non-employee Board members or independent consultants.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
9.
<PAGE> 10
3. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further shareholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to those shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
C. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
II. CORPORATE TRANSACTION
A. The Plan does not provide for automatic acceleration of
unvested shares in the event of a Corporate Transaction.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
10.
<PAGE> 11
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Option Grant Program or the purchase price
for shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments and secured by the purchased shares. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. In no event may
the maximum credit available to the Optionee or Participant exceed the sum of
(i) the aggregate option exercise price or purchase price payable for the
purchased shares (less the par value of those shares) plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but
no option granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's shareholders. If
such shareholder approval is not obtained within twelve (12) months after the
date of the Board's adoption of the Plan, then all options previously granted
under the Plan shall terminate and cease to be outstanding, and no further
options shall be granted and no shares shall be issued under the Plan. Subject
to such limitation, the Plan Administrator may grant options and issue shares
under the Plan at any time after the effective date of the Plan and before the
date fixed herein for termination of the Plan.
The plan shall serve as the successor to the 1996 Stock Option Plan,
and no further option grants shall be made under the 1996 Stock Option Plan. All
options outstanding under the 1996 Stock Option Plan at the time the plan is
approved by the Board shall be incorporated into the Plan at that time and shall
be treated as outstanding options under the Plan. However, each outstanding
option so incorporated shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as vested shares or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. All
options and unvested stock issuances outstanding at the time of a clause (i)
termination event shall continue to have full force and effect in accordance
with the provisions of the documents evidencing those options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require shareholder approval
pursuant to applicable laws and regulations.
B. Options may be granted under the Option Grant Program and
shares may be issued under the Stock Issuance Program which are in each instance
in excess of the number
11.
<PAGE> 12
of shares of Common Stock then available for issuance under the Plan, provided
any excess shares actually issued under those programs shall be held in escrow
until there is obtained shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Plan. If such shareholder approval is not obtained within twelve (12) months
after the date the first such excess grants or issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of any options or upon the issuance or vesting of any shares issued
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise of
any option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
12.
<PAGE> 13
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean AdKnowledge Inc., a California corporation,
and any successor corporation to all or substantially all of the assets or
voting stock of AdKnowledge Inc. which shall by appropriate action adopt the
Plan.
G. DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing
A-1.
<PAGE> 14
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
M. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
N. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
O. OPTION GRANT PROGRAM shall mean the option grant program in effect
under the Plan.
P. OPTIONEE shall mean any person to whom an option is granted under
the Plan.
Q. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
A-2.
<PAGE> 15
S. PLAN shall mean the Corporation's 1998 Stock Option/Stock Issuance
Plan, as set forth in this document.
T. PLAN ADMINISTRATOR shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
U. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
V. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
W. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
X. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
Y. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
Z. 10% SHAREHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-3.
<PAGE> 1
EXHIBIT 10.26
ADKNOWLEDGE INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants and other independent
advisors in the service of the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraphs 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may, in connection
with Optionee's estate plan, be assigned in whole or in part during Optionee's
lifetime to one or more members of Optionee's immediate family or to a trust
established for the exclusive benefit of one or more such family members. The
assigned portion shall be exercisable only by the person or persons who acquire
a proprietary interest in the option pursuant to such assignment. The terms
applicable to the assigned portion shall be the same as those in effect for this
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
4. DATES OF EXERCISE. This option shall become exercisable for
the Option Shares in one or more installments as specified in the Grant Notice.
As the option becomes exercisable for such installments, those installments
shall accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraphs 5 or 6.
<PAGE> 2
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any
reason (other than death, Disability or Misconduct) while this option is
outstanding, then the period for which this option shall remain exercisable
shall be reduced to a three (3)-month period commencing with the date of such
cessation of Service, but in no event shall this option be exercisable at any
time after the Expiration Date.
(b) Should Optionee die while holding this option, then the
personal representative of Optionee's estate or the person or persons to whom
the option is transferred pursuant to Optionee's will or in accordance with the
laws of inheritance shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the earlier of
(i) the expiration of the six (6)-month period measured from the date of
Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability
while this option is outstanding, then the period during which this option shall
remain exercisable shall be reduced to a six (6)-month period commencing with
the date of such cessation of Service. In no event, however, shall this option
be exercisable at any time after the Expiration Date.
Note: Exercise of this option on a date later than three (3) months
following cessation of Service due to Disability will result in loss
of favorable Incentive Option treatment, unless such Disability
constitutes Permanent Disability. In the event that Incentive Option
treatment is not available, this option will be taxed as a
Non-Statutory Option upon exercise.
(d) During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for more than
the number of Option Shares in which Optionee is, at the time of Optionee's
cessation of Service, vested pursuant to the Vesting Schedule specified in the
Grant Notice or the special vesting acceleration provisions of Paragraph 6. Upon
the expiration of such limited exercise period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be outstanding for any
vested Option Shares for which the option has not been exercised. To the extent
Optionee is not vested in the Option Shares at the time of Optionee's cessation
of Service, this option shall immediately terminate and cease to be outstanding
with respect to those shares.
(e) Should Optionee's Service be terminated for Misconduct,
then this option shall terminate immediately and cease to remain outstanding.
6. CORPORATE TRANSACTION.
(a) The Plan does not provide for automatic acceleration of
unvested shares in the event of a Corporate Transaction. In the event of a
Corporate Transaction, all Incentive Options shall be assumed or equivalent
options shall be substituted by the successor
2.
<PAGE> 3
corporation (or other entity) or a parent or subsidiary of such successor
corporation (or other entity). If such successor does not agree to assume the
Incentive Options or to substitute equivalent options therefor, unless the Plan
Administration shall determine otherwise, such options will expire upon such
event.
(b) In the event of the proposed dissolution or liquidation
of the Company, the Plan Administrator shall notify each Optionee at least
thirty (30) days prior to such proposed action. To the extent not previously
exercised, all Incentive Options will terminate immediately prior to
consummation of such proposed action.
(c) Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction, had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan following the
consummation of such Corporate Transaction and (ii) the exercise price payable
per share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
(d) The grant of options under the Plan shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. SHAREHOLDER RIGHTS. The holder of this option shall not have
any shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the record holder
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
3.
<PAGE> 4
(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation; or
(B) a promissory note payable to the
Corporation, but only to the extent authorized by the Plan Administrator
in accordance with Paragraph 14.
Should the Common Stock be registered under Section 12 of the 1934
Act at the time the option is exercised, then the Exercise Price may also
be paid as follows:
(C) in shares of Common Stock held by Optionee
(or any other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(D) to the extent the option is exercised for
vested Option Shares, through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising the
option) shall concurrently provide irrevocable instructions (a) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is utilized
in connection with the option exercise, payment of the Exercise Price must
accompany the Purchase Agreement delivered to the Corporation in
connection with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other
than Optionee) have the right to exercise this option.
(iv) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in order
for it to comply with the applicable requirements of Federal and state
securities laws.
(v) Make appropriate arrangements with the Corporation
(or Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal,
4.
<PAGE> 5
state and local income and employment tax withholding requirements
applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any
fractional shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE
EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION
AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS
SPECIFIED IN THE PURCHASE AGREEMENT.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the
Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq
National Market, if applicable) on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval from
any regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the non-issuance
or sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse,
interest-bearing promissory note secured by those Option Shares. The payment
schedule in effect for any such promissory note shall be established by the Plan
Administrator in its sole discretion.
5.
<PAGE> 6
15. CONSTRUCTION. This Agreement and the option evidenced hereby
are made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
16. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may be issued under the Plan as last approved by the shareholders, then
this option shall be void with respect to such excess shares, unless shareholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the
event this option is designated an Incentive Option in the Grant Notice, the
following terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than six (6) months after the date Optionee ceases to be
an Employee by reason of Permanent Disability.
(b) This option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years thereafter in which
the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b)
would not be contravened, but such deferral shall in all events end immediately
prior to the effective date of a Corporate Transaction in which this option is
not to be assumed, whereupon the option shall become immediately exercisable as
a Non-Statutory Option for the deferred portion of the Option Shares.
(c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
6.
<PAGE> 7
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean AdKnowledge Inc., a California corporation.
G. DISABILITY shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the option shall have
been exercised in accordance with Paragraph 9 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price payable per Option
Share as specified in the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
A-1.
<PAGE> 8
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
M. GRANT DATE shall mean the date of grant of the option as specified
in the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option.
A-2.
<PAGE> 9
T. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PLAN shall mean the Corporation's 1998 Stock Option/Stock Issuance
Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
X. PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
Y. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant.
Z. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AB. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
A-3.
<PAGE> 1
EXHIBIT 10.27
ADKNOWLEDGE INC.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made this
______day of ______________________ 199___, by and between AdKnowledge Inc., a
California corporation, and ___________________, Optionee under the
Corporation's 1998 Stock Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases ________ shares of Common
Stock (the "Purchased Shares") pursuant to that certain option (the "Option")
granted Optionee on ____________________, 199__ (the "Grant Date") to purchase
up to _______________ shares of Common Stock (the "Option Shares") under the
Plan at the exercise price of $___________ per share (the "Exercise Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares
in accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. SHAREHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right or the First Refusal Right, Optionee (or any
successor in interest) shall have all the rights of a shareholder (including
voting, dividend and liquidation rights) with respect to the Purchased Shares,
subject, however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee is prepared to hold the Purchased
Shares for an indefinite period and that Optionee is aware that
<PAGE> 2
SEC Rule 144 issued under the 1933 Act which exempts certain resales of
unrestricted securities is not presently available to exempt the resale of the
Purchased Shares from the registration requirements of the 1933 Act.
2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee
shall make no disposition of the Purchased Shares (other than a Permitted
Transfer) unless and until there is compliance with all of the following
requirements:
(i) Optionee shall have provided the Corporation with
a written summary of the terms and conditions of the proposed disposition.
(ii) Optionee shall have complied with all requirements
of this Agreement applicable to the disposition of the Purchased Shares.
(iii) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that (a) the proposed disposition does not require registration of the
Purchased Shares under the 1933 Act or (b) all appropriate action
necessary for compliance with the registration requirements of the 1933
Act or any exemption from registration available under the 1933 Act
(including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a "no action" letter of the Securities and
Exchange Commission with respect to such sale or offer or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the Corporation
and accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated ________________________, 199____ between the Corporation and the
registered holder of the shares (or the predecessor in interest to the shares).
A copy of such agreement is maintained at the Corporation's principal corporate
offices."
2.
<PAGE> 3
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Optionee.
3. MARKET STAND-OFF.
(a) In connection with any underwritten public offering by
the Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided
and only if the officers and directors of the Corporation are also subject to
similar restrictions.
(c) Any new, substituted or additional securities which are
by reason of any Recapitalization or Reorganization distributed with respect to
the Purchased Shares shall be immediately subject to the Market Stand-Off, to
the same extent the Purchased Shares are at such time covered by such
provisions.
(d) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee
3.
<PAGE> 4
ceases for any reason to remain in Service or (if later) during the sixty
(60)-day period following the execution date of this Agreement, to repurchase at
the Exercise Price any or all of the Purchased Shares in which Optionee is not,
at the time of his or her cessation of Service, vested in accordance with the
Vesting Schedule applicable to those shares or the special vesting acceleration
provisions of Paragraph D.6 of this Agreement (such shares to be hereinafter
referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
(i) the First Refusal Right and (ii) the Market Stand-Off.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
5. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
4.
<PAGE> 5
6. CORPORATE TRANSACTION.
(a) The Repurchase Right shall automatically lapse in its
entirety in the event of a Corporate Transaction unless it is expressly assigned
by the Corporation to another party to such Corporate Transaction in connection
with the Corporate Transaction.
(b) This Agreement shall not in any way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise make changes in
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets..
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the provisions of Article D. For purposes of this Article E, the term "transfer"
shall include any sale, assignment, pledge, encumbrance or other disposition of
the Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice upon the same terms as those specified therein or upon
such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within
5.
<PAGE> 6
twenty (20) days after the Corporation's receipt of the Disposition Notice, each
shall select an appraiser of recognized standing and the two (2) appraisers
shall designate a third appraiser of recognized standing, whose appraisal shall
be determinative of such value. The cost of such appraisal shall be shared
equally by Owner and the Corporation. The closing shall then be held on the
later of (i) the fifth (5th) business day following delivery of the Exercise
Notice or (ii) the fifth (5th) business day after such valuation shall have been
made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the First Refusal Right, but the acquired shares shall remain subject to the
provisions of Article B and Paragraph C.3. In the event Owner does not effect
such sale or disposition of the Target Shares within the specified thirty
(30)-day period, the First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
(i) sale or other disposition of all the Target Shares
to the third-party offeror identified in the Disposition Notice, but in
full compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the
Target Shares which the Corporation has elected to purchase, such sale to
be effected in substantial conformity with the provisions of Paragraph
E.3. The First Refusal Right shall continue to be applicable to any
subsequent disposition of the remaining Target Shares until such right
lapses.
Owner's failure to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall
6.
<PAGE> 7
be immediately subject to the First Refusal Right, but only to the extent the
Purchased Shares are at the time covered by such right.
(b) In the event of a Reorganization, the First Refusal
Right shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Reorganization, but only to the extent the Purchased Shares
are at the time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest
to occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more shareholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
7.
<PAGE> 8
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Optionee. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
1. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
2. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
3. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
8.
<PAGE> 9
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Optionee, Optionee's permitted assigns and the legal
representatives, heirs and legatees of Optionee's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
ADKNOWLEDGE INC.
By: ___________________________________
Title: ________________________________
Address: ______________________________
______________________________
_______________________________________
OPTIONEE
Address: ______________________________
______________________________
9.
<PAGE> 10
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested at time of his or her cessation of Service.
_______________________________________
OPTIONEE'S SPOUSE
Address: ______________________________
_______________________________________
10.
<PAGE> 11
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ________________ hereby sell(s), assign(s) and
transfer(s) unto AdKnowledge Inc. (the "Corporation"), _______________ (_______)
shares of the Common Stock of the Corporation standing in his or her name on the
books of the Corporation represented by Certificate No. ________________
herewith and do(es) hereby irrevocably constitute and appoint _________________
Attorney to transfer the said stock on the books of the Corporation with full
power of substitution in the premises.
Dated: ________________
Signature _____________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE> 12
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(b) ELECTION FOR
EXERCISE OF NON-STATUTORY OPTION. If the Purchased Shares are acquired pursuant
to the exercise of a Non-Statutory Option, as specified in the Grant Notice,
then under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code Section
83(b) to be taxed at the time the Purchased Shares are acquired, rather than
when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the Fair Market
Value of the Purchased Shares on the date of the Agreement equals the Exercise
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
II. FEDERAL INCOME TAX CONSEQUENCES AND CONDITIONAL SECTION 83(b)
ELECTION FOR EXERCISE OF INCENTIVE OPTION. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the Purchased
Shares:
(i) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
(ii) The excess of (a) the Fair Market Value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over (b) the
Exercise Price paid for the Purchased Shares will be includible in Optionee's
taxable income for alternative minimum tax purposes.
(iii) If Optionee makes a disqualifying disposition of the
Purchased Shares, then Optionee will recognize ordinary income in the year of
such disposition equal in amount to the excess of (a) the Fair Market Value of
the Purchased Shares on the date the Option is exercised or (if later) on the
date any forfeiture restrictions applicable to the Purchased Shares lapse over
(b) the Exercise Price paid for the Purchased Shares. Any additional gain
recognized upon the disqualifying disposition will be either short-term or
long-term capital gain depending upon the period for which the Purchased Shares
are held prior to the disposition.
II-1.
<PAGE> 13
(iv) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right. The term "disqualifying
disposition" means any sale or other disposition(1) of the Purchased Shares
within two (2) years after the Grant Date or within one (1) year after the
exercise date of the Option.
(v) In the absence of final Treasury Regulations relating to
Incentive Options, it is not certain whether Optionee may, in connection with
the exercise of the Option for any Purchased Shares at the time subject to
forfeiture restrictions, file a protective election under Code Section 83(b)
which would limit (a) Optionee's alternative minimum taxable income upon
exercise and (b) Optionee's ordinary income upon a disqualifying disposition to
the excess of the Fair Market Value of the Purchased Shares on the date the
Option is exercised over the Exercise Price paid for the Purchased Shares.
Accordingly, such election if properly filed will only be allowed to the extent
the final Treasury Regulations permit such a protective election. Page 2 of the
attached form for making the election should be filed with any election made in
connection with the exercise of an Incentive Option.
- ------------
(1) Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.
II-2.
<PAGE> 14
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
____________shares of the common stock of AdKnowledge Inc.
(3) The property was issued on _________________, 199 _____.
(4) The taxable year in which the election is being made is the calendar year
199____.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if
for any reason taxpayer's service with the issuer terminates. The issuer's
repurchase right lapses in a series of annual and monthly installments
over a four (4)-year period ending on ________________, 200____.
(6) 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) is $_______________per share.
(7) The amount paid for such property is $__________________ per share.
(8) A copy of this statement was furnished to AdKnowledge Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on ___________________, 199__.
______________________________ ______________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 15
The property described in the above Section 83(b) election is
comprised of shares of common stock acquired pursuant to the exercise of an
incentive stock option under Section 422 of the Internal Revenue Code (the
"Code"). Accordingly, it is the intent of the Taxpayer to utilize this election
to achieve the following tax results:
1. The purpose of this election is to have the alternative
minimum taxable income attributable to the purchased shares measured by the
amount by which the fair market value of such shares at the time of their
transfer to the Taxpayer exceeds the purchase price paid for the shares. In the
absence of this election, such alternative minimum taxable income would be
measured by the spread between the fair market value of the purchased shares and
the purchase price which exists on the various lapse dates in effect for the
forfeiture restrictions applicable to such shares. The election is to be
effective to the full extent permitted under the Code.
2. Section 421(a)(1) of the Code expressly excludes from income
any excess of the fair market value of the purchased shares over the amount paid
for such shares. Accordingly, this election is also intended to be effective in
the event there is a "disqualifying disposition" of the shares, within the
meaning of Section 421(b) of the Code, which would otherwise render the
provisions of Section 83(a) of the Code applicable at that time. Consequently,
the Taxpayer hereby elects to have the amount of disqualifying disposition
income measured by the excess of the fair market value of the purchased shares
on the date of transfer to the Taxpayer over the amount paid for such shares.
Since Section 421(a) presently applies to the shares which are the subject of
this Section 83(b) election, no taxable income is actually recognized for
regular tax purposes at this time, and no income taxes are payable, by the
Taxpayer as a result of this election.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.
2.
<PAGE> 16
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean AdKnowledge Inc., a California corporation.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
I. EXERCISE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
J. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
K. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation
in accordance with Article E.
L. GRANT DATE shall have the meaning assigned to such term in
Paragraph A.1.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option pursuant
to which Optionee has been informed of the basic terms of the Option.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code
A-1
<PAGE> 17
Section 422.
O. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
P. 1933 ACT shall mean the Securities Act of 1933, as amended.
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTION shall have the meaning assigned to such term in
Paragraph A.1.
T. OPTION AGREEMENT shall mean all agreements and other documents
evidencing the Option.
U. OPTIONEE shall mean the person to whom the Option is granted under
the Plan.
V. OWNER shall mean Optionee and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Optionee.
W. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
X. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
Y. PLAN shall mean the Corporation's 1998 Stock Option/Stock Issuance
Plan.
Z. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
AA. PRIOR PURCHASE AGREEMENT shall have the meaning assigned to such
term in Paragraph D.4.
AB. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
A-2
<PAGE> 18
AC. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
AD. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or persons
different from the persons holding those securities immediately prior to
the merger, or
(iv) any transaction effected primarily to change the state
in which the Corporation is incorporated or to create a holding company
structure.
AE. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
AF. SEC shall mean the Securities and Exchange Commission.
AG. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
AH. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AI. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AJ. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
AK. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-3
<PAGE> 1
EXHIBIT 10.28
ADKNOWLEDGE INC.
STOCK ISSUANCE AGREEMENT
This Stock Issuance Agreement (this "Agreement") is made as of this
____ day of _____________ 199__, by and between AdKnowledge Inc., a California
corporation, and _________________, Participant in the Corporation's 1998 Stock
Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
1. PURCHASE. Participant hereby purchases ______________ shares
of Common Stock (the "Purchased Shares") pursuant to the provisions of the Stock
Issuance Program at the purchase price of $_____________ per share (the
"Purchase Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Participant shall pay the Purchase Price for the Purchased
Shares in cash or cash equivalent and shall deliver a duly-executed blank
Assignment Separate from Certificate (in the form attached hereto as Exhibit I)
with respect to the Purchased Shares.
3. SHAREHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right or the First Refusal Right, Participant (or any
successor in interest) shall have all shareholder rights (including voting,
dividend and liquidation rights) with respect to the Purchased Shares, subject,
however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Participant in reliance
upon the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Participant hereby
confirms that Participant has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Participant hereby acknowledges that Participant is prepared to hold the
Purchased Shares for an indefinite period and that Participant is aware that SEC
Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
2. DISPOSITION OF PURCHASED SHARES. Participant shall make no
disposition of the Purchased Shares (other than a Permitted Transfer) unless and
until there is compliance with all of the following requirements:
(i) Participant shall have provided the Corporation with a
written summary of the terms and conditions of the proposed disposition.
<PAGE> 2
(ii) Participant shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(iii) Participant shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation, that
(a) the proposed disposition does not require registration of the Purchased
Shares under the 1933 Act or (b) all appropriate action necessary for compliance
with the registration requirements of the 1933 Act or any exemption from
registration available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a "no action" letter of the Securities and
Exchange Commission with respect to such sale or offer or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the Corporation
and accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated _____________, 199__ between the Corporation and the registered holder of
the shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Corporation's principal corporate offices."
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Participant.
2.
<PAGE> 3
3. MARKET STAND-OFF.
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off provided and
only if the officers and directors of the Corporation are also subject to
similar restrictions.
(c) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the Corporation may
impose stop-transfer instructions with respect to the Purchased Shares until the
end of the applicable stand-off period.
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price any or all of the Purchased Shares in which
Participant is not, at the time of his or her cessation of Service, vested in
accordance with the provisions of the Vesting Schedule set forth in Paragraph
D.3 or the special vesting acceleration provisions of Paragraph D.5 (such shares
to be hereinafter referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3.
<PAGE> 4
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Participant vests in accordance with the following Vesting Schedule:
Participant shall vest in twenty-five percent (25%) of the
Purchased Shares, and the Repurchase Right shall concurrently lapse with
respect to those Purchased Shares, upon Participant's completion of one
(1) year of Service measured from ____________________, 199__.
Participant shall vest in the remaining seventy-five percent
(75%) of the Purchased Shares, and the Repurchase Right shall concurrently
lapse with respect to those Purchased Shares, in a series of thirty-six
(36) successive equal monthly installments upon Participant's completion
of each additional month of Service over the thirty-six (36)-month period
measured from the date on which the first twenty-five percent (25%) of the
Purchased Shares vests hereunder.
All Purchased Shares as to which the Repurchase Right lapses shall,
however, remain subject to (i) the First Refusal Right and (ii) the Market
Stand-Off.
4. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
5. CORPORATE TRANSACTION.
(i) The Repurchase Right shall automatically lapse in its
entirety in the event of a Corporate Transaction unless it is expressly
assigned by the Corporation to another party to such Corporate Transaction
in connection with the Corporate Transaction.
(ii) This Agreement shall not in any way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise make
changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
E. RIGHT OF FIRST REFUSAL
4.
<PAGE> 5
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Participant has vested in accordance
with the provisions of Article D. For purposes of this Article E, the term
"transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition of the Purchased Shares intended to be made by Owner, but shall not
include any Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Participant has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice upon the same terms as those specified therein or upon
such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall
5.
<PAGE> 6
acquire the Target Shares free and clear of the First Refusal Right, but the
acquired shares shall remain subject to the provisions of Article B and
Paragraph C.3. In the event Owner does not effect such sale or disposition of
the Target Shares within the specified thirty (30)-day period, the First Refusal
Right shall continue to be applicable to any subsequent disposition of the
Target Shares by Owner until such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
(i) sale or other disposition of all the Target Shares
to the third-party offeror identified in the Disposition Notice, but in
full compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the
Target Shares which the Corporation has elected to purchase, such sale to
be effected in substantial conformity with the provisions of Paragraph
E.3. The First Refusal Right shall continue to be applicable to any
subsequent disposition of the remaining Target Shares until such right
lapses.
Owner's failure to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal
Right shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Reorganization, but only to the extent the Purchased Shares
are at the time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest
to occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
6.
<PAGE> 7
F. SPECIAL TAX ELECTION
1. SECTION 83(b) ELECTION. Under Code Section 83, the excess of
the Fair Market Value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the date of this
Agreement. Even if the Fair Market Value of the Purchased Shares on the date of
this Agreement equals the Purchase Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. THE FORM
FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO. PARTICIPANT
UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY
(30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE
FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more shareholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Participant any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Participant) or of Participant, which rights are hereby expressly
reserved by each, to terminate Participant's Service at any time for any reason,
with or without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this
7.
<PAGE> 8
Agreement or any other agreement between the Corporation and Participant. No
waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other or subsequent breach or condition, whether of like or
different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
1. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
2. PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.
3. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
ADKNOWLEDGE INC.
8.
<PAGE> 9
By: ___________________________________
Title: ________________________________
Address: ______________________________
______________________________
_______________________________________
PARTICIPANT
Address: ______________________________
______________________________
9.
<PAGE> 10
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Participant has read and hereby approves
the foregoing Stock Issuance Agreement. In consideration of the Corporation's
granting Participant the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which Participant is not vested at the time of his or her
cessation of Service.
_______________________________________
PARTICIPANT'S SPOUSE
Address: ______________________________
_______________________________________
10.
<PAGE> 11
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ________________________ hereby sell(s),
assign(s) and transfer(s) unto AdKnowledge Inc. (the "Corporation"),
_______________ (____) shares of the Common Stock of the Corporation standing in
his or her name on the books of the Corporation represented by Certificate No.
___________ herewith and do(es) hereby irrevocably constitute and appoint
_________________________ Attorney to transfer the said stock on the books of
the Corporation with full power of substitution in the premises.
Dated: __________
Signature _____________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE> 12
EXHIBIT II
SECTION 83(b) TAX ELECTION
<PAGE> 13
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
_______________ shares of the common stock of AdKnowledge Inc.
(3) The property was issued on _________________, 199___.
(4) The taxable year in which the election is being made is the calendar year
199__.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if
for any reason taxpayer's service with the issuer terminates. The issuer's
repurchase right lapses in a series of annual and monthly installments
over a four (4)-year period ending on _________________, 200__.
(6) 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) is $______ per share.
(7) The amount paid for such property is $ __________ per share.
(8) A copy of this statement was furnished to AdKnowledge Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on ________________, 199__.
______________________________ ______________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 14
EXHIBIT III
1998 STOCK OPTION/STOCK ISSUANCE PLAN
<PAGE> 15
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Issuance Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean AdKnowledge Inc., a California corporation.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
I. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
J. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation
in accordance with Article E.
K. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
N. PARENT shall mean any corporation (other than the Corporation) in an
unbroken
A-1.
<PAGE> 16
chain of corporations ending with the Corporation, provided each corporation in
the unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
O. PARTICIPANT shall mean the person to whom shares are issued under
the Stock Issuance Program.
P. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
Q. PLAN shall mean the Corporation's 1998 Stock Option/Stock Issuance
Plan attached hereto as Exhibit III.
R. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
S. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
T. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
U. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
V. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iv) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or persons
different from the persons holding those securities immediately prior to
the merger, or
(iv) any transaction effected primarily to change the state
in which the Corporation is incorporated or to create a holding company
structure.
W. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
A-2.
<PAGE> 17
X. SEC shall mean the Securities and Exchange Commission.
Y. SERVICE shall mean the Participant's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
Z. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program under
the Plan.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AB. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AC. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph D.3 pursuant to which Participant is to vest in the Purchased Shares
in a series of installments over the Participant's period of Service.
AD. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-3.
<PAGE> 1
EXHIBIT 10.29
ADKNOWLEDGE INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of AdKnowledge Inc. (the "Corporation"):
Optionee: ________________________________________________________
Grant Date: ______________________________________________________
Vesting Commencement Date: _______________________________________
Exercise Price: $__________ per share
Number of Option Shares: __________ shares of Common Stock
Expiration Date: _________________________________________________
Type of Option: __________ Incentive Stock Option
__________ Non-Statutory Stock Option
Date Exercisable: Immediately Exercisable
Vesting Schedule: The Option Shares shall initially be unvested and
subject to repurchase by the Corporation at the Exercise Price paid
per share. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall accordingly lapse with respect
to, (i) twenty-five percent (25%) of the Option Shares upon
Optionee's completion of one (1) year of Service measured from the
Vesting Commencement Date and (ii) the balance of the Option Shares
in a series of thirty-six (36) successive equal monthly installments
upon Optionee's completion of each additional month of Service over
the thirty-six (36)-month period measured from the first anniversary
of the Vesting Commencement Date. In no event shall any additional
Option Shares vest after Optionee's cessation of Service.
Optionee understands and agrees that the Option is granted subject
to and in accordance with the terms of the AdKnowledge Inc. 1998 Stock
Option/Stock Issuance Plan (the "Plan"). Optionee further agrees to be bound by
the terms of the Plan and the terms of the Option as set forth in the Stock
Option Agreement attached hereto as Exhibit A.
Optionee understands that any Option Shares purchased under the
Option will be subject to the terms set forth in the Stock Purchase Agreement
attached hereto as Exhibit B. Optionee hereby acknowledges receipt of a copy of
the Plan in the form attached hereto as Exhibit C.
<PAGE> 2
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE
RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS
ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE
AGREEMENT.
No Employment or Service Contract. Nothing in this Notice or in the
attached Stock Option Agreement or Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
DATED: _________________, 199__
ADKNOWLEDGE INC.
By: ____________________________________
Title: _________________________________
________________________________________
OPTIONEE
Address: _______________________________
_______________________________
ATTACHMENTS:
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - STOCK PURCHASE AGREEMENT
EXHIBIT C - 1998 STOCK OPTION/STOCK ISSUANCE PLAN
2.
<PAGE> 3
EXHIBIT A
STOCK OPTION AGREEMENT
(See Exhibit 10.26)
A-1.
<PAGE> 4
EXHIBIT B
STOCK PURCHASE AGREEMENT
(See Exhibit 10.27)
B-1
<PAGE> 5
EXHIBIT C
1998 STOCK OPTION/STOCK ISSUANCE PLAN
(See Exhibit 10.25)
C-1.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated June 25, 1999, relating to the financial statements and financial
statement schedules of AdKnowledge Inc., which appear in such Registration
Statement. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Registration Statement.
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated June 25, 1999, relating to the financial statements of Focalink
Communications, Inc. which appears in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 5,052 1,165
<SECURITIES> 1,504 0
<RECEIVABLES> 1,264 618
<ALLOWANCES> 154 89
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,048 2,193
<PP&E> 4,846 2,521
<DEPRECIATION> 1,479 911
<TOTAL-ASSETS> 14,351 7,097
<CURRENT-LIABILITIES> 3,339 3,740
<BONDS> 0 0
0 0
39 24
<COMMON> 6 5
<OTHER-SE> 8,281 1,628
<TOTAL-LIABILITY-AND-EQUITY> 14,351 7,097
<SALES> 0 0
<TOTAL-REVENUES> 1,636 2,421
<CGS> 0 0
<TOTAL-COSTS> 2,523 3,109
<OTHER-EXPENSES> 3,595 4,223
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 327 252
<INCOME-PRETAX> (7,671) (10,258)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,671) (10,258)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,671) (10,258)
<EPS-BASIC> (0.61) (1.27)
<EPS-DILUTED> (0.61) (1.27)
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