<PAGE>
As filed with the Securities and Exchange Commission on December 10, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
PRIME RESPONSE, INC.
(Exact name of registrant as specified in its charter)
-------------------
<TABLE>
<S> <C> <C>
Delaware 7372 13-3972166
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
</TABLE>
150 CambridgePark Drive
Cambridge, Massachusetts 02140
(617) 876-8300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Peter J. Boni
President and Chief Executive Officer
Prime Response, Inc.
150 CambridgePark Drive
Cambridge, Massachusetts 02140
(617) 876-8300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
Copies to:
<TABLE>
<S> <C>
John A. Burgess, Esq. Mark H. Burnett, Esq.
Peter B. Tarr, Esq. Kathy A. Fields, Esq.
Hale and Dorr LLP Testa, Hurwitz & Thibeault, LLP
60 State Street 125 High Street
Boston, Massachusetts 02109 Boston, Massachusetts 02110
Telephone: (617) 526-6000 Telephone: (617) 248-7000
Telecopy: (617) 526-5000 Telecopy: (617) 248-7100
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
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,
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. [X]
-------------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Amount of
Securities to be Registered Aggregate Offering Price(1) Registration Fee
- -----------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per
share................................ $52,325,000 $13,813.80
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933, as amended.
-------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER , 1999
[PRIME RESPONSE LOGO APPEARS HERE]
Shares
Common Stock
Prime Response, Inc. is offering shares of its common stock. This is our
initial public offering and no public market currently exists for our shares.
We have applied for approval for quotation on the Nasdaq National Market under
the symbol "PRME" for the shares we are offering. We have also applied to list
the shares we are offering on EASDAQ under the symbol " ." We anticipate
that the initial public offering price will be between $ and $ per share.
--------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 5.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Prime Response, Inc................................. $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Prime Response has granted the underwriters a 30-day option to purchase up to
an additional shares of common stock to cover over-allotments.
--------------
Robertson Stephens
Dain Rauscher Wessels
SG Cowen
The date of this Prospectus is , 1999.
<PAGE>
[Insert Graphics, inside cover]
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus, "Prime
Response," "we," "us" and "our" refer to Prime Response, Inc. together with its
wholly owned subsidiaries Prime Response U.S., Inc., Prime Response Limited,
Prime Response Pty. Ltd., Prime Response SARL, and Prime Response Limited
(Ireland) (unless the context otherwise requires).
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 5
Note Regarding Forward-Looking Statements................................ 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 21
Business................................................................. 35
Management............................................................... 47
Certain Transactions..................................................... 55
Principal Stockholders................................................... 58
Description of Capital Stock............................................. 60
Shares Eligible for Future Sale.......................................... 62
Underwriting............................................................. 64
Certain United States Federal Tax Consequences for Non-U.S. Holders...... 67
EASDAQ Information....................................................... 69
Legal Matters............................................................ 69
Experts.................................................................. 69
Where You Can Find More Information...................................... 69
Index to Financial Statements............................................ F-1
</TABLE>
---------------------
Prime Response, Prime Vantage, Prime@Vantage and [email protected] are
trademarks of Prime Response. All other trademarks and trade names used in the
prospectus are the property of their respective owners.
<PAGE>
SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding our company
and the common stock being sold in this offering.
Our Company
Prime Response is a leading provider of integrated eMarketing software
solutions that enable businesses with large customer bases to create, manage
and execute highly targeted internet and traditional marketing campaigns to
build more loyal and profitable customer relationships. Our software solutions
leverage our 12 years of experience in the design, implementation and
management of marketing campaigns to create tailored interactions that draw on
the collective memory of our clients' customers developed through all marketing
touch points. Our products are designed to help our clients to more effectively
market and sell to their customers by delivering more personalized marketing
messages over the customers' preferred channel, whether internet or
traditional. Using our products, businesses are able to:
. lower the cost of acquiring and retaining customers;
. focus marketing efforts on their most profitable customers;
. optimize the use of marketing channels around customer preferences;
. increase customer retention and loyalty; and
. maximize lifetime value of customers through cross selling.
Our latest product offerings, Prime@Vantage and [email protected], which
are scheduled for commercial introduction in December 1999, will provide
clients with a web-based, multi-channel marketing solution. Using
[email protected], our clients will be able to create and manage comprehensive
marketing campaigns that utilize inbound and outbound e-mail, customized
website content, banner advertising and other internet advertising, along with
more traditional direct and indirect marketing techniques, to develop and
deploy immediate, personalized marketing messages to existing and potential
customers.
We focus on key vertical industries that have a critical need for advanced
marketing management solutions, including communications and media, financial
services and retail and e-commerce. Our clients include Fortune 1000 businesses
as well as leading e-commerce businesses. Today, more than 70 clients use our
products to manage millions of customer relationships. Our clients include
leaders in communications and media, including Air Touch and Media One, in the
financial services industry, such as Deutsche Bank and the Royal Bank of
Scotland, in retail and e-commerce, including Boots and CVS, as well as such
other major enterprises as British Airways and Dell Computer. We utilize our
direct sales force and key industry partners such as Andersen Consulting, NCR
and SAS Institute to sell and market our products.
We were founded in 1987 in the United Kingdom. Prior to 1999 our corporate
headquarters were located in London and our primary focus was on the European
market. In 1998, we began to increasingly target the United States market, and
in July 1999, moved our corporate headquarters to Cambridge, Massachusetts. Our
strategy is to become a leading supplier of integrated eMarketing solutions by
building on our position in Europe, rapidly expanding our presence in the
United States and other key markets, continuing to grow our direct sales force,
and expanding our strategic marketing relationships.
1
<PAGE>
Our Address
Prime Response's principal executive offices are located at 150
CambridgePark Drive, Cambridge, Massachusetts 02140 and our telephone number at
that location is (617) 876-8300. Our website is located at
www.primeresponse.com. Information contained in our website is not part of this
prospectus.
--------------------
The Offering
<TABLE>
<C> <S>
Common stock offered............................ shares
Common stock outstanding after the offering..... shares
Use of proceeds................................. An aggregate of approximately
$10.4 million of the net
proceeds will be paid to some
holders of series B preferred
stock upon the closing of
this offering in accordance
with the terms of the
preferred stock,
approximately $4.3 million
will be used to pay a
promissory note to be issued
to one of our stockholders,
and the remaining net
proceeds will be used to
expand our United States
operations and to fund
continued growth and
expansion of our business,
product development,
potential acquisitions and
other general corporate
purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.......... PRME
Proposed EASDAQ symbol..........................
</TABLE>
--------------------
Common stock outstanding after the offering is based on the number of
shares outstanding as of November 15, 1999, and except as otherwise noted, all
information in this prospectus:
. reflects the automatic conversion of all of our outstanding shares of
preferred stock into an aggregate of 6,323,873 shares of common stock
upon completion of this offering (including conversion of 833,331
shares of series C preferred stock which were issued in October 1999
upon conversion of promissory notes);
. reflects the issuance of an aggregate of 2,861,806 shares of common
stock to holders of the preferred stock upon completion of this
offering in payment of accrued dividends and as required by other terms
of the preferred stock and assumes the closing of this offering on
February 15, 2000 (includes 60,958 shares of common stock issued for
dividends accrued in the period October 1, 1999 through February 15,
2000);
. reflects the issuance of 474,871 shares of common stock upon the
cashless exercise of 564,039 outstanding warrants which one of our
stockholders has indicated will be exercised prior to completion of
this offering;
. excludes 1,371,340 shares issuable upon the exercise of outstanding
options with a weighted average exercise price of $4.65 per share;
. excludes 2,005,160 shares (including 1,125,000 shares which were
authorized as of November 17, 1999) available for issuance and grant
under our 1998 Stock Option/Stock Issuance Plan;
. excludes 427,806 shares issued to an affiliate of Andersen Consulting
and 1,432,282 shares issuable upon the exercise of outstanding warrants
held by Andersen Consulting;
. reflects a three-for-four reverse stock split of all of our outstanding
shares of common stock to be effected before completion of this
offering; and
. assumes no exercise of the underwriters' over-allotment option.
2
<PAGE>
Summary Consolidated Financial Data
(dollars in thousands, except per share data)
Set forth below are summary consolidated statements of operations data for
the years ended December 31, 1996, 1997 and 1998, the nine months ended
September 30, 1998 and 1999. Also set forth below are summary consolidated
balance sheet data as of September 30, 1999, which were prepared as follows:
. on an actual basis, without any adjustments to reflect subsequent
events or anticipated events;
. on a pro forma basis to reflect the following:
. automatic conversion of all outstanding shares of preferred stock
into an aggregate of 5,698,875 shares of common stock;
. issuance of an aggregate of 2,592,515 shares of common stock to
holders of the preferred stock in payment of accrued dividends and
participation feature and an aggregate cash payment of $10.1
million to some holders of preferred stock; and
. significant events which have occurred subsequent to September 30,
1999 including:
. conversion of $2.5 million in stockholder loans to 833,331
shares of series C preferred stock, which convert into 624,998
shares of common stock and a participation payment of 208,333
shares of common stock upon the initial public offering;
. receipt of a $2.0 million term loan; and
. issuance of 427,806 shares of common stock and warrants to
purchase 1,432,282 shares of common stock at an exercise price
of $9.35 per share for proceeds of $4.0 million;
. on a pro forma as adjusted basis to reflect the following:
. sale of the shares of common stock offered by us in this offering
and our receipt of the estimated net proceeds, after deducting the
estimated underwriting discounts and commissions and the estimated
offering expenses that we expect to pay in connection with this
offering;
. accretion of preferred stock dividends of approximately $1.0
million from October 1, 1999 through February 15, 2000 which will
be paid in a cash payment of $ and shares of common stock;
. issuance of 474,871 shares of common stock upon the cashless
exercise of 564,039 outstanding warrants which one of our
stockholders has indicated will be exercised prior to completion of
this offering;
. exercise of option to repurchase 1,249,500 shares of common stock
from a principal shareholder at $3.42 per share.
3
<PAGE>
This information should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Software licenses........ $ 795 $ 2,933 $ 8,495 $ 3,490 $ 5,278
Services and support..... 1,410 2,495 4,214 2,341 4,596
Applications hosting..... 4,764 4,754 3,827 2,437 3,193
-------- -------- -------- --------- --------
Total revenues.......... 6,969 10,182 16,536 8,268 13,067
Net loss.................. (650) (2,245) (14,603) (14, 266) (15,521)
Preferred stock dividends
and recognition of
beneficial conversion
feature on preferred
stock................... -- (607) (2,015) (1,437) (4,356)
-------- -------- -------- --------- --------
Net loss attributable to
common
stockholders............ $ (650) $ (2,852) $(16,618) $ (15,703) $(19,877)
Net loss per share--basic
and diluted............. $ (6,500) $ (2.43) $ (2.36) $ (2.23) $ (2.72)
Weighted average shares
used in computing basic
and diluted net loss per
share................... -- 1,173 7,035 7,035 7,318
Unaudited pro forma net
loss per share--basic
and diluted............. $ (1.39) $ (1.45)
Shares used in computing
unaudited pro forma
basic and diluted net
loss per share.......... 11,944 13,675
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- ------ -----------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 2,470 $ --
Working capital................................. (3,544) (7,163)
Total assets.................................... 14,084 11,614
Short-term and long-term debt and capital lease
obligations................................... 1,115 3,115
Redeemable convertible preferred stock.......... 39,904 --
Stockholders' equity (deficit).................. (42,077) (5,792)
</TABLE>
4
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Additional risks that are not yet identified or that we currently think
are immaterial may also impair our business operations. Our business,
operating results and financial condition could be adversely affected by any
of the following risks. The trading price of our common stock could decline
due to any of these risks, and you could lose all or part of your investment.
You should also refer to the other information set forth in this prospectus,
including our financial statements and the related notes.
Risk Related To Our Business
Our quarterly operating results may fluctuate because we depend on a small
number of large orders.
We derive a significant portion of our software license revenues in each
quarter from a small number of relatively large orders. The criteria for a
client's acceptance of a product may delay our ability to recognize revenue
from the products we ship. Our operating results for a particular fiscal
period could be materially adversely affected if we are unable to complete
those transactions, or satisfy our clients' acceptance criteria, on schedule
at anticipated levels.
Disappointing quarterly revenues or operating results could cause the price of
our common stock to fall.
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. Therefore, you should not
rely on period-to-period comparisons of revenues or results of operations as
an indication of future performance. If our quarterly revenues or operating
results fall below the expectations of investors or securities analysts, the
price of our common stock could fall substantially.
Our quarterly license revenues may fluctuate as a result of a variety of
factors, including the following:
. software license revenues in any quarter depend on contracts closed,
orders shipped and the satisfaction of clients' acceptance criteria in
that quarter;
. the market in which we compete is relatively new and rapidly evolving;
. we expect that, for the foreseeable future, revenues will come from
licenses to a small number of clients, so delays, cancellations of
orders, or acceptance of our software by a few clients can
significantly impact revenues within a quarter;
. our sales cycle is relatively long; and
. revenues will be affected by the timing of introduction of new
products or product enhancements by us or our competitors.
Any decline in license revenues could also cause a decline in our services
and support revenues in the same quarter or in subsequent quarters.
In the future, we may experience seasonality in our business, particularly
because we do a significant percentage of our business in Europe, which
typically experiences a slowdown in business during August, and because our
products typically involve a significant initial investment, the availability
of which is often dependent on our clients' fiscal periods.
Most of our expenses, such as employee compensation, sales and marketing
expenses, computer equipment costs and rent for properties, are either
relatively fixed in the short term or incurred in advance of sales. Moreover,
our expense levels are based, in part, on our expectations regarding future
revenues. As a result, if revenues for a particular quarter are below our
expectations, we will most likely not be able to proportionately reduce
operating expenses for that quarter. Therefore, a shortfall in revenues would
have a
5
<PAGE>
disproportionate effect on our expected operating results for that quarter and
could cause the trading price of our common stock to decline.
We have granted warrants which become exercisable upon attainment of
certain revenue targets. Because we cannot predict if and when these targets
will be attained, we cannot predict when charges to expenses related to these
warrants will be incurred. Furthermore, the amount of these charges will depend
on the price of our common stock when the warrants are earned.
We have incurred substantial operating losses, and we may not be profitable in
the future.
In 1995, we began to transition from a marketing database service bureau to
a software company. Since that time, we have incurred substantial operating
losses. We cannot be certain if or when we will become profitable. Failure to
achieve profitability within the timeframe expected by investors or to maintain
profitability may adversely affect the market price of our common stock. At
September 30, 1999, we had an accumulated deficit of $40.6 million. In recent
periods, we have increased expenditures in certain areas, particularly in sales
and marketing in the United States and in product development. We expect our
sales and marketing expenses to continue to increase. Although we have
experienced revenue growth in recent periods, we cannot be certain that these
growth rates are sustainable at a level to cover our anticipated expenses, if
at all.
We are introducing a new product family and are dependent on its market
acceptance.
We are introducing the latest generation of our marketing management
solutions--Prime@Vantage, which introduces a new software architecture, and
[email protected], which introduces new functionality, including the ability to
generate immediate and personalized marketing initiatives over the internet.
Achievement of our overall business goals is dependent upon the sustained
market acceptance at desired pricing levels of these new products. If we are
unable to introduce these products commercially on a timely and successful
basis, or if they do not achieve and sustain market acceptance due to bugs, a
lack of functionality considered important in the marketplace, or any other
reason, we will experience a material adverse effect on our business,
prospects, operating results and financial condition.
Our management team may not successfully implement our business strategy
because it has only recently begun to work together.
Only one member of our senior management team in the United States was
employed with us before January 1, 1999. Members of our senior management team
in the United States have worked together, and with members of our senior
management outside the United States, for only a short period of time. They may
not work together successfully and may be unable to implement our growth plans
in the United States or elsewhere.
Our failure to increase our United States revenues and operations would
adversely affect our operating results and financial condition.
We believe that we must continue to expand our marketing and sales
activities, product and service offerings and operations in the United States
in order to be successful. Our failure to effectively manage expansion in the
United States could have a material adverse effect on the delivery of our
products and services, our ability to attract and retain key personnel and our
business operations and prospects.
We may not be able to continue to develop new products or enhance existing
products on a timely basis.
To be competitive, we must continue to develop and introduce on a timely
basis new products and product enhancements. Our failure to develop and
introduce new products and enhancements successfully and on a timely basis, or
the failure of new products to achieve and sustain market acceptance, could
have a material adverse effect on our business, prospects, operating results
and financial condition. We are obligated
6
<PAGE>
under a limited number of client contracts to deliver new products or product
enhancements by specified dates, and failure to do so could result in the loss
of one or more of those clients or expose us to contractual liability. We have
in the past encountered circumstances that made it impractical to provide
required enhancements to a customer, and we may be unable to do so on future
occasions.
Our sales cycle is relatively long and difficult to predict.
The decision by a prospective client to purchase our products frequently
involves several functional departments within its business. In addition, the
purchase and implementation of our products typically involve a significant
cost to our clients, including training and integration costs. These
implementations can also include substantial commitment of resources by our
clients or their consultants over an extended period of time. As a result, our
sales cycle is relatively long and difficult to predict, which makes predicting
our revenues difficult.
Intense competition may adversely affect our financial condition and operating
results.
The market for internet-based integrated eMarketing solutions is becoming
intensely competitive. If we are unable to compete effectively, our business,
prospects, financial condition and operating results would be materially
adversely affected. Some of our current and potential competitors have greater
name recognition and substantially greater financial, technical, marketing,
management, service, support and other resources than we do. Therefore, they
may be able to respond more quickly than we can to new or changing
opportunities, technologies, standards, or client requirements.
In addition, we expect that new competitors will enter the market with
competing products as the size and visibility of the market opportunity
increases. We also expect that competition will increase as a result of
consolidations and formations of alliances among industry participants.
Increased competition could result in pricing pressures, reduced margins, and
failure of our products to achieve or maintain market acceptance.
We depend on a few industries for most of our sales, and we may not be
successful in expanding beyond those limited markets.
A substantial portion of our revenues have been derived from sales to
communications and media businesses, financial institutions, and retail and e-
commerce businesses. We may not continue to succeed in these markets. In
addition, we must expand the number of markets we address to achieve our
business goals, and we may not be successful in doing so.
If we are unable to manage our growth and the related expansion in our
operations effectively, our business may be harmed.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires effective planning and
management. Our growth has placed, and our anticipated future operations will
continue to place, a significant strain on our management, information systems,
network and other resources. To manage future growth effectively, we must
continue to improve our financial and accounting systems and controls, enhance
our reporting systems and procedures, integrate new personnel and manage
expanded operations. We will need to add additional personnel. We may be unable
to hire qualified employees as needed.
We are largely dependent on our international operations.
In addition to our presence in the United States, we have offices in five
other countries and customers in more than 19 other countries. In the nine
months ended September 30, 1999, 83.5% of our total revenues resulted from
sales outside the United States, reflecting our historical presence in the
United Kingdom and elsewhere in Europe. We believe that we must continue to
expand our sales in international markets for our business to grow as planned.
This may require us to establish additional international operations and hire
additional personnel.
7
<PAGE>
Our failure to do so in a timely and effective manner would have a material
adverse effect on our business, prospects, financial condition and operating
results. Our operations and our plans to expand internationally may be affected
by a number of risks, including:
. challenges inherent in managing geographically dispersed operations;
. the need to develop local distribution channels through third parties;
. multiple, conflicting and changing governmental laws and regulations;
and
. foreign currency exchange rate fluctuations.
Our failure to expand our direct sales force would impede our revenue growth
and financial condition.
To increase our revenues, we must increase the size of our direct sales
force. It can take a considerable amount of time to hire, train and integrate
new sales personnel. In addition, there is intense competition for qualified
sales personnel. We may not be successful in attracting, integrating,
motivating or retaining qualified personnel for these positions on a timely
basis or at all. A failure to do so would have a material adverse effect on our
business and operating results.
Failure to expand our relationships with consulting firms and systems
integrators would impede acceptance of our products and growth of our revenues.
Consultants, systems integrators, and service providers who recommend,
install and support our products with their customers are a major source of our
sales. To increase our revenues and implementation capabilities, we must
continue to develop and expand relationships with consultants, systems
integrators, service providers and other potential industry partners. A failure
to do so could have a material adverse effect on our ability to generate
increased revenues. Consultants, systems integrators and service providers may
market or recommend products that compete with ours. Moreover, if these firms
fail to implement our products successfully for their clients, we may not have
the resources to implement our products on the schedule required by the client,
which could have a material adverse effect on our ability to generate increased
revenues.
Our business will be adversely affected if internet solutions are not widely
adopted.
Because one of our new products addresses, among other markets, the
emerging market for internet marketing solutions, our future success depends in
part upon the widespread adoption of the internet as a primary medium for
commerce and business applications. The failure of this market to develop, or a
delay in the development of this market, would have a material adverse effect
on our business, financial condition and operating results. The internet has
experienced, and is expected to continue to experience, significant user and
traffic growth, which has, at times, caused user frustration with slow access
and download times. The internet infrastructure may not be able to support the
demands placed on it by the continued growth upon which our success in part
depends. Moreover, critical issues concerning the commercial use of the
internet, such as security, reliability, cost, accessibility, taxation of e-
commerce and quality of service, remain unresolved and may negatively affect
the growth of internet use or the attractiveness of commerce and business
communication over the internet. In addition, the internet could suffer
declines in its viability due to delays in the development or adoption of new
standards and protocols to handle increased activity or due to increased
government regulation and taxation of internet commerce.
Our revenues might be harmed by resistance to adoption of our software by
internal information technology departments.
Some businesses may have already made a substantial investment in other
third-party or internally developed software designed to integrate data from
disparate sources and analyze this data or manage marketing campaigns. These
businesses may be reluctant to abandon these investments in favor of our
software. In addition, information technology departments of potential clients
may resist purchasing our
8
<PAGE>
software for a variety of other reasons, particularly the potential
displacement of their historical role in creating and running software and
concerns that packaged software products are not sufficiently customizable for
their enterprises. If the demand for our products does not grow for any of
these reasons, our revenues may be harmed.
Our failure to operate our professional services organization at a profit would
adversely affect our financial condition.
Our failure to operate our professional services organization at a profit
would have a material adverse effect on our operating results and financial
condition. To gain initial acceptance of our products by clients in our
targeted industries, we may elect on occasion to assist customers with the
implementation of our products at a loss. In the past, our cost of services
revenues have been significantly higher than our services revenues. We cannot
be certain that our professional services organization will achieve or sustain
profitability.
Loss of key personnel could adversely affect our business.
Our future success depends to a significant degree on the skills,
experience and efforts of James Carling, our founder and Chief Technology
Officer, Peter J. Boni, our President and Chief Executive Officer, Allen Swann,
our President, International, Paul Lavallee, Our President, Americas, and
Frederick Phillips, our Chief Financial Officer. The loss of the services of
any of these individuals could have a material adverse effect on us. We also
depend on the ability of our executive officers and other members of senior
management to work effectively as a team. The loss of one or more of our
executive officers and other members of senior management could have a material
adverse effect on us. Many of our executive officers, members of senior
management or other employees are not subject to an agreement that prohibits
them from competing with us after the termination of their employment with us.
We may be unable to hire and retain the skilled personnel we need to succeed.
Qualified personnel are in great demand throughout the software industry.
Our success depends in large part upon our ability to attract, train, motivate
and retain highly skilled employees, particularly sales and marketing personnel
and other senior personnel. Our failure to attract and retain the highly-
trained technical personnel that are integral to our product development,
professional services and support teams may limit the rate at which we can
develop new products or product enhancements. This could have a material
adverse effect on our business, prospects, operating results and financial
condition.
We may be unable to protect our proprietary technology rights.
Our success depends to a significant degree upon the protection of our
software and other proprietary technology rights. We rely on trade secret,
copyright and trademark laws and confidentiality agreements with employees and
third parties, all of which offer only limited protection. Moreover, the laws
of the countries in which we develop and market our products may afford little
or no effective protection of our proprietary technology. The reverse
engineering, unauthorized copying or other misappropriation of our proprietary
technology could enable third parties to benefit from our technology without
paying us for it. This could have a material adverse effect on us. Legal
proceedings to enforce our intellectual property rights could divert the time
and attention of management, be expensive and involve uncertainty of success.
Claims by other companies that our products infringe their proprietary rights,
copyrights or patents could adversely affect our financial condition.
If any of our products are alleged to violate third-party proprietary
rights, we may be required to reengineer our products or seek to obtain
licenses from third parties to continue offering our products without
substantial reengineering. Any efforts to reengineer our products or obtain
licenses from third parties may be
9
<PAGE>
unsuccessful and, in any case, could substantially increase our costs and have
a material adverse effect on us. We do not conduct comprehensive patent
searches to determine whether the technology used in our products infringes
patents held by third parties. In addition, product development is inherently
uncertain in a rapidly evolving technological environment in which there may be
numerous patent applications pending, many of which are confidential when
filed, with regard to similar technologies.
Claims by other companies that our names infringe their proprietary rights
could adversely affect our financial condition.
Third parties have claimed, and may in the future claim, that our company
name or our product names violate their trademark or trade name rights. We have
applied for registration of some of our trademarks in the United States, Canada
and the European Community but have not yet received any approvals. Our use of
the names Prime Response, Prime@Vantage and [email protected], as well as the
use of other names, may result in costly litigation, divert management's
attention and resources, cause product shipment delays, or require us to pay
damages or to enter into royalty or license agreements. We may be required to
stop using certain names currently used for our products. Any of these events
could have a material adverse effect on our business, prospects, operating
results and financial condition.
Our business could be adversely affected if our products fail to perform
properly.
Software products as complex as ours may contain undetected errors, or
bugs, which result in product failures, or otherwise fail to perform in
accordance with client expectations. Our products may be particularly
susceptible to bugs or performance degradation because of the emerging nature
of internet technologies and the stress that may be placed on our products by
the full deployment of our products over the internet. Product performance
problems could result in loss of or delay in revenues, loss of market share,
failure to achieve market acceptance, diversion of development resources, or
injury to our reputation, any of which could have a material adverse effect on
our business, prospects, operating results and financial condition.
We could incur substantial costs as a result of product liability claims
relating to our clients' marketing efforts.
Our products may be critical to our clients' marketing efforts. If one of
our products fails, a client may assert a claim for substantial damages against
us, regardless of our responsibilities for such failure. Although our form of
license agreement contains provisions limiting liability, product liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. There can be no assurance that general liability
insurance coverage will be available on reasonable terms or will be available
in amounts sufficient to cover one or more large claims, or that the insurer
will not disclaim coverage as to any future claim.
We may be affected by Year 2000 technology problems.
Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. This Year 2000 problem could result in
miscalculations, data corruption, system failures or disruptions of operations.
We are subject to potential Year 2000 problems affecting our products, our
clients' systems, our internal systems and the systems of our vendors, any of
which could have a material adverse effect on our business, prospects,
operating results and financial condition.
Changing purchasing patterns of clients impacted by Year 2000 issues or
Year 2000 concerns may result in reduced resources available for purchases of
integrated eMarketing solutions, particularly during the fourth quarter of
1999. In addition, there can be no assurance that Year 2000 errors or defects
will not be discovered in our products or in our internal software systems. If
such errors or defects are discovered, the cost of making such systems Year
2000 compliant could be material.
Year 2000 errors or defects in the internal systems maintained by our
vendors could require us to incur significant unanticipated expenses to remedy
any problems or replace affected vendors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Readiness
Disclosure."
10
<PAGE>
Acquisitions could cause financial or operational problems.
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands and
competitive pressures. To this end, we may choose to acquire new and
complementary businesses, products, or technologies instead of developing them
ourselves. We may face competition for acquisition targets from larger and more
established companies with greater financial resources, making it more
difficult for us to complete acquisitions. We do not know if we will be able to
complete any acquisitions, or whether we will be able to successfully integrate
any acquired business, operate it profitably or retain its key employees.
Integrating any business, product or technology we acquire could be expensive
and time-consuming, could disrupt our ongoing business and could distract our
management. In addition, in order to finance any acquisitions, we might need to
raise additional funds through public or private equity or debt financings. In
that event, we could be forced to obtain financing on terms that are not
favorable to us and, in the case of equity financing, that result in dilution
to our stockholders. If we are unable to integrate any acquired entities,
products or technologies effectively, our business, financial condition and
operating results will suffer. In addition, any amortization of goodwill or
other assets or charges resulting from the costs of acquisitions could harm our
business and operating results.
Our business is subject to government regulation of the internet and other
legal uncertainties, which could negatively impact our operations.
Laws and regulations directly applicable to communications or commerce over
the internet are becoming more prevalent. The United States Congress recently
enacted internet laws regarding privacy, copyrights, taxation and other
matters. In addition, the European Union recently enacted privacy regulations.
The laws governing the use of the internet, however, remain largely unsettled,
even in areas where there has been some legislative action. It may take years
to determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the internet. In addition, the
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business online. The
adoption or modification of laws or regulations relating to the internet could
adversely affect our business. In particular, new regulations affecting the use
of unsolicited e-mail advertising would impair our clients' marketing efforts
and could reduce the demand for our products.
Privacy concerns and legislation may limit the information our clients can
gather, which could reduce the demand for our products.
Privacy concerns may cause website visitors to resist providing personal
data or avoid websites that track the internet behavioral information necessary
to support online profiling capabilities. Even the perception of security or
privacy concerns, whether or not valid, may have a similar effect. The European
Union recently adopted a directive addressing data privacy that may limit the
collection and use of certain information regarding internet users. This
directive may limit our clients' ability to target advertising or collect and
use information in certain European countries. In addition, legislative or
regulatory requirements may heighten these concerns if businesses must notify
website users that the data captured after visiting their websites may be used
to direct product promotion and advertising to that user. Other countries and
political entities, such as the European Union, have adopted these types of
restrictions. The United States may adopt similar legislation or regulatory
requirements. If privacy legislation is enacted or consumer privacy concerns
are not adequately addressed, our business, prospects, financial condition and
operating results could be harmed.
Websites typically place "cookies" on a user's hard drive without the
user's knowledge or consent. Our clients may use cookies for a variety of
reasons, including the collection of data derived from the user's internet
activity. Most currently available internet browsers allow users to remove
cookies at any time or to prevent cookies from being stored on their hard
drives. In addition, some commentators, privacy advocates and governmental
bodies have suggested limiting or eliminating the use of cookies. Any reduction
or limitation in the use of cookies could limit the effectiveness of our
clients' sales and marketing efforts. The Federal Trade Commission and several
states are investigating the use by internet companies of personal information.
New regulations regarding the use of personal information could adversely
impact the demand for our products.
11
<PAGE>
Risks Associated with This Offering of Our Common Stock
The price of our common stock after this offering may be lower than the price
you pay.
The price of our common stock that will prevail in the market after this
offering may be lower than the price you pay. Prior to this offering, there has
been no public market for our common stock. After this offering, an active
trading market in our stock might not develop or continue. If you purchase
shares of our common stock in this offering, you will pay a price that was not
established in a competitive market. Rather, you will pay a price that we
negotiated with the representatives of the underwriters based upon several
factors. See "Underwriting."
Our common stock is particularly subject to volatility because of our industry.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly internet-related companies, have been extremely
volatile, and have experienced fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. These broad
market fluctuations could adversely affect the market price of our common
stock.
We could be subject to class action litigation due to stock price volatility,
which, if it occurs, will distract our management and could result in
substantial costs or large judgments against us.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market prices of their
securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert our
management's attention and resources, which could cause serious harm to our
business, operating results and financial condition or dilution to our
stockholders.
The significant control over stockholder voting matters that may be exercised
by our executive officers and directors will deprive you of the ability to
influence corporate actions.
After this offering, our executive officers and directors and their
affiliates will together control approximately % of the outstanding common
stock. As a result, these stockholders, if they act together, will be able to
control all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This
concentration of ownership may have the effect of delaying, preventing or
deterring a change in control of Prime Response, could deprive our stockholders
of an opportunity to receive a premium for their common stock as part of a sale
of Prime Response and might affect the market price of our common stock.
We plan to adopt anti-takeover provisions that could affect the market price of
our common stock or our ability to sell our business.
Certain provisions of our amended and restated certificate of incorporation
and our by-laws, which will be in effect upon the closing of this offering,
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. In addition, certain provisions of
Delaware law may also have the effect of discouraging, delaying or preventing a
sale.
Our existing stockholders will receive a substantial benefit from this
offering.
Our preferred stock will convert into common stock and holders of our
preferred stock will receive either common stock or cash in payment of
liquidation preferences and accrued dividends. Pursuant to the terms of our
charter, some holders of our series B preferred stock will receive an aggregate
payment of approximately $10.4 million from us upon the closing of this
offering. Another existing stockholder will also receive a payment in the
principal amount of approximately $4.3 million in satisfaction of a promissory
note to be issued to him.
12
<PAGE>
Future sales by existing security holders could depress the market price of our
common stock.
If our existing stockholders sell a large number of shares of our common
stock, the market price of the common stock could decline significantly.
Moreover, the perception in the public market that our existing stockholders
might sell shares of common stock could depress the market price of the common
stock. Immediately after this offering, approximately shares will be
outstanding. Of these shares, shares will be available for resale in the
public market without restriction immediately following this offering, all of
which shares are subject to lock-up agreements restricting the sale of common
stock for 180 days after the date of this prospectus. In addition, shares
will be available for resale in the public market without restriction days
after the date of this prospectus, all of which shares are subject to lock-up
agreements restricting the sale of common stock for at least 180 days after the
date of this prospectus. The remaining shares held by existing stockholders
become eligible for resale in the public market at various dates thereafter,
all of which shares are subject to lock-up agreements restricting the sale of
common stock for 180 days after the date of this prospectus.
Some of our existing stockholders have the right to require us to register
their shares of common stock with the Securities and Exchange Commission. If we
register their shares of common stock, they can freely sell those shares in the
public market.
After this offering, we intend to register approximately shares of our
common stock that we have issued or may issue under our stock plans. Once we
register these shares, they can be freely sold in the public market upon
issuance, subject to the lock-up provisions contained in our 1998 Stock
Option/Stock Issuance Plan.
Our broad discretion in using the proceeds from this offering may negatively
impact our financial condition.
Our decisions regarding the use of the proceeds of this offering could have
a material adverse effect on our business, operating results and financial
condition. We have not identified specific uses for a portion of the proceeds
from this offering, and we will have broad discretion in how we use them. In
addition, we are unable to determine how much of the proceeds will be used for
any identified purpose because circumstances regarding our planned uses of the
unallocated proceeds may change. You will not have the opportunity to evaluate
the economic, financial or other information on which we base our decisions on
how to use these proceeds.
Investors will experience immediate and substantial dilution in the book value
of their investment.
If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution, in that the price you pay will
be substantially greater than the net tangible book value per share of the
shares you acquire. This dilution is due in large part to the fact that earlier
investors in Prime Response paid substantially less than the public offering
price when they purchased their shares of common stock. You will experience
additional dilution upon the exercise of outstanding stock options or warrants
to purchase common stock.
13
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute forward-
looking statements. These statements relate to future events or other future
financial performance, and are identified by terminology such as "may," "will,"
"should," "expects," "scheduled," "plans," "intends," "anticipates,"
"believes," "estimates," "potential," or "continue" or the negative of such
terms or other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating these statements,
you should specifically consider various factors, including the risks outlined
under "Risk Factors." These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such statements to
actual results.
14
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of shares of common stock
offered by us are estimated to be $ ($ if the underwriters' over-allotment
option is exercised in full) after deducting the estimated underwriting
discounts and commissions and offering expenses payable by us and assuming an
initial public offering price of $ .
The principal purposes of this offering are:
. to increase our equity capital;
. to create a public market for our common stock;
. to facilitate future access by us to public equity markets;
. to provide increased visibility and credibility in a marketplace in
light of the fact that several of our current and potential
competitors are, or may in the future be, public companies; and
. to enhance our ability to use our common stock as consideration for
acquisitions and as a means of attracting and retaining key employees.
We intend to pay approximately $10.4 million of our net proceeds to some
holders of series B preferred stock in accordance with the provisions of our
certificate of incorporation. This amount, which represents accrued but unpaid
dividends and other payments, will be payable as a result of the completion of
this offering. Approximately $4.3 million of the net proceeds from this
offering will be used to pay a promissory note to be issued to one of our
stockholders. The note will be issued for the purpose of purchasing 1,249,500
shares from this stockholder which we will make available for issuance upon the
exercise of options under our 1998 Stock Option/Stock Issuance Plan. We have an
option to acquire such shares for that purpose at an exercise price of $3.42
per share through September 30, 2000, on which date the stockholder has a right
to put these shares to us at the same price. The series B preferred stock,
along with our other outstanding series of preferred stock, will convert into
common stock automatically upon the completion of this offering. We expect to
use the remaining net proceeds from this offering for working capital and other
general corporate purposes and capital expenditures, expansion of our business,
product development and acquisitions. We have not identified specific uses for
such proceeds and management will have discretion over their use and
investment. Pending such uses, we will invest the net proceeds from this
offering in investment grade, interest-bearing securities.
We intend to seek acquisitions of businesses, products and technologies
that are complementary to ours, and a portion of the net proceeds may be used
for such acquisitions. While we discuss potential acquisitions from time to
time, we currently have no commitments or agreements for any such acquisitions
and there can be no assurances that any acquisitions will be made.
DIVIDEND POLICY
We have not declared or paid cash dividends on our common stock since
December 31, 1996. Upon closing of this offering, we will be paying accrued
dividends to our preferred stockholders in cash and in shares of common stock
in accordance with the terms of the preferred stock. We currently intend to
retain earnings, if any, to fund the development and growth of our business and
do not anticipate paying cash dividends in the foreseeable future. Payment of
future dividends, if any, will be at the discretion of our board of directors
after taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for expansion.
In addition, our financing agreement with Greyrock Capital prohibits the
payment of cash dividends.
15
<PAGE>
CAPITALIZATION
The following table describes our capitalization as of September 30, 1999:
. on an actual basis, without any adjustments to reflect subsequent
events or anticipated events;
. on a pro forma basis to reflect the following:
. automatic conversion of all outstanding shares of preferred stock
into an aggregate of 5,698,875 shares of common stock;
. issuance of an aggregate of 2,592,515 shares of common stock to
holders of the preferred stock in payment of accrued dividends and
participation feature and an aggregate cash payment of $10.1
million to some holders of preferred stock; and
. significant events which have occurred subsequent to September 30,
1999 including:
. conversion of $2.5 million in stockholder loans to 833,331
shares of series C preferred stock, which convert into 624,998
shares of common stock and a participation payment of 208,333
upon the initial public offering;
. receipt of a $2.0 million term loan; and
. issuance of 427,806 shares of common stock and warrants to
purchase 1,432,282 shares of common stock at an exercise price
of $9.35 per share for proceeds of $4.0 million;
. on a pro forma as adjusted basis to reflect the following:
. sale of the shares of common stock offered by us in this offering
and our receipt of the estimated net proceeds, after deducting the
estimated underwriting discounts and commissions and the estimated
offering expenses that we expect to pay in connection with this
offering;
. accretion of preferred stock dividends of approximately $1.0
million from October 1, 1999 through February 15, 2000 which will
be paid in a cash payment of $ and shares of common
stock;
. issuance of 474,871 shares of common stock upon the cashless
exercise of 564,039 outstanding warrants which one of our
stockholders has indicated will be exercised prior to completion
of this offering;
. exercise of option to repurchase 1,249,500 shares of common stock
from a principal shareholder at $3.42 per share.
16
<PAGE>
<TABLE>
<CAPTION>
September 30, 1999
------------------------------
Pro Pro Forma As
Actual Forma Adjusted
------- ------- ------------
(in thousands, except share
data)
<S> <C> <C> <C>
Short-term and long-term debt and capital lease
obligations.................................... $ 1,115 $ 3,115 $
Series A redeemable convertible preferred stock,
$0.01 par value, 1,155,000 shares authorized;
1,155,000 shares issued at September 30, 1999
and 0 shares issued and outstanding on a pro
forma basis.................................... 27,371 --
Series B redeemable convertible preferred stock,
$0.01 par value; 1,700,000 shares authorized;
1,699,834 issued and outstanding at September
30, 1999, and 0 shares issued and outstanding
on a pro forma basis........................... 10,142 --
Series C redeemable convertible preferred stock,
$0.01 par value, 1,000,000 shares authorized;
1,000,000 shares issued and outstanding at
September 30, 1999, and 0 shares issued and
outstanding on a pro forma basis............... 2,391 --
Stockholders' equity (deficit);
Common stock, $0.01 par value; 27,750,000 shares
authorized; 7,671,225 issued and outstanding
at September 30, 1999 and 17,223,753 shares
issued and outstanding on a pro forma basis .. 76 172
Additional paid-in capital ..................... 1,532 77,119
Accumulated other comprehensive income ......... (8) (8)
Accumulated deficit ............................ (40,557) (79,955)
Note receivable from shareholder ............... (2,545) (2,545)
Deferred compensation .......................... (575) (575)
------- ------- ----
Total stockholders' equity (deficit)........... (42,077) (5,792)
------- ------- ----
Total liabilities and stockholders' equity
(deficit) ................................ $14,084 $11,614
======= ======= ====
</TABLE>
The number of shares of common stock outstanding as of September 30, 1999
does not reflect 938,322 shares issuable under options outstanding as of
September 30, 1999 with a weighted-average exercise price of $3.69 per share
and 573,453 additional shares reserved for issuance under our stock plans.
Between September 30, 1999 and November 15, 1999, we issued options to purchase
473,721 shares of common stock at a weighted-average exercise price of $6.52
per share and warrants to purchase 1,432,233 shares of common stock at a
weighted-average exercise price of $9.35 per share.
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<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of September
30, 1999 was $ , or $ per share, after giving effect to the automatic
conversion of all outstanding shares of preferred stock into common stock, and
the issuance and payment of all required shares and amounts, upon the closing
of this offering and recognition of significant events which occurred
subsequent to September 30, 1999. After giving effect to the sale of shares
of common stock pursuant to this offering at an assumed initial public offering
price of $ per share, after deducting estimated underwriting discounts and
offering expenses, the adjusted pro forma net tangible book value at September
30, 1999 would have been $ or $ per share.
Pro forma net tangible book value per share before the offering has been
determined by dividing pro forma net tangible book value (total pro forma
tangible assets less total liabilities) by the pro forma number of shares of
common stock outstanding as of September 30, 1999. This offering will result in
an increase in pro forma net tangible book value per share of $ to existing
stockholders and dilution in pro forma net tangible book value per share of $
to new investors who purchase shares in this offering. Dilution is determined
by subtracting pro forma net tangible book value per share from an assumed
initial public offering price of $ per share. The following table illustrates
this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share at September 30,
1999............................................................ $
Increase attributable to sale of common stock in this offering....
----
Pro forma net tangible book value per share after this offering.....
----
Dilution of net tangible book value per share to new investors who
purchase shares in this offering.................................. $
====
</TABLE>
If the underwriters exercise their option to purchase additional shares in
this offering, the pro forma net tangible book value per share after the
offering would be $ per share, the increase in pro forma net tangible book
value per share to existing stockholders would be $ per share and the
dilution to persons who purchase shares in the offering would be $ per share.
The following table summarizes, on a pro forma basis as of September 30,
1999, the differences between the total consideration paid and the average
price per share paid by the existing stockholders and the new investors with
respect to the number of shares of common stock purchased from us based upon an
assumed initial public offering price of $ per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- --------------------- Average Price
Number Percent Amount Percent Per Share
------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Shares purchased in this
offering.............. % $ % $
Shares owned by existing
stockholders..........
------- --------- -------- ---------- ----
Total................. 100.0% 100.0%
======= ========= ======== ========== ====
</TABLE>
These tables assume no exercise of stock options or warrants outstanding as
of September 30, 1999. At September 30, 1999, there were shares of common
stock issuable upon exercise of outstanding stock options at a weighted average
exercise price of $ per share. As of September 30, 1999, there were warrants
outstanding that, upon completion of this offering, will be exercisable for
shares of common stock at a weighted-average exercise price of $ per share.
To the extent that outstanding options or warrants are exercised in the future,
there will be further dilution to new investors.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data at December 31, 1996, 1997 and 1998
and at September 30, 1999 and for the years ended December 31, 1996, 1997, 1998
and the nine months ended September 30, 1999 are derived from the financial
statements of Prime Response, Inc., which have been audited by
PricewaterhouseCoopers LLP, independent auditors. The balance sheet data as of
September 30, 1998 and the statement of operations and other data for the nine
months then ended have been derived from our unaudited financial statements.
The unaudited financial statements include, in the opinion of our management,
all adjustments, consisting of normal, recurring adjustments, necessary for a
fair presentation of the information set forth.
You should refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the more complete financial
information included elsewhere in this prospectus. The results for the nine
months ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the full year.
19
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- -------------------------
1996 1997 1998 1998 1999
------- ------- -------- ----------- -------------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Consolidated
Operations Data:
Revenues:
Software licenses....... $ 795 $ 2,933 $ 8,495 $ 3,490 $ 5,278
Services and support.... 1,410 2,495 4,214 2,341 4,596
Applications hosting ... 4,764 4,754 3,827 2,437 3,193
------- ------- -------- -------- --------
Total revenues......... 6,969 10,182 16,536 8,268 13,067
------- ------- -------- -------- --------
Cost of revenues:
Software licenses....... 144 83 152 10 --
Services and support.... 1,927 3,052 6,477 4,415 3,247
Applications hosting.... 1,777 1,923 2,477 1,894 2,088
------- ------- -------- -------- --------
Total cost of
revenues............. 3,848 5,058 9,106 6,319 5,335
------- ------- -------- -------- --------
Gross profit:............ 3,121 5,124 7,430 1,949 7,732
------- ------- -------- -------- --------
Operating expenses:
Sales and marketing..... 1,195 2,788 9,459 6,686 8,524
Research and
development........... 1,307 2,947 6,289 4,883 6,712
General and
administrative........ 1,184 1,396 4,843 3,583 2,659
Amortization of goodwill
and other intangible
assets................ -- -- 1,279 955 931
Amortization of stock
compensation.......... -- -- -- -- 1,844
------- ------- -------- -------- --------
Total operating
expenses............. 3,686 7,131 21,870 16,107 20,670
------- ------- -------- -------- --------
Loss from operations..... (565) (2,007) (14,440) (14,158) (12,938)
Other income (expense):
Interest income......... 5 155 219 212 62
Interest expense........ (64) (227) (294) (243) (87)
Interest expense related
to beneficial
conversion feature.... -- -- -- -- (2,500)
Gain (loss) on foreign
exchange.............. -- (7) (88) (77) (49)
------- ------- -------- -------- --------
Loss before income
taxes.................. (624) (2,086) (14,603) (14,266) (15,512)
Provision for income
taxes.................. (26) (159) -- -- (9)
------- ------- -------- -------- --------
Net loss................. (650) (2,245) (14,603) (14,266) (15,521)
Preferred stock dividends
and recognition of
beneficial conversion
feature on preferred
stock ................. -- (607) (2,015) (1,437) (4,356)
------- ------- -------- -------- --------
Net loss attributable to
common stockholders.... $ (650) $(2,852) $(16,618) $(15,703) $(19,877)
======= ======= ======== ======== ========
Net loss per share --
basic and diluted...... $(6,500) $ (2.43) $ (2.36) $ (2.23) $ (2.72)
======= ======= ======== ======== ========
Weighted average shares
used in computing basic
and diluted net loss
per share.............. -- 1,173 7,035 7,035 7,318
======= ======= ======== ======== ========
<CAPTION>
December 31, September 30,
------------------------------ -------------
1996 1997 1998 1999
------- -------- ----------- -------------
(in thousands)
Statement of Consolidated
Balance Sheet:
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 458 $ 22,106 $ 530 $ 2,470
Working capital.......... (751) 11,482 62 (3,544)
Total assets............. 3,026 26,722 10,152 14,084
Short-term and long-term
debt and capital lease
obligations ........... 563 1,296 973 1,115
Redeemable convertible
preferred stock........ -- 24,053 31,267 39,904
Stockholders' equity
(deficit).............. (865) (11,955) (28,591) (42,077)
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Prime
Response's consolidated financial statements, the related notes and the other
financial information appearing elsewhere in this prospectus. In addition to
historical information, the following discussion and other parts of this
prospectus contain forward-looking information that involves risks and
uncertainties. Prime Response's actual results could differ materially from
those anticipated by such forward-looking information due to competitive
factors, risks associated with Prime Response's expansion plans and other
factors discussed under "Risk Factors" and elsewhere in this prospectus.
Overview
Prime Response is a leading provider of integrated eMarketing software
solutions that enable businesses with large customer bases to create, manage
and execute highly targeted internet and traditional marketing campaigns that
build more loyal and profitable customer relationships. We have over 12 years
of experience in the use of technology to plan and manage marketing programs.
We began in 1987 as a marketing database service bureau, providing direct mail
outsourcing services. In 1995, we introduced our initial data analysis and
marketing campaign software product, Prime Vantage, one of the first
client/server, enterprise-wide, multi-channel marketing management solutions.
In 1998, we introduced a Windows-based version of Prime Vantage. Our latest
product offerings include Prime@Vantage, a web-based system that incorporates
an advanced user interface and new software architecture to facilitate
integration and product enhancements, and [email protected], which provides
additional functionality, including the ability to generate real-time
personalized marketing initiatives over the internet in response to information
generated across an organization. Initial shipments of Prime@Vangtage and
[email protected] commenced in September 1999 and the commercial release is
scheduled in December 1999.
Our total revenues and software license revenues have increased each year
since we launched our first software product in 1995. We expect our license
revenues as a percentage of total revenues to continue to increase. We were
founded in 1987 in the United Kingdom. Prior to 1999, our corporate
headquarters were in London, England, and our primary focus was on the European
market. In 1998, we began to increasingly target the United States market, and
in July 1999, moved our corporate headquarters to Cambridge, Massachusetts.
Since 1995, we have incurred significant development costs to develop our
technology and new software products, particularly to introduce our latest
generation of internet-based marketing management solutions. With the
introduction of these products, we anticipate that research and development
expenses will stabilize and will decrease as a percentage of total revenues. We
intend to continue to expand our direct sales force and increase marketing
expenditures relating to the introduction of our new product offerings, and as
a result, we expect sales and marketing expenses to continue to grow, in
dollars.
We generate revenues principally from:
. licensing our software products directly to clients;
. providing related professional services, including implementation,
consulting, support and training; and
. providing applications hosting services, including providing marketing
database outsourcing services.
Our license agreements typically require our clients to pay a license fee
for one or more software solutions for a specified number of customer records
in their database. The amount of the license fee varies principally depending
upon the size of the client's database and number of databases. Clients can
subsequently pay additional license fees to allow additional entities within
their corporate structure to access our applications or to purchase additional
solutions.
21
<PAGE>
Revenue from software licenses is recognized when a signed agreement
exists, the software or system has been shipped (or software has been
electronically delivered), the license fee is fixed and determinable, and
collection of the resulting receivable is probable. For license agreements
which require specific performance criteria or to deliver significant
enhancements, license revenues are recognized only when obligations under the
license agreement are completed and the software has been accepted by the
customer. Accordingly, for these contracts, revenues are deferred until
obligations under the license agreement are completed. Service revenue,
including applications hosting, is recognized as the services are performed.
Maintenance revenues, including those bundled with the initial license fee,
are deferred and recognized ratably over the service period.
Revenues and profits under long-term fixed price contracts are recognized
using contract accounting. These contracts are assessed for losses and such
losses are provided for in total in the period in which the losses become
known.
Clients typically require consulting and implementation services that
include evaluating their business needs and installing software solutions in a
manner that fulfills their needs. Historically, clients have purchased
services directly from us through our internal professional service
organization. Clients also typically purchase renewable maintenance contracts,
which provide software upgrades and technical support over a stated term,
generally 12 months.
We offer our own applications hosting services to clients who choose not
to host or operate their own applications. We provide these services either
directly through our own service bureau or through business partners. We also
continue to serve as a marketing database service bureau for existing clients
who determine it is cost-effective to outsource those activities. These
services are typically provided pursuant to long-term contracts, and we
recognize the revenues related to such services ratably on a monthly basis.
Over time, our applications hosting services revenues have declined as a
percentage of total revenues as we focused on licensing our software products.
In January 1998, we acquired certain intellectual property rights and
other intangible assets related to the MIND software product. Amortization of
the $2.8 million of intangible assets related to this investment will be
completed by December 31, 2000.
During the nine months ended September 30, 1999, Prime Response recorded
deferred compensation of $617,000 in connection with the granting of options
and the issuance of restricted stock upon the exercise of such options. This
amount represents the difference between the estimated fair market value of
the common stock on measurement date and the exercise price of the option.
Compensation related to options which vest over time will be amortized over
the vesting periods of the related options. Prime Response will recognize an
expense of $39,000 during the fourth quarter of 1999 and $154,000 during the
year ending December 31, 2000 relating to these options. In October and
November 1999, Prime Response recorded additional deferred compensation of
$1,985,000 representing the difference between the estimated fair market value
of the common stock on measurement date and the exercise price of the option.
Prime Response will amortize this amount over the vesting periods of the
related options. Prime Response will recognize an expense of $124,000 during
the fourth quarter of 1999 and $496,000 during the year ending December 31,
2000.
We do not believe that we have any material market risk exposure with
respect to derivative or other financial instruments.
As a result of our losses, we do not expect to pay United States income
taxes in the foreseeable future.
22
<PAGE>
Andersen Consulting Relationship
On December 6, 1999, we entered into a joint marketing agreement with
Andersen Consulting and a stock and warrant purchase agreement with an
affiliate of Andersen Consulting. Pursuant to the stock and warrant purchase
agreement, Andersen Consulting purchased 427,806 shares of common stock and
Andersen Consulting received a warrant to purchase 682,282 shares of common
stock. This warrant has an exercise price of $9.35 per share and vests upon the
earlier to occur of the date nine months following the date of issuance or the
date of an acquisition of us. Andersen Consulting also has a right of first
refusal to participate in equity issuances by us prior to our initial public
offering in order to maintain its percentage ownership interest in us, subject
to specified exceptions. The aggregate purchase price paid by Andersen
Consulting for the stock and this warrant was $4.0 million. Andersen Consulting
has no performance obligations under the stock and warrant purchase agreement
or this warrant.
In addition, we issued a performance warrant to purchase 375,000 shares of
common stock to Andersen Consulting which will vest upon achievement by us of
certain post-IPO market capitalization targets. We also issued a performance
warrant to purchase 375,000 shares of common stock to Andersen Consulting which
will vest based on achievement of designated sales levels resulting from joint
marketing efforts. These warrants have an exercise price of $9.35 per share.
All warrants have a seven year term. In the event that the marketing
agreement is terminated as a result of a breach by Andersen Consulting, no
further vesting under the warrants described in the immediately preceding
paragraph will occur, but those warrants already exercisable will remain
exercisable during their term to the extent then vested.
In the event that an IPO does not occur, or in the event any other
liquidity event does occur, by January 1, 2001, Andersen Consulting or its
affiliates will have the right to require us to repurchase the 427,806 shares
for $4.0 million. Such repurchase will be payable in three quarterly
installments, plus 8.0% interest on the entire amount beginning on January 1,
2001, plus additional interest of 7.0% in the event we fail to make any payment
when due. This put right will terminate upon an IPO or other liquidity event.
We are obligated to engage Andersen Consulting for consulting services of
at least $1.0 million during the period from contract execution to December 31,
2001. If designated sales targets are met, Andersen Consulting is obligated to
provide up to $1.0 million in funding for joint marketing efforts, business
development personnel, structure feedback and sales support.
23
<PAGE>
Results of Operations
The following table sets out selected financial data as a percentage of
revenue for the periods indicated:
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses.......... 11.4 % 28.8 % 51.4 % 42.2 % 40.4 %
Services and support....... 20.2 24.5 25.5 28.3 35.2
Applications hosting....... 68.4 46.7 23.1 29.5 24.4
------- ------- ------- ------ ------
Total revenues............ 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------ ------
Cost of revenues:
Software licenses.......... 2.1 0.8 0.9 -- --
Services and support....... 27.7 30.0 39.2 53.4 24.8
Applications hosting....... 25.5 18.9 15.0 22.9 16.0
------- ------- ------- ------ ------
Total cost of revenues.... 55.3 49.7 55.1 76.4 40.8
------- ------- ------- ------ ------
Gross profit................ 44.7 50.3 44.9 23.6 59.2
------- ------- ------- ------ ------
Operating expenses:
Sales and marketing........ 17.1 27.4 57.2 80.9 65.2
Research and development... 18.8 28.9 38.0 59.1 51.4
General and
administrative........... 17.0 13.7 29.3 43.3 20.3
Amortization of goodwill
and other intangible
assets................... -- -- 7.7 11.6 7.1
Amortization of stock
compensation............. -- -- -- -- 14.1
------- ------- ------- ------ ------
Total operating expenses.. 52.9 70.0 132.2 194.9 158.1
Loss from operations........ (8.2) (19.7) (87.3) (171.3) (98.9)
Other income (expense):
Interest income............ 0.1 1.5 1.3 2.6 0.5
Interest expense........... (0.9) (2.2) (1.8) (2.9) (0.7)
Interest expense related to
beneficial conversion
feature.................. -- -- -- -- (19.1)
Gain (loss) on foreign
exchange................. -- (0.1) (0.5) (0.9) (0.4)
------- ------- ------- ------ ------
Loss before income taxes.... (9.0) (20.5) (88.3) (172.5) (118.6)
Provision for income taxes.. (0.4) (1.6) -- -- (0.1)
------- ------- ------- ------ ------
Net loss.................... (9.4)% (22.1)% (88.3)% (172.5)% (118.7)%
======= ======= ======= ====== ======
</TABLE>
Nine Months Ended September 30, 1998 and 1999
Revenues
Total revenues increased by $4.8 million, or 57.8%, to $13.1 million for
the nine months ended September 30, 1999 from $8.3 million for the nine months
ended September 30, 1998. For the nine months ended September 30, 1999, the
percentage of revenues attributable to sales in North America and in Europe
was 16.5% and 84.5%, respectively, as compared to 8.0% and 92.0%,
respectively, for the corresponding period in the prior year, reflecting our
increased sales and marketing activities in the North American market.
Software Licenses. Software license revenues increased by $1.8 million, or
51.4%, to $5.3 million for the nine months ended September 30, 1999 from $3.5
million for the nine months ended September 30, 1998. Software license
revenues decreased slightly to 40.4% of total revenues for the nine months
ended September 30, 1999 from 42.2% of total revenues for the same period in
the prior year. The dollar increase in software license revenues was due
primarily to growing market acceptance of our Prime Vantage products.
Services and Support. Revenues from services and support increased by $2.3
million, or 100.0%, to $4.6 million for the nine months ended September 30,
1999 from $2.3 million for the nine months ended September 30, 1998. These
revenues increased to 35.2% of total revenues for the nine months ended
September 30, 1999 from 28.3% of total revenues for the same period in the
previous year. The increase in service and support revenues was due primarily
to an increase in the number of sales of software licenses, which resulted in
increased demand for services and sales of software maintenance and technical
support.
24
<PAGE>
Applications Hosting. Revenues from applications hosting increased by $0.8
million or 33.3%, to $3.2 million for the nine months ended September 30, 1999
from $2.4 million for the nine months ended September 30, 1998. These revenues
represented 24.4% of total revenues for the nine months ended September 30,
1999 compared to 29.5% of total revenues for the same period of the prior year.
This increase in dollar amount was due primarily to increased prices and an
increase in the services provided to existing clients. We expect the proportion
of revenues attributable to applications hosting to decline as a percentage of
total revenues as we continue to focus on licensing our software products.
Cost of Revenues
Total cost of revenues decreased by $1.0 million, or 15.9%, to $5.3 million
for the nine months ended September 30, 1999 from $6.3 million for the nine
months ended September 30, 1998.
Software Licenses. Software license costs consist of expenses incurred to
manufacture, package and distribute our software products and related
documentation. Software license costs decreased by $10,000, or 100.0%, to zero
in the nine months ended September 30, 1999 from $10,000 for the nine months
ended September 30, 1998. Software license costs were zero percent of software
license revenues for the nine months ended September 30, 1999 compared to 0.3%
of such revenues for the same period in the prior year.
Services and Support. Services and support costs include salary expense and
other related costs for our professional services, maintenance and telephone
support staffs, as well as third-party contractor expenses. Services and
support costs decreased by $1.2 million, or 27.3%, to $3.2 million in the nine
months ended September 30, 1999 from $4.4 million in the nine months ended
September 30, 1998. Services and support costs were 70.6% of services and
support revenues for the nine months ended September 30, 1999 compared to
188.6% of such revenues for the same period in the prior year. The decrease in
services and support costs was primarily due to an initial overstaffing in this
area in 1998 and investment in services and support infrastructure. We reduced
services and support staff in the fourth quarter of 1998 in order to more
closely align expenses with revenues.
Applications Hosting. Costs attributable to applications hosting consist
primarily of personnel-related costs and equipment maintained for the provision
of services to clients. These costs increased by $0.2 million, or 10.5%, to
$2.1 million for the nine months ended September 30, 1999 from $1.9 million for
the nine months ended September 30, 1998. These costs were 65.4% of
applications hosting revenues for the nine months ended September 30, 1999
compared to 77.7% of such revenues for the comparable period in the prior year.
Typically these costs have been relatively fixed.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other related costs for sales and marketing personnel, sales
commissions, travel, public relations and marketing materials and trade shows.
Sales and marketing expenses increased by $1.8 million, or 26.9%, to $8.5
million for the nine months ended September 30, 1999 from $6.7 million for the
nine months ended September 30, 1998. Sales and marketing expenses decreased to
65.2% of total revenues for the nine months ended September 30, 1999, compared
to 80.9% for the same period in the prior year. The increase in such expenses
was due primarily to increases in staffing and personnel related costs, as we
continued to expand our direct sales force and expand our presence in North
America. We anticipate that sales and marketing expenses will continue to
increase as we further expand our direct sales force and invest heavily in the
marketing and promotion of our new generation of eMarketing management software
products.
Research and Development. Research and development expenses consist
primarily of personnel and equipment-related costs directly associated with the
development of both our existing and future products. Research and development
expenses increased by $1.8 million, or 36.7%, to $6.7 million for the
nine months
25
<PAGE>
ended September 30, 1999 from $4.9 million for the nine months ended September
30, 1998. Research and development expenses decreased to 51.4% of total
revenues in the nine months ended September 30, 1999 from 59.1% for the
comparable period in the prior year. The dollar increase in costs was primarily
due to significant investment in our new Prime@Vantage and [email protected]
products.
General and Administrative. General and administrative expenses consist
primarily of employee salaries and related expenses for executive, finance and
administrative personnel as well as external professional fees and certain
centrally-borne costs. General and administrative expenses decreased by $0.9
million, or 25.0%, to $2.7 million for the nine months ended September 30, 1999
from $3.6 million for the nine months ended September 30, 1998. These expenses
decreased to 20.3% of total revenues for the nine months ended September 30,
1999 from 43.3% for the comparable period in the prior year. This decrease was
primarily attributable to a period of stability following the recruitment and
development of a professional management team in 1998. After closing a
financing in October 1997, we incurred significant costs in early 1998 creating
an infrastructure to manage a larger company and establishing our North
American operations.
Amortization of Goodwill and Other Intangible Assets. Amortization expense
decreased by $0.1 million, or 10.0%, to $0.9 million for the nine months ended
September 30, 1999 from $1.0 million for the nine months ended September 30,
1998. This expense is solely attributable to the acquisition of certain
intellectual property rights and other intangible assets related to the MIND
software product.
Amortization of Stock Compensation. Amortization of stock compensation
expense increased to $1.8 million for the nine months ended September 30, 1999
from none for the nine months ended September 30, 1998. Amortization of stock
compensation expense in the nine months ended September 30, 1999 resulted from
the granting of stock options and restricted shares with the exercise or sales
prices below the deemed fair value of our common stock on the date of grant,
primarily resulting from imputed interest on a non-interest bearing loan.
Interest Income. Interest income decreased by $150,000, or 70.8%, to
$62,000 for the nine months ended September 30, 1999 from $212,000 for the nine
months ended September 30, 1998.
Interest Expense. Interest expense decreased by $156,000, or 64.2%, to
$87,000 for the nine months ended September 30, 1999 from $243,000 for the nine
months ended September 30, 1998.
Interest Expense Related to Beneficial Conversion Feature. Interest expense
related to beneficial conversion feature increased to $2.5 million for the nine
months ended September 30, 1999 from none for the nine months ended September
30, 1998. Interest expense related to beneficial conversion feature for the
nine months ended September 30, 1999 results from the issuance of promissory
notes which were immediately convertible into series C preferred stock with the
conversion amount determinable by dividing the principal amount of the notes by
$3.00, which represents a discount from the fair value of the common stock on
the date of issuance. The values attributable to the conversion feature on each
note represent an incremental yield, or a beneficial conversion feature, which
are recognized as additional interest on the notes.
Net Loss. As a result of the increases in revenue, operating expenses,
depreciation and amortization, and net interest expense noted above, our net
loss increased by $1.2 million, or 8.4%, to $15.5 million for the nine months
ended September 30, 1999, compared with a net loss of $14.3 million for the
nine months ended September 30, 1998.
Years Ended December 31, 1998 and 1997
Revenues
Total revenues increased by $6.3 million, or 61.8%, to $16.5 million for
1998 from $10.2 million for 1997. For 1998, the percent of total revenues
attributable to sales in North America was 26.4% and to sales in Europe was
73.6%, compared with 0.6% and 99.4%, respectively, in 1997, reflecting the
establishment of our North American based operations at the end of 1997 and
increased sales in the United States in 1998.
26
<PAGE>
Software Licenses. Software license revenues increased by $5.6 million, or
193.1%, to $8.5 million in 1998 from $2.9 million in 1997. Software license
revenues increased to 51.4% of total revenues in 1998 from 28.8% of total
revenues in the prior year. The increase in software license fees was primarily
due to growing market acceptance of our Prime Advantage products and the
release of the Windows-based version of our Prime Vantage product.
Services and Support. Services and support revenues increased by $1.7
million, or 68.0%, to $4.2 million in 1998 from $2.5 million in 1997. Services
and support revenues represented 25.5% of total revenues in 1998 and 24.5% of
total revenues in 1997. The dollar increase in services and support revenues
was due primarily to an increase in the number of sales of software licenses,
which resulted in increased demand for services and sales of software
maintenance and technical support.
Applications Hosting. Revenues attributable to applications hosting
decreased by $1.0 million, or 20.8%, to $3.8 million in 1998 from $4.8 million
in 1997. This decrease reflected the loss of a single client for whom we had
provided database outsourcing services. Applications hosting revenues decreased
to 23.1% of total revenues in 1998 from 46.7% of total revenues in the prior
year.
Cost of Revenues
Total cost of revenues increased by $4.0 million, or 78.4%, to $9.1 million
for 1998, from $5.1 million for 1997.
Software Licenses. Software license costs increased by $69,000, or 83.1% to
$152,000 in 1998 from $83,000 in 1997. Software license costs were 1.8% of
software license revenues in 1998 compared to 2.8% of such revenues in 1997.
Services and Support. Services and support costs increased by $3.4 million,
or 109.7%, to $6.5 million for 1998, from $3.1 million for 1997. Services and
support costs were 153.7% of services and support revenues in 1998 compared to
122.3% of such revenues in 1997. The increase in services and support costs was
primarily due to increased staffing and personnel related costs.
Applications Hosting. Applications hosting costs increased by $0.6 million,
or 31.6%, to $2.5 million for the year ended December 31, 1998, from $1.9
million for the year ended December 31, 1997. Applications hosting costs were
64.7% of applications hosting revenues in 1998 compared to 40.5% of such
revenues in 1997, reflecting increases in salary costs and investment in the
operational infrastructure for the activities performed.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by $6.7
million, or 239.3%, to $9.5 million in 1998, from $2.8 million in 1997. The
increase in sales and marketing expenses resulted primarily from the continued
investment in building a direct sales organization, establishing new sales
offices, and building reseller channels, as well as increased marketing
activities. Sales and marketing expenses grew to 57.2% of total revenues in
1998 compared to 27.4% of such revenues in 1997, reflecting our increased
investment in these activities.
Research and Development. Research and development expenses increased by
$3.4 million, or 117.2%, to $6.3 million in 1998, from $2.9 million in 1997.
Research and development expenses represented 38.0% of total revenues in 1998
and 28.9% in 1997. This increase in research and development expenditures
reflected the significant investment we made during the period in developing
the Windows based version of our Prime Vantage product and commencing our new
generation of Prime@Vantage products, including the hiring of additional
development personnel and acquisition of new equipment to support research and
development activities.
27
<PAGE>
General and Administrative. General and administrative expenses increased
by $3.4 million, or 242.9%, to $4.8 million in 1998 from $1.4 million in 1997.
General and administrative expenses were 29.3% of revenues in 1998 and 13.7% of
total revenues in 1997. The increase in general administrative expenditures was
due to staffing and related costs, the establishment of our North American
operations and other investments and expenses necessary to support our
expanding operations.
Amortization of Goodwill and Other Intangible Assets. Amortization costs
increased to $1.3 million in 1998 from none in 1997. The increase is solely
attributable to the acquisition of certain intellectual property rights and
other intangible assets related to the MIND software product.
Interest Income. Interest income increased by $64,000, or 41.3%, to
$219,000 in 1998 from $155,000 in 1997.
Interest Expense. Interest expense increased by $67,000, or 29.5%, to
$294,000 in 1998 from $227,000 in 1997.
Net Loss. Net loss increased by $12.4 million, or 563.6%, to $14.6 million
for 1998, from $2.2 million for 1997.
Years Ended December 31, 1997 and December 31, 1996
Revenues
Total revenues increased by $3.2 million, or 45.7%, to $10.2 million in
1997 from $7.0 million in 1996. For 1997, the percent of our revenues
attributable to sales in North America and to Europe was 0.6% and 99.4%,
respectively. In 1996 there were no revenues attributable to North America,
reflecting our historical focus on the United Kingdom and Europe.
Software Licenses. Software license revenues increased by $2.1 million, or
262.5%, to $2.9 million in 1997 from $0.8 million in 1996. Software license
revenues increased to 28.8% of total revenues in 1997 from 11.4% of total
revenues in 1996. The increase in software license revenues was primarily due
to the growing market acceptance of our products, following the initial
introduction of Prime Vantage in late 1995.
Services and Support. Services and support revenues increased by $1.1
million, or 78.6%, to $2.5 million in 1997 compared with $1.4 million in 1996.
Services and support revenues increased to 24.5% of total revenues in 1997 from
20.2% of total revenues in 1996. The increase in services and support revenues
was primarily due to the increase in our number of sales of software licenses.
Applications Hosting. Applications hosting revenues remained unchanged at
$4.8 million in 1997 and in 1996. Applications hosting revenues decreased to
46.7% of total revenues for 1997 from 68.4% of total revenues for 1996. This
decrease reflected the shift in our focus to the sale of software products and
related services and the refocus of our selling and marketing activities
towards these offerings.
Cost of Revenues
The total cost of revenues increased by $1.3 million, or 34.2%, to $5.1
million in 1997 from $3.8 million in 1996 reflecting growth in our revenues
generated by licenses and services and support.
Software Licenses. Software license costs decreased $61,000 to $83,000 or
42.4%, in 1997 compared with $144,000 in 1996, reflecting the fact that we had
begun commercial shipments of our Prime Vantage software product in 1996.
Software license costs were 2.8% of software license revenues in 1997 compared
to 18.1% of such revenues in 1996.
28
<PAGE>
Services and Support. Services and support costs increased by $1.2
million, or 63.2%, to $3.1 million in 1997 from $1.9 million in 1996,
reflecting the introduction of our software products and initial growth of an
installed base. Services and support costs were 122.3% of services and support
revenues in 1997 compared to 136.7% of such revenues in 1996.
Applications Hosting. Costs attributable to applications hosting increased
by $0.1 million, or 5.6%, to $1.9 million in 1997 from $1.8 million in 1996
reflecting an increase in personnel and equipment-related costs. Applications
hosting costs were 40.5% of applications hosting revenues in 1997 compared to
37.3% of such revenues in 1996.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by $1.6
million, or 133.3%, to $2.8 million in 1997 from $1.2 million in 1996,
representing 27.4% of total revenues in 1997 and 17.1% in 1996, respectively.
The increase in sales and marketing expenses primarily reflected our hiring of
more sales personnel and increased marketing expenses to support the roll-out
of our Prime Vantage product across Europe.
Research and Development. Research and development expenses increased by
$1.6 million, or 123.1%, to $2.9 million in 1997 from $1.3 million in 1996,
representing 28.9% of total revenues in 1997 and 18.8% in 1996, respectively.
The increase in research and development expenditures reflected our investment
in development of our Windows-based version of Prime Vantage which was
launched during 1998.
General and Administrative. General and administrative expenses increased
by $0.2 million, or 16.7%, to $1.4 million in 1997 from $1.2 million in 1996,
constituting 13.7% of total revenues in 1997 and 17.0% in 1996, respectively.
The increase in general administrative expenses reflected the addition of
personnel to support our growth.
Interest Income. Interest income increased by $150,000 to $155,000 in 1997
from $5,000 in 1996.
Interest Expense. Interest expense increased by $163,000 to $227,000 in
1997 from $64,000 in 1996.
Net Loss. As a result of the aforementioned increases in revenue,
operating expenses, depreciation and amortization, interest income and
expense, our net loss increased by $1.5 million, or 214.3%, to $2.2 million
for 1997, compared to a net loss of $0.7 million for 1996.
29
<PAGE>
Quarterly Results
The following table sets forth certain unaudited financial data of Prime
Response for each of the quarters in 1998 and for the first three quarters of
1999. This information has been derived from unaudited financial statements
that, in the opinion of management, reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of this
quarterly information. The operating results for any quarter are not
necessarily indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- --------- -------- -------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software and licenses.. $ 1,203 $ 348 $ 1,939 $5,005 $ 1,080 $ 2,544 $ 1,654
Services and support... 771 723 847 1,873 1,711 1,543 1,342
Applications hosting... 857 761 819 1,390 991 994 1,208
------- ------- ------- ------ ------- ------- --------
Total revenues......... 2,831 1,832 3,605 8,268 3,782 5,081 4,204
------- ------- ------- ------ ------- ------- --------
Cost of revenues:
Software licenses...... -- -- 10 142 -- -- --
Services and support... 1,769 1,149 1,498 2,061 850 1,167 1,230
Applications hosting... 590 606 698 583 775 666 647
------- ------- ------- ------ ------- ------- --------
Total cost of
revenues............. 2,359 1,755 2,206 2,786 1,625 1,833 1,877
------- ------- ------- ------ ------- ------- --------
Gross profit............ 472 77 1,399 5,482 2,157 3,248 2,327
======= ======= ======= ====== ======= ======= ========
Operating expenses:
Sales and marketing.... 1,897 2,085 2,704 2,773 2,811 2,728 2,985
Research and
development.......... 1,442 1,842 1,598 1,407 1,950 2,130 2,632
General and
administrative....... 1,326 1,227 1,032 1,258 847 853 959
Amortization of
goodwill and other
intangible assets.... 318 319 318 324 314 309 308
Amortization of stock
compensation......... -- -- -- -- 16 1,686 142
------- ------- ------- ------ ------- ------- --------
Total operating
expenses............. 4,983 5,473 5,652 5,762 5,938 7,706 7,026
------- ------- ------- ------ ------- ------- --------
Loss from operations.... (4,511) (5,396) (4,253) (280) (3,781) (4,458) (4,699)
Other income (expense):
Interest income........ 122 79 11 7 1 17 44
Interest expense....... (102) (115) (26) (51) (33) (30) (24)
Interest expense
related to beneficial
conversion........... -- -- -- -- -- -- (2,500)
Gain (loss) on foreign
exchange............. (2) (24) (51) (11) (19) (31) 1
------- ------- ------- ------ ------- ------- --------
Loss before income taxes
...................... (4,493) (5,456) (4,319) (335) (3,832) (4,502) (7,178)
Provision for income
taxes ................ -- -- -- -- (1) (1) (7)
------- ------- ------- ------ ------- ------- --------
Net loss................ (4,493) (5,456) (4,319) (335) (3,833) (4,503) (7,185)
Preferred stock
dividends and
recognition of
beneficial conversion
feature on preferred
stock ................ (474) (474) (504) (563) (611) (677) (3,068)
------- ------- ------- ------ ------- ------- --------
Net loss attributable to
common stockholders... $(4,967) $(5,930) $(4,823) $ (898) $(4,444) $(5,180) $(10.253)
======= ======= ======= ====== ======= ======= ========
Net loss per share--
basic and diluted..... $ (0.71) $ (0.84) $ (0.68) $(0.13) $ (0.64) $ (0.73) $ (1.35)
======= ======= ======= ====== ======= ======= ========
Weighted average shares
used in computing
basic and diluted net
loss per share........ 7,035 7,035 7,035 7,035 7,035 7,247 7,671
======= ======= ======= ====== ======= ======= ========
Unaudited pro forma net
loss per share--basic
and diluted........... $ (0.42) $ (0.50) $ (0.40) $(0.07) $ (0.36) $ (0.39) $ (0.70)
======= ======= ======= ====== ======= ======= ========
Shares used in computing
unaudited pro forma
basic and diluted net
loss per share........ 11,655 11,655 11,944 12,522 12,799 13,567 14,658
======= ======= ======= ====== ======= ======= ========
</TABLE>
30
<PAGE>
The following table sets forth the unaudited quarterly total expenses as a
percentage of unaudited quarterly revenues.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses...... 42.5% 19.0% 53.8% 60.5% 28.6% 50.1% 39.3%
Services and support... 27.2 39.5 23.5 22.7 45.2 30.4 31.9
Applications hosting... 30.3 41.5 22.7 16.8 26.2 19.6 28.7
------ ------ ------ ----- ------ ----- ------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ----- ------ ----- ------
Cost of revenues:
Software licenses...... -- -- 0.3 1.7 -- -- --
Services and support... 62.5 62.7 41.6 24.9 22.5 23.0 29.3
Applications hosting... 20.8 33.1 19.4 7.1 20.5 13.1 15.4
------ ------ ------ ----- ------ ----- ------
Total cost of
revenues............. 83.3 95.8 61.2 33.7 43.0 36.1 44.6
------ ------ ------ ----- ------ ----- ------
Gross profit............ 16.7 4.2 38.8 66.3 57.0 63.9 55.4
------ ------ ------ ----- ------ ----- ------
Operating expenses:
Sales and marketing.... 67.0 113.8 75.0 33.5 74.3 53.7 71.0
Research and
development.......... 50.9 100.5 44.3 17.0 51.6 41.9 62.6
General and
administrative....... 46.8 67.0 28.6 15.2 22.4 16.8 22.8
Amortization of
goodwill and other
intangible assets.... 11.2 17.4 8.8 3.9 8.3 6.1 7.3
Amortization of stock
compensation......... -- -- -- -- 0.4 33.2 3.4
------ ------ ------ ----- ------ ----- ------
Total operating
expenses............. 176.0 298.7 156.8 69.7 157.0 151.7 167.1
------ ------ ------ ----- ------ ----- ------
Loss from operations.... (159.3) (294.5) (118.0) (3.4) (100.0) (87.7) (111.8)
Other income (expense):
Interest income........ 4.3 4.3 0.3 0.1 -- 0.3 1.0
Interest expense....... (3.6) (6.3) (0.7) (0.6) (0.9) (0.6) (0.6)
Interest expense
related to beneficial
conversion........... -- -- -- -- -- -- (59.5)
Gain (loss) on foreign
exchange............. (0.1) (1.3) (1.4) (0.1) (0.5) (0.6) --
------ ------ ------ ----- ------ ----- ------
Loss before income taxes
...................... (158.7) (297.8) (119.8) (4.1) (101.3) (88.6) (170.7)
Provision for income
taxes ................ -- -- -- -- -- -- (0.2)
------ ------ ------ ----- ------ ----- ------
Net loss................ (158.7)% (297.8)% (119.8)% (4.1)% (101.3)% (88.6)% (170.9)%
====== ====== ====== ===== ====== ===== ======
</TABLE>
Our quarterly revenue and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. Therefore, you should not
rely on period-to-period comparisons of results of operations as an indication
of future performance. If our quarterly revenue or operating results fall below
the expectations of investors or securities analysts, the price of our common
stock could fall substantially.
Our quarterly revenue may fluctuate as a result of a variety of factors,
including the following:
. software license revenues in any quarter depend on contracts closed,
orders shipped and the satisfaction of clients' acceptance criteria in
that quarter;
. the market in which we compete is relatively new and evolving;
. we expect that, for the foreseeable future, license revenues will come
from licenses to a small number of clients, so delays, cancellations
of orders, or acceptance of our software by a few clients can
significantly impact revenues within a quarter;
. our sales cycle is relatively long; and
. revenues will be affected by the timing of introduction of new
products or product enhancements by us or our competitors.
Many of the factors that could cause such variations are outside of our
control. We plan our operating expenditures based on revenue forecasts, and a
revenue shortfall below such forecasts in any quarter could adversely affect
our operating results for that quarter.
31
<PAGE>
For the quarter ended December 31, 1998, we recognized revenues from a
disproportionately large number of licensing transactions, including a number
involving significant license fees. We may in the future continue, for the
factors noted above, to experience significant variations in license revenues
from quarter to quarter. There can be no certainty that revenue levels will
cover operating expenses, particularly as we continue to invest in our sales
and marketing organizations and on expansion in the United States. We do,
however, expect research and development expenditures to decrease as a
percentage of total revenues, with the completion of the major investment made
in the development of our Prime@Vantage and [email protected] products.
Liquidity and Capital Resources
Since October 1997, our primary source of funding has been through the
private sale of convertible preferred stock and warrants, which totaled $36.6
million in aggregate net proceeds as of October 31, 1999.
In early November 1999, we entered into a $5.0 million financing
arrangement with Greyrock Capital, a Bank of America company, providing an
upfront term loan of $2.0 million with the balance being funded against our
receivables position, initially within the United States. We expect to expand
this facility to include coverage from our international receivables in the
near future. The arrangement has a 12 month renewable term and bears interest
at the rate of prime plus 2.0% on outstanding balances.
Cash and cash equivalents were $2.5 million at September 30, 1999 compared
to $0.5 million at December 31, 1998 and $22.1 million at December 31, 1997.
The increase from December 31, 1998 is primarily attributable to equity
financing provided by our primary investor, General Atlantic Partners.
Net cash used in operating activities was $7.5 million during the nine
months ended September 30, 1999, $13.7 million during 1998 and $1.5 million
during 1997.
Working capital at September 30, 1999 was $(3.5) million compared to $(0.1)
million at December 31, 1999. We believe that the availability of $5.0 million
in debt funding and receipt of $4.0 million in equity financing plus the
conversion of $2.5 million in debt to mandatorily redeemable preferred stock
subsequent to September 30, 1999 will allow us to fund ongoing operations.
Capital expenditures were $1.1 million during the nine months ended
September 30, 1999, $1.1 million during 1998 and $0.6 million during 1997. We
do not expect any major future expenditures on property, but intend to continue
to invest in our systems infrastructure to better support our customers,
improve the ongoing efficiency of our product development process and
facilitate internal communications and virtual team working.
Our strategic initiatives include the roll-out of our new web-enabled
software products Prime@Vantage and [email protected] and the expansion of our
United States operations. These initiatives will require a substantial amount
of capital as will personnel additions and the funding of operating losses and
working capital.
We believe that our current cash resources, revolving credit availability,
availability of lease financing and proceeds from this offering will be
sufficient to fund our operating losses and planned capital expenditures for at
least the next 12 months. To meet our additional future financing requirements,
sources of funding may include public offerings or private placements of equity
or debt securities, bank loans and capital leases. There can be no assurance
that additional financing will be available to us or, if available, that it can
be obtained on a timely basis, on terms acceptable to us, and within the
limitations contained in our commercial lending agreements. Failure to obtain
such financing could result in the delay or abandonment of certain of our
development and expansion plans and could have a material adverse effect on us.
Furthermore, there can be no assurance that actual capital needs and
expenditures will not be significantly higher than our current estimates.
32
<PAGE>
While we have historically generated a high proportion of our revenues
outside of the United States, the vast majority of these have been earned in
Pounds Sterling, so that any potential foreign exchange exposure would be
limited to movements between the Pound Sterling and the Dollar. Because the
cost profile has also been similarly structured, this has provided a natural
currency hedge, and we do not formally hedge any of our foreign currency
exposure. We will continue to review this stance in light of potential growth
in Euro denominated revenues and expenditures.
We do not have any derivative instruments.
In November 1999 Prime Response agreed to refund amounts for a software
license fee paid by a customer in 1998. This amount is payable in the amount of
$125,000 per quarter commencing in January 2000.
Recent Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position No. 98-4 "Deferral of
the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition"
("SOP 98-4"). SOP 98-4 defers, for one year, the application of certain
passages in SOP 97-2 which limit what is considered vendor-specific objective
evidence ("VSOE") necessary to recognize revenue for software licenses on
multiple-element arrangements when undelivered elements exist. In December
1998, the AICPA issued Statement of Position No. 98-9 "Modifications of SOP 97-
2, Software Revenue Recognition, with Respect of Certain Transactions"
("SOP 98-9") which further extends the deferral of certain passages of SOP 97-2
relating to vendor specific objective evidence established in SOP 98-4 and also
defines "residual value." The provisions of SOP 98-9 have been adopted for
transactions entered during the fiscal year beginning January 1, 1999. The
Company does not anticipate that this pronouncement will have a material effect
on its results.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes a new model for accounting for derivatives and
hedging activities and supercedes and amends a number of existing standards.
SFAS 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 19, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS 133. Prime Response does not anticipate that this pronouncement will have
a material effect on its reported results or financial position.
Impact of Year 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with these Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
State of Readiness
We have made a preliminary assessment of the Year 2000 readiness of our
information technology (IT) systems, including the hardware and software that
enable us to provide and deliver our integrated eMarketing solutions, and our
non-IT systems. Our assessment plan consists of (i) quality assurance testing
of our internally developed proprietary software incorporated in our products;
(ii) contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to the
delivery of our solutions to our clients; (iii) contacting vendors of material
non-IT systems used by us; (iv) assessment of repair or replacement
requirements; (v) repair or replacement; (vi) implementation; and (vii)
creation of contingency plans in the event of Year 2000 failures.
33
<PAGE>
Using our Year 2000 Certification methodology we have executed tests which
confirmed the suitability of the Prime Vantage software for Year 2000
operation. We have been informed by many of our vendors of material hardware
and software components of our IT systems that the products used by us are
currently Year 2000 compliant. We have requested that vendors of our other
material hardware and software components of our IT systems provide assurances
of their Year 2000 compliance. We are currently assessing the materiality of
our non-IT systems and will seek assurances of Year 2000 compliance from
providers of material non-IT systems. Until this testing is complete and such
vendors and providers are contacted, we will not be able to completely evaluate
whether our IT systems or non-IT systems will need to be revised or replaced.
Costs
To date, we have not incurred any material expenditures in connection with
identifying or evaluating Year 2000 compliance issues. Most of our expenses
have related to, and are expected to continue to relate to, the operating costs
associated with time spent by employees in the evaluation process and Year 2000
compliance matters generally. At this time, we do not possess the information
necessary to estimate the potential costs of revisions to our proprietary
software should any revisions be required or the replacement of third-party
software, hardware or services that are determined not to be Year 2000
compliant. Although we do not anticipate that these expenses will be material,
such expenses, if higher than anticipated, could have a material adverse effect
on our business, results of operations and financial condition.
Risks
We are not currently aware of any Year 2000 compliance problems relating to
our proprietary software or our IT or non-IT systems that would have a material
adverse effect on us without taking into account our efforts to avoid or fix
such problems. There can be no assurance that we will not discover Year 2000
compliance problems in our proprietary software that will require substantial
revisions. In addition, there can be no assurance that third-party software,
hardware or services incorporated into our material IT and non-IT systems will
not need to be revised or replaced, all of which could be time consuming and
expensive. Our failure to fix our proprietary software or to fix or replace
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of clients and other
business interruptions, any of which could have a material adverse effect on
us. Moreover, the failure to adequately address Year 2000 compliance issues
could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
In addition, there can be no assurance that governmental agencies, utility
companies, internet access companies, third-party service providers and others
outside of our control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure beyond
our control, such as a prolonged internet, telecommunications or electrical
failure, which could also prevent us from delivering our services to our
clients or decrease the use of the internet, which could have a material
adverse effect on our business, prospects, results of operations and financial
condition.
Contingency Plan
In the event of any Year-2000 problems, our contingency plan included the
following components:
. Deploying all necessary internal resources to tackle the issues as
swiftly as possible;
. Calling upon our relationships with our commercial partners, to enable
suitable escalation of issues with any third party; and
. Calling upon technical assistance from our technology partners--
including our disaster recovery service provider.
34
<PAGE>
BUSINESS
Prime Response is a leading provider of integrated eMarketing software
solutions that enable businesses with large customer bases to create, manage
and execute highly targeted internet and traditional marketing campaigns that
build more loyal and profitable customer relationships. Our software solutions
leverage our 12 years of experience in the design, implementation and
management of marketing campaigns to create tailored interactions that draw on
the collective memory of our clients' customers developed through all marketing
touch points. Our products are designed to help our clients to more effectively
market and sell to their customers by delivering more personalized marketing
messages over the customers' preferred channel, whether internet or
traditional.
Industry Background
In today's competitive environment, businesses face intense pressure to
improve their overall profitability. In recent years, businesses have addressed
cost reduction and expense containment by adopting enterprise resource planning
and other back-office software applications. Businesses realize that they must
now also focus on ways to increase revenues in a cost effective manner. Today,
businesses with large customer bases invest significant resources to attract,
retain and sell to customers both directly through telephone, direct mail and
personal selling efforts and increasingly via the internet, or indirectly
through use of media such as print, radio and television. Implementing and
managing these marketing campaigns--called marketing management--is both a
critical and challenging task because of the proliferation of customer
purchasing options and increased customer sophistication coupled with the high
costs associated with conducting marketing campaigns. Industry sources estimate
that direct marketing expenditures in the United States alone totaled more than
$160 billion in 1998 and will be more than $200 billion by 2003.
Traditional Marketing Management Tools
To improve the cost-effectiveness of marketing campaigns, businesses are
focusing on ways to exploit information gathered from their multiple marketing
activities. As part of marketing management, businesses are seeking to:
. automate the planning and implementation of their marketing campaigns;
. tailor interaction with customers based on prior interactions between
customers and businesses;
. identify profitable customer opportunities;
. measure effectiveness of current marketing initiatives to plan more
effective future campaigns; and
. determine future marketing opportunities through consolidation and
analysis of customer data.
Industry sources estimate that the market for marketing management
solutions to perform one or more of these tasks will grow from $2.3 billion in
1998 to $16.8 billion in 2003. Historically, these solutions have included:
. Automated Customer Lists. For many years, businesses have used
proprietary software, often developed by third-party service bureaus,
to access customer information maintained in large external databases.
. Database Mining Software. Database mining software permits businesses
to analyze data generated within an organization to provide a more
complete view of customer relationships.
These traditional solutions do not fully manage the planning and
implementation of marketing campaigns, do not allow for easy access to customer
data, do not support focused one-on-one marketing efforts and are difficult to
integrate across various departments within an organization. Because of these
inherent limitations, traditional marketing management solutions generally do
not enable businesses to achieve their overall goals for cost-effective
marketing and efficient use of available customer data and generally do not
address growing internet marketing needs.
35
<PAGE>
Emergence of eMarketing
The widespread adoption of the internet by consumers and businesses is
fundamentally changing the way businesses interact with their customers and is
dramatically increasing the pressure on businesses to adopt new marketing
management solutions. The number of internet users is expected to increase from
142 million worldwide in 1998 to 500 million worldwide by the end of 2003.
Industry sources report that the value of goods bought and sold on the internet
is expected to increase from $43 billion in 1998 to $1.3 trillion in 2003. The
growth of the internet and e-commerce is stimulating businesses to implement
new forms of internet advertising, such as banner ads, directed e-mail and
personalized web pages. Worldwide spending on internet advertising is expected
to grow from $3.3 billion in 1999 to $33 billion in 2004.
On the internet, one-to-one, real-time marketing can occur each time a
customer interacts with a business's website. Businesses can observe, record
and analyze customer behavior, such as when and how often they visit a
business's website and what content they view. This information allows
businesses to generate a profile of a customer's preferences and offer a
selection of products and services tailored to each specific customer. New
opportunities exist for real-time, customized sales and marketing initiatives
ranging from targeted e-mail to banner ads to personalized coupons. In addition
to exploiting new opportunities, businesses must develop effective internet
marketing strategies to protect their customer base and retain consumers who
might otherwise decide to change vendors with the click of a button.
Although many businesses have invested in internet infrastructure software
to support their e-commerce initiatives, much of this effort has been limited
to the development of their websites and other related back-office functions,
such as transaction processing and security. Many of these businesses are only
now beginning to focus on automating their internet marketing strategies so
that they can better exploit the internet as a marketing medium in a more cost-
effective fashion. Internet marketing products to date have generally been
point solutions, designed to address only one specific aspect of customer
interaction, or touch-point, such as:
. management of inbound e-mail, so that customer inquiries and
complaints are efficiently and promptly handled; or
. management of outbound e-mail, permitting businesses to generate
business through direct e-mail campaigns over the internet; or
. customized website content, with information tailored to specific
dynamic customer profiles; or
. management of internet advertising, designed to generate and manage
use of banner ads and other internet advertising.
These marketing products typically address only internet marketing channels
and often do not integrate with a business's existing traditional marketing
channels, nor do they leverage cost-effectively a business's existing customer
databases generated from non-internet based marketing activities.
To better leverage their multiple touch-points with their customers,
businesses increasingly realize the need to exploit both internet opportunities
and traditional marketing initiatives. Traditional businesses are increasingly
utilizing the internet as a sales and marketing channel and internet retailers
are increasingly utilizing more traditional media to reach and communicate with
customers. Businesses need solutions that integrate internet and traditional
marketing campaigns, through both direct and indirect channels, to provide a
collective memory of their customers and leverage information gathered about
customers across all touch-points. Drawing on multiple touch-points, these
businesses can learn more about their customers to develop effective marketing
campaigns and build stronger relationships with their customers. Today,
businesses are hampered by the fact that solutions designed exclusively for the
internet generally do not integrate with traditional marketing solutions, and
traditional marketing solutions generally do not integrate with internet
marketing solutions. An integrated solution would allow businesses to gather
accurate and comprehensive information about their customers and use that
information throughout the organization to develop and implement effective
direct and indirect marketing campaigns.
36
<PAGE>
The Prime Response Solution
We offer integrated eMarketing software solutions that enable businesses to
create and manage highly targeted internet and traditional marketing campaigns
to build more loyal and profitable customer relationships. Our software
solutions leverage our 12 years of experience in the design, implementation and
management of marketing campaigns to create tailored interactions that draw on
the collective memory of customers developed through all marketing touch-
points. Using [email protected], our clients will be able to create and manage
comprehensive marketing campaigns that utilize inbound and outbound e-mail,
customized websites, banner advertising and other internet advertising together
with traditional marketing media, that utilizes customer information drawn from
various touch-points across the organization.
The Prime Response solution acts as a hub for the marketing organization to
capitalize on three important trends in the marketplace: the expansion of
customer data and tools to mine and understand that data, the continual
evolution of lower cost customer touchpoints (such as the internet and e-mail),
and the decline in marginal return for marketing dollars spent. By providing
marketers with a solution that allows them to interact with customers over
virtually any channel at any time, marketing organizations can take better
advantage of their data and analysis, of the breadth of their marketing
channels and thus gain better returns on their marketing spend.
Our solutions are designed to provide our clients with critical business
advantages in effectively managing the customer lifecycle from acquisition,
through to retention and development, including the ability to:
Lower the cost of acquiring and retaining customers. Our software can
deliver process efficiencies, refined prospect and customer selection and
marketing channel optimization, thereby contributing to reduced customer
acquisition and retention costs.
Target marketing efforts on the most profitable customers. Our software
enables our clients to identify and cost-effectively focus and build on their
relationships with their most profitable customers by:
. quickly understanding and identifying who the most profitable
customers are;
. enabling the marketing professional to create and fine-tune the
appropriate marketing offer; and
. communicating the marketing offer over the most effective marketing
channel.
Optimize the use of marketing channels based on customer
preferences. Because our software solution has been developed to design, plan,
execute and track marketing campaigns over the internet and traditional
channels, it permits clients to tailor and deliver marketing messages over the
channel identified as each customer's preference.
Increase customer retention and loyalty. By maintaining a history of all
customer interactions, both inbound and outbound, and by giving the marketing
professional access to all customer data, our software helps our clients build
loyal and sustainable customer relationships.
Maximize lifetime value of customers through cross-selling. Our software
enables clients to get the most value out of their customers through enhanced
cross-selling efforts to maximize a customer's revenue potential over the
duration of the customer's relationship with a client.
The Prime Response solution is supplemented by comprehensive service and
professional support, so that our customers are able to maximize the benefits
achieved with the use of our software on a turnkey basis.
Strategy
Our strategy is to become the leading supplier of integrated eMarketing
solutions. Key elements of our strategy include:
Leverage expertise to offer leading integrated eMarketing solutions. We
have built on our 12 years of experience in the design and implementation of
marketing campaigns to create what we believe is the leading
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marketing solution specifically designed to operate as a web-enabled multi-
channel solution addressing both internet and traditional campaigns. We intend
to continue to apply our expertise to focus on those customers and industries
that require an eMarketing solution that offers complete marketing
functionality rather than a combination of disparate point solutions. We
believe that our products' open architecture will allow them to be integrated
with emerging interactive technologies, providing us with a continued
competitive advantage as the market evolves.
Expand operations in the United States. We believe that the United States
market for integrated eMarketing solutions is larger and more rapidly growing
than the European market, and we intend to further expand in the United States.
We started as a European business and in 1998 we began offering our products in
the United States, and we have continued to aggressively expand our United
States presence since January 1999. We relocated our corporate headquarters to
Cambridge, Massachusetts in July 1999. We intend to continue to make a
significant investment in this geographic expansion and plan to double our
United States sales force over the next 12 months.
Penetrate identified vertical markets. We intend to continue to focus our
marketing and direct sales activities in our key existing vertical markets:
communications and media, financial services, and retail and e-commerce. We
believe these markets provide the greatest opportunity for rapid market
penetration because of their critical need for flexible marketing management
solutions to manage large, consumer-oriented marketing campaigns; their growing
use of e-commerce; and the competitive challenges they face from e-commerce. In
order to further expand our presence in these vertical markets, we have
recently structured our sales and services organizations to provide dedicated
and focused support to each industry that we target. We also intend to leverage
our current success in our targeted industries to gain market share in other
industries with similar characteristics.
Expand direct sales force. We rely on a direct sales model because our
products address critical business needs that require close relationships with
our clients. From January 1 to September 30, 1999, we increased the number of
our direct sales personnel from 14 to 20 and increased the number of our sales
offices from six to 11. We intend to continue to expand our direct sales force
worldwide.
Build key strategic alliances. We have established strategic relationships
with key industry participants in order to broaden our market presence, reach
new geographic and vertical markets, and increase our sales penetration by
leveraging each partner's expertise in specific markets, industry reputation
and sales and marketing resources. Today we have active marketing relationships
with organizations including consultants, systems integrators and service
providers such as Andersen Consulting, platform providers such as Hewlett
Packard and Sun Microsystems, and complementary software providers such as SAS
Institute and MicroStrategy. We intend to establish additional strategic
alliances, and to continue to enhance our relationship with existing strategic
partners in order to further broaden our market penetration.
Expand and enhance professional services and customer support. We intend to
continue to make a significant investment in our consulting staff and to build
the expertise of the consulting organization along industry lines to facilitate
the rapid adoption by clients of our solutions. We also believe that a high
level of service and support is of critical importance to our customers, who
require a highly reliable, turnkey solution. We intend to sustain our
commitment to service and support through continued investment in those
activities and by leveraging our strategic alliances to add greater depth to
those services.
Products
We began in 1987 as a marketing database service bureau. In 1995, we
introduced our first data analysis and campaign management solution, one of the
first client/server based, enterprise-wide, multi-channel marketing management
software solutions configured to permit the analysis of large amounts of
customer data and the automation of marketing strategies. In 1998, we
introduced a windows-based, three-tier, client/server
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product that works on a client's own database and runs on Windows 95 and
Windows NT. Today, our marketing management solutions are used by more than 70
businesses to manage millions of customer relationships.
Our latest product offerings include Prime@Vantage, a web-based system that
incorporates an advanced user interface and new software architecture to
facilitate integration and product enhancements, and [email protected], which
provides additional functionality, including the ability to generate immediate
personalized marketing initiatives over the internet in response to information
generated across an organization. Beta shipments of Prime@Vangtage and
[email protected] commenced in September 1999 and the commercial release is
scheduled for December 1999.
Our solution features software architecture that makes it:
. highly flexible, so that it can be used to implement marketing plans,
regardless of complexity, channel or medium, and so that clients can
respond to rapid developments in market conditions and technology;
. scalable, so that it can continue to effectively support major
company-wide marketing campaigns to target customers and potential
customers, and so that it can handle rapid increases in data volume as
media such as the internet are implemented and exploited;
. comprehensive, to include all functions required by the end-users to
effectively manage and automate major marketing campaigns; and
. intuitive, so that it can be used in real-time, by personnel in
various departments involved in marketing campaigns, without
significant additional training or technical support.
Prime Vantage
Strategy Manager. Strategy Manager allows all departments of an
organization's staff to participate in its marketing campaigns. Our clients'
marketing personnel can plan, execute, track and analyze marketing strategies,
while marketing departments can evaluate and budget campaigns prior to
implementation and measure the resulting return on investment. Strategy Manager
also permits the generation and reporting of campaign results for real-time
distribution throughout a business, allowing timely response to marketing data.
<TABLE>
<CAPTION>
Feature Benefit
- --------------------------------------------------------------------------------
<S> <C>
Channel Selection Allows users to select the most appropriate channel (for
example, direct mail or outbound call center) for a
particular campaign or customer.
- --------------------------------------------------------------------------------
Customer Selection Allows users to target the appropriate audience for a
campaign by analyzing the customer history and related data.
- --------------------------------------------------------------------------------
Product Selection Enables users to select the best product offering for a
customer.
- --------------------------------------------------------------------------------
Calculate Return on Allows users to calculate return on investment based on
Investment specific campaign cost and response rates.
- --------------------------------------------------------------------------------
Results Analysis Allows campaign planners to stage multi-event campaigns and
embed response criteria that are automatically triggered for
follow-up action.
</TABLE>
Campaign Manager. Campaign Manager provides users the functionality for
operational planning and campaign execution. This function allows for
comprehensive automated scheduling, rescheduling, execution and monitoring of
all tasks associated with marketing campaigns. Users can define campaign
targets and parameters, campaign components such as internet or e-mail, more
efficiently than with traditional software solutions, using a variety of
embedded tools and prompts.
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<PAGE>
<TABLE>
<CAPTION>
Feature Benefits
- --------------------------------------------------------------------------------
<S> <C>
Campaign Builder Pulls together all components of a campaign. Segmentation
tree structures can be used to build campaigns for targeted
customers from various component menus.
- --------------------------------------------------------------------------------
Query Designer Customer audiences can be targeted based on defined criteria
and system data, such as details on previous communications
and responses. Information can be stored for reuse, further
analysis and integration with other third-party
applications.
- --------------------------------------------------------------------------------
Score Models Provides a capability to score customers' responses based on
user-defined criteria.
- --------------------------------------------------------------------------------
Derived Values Calculates values, including averages and ranks, based on
customer data, which can be used within selection criteria.
- --------------------------------------------------------------------------------
Data Categorization Allows users to personalize how data is displayed.
- --------------------------------------------------------------------------------
Treatments Campaign descriptions and costs can be stored for future use
in planning and budgeting potential campaigns through test
and roll-out strategies.
- --------------------------------------------------------------------------------
Response Models User-definable response models can measure customer
responses to campaigns, including direct responses as well
as responses such as increased transactions over a defined
time period.
- --------------------------------------------------------------------------------
Event-Driven Marketing Multi-stage, multi-channel campaigns can be tailored based
on customer events or behavioral changes.
- --------------------------------------------------------------------------------
Output Templates Data can be integrated with third-party applications through
a variety of output templates.
- --------------------------------------------------------------------------------
Communications History All communications and responses are stored centrally. Users
can include or exclude any campaign or treatment and can
establish communication frequency rules.
</TABLE>
Prime@Vantage and [email protected]
Building on our knowledge and expertise in the customer relationship
management industry, we are introducing Prime@Vantage, which will feature a
complete revision of product architecture to facilitate system flexibility,
integration with customer databases, and integration of new features as
required, without the investment or cost associated with significant code
revisions. Its updated graphical user interface will use icons and cues
typically used in web browsers, facilitating its use in an internet
environment. Prime@Vantage and [email protected] are founded on a comprehensive
published data model that allows for windows or browser-based applications and
a foundation for continued functional enhancements. [email protected] will be
offered as an add-on to our Prime@Vantage product. Prime@Vantage will offer the
functions and features described above as well as additional functionality as
described below:
Segmentation Manager. The Segmentation Manager allows the definition and
execution of a "decision tree," incorporating conditional, dependent and
exclusivity processing. It provides the following functionality:
<TABLE>
<CAPTION>
Feature Benefits
- --------------------------------------------------------------------------------
<S> <C>
Output Processing Provides full support for splitting, sampling (random and
ranked) and applying multilevel criteria.
- --------------------------------------------------------------------------------
Control Allows user defined processing control (static/dynamic and
live/test modes).
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Feature Benefits
- --------------------------------------------------------------------------------
<S> <C>
Results Cascading gross and net quantities can be displayed when
decision tree is executed.
- --------------------------------------------------------------------------------
Segmentation Multiple customer segments can be created from a single
process.
- --------------------------------------------------------------------------------
Base Population Base segments (high level inclusion/exclusion criteria)
and/or other criteria can be included or excluded to create
a "base population' against which the segmentation takes
place.
</TABLE>
Wizards and Assistants. The system incorporates a variety of intelligent
wizards and agents that help to guide a user through the various system
functions, such as building a marketing management campaign or defining a
segmentation strategy. Incorporation of these user aids enable non-technical
personnel to effectively utilize the Prime@Vantage solution.
We are also introducing an add-on to our Prime@Vantage product offering,
[email protected], which will offer web-based functions to fully support and
integrate internet and traditional marketing efforts across an organization.
[email protected] will allow our clients to take advantage of the internet's
ability to provide immediate, individualized responses to customer inquiries.
[email protected] will offer our clients a dynamic link to campaign strategies
from the client's home page without requiring continual assistance from IT
resources, enabling interactive, real-time control of web marketing strategies.
[email protected] enables our clients to personalize web-based marketing in
real time based on their customers profiles and allows our clients to link
their operational systems and data warehouses to e-mail, website, or
traditional marketing channels. [email protected] is designed to be a web-
based, multi-channel marketing solution that integrates internet and other
evolving channels--such as e-mail, the web, ATMs and mobile communication
systems--with traditional marketing channels such as direct mail, call centers,
point of sale, direct sales systems and mass market advertising.
The following tables describe some of the additional capabilities of
[email protected].
Web Personalization Engine. The Web Personalization Engine allows clients
instantaneously to personalize the websites that their customers view, based on
the customer's web activity and centralized business and communication
strategies. This allows clients to combine both internet data and feedback from
traditional channels. As a result, marketing efficiency can be improved through
real-time response analysis.
<TABLE>
<CAPTION>
Feature Benefit
- --------------------------------------------------------------------------------
<S> <C>
Collateral Manager Provides a user-definable library structure to view and
manipulate web marketing at the domain level, website level,
web page level, or web page element level.
- --------------------------------------------------------------------------------
Template Designer Using drag-and-drop technology, users can quickly and easily
design personalized websites for target audiences.
- --------------------------------------------------------------------------------
Response Engine Allows response criteria to drive subsequent marketing
communications and evaluate return on investment.
- --------------------------------------------------------------------------------
Logon Personalization Personalization at the logon stage makes use of information
gathered on the internet and off-line to further enhance and
personalize the online experience.
- --------------------------------------------------------------------------------
Session-Variable Permits user to generate real time personalization during,
Personalization and in response to, a customer session.
</TABLE>
E-mail Personalization Engine. With the E-mail Personalization Engine,
relevant, timely and personalized e-mails can be constructed and delivered to
target audiences. Outbound e-mails are distributed and response mail boxes can
be set up for automatic routing of inbound e-mail to the most relevant parts of
an organization. E-mails can include URL's that take the recipient back to a
personalized web page.
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<PAGE>
<TABLE>
<CAPTION>
Feature Benefit
- --------------------------------------------------------------------------------
<C> <S>
Collateral Manager Provides a user-definable library structure to view and
manipulate e-mail marketing data.
- --------------------------------------------------------------------------------
Template Using drag-and-drop technology, users can quickly and easily
design e-mails that include personalized content for target
audiences.
- --------------------------------------------------------------------------------
Response Tracking Mail boxes can be created to capture e-mail responses and
track campaign effectiveness.
- --------------------------------------------------------------------------------
E-mail Routing Mail boxes can be created to forward incoming e-mails to
various departments within an organization.
</TABLE>
Services
In addition to our product offerings, we also provide a variety of services
to our customers to enable them to become rapidly self-sufficient and to ensure
rapid implementation and timely return on their investment. Our principal
offerings include:
Consulting Services. We offer comprehensive consulting services to
facilitate implementation and to provide our clients with a complete marketing
management solution. These consulting services cover:
. Assessment Consulting. We offer our clients a full range of assessment
services, which are designed to improve the clients' understanding of
our product and service offerings. Clients can choose their preferred
combination of products and services based on their particular needs.
. Implementation Consulting. We provide implementation services which
includes user, technical and systems administration training along
with business consulting services linked to a client-selected pilot
campaign. The objective of the implementation plan is to allow our
clients to quickly and effectively deploy our products as well as to
establish a customer-specific, repeatable process for end-to-end
management of its marketing campaigns.
. Business Consulting. We offer our clients a full-range of strategic
business consulting services designed to assist them in optimizing
their marketing management initiatives and use of our solutions. These
services include development of their internet marketing strategies,
customer segmentation models, event-driven campaign design, and
effective market testing and measurement techniques.
. eMarketing Consulting. We provide a set of service offerings to
support our customers in effective management of web-based marketing
automation through the lifecycle of analysis, planning, execution and
tracking of marketing campaigns across multiple on and off-line
customer touch points, including the web and e-mail. The focus of
these offerings is to emphasize the importance of the internet as a
new medium for building customer loyalty and the integration of this
medium with traditional channels to enhance overall marketing results.
Support and Maintenance Services. We offer internet and off-line support
and maintenance services to our customers which provides them with hotline
technical support, remote dial-in services for problem identification and
access to maintenance releases.
Applications Hosting Services. We provide outsourcing services to our
clients who choose not to host their own applications, either directly through
our service bureau or through business partners. These services also extend to
customer management solutions including analytics, data management and mining,
and consulting. We also continue to serve as a marketing database service
bureau for customers who feel it cost-effective to outsource those activities.
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<PAGE>
Sales and Marketing
We market our products and services through a combination of our direct
sales force and strategic alliance partners. We rely on a direct sales model
because our products address critical client needs that require close
relationships with our clients. Our direct sales force is organized according
to the primary vertical markets we target, including communications and media;
financial services; and retail and e-commerce. As of September 30, 1999, our
direct sales force includes eight sales representatives based out of our United
States offices in Cambridge, Massachusetts, Chicago, Illinois, Denver,
Colorado, San Francisco, California and Atlanta, Georgia. We also have, as of
September 30, 1999, ten sales representatives based out of our international
offices in London, England; Frankfurt and Munich, Germany; Paris, France;
Antwerp, Belgium; and Melbourne, Australia.
We supplement our direct sales force through alliances with industry
leaders, including consultants, systems integrators and service providers. We
also market our products and services through relationships with hardware and
software platform providers and with complementary software providers.
We build market awareness through a variety of programs, including public
relations and leadership activities such as media relations, analyst relations,
and speaking engagements. We attract potential customers through lead
generation activities that include telemarketing, direct mail programs, trade
shows, seminars and conferences, webinars and website marketing. We also
produce materials to help support sales to prospective customers such as
brochures, product sheets, white papers, presentations and product
demonstrations.
Strategic Alliance Partners
We market our products and services through strategic alliances that enable
us to leverage our partners' resources, expertise and customer base. We
currently have strategic alliances with:
. platform providers that provide platforms on which our products run;
. complementary software providers, including both generic and vertical
industry software solutions in the areas of sales and contact
management, call center support, data mining and analysis, decision
support and other solutions that are related to, but not a part of
Prime@Vantage's integrated eMarketing solution; and
. consultants, systems integrators and service providers that implement
and integrate our software for customers developing new comprehensive
marketing solutions.
Some of our strategic partners include:
<TABLE>
<S> <C>
Platform Providers Complementary Software Consultants, Systems
Providers Integrators and Service
Hewlett Packard SAS Institute Providers
Sun Microsystems Metapath Software Andersen Consulting
NCR MicroStrategy Naviant Technology
IBM Sterling Software Solutions
Customer Analytics Tessera Enterprise
(formerly ActionSystems) Systems (acquired by
IXL)
Fair, Isaac and Company
Responsys.com
</TABLE>
Andersen Consulting Relationship
On December 6, 1999, we entered into a joint marketing agreement with
Andersen Consulting and a stock and warrant purchase agreement with an
affiliate of Andersen Consulting. Pursuant to the stock and warrant purchase
agreement, Andersen Consulting purchased 427,806 shares of common stock and
Andersen Consulting received a warrant to purchase 682,282 shares of common
stock. This warrant has an exercise price of $9.35 per share and vests upon the
earlier to occur of the date nine months following the date of issuance or the
date of an acquisition of us. Andersen Consulting also has a right of first
refusal to participate in equity
43
<PAGE>
issuances by us prior to our initial public offering in order to maintain its
percentage ownership interest in us, subject to specified exceptions. The
aggregate purchase price paid by Andersen Consulting for the stock and this
warrant was $4.0 million. Andersen Consulting has no performance obligations
under the stock and warrant purchase agreement or this warrant.
In addition, we issued a performance warrant to purchase 375,000 shares of
common stock to Andersen Consulting which will vest upon achievement by us of
certain post-IPO market capitalization targets. We also issued a performance
warrant to purchase 375,000 shares of common stock to Andersen Consulting which
will vest based on achievement of designated sales levels resulting from joint
marketing efforts. These warrants have an exercise price of $9.35 per share.
All warrants have a seven year term. In the event that the marketing
agreement is terminated as a result of a breach by Andersen Consulting, no
further vesting under the warrants described in the immediately preceding
paragraph will occur, but those warrants already exercisable will remain
exercisable during their term to the extent then vested.
In the event that an IPO does not occur, or in the event any other
liquidity event does occur, by January 1, 2001, Andersen Consulting or its
affiliates will have the right to require us to repurchase the 427,806 shares
for $4.0 million. Such repurchase will be payable in three quarterly
installments, plus 8.0% interest on the entire amount beginning on January 1,
2001, plus additional interest of 7.0% in the event we fail to make any payment
when due. This put right will terminate upon an IPO or other liquidity event.
We are obligated to engage Andersen Consulting for consulting services of
at least $1.0 million during the period from contract execution to December 31,
2001. If designated sales targets are met, Andersen Consulting is obligated to
provide up to $1.0 million in funding for joint marketing efforts, business
development personnel, structure feedback and sales support.
Clients
We target clients in those vertical markets that we believe have the most
urgent requirements for advanced, integrated customer relationship management
solutions, including financial services, communications and media, and retail
and e-commerce. Within those vertical markets, we target businesses that have
multi-channel requirements and large customer bases.
Today, more than 70 clients use our products to manage millions of customer
relationships. Some of the customers who have purchased licenses and/or
professional services from us include:
<TABLE>
<S> <C>
Financial Communications & Media Retail and e-Commerce
Services Other
Air Touch Boots British
Allianz KPN CVS Pharmacy Airways
Deutsche Bank MediaOne Dell
Computer
Edgars Stores Limited
Provident Rodgers Cantel Yves Rocher
Bank TeleDanmark Scottish
The Royal Bank of Telstra Power
Scotland Trusthouse
Standard Life Forte
United Bank of UPS
Switzerland
</TABLE>
Competition
The market for our products and services is intensely competitive and
rapidly evolving. Our primary competitors include:
. vendors of internet-enabled marketing software, including E.piphany,
Annuncio, Market First and Rubric;
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<PAGE>
. vendors of inbound e-mail management systems, including eGain, Kana
and Mustang.com;
. vendors of outbound e-mail management systems, including Click Action,
Exactis and Match Logic;
. traditional marketing automation software companies such as Exchange
Applications and Recognition Systems;
. traditional marketing database vendors and service bureaus that
provide a combination of service bureau capabilities and proprietary
software such as Axciom, Epsilon, Experian and Harte-Hanks;
. enterprise software vendors that are expanding their product lines to
offer campaign management applications such as Oracle and Siebel; and
. in-house development efforts by prospective customers to design their
own systems.
The principal competitive factors affecting the market are:
. depth and breadth of functionality offered;
. variety of marketing channels served;
. scalability and flexibility of use;
. speed and ease of implementation and use;
. price; and
. customer service and support.
We believe that we have competitive advantages that differentiate our
products and services from those of our competitors. We believe that our highly
functional product offerings that serve multiple channels provide us an
advantage over our competitors. We also believe that the features of our
Prime@Vantage and [email protected] offerings will be an important competitive
advantage, permitting clients to integrate personalized internet content and e-
mail with traditional marketing channels.
Despite these advantages, many of our competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do. As a result, they may be able to undertake more extensive
promotional activities, offer more attractive pricing terms, and bundle their
products in a manner that would put us at a competitive disadvantage.
Proprietary Rights and Licensing
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets, proprietary technology and similar intellectual property as critical
to our success, and relies on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with its employees,
customers, independent contractors, partners and others to protect its
proprietary rights. We strategically pursue the registration of our trademarks
and service marks, including "Prime Response," "Prime@Vantage" and
"[email protected]". There can be no assurance that the steps that we take to
protect our proprietary rights will be adequate or that third parties will not
infringe or misappropriate our copyrights, trademarks, trade secrets, trade
dress and similar proprietary rights. In addition, there can be no assurance
that other parties will not independently develop substantially equivalent
intellectual property.
We have been subject to claims and expect to be subject to legal
proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. Such claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources. There can be no assurance that such legal proceedings
will not adversely affect our business.
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<PAGE>
We may be required to obtain licenses from others to refine, develop,
market and deliver new products and services. There can be no assurance that we
will be able to obtain any such license on commercially reasonable terms or at
all or that rights granted pursuant to any licenses will be valid and
enforceable.
Employees
As of September 30, 1999, Prime Response had a total of 169 full-time
employees in the United States and abroad, including 59 primarily engaged in
research and development, 46 in sales and marketing, 47 in client services and
support and 17 in finance and administration. We also had 16 contractors,
primarily engaged in research and development. None of our employees is
represented by a collective bargaining unit and, to date, we have not
experienced a work stoppage. Our future depends on our ability to attract,
retain and motivate highly-skilled employees. Competition for employees in our
industry is intense.
Properties
Our principal offices are located at 150 CambridgePark Drive in Cambridge,
Massachusetts, where we lease approximately 4,705 square feet. Our lease for
this facility expires in June, 2005. We also maintain regional sales offices
and research and development facilities in Chicago, Illinois, Denver, Colorado,
San Francisco, California, Atlanta, Georgia, Melbourne, Australia, London,
England, Frankfurt and Munich, Germany, Paris, France, and Antwerp, Belgium.
Effective December 31, 1999, our office in Dublin, Ireland will be closed and
consolidated with our office in London, England.
Legal Proceedings
We are not a party to any material legal proceedings. From time to time, we
may become a party to legal proceedings incidental to the conduct of our
business.
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<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
Our directors, executive officers and other key employees, their ages as of
August 31, 1999 and their positions are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter J. Boni............ 53 President, Chief Executive Officer and Director*
Terence H. Osborne 61 Chairman of the Board
(1)(2).................
James Carling............ 39 Chief Technology Officer and Director*
Richard S. Braddock, Sr. 58 Director
(1)(2).................
William E. Ford (1)(2)... 38 Director
Frederick H. Phillips.... 50 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary*
Allen A. A. Swann........ 49 President, International*
Paul B. Lavallee......... 45 President, the Americas*
Gary Daniels............. 45 Vice President, Product Development
James P. Plantan......... 47 Vice President, Business Development
Richard S. Braddock, 31 Vice President, Product Marketing
Jr.....................
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
* Executive Officer.
Mr. Boni has served as Chief Executive Officer, President and Director of
the Company since February, 1999. Prior to joining Prime Response, Mr. Boni
held executive management positions at several companies including President
and Chief Executive Officer of Cayenne Software from August 1993 to January
1998, President of the Software and Information Services Group of Paramount
Communications Inc., from April 1990 to July 1993 and President of On-line
Software International, from March 1989 to March 1990. Mr. Boni had previously
been chief executive officer at Summa Four, Inc., and held executive positions
at Data General Corporation.
Mr. Osborne has served as a Director of Prime Response since November 1997,
and as the Chairman of the Board since February 1999. He also served as our
Chief Executive Officer on an interim basis from September 1998 to February
1999. Mr. Osborne previously served as the Chairman of the Board of Dr.
Solomon's Group PLC, a software company, from September 1996 to August 1998.
From September 1994 to October 1996, Mr. Osborne served as President of System
Software Associates Inc. Prior to that time, Mr. Osborne held a variety of
positions with IBM in both the USA and Europe including Vice President General
Systems Division and Vice President Marketing for Europe. Mr. Osborne is a
director of Mapics Inc. and Dendrite International Inc. He also serves on the
advisory boards of other US and European software companies and is a Special
Adviser to General Atlantic Partners, LLC.
Mr. Carling founded Prime Response's predecessor entity in 1990 and
currently serves as the Company's Chief Technical Officer and as a Director.
From 1990 to 1998, Mr. Carling served as the President and Chief Executive
Officer of the Company. Prior to that time, Mr. Carling served as Director,
Computer Services and as General Manager of Mailforce Limited, a direct
marketing company. Mr. Carling has also held various positions as a developer
of information technology with both American Express and the British
Government.
Mr. Braddock, Sr. has served as a Director of Prime Response since October
1997. Since August 1998, Mr. Braddock has served as the Chairman and Chief
Executive Officer of Priceline.com, Inc. From December 1997 to January 1999,
Mr. Braddock served as the non-executive Chairman of True North Communications
Inc. Prior to that time, Mr. Braddock served as Chief Executive Officer of
Medco Containment Services Inc. and as a principal at Clayton Dubilier & Rice,
Inc. From 1973 to 1992, Mr. Braddock held a variety of
47
<PAGE>
positions at Citicorp and its principal subsidiary, Citibank, N.A., including
President and Chief Operating Officer. Mr. Braddock also serves as a director
of NewSub Services, Inc., Eastman Kodak Company, E*Trade Group, Inc., Cadbury
Schweppes PLC, Amtec, Inc. and Walker Digital.
Mr. Ford has served as a Director of Prime Response since October 1997. Mr.
Ford has served as a managing member of General Atlantic Partners, LLC (or its
predecessor), a private equity firm that invests globally in software,
internet, services and related information technology companies, since 1991.
Mr. Ford also serves as a director of Priceline.com, Inc., E*Trade Group, Inc.,
Eclipsys Corporation, LHS Group Inc., Tickets.com, Inc. Quintiles Transnational
Corp., GT Interactive Software Corp. and several private information technology
companies.
Mr. Phillips joined Prime Response in October 1999 as Senior Vice
President, Chief Financial Officer, Treasurer and Secretary. Prior to joining
the Company, Mr. Phillips served as Vice President, Finance & Administration
and Chief Financial Officer of Cayenne Software from July 1996 to November
1998. From October 1988 to February 1995, Mr. Phillips served as the Assistant
Treasurer at Lotus Development Corporation. Prior to that time, Mr. Phillips
held various positions, including Vice President, Corporate Development
Division and Vice President, National Banking Department at Mellon Bank.
Mr. Swann joined Prime Response in February 1998 as Senior Vice President,
International Operations and has served as President, International, since
October 1999. Prior to joining Prime Response, Mr. Swann served as the Director
of Sales and the Director of Alliances at Oracle UK Ltd., from April 1986 to
January 1998. Mr. Swann was previously employed at Comshare, a provider of
financial and database modeling solutions, and at British Gas, where he worked
in the operational research division.
Mr. Lavallee joined Prime Response in October 1999 as President, the
Americas. Prior to joining the Company, Mr. Lavallee served as an Executive
Vice President at FirePond, Inc., an e-business, sales and marketing company,
from May 1998 to March 1999. From May 1995 to May 1998, Mr. Lavallee served as
President, Americas at System Software Associates, Inc. From February 1990 to
May 1995. Mr. Lavallee served as the President of Effective Management Systems
Inc.
Mr. Daniels joined Prime Response in November 1998 as Vice President,
Product Development. From October 1997 to November 1998, Mr. Daniels served as
Senior Vice President of Product Development at Armature Ltd. From December
1986 to October 1997, Mr. Daniels held various senior management positions at
The Santa Cruz Operation Ltd., including Vice President of the Platform
Products Division and Vice President of the European Product Development
Centre. Mr. Daniels previously served as Group Director of Logica Software
Products Ltd.
Mr. Plantan joined Prime Response in September 1999 as Vice President,
Business Development. Prior to joining the Company, Mr. Plantan served as the
Director of Strategic Alliances and Customer Relationship Management for
Information Advantage, a software company, from July 1996 to August 1999. Mr.
Plantan previously served as the Director of Partnership Marketing at Danmark
International from March 1990 to April 1996. Prior to that time, Mr. Plantan
was employed as a manager at Andersen Consulting.
Mr. Braddock, Jr. joined Prime Response in March 1998 as Director of
Business Development and has served as Vice President, Product Marketing since
August 1999. Prior to joining the Company, Mr. Braddock served as a Product
Manager and Program Manager at Intel Corp. from June 1996 to February 1998. Mr.
Braddock previously was employed as a consultant at Booz, Allen & Hamilton from
August 1992 to July 1994.
Mr. Marc McMorris has been designated to become a director of Prime
Response following the closing of the initial public offering. Since July 1999,
Mr. McMorris has served as an Associate with General Atlantic Partners, LLC.
From May 1998 to August 1999, Mr. McMorris served as a Vice President in the
High Technology Group of Goldman, Sachs & Co. From June 1996 to May 1998, Mr.
McMorris served as an Associate in that same group. From August 1994 to June
1996, Mr. McMorris served as an Associate in the Mergers, Acquisitions and
Restructuring Department of Morgan Stanley Dean Witter. Prior to that time, Mr.
McMorris worked in the Bank Supervision Group of the Federal Reserve Bank of
New York.
48
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Board Composition
Upon the closing of this offering, our board of directors will be divided
into three staggered classes, each of whose members will serve for a three-year
term. The board will consist of one Class I Director (Mr. Boni), two Class II
Directors (Messrs. Braddock and Ford) and two Class III Directors (Messrs.
Carling and Osborne). Following the closing of the initial public offering, the
Board intends to enlarge the total number of directors to seven, and to appoint
Marc McMorris as a Class I director. The Board intends to fill the seventh
vacancy with an individual familiar with e-commerce applications and experience
in the United States market as promptly as practicable thereafter. At each
annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose terms are then
expiring. The terms of the Class I Director, Class II Director and Class III
Directors will expire upon the election and qualification of successor
directors at the annual meeting of stockholders to be held during calendar
years 2001, 2002 and 2003, respectively.
Each officer serves at the discretion of the board of directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Richard S. Braddock, Sr. is the father of
Richard S. Braddock, Jr. There are no other family relationships among any of
the directors or executive officers of Prime Response.
Board Committees
The board of directors has a compensation committee composed of Messrs.
Braddock, Ford and Osborne, which makes recommendations concerning salaries and
incentive compensation for our employees and administers and grants stock
options under our stock option plans. The board also has an audit committee
composed of Messrs. Braddock, Ford and Osborne, which reviews the results and
scope of the audit and other services provided by our independent public
auditors.
Director Compensation
We reimburse each director for reasonable out-of-pocket expenses incurred
in attending meetings of the board of directors and any of its committees.
Neither employee nor non-employee directors receive compensation for services
performed in their capacity as directors. Non-employee directors will be
eligible for formula option grants under our 1999 Non-Employee Director Stock
Option Plan.
Compensation Committee Interlocks and Insider Participation
The current members of our compensation committee are Messrs. Braddock,
Ford and Osborne. Mr. Osborne was our President and Chief Executive Officer
from September 1998 to February 1999. No executive officer has served as a
director or member of the compensation committee, or other committee serving an
equivalent function, of any entity whose executive officers served as a member
of the compensation committee of our board of directors. Prior to the formation
of the compensation committee, the board of directors as a whole made decisions
relative to the compensation of executive officers. For a description of
transactions between us and certain entities affiliated with Messrs. Braddock
and Ford, see "Certain Transactions" below.
Executive Compensation
The following table presents the total compensation paid or accrued in 1998
for our chief executive officers and our other most highly compensated
executive officers who were serving as executive officers on December 31, 1998
and whose total annual salary and bonuses were in excess of $100,000 in 1998.
49
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-term
Compensation Compensation Awards
------------------- -------------------
Securities
Name and Principal Position Salary Bonus Underlying Options
- --------------------------- --------- -------- -------------------
<S> <C> <C> <C>
James Carling (1)..................... $247,500 $20,213 --
President and Chief Executive Officer
Allen Swann (2)....................... $231,000 $50,614 105,000
Sr. Vice President, International Op-
erations
Jamie Gunn (3)........................ $119,537 $79,050 26,250
Vice President, Finance
Robert Fetter (4)..................... $150,000 -- 157,500
President and Chief Executive Offi-
cer, Americas
Former Officer:
Terry Osborne (5)..................... -- $35,000 52,500
President and Chief Executive Officer
</TABLE>
- --------
(1) Mr. Carling resigned as Chief Executive Officer in September 1998. Mr.
Carling is currently our Chief Technical Officer and has a current salary
of $250,000 per year.
(2) Mr. Swann joined Prime Response in February 1998. His current salary is
$231,000 per year.
(3) Mr. Gunn joined Prime Response in May 1998 as Vice President, Finance. His
current salary is $180,000 per year.
(4) Mr. Fetter resigned in March 1999.
(5) Mr. Osborne became Chief Executive Officer in September 1998. He resigned
as Chief Executive Officer in February 1999.
Peter J. Boni, who joined us in January 1999 as our President and Chief
Executive Officer, has a current salary of $290,000 per year. Frederick
Phillips, who joined us in October 1999 as our Chief Financial Officer, has a
current salary of $180,000 per year. Gary Daniels, who joined us in November
1998 as our Vice President of Product Development, has a current salary of
$231,000 per year. James Plantan, who joined us in September 1999 as Vice
President, Business Development, has a current salary of $125,000 per year.
Richard S. Braddock, Jr., who joined us in March 1998 as our Vice President,
Marketing, has a current salary of $125,000 per year. Paul Lavallee, who joined
us in October 1999 as President, the Americas, has a current salary of $250,000
per year.
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Option Grants In Last Fiscal Year
The following table sets forth grants of stock options for the year ended
December 31, 1998 to our chief executive officers and to each of our other most
highly compensated executive officers whose salary and bonus for such fiscal
year were in excess of $100,000. We have never granted any stock appreciation
rights. The potential realizable value is calculated based on the term of the
option at its time of grant. It is calculated assuming that the fair market
value of common stock on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. These numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect our estimate of future stock price
growth. 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. The percentage
of total options granted to employees in the last fiscal year is based on
options to purchase an aggregate of 783,600 shares of common stock granted
under our option plans.
<TABLE>
<CAPTION>
Individual Grants (1)
--------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates of
Number of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term(2)
Options Employees in Price Per Expiration ---------------------
Name Granted(1) Fiscal Year Share Date 5% 10%
- ---- ---------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James Carling........... -- -- -- -- -- --
Allen Swann............. 105,000 13.4% $3.41 7/30/08 $ 225,176 $ 570,639
Jamie Gunn.............. 26,250 3.3 3.41 7/30/08 56,294 142,660
Robert Fetter........... 157,500 20.1 3.41 7/30/08 337,764 855,959
Terry Osborne........... 52,500 6.7 3.41 7/30/08 112,588 285,320
</TABLE>
- --------
(1) Each option represents the right to purchase one share of common stock.
The options shown in this column were granted pursuant to our 1998 Stock
Option/Stock Issuance Plan. The options shown in this table, except as
otherwise indicated below, become exercisable at a rate of 25% annually
over a four year period from the date of grant. The first 25% vests on the
first anniversary of the date of grant, and the remainder vests in equal
installments over the next 36 months.
(2) These assumed rates of appreciation are required by the rules of the
Securities and Exchange Commission and do not represent predictions as to
actual stock performance.
Fiscal Year-End Option Values
The following table sets forth information with respect to unexercised
options held as of December 31, 1998 by our chief executive officers and to
each of our other most highly compensated executive officers whose salary and
bonus were in excess of $100,000 in 1998. No options were exercised during 1998
by any of these executive officers.
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised In-
Unexercised Options at Fiscal the-Money Options at
Year-End Fiscal Year-End(1)
--------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
James Carling.... -- -- -- --
Allen Swann...... -- 105,000 -- $61,950
Jamie Gunn....... -- 26,250 -- 15,488
Robert Fetter.... 45,937 111,563 $ 27,103 65,822
Terry Osborne.... 15,313 37,187 9,035 21,940
</TABLE>
- --------
(1) Calculated by determining the difference between the exercise price and
the deemed fair market value of $4.00 per share of the securities
underlying the options at December 31, 1998.
51
<PAGE>
Stock Incentive Plans
1998 Stock Option/Stock Issuance Plan. Our 1998 Stock Option/Stock Issuance
Plan was adopted by our board of directors on April 22, 1998. As of November
15, 1999, options to purchase an aggregate of 1,371,340 shares of common stock
at a weighted average exercise price of $4.65 per share were outstanding under
the 1998 Plan. As of November 15, 1999, 646,725 shares of common stock had been
issued upon exercise of options outstanding under the 1998 plan.
The 1998 Plan is divided into two separate equity programs:
. The option grant program under which eligible persons may be granted
options intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") and non-statutory options; and
. The stock issuance program under which eligible persons may be issued
shares of common stock directly, either through immediate purchase or
as a bonus for services rendered (collectively, any such option or
issuance is referred to herein as an "Award").
Awards may be made to any employee, non-employee member of the board of
either the company, or any subsidiary, or consultants and other independent
advisors to the company or any subsidiary. Under present law, however,
incentive stock options may only be granted to employees. No participant may
receive an Award for more than 1,000,000 shares in any calendar year.
We may grant options at an exercise price less than, equal to or greater
than the fair market value of the common stock on the date of grant. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the common
stock on the date of grant (or less than 110% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of our Company). The 1998 plan permits the board of directors
to determine how optionees may pay the exercise price of their options,
including by cash, check or in connection with a "cashless exercise" through a
broker, by surrender of shares of common stock, by delivery of a promissory
note, or by any combination of the permitted forms of payment.
Our board of directors administers the 1998 plan. It has the authority to
adopt, amend and repeal the administrative rules, guidelines and practices
relating to the 1998 plan. It may delegate authority under the 1998 plan to one
or more committees of the board of directors and, subject to certain
limitations, to one or more of our executive officers. The board of directors
has authorized the compensation committee to administer the 1998 plan,
including the granting of options to executive officers. Subject to any
applicable limitations contained in the 1998 plan, the board of directors, the
compensation committee or any other committee or executive officer to whom the
board of directors delegates authority, as the case may be, selects the
recipients of awards and determines:
. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
. the exercise price of options;
. the duration of options; and
. the number of shares of common stock subject to any restricted stock
or other stock-based awards and the terms and conditions of such
awards, including the conditions for repurchase, issue price and
repurchase price.
In the event of a merger or consolidation in which more than 50% of the
combined voting power of our shares are transferred or the sale, transfer or
disposition of all or substantially all of our assets, all Awards will
automatically vest, except for shares subject to an outstanding option if:
. The option is assumed by any successor company in the merger or
consolidation; or
52
<PAGE>
. The option is replaced with a cash incentive program of the successor
company which preserves the value of the spread existing on unvested
options at the time of the transaction.
No Award may be granted under the 1998 plan after April 22, 2008, but the
vesting and effectiveness of Awards previously granted may extend beyond that
date. The board of directors may amend, suspend or terminate the 1998 plan or
any portion thereof at any time.
1999 Outside Director Stock Option Plan. Our 1999 Outside Director Stock
Option Plan was adopted by our Board of Directors and approved by our
stockholders in November 1999. Under the terms of the Director Plan, directors
who are not employees of Prime Response or its subsidiaries receive
nonstatutory options to purchase shares of our common stock. A total of 200,000
shares of our common stock may be issued upon exercise of options granted under
the Director Plan.
The Board of Directors administers the Director Plan. The Board of
Directors has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the Director Plan. Under the terms
of the Director Plan, each non-employee director continuing as a director
following this offering will receive an option to purchase shares of our common
stock on the effective date of this offering at a price per share equivalent to
the public offering price. In addition, each such non-employee director will
receive an option to purchase shares of our common stock on the date of each
annual meeting of stockholders commencing with the 2000 annual meeting of
stockholders, at an exercise price per share equal to the closing price of our
common stock on the date of grant. In addition, individuals who become
directors after this offering and are not our employees will receive an option
to purchase shares of common stock on the date of his or her initial
election to the Board of Directors and an option to purchase shares of our
common stock on the date of each annual meeting of stockholders after his or
her election. The exercise price per share of such options will be the closing
price per share of our common stock on the date of the grant. All options
granted under the Director Plan will be fully vested upon grant.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan
was adopted by our board of directors in November 1999, subject to stockholder
approval. The 1999 plan authorizes the issuance of up to a total of 300,000
shares of common stock to participating employees.
All of our employees, including our directors who are employees, and all
employees of any participating subsidiaries, other than employees who are
"highly compensated" within the meaning of Section 414(a) of the Code, whose
customary employment is more than 20 hours per week for more than five months
in any calendar year, are eligible to participate in the 1999 plan. Employees
who would immediately after the grant own five percent or more of the total
combined voting power or value of our stock or any subsidiary are not eligible
to participate. As of , 1999, approximately of our employees would have
been eligible to participate in the 1999 plan.
On the first day of a designated payroll deduction period (the "offering
period"), we will grant to each eligible employee who has elected to
participate in the 1999 plan an option to purchase shares of common stock as
follows: the employee may authorize an amount (a whole percentage (up to 10%)
of such employee's base pay) to be deducted from such employee's base pay
during the offering period. On the last day of the offering period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the 1999
plan, the option price is an amount equal to 85% of the average market price
(as defined) per share of the common stock on either the first day or the last
day of the offering period, whichever is lower. In no event may an employee
purchase in any one offering period a number of shares which exceeds the number
of shares determined by dividing the product of (i) $2,083 and (ii) the number
of months in the offering period by the closing market price of a share of
common stock on the commencement date of the offering period or such other
number as may be determined by the board prior to the commencement date of the
offering period. The compensation committee may, in its discretion, choose an
offering period of 12 months or less for each offering and may choose a
different offering period for each offering.
53
<PAGE>
An employee who is not a participant on the last day of the offering
period, as a result of voluntary withdrawal or termination of employment or for
any other reason, is not entitled to exercise any option, and the employee's
accumulated payroll deductions will be refunded. However, upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated
payroll deductions in the participant's account would purchase at the date of
death.
Because participation in the 1999 plan is voluntary, we cannot now
determine the number of shares of common stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
401(k) Plan
We offer a 401(k) plan to our United States employees who meet certain
defined requirements. Under the terms of the 401(k) plan, eligible employees
may elect to make tax-deferred contributions, and we may match 25% of the
lesser of the contributing employee's elective deferral or 4% of the
contributing employee's total salary. During 1998 and the nine months ended
September 30, 1999, we contributed approximately $10,687 and $17,089
respectively, to the 401(k) plan. We made no contributions during 1996 or 1997.
We offer comparable benefits to certain employees located outside the
United States.
Employment Agreements
In January 1999, we entered into an employment agreement with Peter Boni.
The employment agreement provides that Mr. Boni's employment may be terminated
by either Mr. Boni or Prime Response at any time. The employment agreement
provides for a base salary of $290,000 and a bonus of up to 50% of his annual
salary based primarily on a board-approved budget. Pursuant to the employment
agreement, if we terminate Mr. Boni's employment without cause, he is entitled
to receive severance benefits equal to his salary and bonus for a period equal
to 12 months.
In 1998, we entered into standard form employment agreements with Messrs.
Swann, Gunn and Daniels. These agreements generally provide for termination by
either party upon six months notice. The agreements provide for a base salary,
subject to adjustments by the board of directors, and a discretionary bonus
based primarily on company results. In addition, Messrs. Swann, Gunn and
Daniels have agreed to certain confidentiality, noncompetition and
nonsolicitation provisions.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the board of directors consists of Messrs.
Braddock, Osborne and Ford. Mr. Osborne was our President and Chief Executive
Officer from September 1998 to February 1999. None of our executive officers
serves as a member of the board of directors or compensation committee (or
other committee serving an equivalent function) of any other entity that has
one or more executive officers serving as a member of our board of directors or
compensation committee. Prior to the formation of the compensation committee,
the board of directors as a whole made decisions relating to the compensation
of executive officers.
54
<PAGE>
CERTAIN TRANSACTIONS
Sale of Series A Convertible Preferred Stock
In October, 1997, we sold 1,155,000 shares of series A convertible
preferred stock for $20.5169 per share, for an aggregate purchase price of
$23,697,000. General Atlantic Partners 42, L.P. purchased 909,858 shares and
GAP Coinvestment Partners, L.P. purchased 245,142 shares. Upon completion of
this offering, each share of series A convertible preferred stock will
automatically convert into 3.12819225 shares of common stock. Upon completion
of this offering, holders of series A preferred stock will also receive an
additional 0.546 shares of common stock in accordance with the terms of the
series A preferred stock and an additional 0.1 shares of common stock in
payment of accrued but unpaid dividends, for each share of series A preferred
stock.
Sale of Series B Convertible Preferred Stock and Warrants for Common Stock
In September, 1998, we sold 866,500 shares of series B convertible
preferred stock for $6.00 per share, for an aggregate purchase price of
$5,199,000. General Atlantic Partners 48, L.P. purchased 607,131 shares, GAP
Coinvestment Partners, L.P. purchased 145,619 shares, Richard S. Braddock Sr.,
one of our directors, purchased 13,750 shares and Allen A.A. Swann, our Senior
Vice President, International Operations, purchased 100,000 shares.
In March, 1999, we sold 833,334 shares of series B convertible preferred
stock for $6.00 per share, for an approximate aggregate purchase price of
$5,001,004. General Atlantic Partners 52, L.P. purchased 680,200 shares and GAP
Coinvestment Partners II, L.P. purchased 153,134 shares.
Upon completion of this offering, each share of series B convertible
preferred stock will automatically convert into 0.78584925 shares of common
stock. Upon completion of this offering, holders of series B preferred stock
will receive either or an additional shares of common stock in accordance
with the terms of the series B preferred stock and either or an additional
shares of common stock in payment of accrued but unpaid dividends, for each
share of series B preferred stock.
In March, 1999, we also sold a warrant to General Atlantic Partners 52,
L.P. to purchase 255,075 shares of our common stock at an exercise price of
per share, subject to adjustment, and a warrant to GAP Coinvestment Partners
II, L.P. to purchase 57,425 shares of our common stock at an exercise price of
per share, subject to adjustment.
Sale of Series C Convertible Stock and Warrants for Common Stock
In July, 1999, we sold 1,000,000 shares of series C preferred convertible
stock for $3.00 per share for an aggregate price of $3,000,000. General
Atlantic Partners 52, L.P. purchased 814,285 shares and GAP Coinvestment
Partners II, L.P. purchased 185,715 shares. In July, 1999 we also sold a
warrant to General Atlantic Partners 52, L.P. to purchase 204,824 shares of our
common stock at an exercise price of $0.0133 per share, subject to adjustment,
and a warrant to GAP Coinvestment Partners II, L.P. to purchase 46,714 shares
of our common stock at an exercise price per share of $0.01, subject to
adjustment.
Upon the completion of this offering, each share of series C convertible
preferred stock will automatically convert into 0.75 shares of common stock.
Upon completion of this offering, holders of series C preferred stock will also
receive 0.333 additional shares of common stock in accordance with the terms of
the series C preferred stock for each share of series C preferred stock.
In each of August, 1999 and September, 1999 we issued a convertible
promissory note to General Atlantic Service Corporation in the principal
amounts of $1,000,000 and $1,500,000, respectively. On October 19, 1999, these
notes were transferred to General Atlantic Partners 57, L.P. and GAP
Coinvestment Partners II, L.P. On October 19, 1999, these notes were converted
and an aggregate of 698,415 shares of
55
<PAGE>
series C preferred stock were issued to General Atlantic Partners 57, L.P. and
an aggregate of 134,916 shares were issued to GAP Coinvestment Partners II,
L.P. On November 5, 1999, General Atlantic Partners 57, L.P. and GAP
Coinvestment Partners II, L.P. transferred an aggregate of 25,000 shares of
series C preferred stock to Paul Lavallee.
Option to Purchase Shares Owned By Nevin Prakash
In October, 1997, in connection with the sale of our series A convertible
stock, one of our stockholders, Nevin Prakash, granted us an option to purchase
from him 1,249,500 shares of our common stock at a price of approximately $3.42
per share. We may exercise this option in part or in full at any time until
September 30, 2000, at which time we are obligated to purchase any remaining
shares that are subject to the option. Shares of common stock purchased in
connection with this option are re-issued to optionees exercising stock options
granted under our 1998 Stock Option/Stock Issuance Plan.
We intend to exercise this option in full and deliver a promissory note to
Mr. Prakash in the amount of approximately $4.3 million as payment for the
shares and pay the promissory note in full with proceeds we receive from this
offering.
Andersen Consulting
On December 6, 1999, we entered into a joint marketing agreement with
Andersen Consulting and a stock and warrant purchase agreement with an
affiliate of Andersen Consulting. Pursuant to the stock and warrant purchase
agreement, Andersen Consulting purchased 427,806 shares of common stock and
Andersen Consulting received a warrant to purchase 682,282 shares of common
stock. This warrant has an exercise price of $9.35 per share and vests upon the
earlier to occur of the date nine months following the date of issuance or the
date of an acquisition of us. Andersen Consulting also has a right of first
refusal to participate in equity issuances by us prior to our initial public
offering in order to maintain its percentage ownership interest in us, subject
to specified exceptions. The aggregate purchase price paid by Andersen
Consulting for the stock and this warrant was $4.0 million. Andersen Consulting
has no performance obligations under the stock and warrant purchase agreement
or this warrant.
In addition, we issued a performance warrant to purchase 375,000 shares of
common stock to Andersen Consulting which will vest upon achievement by us of
certain post-IPO market capitalization targets. We also issued a performance
warrant to purchase 375,000 shares of common stock to Andersen Consulting which
will vest based on achievement of designated sales levels resulting from joint
marketing efforts. These warrants have an exercise price of $9.35 per share.
All warrants have a seven year term. In the event that the marketing
agreement is terminated as a result of a breach by Andersen Consulting, no
further vesting under the warrants described in the immediately preceding
paragraph will occur, but those warrants already exercisable will remain
exercisable during their term to the extent then vested.
In the event that an IPO does not occur, or in the event any other
liquidity event does occur, by January 1, 2001, Andersen Consulting or its
affiliates will have the right to require us to repurchase the 427,806 shares
for $4.0 million. Such repurchase will be payable in three quarterly
installments, plus 8.0% interest on the entire amount beginning on January 1,
2001, plus additional interest of 7.0% in the event we fail to make any payment
when due. This put right will terminate upon an IPO or other liquidity event.
We are obligated to engage Andersen Consulting for consulting services of
at least $1.0 million during the period from contract execution to December 31,
2001. If designated sales targets are met, Andersen Consulting is obligated to
provide up to $1.0 million in funding for joint marketing efforts, business
development personnel, structure feedback and sales support.
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<PAGE>
Other Relationships
We have shipped beta versions of Prime@Vantage and [email protected] to
Priceline.com, Incorporated. Richard S. Braddock, Sr., one of our directors, is
the Chairman and Chief Executive Officer of Priceline.com, Incorporated and
William E. Ford, another one of our directors, serves as a director of
Priceline.com, Incorporated.
Mr. Ford is also a managing member of General Atlantic Partners, LLC, which
holds approximately 17.6% of the outstanding Common Stock of Priceline.com,
Incorporated.
Loan to Mr. Peter J. Boni
In June, 1999, Peter J. Boni, our Chief Executive Officer, purchased
636,225 shares of our common stock at a purchase price of $4.00 per share as
part of an award. In connection with that award, we loaned $2,545,000 to Mr.
Boni for 10 years, interest-free, pursuant to a promissory note secured by the
shares of common stock.
Stock Options Granted to Executive Officers
For additional information regarding the grant of stock options to
executive officers and directors, see "Management--Director Compensation," "--
Management Compensation," and "--1998 Stock Option/Stock Issuance Plan" and
"Principal and Selling Stockholders."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of November 15, 1999, by:
. each person or entity or group of affiliated persons or entities known
by us to be the beneficial owner of five percent (5%) or more of the
outstanding shares of common stock;
. each director and each executive officer named in the summary
compensation table; and
. all of our directors and executive officers as a group.
Unless otherwise indicated, the address of each beneficial owner listed
below is c/o Prime Response, Inc., 150 CambridgePark Drive, Cambridge,
Massachusetts 02139.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The information is not necessarily
indicative of beneficial ownership for any other purpose. Except as indicated
by the footnotes below, none of these persons or entities has a relationship
with us or, to our knowledge, any of the underwriters or their respective
affiliates. Unless otherwise indicted, each person or entity named in the table
below has sole voting and investment power (or shares such power with his or
her spouse) with respect to all shares of common stock shown as beneficially
owned by them, subject to applicable community property laws. Percentage of
beneficial ownership is based on 26,728,406 shares of common stock outstanding
as of November 15, 1999, assuming the conversion of the outstanding shares of
our preferred stock, and the payment of additional shares of common stock to
the holders of preferred stock, as a result of this offering, and assuming
completion of this offering on February 15, 1999. In computing the number of
shares of common stock beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options held by
that person that are currently exercisable or exercisable within 60 days of
November 15, 1999 are deemed outstanding. These shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Owned
Prior to Offering After Offering
------------------ ------------------
Name of Beneficial Owner Number Percent Number Percent
- ------------------------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
General Atlantic Partners, LLC (1)....... 9,585,495 57.84% 9,585,495 46.10%
3 Pickwick Plaza
Suite 200
Greenwich, CT 06830
Peter J. Boni............................ 636,225 3.84 636,225 3.06
Terry Osborne............................ 28,437 * 28,437 *
James Carling............................ 5,260,500 31.77 5,260,500 25.32
Allen Swann (2).......................... 184,497 1.11 184,497 *
Richard S. Braddock, Sr. (3)............. 32,668 * 32,668 *
William Ford (1)......................... 9,585,495 57.84 9,585,495 46.10
Robert Fetter (4)........................ 27,891 * 27,891 *
Jamie Gunn (5)........................... 21,875 * 21,875 *
Nevin Prakash (6)........................ 1,774,500 10.72 1,774,500 8.54
All directors and executive officers as a
group
(11 persons) (7)........................ 15,764,227 94.54% 15,764,227 94.54
</TABLE>
- --------
* Less than 1%
(1) Includes 4,448,744 shares held by General Atlantic Partners 42, L.P.,
477,113 shares held by General Atlantic Partners 48, L.P., 1,145,249
shares and warrants to purchase 459,899 shares held by General Atlantic
Partners 52, L.P., 677,463 shares held by General Atlantic Partners 57,
L.P., 1,313,055 shares held by GAP Coinvestment Partners, L.P., and
357,778 shares and warrants to purchase 104,140 shares held by GAP
Coinvestment Partners II, L.P. Also includes 14,218 shares subject to
stock options held by
58
<PAGE>
Mr. Ford which are exercisable within 60 days of November 15, 1999. Mr.
Ford is a managing member of General Atlantic Partners, LLC, which is the
general partner of each of General Atlantic Partners 42, L.P.,
General Atlantic Partners 48, L.P. and General Atlantic Partners 52, L.P.
and General Atlantic Partners 57, L.P. Mr. Ford is also a general partner
of GAP Coinvestment Partners, L.P. and GAP Coinvestment Partners II, L.P.
Mr. Ford disclaims beneficial ownership with respect to any of these
shares, except to the extent of any pecuniary interest therein.
(2) Includes 50,312 shares subject to stock options exercisable within 60
days of November 15, 1999. Does not reflect approximately 47,663
additional shares subject to options to be issued to Mr. Swann upon
completion of the offering or approximately 89,029 shares subject to
options held by Mr. Swann which are exercisable more than 60 days from
November 15, 1999.
(3) Includes 14,218 shares subject to stock options exercisable within 60
days of November 15, 1999.
(4) Includes 27,891 shares subject to stock options exercisable within 60
days of November 15, 1999.
(5) Includes 21,875 shares subject to stock options exercisable within 60
days of November 15, 1999.
(6) Includes 1,249,500 shares which Prime Response has the option to
repurchase. Prime Response intends to exercise this option prior to
completion of this offering.
(7) Includes the shares listed in notes 2 and 3, above and an additional
11,405 shares subject to stock options exercisable within 60 days of
November 15, 1999. Does not reflect approximately 47,633 additional
shares subject to options to be issued to Mr. Swann upon completion of
the offering.
In December, 1999, we sold 427,806 shares of our common stock and issued
warrants to purchase up to an aggregate of 1,432,282 shares of common stock to
Andersen Consulting and one of its affiliates. See "Certain Transactions."
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
After this offering, our authorized capital stock of Prime Response will
consist of shares of common stock, $.01 par value per share, and shares of
preferred stock, $.01 par value per share.
As of November 15, 1999, there were outstanding (i) shares of common
stock held by stockholders of record, (ii) shares of convertible preferred
stock held by stockholders of record and (iii) options and warrant to
purchase an aggregate of shares of common stock.
The following summary of certain provisions of our securities and various
provisions of our amended and restated certificate of incorporation and our
amended and restated by-laws, in each case in effect following this offering,
is not intended to be complete and is qualified by reference to the provisions
of applicable law and to our amended and restated certificate of incorporation
and amended and restated by-laws included as exhibits to the Registration
Statement of which this prospectus is a part. See "Additional Information."
Common Stock
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
proportionately any such dividends declared by the board of directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive ratably our net assets available after the payment of all
debts and other liabilities and subject to the prior 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 and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subject to the rights of the holders of shares of
any series of preferred stock which we may designate and issue in the future.
Certain holders of common stock have the right to require us to register their
shares of common stock under the Securities Act in certain circumstances. See
"Shares Eligible for Future Sale."
Preferred Stock
Under the terms of our amended and restated certificate of incorporation,
our board of directors is authorized to issue shares of preferred stock in one
or more series without stockholder approval. The Board has discretion to
determine the rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could make it more difficult for a third-party to
acquire, or could discourage a third-party from acquiring, a majority of our
outstanding voting stock. We have no present plans to issue any shares of
preferred stock.
Warrants
As of November 15, 1999 we had warrants outstanding to purchase an
aggregate of shares of our common stock at a weighted average exercise price
of $ per share. Certain holders of warrants are entitled to registration
rights with respect to the shares of common stock issuable upon exercise of the
warrants. See "Shares Eligible for Future Sale Registration Rights."
60
<PAGE>
Delaware Anti-Takeover Law and Certain Charter and By-law Provisions
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. 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.
The amended and restated by-laws provide for the division of our board of
directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." Under the by-laws, any vacancy
on the board of directors, including a vacancy resulting from an enlargement
of the board of directors, may only be filled by vote of a majority of the
directors then in office. The classification of the board of directors and the
limitation on and filling of vacancies could make it more difficult for a
third-party to acquire, or discourage a third-party from acquiring, control of
our company.
The amended and restated by-laws also provide that after this offering,
any action required or permitted to be taken by our stockholders at an annual
meeting or special meeting of stockholders may only be taken if it is properly
brought before such meeting and may not be taken by written action in lieu of
a meeting. Our amended and restated by-laws further provide that special
meetings of the stockholders may only be called by our chairman of the board,
the president or our board of directors. In order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice and provide us with certain
information. These provisions could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders of a
majority of the outstanding voting securities of Prime Response. These
provisions could also discourage a third-party from making a tender offer for
the common stock, because even if it acquired a majority of our outstanding
voting securities, it would be able to take action as a stockholder (such as
electing new directors or approving a merger) only at a duly called
stockholders' meeting, and not by written consent.
The General Corporation Law of Delaware 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 by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. Our by-laws require the affirmative
vote of holders of at least 75% of the votes which all the stockholders would
be entitled to cast in any annual election of directors or class of directors
to amend or repeal any of the provisions described in the prior two
paragraphs.
Our amended and restated certificate of incorporation contains certain
provisions permitted under the General Corporation Law of Delaware relating to
the liability of directors. The provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, our amended and restated certificate of
incorporation contains provisions to indemnify our directors and officers to
the fullest extent permitted by the General Corporation Law of Delaware. We
have also entered into agreements to indemnify its directors and officers, in
addition to the indemnification provided for in our amended and restated by-
laws. We believe that these provisions and agreements will assist us in
attracting and retaining qualified individuals to serve as directors.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict the effect, if any, that sales of shares of common
stock to the public or the availability of shares for sale to the public will
have on the market price of the common stock prevailing from time to time.
Nevertheless, if a significant number of shares of common stock are sold in the
public market, or if people believe that such sales may occur, the prevailing
market price of our common stock could decline and could impair our future
ability to raise capital through the sale of our equity securities.
Upon completion of this offering, we will have an aggregate of shares of
common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of options outstanding at , 1999. Of the
outstanding shares, the shares sold in this offering will be freely
tradeable, without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), except for any such shares which may be acquired by an
"affiliate" of Prime Response, which shares will be subject to the volume
limitations of Rule 144 under the Securities Act. As defined in Rule 144, an
"affiliate" of an issuer is a person who, directly or indirectly, through one
or more intermediaries, controls or is controlled by, or is under common
control with, such issuer. Substantially all of the remaining shares of
common stock outstanding will be "restricted securities" as that phrase is
defined in Rule 144 and may not be resold in the absence of registration under
the Securities Act or pursuant to an exemption from such registration,
including the exemption provided by Rule 144 under the Securities Act.
In connection with this offering, our directors, officers and stockholders,
holding shares in the aggregate, have agreed that, without the prior written
consent of BancBoston Robertson Stephens Inc. on behalf of the underwriters,
during the period ending 180 days after the date of this prospectus, they will
not directly or indirectly offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge, or grant any right with respect to, any shares of
common stock or any securities convertible into or exchangeable for shares of
common stock, whether such shares or any such securities are then owned by such
person or are thereafter acquired directly from us.
Subject to the foregoing and to the lock-up agreements, under Rule 144 as
currently in effect, beginning 180 days after the date of this prospectus,
holders of restricted securities will be entitled to sell a number of shares of
common stock within any three-month period equal to the greater of 1% of the
then outstanding shares of the common stock (approximately shares following
the offering) or the average weekly reported volume of trading of the common
stock on the Nasdaq National Market during the four calendar weeks preceding
such sale, provided that certain manner of sale and notice requirements and
requirements as to the availability of current public information concerning
Prime Response are satisfied.
Immediately after the offering, based on the number of options outstanding
on , 1999, there will be options to purchase approximately shares of
common stock outstanding. Subject to the provisions of the lock-up agreements
described below, holders of these options may rely on the resale provisions of
Rule 701 under the Securities Act, which permits nonaffiliates to sell shares
without having to comply with the current public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their shares without having to comply with the holding period provision of
Rule 144, in each case beginning 90 days after the consummation of this
offering. In addition, immediately after this offering, Prime Response intends
to file a registration statement on Form S-8 covering all options granted under
the 1998 Stock Option/Stock Issuance Plan. Shares of common stock registered
under such registration statement will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, unless such
shares are subject to vesting restrictions with Prime Response or the lock-up
agreements described above. See "Management--Stock Plans--1998 Stock Incentive
Plan."
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except we
may issue, and grant options to purchase, shares of common stock under the 1998
Stock Option/Stock Issuance Plan.
62
<PAGE>
Following this offering, under specified conditions and subject to
customary exceptions, holders of shares of common stock will have demand
registration rights with respect to their shares of common stock (subject to
the 180-day lock-up arrangement described above) to require us to register
their shares of common stock under the Securities Act, and they will have
rights to participate in any future registration of securities by us. We are
not required to effect more than two demand registrations on behalf of these
holders.
63
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Dain Rauscher Incorporated and SG Cowen
Securities Corporation, have severally agreed with us and the selling
stockholders subject to the terms and conditions of the underwriting agreement,
to purchase from us and them the number of shares of common stock set forth
opposite their names below. The underwriters are committed to purchase and pay
for all such shares if any are purchased.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc..................................
Dain Rauscher Incorporated.........................................
SG Cowen Securities Corporation....................................
<CAPTION>
International Underwriter
-------------------------
<S> <C>
BancBoston Robertson Stephens International Limited................
Dain Rauscher Incorporated.........................................
Societe Generale...................................................
-----
Total............................................................
=====
</TABLE>
The underwriters' representatives have advised us that the underwriters
propose to offer the shares of common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession of not in excess of $ per share, of
which $ may be reallowed to other dealers. After this offering, the public
offering price, concession, and reallowance to dealers may be reduced by the
representatives. No such reduction shall change the amount of proceeds to be
received by us and the selling stockholders as set forth on the cover page of
this prospectus. The common stock is offered by the underwriters as stated
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part.
Prior to this offering, there has been no public market for the common
stock. Consequently, the public offering price for the common stock offered by
this prospectus has been determined through negotiations among the
representatives and us. Among the factors considered in such negotiations were
prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
The underwriters have informed us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per share
as we will be paid for the shares that the underwriters have agreed to
purchase. To the extent that the underwriters exercise such option, each of the
underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of
the shares offered hereby. If purchased, these additional shares will be
sold by the underwriters on the same terms as those on which the shares are
being sold. We will be obligated, pursuant to the over-allotment option, to
sell shares to the underwriters to the extent the option is exercised. The
underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of common stock offered in this
offering. If such option is exercised in full, the total public offering price,
underwriting discounts and commissions and proceeds to company will be $
million, $ million and $ million, respectively.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representation and warranties contained in the underwriting agreement.
64
<PAGE>
Lock-Up Agreements. Each director, officer and stockholder of Prime
Response has agreed, during the period ending 180 days after the date of this
prospectus (the "lock-up period"), subject to specified exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exercisable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by such holders or with respect to
which they have the power of disposition, without the prior written consent of
BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of securities subject to the lock-up agreement. The are no existing
agreements between the representatives of the underwriters and any of our
stockholders providing consent to the sale of shares prior to the expiration of
the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of BancBoston Robertson Stephens Inc.,
subject to certain exceptions, (i) consent to the disposition of any shares
held by stockholders subject to lock-up agreements prior to the expiration of
the lock-up period or (ii) issue, sell, contract to sell, or otherwise dispose
of, any shares of common stock, any options to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of common stock upon the exercise of outstanding options and the
issuance of options under existing stock option and incentive plans provided
such options do not vest prior to the expiration of the lock-up period. See
"Shares Eligible for Future Sale."
Listing. Application has been made to have the shares of common stock
approved for quotation on the Nasdaq National Market under the symbol "PRME."
Application has also been made to list the shares on EASDAQ under the symbol
" ."
Stabilization. The underwriters have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of common stock on behalf of the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or the purchase of the
common stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with
this offering if the common stock originally sold by such underwriter or
syndicate member is purchased by the representatives of the underwriters in a
syndicate covering transaction and has therefore not been effectively
placed by such underwriter or syndicate member. The representatives of the
underwriters have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
The following table summarizes the compensation to be paid to the
underwriters by Prime Response:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable
by Prime Response............................ $ $ $
</TABLE>
Prime Response estimates expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions referred to
above, will be approximately $1.2 million.
65
<PAGE>
Directed Share Program. At our request, the underwriters have reserved up
to shares of common stock to be issued by us and offered hereby for sale, at
the initial public offering price, to directors, officers, employees, business
associates and persons otherwise connected to Prime Response. The number of
shares of common stock available for sale to the general public will be reduced
to the extent such individuals purchase such reserved shares. Any reserved
shares which are no so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered in this offering.
66
<PAGE>
CERTAIN UNITED STATES FEDERAL
TAX CONSEQUENCES FOR NON-U.S. HOLDERS
The following is a general summary of certain United States federal income
and estate tax consequences of the ownership and disposition of common stock by
"Non-U.S. Holders" (as defined below). This discussion is based on existing
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations promulgated thereunder, judicial decisions and
administrative rulings, all of which are subject to change or alternative
construction, possibly with retroactive effect. This summary does not address
all federal income and estate tax consequences that may be relevant to a Non-
U.S. Holder in light of such holder's particular circumstances, or to certain
Non-U.S. Holders that may be subject to special treatment under U.S. federal
income tax laws, such as life insurance companies, tax-exempt organizations,
banks or other financial institutions or certain expatriates or former long-
term residents of the United States. For purposes of this summary, the term
"Non-U.S. Holder" means a beneficial owner of common stock that for federal
income tax purposes is not (i) a citizen or resident of the United States, (ii)
a corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income taxation regardless of its
source and (iv) a trust if either (a) a U.S. court is able to exercise primary
supervision over the trust's administration and one or more U.S. persons have
the authority to control all of the trust's substantial decisions or (b) the
trust was in existence on August 20, 1996 and, in general, would have been
treated as a U.S. Holder under rules applicable prior to such time, provided
the trust elects to continue such treatment thereafter.
EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES OF OWNING AND DISPOSING OF SHARES OF COMMON STOCK, AS WELL AS ANY
TAX CONSEQUENCES OF OWNING AND DISPOSING OF SHARES OF COMMON STOCK UNDER THE
LAWS OF ANY STATE, LOCAL OR OTHER TAXING JURISDICTION.
Dividends. Dividends paid to a Non-U.S. Holder generally will be subject to
United States federal withholding tax at a 30% rate (or lower rate provided
under an applicable income tax treaty) unless the dividends are taxable as
effectively connected with the conduct of a trade or business in the United
States and the Non-U.S. Holder delivers IRS Form 4224 to the payor. If the
dividends are effectively connected with the conduct of a trade or business in
the United States by the Non-U.S. Holder, such dividends will not be subject to
the withholding tax described above and will instead be subject to U.S. federal
income tax on a net income basis as if such Non-U.S. Holder were a U.S.
resident. If such Non-U.S. Holder is a foreign corporation, it may also be
subject to a United States branch profits tax on such effectively connected
income at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty.
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding rules
discussed above and, under the current interpretation of Treasury regulations,
for purposes of determining the applicability of an income tax treaty rate.
However, under recently issued Treasury regulations (the "New Regulations"),
that generally will be effective for distributions after December 31, 1999, a
Non-U.S. Holder of common stock who wishes to claim the benefit of an
applicable treaty rate generally would be required to provide an Internal
Revenue Service Form W-8 (or suitable substitute form) certifying such Non-U.S.
Holder's entitlement to benefits under the treaty. Special procedures are
provided in the New Regulations for payments through qualified intermediaries.
In addition, under the New Regulations, in the case of a Non-U.S. Holder that
is fiscally transparent (e.g., a partnership) for U.S. federal income tax
purposes, the certification requirements generally would be applied to each of
the ultimate beneficial owners of the entity. Non-U.S. Holders are advised to
consult their tax advisors regarding the effect, if any, of the New
Regulations.
Disposition of Common Stock. A Non-U.S. Holder of common stock generally
will not be subject to United States federal income tax withholding tax on any
gain realized on the sale, exchange, retirement or other disposition of common
stock, unless (i) the gain is effectively connected with a United States trade
or business
67
<PAGE>
of the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an
individual and who holds the common stock as a capital asset, such holder is
present in the United States for a period or periods aggregating 183 days or
more during the taxable year of the disposition, and either such holder has a
"tax home" in the United States or the disposition is attributable to an office
or other fixed place of business maintained by such holder in the United
States, (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions
of the Code applicable to certain United States expatriates whose loss of U.S.
citizenship has as one of its principal purposes the avoidance of U.S. taxes,
or (iv) Prime Response is then or has been within a specified period a United
States real property holding corporation. Prime Response does not believe that
it is, or is likely to become, a United States real property holding
corporation. To the extent that the amount of cash and the fair market value of
any property received upon the sale or other disposition of common stock is
deemed a dividend distribution, the Non-U.S. Holder may be subject to tax on
such cash or other property as described above under "Dividends."
Federal Estate Tax. An individual Non-U.S. Holder who is treated as the
owner of or has made certain lifetime transfers of an interest in common stock
will be required to include the value thereof in his or her gross estate for
U.S. federal estate tax purposes and may be subject to U.S. federal estate tax
unless an applicable estate tax treaty provides otherwise.
U.S. Information Reporting Requirements and Backup Withholding Tax. The
Company must report annually to the IRS and to each Non-U.S. Holder any
dividend that is subject to withholding, or that is exempt from U.S.
withholding tax (pursuant to a tax treaty or the exceptions described above),
and any tax withheld with respect to such dividends. Copies of the information
returns reporting such dividends and withholding may be made available to the
tax authorities in the country in which the Non-U.S. Holder is a resident under
the provisions of an applicable income tax treaty.
U.S. backup withholding, which is imposed at the rate of 31% on certain
payments to persons that fail to furnish information under the U.S. information
reporting requirements, generally will not apply to dividends paid to Non-U.S.
Holders that are subject to the 30% withholding tax described above or that are
subject to treaty reduction, or, under current law, to a Non-U.S. Holder at an
address outside the United States.
Under the rules in effect for payments made on or before December 31, 1999,
payment of the proceeds of the sale or other disposition of common stock to or
through a United States office of a broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding at a rate of 31% unless
the owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption (provided the broker does not have actual
knowledge that the holder is a U.S. Person or that the conditions of any other
exemption are not, in fact, satisfied). Payment of the proceeds of the sale of
common stock to or through a foreign office of a foreign broker that is not a
"U.S. related person" generally will not be subject to information reporting or
backup withholding tax. For this purpose, a "U.S. related person" is (i) a
"controlled foreign corporation" for United States federal income tax purposes
or (ii) a foreign person 50% or more of whose gross income from all sources for
a specified period is derived from activities that are effectively connected
with the conduct of a United States trade or business. In the case of the
payment of proceeds from the disposition of common stock to or through a
foreign office of a broker that is either a United States person or a U.S.
related person, information reporting is required on the payment unless the
broker has documentary evidence in its files that the owner is a Non-U.S.
Holder and the broker has no actual knowledge to the contrary.
With respect to payments made after December 31, 1999, the New Regulations,
subject to certain transition rules, alter the foregoing rules in certain
respects. Those regulations provide presumptions under which a Non-U.S. Holder
is subject to information reporting and backup withholding at a rate of 31%
unless Prime Response receives certification from the holder (or the Non-U.S.
Holder satisfies certain documentary evidence requirements) establishing non-
U.S. status. Depending on the circumstances, this certification will need to be
provided (i) directly by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder that is treated as a partnership or other fiscally transparent entity,
by the partners, shareholders or other beneficiaries of such entity, or (iii)
certain qualified financial institutions or other qualified entities on behalf
of the Non-U.S. Holder.
68
<PAGE>
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's United States federal income tax provided that the required
information is furnished to the IRS. Non-U.S. Holders of Common Stock should
consult their own tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption.
EASDAQ INFORMATION
Belgium Restrictions
Prior to trading on EASDAQ the common stock shall not, whether directly or
indirectly, be offered, sold, transferred or delivered in Belgium to any
individual or entity other than institutional investors referred to in Article
3.2 of the Belgian Royal Decree of January 9, 1991, on the public character of
transactions involving public savings and the qualification of certain
transactions as public offerings, acting on their own account.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Prime Response by Hale and Dorr LLP, Boston, Massachusetts, and for
the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Prime Response, Inc. as of
December 31, 1996, 1997 and 1998 and September 30, 1999 and for each of the
three years in the period ended December 31, 1998 and the nine months ended
September 30, 1999 included in this prospectus, have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a Registration Statement on Form S-1.
This prospectus, which is a part of the Registration Statement, does not
contain all of the information included in the Registration Statement. Certain
information is omitted and you should refer to the Registration Statement and
its exhibits. With respect to references made in this prospectus to any
contract, agreement or other document of Prime Response, such references are
not necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract, agreement or other
document. You may review a copy of the Registration Statement, including
exhibits, at the Commission's public reference room at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 or Seven World Trade Center, 13th
Floor, New York, New York 10048 or Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call the Commission at 1-800-SEC-
0330 for further information on the operation of the public reference rooms.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
Commission.
Our Commission filings and the Registration Statement can also be reviewed
by accessing the Commission's Internet site at http://www.sec.gov, which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
69
<PAGE>
PRIME RESPONSE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and September
30, 1999................................................................ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998 and the Nine Months Ended September 30, 1998
(unaudited) and 1999.................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1997 and 1998 and the Nine Months Ended
September 30, 1999...................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998 and the Nine Months ended September 30, 1998
(unaudited) and 1999.................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Prime Response, Inc.
The common stock split described in Note 1 to the financial statements has
not been consummated at December 9, 1999. When it has been consummated, we will
be in the position to furnish the following report:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity (deficit) and of cash flows present fairly, in all material respects,
the financial position of Prime Response, Inc. and its subsidiaries at December
31, 1997, 1998 and September 30, 1999, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, and the nine months ended September 30, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 9, 1999
F-2
<PAGE>
PRIME RESPONSE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, Pro Forma
---------------- September 30, September 30,
1997 1998 1999 1999
------- ------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $22,106 $ 530 $ 2,470 $ --
Accounts receivable, net of
allowance for doubtful
accounts of $112, $43, $79
and $79, respectively........ 3,041 4,815 6,573 6,573
Prepaid and other current
assets....................... 595 1,163 1,925 1,925
------- ------- ------- --------
Total current assets.......... 25,742 6,508 10,968 8,498
Property and equipment, net..... 980 2,111 2,544 2,544
Goodwill and other intangible
assets, net................... -- 1,533 572 572
------- ------- ------- --------
Total assets.................. $26,722 $10,152 $14,084 $ 11,614
======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............... $ 1,775 $ 1,692 $ 2,226 $ 2,226
Short-term debt and capital
lease obligations............ 932 443 809 2,809
Directors' loans............... 8,113 -- -- --
Shareholders' loans............ -- -- 2,500 --
Accrued expenses and other
liabilities.................. 1,754 2,702 2,972 4,621
Accrued interest income........ -- -- 305 305
Deferred revenue............... 1,686 1,609 5,700 5,700
------- ------- ------- --------
Total current liabilities..... 14,260 6,446 14,512 15,661
Long-term debt and capital lease
obligations................... 364 530 306 306
Long-term accrued interest
income........................ -- -- 1,314 1,314
Other long-term liabilities..... -- 500 125 125
Commitments and contingencies
(Note 6)
Series A redeemable convertible
preferred stock, $0.01 par
value, 1,155,000 shares
authorized; 1,155,000 shares
issued and outstanding at
December 31, 1997 and 1998 and
September 30, 1999 and 0
shares issued and outstanding
on a pro forma basis
(liquidation value:
$51,072,000).................. 24,053 25,949 27,371 --
Series B redeemable convertible
preferred stock, $0.01 par
value; 1,700,000 shares
authorized; 866,500 issued and
outstanding at December 31,
1998, 1,699,834 issued and
outstanding at September 30,
1999, and 0 shares issued and
outstanding on a pro forma
basis (liquidation value:
$21,082,000).................. -- 5,318 10,142 --
Series C redeemable convertible
preferred stock, $0.01 par
value, 1,000,000 shares
authorized; 1,000,000 shares
issued and outstanding at
September 30, 1999, and 0
shares issued and outstanding
on a pro forma basis
(liquidation value:
$6,000,000)................... -- -- 2,391 --
Stockholders' equity (deficit):
Common stock, $0.01 par value:
27,750,000 shares authorized;
7,035,000 issued and
outstanding at December 31,
1997 and December 31, 1998,
7,671,225 issued and
outstanding at September 30,
1999, and 17,223,753 shares
issued and outstanding on a
pro forma basis.............. 70 70 76 172
Additional paid-in capital..... (7,969) (7,969) 1,532 77,119
Accumulated other comprehensive
income....................... 6 (12) (8) (8)
Accumulated deficit............ (4,062) (20,680) (40,557) (79,955)
Note receivable from
shareholder.................. -- -- (2,545) (2,545)
Deferred compensation.......... -- -- (575) (575)
------- ------- ------- --------
Total stockholders' equity
(deficit)................... (11,955) (28,591) (42,077) (5,792)
------- ------- ------- --------
Total liabilities and
stockholders' equity
(deficit)................... $26,722 $10,152 $14,084 $ 11,614
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PRIME RESPONSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------- ------------------------
1996 1997 1998 1998 1999
------- ---------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses..... $ 795 $ 2,933 $ 8,495 $ 3,490 $ 5,278
Services and
support.............. 1,410 2,495 4,214 2,341 4,596
Applications
hosting.............. 4,764 4,754 3,827 2,437 3,193
------- ---------- ----------- ---------- -----------
Total revenues..... 6,969 10,182 16,536 8,268 13,067
------- ---------- ----------- ---------- -----------
Cost of revenues:
Software licenses..... 144 83 152 10 --
Services and
support.............. 1,927 3,052 6,477 4,415 3,247
Applications
hosting.............. 1,777 1,923 2,477 1,894 2,088
------- ---------- ----------- ---------- -----------
Total cost of
revenues.......... 3,848 5,058 9,106 6,319 5,335
------- ---------- ----------- ---------- -----------
Gross profit............ 3,121 5,124 7,430 1,949 7,732
------- ---------- ----------- ---------- -----------
Operating expenses:
Sales and marketing... 1,195 2,788 9,459 6,686 8,524
Research and
development.......... 1,307 2,947 6,289 4,883 6,712
General and
administrative....... 1,184 1,396 4,843 3,583 2,659
Amortization of
goodwill and other
intangible assets.... -- -- 1,279 955 931
Amortization of stock
compensation......... -- -- -- -- 1,844
------- ---------- ----------- ---------- -----------
Total operating
expenses.......... 3,686 7,131 21,870 16,107 20,670
------- ---------- ----------- ---------- -----------
Loss from operations.... (565) (2,007) (14,440) (14,158) (12,938)
Other income (expense):
Interest income....... 5 155 219 212 62
Interest expense...... (64) (227) (294) (243) (87)
Interest expense
related to
beneficial
conversion feature... -- -- -- -- (2,500)
Gain (loss) on
foreign exchange..... -- (7) (88) (77) (49)
------- ---------- ----------- ---------- -----------
Loss before income
taxes.................. (624) (2,086) (14,603) (14,266) (15,512)
Provision for income
taxes.................. (26) (159) -- -- (9)
------- ---------- ----------- ---------- -----------
Net loss.............. (650) (2,245) (14,603) (14,266) (15,521)
Preferred stock
dividends and
recognition of
beneficial conversion
feature on preferred
stock.................. -- (607) (2,015) (1,437) (4,356)
------- ---------- ----------- ---------- -----------
Net loss attributable to
common stockholders.... $ (650) $ (2,852) $ (16,618) $ (15,703) $ (19,877)
======= ========== =========== ========== ===========
Net loss per share-basic
and diluted............. $(6,500) $ (2.43) $ (2.36) $ (2.23) $ (2.72)
======= ========== =========== ========== ===========
Weighted average shares
used in computing basic
and diluted net loss
per share.............. 100 1,173,000 7,035,000 7,035,000 7,318,000
======= ========== =========== ========== ===========
Unaudited pro forma net
loss per share-basic
and diluted............ $ (1.39) $ (1.45)
=========== ===========
Shares used in computing
unaudited pro forma
basic and diluted net
loss per share......... 11,944,000 13,675,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PRIME RESPONSE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated Retained Total
Ordinary Shares Common Stock Additional Other Earnings Stockholders'
----------------- ---------------- Paid-in Comprehensive (Accumulated Note Deferred Equity
Shares Amount Shares Amount Capital Income Deficit) Receivable Compensation (Deficit)
------- ------- --------- ------ ---------- ------------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995........ 100 $ -- -- $-- $ -- $(17) $ 148 $ -- $ -- $ 131
Net loss........ -- -- -- -- -- -- (650) -- -- (650)
Foreign currency
translation
adjustments.... -- -- -- -- -- (23) -- -- -- (23)
--------
Total
comprehensive
income......... (673)
Dividends
declared....... -- -- -- -- -- -- (323) -- -- (323)
------- ------- --------- --- ------ ---- -------- ------- ----- --------
Balance, December
31, 1996........ 100 -- -- -- -- (40) (825) -- -- (865)
Net loss........ -- -- -- -- -- -- (2,245) -- -- (2,245)
Foreign currency
translation
adjustments.... -- -- -- -- -- 46 -- -- -- 46
--------
Total
comprehensive
income......... (2,199)
Dividends
declared....... -- -- -- -- -- -- (385) -- -- (385)
Reorganization.. (100) -- 7,035,000 70 (7,969) -- -- -- -- (7,899)
Accrual of
dividends on
redeemable
convertible
preferred stock
and accretion
to redemption
value.......... -- -- -- -- -- -- (607) -- -- (607)
------- ------- --------- --- ------ ---- -------- ------- ----- --------
Balance, December
31, 1997........ -- -- 7,035,000 70 (7,969) 6 (4,062) -- -- (11,955)
Net loss........ -- -- -- -- -- -- (14,603) -- -- (14,603)
Foreign currency
translation
adjustments.... -- -- -- -- -- (18) -- -- -- (18)
--------
Total
comprehensive
income......... (14,621)
Accrual of
dividends on
redeemable
convertible
preferred stock
and accretion
to redemption
value.......... -- -- -- -- -- -- (2,015) -- -- (2,015)
------- ------- --------- --- ------ ---- -------- ------- ----- --------
Balance, December
31, 1998........ -- -- 7,035,000 70 (7,969) (12) (20,680) -- -- (28,591)
Net loss........ -- -- -- -- -- -- (15,521) -- -- (15,521)
Foreign currency
translation
adjustments.... -- -- -- -- -- 4 -- -- -- 4
--------
Total
comprehensive
income......... (15,517)
Issuance of
common stock
warrants....... -- -- -- -- 1,329 -- -- -- -- 1,329
Recognition of
beneficial
conversion
feature on
preferred
stock.......... -- -- -- -- 2,391 -- (2,391) -- -- --
Recognition of
beneficial
conversion
feature on
convertible
debt........... -- -- -- -- 2,500 -- -- -- -- 2,500
Accrual of
dividends on
redeemable
convertible
preferred stock
and accretion
to redemption
value.......... -- -- -- -- -- -- (1,965) -- -- (1,965)
Exercise of
stock option in
exchange for
notes
receivable..... -- -- 636,225 6 2,539 -- -- (2,545) -- --
Compensation
related to
grants of stock
options........ -- -- -- -- 742 -- -- -- (617) 125
Amortization of
deferred
compensation... -- -- -- -- -- -- -- -- 42 42
------- ------- --------- --- ------ ---- -------- ------- ----- --------
Balance,
September 30,
1999............ -- $ -- 7,671,225 $76 $1,532 $ (8) $(40,557) $(2,545) $(575) $(42,077)
======= ======= ========= === ====== ==== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PRIME RESPONSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- ---------------------
1996 1997 1998 1998 1999
------ -------- --------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows provided by
(used in) operating
activities:
Net loss................. $ (650) $ (2,245) $ (14,603) $ (14,266) $ (15,521)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization of
property and
equipment............. 620 304 654 409 714
Amortization of
goodwill and
intangibles........... -- -- 1,279 955 931
Loss (gain) on sale of
fixed assets.......... (7) -- (12) (12) --
Compensation expense
related to stock
options............... -- -- -- -- 1,844
Interest expense
related to beneficial
conversion feature.... -- -- -- -- 2,500
Changes in assets and
liabilities:
Accounts receivable.... (617) (1,106) (1,739) (433) (1,757)
Prepaid and other
current assets....... (95) (442) (560) (885) (770)
Accounts payable....... 313 1,098 (98) (334) 538
Accrued expenses and
other liabilities.... 266 877 1,426 1,104 (71)
Deferred revenue....... 1,309 (34) (94) 1,725 4,085
------ -------- --------- --------- ---------
Net cash provided by
(used in) operating
activities......... 1,139 (1,548) (13,747) (11,737) (7,507)
------ -------- --------- --------- ---------
Cash flows used in
investing activities:
Purchase of property and
equipment.............. (344) (575) (1,086) (864) (1,117)
Proceeds from sale of
fixed assets........... 6 -- 20 20 --
Payment for acquired
business............... -- -- (2,812) (2,812) --
------ -------- --------- --------- ---------
Net cash used in
investing
activities......... (338) (575) (3,878) (3,656) (1,117)
------ -------- --------- --------- ---------
Cash flows provided by
(used in) financing
activities:
Proceeds from issuance of
Convertible Preferred
Stock (Series A, B and
C) and warrants, net of
issuance costs......... -- 23,446 5,199 5,199 8,001
Proceeds from bank
loans.................. 406 -- -- -- --
Proceeds from
shareholders' loans.... -- -- -- -- 2,500
Repayment of bank loans.. (21) (110) (275) (73) --
Repayment of capital
lease.................. (90) (112) (197) (125) (225)
Repayment of directors'
loans.................. -- -- (8,113) (7,829) --
Increase (decrease) in
line of credit......... (493) 728 (561) (389) 357
Dividends paid........... (228) (227) -- -- --
------ -------- --------- --------- ---------
Net cash provided by
(used in) financing
activities......... (426) 23,725 (3,947) (3,217) 10,633
------ -------- --------- --------- ---------
Effect of exchange rate on
cash.................... (2) 46 (4) (10) (69)
------ -------- --------- --------- ---------
Net increase in cash and
cash equivalents........ 373 21,648 (21,576) (18,620) 1,940
Cash and cash equivalents,
beginning of period..... 85 458 22,106 22,106 530
------ -------- --------- --------- ---------
Cash and cash equivalents,
end of period........... $ 458 $ 22,106 $ 530 $ 3,486 $ 2,470
====== ======== ========= ========= =========
Supplemental disclosure of
non-cash transactions:
Assets acquired under
capital leases......... $ 121 $ 229 $ 710 $ 617 $ 56
====== ======== ========= ========= =========
Promissory note issued
for directors'
shareholdings in
connection with group
reorganization......... -- $ 7,899 -- -- --
====== ======== ========= ========= =========
Issuance of restricted
common stock in
exchange for note
receivable from
shareholder............ -- -- -- -- $ 2,545
====== ======== ========= ========= =========
Supplemental cash flow
disclosure:
Interest paid............ $ 64 $ 227 $ 294 $ 243 $ 87
====== ======== ========= ========= =========
Income taxes paid........ $ 142 $ 256 -- -- $ 2
====== ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
The Company
Prime Response, Inc. ("PRI") together with its consolidated subsidiaries
("Prime Response") is a leading provider of integrated eMarketing software
solutions that enable businesses with large customer bases to create, manage
and execute highly targeted internet and traditional marketing campaigns to
build more loyal and profitable customer relationships. Prime Response's
customers consist primarily of Fortune 1000 businesses as well leading e-
commerce businesses primarily based in the United States and Europe. Prime
Response sells its products through multiple distribution channels including
direct sales and resellers.
Basis of Presentation
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
These financial statements represent the consolidated results of PRI and
its predecessor, Prime Response Limited ("PRL"). PRI was formed as a holding
company on September 26, 1997 and acquired 100% of the outstanding Ordinary
Shares of PRL (a company incorporated in the United Kingdom in 1987) on October
23, 1997.
Refer to Note 5 for discussion of the reorganization and exchange of Common
Stock of Prime Response for Ordinary Shares in PRL.
Prime Response intends to declare a 0.75 for 1 reverse common stock split,
subject to shareholder approval. All share and per share amounts presented
relating to common stock have been restated to reflect the common stock split.
Principles of Consolidation
The consolidated financial statements include the accounts of PRI and its
wholly-owned domestic and foreign subsidiaries. All intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Prime Response's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash, cash equivalents, and accounts
receivable. Prime Response's accounts receivable result primarily from
operations and reflect a broad customer base both in the United States and
Europe. Prime Response does not require collateral for its receivables.
Fair Value of Financial Instruments
Prime Response's financial instruments consist of cash, cash equivalents
and debt and redeemable instruments. The carrying amounts of these instruments
at September 30, 1999 approximate their fair values.
F-7
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents
Prime Response considers all highly liquid investments which have an
original maturity of three months or less when acquired to be cash equivalents.
Software Development Costs
Software development costs are included in research and development
expenses and are expensed as incurred. Statement of Financial Accounting
Standards No. 86, "Accounting for the Cost of Computer Software to be Sold,
Leased, or Otherwise Marketed" (SFAS 86) requires the capitalization of certain
software development costs once technological feasibility is established. The
capitalized cost is then amortized on a straight-line basis over the estimated
product life, or on the ratio of current revenues to total projected product
revenues, whichever is greater. To date, the period between achieving
technological feasibility, which Prime Response has defined as the
establishment of a working model, and the general availability of such software
has been short and software development costs qualifying for capitalization
have not been material. Accordingly, Prime Response has not capitalized any
software development costs.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided using
the straight line method over the assets' estimated useful lives, based on the
following asset lives:
<TABLE>
<S> <C>
Motor vehicles.................................................... 4 years
Computer equipment................................................ 3 years
Furniture and equipment........................................... 5 years
</TABLE>
The cost of significant additions and improvements is capitalized and
depreciated while expenditures for maintenance and repairs are charged to
expense as incurred. Upon retirement or sale, the cost and related accumulated
depreciation of the assets are removed from the accounts and any resulting gain
or loss is reflected in the determination of net income or loss.
Goodwill and Other Intangible Assets
Prime Response amortizes goodwill and related intangible assets over
estimated useful lives. Prime Response performs impairment reviews whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In performing the review for recoverability Prime
Response estimates the future cash flows expected to result from the use of the
asset. If the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset, an impairment
loss is recognized.
Revenue Recognition
Revenue from software licenses is recognized when a signed agreement
exists, the software or system has been shipped (or software has been
electronically delivered), the license fee is fixed and determinable, and
collection of the resulting receivable is probable. For license agreements
which require specific performance criteria or to deliver significant
enhancements, license revenues are recognized only when obligations under the
license agreement are completed and the software has been accepted by the
customer. Accordingly, for these contracts, revenues are deferred until
obligations under the license agreement are completed. Service revenue,
including applications hosting, is recognized as the services are performed.
Maintenance revenues, including those bundled with the initial license fee, are
deferred and recognized ratably over the service period.
F-8
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues and profits under long-term fixed price contracts are recognized
using percentage completion accounting. These contracts are assessed for losses
and such losses are provided for in total in the period in which the losses
become known.
Prime Response typically does not grant to its customers a contractual
right to return software products. When approved by management, however, Prime
Response has accepted returns of certain software products and has provided an
allowance for those specific products. Prime Response also provides reserves
for customer receivable balances which are considered potentially
uncollectible. Prime Response's allowances amounted to $112,000, $43,000 and
$79,000 as of December 31, 1997, 1998 and September 30, 1999, respectively. The
provision charged to the statement of operations was $0, $92,000, $147,000,
$147,000 (unaudited) and $36,000 in 1996, 1997 and 1998 and as of September 30,
1998 and 1999, respectively, and write-offs against the allowances were $0, $0,
$216,000, $216,000 (unaudited) and $0 in 1996, 1997 and 1998 and as of
September 30, 1998 and 1999 respectively.
Cost of Revenues
All costs associated with software license production and distribution,
primarily preparation and translation of user manuals, are recorded as cost of
revenues for license fees. All costs associated with the services and support,
comprising mainly labor and overhead costs, are recorded as cost of revenues
for services and support. Services and support cost of revenues include any
unbillable time related to the personnel associated with the professional
services group. All costs associated with applications hosting, comprising
mainly labor, equipment and overhead costs, are recorded as cost of revenues
for applications hosting.
Foreign Currency Translation
Prime Response has determined that the functional currency of each foreign
operation is the respective local currency. Transactions in a foreign currency
are recorded at the rate of exchange on the date of the transaction. Assets and
liabilities at year end are translated at the rate of exchange in effect at the
period end. Translation gains or losses are included as a component of
accumulated other comprehensive income in stockholders' equity.
Income Taxes
Prime Response recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Deferred tax liabilities and
assets are determined on the basis of the difference between the income tax
basis of assets and liabilities and their respective financial reporting
amounts at tax rates in effect for the periods in which the differences are
expected to reverse. Prime Response provides a valuation allowance for deferred
tax assets when it is more likely than not, based on available evidence, that
some portion or all of the deferred tax assets will not be realized.
Net Loss per Share
Basic net loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding during the
period. Diluted net loss per share does not differ from basic net loss per
share since potential common shares from conversion of preferred stock and
exercise of stock options and warrants are antidilutive for all periods
presented. For the year ended December 31, 1996, basic and diluted net loss per
share is computed by dividing the net loss for the period by the weighted
average number of ordinary shares outstanding during the period.
F-9
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma net loss per share for the year ended December 31, 1998 and for
the nine months ended September 30,1999 is computed using the weighted average
number of common shares outstanding, including the pro forma effects of the
automatic conversion of Prime Response's Series A, B and C convertible
preferred stock into shares of common stock effective upon the closing of Prime
Response's initial public offering as if such conversion occurred at the date
of the original issuance.
Options to purchase 736,538 and 927,822 shares of common stock at exercise
prices ranging from $3.41 to $4.00 per share, respectively, and warrants to
purchase none and 564,000 shares of common stock at exercise prices ranging
from $0.01 to $3.41 per share, respectively, have been excluded from the
computation of diluted net loss per share for the year ended December 31, 1998
and for the period ended September 30, 1999, respectively.
Pro Forma Balance Sheet (Unaudited)
Upon the closing of Prime Response's initial public offering, all shares of
Series A, B and C convertible preferred stock outstanding at September 30, 1999
will automatically convert into 5,699,000 shares of Prime Response's common
stock, 2,282,000 shares of common stock will be issued to Series A, Series C
and some Series B preferred stockholders as a participation payment and 311,000
shares of common stock will be issued to Series A and some Series B preferred
stockholders as dividends. The unaudited pro forma presentation of the balance
sheet has been prepared assuming the conversion of the preferred stock into
common stock and issuance of common stock for the participation and dividend
payments as of September 30, 1999.
In addition, the unaudited pro forma presentation of the balance sheet
reflects significant events which occurred subsequent to September 30, 1999
including the conversion of $2,500,000 in shareholders' loans to Series C
preferred stock and the further conversion of Series C preferred stock to
625,000 shares of common stock and participation payment of 208,000 shares of
common stock upon the closing of Prime Response's initial public offering (Note
3), receipt of a $2,000,000 term loan from Greyrock (Note 12) and issuance of
428,000 shares of common stock and a warrant to purchase 682,000 shares of
common stock to Andersen Consulting and its affiliate for proceeds of
$4,000,000 (Note 12).
Stock Based Compensation
Prime Response accounts for stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation."
Segment Information
Prime Response has adopted Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information,"
which requires companies to report selected information about operating
segments, as well as enterprise-wide disclosures about products, services,
geographic areas, and major customers. Operating segments are determined based
on the way management organizes its business for making operating decisions and
assessing performance. Prime Response has determined that it conducts its
operations in three business segments, software licenses, applications hosting
and services and support.
Comprehensive Income
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130").
Prime Response adopted SFAS 130 on January 1, 1998.
F-10
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SFAS 130, established standards for reporting comprehensive income and its
components, and is presented in the consolidated statements of stockholders'
equity. The measurement and presentation of net income did not change.
Comprehensive income is comprised of net income and other comprehensive income.
Other comprehensive income includes certain changes in equity that are excluded
from net income, such as translation adjustments.
Recent Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position No. 98-4 "Deferral of
the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition"
("SOP 98-4"). SOP 98-4 defers, for one year, the application of certain
passages in SOP 97-2 which limit what is considered vendor-specific objective
evidence ("VSOE") necessary to recognize revenue for software licenses on
multiple-element arrangements when undelivered elements exist. In December
1998, the AICPA issued Statement of Position No. 98-9 "Modifications of SOP 97-
2, Software Revenue Recognition, with Respect of Certain Transactions" ("SOP
98-9") which further extends the deferral of certain passages of SOP 97-2
relating to vendor specific objective evidence established in SOP 98-4 and also
defines "residual value." The provisions of SOP 98-9 have been adopted for
transactions entered during the fiscal year beginning January 1, 1999. Prime
Response does not anticipate that this pronouncement will have a material
effect on its results.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 19, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS 133. Prime Response does not anticipate that this pronouncement will have
a material effect on its reported results or financial position.
2. Balance Sheet Components
<TABLE>
<CAPTION>
December 31, September 30,
-------------- -------------
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
Property and equipment (in thousands):
Furniture and equipment..................... $ 161 $ 561 $ 608
Furniture and equipment under capital
lease..................................... -- 504 560
Computer equipment.......................... 1,991 2,668 3,707
Computer equipment under capital lease...... 227 438 438
Motor vehicles under capital lease.......... 124 96 96
------ ------ ------
2,503 4,267 5,409
Accumulated depreciation on owned assets...... (1,443) (1,879) (2,372)
Accumulated amortization on assets under
capital lease............................... (80) (277) (493)
------ ------ ------
$ 980 $2,111 $2,544
====== ====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1997 and 1998
and for the nine-month periods ended September 30, 1998 and 1999 was $613,000,
$250,000, $439,000, $268,000 (unaudited) and $498,000, respectively.
Amortization expense for the years ended December 31, 1996, 1997 and 1998
and for the nine-month periods ended September 30, 1998 and 1999 was $8,000,
$55,000, $215,000, $141,000 (unaudited) and $216,000, respectively.
F-11
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31, September 30,
-------------- -------------
1997 1998 1999
------- ------ -------------
<S> <C> <C> <C>
Accrued expenses and other liabilities (in
thousands):
Accrued compensation and related payroll
taxes.................................... $ 229 $1,263 $1,229
Dividends payable.......................... 327 -- --
Accrued reseller commissions............... 149 466 --
VAT payable................................ -- -- 349
Amounts due to customer (Note 6)........... -- -- 375
Other creditors and accruals............... 1,049 973 1,019
------- ------ ------
$ 1,754 $2,702 $2,972
======= ====== ======
3. Debt
Debt consists of the following (in thousands):
<CAPTION>
December 31, September 30,
-------------- -------------
1997 1998 1999
------- ------ -------------
<S> <C> <C> <C>
Bank line of credit........................ $ 728 $ 167 $ 524
Directors' loans........................... 8,113 -- --
Shareholders' loans........................ -- -- 2,500
Term loan.................................. 275 -- --
------- ------ ------
Total debt................................. 9,116 167 3,024
------- ------ ------
Less: short-term debt and current
maturities of
long-term debt............................. 8,944 167 3,024
------- ------ ------
Long-term debt............................. $ 172 $ -- $ --
======= ====== ======
</TABLE>
Bank Line of Credit
At September 30, 1999, Prime Response had amounts available of $822,000
under a revolving line of credit ("Line of Credit"). Borrowings under the Line
of Credit bear interest, payable quarterly, at the lender's base rate plus
2.75% (10%, 9% and 9% at December 31, 1997, December 31, 1998 and September 30,
1999, respectively). The Line of Credit expired on December 1, 1999. At
September 30, 1999 approximately $298,000 was available for additional
borrowings under the line of credit.
Borrowings under the Line of Credit are collateralized by a security
interest in substantially all of the assets of Prime Response. The Line of
Credit also requires Prime Response to comply with certain affirmative and
negative covenants, including the maintenance of specified financial ratios.
Shareholders' Loans
On August 25, 1999, Prime Response received a $1,000,000 loan note (the
"August Note") from its principal shareholder. This loan accrued interest at
12%, compounded quarterly and had a maturity date of October 30, 1999. The note
provided an option for the shareholder to convert the principal amount of the
Note into shares of Series C preferred stock at any time prior to the maturity
date. On October 19, 1999 the shareholder exercised this option and received
333,332 Series C preferred shares. Other terms of this Note agreement included
certain amendments to definitions within the Series A, B and C preferred stock
agreements as discussed in Note 4.
On September 27, 1999, Prime Response borrowed an additional $1,500,000
(the "September Note") from its principal shareholder. Terms of the September
note are consistent with that of the August note. On October 27, 1999 the
shareholder exercised the option to convert this note to Series C preferred
stock and was issued 499,999 shares of Series C preferred stock.
F-12
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
When issued, both the August Note and the September Note were immediately
convertible into Series C preferred stock at the option of the holder. The
number of shares of Series C preferred stock to be issued is calculated by
dividing the principal amount of the notes by $3.00, which represents a
discount from the fair value of common stock on the date of issuance. The
values attributable to the conversion feature on each note represent an
incremental yield, or a beneficial conversion feature, which are recognized as
additional interest on the notes. These amounts, equal to the proceeds from
each note of $1,000,000 and $1,500,000, respectively, have been charged to
interest expense in the consolidated statement of operations in the period
ended September 30, 1999, reflecting a non-cash expense.
Directors' Loans
As described in Note 5, in connection with the reorganization, one of Prime
Response's shareholders, exchanged with PRI a portion of his share holdings in
PRL for Common Stock in PRI and a $7,899,000 Promissory Note ("Note") payable.
The Note accrued interest at LIBOR plus 2% and was repaid on July 21, 1998.
The remaining Director's loans amounting to $214,000 were non-interest
bearing and were repaid on May 6, 1998.
Term Loan
In 1996 PRL entered into a Commercial Variable Rate Loan Agreement ("Term
Loan") of $411,000. Borrowings under the Term Loan bore interest, payable
quarterly, at the lender's base rate plus 2.75% (10% and 9% at December 31,
1997 and December 31,1998, respectively). The loan was repaid in full on
December 31, 1998.
4. Redeemable Convertible Preferred Stock
Issuance
The following table sets forth the redeemable convertible preferred stock
("preferred stock") activity (in thousands):
<TABLE>
<CAPTION>
Series A Series B Series C Total
--------------- --------------- --------------- ---------------
Carrying Carrying Carrying Carrying
Shares Value Shares Value Shares Value Shares Value
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance October 1997 1,155 $23,446 -- $ -- -- $ -- 1,155 $23,446
Accrual of cumulative
dividends and
accretion to
redemption value -- 607 -- -- -- -- -- 607
----- ------- ----- ------- ----- ------ ----- -------
Balance December 31,
1997 1,155 24,053 -- -- -- -- 1,155 24,053
Issuance September 1998 -- -- 867 5,199 -- -- 867 5,199
Accrual of cumulative
dividends and
accretion to
redemption value -- 1,896 -- 119 -- -- -- 2,015
----- ------- ----- ------- ----- ------ ----- -------
Balance December 31,
1998 1,155 25,949 867 5,318 -- -- 2,022 31,267
Issuance March 1999 -- -- 833 4,281 -- -- 833 4,281
Issuance July 1999 -- -- -- -- 1,000 2,391 1,000 2,391
Accrual of cumulative
dividends and
accretion to
redemption value -- 1,422 -- 543 -- -- -- 1,965
----- ------- ----- ------- ----- ------ ----- -------
Balance September 30,
1999 1,155 $27,371 1,700 $10,142 1,000 $2,391 3,855 $39,904
===== ======= ===== ======= ===== ====== ===== =======
</TABLE>
F-13
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Redemption
The holders of Series A, B and C preferred stock are entitled to receive a
payment of $20.52, $6.00 and $3.00, respectively, to be paid in cash or, at the
option of Prime Response or the surviving entity, in securities of Prime
Response or the surviving entity or other consideration received by the holders
of shares of common stock in the event of a merger.
Prime Response is required to reserve and keep available for issuance upon
the conversion of the Series A, B and C preferred stock, such number of its
authorized but unissued shares of common stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series A, B
and C preferred stock, and is required to take all action to increase the
authorized number of share of common stock if at anytime there shall be
insufficient authorized but unissued share of common stock to permit such
reservation or to permit the conversion of all outstanding share of Series A, B
and C preferred stock.
These contractual terms make the Series A, B and C preferred stock
redeemable.
When issued, each share of Series C preferred stock was convertible into
0.75 shares of common stock, which represents a discount from the fair value of
common stock on the date of the Series C issuance. The value attributable to
this conversion feature represents an incremental yield, or a beneficial
conversion feature, which will be recognized as a return to the preferred
stockholders. This amount, equal to the net proceeds from the Series C offering
of approximately $2,391,000, has been recorded as accretion of preferred stock
to redemption value in the consolidated statement of operations in the period
ended September 30, 1999, and represents a non-cash charge in the determination
of net loss attributable to common stockholders.
Conversion
Each share of Series A, B and C were convertible into three, 0.75 and 0.75
shares, respectively, subject to certain dilutive and anti-dilutive
adjustments, of common stock ("common stock") at the option of the holders of
the preferred stock or automatically upon closing of an initial public
offering.
At September 30, 1999, the Series A, B and C preferred shares were
convertible into a total of 5,699,000 shares of common stock. Prime Response
has reserved 3,613,000, 1,336,000 and 750,000 shares for the conversion of
Series A, B and C preferred stock, respectively.
Liquidation
In the event of any liquidation of Prime Response, the holders of Series A,
B and C preferred stock are entitled to receive, in preference to common
stockholders and all others, on a pro-rata basis, $20.52, $6.00 and $3.00 per
share, respectively, plus all accrued and unpaid dividends whether or not
declared.
Dividends
The holders of Series A and B preferred stock are entitled to receive
cumulative dividends in the amount of $3.18 and $0.39 per share, respectively,
accruing daily, whether or not declared by the Board of Directors. These
dividends are payable upon initial public offering, liquidation or merger of
Prime Response. Cumulative and unpaid dividends on the Series A and B preferred
stock at September 30, 1999 were $3,671,000 and $659,000, respectively. The
holders of Series C preferred stock are not entitled to dividends. Dividends
awarded to holders of Series A preferred stock are payable in shares of common
stock. Dividends awarded to holders of Series B preferred stock are payable in
cash or in shares of common stock, at the option of the preferred stock holder.
F-14
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Participation Payment
In the event of an initial public offering the holders of Series A and C
preferred stock are entitled to receive, in addition to accrued dividends and
the common stock conversion feature, $20.52 and $3.00 per share, respectively,
to be paid in shares of common stock. The number of shares of common stock to
be issued will be calculated based on the valuation of the initial public
offering. In the event of an initial public offering, the holders of Series B
preferred stock are entitled to receive, in addition to accrued dividends and
the conversion payment, $6.00 per share to be paid in shares of common stock or
cash, as elected by the holder. If payment in common stock is elected, the
number of shares of common stock to be issued will be calculated based on the
valuation of the initial public offering.
In the event of a merger or sale prior to an initial public offering, the
holders of Series A, B and C preferred stock are entitled to receive, in
addition to accrued dividends and the liquidation payment, a cash payment of
$20.52, $6.00 and $3.00 per share, respectively.
Voting
The holders of preferred stock shares are entitled to vote, together with
holders of common stock on all matters submitted to stockholders for vote. Each
preferred stock holder is entitled to a number of votes equal to the number of
shares of common stock into which each preferred stock share is convertible at
the time of such vote.
5. Common Stock
Reorganization
PRI was incorporated on September 26, 1997. In October 1997 PRI affected a
reorganization involving an exchange of Common Stock in PRI and a Promissory
Note ("Note") for all of the outstanding Ordinary Shares of PRL. Additionally
certain subsidiary companies of PRL became direct subsidiaries of PRI. Prior to
this reorganization, PRI had no operating activities of its own, rather all
operations were conducted by PRL and its subsidiaries.
In order to effect this reorganization, on October 23, 1997 PRI issued
7,035,000 shares of common stock and a Note for $7,899,000 to the former
shareholders of PRL, a company incorporated in the United Kingdom in 1987 and
PRI's principal operating subsidiary. In exchange, the former shareholders of
PRL transferred their shares in that company to PRI and issued an option to PRI
to repurchase 1,250,000 of these shares at an exercise price of $3.42 per
share. This option has a fair value, as measured on grant date, of $2,447,000
and expires on September 30, 2000. This amount is recorded in additional paid
in capital. The shares in PRL are held by PRI as an investment in that
subsidiary and are eliminated in consolidation. The exchange of shares in PRL
for those in PRI represents a transaction between companies under common
control and therefore no change in accounting basis was recorded.
Holders of PRI's Common Stock are entitled to one vote per share.
Employee Stock Option Plan
In April 1998 Prime Response's Board of Directors adopted, and the
stockholders subsequently approved the 1998 Stock Option/Stock Issuances Plan
(the "1998 Plan"). The 1998 Plan serves as the successor equity incentive
program to the Company's 1997 Employee Stock Option Plan under which no options
were issued.
F-15
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The 1998 Plan is divided into two separate components: (i) the
Discretionary Option Grant Program; and (ii) the Stock Issuance Program. The
1998 Plan will terminate on April 21, 2008 unless terminated earlier by the
Board. The number of shares authorized in the 1998 Plan document of 1,250,000
was increased to 1,512,000 on September 30, 1998 and further increased to
2,148,000 on July 10, 1999. In November, 1999, Prime Response's Board of
Directors authorized, subject to stockholder approval, an increase in the
number of shares authorized for grant to 3,273,000.
Options for Common Stock granted under the Discretionary Option Grant
Program are for exercise within periods not to exceed ten years and must be
issued at prices not less than 100% and 85%, for incentive and non-qualified
stock options, respectively, of the fair value of the stock on the date of
grant, unless a lower value is approved by the Board of Directors. Incentive
stock options granted to stockholders who own greater than 10% of the
outstanding stock are for periods not to exceed five years and must be issued
at prices not less than 110% of the fair market value of the stock on the date
of grant. No incentive stock options were issued as at September 30, 1999.
Options granted under the 1998 Plan vest in steps over a four-year period,
from commencement date, with the first 25% vesting after one year, and the
remainder vesting in 36 equal monthly installments.
Prime Response accounts for stock options granted to employees in
accordance with the provisions of Accounting Principles Board Opinion No. 25.
In connection with the grant of certain stock options to employees during the
period from commencement of the 1998 Plan (April 1998) to December 31, 1998 and
during the nine months ended September 30, 1999, Prime Response recorded
deferred stock compensation of none and $617,000, respectively, representing
the difference between the estimated fair market value of the common stock on
measurement date and the exercise price. Compensation related to options which
vest over time was recorded as a component of stockholders' deficit and is
being amortized over the vesting periods of the related options. Compensation
expense related to restricted shares was recorded on grant date. Compensation
expense related to remeasurement of stock options was recognized on the
remeasurement date. During the period from commencement of the 1998 Plan (April
1998) to December 31, 1998 and during the nine months ended September 30, 1999,
the Company recorded compensation expense totaling none and $1,844,000,
respectively.
Valuation of Stock Options
Had compensation expense for the Plans been determined based upon the
estimated grant date fair value pursuant to SFAS 123, Prime Response's net loss
for year ended December 31, 1998 and the nine months ended September 30, 1999
would have been as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Net loss (in thousands):
As reported........................ $(14,603) $(15,521)
Pro forma.......................... $(14,710) $(15,840)
Net loss per share attributable to
common stockholders-basic and
diluted:
As reported........................ $ (2.36) $ (2.72)
Pro forma.......................... $ (2.38) $ (2.76)
</TABLE>
F-16
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of these stock awards at the date of grant was estimated
using the minimum value method with the following assumptions:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Risk free interest rate............... 5.24% 5.11%
Dividend yield........................ 0% 0%
Expected volatility................... 0% 0%
Expected life......................... 10 years 10 years
</TABLE>
The determination of the fair value of all options granted should Prime
Response become a public entity will include an expected volatility factor,
additional option grants are expected to be made subsequent to September 30,
1999, and most options vest over several years, the above pro forma effects
are not necessarily indicative of the pro forma effects on future years.
Summary of Stock Options
A summary of the status of Prime Response's options as of December 31,
1998 and the nine months ended September 30, 1999 and changes during the
period then ended are presented below.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
------------------- ---------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period... -- $ -- 736,538 $3.41
Granted............................ 783,600 3.41 1,099,065 4.00
Exercised.......................... -- -- (636,225) 3.41
Cancelled.......................... (47,062) 3.41 (261,056) 3.46
-------- ----- ---------- -----
Outstanding at end of period......... 736,538 $3.41 938,322 $3.69
======== ===== ========== =====
Options available for grant at end of
period............................. 775,462 573,453
======== ==========
Options granted at fair value:
Weighted average exercise price.... $ 3.41 $ 4.00
======== ==========
Weighted average fair value........ $ 1.42 $ 1.57
======== ==========
Options granted below fair value:
Weighted average exercise price.... $ 3.41 $ 4.00
======== ==========
Weighted average fair value........ $ 1.82 $ 8.56
======== ==========
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
Vested and Exercisable
------------------------
Weighted-
Average
Remaining
Contractual Number
Number Life (in of Weighted-Average
Exercise Price Outstanding Years) Shares Exercise Price
-------------- ----------- ----------- ------- ----------------
<S> <C> <C> <C> <C>
$ 3.41 488,700 8.10 244,584 $3.41
$ 4.00 439,122 9.02 70,757 4.00
------- ---- ------- -----
938,322 8.53 315,341 $3.54
======= ==== ======= =====
</TABLE>
F-17
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Issuance of Warrants
During 1999, Prime Response issued warrants to purchase up to 313,000 and
251,000 shares of Prime Response's Common Stock at an exercise price of $3.41
and $.01 per share, respectively, in conjunction with the Series B and Series C
preferred stock issuance, respectively. The warrants are immediately
exercisable and have terms of five years and seven years, respectively. The
fair value of these warrants was determined to be $2.69 and $11.84 per share,
respectively using the Black-Scholes option pricing model, based on the
following assumptions: 85% volatility, a term of five and seven years,
respectively, and interest rates of 5.87% and 6.07%, respectively. The value of
the warrants have been recorded as $720,000 and $609,000, respectively, and
have been included in additional paid in capital.
Shareholder Note Receivable and Restricted Stock
At September 1999, Prime Response held a note receivable in the amount of
$2,545,000 from an employee shareholder in consideration for the issuance of
restricted stock. The note is non-interest bearing and is due on January 31,
2009. Imputed interest of $1,678,000 has been recognized for this note and will
be amortized as income over the life of the loan. Compensation expense of
$1,678,000 for the discount from fair value due to imputed interest was
recognized at the time the shares were issued. Shares vest and restrictions
lapse in accordance with the terms of the 1998 Stock Option/Stock Issuance
Plan. In the event employment is terminated, Prime Response can elect to
repurchase, and the employee is obligated to sell, any of the vested shares for
fair market value and any unvested shares for the original purchase price.
During 1999, 636,000 shares of Common stock were issued subject to such time-
based restrictions and all remain unvested at September 30, 1999.
6. Commitments and Contingencies
Leases
Prime Response has several operating lease agreements primarily involving
real estate and computers and equipment. These leases are noncancelable and
expire on various dates through 2013. Rent expense for operating leases totaled
$627,000, $897,000, $2,291,000, $1,717,000 (unaudited) and $1,814,000 for the
years ended December 31, 1996, 1997 and 1998, and the nine-month period ended
September 30, 1998 and 1999, respectively. Future minimum rental payments under
leases with initial or remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
Operating Capital
--------- -------
(in thousands)
Year ending September 30,
<S> <C> <C>
2000....................................................... $1,914 $ 335
2001....................................................... 1,068 205
2002....................................................... 639 126
2003....................................................... 604 2
2004....................................................... 369 --
Thereafter................................................. 1,490 --
------ -----
Total future minimum lease payments........................ $6,084 $ 668
------ -----
Less: portion representing interest........................ (77)
-----
$ 591
=====
</TABLE>
Repayment to Customer
In November 1999 Prime Response agreed to refund amounts for a software
license fee paid by a customer in 1998. This amount is payable in the amount of
$125,000 per quarter commencing in January 2000. No revenue was recognized in
relation to this sale.
F-18
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Income Taxes
The provision for income taxes as shown in the consolidated statements of
income as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended
Years Ended December 31, September 30,
--------------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
Current:
US..................... $ -- $ -- $ -- $ -- $ 2
UK..................... 26 159 -- -- --
Other.................. -- -- -- -- 7
------- ------- ------- ----- ---
$ 26 $ 159 $ -- $ -- $ 9
======= ======= ======= ===== ===
Deferred tax (liabilities) assets are comprised of the following (in
thousands):
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net operating loss
carryforwards........ $ 843 $ 4,049 $ 7,263
Expenses not currently
deductible........... 256 768 967
------- ------- -------
Gross deferred tax
asset................ 1,099 4,817 8,230
Deferred tax asset
valuation allowance.. (1,099) (4,817) (8,230)
------- ------- -------
Total deferred tax
assets............... $ -- $ -- $ --
======= ======= =======
Prime Response has provided a valuation allowance for deferred tax assets
because management believes it is more likely than not, based on available
evidence, that some portion or all of the deferred tax assets will not be
realized.
The provision for income taxes differs from the amount computed by applying
the US statutory tax rate to pretax income as follows:
<CAPTION>
Nine Months
Ended
Years Ended December 31, September 30,
--------------------------------- -------------
1996 1997 1998 1999
------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
U.S. federal statutory
rate*................ (34.0%) (34.0%) (34.0%) (34.0%)
State income tax, net
of federal income tax
effect............... -- (1.1) (0.6) (1.4)
Change in valuation
allowance............ 34.0 35.1 34.5 31.7
Franchise taxes........ -- -- -- --
Other.................. -- -- 0.1 3.8
Foreign taxes.......... 4.2 7.6 -- --
------- ------- ------- -----
Provision for income
taxes................ 4.2% 7.6% --% 0.1%
======= ======= ======= =====
</TABLE>
*Shown for presentation purposes only.
As of September 30,1999, Prime Response has a federal and state net
operating loss carryforward of $6,869,294. These carryforwards begin to expire
in 2017 for federal purposes and 2003 for state purposes. Prime Response also
has non-US net operating loss carryforwards of $15,352,693, some of which begin
to expire in 2002.
F-19
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Ownership changes, as defined in the Internal Revenue Code, including those
resulting from the issuance of common stock in connection with an initial
public offering, may limit the amount of net operating loss and tax credit
carryforwards that can be utilized to offset future taxable income or tax
liability. The amount of the annual limitation is determined in accordance with
Section 382 of the Internal Revenue Code.
8. Segment Analysis
Prime Response earned all of its revenue from external customers. Prime
Response is organized into three segments, software licenses, applications
hosting and services and support, to reflect the key sales lines. The
distribution of revenues and total assets by geographic location is as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------- Nine Months Ended
1996 1997 1998 September 30, 1999
------------------ ------------------------ ------------------------ ----------------------
US Int'l Total US Int'l Total US Int'l Total US Int'l Total
--- ------ ------ ------- ------- ------- ------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses...... $-- $ 795 $ 795 $ 65 $ 2,868 $ 2,933 $3,295 $ 5,200 $ 8,495 $ 649 $ 4,629 $ 5,278
Services and support... -- 1,410 1,410 -- 2,495 2,495 1,075 3,139 4,214 1,503 3,093 4,596
Applications hosting... -- 4,764 4,764 -- 4,754 4,754 -- 3,827 3,827 -- 3,193 3,193
--- ------ ------ ------- ------- ------- ------ ------- ------- ------ ------- -------
Total revenues........ $-- $6,969 $6,969 $ 65 $10,117 $10,182 $4,370 $12,166 $16,536 $2,152 $10,915 $13,067
=== ====== ====== ======= ======= ======= ====== ======= ======= ====== ======= =======
Gross profit:
Software licenses...... $-- $ 651 $ 651 $ 59 $ 2,791 $ 2,850 $3,290 $ 5,053 $ 8,343 $ 649 $ 4,629 $ 5,278
Services and support... -- (517) (517) -- (557) (557) (631) (1,632) (2,263) 147 1,202 1,349
Applications hosting... -- 2,987 2,987 -- 2,831 2,831 -- 1,350 1,350 -- 1,105 1,105
--- ------ ------ ------- ------- ------- ------ ------- ------- ------ ------- -------
Total gross profit.... $-- $3,121 $3,121 $ 59 $ 5,065 $ 5,124 $2,659 $ 4,771 $ 7,430 $ 796 $ 6,936 $ 7,732
=== ====== ====== ======= ======= ======= ====== ======= ======= ====== ======= =======
Total assets.......... $-- $3,026 $3,026 $21,573 $ 5,149 $26,722 $3,847 $ 6,305 $10,152 $4,580 $ 9,504 $14,084
=== ====== ====== ======= ======= ======= ====== ======= ======= ====== ======= =======
</TABLE>
9. Acquisitions
On January 19, 1998, Prime Response acquired certain intellectual property
rights and other intangible assets related to the MIND software business from
an Irish company, Admiral IT Services Limited, for consideration of $2,812,000.
The acquisition was accounted for under the purchase method of accounting.
The purchase price has been allocated to the assets acquired based upon the
fair market values as determined by Prime Response at the date of acquisition
and will be amortized on a straight-line basis over the estimated economic
lives of two years, principally for goodwill.
At September 30, 1999, Prime Response had accumulated amortization relating
to this intangible asset of $2,240,000.
10. Related Party Transactions
During the nine-month period ended September 30, 1999, Prime Response made
sales totaling $351,000 to a company which is partly owned by a significant
shareholder of Prime Response. At September 30, 1999, $73,000 remained
outstanding from this related party. There were no material related party
transactions during the years ended December 31, 1996, 1997 and 1998.
F-20
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Employee Benefit Plan
Prime Response offers a 401(k) plan to its our United States employees who
meet certain defined requirements. Under the terms of the 401(k) plan, eligible
employees may elect to make tax-deferred contributions, and Prime Response may
match 25% of the lesser of the contributing employee's elective deferral or 4%
of the contributing employee's total salary. During 1998 and the nine months
ended September 30, 1999, Prime Response contributed approximately $10,687 and
$17,089, respectively, to the 401(k) plan. Prime Response made no contributions
during 1996 or 1997.
Prime Response offers comparable benefits to certain employees located
outside the United States.
12. Subsequent Events
Subsequent Stock Option Grants
Subsequent to September 30, 1999, Prime Response granted 463,000 stock
options to employees in accordance with the 1998 Stock Option/Stock Issuance
Plan. These options have an exercise prices ranging from $4.00 to $6.67 per
share and vest over a four-year period. Prior services vesting credit was
granted as applicable. Prime Response recorded deferred compensation of
$1,985,000 relating to the grant of these options and will recognize an expense
of $124,000 during the fourth quarter of 1999 relating to this issuance.
Greyrock Loan
On October 28, 1999, Prime Response entered into an agreement with Greyrock
Capital which will allow Prime Response to borrow against outstanding
receivable balances up to $3,000,000. The agreement also contains a $2,000,000
term loan which was received upon execution of the agreement. Interest accrues
on all outstanding balances at prime plus 2% and is payable monthly. This
agreement terminates on November 30, 2000.
Andersen Consulting Relationship
On December 6, 1999, Prime Response and Andersen Consulting entered into a
joint marketing agreement and, along with an affiliate of Andersen Consulting,
a stock and warrant purchase agreement. Pursuant to the stock and warrant
purchase agreement, Andersen Consulting purchased 428,000 shares of common
stock and Andersen Consulting received a warrant to purchase 682,000 shares of
common stock. This warrant has an exercise price of $9.35 per share and vests
upon the earlier to occur of the date nine months following the date of
issuance or the date of an acquisition of Prime Response. Andersen Consulting
also has a right of first refusal to participate in equity issuances by Prime
Response prior to its initial public offering in order to maintain its
percentage ownership interest in Prime Response, subject to specified
exceptions. The aggregate purchase price paid by Andersen Consulting for the
stock and this warrant was $4,000,000. Andersen Consulting has no performance
obligations under the stock and warrant purchase agreement or this warrant.
Prime Response will measure the fair value of the stock and this warrant based
on a per share amount of $9.35. The resulting fair value of this warrant and
the difference between the fair value of the common stock and the $4,000,000
issuance price will be expensed in full at the date of the sale of shares and
over the vesting period of the warrant.
In addition, Prime Response issued a performance warrant to purchase
375,000 shares of common stock to Andersen Consulting which will vest upon
achievement by Prime Response of certain post-IPO market capitalization
targets. This warrant has an exercise price of $9.35 per share. Prime Response
valued this warrant on the date of grant using Black Sholes and recorded the
value of this warrant in equity at the time of grant. The value recorded will
be charged to expense at the time of vesting. Prime Response also issued
F-21
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
a performance warrant to purchase 375,000 shares of common stock to Andersen
Consulting which will vest based on achievement of designated sales levels
resulting from joint marketing efforts. This warrant also has an exercise price
of $9.35 per share. Prime Response will measure the value of the warrant
related to sales targets at the time such targets are probable and will record
an expense for the value of the warrant at that time. This charge will be
adjusted to the final value of the warrant at the time the sales targets are
met.
All warrants have a seven year term. In the event that the marketing
agreement is terminated as a result of a breach by Andersen Consulting, no
further vesting under the warrants described in the immediately preceding
paragraph will occur, but those warrants already exercisable will remain
exercisable during their term to the extent then vested.
In the event that an IPO does not occur, or in the event any other
liquidity event does occur, by January 1, 2001, Andersen Consulting or its
affiliates will have the right to require Prime Response to repurchase the
428,000 shares for $4,000,000. Such repurchase will be payable in three
quarterly installments, plus 8% interest on the entire amount beginning on
January 1, 2001, plus additional interest of 7% in the event Prime Response
fails to make any payment when due. This put right will terminate upon an IPO
or other liquidity event. As a result of this put right, the common stock
recorded in relation to this transaction will be classified as mandatorily
redeemable common stock.
Prime Response is obligated to engage Andersen Consulting for consulting
services of at least $1.0 million during the period from contract execution to
December 31, 2001. This obligation will be recorded as a liability in Prime
Response's financial statements.
If designated sales targets are met, Andersen Consulting is obligated to
provide up to $1.0 million in funding for joint marketing efforts, business
development personnel, structure feedback and sales support.
F-22
<PAGE>
[INSERT GRAPHICS, INSIDE BACK COVER]
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee....................................... $ 13,813.80
NASD filing fee............................................ 57,325.50
Nasdaq National Market listing fee......................... 95,000.00
Blue Sky fees and expenses................................. 10,000.00
Transfer Agent and Registrar fees.......................... *
Accounting fees and expenses............................... *
Legal fees and expenses.................................... 400,000.00
Director and Officer Liability Insurance................... *
Printing and mailing expenses.............................. *
Miscellaneous.............................................. *
-------------
Total.................................................... $1,200,000.00
=============
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Article EIGHTH of the Registrant's Third Amended and Restated Certificate
of Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
II-1
<PAGE>
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director
or officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive,
and provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by such
law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding shares of common
stock issued and options granted by the Registrant since November 1, 1996.
Further included is the consideration, if any, received by the Registrant for
such shares, warrants and options and information relating to the section of
the Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
(a) Issuances of Capital Stock.
In October, 1997, we issued and sold an aggregate of 1,155,000 shares of
Series A convertible preferred stock in a private financing for an aggregate
price of $23,697,000.
On September 21, 1998, we issued and sold an aggregate of 866,500 shares of
Series B convertible preferred stock in a private financing for an aggregate
purchase price of $5,199,000.
On March 2, 1999, we issued and sold an aggregate of 833,334 shares of
Series B convertible preferred stock in a private financing for an aggregate
purchase price of $5,001,004.
In March, 1999, we issued two warrants to purchase an aggregate of 312,500
shares of common stock at an exercise price of $3.4133 per share.
In June, 1999, we issued 636,225 shares our common stock to our chief
executive officer, Peter Boni, at a purchase price of $4.00 per share.
II-2
<PAGE>
On July 15, 1999, we issued and sold 1,000,000 shares of Series C
convertible preferred stock in a private financing for an aggregate purchase
price of $3,000,000.
On July 15, 1999, we issued two warrants to purchase an aggregate of
251,539 shares of common stock at an exercise price of $0.01 per share.
On October 19, 1999, we issued 833,331 shares of Series C convertible
preferred stock to two of our investors upon conversion of promissory notes
totaling $2.5 million.
On December 9, 1999, we issued warrants to purchase up to 1,432,282 shares
of common stock to Andersen Consulting. Of these, a warrant to purchase 682,233
shares of common stock was immediately exercisable, a warrant to purchase up to
375,000 shares of common stock vests upon market valuation on certain dates,
and a warrant to acquire 375,000 shares of common stock vests upon the
achievement of certain marketing goals. The exercise price of all such warrants
is $9.346 per share.
On December 9, 1999, we issued 427,806 shares of common stock to an
affiliate of Andersen Consulting for $4 million.
(b) Certain Grants and Exercises of Stock Options. As of November 15, 1999,
options to purchase 646,725 shares of common stock had been exercised for a
consideration of $2,581,590 under the Registrant's 1998 Stock Option/Stock
Issuance Plan and options to purchase 1,371,340 shares of common stock were
outstanding under the Registrant's 1998 Stock Option/Stock Issuance Plan. No
options to purchase shares of common stock are outstanding under the
Registrant's 1999 Non-Employee Director Stock Option Plan.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from Securities Act registration set forth
in Sections 3(b) and 4(2) of the Securities Act, or any regulations promulgated
thereunder, relating to sales by an issuer not involving any public offering,
or (ii) in the case of certain options to purchase shares of common stock and
shares of common stock issued upon the exercise of such options, such offers
and sales were made in reliance upon an exemption from registration under Rule
701 of the Securities Act. No underwriters were involved in the foregoing sales
of securities.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of Prime
Response, as amended, as currently in effect
3.2* Form of Second Amended and Restated Certificate of Incorporation
of Prime Response, to be filed with the Secretary of State of the
State of Delaware and effective upon the effectiveness of the
registration statement
3.3* Form of Amendment to the Second Amended and Restated Certificate
of Incorporation of Prime Response to be filed with the Secretary
of State of the State of Delaware and effective upon the closing
of the offering
3.4 By-laws of Prime Response, as amended, as currently in effect
3.5* Form of Amended and Restated By-laws of Prime Response to be
effective upon the effectiveness of the offering
4.1* Specimen Certificate for shares of Common Stock of Prime Response
5.1* Opinion of Hale and Dorr LLP
10.1 1998 Stock Option/Stock Issuance Plan, with United Kingdom
Addendum
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.2 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Notice of Grant of Stock Option
10.3 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Stock Option Agreement, with Addendum
10.4 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Stock Purchase Agreement
10.5 1998 Stock Option/Stock Issuance Plan (United States) Form of
Notice of Grant of Stock Option
10.6 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Option Agreement, with Addendum
10.7 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Purchase Agreement, with Addendum
10.8 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Issuance Agreement, with Addendum
10.9 Stock Purchase Agreement dated as of October 1, 1997 by and among
Prime Response, General Atlantic Partners 42, L.P. and GAP
Coinvestment Partners, L.P.
10.10 Amendment No. 1 to Stock Purchase Agreement dated as of October
23, 1997
10.11 Stock Purchase Agreement dated as of September 21, 1998 by and
among Prime Response and certain other stockholders
10.12 Stock and Warrant Purchase Agreement dated as of March 2, 1999
among Prime Response, General Atlantic Partners 52, L.P. and GAP
Coinvestment Partners II, L.P.
10.13 Stock and Warrant Purchase Agreement dated as of July 15, 1999
among Prime Response, General Atlantic Partners 52, L.P. and GAP
Coinvestment Partners II, L.P.
10.14 Common Stock Purchase Warrant of Prime Response issued to General
Atlantic Partners 52, L.P. dated February 28, 1999
10.15 Common Stock Purchase Warrant of Prime Response issued to GAP
Coinvestment Partners II, L.P. dated February 28, 1999
10.16 Common Stock Purchase Warrant of Prime Response issued to General
Atlantic Partners 52, L.P. dated July 15, 1999
10.17 Common Stock Purchase Warrant of Prime Response issued to GAP
Coinvestment II, L.P. dated July 15, 1999
10.18 Amended and Restated Registration Rights Agreement among Prime
Response, General Atlantic Partners 42, L.P., GAP Coinvestment
Partners, L.P. and the Stockholders named therein dated December
6, 1999
10.19 Common Stock and Warrant Purchase Agreement dated as of December
6, 1999 by and among Prime Response, Andersen Consulting LLP and
AC Ventures B.V.
10.20 Warrant Purchase Agreement dated as of December 6, 1999 by and
between Prime Response and Andersen Consulting LLP
10.21 Common Stock Purchase Warrant No. AC-1 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
10.22 Common Stock Purchase Warrant No. AC-2 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
10.23 Common Stock Purchase Warrant No. AC-3 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
10.24 Marketing Agreement dated December 6, 1999 between Prime Response
and Andersen Consulting LLP
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.25 Consulting Services Agreement dated as of December 6, 1999 between
Prime Response and Andersen Consulting LLP
10.26 Loan and Security Agreement, with schedule, dated October 28, 1999
between Greyrock Capital and Prime Response U.S., Inc. (formerly,
Prime Response Inc.)
10.27 Security Agreement dated October 28, 1999 between Prime Response
U.S., Inc. (formerly, Prime Response Inc.) and Greyrock Capital
10.28 Continuing Guaranty dated October 28, 1999 by Prime Response U.S.,
Inc. (formerly, Prime Response Inc.) in favor of Greyrock Capital
10.29 Streamlined Facility Agreement dated October 28, 1999 between
Greyrock Capital and Prime Response U.S., Inc. (formerly, Prime
Response, Inc.)
10.30 Letter of Credit Agreement dated November 24, 1999 between
Greyrock Capital and Prime Response U.S., Inc.
10.31 Employment Agreement between Prime Response and Peter Boni dated
January 13, 1999
10.32* Employment Agreement between Prime Response and Paul Lavallee
dated October 22, 1999
10.33* Employment Agreement between Prime Response Limited and Allen
Swann dated February 2, 1998
10.34 Employment Agreement between Prime Response and Jamie Gunn dated
April 29, 1999
10.35* Employment Agreement between Prime Response and Frederick H.
Phillips dated October 21, 1999
10.36* Employment Agreement between Prime Response and James Carling
dated November 10, 1999
10.37* Office Lease and License Agreements for Denver Place Plaza Tower
between Prime Response U.S., Inc. (formerly, Prime Response Inc.)
and Denver-Stellar Associated Limited Partnership dated January
20, 1999
10.38* Office Lease, Subordination Agreement and Subsequent Amendments
for China Basin Landry Premises between Prime Response U.S., Inc.
(formerly, Prime Response Inc.) and BRE/CBL, LLC dated March 25,
1999
10.39* Office Lease for Goat Wharf Premises between Prime Response
Limited and PDFM Limited dated December 29, 1995
10.40* Draft Sub-Lease for Dundrum Business Park Premises between Prime
Response Limited and Teledynamics Ireland Limited dated January,
1999
10.41* Office Lease for Cambridge Park Drive premises between Prime
Response and Spaulding and Slye Services Limited Partnership
commencing June 1, 1999
10.42* Lease Agreement for Collins Street Business Centre between Prime
Response Pty. Ltd. and Merdene Pty. Ltd. dated November 24, 1999
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on the signature page of the
registration statement)
27.1 Financial Data Schedule
99.1 Consent of Marc McMorris
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's Financial
Statements or Notes thereto.
II-5
<PAGE>
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted form the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE>
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 Boston, Massachusetts, on this 9th
day of December, 1999.
Prime Response, Inc.
/s/ Peter J. Boni
By: _________________________________
Peter J. Boni
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Prime Response, Inc., hereby
severally constitute and appoint Peter J. Boni and John A. Burgess, and each of
them singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated below,
the Registration Statement on Form S-1 filed herewith and any and all pre-
effective and post-effective amendments to said Registration Statement, and any
subsequent Registration Statement for the same offering which may be filed
under Rule 462(b), and generally to do all such things in our names and on our
behalf in our capacities as officers and directors to enable Prime Response,
Inc. to comply with the provisions of the Securities Act of 1933, as amended,
and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Registration Statement and any and all
amendments thereto or to any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Peter J. Boni President, Chief Executive December 9, 1999
______________________________________ Officer and Director
Peter J. Boni (principal executive
officer)
/s/ Frederick H. Phillips Chief Financial Officer December 9, 1999
______________________________________ (principal accounting
Frederick H. Phillips officer)
/s/ Richard S. Braddock Director December 9, 1999
______________________________________
Richard S. Braddock
/s/ James Carling Director December 9, 1999
______________________________________
James Carling
/s/ William E. Ford Director December 9, 1999
______________________________________
William E. Ford
/s/ Terry Osborne Director December 9, 1999
______________________________________
Terry Osborne
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of Prime
Response, as amended, as currently in effect
3.2* Form of Second Amended and Restated Certificate of Incorporation
of Prime Response, to be filed with the Secretary of State of the
State of Delaware and effective upon the effectiveness of the
registration statement
3.3* Form of Amendment to the Second Amended and Restated Certificate
of Incorporation of Prime Response to be filed with the Secretary
of State of the State of Delaware and effective upon the closing
of the offering
3.4 By-laws of Prime Response, as amended, as currently in effect
3.5* Form of Amended and Restated By-laws of Prime Response to be
effective upon the effectiveness of the offering
4.1* Specimen Certificate for shares of Common Stock of Prime Response
5.1* Opinion of Hale and Dorr LLP
10.1 1998 Stock Option/Stock Issuance Plan, with United Kingdom
Addendum
10.2 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Notice of Grant of Stock Option
10.3 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Stock Option Agreement, with Addendum
10.4 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Stock Purchase Agreement
10.5 1998 Stock Option/Stock Issuance Plan (United States) Form of
Notice of Grant of Stock Option
10.6 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Option Agreement, with Addendum
10.7 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Purchase Agreement, with Addendum
10.8 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Issuance Agreement, with Addendum
10.9 Stock Purchase Agreement dated as of October 1, 1997 by and among
Prime Response, General Atlantic Partners 42, L.P. and GAP
Coinvestment Partners, L.P.
10.10 Amendment No. 1 to Stock Purchase Agreement dated as of October
23, 1997
10.11 Stock Purchase Agreement dated as of September 21, 1998 by and
among Prime Response and certain other stockholders
10.12 Stock and Warrant Purchase Agreement dated as of March 2, 1999
among Prime Response, General Atlantic Partners 52, L.P. and GAP
Coinvestment Partners II, L.P.
10.13 Stock and Warrant Purchase Agreement dated as of July 15, 1999
among Prime Response, General Atlantic Partners 52, L.P. and GAP
Coinvestment Partners II, L.P.
10.14 Common Stock Purchase Warrant of Prime Response issued to General
Atlantic Partners 52, L.P. dated February 28, 1999
10.15 Common Stock Purchase Warrant of Prime Response issued to GAP
Coinvestment Partners II, L.P. dated February 28, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.16 Common Stock Purchase Warrant of Prime Response issued to General
Atlantic Partners 52, L.P. dated July 15, 1999
10.17 Common Stock Purchase Warrant of Prime Response issued to GAP
Coinvestment II, L.P. dated July 15, 1999
10.18 Amended and Restated Registration Rights Agreement among Prime
Response, General Atlantic Partners 42, L.P., GAP Coinvestment
Partners, L.P. and the Stockholders named therein dated December
6, 1999
10.19 Common Stock and Warrant Purchase Agreement dated as of December
6, 1999 by and among Prime Response, Andersen Consulting LLP and
AC Ventures B.V.
10.20 Warrant Purchase Agreement dated as of December 6, 1999 by and
between Prime Response and Andersen Consulting LLP
10.21 Common Stock Purchase Warrant No. AC-1 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
10.22 Common Stock Purchase Warrant No. AC-2 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
10.23 Common Stock Purchase Warrant No. AC-3 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
10.24 Marketing Agreement dated December 6, 1999 between Prime Response
and Andersen Consulting LLP
10.25 Consulting Services Agreement dated as of December 6, 1999 between
Prime Response and Andersen Consulting LLP
10.26 Loan and Security Agreement, with schedule, dated October 28, 1999
between Greyrock Capital and Prime Response U.S., Inc. (formerly,
Prime Response Inc.)
10.27 Security Agreement dated October 28, 1999 between Prime Response
U.S., Inc. (formerly, Prime Response Inc.) and Greyrock Capital
10.28 Continuing Guaranty dated October 28, 1999 by Prime Response U.S.,
Inc. (formerly, Prime Response Inc.) in favor of Greyrock Capital
10.29 Streamlined Facility Agreement dated October 28, 1999 between
Greyrock Capital and Prime Response U.S., Inc. (formerly, Prime
Response, Inc.)
10.30 Letter of Credit Agreement dated November 24, 1999 between
Greyrock Capital and Prime Response U.S., Inc.
10.31 Employment Agreement between Prime Response and Peter Boni dated
January 13, 1999
10.32* Employment Agreement between Prime Response and Paul Lavallee
dated October 22, 1999
10.33* Employment Agreement between Prime Response Limited and Allen
Swann dated February 2, 1998
10.34 Employment Agreement between Prime Response and Jamie Gunn dated
April 29, 1999
10.35* Employment Agreement between Prime Response and Frederick H.
Phillips dated October 21, 1999
10.36* Employment Agreement between Prime Response and James Carling
dated November 10, 1999
10.37* Office Lease and License Agreements for Denver Place Plaza Tower
between Prime Response U.S., Inc. (formerly, Prime Response Inc.)
and Denver-Stellar Associated Limited Partnership dated January
20, 1999
10.38* Office Lease, Subordination Agreement and Subsequent Amendments
for China Basin Landry Premises between Prime Response U.S., Inc.
(formerly, Prime Response Inc.) and BRE/CBL, LLC dated March 25,
1999
10.39* Office Lease for Goat Wharf Premises between Prime Response
Limited and PDFM Limited dated December 29, 1995
10.40* Draft Sub-Lease for Dundrum Business Park Premises between Prime
Response Limited and Teledynamics Ireland Limited dated January,
1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.41* Office Lease for Cambridge Park Drive premises between Prime
Response and Spaulding and Slye Services Limited Partnership
commencing June 1, 1999
10.42* Lease Agreement for Collins Street Business Centre between Prime
Response Pty. Ltd. and Merdene Pty. Ltd. dated November 24, 1999
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on the signature page of the
registration statement)
27.1 Financial Data Schedule
99.1 Consent of Marc McMorris
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PRIME RESPONSE GROUP INC.
PRIME RESPONSE GROUP Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in Delaware
under the name PRIME RESPONSE GROUP Inc. and the date of its filing of its
original Certificate of Incorporation with the Secretary of State of the State
of Delaware was September 26, 1997.
SECOND: That the Board of Directors fully adopted resolutions
proposing to amend and restate the Certificate of Incorporation of the
Corporation, declaring said amendment and restatement to be advisable and in the
best interests of the Corporation and its stockholders, and authorizing the
appropriate officers of the Corporation to solicit the consent of the
stockholders of the issued and outstanding Common Stock, par value $.01 per
share (the "Common Stock"), Series A Convertible Participating Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock"), Series B Convertible
Participating Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock") and Series C Convertible Preferred Stock, par value $.01 per share (the
"Series C Preferred Stock"), in accordance with the applicable provisions of
Sections 228, 242 and 245 of the General Corporation Law;
THIRD: That the resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended and restated in its entirety as follows:
<PAGE>
2
ARTICLE I
NAME
The name of the corporation is PRIME RESPONSE GROUP Inc. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office is
1209 Orange Street, in the City of Wilmington, County of New Castle, State of
Delaware; and its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law.
ARTICLE IV
CAPITAL STOCK
The Corporation is authorized to issue two classes of stock to be
designated respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is Forty-Five Million
(45,000,000) shares. Thirty-Seven Million (37,000,000) shares shall be
designated as Common Stock, par value $.01 per share (the "Common Stock"), and
Eight Million (8,000,000) shares shall be designated as Preferred Stock, par
value $.01 per share (the "Preferred Stock").
The Preferred Stock shall be divided into three series. The first
series shall consist of One Million One Hundred Fifty-Five Thousand (1, 155,000)
shares designated as Series A Convertible Participating Preferred Stock having
the powers, designations, preferences and rights set forth in Article IV(B)
below (the "Series A Preferred Stock"), the second series shall consist of One
Million Seven Hundred Thousand (1,700,000) shares designated as Series B
Convertible Participating Preferred Stock having the powers, designations,
preferences and rights set forth in Article IV(B) below (the "Series B Preferred
Stock"), the third series shall consist of Three Million (3,000,000) shares
designated as Series C Convertible Participating Preferred Stock having the
powers, designations, preferences and rights set forth in
<PAGE>
3
Article IV(B) below (the "Series C Preferred Stock"), and the remaining Two
Million One Hundred Forty-Five Thousand (2,145,000) shares of Preferred Stock
shall be undesignated as of the date hereof (the "Undesignated Preferred Stock")
and may be designated with powers, preferences and rights in accordance with
Article IV(B) below.
All references in this Article IV to Sections hereof shall be
references to Sections of Article IV(B), unless otherwise stated or required by
the context. The designation, relative rights, preferences and limitations of
the shares of each class and series are as follows:
A. Common Stock.
------------
1. Rank. The Common Stock shall, with respect to the distribution
----
of assets and rights upon a Liquidation, Merger or Sale rank junior to (a) the
Series A Preferred Stock, (b) the Series B Preferred Stock, (c) the Series C
Preferred Stock and (d) all classes or series of Capital Stock of the Company
hereafter created which rank senior to the Common Stock.
2. Dividends. The holders of Common Stock shall be entitled to
---------
receive dividends, if any, out of funds legally available therefor only at such
times and in such amounts as the Board of Directors may determine in its sole
discretion.
3. Voting Rights. The holder of each share of Common Stock shall be
-------------
entitled to one vote for each such share as determined on the record date for
the vote or consent of stockholders and shall vote together with the holders of
the Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock as a single class upon any items submitted to a vote of
stockholders, except to the extent that the Series A Preferred Stock, the Series
B Preferred Stock and/or the Series C Preferred Stock is entitled to vote as a
separate class under the General Corporation Law or as otherwise provided
herein.
B. Preferred Stock.
---------------
1. Undesignated Preferred Stock. Shares of Undesignated Preferred
----------------------------
Stock may be issued from time to time in one or more series of any number of
shares, provided that the aggregate number of such shares of Preferred Stock
issued and not cancelled of any and all such series shall not exceed the total
number of such shares of Preferred Stock hereinabove authorized, and with
distinctive serial designations, all as shall hereafter be stated and expressed
in the resolution or resolutions providing for the issue of such shares of
Preferred Stock from time to time adopted by the Board of Directors pursuant to
authority so to do which is hereby vested in the Board of Directors. Each
series of shares of Preferred Stock may have such voting powers, full or
limited, or may be without voting power and may have such powers, designations
and preferences, and such relative, participating, optional or other special
rights, and such qualifications, limitations or restrictions as shall be
<PAGE>
4
stated in said resolution or resolutions providing for the issuance of such
shares of Preferred Stock and as may be permitted by the General Corporation
Law. Any of the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of any such series of Preferred
Stock may be made dependent upon facts ascertainable outside of the resolution
or resolutions providing for the issue of such Preferred Stock adopted by the
Board of Directors pursuant to the authority vested in it by this Article
IV(B)(1), provided that the manner in which such facts shall operate upon the
voting powers, designations, preferences, rights and qualifications, limitations
or restrictions of such series of Preferred Stock is clearly and expressly set
forth in the resolution or resolutions providing for the issuance of such
Preferred Stock. The term "facts" as used in the next preceding sentence shall
have the meaning given to it in Section 151(a) of the General Corporation Law.
Shares of Preferred Stock of any series that have been redeemed (whether through
the operation of a sinking fund or otherwise) or that if convertible or
exchangeable, have been converted into or exchanged for shares of any other
class or classes shall have the status of authorized and unissued shares of
Preferred Stock of the same series and may be reissued as a part of the series
of which they were originally a part or may be reclassified and reissued as part
of a new series of shares of Preferred Stock to be created by resolution or
resolutions of the Board of Directors or as part of any other series of shares
of Preferred Stock, all subject to the conditions or restrictions on issuance
set forth in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of a series of shares of Preferred Stock.
2. Rank.
----
(a) With respect to distributions of assets and rights upon the
occurrence of a Liquidation, the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock shall rank (a) pari passu with
---- -----
each other and (b) senior to (i) all classes of common stock of the Corporation
(including, without limitation, the Common Stock) and (ii) each other class or
series of Capital Stock of the Corporation hereafter created which does not
expressly rank pari passu with or senior to the Series A Preferred Stock, the
---- -----
Series B Preferred Stock and the Series C Preferred Stock (the "Junior Stock").
(b) With respect to payment of the Automatic Conversion Payment
upon the occurrence of a Sale, a Merger or the Initial Public Offering, the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock shall rank pari passu with each other and senior to the Junior
---- -----
Stock.
3. Dividends.
---------
(a) Series A Preferred Stock and Series B Preferred Stock. The
-----------------------------------------------------
holders of shares of Series A Preferred Stock shall be entitled to receive, out
of funds legally available therefor, dividends at an annual rate equal to 8% of
the Series A Liquidation Preference, and the holders of shares of Series B
Preferred Stock shall be entitled to receive, out of funds legally available
therefor, dividends at
<PAGE>
5
an annual rate equal to 8% of the Series B Liquidation Preference, in each case
calculated on the basis of a 360-day year, consisting of twelve 30-day months,
and shall accrue on a daily basis from the date of issuance thereof, whether or
not declared. The Series A Preferred Stock and the Series B Preferred Stock
shall rank pari passu with respect to such dividends and such dividends shall be
---- -----
paid to the holders of the Series A Preferred Stock and the holders of the
Series B Preferred Stock on a pro rata basis. All accrued and unpaid dividends
shall, to the extent funds are legally available therefor, be mandatorily paid
immediately prior to the earlier to occur of (i) a Liquidation, (ii) an optional
conversion of shares of Series A Preferred Stock pursuant to Section 7(a) below,
(iii) an optional conversion of shares of Series B Preferred Stock pursuant to
Section 7(a) below and (iv) an automatic conversion of shares of Series A
Preferred Stock and shares of Series B Preferred Stock pursuant to Section 7(b)
below (the "Dividend Payment Date"). On the Dividend Payment Date, all accrued
dividends shall be paid, (x) in the case of a Liquidation, in cash, (y) in the
case of the Initial Public Offering, in shares of Common Stock, and (z) in the
case of a Merger, Sale or optional conversion of shares of Series A Preferred
Stock or Series B Preferred Stock, as the case may be, pursuant to Section 7(a)
below, in shares of Common Stock or in cash, as determined by the Board of
Directors in the exercise of their fiduciary duties. If dividends are to be
paid in shares of Common Stock pursuant to the preceding sentence, the value of
such shares shall be determined, (A) in the case of the Initial Public Offering,
Merger (other than as set forth in clause (B), below) or Sale, by the net per
share price paid for shares of Common Stock in such Initial Public Offering,
Merger or Sale or (B) in the case of a Merger in which no per share price is
paid for shares of Common Stock or in the case of an optional conversion of
shares of Series A Preferred Stock or Series B Preferred Stock, as the case may
be, pursuant to Section 7(a) below, mutually by the Board of Directors and the
holders of a majority of the shares of Series A Preferred Stock or a majority of
the shares of Series B Preferred Stock, as the case may be, or, if the Board of
Directors and the holders of a majority of the shares of Series A Preferred
Stock or a majority of the shares of Series B Preferred Stock, as the case may
be, shall fail to agree, at the Corporation's expense by an appraiser chosen by
the Board of Directors and reasonably acceptable to the holders of a majority of
the shares of Series A Preferred Stock or a majority of the shares of Series B
Preferred Stock, as the case may be.
(b) Series C Preferred Stock. The holders of shares of Series C
------------------------
Preferred Stock shall not be entitled to receive dividends except in accordance
with this Section 3. If the Corporation declares and pays dividends or
distributions on the Common Stock, then, in that event, the holders of shares of
Series C Preferred Stock shall be entitled to share in such dividends on a pro
rata basis, as if their shares had been converted into shares of Common Stock
pursuant to Section 7(a) immediately prior to the record date for determining
the stockholders of the Corporation eligible to receive such dividends.
<PAGE>
6
4. Liquidation Preference.
----------------------
(a) Priority Payment. Upon the occurrence of a Liquidation, (i)
----------------
the holders of shares of Series A Preferred Stock shall be entitled to be paid
for each share of Series A Preferred Stock held thereby out of, but only to the
extent of, the assets of the Corporation legally available for distribution to
its stockholders, an amount equal to $20.52 (the "Series A Liquidation
Preference") plus, as provided in Section 3(a) above, all accrued and unpaid
dividends, if any, with respect to each share of Series A Preferred Stock, (ii)
the holders of shares of Series B Preferred Stock shall be entitled to be paid
for each share of Series B Preferred Stock held thereby, out of, but only to the
extent of, the assets of the Corporation legally available for distribution to
its stockholders, an amount equal to $6.00 (the "Series B Liquidation
Preference") plus, as provided in Section 3(a) above, all accrued and unpaid
dividends, if any, with respect to each share of Series B Preferred Stock, and
(iii) the holders of shares of Series C Preferred Stock shall be entitled to be
paid for each share of Series C Preferred Stock held thereby out of, but only to
the extent of, the assets of the Corporation legally available for distribution
to its stockholders, an amount equal to $3.00 (the "Series C Liquidation
Preference") plus, as provided in Section 3(b) above, all accrued and unpaid
dividends, if any, with respect to each share of Series C Preferred Stock, in
each case before any payment or distribution is made to any Junior Stock. Such
payment of the Series A Liquidation Preference, the Series B Liquidation
Preference and the Series C Liquidation Preference to the holders of the shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, respectively, shall be made pro rata. If the assets of the Corporation
available for distribution to the holders of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall be insufficient to permit
payment in full to such holders of the sums which such holders are entitled to
receive in such case, then all of the assets available for distribution to
holders of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock shall be distributed among and paid to such holders
ratably in proportion to the amounts that would be payable to such holders if
such assets were sufficient to permit payment in full.
(b) Participating Payment. Upon the completion of the
---------------------
distribution required by Section 4(a) above and any other distribution to any
other class or series of Capital Stock of the Corporation ranking senior to the
Common Stock, if assets remain in the Corporation, the remaining assets of the
Corporation available for distribution to stockholders shall be distributed
among the holders of the Series A Preferred Stock, the holders of the Series B
Preferred Stock, the holders of Series C Preferred Stock, the holders of any
other series of Preferred Stock entitled to this participating payment and the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each (assuming the conversion of all such Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock in accordance with Section
7(a) and the conversion of all such other Preferred Stock).
<PAGE>
7
(c) Notice. Written notice of a Liquidation stating a payment or
------
payments and the place where such payment or payments shall be payable, shall be
delivered in person, mailed by certified mail, return receipt requested, mailed
by overnight mail or sent by telecopier, not less than ten (10) days prior to
the earliest payment date stated therein, to the holders of record of each of
the Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock, such notice to be addressed to each such holder at its address
as shown by the records of the Corporation.
5. Redemption. The shares of Series A Preferred Stock, Series B
----------
Preferred Stock and Series C Preferred Stock shall not be redeemed or subject to
redemption, whether at the option of the Corporation or any holder thereof, or
otherwise.
6. Voting Rights.
-------------
(a) The holders of Series A Preferred Stock, the holders of
Series B Preferred Stock and the holders of Series C Preferred Stock, except as
otherwise required under Delaware law or as set forth in subsections (b) and (c)
below, shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the stockholders of the Corporation.
(b) Each outstanding share of Series A Preferred Stock, each
outstanding share of Series B Preferred Stock and each outstanding share of
Series C Preferred Stock shall entitle the holder thereof to vote, in person or
by proxy, at a special or annual meeting of stockholders, on all matters
entitled to be voted on by holders of Common Stock voting together as a single
class with the Common Stock (and with other shares entitled to vote thereon, if
any). With respect to any such vote, each share of Series A Preferred Stock,
each share of Series B Preferred Stork and each share of Series C Preferred
Stock shall entitle the holder thereof to cast that number of votes per share as
is equal to the number of votes that such holder would be entitled to cast had
such holder converted its shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, as the case may be, into shares of Common
Stock pursuant to Section 7(a) on the record date for determining the
stockholders of the Corporation eligible to vote on any such matters.
(c) If General Atlantic Partners 42, L.P., GAP Coinvestment
Partners, L.P. and/or any Affiliate thereof in the aggregate own (i) both (x) at
least a majority of the outstanding shares of Series A Preferred Stock and (y)
shares of Common Stock and/or Series A Preferred Stock or other securities of
the Corporation convertible into or exchangeable for shares of Common Stock that
represent (after giving effect to any adjustments) at least 10% of the total
number of shares of Common Stock outstanding on an as converted basis, then the
holders of the Series A Preferred Stock, voting as a separate class, shall be
entitled to elect two directors of the Corporation or (ii) both (x) at least a
majority of the outstanding shares of Series A Preferred Stock and (y) shares of
Common Stock and/or Series A Preferred
<PAGE>
8
Stock or other securities of the Corporation convertible into or exchangeable
for shares of Common Stock that represent (after giving effect to any
adjustments) less than 10 % but at least 5 % of the total number of shares of
Common Stock outstanding on an as converted basis, then the holders of the
Series A Preferred Stock, voting as a separate class, shall be entitled to elect
one director of the Corporation. The Series A Preferred Stock shall vote
together as a single class with the Common Stock (and all other classes and
series of stock of the Corporation entitled to vote thereon, if any) with
respect to the election of all of the other directors of the Corporation. If
the conditions set forth in the first sentence of this Section 6(c) necessary
for the holders of the Series A Preferred Stock to vote as a separate class for
the election of directors are not satisfied, the Series A Preferred Stock shall
vote together as a single class with the Common Stock (and all other classes and
series of stock of the Corporation entitled to vote thereon, if any) with
respect to the election of all of the directors of the Corporation elected by
such holders. At any meeting held for the purpose of electing directors at a
time when the Series A Preferred Stock is entitled to vote as a separate class
for the election of directors, the presence in person or by proxy of the holders
of a majority of the shares of Series A Preferred Stock then outstanding shall
constitute a quorum of the Series A Preferred Stock for the election of the
directors to be elected solely by the holders of the Series A Preferred Stock;
the holders of Series A Preferred Stock shall be entitled to cast one vote per
share of Series A Preferred Stock in any such election; and the directors to be
elected exclusively by the holders of Series A Preferred Stock shall be elected
by the affirmative vote of the holders of a majority of the outstanding shares
of Series A Preferred Stock. A vacancy in a directorship filled by the holders
of the Series A Preferred Stock voting as a separate class pursuant to this
Section 6(c) shall be filled only by vote or written consent of the holders of
the Series A Preferred Stock.
7. Conversion.
----------
(a) Optional Conversion. Any holder of Series A Preferred Stock,
-------------------
any holder of Series B Preferred Stock and any holder of Series C Preferred
Stock shall have the right, at its option, at any time and from time to time, to
convert, subject to the terms and provisions of this Section 7, (i) any or all
of such holder's shares of Series A Preferred Stock into such number of fully
paid and non-assessable shares of Common Stock as is equal to the product of the
number of shares of Series A Preferred Stock being so converted multiplied by
the quotient of (x) $20.52 divided by (y) the conversion price of $4.919774352
per share, subject to adjustment as provided in Section 7(d) (such price, the
"Series A Conversion Price"), (ii) any or all of such holder's shares of Series
B Preferred Stock into such number of fully paid and non-assessable shares of
Common Stock as is equal to the product of the number of shares of Series B
Preferred Stock being so converted multiplied by the quotient of (x) $6.00
divided by (y) the conversion price of $5.726289107 per share, subject to
adjustment as provided in Section 7(d) (such price, the "Series B Conversion
Price") and (iii) any or all of such holder's shares of Series C Preferred Stock
into such number of fully paid and non-assessable shares of Common Stock as is
equal to the product of the number of shares of Series C Preferred Stock being
so
<PAGE>
9
converted multiplied by the quotient of (x) $3.00 divided by (y) the conversion
price of $3.00 per share, subject to adjustment as provided in Section 7(d)
(such price, the "Series C Conversion Price"). Such conversion right shall be
exercised by the surrender of certificate(s) representing the shares of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the
case may be, to be converted to the Corporation at any time during usual
business hours at its principal place of business to be maintained by it (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to the holders of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock), accompanied by written notice
that the holder elects to convert such shares of Series A Preferred Stock, such
shares of Series B Preferred Stock or such shares of Series C Preferred Stock,
as the case may be, and specifying the name or names (with address) in which a
certificate or certificates for shares of Common Stock are to be issued and (if
so required by the Corporation) by a written instrument or instruments of
transfer in form reasonably satisfactory to the Corporation duly executed by the
holder or its duly authorized legal representative and transfer tax stamps or
funds therefor, if required pursuant to Section 7(j). All certificates
representing shares of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, as the case may be, surrendered for conversion shall
be delivered to the Corporation for cancellation and canceled by it. As
promptly as practicable after the surrender of any shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be,
the Corporation shall (subject to compliance with the applicable provisions of
federal and state securities laws) deliver to the holder of such shares so
surrendered certificate(s) representing the number of fully paid and
nonassessable shares of Common Stock into which such shares are entitled to be
converted and, to the extent funds are legally available therefor, an amount
equal to the accrued and unpaid dividends payable with respect to such shares in
accordance with Section 3(a) or Section 3(b) above, as the case may be. At the
time of the surrender of such certificate(s), the Person in whose name any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to be the holder of record of such shares of Common Stock on
such date, notwithstanding that the share register of the Corporation shall then
be closed or that the certificates representing such Common Stock shall not then
be actually delivered to such Person.
(b) Automatic Conversion. Immediately prior to the closing of
--------------------
the initial Public Offering, a Merger or a Sale, each outstanding share of
Series A Preferred Stock, each outstanding share of Series B Preferred Stock and
each outstanding share of Series C Preferred Stock shall be automatically
converted, with no further action required to be taken by the Corporation or the
holder thereof, into the following:
(i) The Automatic Conversion Payment; and
(ii) The Equity Percentage.
<PAGE>
10
Such Automatic Conversion Payment shall be in addition to and not in
lieu of dividends payable in accordance with Section 3 above and shall be
payable, to the extent funds are legally available therefor, (x) in the case of
the Initial Public Offering, in shares of Common Stock or (y) in the case of a
Merger or a Sale, in cash or, at the option of the Corporation, in securities of
the Corporation or the surviving Person (in the case of a Merger) or other
consideration received by the holders of shares of the Common Stock. If the
Automatic Conversion Payment is to be paid in shares of Common Stock, the value
of such shares of Common Stock shall be determined as provided in the last
sentence of Section 3(a) above. Any securities of the surviving Person or
securities of the Corporation other than Common Stock otherwise to be delivered
to the holders of Series A Preferred Stock, the holders of the Series B
Preferred Stock and the holders of Series C Preferred Stock pursuant to this
Section 7(b) shall be valued as follows:
(i) With respect to securities that do not constitute
"restricted securities," as such term is defined in Rule 144(a)(3) promulgated
under the Securities Act, the value shall be deemed to be the Current Market
Price of such securities as of three days prior to the date of distribution.
(ii) With respect to securities that constitute "restricted
securities, " as such term is defined in Rule 144(a)(3) promulgated under the
Securities Act, and that are of the same class or series as securities that are
publicly traded, the value shall be adjusted to make an appropriate discount
from the value as set forth above in clause (i) to reflect the appropriate fair
market value thereof, as mutually determined by the Board of Directors and the
holders of a majority of the shares of Series A Preferred Stock, the holders of
a majority of the shares of Series B Preferred Stock or the holders of a
majority of the shares of Series C Preferred Stock, as the case may be, or if
there is no active public market with respect to such class or series of
securities, such securities shall be valued in accordance with clause (i) above,
giving appropriate weight, if any, to such restriction as mutually determined by
the Board of Directors and the holders of a majority of the shares of Series A
Preferred Stock, the holders of a majority of the shares of Series B Preferred
Stock or the holders of a majority of the shares of Series C Preferred Stock, as
the case may be, or if the Board of Directors and the holders of a majority of
the shares of Series A Preferred Stock, the holders of a majority of the shares
of Series B Preferred Stock or the holders of a majority of the shares of Series
C Preferred Stock, as the case may be, shall fail to agree, at the Corporation's
expense by an appraiser chosen by the Board of Directors and reasonably
acceptable to the holders of a majority of the shares of Series A Preferred
Stock, the holders of a majority of the shares of Series B preferred Stock or
the holders of a majority of the shares of Series C Preferred Stock, as the case
may be.
If the Automatic Conversion Payment is to be paid in other
consideration received by holders of shares of the Common Stock, the value of
such other consideration shall be mutually determined by the Board of Directors
and the holders of a majority of the shares of Series A Preferred Stock, the
holders of a
<PAGE>
11
majority of the shares of Series B Preferred Stock or the holders of a majority
of the shares of Series C Preferred Stock, as the case may be, or, if the Board
of Directors and the holders of a majority of the shares of Series A Preferred
Stock, the holders of a majority of the shares of Series B Preferred Stock or
the holders of a majority of the shares of Series C Preferred Stock, as the case
may be, shall fail to agree, at the Corporation's expense by an appraiser chosen
by the Board of Directors and reasonably acceptable to the holders of a majority
of the shares of Series A Preferred Stock, the holders of a majority of the
shares of Series B Preferred Stock or the holders of a majority of the shares of
Series C Preferred Stock, as the case may be.
Immediately upon conversion as provided herein, each holder of Series
A Preferred Stock, each holder of Series B Preferred Stock and each holder of
Series C Preferred Stock shall be deemed to be the holder of record of the
Common Stock issuable upon conversion of such holder's Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, as the case may be,
notwithstanding that the share register of the Corporation shall then be closed
or that certificates representing the Common Stock shall not then actually be
delivered to such Person. Upon notice from the Corporation, each holder of
Series A Preferred Stock, each holder of Series B Preferred Stock and each
holder of Series C Preferred Stock so converted shall promptly surrender to the
Corporation at its principal place of business to be maintained by it (or at
such other office or agency of the Corporation as the Corporation may designate
by such notice to the holders of Series A Preferred Stork, Series B Preferred
Stock and Series C Preferred Stock) certificates representing the shares so
converted.
(c) Termination of Rights. On the date of such optional
---------------------
conversion pursuant to Section 7(a) above or of such automatic conversion
pursuant to Section 7(b) above, all rights with respect to the shares of Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock so
converted, including the rights, if any, to receive notices and vote, shall
terminate, except only the rights of holders thereof to (i) receive certificates
for the number of shares of Common Stock into which such shares of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the
case may be, have been converted, (ii) receive the Automatic Conversion Payment
in the case of an automatic conversion pursuant to Section 7(b) above, (iii) the
payment of dividends pursuant to Section 3 above and (iv) exercise the rights to
which they are entitled as holders of Common Stock.
(d) Anti-dilution Adjustments. The Series A Conversion Price,
-------------------------
the Series B Conversion Price and the Series C Conversion Price and the number
and type of securities to be received upon conversion of the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock, shall be
subject to adjustment as follows:
(i) Dividend, Subdivision, Combination or Reclassification
--------------------------------------------------------
of Common Stock. In the event that the Corporation shall at any time or from
- ---------------
time to time, prior to conversion of the Series A Preferred Stock, the
<PAGE>
12
Series B Preferred Stock and the Series C Preferred Stock, as the case may be,
(w) pay a dividend or make a distribution (other than a dividend or distribution
paid or made to holders of shares of Series A Preferred Stock, the holders of
shares of Series B Preferred Stock and the holders of shares of Series C
Preferred Stock, or in which holders of such shares participate, in the manner
provided in Section 3 hereof) on the outstanding shares of Common Stock payable
in Capital Stock, (x) subdivide the outstanding shares of Common Stock into a
larger number of shares, (y) combine the outstanding shares of Common Stock into
a smaller number of shares or (z) issue any shares of its Capital Stock in a
reclassification of the Common Stock (other than any such event for which an
adjustment is made pursuant to another clause of this Section 7(d)), then, and
in each such case, the Series A Conversion Price, the Series B Conversion Price
and the Series C Conversion Price in effect immediately prior to such event
shall be adjusted (and any other appropriate actions shall be taken by the
Corporation) so that the holder of any share of Series A Preferred Stock, the
holder of any share of Series B Preferred Stock and the holder of any share of
Series C Preferred Stock, respectively, thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock or other
securities of the Corporation that such holder would have owned or would have
been entitled to receive upon or by reason of any of the events described above,
had such share of Series A Preferred Stock, such share of Series B Preferred
Stock and such share of Series C Preferred Stock been converted immediately
prior to the occurrence of such event. An adjustment made pursuant to this
Section 7(d)(i) shall become effective retroactively (x) in the case of any such
dividend or distribution, to a date immediately following the close of business
on the record date for the determination of holders of Common Stock entitled to
receive such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
(ii) Issuance of Rights to Purchase Common Stock below
-------------------------------------------------
Conversion Price. If the Corporation shall at any time or from time to time
- ----------------
prior to conversion of the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock, issue or sell any shares of Common Stock
or Common Stock Equivalents at a price per share (the "New Issue Price") of
Common Stock that is less than the Series A Conversion Price, the Series B
Conversion Price or the Series C Conversion Price then in effect as of the
record date or Issue Date referred to in the following sentence, as the case may
be (the "Relevant Date") (treating the price per share of Common Stock, in the
case of the issuance of any Common Stock Equivalent, as equal to (x) the sum of
the price for such Common Stock Equivalent plus any additional consideration
payable (without regard to any anti-dilution adjustments) upon the conversion,
exchange or exercise of such Common Stock Equivalent divided by (y) the number
of shares of Common Stock initially underlying such Common Stock Equivalent),
other than (A) issuances or sales for which an adjustment is made pursuant to
another paragraph of this Section 7(d) and (B) issuances of Common Stock in
connection with an Excluded Transaction, then, and in each Such case, to the
----
extent that such Series A Conversion Price, Series B Conversion Price or Series
C Conversion Price is less than the New Issue Price, such
<PAGE>
13
Series A Conversion Price, Series B Conversion Price and/or Series C Conversion
Price, as the case may be, then in effect shall be adjusted by multiplying such
-----------
Series A Conversion Price, Series B Conversion Price or Series C Conversion
Price, as the case may be, in effect on the day immediately prior to the
Relevant Date by a fraction (I) the numerator of which shall be the sum of the
number of shares of Common Stock outstanding on the Relevant Date plus the
----
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of such additional shares of Common Stock
so issued would purchase at such Series A Conversion Price, Series B Conversion
Price or Series C Conversion Price, as the case may be, on the Relevant Date
(or, in the case of Common Stock Equivalents, the number of shares of Common
Stock into which such Common Stock Equivalents may convert, exchange or be
exercised plus the number of shares of Common Stock which the aggregate amount
of any additional consideration initially payable upon conversion, exchange or
exercise of such Common Stock Equivalents would purchase at such Series A
Conversion Price, Series B Conversion Price or Series C Conversion Price, as the
case may be, on the Relevant Date) and (II) the denominator of which shall be
the sum of the number of shares of Common Stock outstanding on the Relevant Date
plus the number of additional shares of Common Stock issued or to be issued (or,
- ----
in the case of Common Stock Equivalents, the maximum number of shares of Common
Stock into which such Common Stock Equivalents initially may convert, exchange
or be exercised). Such adjustment shall be made whenever such shares of Common
Stock or Common Stock Equivalents are issued, and shall become effective
retroactively (x) in the case of an issuance to the stockholders of the
Corporation, as such, to a date immediately following the close of business on
the record date for the determination of stockholders entitled to receive such
shares of Common Stock or Common Stock Equivalents and (y) in all other cases,
on the date (the "Issue Date") of such issuance; provided, however, that if any
-------- -------
Common Stock Equivalents (or any portions thereof) which shall have given rise
to an adjustment pursuant to this Section 7(d)(ii) shall have expired or
terminated without the exercise thereof and/or if by reason of the terms of such
Common Stock Equivalents there shall have been an increase or increases, with
the passage of time or otherwise, in the price payable upon the exercise or
conversion thereof, then such Series A Conversion Price, Series B Conversion
Price or Series C Conversion Price, as the case may be, hereunder shall be
readjusted (but to no greater extent than originally adjusted) in order to (A)
eliminate from the computation any additional shares of Common Stock
corresponding to such Common Stock Equivalents as shall have expired or
terminated, (B) treat the additional shares of Common Stock, if any, actually
issued or issuable pursuant to the previous exercise of such Common Stock
Equivalents as having been issued for the consideration actually received and
receivable therefor and (C) treat any of such Common Stock Equivalents which
remain outstanding as being subject to exercise or conversion on the basis of
such exercise or conversion price as shall be in effect at the time.
(iii) Certain Distributions. In case the Corporation
---------------------
shall at any time or from time to time, prior to conversion of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock,
distribute to all holders
<PAGE>
14
of shares of the Common Stock (including any such distribution made in
connection with a merger or consolidation in which the Corporation is the
resulting or surviving Person and the Common Stock is not changed or exchanged)
cash, evidences of indebtedness of the Corporation or another issuer, securities
of the Corporation or another issuer or other assets (excluding dividends or
distributions paid or made to holders of shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock, or in which holders of
such shares participate, in the manner provided in Section 3 hereof, dividends
payable in shares of Common Stock for which adjustment is made under another
paragraph of this Section 7(d) and any distribution in connection with an
Excluded Transaction) or rights or warrants to subscribe for or purchase
securities of the Corporation (excluding those distributions in respect of which
an adjustment in such Series A Conversion Price, Series B Conversion Price and
Series C Conversion Price is made pursuant to another paragraph of this Section
7(d) and any distribution in connection with an Excluded Transaction), then, and
in each such case, the Series A Conversion Price, the Series B Conversion Price
and the Series C Conversion Price then in effect shall be adjusted (and any
other appropriate actions shall be taken by the Corporation) by multiplying such
Series A Conversion Price, Series B Conversion Price and Series C Conversion
Price in effect immediately prior to the date of such distribution by a fraction
(x) the numerator of which shall be the Current Market Price of the Common Stock
immediately prior to the date of distribution less the then fair market value
(as determined by the Board of Directors in the exercise of their fiduciary
duties) of the portion of the cash, evidences of indebtedness, securities or
other assets so distributed or of such rights or warrants applicable to one
share of Common Stock and (y) the denominator of which shall be the Current
Market Price of the Common Stock immediately prior to the date of distribution
(but such fraction shall not be greater than one); provided, however, that no
-------- -------
adjustment shall be made with respect to any distribution of rights or warrants
to subscribe for or purchase securities of the Corporation if the holder of
shares of Series A Preferred Stock, the holder of shares of Series B Preferred
Stock and the holder of shares of Series C Preferred Stock, as the case may be,
would otherwise be entitled to receive such rights or warrants upon conversion
at any time of such shares of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock into Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective retroactively
to a date immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution.
(iv) Other Changes. In case the Corporation at any time or
-------------
from time to time, prior to the conversion of the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock, shall take any action
affecting its Common Stock similar to or having an effect similar to any of the
actions described in any of Sections 7(d)(i) through (iii) or Section 7(g) (but
not including any action described in any such Section) and the Board of
Directors in good faith determines that it would be equitable in the
circumstances to adjust the Series A Conversion Price, Series B Conversion Price
and/or the Series C Conversion Price as a result of such action, then, and in
each such case, the Series A Conversion Price,
<PAGE>
15
Series B Conversion Price and/or the Series C Conversion Price shall be adjusted
in such manner and at such time as the Board of Directors in good faith
determines would be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed to the
holders of the shares of Series A Preferred Stock, the holders of shares of
Series B Preferred Stock and the holders of shares of Series C Preferred Stock).
(v) De Minimis Adjustments. Notwithstanding anything
----------------------
herein to the contrary, no adjustment under this Section 7(d) need be made to
the Series A Conversion Price, the Series B Conversion Price or the Series C
Conversion Price, as the case may be, (A) if the Corporation receives written
notice from holders of all of the outstanding shares of Series A Preferred
Stock, all of the outstanding shares of Series B Preferred Stock or all of the
outstanding shares of Series C Preferred Stock, as the case may be, that no such
adjustment is required or (B) unless such adjustment would require an increase
or decrease of at least 1% of the Series A Conversion Price, the Series B
Conversion Price, or the Series C Conversion Price, as the case may be, then in
effect. Any lesser adjustment shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment which, together with
any adjustment or adjustments so carried forward, shall amount to an increase or
decrease of at least 1 % of such Series A Conversion Price, such Series B
Conversion Price or such Series C Conversion Price, as the case may be. Any
adjustment to the Series A Conversion Price, the Series B Conversion Price or
the Series C Conversion Price, as the case may be, carried forward and not
theretofore made shall be made immediately prior to the conversion of any shares
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock, as the case may be, pursuant hereto.
(e) Abandonment. If the Corporation shall take a record of the
-----------
holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, and shall thereafter and before the distribution
to stockholders thereof legally abandon its plan to pay or deliver such dividend
or distribution, then no adjustment in the Series A Conversion Price, the Series
B Conversion Price or the Series C Conversion Price shall be required by reason
of the taking of such record.
(f) Certificate as to Adjustments. Upon any increase or
-----------------------------
decrease in the Series A Conversion Price, the Series B Conversion Price or the
Series C Conversion Price, the Corporation shall within a reasonable period (not
to exceed 45 days) following any of the foregoing transactions deliver to each
registered holder of Series A Preferred Stock, each registered holder of Series
B Preferred Stock and each registered holder of Series C Preferred Stock a
certificate, signed by (i) the President or a Vice President of the Corporation
and (ii) the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated and specifying the increased or decreased Series A
<PAGE>
16
Conversion Price, Series B Conversion Price and/or Series C Conversion Price
then in effect following such adjustment.
(g) Reorganization, Reclassification. In case of any capital
--------------------------------
reorganization or reclassification or other change of outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value), the Corporation shall execute and
deliver to each holder of Series A Preferred Stock, each holder of Series B
Preferred Stock and each holder of Series C Preferred Stock at least ten (10)
Business Days prior to effecting such reorganization or reclassification a
certificate stating that the holder of each share of Series A Preferred Stock,
the holder of each share of Series B Preferred Stock and the holder of each
share of Series C Preferred Stock shall have the right thereafter to convert
such share of Series A Preferred Stock, Series B Preferred Stock, and Series C
Preferred Stock into the kind and amount of shares of stock or other securities,
property or cash receivable upon such reorganization or reclassification by a
holder of the number of shares of Common Stock into which such share of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock could
have been converted immediately prior to such reorganization or
reclassification, and provision shall be made therefor in the agreement, if any,
relating to such reorganization or reclassification. Such certificate shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7. The provisions
of this Section 7(g) and any equivalent thereof in any such certificate
similarly shall apply to successive transactions.
(h) Notices. In case at any time or from time to time:
-------
(w) the Corporation shall declare a dividend (or any other
distribution) on its shares of Common Stock;
(x) the Corporation shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or warrants;
(y) there shall be any reorganization or reclassification of
the Common Stock; or
(z) there shall occur the Initial Public Offering, a Merger
or a Sale;
then the Corporation shall mail to each holder of shares of Series A Preferred
Stock, each holder of shares of Series B Preferred Stock and each holder of
shares of Series C Preferred Stock at such holder's address as it appears on the
transfer books of the Corporation, as promptly as possible but in any event at
least ten (10) days prior to the applicable date hereinafter specified, a notice
stating (A) the date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights or warrants or, if a record is not
to be taken, the date as of which the holders of Common Stock of
<PAGE>
17
record to be entitled to such dividend, distribution or granting of rights or
warrants are to be determined, or (B) the date on which such reorganization,
reclassification, Initial Public Offering, Merger or Sale is expected to become
effective and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their Common Stock for shares of stock
or other securities or property or cash deliverable upon such reorganization,
reclassification, Initial Public Offering, Merger or Sale. Notwithstanding the
foregoing, in the case of any event to which Section 7(g) is applicable, the
Corporation shall also deliver the certificate described in such Section 7(g) to
each holder of Series A Preferred Stock, each holder of Series B Preferred Stock
and each holder of Series C Preferred Stock at least 10 Business Days' prior to
effecting such reorganization or reclassification as aforesaid.
(i) Reservation of Common Stock. The Corporation shall at all
---------------------------
times reserve and keep available for issuance upon the conversion of the Series
A Preferred Stock, the Series B Preferred Stock and the Series C Preferred
Stock, such number of its authorized but unissued shares of Common Stock as will
from time to time be sufficient to permit the conversion of all outstanding
shares of Series A Preferred Stock, the Series B Preferred Stock and the Series
C Preferred Stock and shall take all action to increase the authorized number of
shares of Common Stock if at any time there shall be insufficient authorized but
unissued shares of Common Stock to permit such reservation or to permit the
conversion of all outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock; provided that (i) the holders of
--------
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock vote such shares in favor of any such action that requires a
vote of stockholders and (ii) such holders cause any directors elected by them
pursuant to Section 6(c) to vote in favor of any such action that requires a
vote of the Board of Directors.
(j) No Conversion Tax or Charge. The issuance or delivery of
---------------------------
certificates for Common Stock upon the conversion of shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be
made without charge to the converting holder of shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock for such
certificates or for any tax in respect of the issuance or delivery of such
certificates or the securities represented thereby, and such certificates shall
be issued or delivered in the respective names of, or (subject to compliance
with the applicable provisions of federal and state securities laws) in such
names as may be directed by, the holders of the shares of Series A Preferred
Stock, the holders of shares of Series B Preferred Stock or the holders of
shares of Series C Preferred Stock converted; provided, however, that the
-------- -------
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the holder of the shares of Series A Preferred Stock,
the holders of shares of Series B Preferred Stock or the holders of shares of
Series C Preferred Stock converted, and the Corporation shall not be required to
issue or deliver such certificate unless or until the Person or Persons
requesting the issuance or delivery thereof shall have paid to the Corporation
the amount
<PAGE>
18
of such tax or shall have established to the reasonable satisfaction of the
Corporation that such tax has been paid.
8. Certain Remedies. Any registered holder of Series A Preferred
----------------
Stock, any registered holder of Series B Preferred Stock and any registered
holder of Series C Preferred Stock shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Amended and Restated
Certificate of Incorporation and to enforce specifically the terms and
provisions of this Amended and Restated Certificate of Incorporation in any
court of the United States or any state thereof having jurisdiction, this being
in addition to any other remedy to which such holder may be entitled at law or
in equity.
9. Business Day. If any payment shall be required by the terms
------------
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
10. Definitions. As used in this Amended and Restated Certificate of
-----------
Incorporation, the following terms shall have the following meanings (with terms
defined in the singular having comparable meanings when used in the plural and
vice versa), and references to Sections hereof shall be references to Sections
- ---- -----
of Article IV(B) hereof, unless otherwise stated or required by the context:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
Rule l2b-2 of the General Rules and Regulations under the Exchange Act. In
addition, the following shall be deemed to be Affiliates of General Atlantic
Partners 42, L.P.: (a) General Atlantic Partners, LLC, the members of General
Atlantic Partners, LLC and the limited partners of General Atlantic Partners 42,
L.P. and General Atlantic Partners 52, L.P.; (b) any Affiliate of General
Atlantic Partners, LLC, the members of General Atlantic Partners, LLC and the
limited partners of General Atlantic Partners 42, L.P. and General Atlantic
Partners 52, L.P.; and (c) any limited liability company or partnership a
majority of whose members or partners, as the case may be, are members of
General Atlantic Partners, LLC. in addition, General Atlantic Partners 42, L.P.,
General Atlantic Partners 52, L.P., GAP Coinvestment Partners, L.P. and GAP
Coinvestment Partners II, L.P. shall be deemed to be Affiliates of one another.
"Amended and Restated Certificate of Incorporation" shall mean this
Amended and Restated Certificate of Incorporation, as amended from time to time.
"Automatic Conversion Payment" means (a) with respect to each share of
Series A Preferred Stock, a payment equal to the Series A Liquidation
Preference, (b) with respect to each share of Series B Preferred Stock, a
payment equal to the Series B Liquidation Preference and (c) with respect to
each share of Series C Preferred Stock, a payment equal to the Series C
Liquidation Preference.
"Board of Directors" means the Board of Directors of the Corporation.
<PAGE>
19
"Business Day" means any day except a Saturday, a Sunday, or other day
on which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock (but excluding any debt security whether or not it is exchangeable
for or convertible into such capital stock).
"Commission" means the United States Securities and Exchange
Commission or any similar agency then having jurisdiction to enforce the
Securities Act.
"Common Stock" shall have the meaning ascribed to it in Article IV
hereof.
"Common Stock Equivalent" shall mean any security or obligation which
is by its terms convertible into shares of Common Stock or another Common Stock
Equivalent, and any option, warrant or other subscription or purchase right with
respect to Common Stock.
"Corporation" shall have the meaning ascribed to it in Article I
hereof.
"Current Market Price" per share shall mean, as of the date of
determination, (a) the average of the daily Market Price under clause (a), (b)
or (c) of the definition thereof of the Common Stock during the immediately
preceding thirty (30) trading days ending on such date, and (b) if the Common
Stock is not then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, then the Market Price under
clause (d) of the definition thereof on such date.
"Dividend Payment Date" shall have the meaning ascribed to it in
Section 3(a) hereof.
"Equity Percentage" means (a) with respect to each share of Series A
Preferred Stock, the number of fully paid and nonassessable shares of Common
Stock equal to the product of the number of shares of Series A Preferred Stock
being converted multiplied by the quotient of (x) $20.52 divided by (y) the
Series A Conversion Price, (b) with respect to each share of Series B Preferred
Stock, the number of fully paid and nonassessable shares of Common Stock equal
to the product of the number of shares of Series B Preferred Stock being
converted multiplied by the quotient of (x) $6.00 divided by (y) the Series B
Conversion Price; and (c) with respect to each share of Series C Preferred
Stock, the number of fully paid and nonassessable shares of Common Stock equal
to the product of the number of shares of Series C Preferred Stock being
converted multiplied by the quotient of (x) $3.00 divided by (y) the Series C
Conversion Price.
<PAGE>
20
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Excluded Transaction" means (a) any issuance of Common Stock or
Common Stock Equivalents to employees, consultants or directors of the
Corporation pursuant to a stock option plan or other employee benefit
arrangement approved by the Board of Directors that represents not greater than
11.9 % of the outstanding shares of Common Stock on a fully diluted basis
immediately prior to the Issue Date, (b) any issuance of Common Stock (i) upon
the conversion of shares of Series A Preferred Stock, Series B Preferred Stock,
or Series C Preferred Stock, (ii) as a dividend on shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock and/or (iii) in
connection with any Automatic Conversion Payment and (c) any issuance of Common
Stock upon the conversion or exercise of any Common Stock Equivalents.
"Initial Public Offering" shall mean the first underwritten public
offering of Common Stock pursuant to an effective registration statement under
the Securities Act.
"Issue Date" shall have the meaning ascribed to it in Section 7(d)(ii)
hereof.
"Junior Stock" shall have the meaning ascribed to it in Section 2(a)
hereof.
"Liquidation" shall mean the voluntary or involuntary liquidation
under applicable bankruptcy or reorganization legislation, or the dissolution or
winding up of the Corporation.
"Market Price" shall mean, as of the date of determination, (a) the
closing price per share of Common Stock on such date published in The Wall
--------
Street Journal or, if no such closing price on such date is published in The
- -------------- ---
Wall Street Journal, the average of the closing bid and asked prices on such
- -------------------
date, as officially reported on the principal national securities exchange
(including, without limitation, The Nasdaq Stock Market, Inc.) on which the
Common Stock is then listed or admitted to trading; or (b) if the Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the National
Association of Securities Dealers, Inc., the last trading price of the Common
Stock on such date; or (c) if there shall have been no trading on such date or
if the Common Stock is not so designated, the average of the reported closing
bid and asked prices of the Common Stock on such date as shown by the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotations System and reported by any member firm of the New York Stock Exchange
selected by the Corporation; or (d) if none of (a), (b) or (c) is applicable, a
market price per share determined at the Corporation's expense by an appraiser
chosen by the holders of a majority of the shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock (voting together as a
single class), or, if no such appraiser is so
<PAGE>
21
chosen more than ten (10) Business Days after notice of the necessity of such
calculation shall have been delivered by the Corporation to the holders of
Series B Preferred Stock, then by an appraiser chosen by the Corporation and
reasonably satisfactory to a majority of the holders of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock (voting together as
a single class). Any determination of the Market Price by an appraiser shall be
based on a valuation of the Corporation as an entirety without regard to any
discount for minority interests or disparate voting rights among classes of
Capital Stock.
"Merger" shall mean (x) the merger or consolidation of the Corporation
into or with one or more Persons or (y) the merger or consolidation of one or
more Persons into or with the Corporation, if, in the case of (x) or (y), the
stockholders of the Corporation prior to such merger or consolidation do not
retain at least a majority of the voting power of the surviving Person.
"New Issue Price" shall have the meaning ascribed to it in Section
7(d)(ii) hereof.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any kind.
"Relevant Date" shall have the meaning ascribed to it in Section
7(d)(ii) hereof.
"Sale" shall mean the voluntary sale, conveyance, exchange or transfer
to another Person of (i) the voting Capital Stock of the Corporation if, after
such sale, conveyance, exchange or transfer, the stockholders of the Corporation
prior to such sale, conveyance, exchange or transfer do not retain at least a
majority of the voting power of the Corporation or (ii) all or substantially all
of the assets of the Corporation.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Series A Conversion Price" shall have the meaning ascribed to it in
Section 7(a) hereof.
"Series A Liquidation Preference" shall have the meaning ascribed to
it in Section 4(a) hereof.
"Series A Preferred Stock" shall have the meaning ascribed to it in
Article IV hereof.
"Series B Conversion Price" shall have the meaning ascribed to it in
Section 7(a) hereof.
<PAGE>
"Series B Liquidation Preference" shall have the meaning ascribed to
it in Section 4(a) hereof.
"Series B Preferred Stock" shall have the meaning ascribed to it in
Article IV hereof.
"Series C Conversion Price" shall have the meaning ascribed to it in
Section 7(a) hereof.
"Series C Liquidation Preference" shall have the meaning ascribed to
it in Section 4(a) hereof.
"Series C Preferred Stock" shall have the meaning ascribed to it in
Article IV hereof.
ARTICLE V
DIRECTORS
The authorized number of directors of the Corporation shall be no less
than three (3) and no more than (9), as determined from time to time by the
Board of Directors. Elections of directors need not be by written ballot unless
required by the By-laws of the Corporation. Subject to the rights of the holders
of any series of Preferred Stock as set forth in Article IV(B)(6)(c) of or
elsewhere in this Amended and Restated Certificate of Incorporation or provided
for in a resolution or resolutions adopted by the Board of Directors providing
for the issue thereof, any director may be removed from office either with or
without cause at any time by the affirmative vote of the holders of a majority
of the outstanding stock of the Corporation entitled to vote, given at a meeting
of the stockholders called for that purpose, or by the consent of the holders of
a majority of the outstanding stock of the Corporation entitled to vote, given
in accordance with Section 228 of the General Corporation Law.
ARTICLE VI
LIMITATION OF LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or to its stockholders for monetary damages for breach of fiduciary
duty as a director of the Corporation, except for liability (i) for any breach
of the director's duty of loyalty to the Corporation or to its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law, or (iv) for any transaction from which the director derives any
improper personal benefit. If, after approval of this Article VI by the
stockholders of the Corporation, the General Corporation Law is amended to
authorize the further elimination or limitation of the liability of directors,
then the
<PAGE>
23
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law, as so amended.
Any repeal or modification of this Article VI by the stockholders of
the Corporation shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification.
ARTICLE VII
INDEMNIFICATION
The Corporation shall indemnify, in the manner and to the full extent
permitted by law, any person (or the estate of any person) who was or is a party
to, or is threatened to be made a party to, any threatened, pending or
contemplated action, suit or proceeding, whether or not by or in the right of
the Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Where required by law, the indemnification provided for herein shall be made
only as authorized in the specific case upon a determination, in the manner
provided by law, that indemnification of the director, officer, employee or
agent is proper in the circumstances. The Corporation may, to the full extent
permitted by law, purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person. To the full
extent permitted by law, the indemnification provided herein shall include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, and, in the manner provided by law, any such expenses shall be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit
the right of the Corporation to indemnify any other person for any such expenses
to the full extent permitted by law, nor shall it be deemed exclusive of any
other rights to which any person seeking indemnification from the Corporation
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. Such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
<PAGE>
24
ARTICLE VIII
BY-LAWS
In furtherance and not in limitation of the powers conferred upon the
Board of Directors by law, the Board of Directors shall have the power to make,
adopt, alter, amend and repeal from time to time the By-laws of the Corporation
subject to the right of the stockholders entitled to vote with respect thereto
to alter, amend and repeal By-laws made by the Board of Directors.
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the President of the Corporation this 27th day
of September, 1999.
/s/ Peter J Boni
--------------------------------
Peter J. Boni
President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PRIME RESPONSE GROUP INC.
Prime Response Group Inc. (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
By written action in accordance with Section 141(f) of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation duly adopted a resolution, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Amended and Restated Certificate of Incorporation of the Corporation and
declaring said amendment to be advisable. The stockholders of the Corporation
duly approved said proposed amendment by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
The resolution setting forth the amendment is as follows:
<PAGE>
2
RESOLVED: That Article I of the Amended and Restated Certificate of
---------
Incorporation of the Corporation be and hereby deleted in its entirety, and the
following substituted in its place:
ARTICLE I
NAME
The name of the corporation is Prime Response, Inc. (the "Corporation").
RESOLVED: That Article IV, Section B.3(a) of the Amended and Restated
---------
Certificate of Incorporation be and hereby is deleted in its entirety, and the
following substituted in its place:
" (a) Series A Preferred Stock and Series B Preferred Stock. The
-----------------------------------------------------
holders of shares of Series A Preferred Stock shall be entitled to receive,
out of funds legally available therefor, dividends at an annual rate equal
to 8% of the Series A Liquidation Preference, and the holders of shares of
Series B Preferred Stock shall be entitled to receive, out of funds legally
available therefor, dividends at an annual rate equal to 8% of the Series B
Liquidation Preference, in each case calculated on the basis of a 360-day
year, consisting of twelve 30-day months, and shall accrue on a daily basis
from the date of issuance thereof, whether or not declared. The Series A
Preferred Stock and the Series B Preferred Stock shall rank pari passu with
respect to such dividends and such dividends shall be paid to the holders
of the Series A Preferred Stock and the holders of the Series B Preferred
Stock on a pro rata basis. All accrued and unpaid dividends shall, to the
extent funds are legally available therefor, be mandatorily paid concurrent
with the earlier to occur of (i) a Liquidation, (ii) an optional conversion
of shares of Series A Preferred Stock pursuant to Section 7(a) below, (iii)
an optional conversion of shares of Series B Preferred Stock pursuant to
Section 7(a) below and (iv) an automatic conversion of shares of Series A
Preferred Stock and shares of Series B Preferred Stock pursuant to Section
7(b) below (the "Dividend Payment Date"). On the Dividend Payment Date,
all accrued dividends shall be paid, (x) in the case of a Liquidation, in
cash, (y) in the case of the Initial Public Offering, in shares of Common
Stock in the case of the Series A Preferred Stock and Series C Preferred
Stock, and cash or in shares of Common Stock in the case of the Series B
Preferred Stock, as the holder of any shares of Series B Preferred Stock
shall choose and (z) in the case of a Merger, Sale or optional conversion
of shares of Series A Preferred Stock or Series B Preferred Stock, as the
case may be, pursuant to Section 7(a) below, in shares of Common Stock or
in cash, as determined by the Board of Directors in the exercise of their
fiduciary duties. If dividends are to be paid in shares of Common Stock
pursuant to the preceding sentence, the value of such shares shall be
determined, (A) in the case of the Initial Public Offering, by the mid-
point of the anticipated price range per share of the shares of Common
<PAGE>
3
Stock to be offered in the Initial Public Offering stated in the first
Registration Statement filed with the Commission in which such mid-point is
stated, (B) in the case of the Merger (other than as set forth in clause
(C), below) or Sale, by the net per share price paid for shares of Common
Stock in such Merger or Sale or (C) in the case of a Merger in which no per
share price is paid for shares of Common Stock or in the case of an
optional conversion of shares of Series A Preferred Stock or Series B
Preferred Stock, as the case may be, pursuant to Section 7(a) below,
mutually by the Board of Directors and the holders of a majority of the
shares of Series A Preferred Stock or a majority of the shares of Series B
Preferred Stock, as the case may be, or, if the Board of Directors and the
holders of a majority of the shares of Series A Preferred Stock or a
majority of the shares of Series B Preferred Stock, as the case may be,
shall fail to agree, at the Corporation's expense by an appraiser chosen by
the Board of Directors and reasonably acceptable to the holders of a
majority of the shares of Series A Preferred Stock or a majority of the
shares of Series B Preferred Stock, as the case may be."
RESOLVED: That Article IV, Section B.7(b) of the Amended and Restated
---------
Certificate of Incorporation be and hereby is deleted in its entirety, and the
following substituted in its place:
" (b) Automatic Conversion. Concurrent with the closing of the
--------------------
Initial Public Offering, a Merger or a Sale, each outstanding share of
Series A Preferred Stock, each outstanding share of Series B Preferred
Stock and each outstanding share of Series C Preferred Stock shall be
automatically converted, with no further action required to be taken by the
Corporation or the holder thereof, into the following:
(i) The Automatic Conversion Payment; and
(ii) The Equity Percentage.
Such Automatic Conversion Payment shall be in addition to and not in
lieu of dividends payable in accordance with Section 3 above and shall be
payable, to the extent funds are legally available therefor, (x) in the
case of the Initial Public Offering, in shares of Common Stock in the case
of the Series A Preferred Stock and the Series C Preferred Stock and cash
or in shares of Common Stock in the case of the Series B Preferred Stock,
as the holder of any shares of Series B Preferred Stock shall choose or (y)
in the case of a Merger or a Sale, in cash or, at the option of the
Corporation, in securities of the Corporation or the surviving Person (in
the case of a Merger) or other consideration received by the holders of
shares of the Common Stock. If the Automatic Conversion Payment is to be
paid in shares of Common Stock, the value of such shares of Common Stock
shall be determined as provided in the last sentence of Section 3(a) above.
Any securities
<PAGE>
4
of the surviving Person or securities of the Corporation other than Common
Stock otherwise to be delivered to the holders of Series A Preferred Stock,
the holders of the Series B Preferred Stock and the holders of Series C
Preferred Stock pursuant to this Section 7(b) shall be valued as follows:
(i) With respect to securities that do not constitute "restricted
securities," as such term is defined in Rule 144(a)(3) promulgated under
the Securities Act, the value shall be deemed to be the Current Market
Price of such securities as of three days prior to the date of
distribution.
(ii) With respect to securities that constitute "restricted
securities, " as such term is defined in Rule 144(a)(3) promulgated under
the Securities Act, and that are of the same class or series as securities
that are publicly traded, the value shall be adjusted to make an
appropriate discount from the value as set forth above in clause (i) to
reflect the appropriate fair market value thereof, as mutually determined
by the Board of Directors and the holders of a majority of the shares of
Series A Preferred Stock, the holders of a majority of the shares of Series
B Preferred Stock or the holders of a majority of the shares of Series C
Preferred Stock, as the case may be, or if there is no active public market
with respect to such class or series of securities, such securities shall
be valued in accordance with clause (i) above, giving appropriate weight,
if any, to such restriction as mutually determined by the Board of
Directors and the holders of a majority of the shares of Series A Preferred
Stock, the holders of a majority of the shares of Series B Preferred Stock
or the holders of a majority of the shares of Series C Preferred Stock, as
the case may be, or if the Board of Directors and the holders of a majority
of the shares of Series A Preferred Stock, the holders of a majority of the
shares of Series B Preferred Stock or the holders of a majority of the
shares of Series C Preferred Stock, as the case may be, shall fail to
agree, at the Corporation's expense by an appraiser chosen by the Board of
Directors and reasonably acceptable to the holders of a majority of the
shares of Series A Preferred Stock, the holders of a majority of the shares
of Series B preferred Stock or the holders of a majority of the shares of
Series C Preferred Stock, as the case may be.
If the Automatic Conversion Payment is to be paid in other
consideration received by holders of shares of the Common Stock, the value
of such other consideration shall be mutually determined by the Board of
Directors and the holders of a majority of the shares of Series A Preferred
Stock, the holders of a majority of the shares of Series B Preferred Stock
or the holders of a majority of the shares of Series C Preferred Stock, as
the case may be, or, if the Board of Directors and the holders of a
majority of the shares of Series A Preferred Stock, the holders of a
majority of the shares of Series B Preferred Stock or the holders of a
majority of the shares of Series C Preferred Stock, as the case may be,
shall
<PAGE>
5
fail to agree, at the Corporation's expense by an appraiser chosen by the
Board of Directors and reasonably acceptable to the holders of a majority
of the shares of Series A Preferred Stock, the holders of a majority of the
shares of Series B Preferred Stock or the holders of a majority of the
shares of Series C Preferred Stock, as the case may be.
Immediately upon conversion as provided herein, each holder of Series
A Preferred Stock, each holder of Series B Preferred Stock and each holder
of Series C Preferred Stock shall be deemed to be the holder of record of
the Common Stock issuable upon conversion of such holder's Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as
the case may be, notwithstanding that the share register of the Corporation
shall then be closed or that certificates representing the Common Stock
shall not then actually be delivered to such Person. Upon notice from the
Corporation, each holder of Series A Preferred Stock, each holder of Series
B Preferred Stock and each holder of Series C Preferred Stock so converted
shall promptly surrender to the Corporation at its principal place of
business to be maintained by it (or at such other office or agency of the
Corporation as the Corporation may designate by such notice to the holders
of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock) certificates representing the shares so converted."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
affixed hereto and this Certificate of Amendment to be signed by its President
this 19th day of November, 1999.
PRIME RESPONSE GROUP INC.
BY: /s/ Peter J. Boni
____________________________
Peter J. Boni
President
<PAGE>
Exhibit 3.4
______________________________
BY-LAWS
OF
PRIME RESPONSE GROUP INC.
______________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C>
ARTICLE I OFFICES........................................................................................................... 1
SECTION 1.01 Registered Office....................................................................................... 1
SECTION 1.02 Other Offices........................................................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS......................................................................................... 1
SECTION 2.01 Annual Meetings......................................................................................... 1
SECTION 2.02 Special Meetings........................................................................................ 1
SECTION 2.03 Notice of Meetings...................................................................................... 1
SECTION 2.04 Waiver of Notice........................................................................................ 2
SECTION 2.05 Adjournments............................................................................................ 2
SECTION 2.06 Quorum.................................................................................................. 2
SECTION 2.07 Voting.................................................................................................. 3
SECTION 2.08 Proxies................................................................................................. 3
SECTION 2.09 Stockholders' Consent in Lieu of Meeting................................................................ 3
ARTICLE III BOARD OF DIRECTORS.............................................................................................. 3
SECTION 3.01 General Powers.......................................................................................... 3
SECTION 3.02 Number and Term of Office............................................................................... 3
SECTION 3.03 Resignation............................................................................................. 4
SECTION 3.04 Removal................................................................................................. 4
SECTION 3.05 Vacancies............................................................................................... 4
SECTION 3.06 Meetings................................................................................................ 4
SECTION 3.07 Committees of the Board................................................................................. 5
SECTION 3.08 Directors' Consent in Lieu of Meeting................................................................... 6
SECTION 3.09 Action by Means of Telephone or Similar Communications Equipment........................................ 6
SECTION 3.10 Compensation............................................................................................ 6
ARTICLE IV OFFICERS......................................................................................................... 6
SECTION 4.01 Officers................................................................................................ 6
SECTION 4.02 Authority and Duties.................................................................................... 7
SECTION 4.03 Term of Office, Resignation and Removal................................................................. 7
SECTION 4.04 Vacancies............................................................................................... 7
SECTION 4.05 The Chairman............................................................................................ 7
SECTION 4.06 The President........................................................................................... 7
SECTION 4.07 Vice Presidents......................................................................................... 8
SECTION 4.08 The Secretary........................................................................................... 8
SECTION 4.09 Assistant Secretaries................................................................................... 8
SECTION 4.10 The Treasurer........................................................................................... 8
SECTION 4.11 Assistant Treasurers.................................................................................... 8
SECTION 4.12 Compensation............................................................................................ 9
ARTICLE V INTERESTED PERSONS................................................................................................ 9
SECTION 5.01 Transactions with Interested Persons.................................................................... 9
SECTION 5.02 Quorum.................................................................................................. 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI SHARES AND TRANSFERS OF SHARES................................................................................... 9
SECTION 6.01 Certificates Evidencing Shares.......................................................................... 9
SECTION 6.02 Stock Ledger............................................................................................ 10
SECTION 6.03 Transfers of Shares..................................................................................... 10
SECTION 6.04 Addresses of Stockholders............................................................................... 10
SECTION 6.05 Lost, Destroyed and Mutilated Certificates.............................................................. 10
SECTION 6.06 Regulations............................................................................................. 10
SECTION 6.07 Fixing Date for Determination of Stockholders of Record................................................. 11
ARTICLE VII SEAL 11
SECTION 7.01 Seal.................................................................................................... 11
ARTICLE VIII FISCAL YEAR.................................................................................................... 11
SECTION 8.01 Fiscal Year............................................................................................. 11
ARTICLE IX VOTING OF SHARES IN OTHER CORPORATIONS........................................................................... 11
SECTION 9.01 Voting of Shares in Other Corporations.................................................................. 11
ARTICLE X INDEMNIFICATION................................................................................................... 11
SECTION 10.01 Indemnification......................................................................................... 11
ARTICLE XI AMENDMENTS....................................................................................................... 12
SECTION 11.01 Amendments.............................................................................................. 12
</TABLE>
ii
<PAGE>
BY-LAWS
OF
PRIME RESPONSE GROUP INC.
ARTICLE I
OFFICES
SECTION 1.01 Registered Office. Unless and until otherwise determined by
-----------------
Prime Response Group Inc. (the "Corporation"), the registered office of the
-----------
Corporation in the State of Delaware shall be at the office of The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware 19801 and the registered
agent in charge thereof shall be The Corporation Trust Company.
SECTION 1.02 Other Offices. The Corporation may also have an office or
-------------
offices at any other place or places within or without the State of Delaware as
the Board of Directors of the Corporation (the "Board") may from time to time
-----
determine or the business of the Corporation may from time to time require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 Annual Meetings. The annual meeting of stockholders of the
---------------
Corporation for the election of directors of the Corporation ("Directors") and
---------
for the transaction of such other business as may properly come before such
meeting, shall be held at such place, date and time as shall be fixed by the
Board and designated in the notice or waiver of notice of such annual meeting;
provided, however, that no annual meeting of stockholders need be held if all
- -------- -------
actions, including the election of Directors, required by the General
Corporation Law of the State of Delaware (the "General Corporation Law") to be
-----------------------
taken at such annual meeting are taken by written consent in lieu of meeting
pursuant to Section 2.09 hereof.
SECTION 2.02 Special Meetings. Special meetings of stockholders for any
----------------
purpose or purposes may be called by the Board or the Chairman of the
Corporation (the "Chairman"), the President of the Corporation (the "President")
-------- ---------
or the Secretary of the Corporation (the "Secretary") or by the recordholders of
---------
at least ten percent of the shares of common stock of the Corporation issued and
outstanding and entitled to vote thereat, to be held at such place, date and
time as shall be designated in the notice or waiver of notice thereof.
SECTION 2.03 Notice of Meetings. (a) Except as otherwise provided by law,
------------------
written notice of each annual or special meeting of stockholders stating the
place, date and time of such meeting and, in the case of a special meeting, the
purpose or
<PAGE>
purposes for which such meeting is to be held, shall be given personally or by
first-class mail (airmail in the case of international communications) to each
stockholder of record (a "Stockholder") entitled to vote thereat, not
-----------
less than 10 nor more than 60 days before the date of such meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the Stockholder at such Stockholder's address
as it appears on the records of the Corporation. If, prior to the time of
mailing, the Secretary shall have received from any Stockholder a written
request that notices intended for such Stockholder are to be mailed to some
address other than the address that appears on the records of the Corporation,
notices intended for such Stockholder shall be mailed to the address designated
in such request.
(b) Notice of a special meeting of Stockholders may be given by the
person or persons calling the meeting, or, upon the written request of such
person or persons, such notice shall be given by the Secretary on behalf of such
person or persons. If the person or persons calling a special meeting of
Stockholders give notice thereof, such person or persons shall deliver a copy of
such notice to the Secretary. Each request to the Secretary for the giving of
notice of a special meeting of Stockholders shall state the purpose or purposes
of such meeting.
SECTION 2.04 Waiver of Notice. Notice of any annual or special meeting of
----------------
Stockholders need not be given to any Stockholder who files a written waiver of
notice with the Secretary, signed by the person entitled to notice, whether
before or after such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of Stockholders need be specified in any written waiver
of notice thereof. Attendance of a Stockholder at a meeting, in person or by
proxy, shall constitute a waiver of notice of such meeting, except when such
Stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.
SECTION 2.05 Adjournments. Whenever a meeting of Stockholders, annual or
------------
special, is adjourned to another date, time or place, notice need not be given
of the adjourned meeting if the date, time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned meeting, any business may
be transacted which might have been transacted at the original meeting.
SECTION 2.06 Quorum. Except as otherwise provided by law or the
------
Certificate of Incorporation of the Corporation, as amended from time to time
(the "Certificate of Incorporation"), the recordholders of a majority of the
----------------------------
shares of capital stock (the "Shares") entitled to vote thereat, present in
------
person or by proxy, shall constitute a quorum for the transaction of business at
all meetings of Stockholders, whether annual or special. If, however, such
quorum shall not be present in person or by proxy at any meeting of
Stockholders, the Stockholders entitled to vote thereat may
2
<PAGE>
adjourn the meeting from time to time in accordance with Section 2.05 hereof
until a quorum shall be present in person or by proxy.
SECTION 2.07 Voting. Except as otherwise provided in the Certificate of
------
Incorporation, each Stockholder shall be entitled to one vote for each Share
held of record by such Stockholder. Except as otherwise provided by law or the
Certificate of Incorporation, when a quorum is present at any meeting of
Stockholders, the vote of the recordholders of a majority of the Shares
constituting such quorum shall decide any question brought before such meeting.
SECTION 2.08 Proxies. Each Stockholder entitled to vote at a meeting of
-------
Stockholders or to express, in writing, consent to or dissent from any action of
Stockholders without a meeting may authorize another person or persons to act
for such Stockholder by proxy. Such proxy shall be filed with the Secretary
before such meeting of Stockholders or such action of Stockholders without a
meeting, at such time as the Board may require. No proxy shall be voted or acted
upon more than three years from its date, unless the proxy provides for a longer
period.
SECTION 2.09 Stockholders' Consent in Lieu of Meeting. Except as may
----------------------------------------
otherwise be provided by law or in the Certificate of Incorporation, any action
required by the General Corporation Law to be taken at any annual or special
meeting of Stockholders, and any action which may be taken at any annual or
special meeting of Stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the recordholders of Shares having not less than the
minimum number of votes necessary to authorize or take such action at a meeting
at which the recordholders of all Shares entitled to vote thereon were present
and voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 General Powers. Except as may otherwise be provided by law
--------------
or in the Certificate of Incorporation, the business and affairs of the
Corporation shall be managed by the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-laws directed or required to be
exercised or done by Stockholders.
SECTION 3.02 Number and Term of Office. The number of Directors shall be
-------------------------
five. Directors need not be Stockholders. Directors shall be elected at the
annual meeting of Stockholders or, if, in accordance with Section 2.01 hereof,
no such annual meeting is held, by written consent in lieu of meeting pursuant
to Section 2.09 hereof, and each Director shall hold office until his successor
is elected and qualified, or until his earlier death or resignation or removal
in the manner hereinafter provided.
3
<PAGE>
SECTION 3.03 Resignation. Any Director may resign at any time by giving
-----------
written notice to the Board, the Chairman or the Secretary. Such resignation
shall take effect at the time specified in such notice or, if the time be not
specified, upon receipt thereof by the Board, the Chairman or the Secretary, as
the case may be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.04 Removal. Except as otherwise provided in the Certificate of
-------
Incorporation, any or all of the Directors may be removed, with or without
cause, at any time by vote of the recordholders of a majority of the Shares then
entitled to vote at an election of Directors, or by written consent of the
recordholders of such Shares pursuant to Section 2.09 hereof.
SECTION 3.05 Vacancies. Except as otherwise provided in the Certificate
---------
of Incorporation, vacancies occurring on the Board as a result of the removal of
Directors without cause may be filled only by vote of the recordholders of a
majority of the Shares then entitled to vote at an election of Directors, or by
written consent of such recordholders pursuant to Section 2.09 hereof. Vacancies
occurring on the Board for any other reason, including, without limitation,
vacancies occurring as a result of the creation of new directorships that
increase the number of Directors, may be filled by such vote or written consent
or by vote of the Board or by written consent of the Directors pursuant to
Section 3.08 hereof. If the number of Directors then in office is less than a
quorum, such other vacancies may be filled by vote of a majority of the
Directors then in office or by written consent of all such Directors pursuant to
Section 3.08 hereof. Unless earlier removed pursuant to Section 3.04 hereof,
each Director chosen in accordance with this Section 3.05 shall hold office
until the next annual election of Directors by the Stockholders and until his
successor shall be elected and qualified.
SECTION 3.06 Meetings. As soon as practicable after each annual election
--------
of Directors by the Stockholders, the Board shall meet for the purpose of
organization and the transaction of other business, unless it shall have
transacted all such business by written consent pursuant to Section 3.08 hereof.
(a) Other Meetings. Other meetings of the Board shall be held at such
-------------
times as the Chairman, the President, the Secretary or a majority of the Board
shall from time to time determine.
(b) Notice of Meetings. The Secretary shall give written notice to
------------------
each Director of each meeting of the Board, which notice shall state the place,
date, time and purpose of such meeting. Notice of each such meeting shall be
given to each Director, if by mail, addressed to him at his residence or usual
place of business, at least five days before the day on which such meeting is to
be held, or shall be sent to him at such place by telecopy, telegraph, cable, or
other form of recorded communication, or be delivered personally or by telephone
not later than the day before the day on which such meeting is to be held. A
written waiver of notice, signed by the Director entitled to notice, whether
before or after the time of the meeting referred to in such waiver, shall be
deemed equivalent to notice. Neither the business to be transacted at, nor the
purpose of any
4
<PAGE>
meeting of the Board need be specified in any written waiver of notice thereof.
Attendance of a Director at a meeting of the Board shall constitute a waiver of
notice of such meeting, except as provided by law.
(c) Place of Meetings. The Board may hold its meetings at such place
-----------------
or places within or without the State of Delaware as the Board may from time to
time determine, or as shall be designated in the respective notices or waivers
of notice of such meetings.
(d) Quorum and Manner of Acting. One-third of the total number of
---------------------------
Directors then in office (but in no event less than two if the total number of
directorships, including vacancies, is greater than one and in no event a number
less than one-third of the total number of directorships, including vacancies)
shall be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and the vote of a
majority of those Directors present at any such meeting at which a quorum is
present shall be necessary for the passage of any resolution or act of the
Board, except as otherwise expressly required by law, the Certificate of
Incorporation or these By-laws. In the absence of a quorum for any such meeting,
a majority of the Directors present thereat may adjourn such meeting from time
to time until a quorum shall be present.
(e) Organization. At each meeting of the Board, one of the
------------
following shall act as chairman of the meeting and preside, in the following
order of precedence:
(i) the Chairman, if any;
(ii) the President;
(iii) any Director chosen by a majority of the Directors
present.
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary of the Corporation (an "Assistant Secretary"), if an
-------------------
Assistant Secretary is present) whom the chairman of the meeting shall appoint
shall act as secretary of such meeting and keep the minutes thereof.
SECTION 3.07 Committees of the Board. The Board may, by resolution passed
-----------------------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more Directors. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of any such absent or disqualified member. Any committee of
the Board, to the extent provided in the resolution of the Board designating
such committee, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to
5
<PAGE>
all papers which may require it, provided, however, that no such committee shall
-------- -------
have such power of authority in reference to amending the Certificate of
Incorporation (except that such a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board as provided in Section 151(a) of the General Corporation Law, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of the
number of shares of any series), adopting an agreement of merger or
consolidation under Section 251 or 252 of the General Corporation Law,
recommending to the Stockholders the sale, lease or exchange of all or
substantially all the Corporation's property and assets, recommending to the
Stockholders a dissolution of the Corporation or the revocation of a
dissolution, or amending these By-laws; provided further, however, that, unless
-------- ------- -------
expressly so provided in the resolution of the Board designating such committee,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law. Each committee of
the Board shall keep regular minutes of its proceedings and report the same to
the Board when so requested by the Board.
SECTION 3.08 Directors' Consent in Lieu of Meeting. Any action required
-------------------------------------
or permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by all
the members of the Board or such committee and such consent is filed with the
minutes of the proceedings of the Board or such committee.
SECTION 3.09 Action by Means of Telephone or Similar Communications
------------------------------------------------------
Equipment. Any one or more members of the Board, or of any committee thereof,
- ---------
may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
SECTION 3.10 Compensation. Directors shall not receive any stated salary
------------
for their services as directors or as members of committees, except as
authorized by the Stockholders. No such compensation or reimbursement shall
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
OFFICERS
SECTION 4.01 Officers. The officers of the Corporation (the "Officers")
-------- --------
shall be the President, the Secretary and a Treasurer and may include a
Chairman, one or more Vice Presidents of the Corporation ("Vice Presidents")
---------------
6
<PAGE>
(including, one or more Executive and/or Senior Vice Presidents), one or more
Assistant Secretaries, one or more Assistant Treasurers of the Corporation
("Assistant Treasurers") and such other Officers as the Board may determine. Any
--------------------
two or more offices may be held by the same person.
SECTION 4.02 Authority and Duties. All Officers shall have such authority
--------------------
and perform such duties in the management of the Corporation as may be provided
in these By-laws or, to the extent not so provided, by resolution of the Board.
SECTION 4.03 Term of Office, Resignation and Removal. (a) Each Officer
---------------------------------------
shall be appointed by the Board and shall hold office for such term as may be
determined by the Board. Each Officer shall hold office until his successor has
been appointed and qualified or his earlier death or resignation or removal in
the manner hereinafter provided. The Board may require any Officer to give
security for the faithful performance of his duties.
(b) Any Officer may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified in such notice or, if the time be not specified,
upon receipt thereof by the Board, the Chairman, the President or the Secretary,
as the case may be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
(c) All Officers and agents appointed by the Board shall be subject to
removal, with or without cause, at any time by the Board.
SECTION 4.04 Vacancies. Any vacancy occurring in any office of the
---------
Corporation, for any reason, shall be filled by action of the Board. Unless
earlier removed pursuant to Section 4.03 hereof, any Officer appointed by the
Board to fill any such vacancy shall serve only until such time as the unexpired
term of his predecessor expires unless reappointed by the Board.
SECTION 4.05 The Chairman. The Chairman, if one shall be appointed, shall
------------
have the power to call special meetings of Stockholders, to call special
meetings of the Board and, if present, to preside at all meetings of
Stockholders and all meetings of the Board. The Chairman shall perform all
duties incident to the office of Chairman of the Board and all such other duties
as may from time to time be assigned to him by the Board or these By-laws.
SECTION 4.06 The President. The President shall have general and active
-------------
management and control of the business and affairs of the Corporation, subject
to the control of the Board, and shall see that all orders and resolutions of
the Board are carried into effect. The President shall perform all duties
incident to the office of President and all such other duties as may from time
to time be assigned to him by the Board or these By-laws.
7
<PAGE>
SECTION 4.07 Vice Presidents. Vice Presidents, if any, in order of their
---------------
seniority or in any other order determined by the Board, shall generally assist
the President and perform such other duties as the Board or the President shall
prescribe, and in the absence or disability of the President, shall perform the
duties and exercise the powers of the President.
SECTION 4.08 The Secretary. The Secretary shall, to the extent
-------------
practicable, attend all meetings of the Board and all meetings of Stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee. He shall give or cause to be
given notice of all meetings of Stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board, the Chairman or the
President and shall act under the supervision of the President. He shall keep in
safe custody the seal of the Corporation and affix the same to any instrument
that requires that the seal be affixed to it and which shall have been duly
authorized for signature in the name of the Corporation and, when so affixed,
the seal shall be attested by his signature or by the signature of the Treasurer
of the Corporation (the "Treasurer") or an Assistant Secretary or Assistant
---------
Treasurer of the Corporation. He shall keep in safe custody the certificate
books and stockholder records and such other books and records of the
Corporation as the Board, the Chairman or the President may direct and shall
perform all other duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Board, the Chairman or
the President.
SECTION 4.09 Assistant Secretaries. Assistant Secretaries of the
---------------------
Corporation, if any, in order of their seniority or in any other order
determined by the Board, shall generally assist the Secretary and perform such
other duties as the Board or the Secretary shall prescribe, and, in the absence
or disability of the Secretary, shall perform the duties and exercise the powers
of the Secretary.
SECTION 4. 10 The Treasurer. The Treasurer shall have the care and custody
-------------
of all the funds of the Corporation and shall deposit such funds in such banks
or other depositories as the Board, or any Officer or Officers, or any Officer
and agent jointly, duly authorized by the Board, shall, from time to time,
direct or approve. He shall disburse the funds of the Corporation under the
direction of the Board and the President. He shall keep a full and accurate
account of all moneys received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board, the Chairman or the
President shall so request. He shall perform all other necessary actions and
duties in connection with the administration of the financial affairs of the
Corporation and shall generally perform all the duties usually appertaining to
the office of treasurer of a corporation. When required by the Board, he shall
give bonds for the faithful discharge of his duties in such sums and with such
sureties as the Board shall approve.
SECTION 4.11 Assistant Treasurers. Assistant Treasurers of the
--------------------
Corporation, if any, in order of their seniority or in any other order
determined by the
8
<PAGE>
Board, shall generally assist the Treasurer and perform such other duties as the
Board or the Treasurer shall prescribe, and, in the absence or disability of the
Treasurer, shall perform the duties and exercise the powers of the Treasurer.
SECTION 4.12 Compensation. The compensation of the Officers of the
------------
Corporation shall be fixed by the Board.
ARTICLE V
INTERESTED PERSONS
SECTION 5.01 Transactions with Interested Persons. No contract or
------------------------------------
transaction between the Corporation and one or more of its Directors or
Officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its Directors or
Officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the Director or Officer is
present at or participates in the meeting of the Board or committee thereof
which authorizes the contract or transaction, or solely because the votes of one
or more of such Directors or Officers are counted for such purpose, if:
(a) The material facts as to that person's relationship or interest
and as to the contract or transaction are disclosed or are known to the Board
or the committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested Directors, even though the disinterested Directors be less than
a quorum; or
(b) The material facts as to that person's relationship or interest and as
to the contract or transaction are disclosed or are known to the Stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the Stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board, a committee
thereof, or the Stockholders.
SECTION 5.02 Quorum. Common or interested Directors may be counted in
------
determining the presence of a quorum at a meeting of the Board or of a committee
which authorizes the contract or transaction.
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
SECTION 6.01 Certificates Evidencing Shares. Shares shall be evidenced by
------------------------------
certificates in such form or forms as shall be approved by the Board.
Certificates shall be issued in consecutive order and shall be numbered in the
order of their issue, and shall be signed by the Chairman, the President or any
Vice President and
9
<PAGE>
by the Secretary, any Assistant Secretary, the Treasurer or any Assistant
Treasurer. Any or all of the signatures on a certificate may be a facsimile. In
the event any such Officer who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to hold such office or to be
employed by the Corporation before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if such Officer had
held such office on the date of issue.
SECTION 6.02 Stock Ledger. A stock ledger in one or more counterparts
------------
shall be kept by the Secretary, in which shall be recorded the name and address
of each person, firm or corporation owning the Shares evidenced by each
certificate evidencing Shares issued by the Corporation, the number of Shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name Shares stand on the stock ledger of
the Corporation shall be deemed the owner and recordholder thereof for all
purposes.
SECTION 6.03 Transfers of Shares. Registration of transfers of Shares
-------------------
shall be made only in the stock ledger of the Corporation upon request of the
registered holder of such Shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and upon the
surrender of the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation may reasonably require.
SECTION 6.04 Addresses of Stockholders. Each Stockholder shall designate
-------------------------
to the Secretary an address at which notices of meetings and all other corporate
notices may be served or mailed to such Stockholder, and, if any Stockholder
shall fail to so designate such an address, corporate notices may be served upon
such Stockholder by mail directed to the mailing address, if any, as the same
appears in the stock ledger of the Corporation or at the last known mailing
address of such Stockholder.
SECTION 6.05 Lost, Destroyed and Mutilated Certificates. Each
------------------------------------------
recordholder of Shares shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing any
Share or Shares of which he is the recordholder. The Board may, in its
discretion, cause the Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
stolen or destroyed, upon the surrender of the mutilated certificate or, in the
case of loss, theft or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction, and the Board may, in its discretion,
require the recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 6.06 Regulations. The Board may make such other rules and
-----------
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates evidencing
Shares.
10
<PAGE>
SECTION 6.07 Fixing Date for Determination of Stockholders of Record. In
-------------------------------------------------------
order that the Corporation may determine the Stockholders entitled to notice of
or to vote at any meeting of Stockholders or any adjournment thereof, or to
express consent to, or to dissent from, corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other such action. A determination of the Stockholders
entitled to notice of or to vote at a meeting of Stockholders shall apply to any
adjournment of such meeting; provided, however, that the Board may fix a new
-------- -------
record date for the adjourned meeting.
ARTICLE VII
SEAL
SECTION 7.01 Seal. The Board may approve and adopt a corporate seal,
----
which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
ARTICLE VIII
FISCAL YEAR
SECTION 8.01 Fiscal Year. The fiscal year of the Corporation shall end on
-----------
the thirty-first day of December of each year unless changed by resolution of
the Board.
ARTICLE IX
VOTING OF SHARES IN OTHER CORPORATIONS
SECTION 9.01 Voting of Shares in Other Corporations. Shares in other
--------------------------------------
corporations which are held by the Corporation may be represented and voted by
the Chairman, President or a Vice President of the Corporation or by proxy or
proxies appointed by one of them. The Board may, however, appoint some other
person to vote the shares.
ARTICLE X
INDEMNIFICATION
SECTION 10.01 Indemnification. The Corporation shall indemnify, in the
---------------
manner and to the full extent permitted by law, any person (or the estate of any
person) who was or is a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the
11
<PAGE>
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Where required by law, the indemnification provided for herein shall be made
only as authorized in the specific case upon a determination in the manner
provided by law, that indemnification of the director, officer,employee or agent
is proper in the circumstances. The Corporation may, to the full extent
permitted by law, purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person. To the full
extent permitted by law, the indemnification provided herein shall include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, and, in the manner provided by law, any such expenses shall be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit the
right of the Corporation to indemnify any other person for any such expenses to
the full extent permitted by law, nor shall it be deemed exclusive of any other
rights to which any person seeking indemnification from the Corporation may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. Such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
ARTICLE XI
AMENDMENTS
SECTION 11.01 Amendments. Any By-law (including these By-laws) may be
----------
adopted, amended or repealed by the vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors or by written
consent of Stockholders pursuant to Section 2.09 hereof, or by vote of the Board
or by a written consent of Directors pursuant to Section 3.08 hereof.
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<PAGE>
AMENDMENT TO BY-LAWS OF PRIME RESPONSE GROUP INC.
The following sentence shall be added to the end of Section 3.02:
"The number of Directors may be changed from time to time by action of the
Stockholders or action of the Board."
Approved and adopted by the Board of Directors
On November 1, 1997
<PAGE>
EXHIBIT 10.1
PRIME RESPONSE GROUP, 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 Prime Response Group, Inc., a Delaware 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>
interpretations of, the Plan and any outstanding options 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
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 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
under the Stock Issuance Program, which eligible persons are to receive such
stock issuances, the time or times when such 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. The 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 1,666,000
shares.
B. Shares of Common Stock subject to outstanding options 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 price 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>
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 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>
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%
Stockholder, 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.
4
<PAGE>
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.
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.
--------------------------------
(i) The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(ii) 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.
(iii) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee.
(iv) 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 twelve (12)-month period following
the date of the Optionee's death to exercise such option.
(v) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option term.
(vi) 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.
(vii) Should Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to remain outstanding.
5
<PAGE>
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 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. STOCKHOLDER RIGHTS. The holder of an option shall have no
------------------
stockholder 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, the option 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.
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>
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 the Plan 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% STOCKHOLDER. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan at
the time of a Corporate Transaction shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall NOT vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested option shares are concurrently assigned to such
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate
7
<PAGE>
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. 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.
E. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration (in whole or in part) of
one or more outstanding options (and the immediate termination of the
Corporation's repurchase rights with respect to the shares subject to those
options) upon the occurrence of a Corporate Transaction, whether or not those
options are to be assumed in the Corporate Transaction.
F. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on an accelerated basis should the
Optionee's Service terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which the option is assumed and the
repurchase rights applicable to those shares do not otherwise terminate. Any
option so accelerated shall remain exercisable for the fully-vested option
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate on an accelerated basis, and the shares subject to those terminated
rights shall accordingly vest at that time.
G. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
H. 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.
8
<PAGE>
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.
9
<PAGE>
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% Stockholder 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
10
<PAGE>
the Participant's unvested shares of Common Stock and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder 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 stockholder 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 such 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. Upon the occurrence of a Corporate Transaction, all outstanding
repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall
11
<PAGE>
automatically terminate on an accelerated basis, and the shares of Common Stock
subject to those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Corporate Transaction in which those
repurchase rights are assigned to the successor corporation (or parent thereof).
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.
12
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. 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 stockholders. If
such stockholder 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.
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 such 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 stockholder 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
13
<PAGE>
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 stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess 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 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.
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<PAGE>
APPENDIX
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A. The following definitions shall be in effect under the Plan:
B. BOARD shall mean the Corporation's Board of Directors.
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C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
D. 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.
E. COMMON STOCK shall mean the Corporation's common stock.
------------
F. CORPORATE TRANSACTION shall mean either of the following stockholder-
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.
G. CORPORATION shall mean Prime Response Group, Inc., a Delaware
-----------
corporation.
H. 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.
I. 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.
J. EXERCISE DATE shall mean the date on which the Corporation shall have
-------------
received written notice of the option exercise.
K. 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
A-1.
<PAGE>
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.
L. INCENTIVE OPTION shall mean an option which satisfies the requirements
----------------
of Code Section 422.
M. INVOLUNTARY TERMINATION shall mean the termination of the Service of
-----------------------
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or
her duties and responsibilities or the level of management to which he or
she reports, (B) a reduction in his or her level of compensation (including
base salary, fringe benefits and target bonuses under any corporate
performance-based bonus or incentive programs) by more than fifteen percent
(15%) or (C) a relocation of such individual's place of employment by more
than fifty (50) miles, provided and only if such change, reduction or
relocation is effected without the individual's consent.
N. 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).
O. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
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A-2.
<PAGE>
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
Q. OPTION GRANT PROGRAM shall mean the option grant program in effect
--------------------
under the Plan.
R. OPTIONEE shall mean any person to whom an option is granted under the
--------
Plan.
S. 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.
T. PARTICIPANT shall mean any person who is issued shares of Common Stock
-----------
under the Stock Issuance Program.
U. PLAN shall mean the Corporation's 1998 Stock Option/Stock Issuance
----
Plan, as set forth in this document.
V. PLAN ADMINISTRATOR shall mean either the Board or the Committee acting
------------------
in its capacity as administrator of the Plan.
W. SERVICE shall mean the provision of services to the Corporation (or any
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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.
X. STOCK EXCHANGE shall mean either the American Stock Exchange or the New
--------------
York Stock Exchange.
Y. 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.
Z. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
----------------------
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.
BB. 10% STOCKHOLDER 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>
PRIME RESPONSE GROUP, INC.
ADDENDUM TO 1998 STOCK OPTION/STOCK ISSUANCE PLAN
1. The Purpose of the Addendum. The purpose of this Addendum is to
---------------------------
amend the Prime Response Group, Inc. 1998 Stock Option/Stock Issuance Plan (the
"Plan") in such respects as are necessary to enable it to be treated for the
purposes of taxation in the United Kingdom and in particular the Income and
Corporation Taxes Act 1988, Sections 185 - 187 and Schedule 9 as an Approved
Share Option Scheme in relation to the grant of any Option under the Plan or the
exercise of any Option under the Plan by a person who is an subject to taxation
in the United Kingdom.
2. Definitions.
-----------
2.1 Except where the context requires otherwise or as provided
herein terms defined in the Plan shall bear the same meanings in the Addendum.
2.2 Addendum shall mean this Addendum to the 1998 Stock
--------
Option/Stock Issuance Plan.
Associated Company shall have the meaning as assigned to such
------------------
term in Section 416 of ICTA 1988.
Eligible U.K. Employee shall mean any director of the
----------------------
Corporation who is required to devote to his duties not less than 25 hours per
week (excluding meal breaks) or any employee (other than one who is a director)
of the Corporation who is required under the terms of his employment to provide
no less than an aggregate of 20 hours per week of service (excluding meal
breaks), provided that the director or employee is not precluded by paragraph 8
of Schedule 9 from participating in the Plan as amended by the Addendum.
ICTA 1988 shall mean The Income And Corporation Taxes Act
---------
1988 (of the United Kingdom).
Inland Revenue shall mean the Inland Revenue of the United
--------------
Kingdom.
Market Value per share of Common Stock as of any date shall
------------
be determined as follows:
(i) on any day when the Common Stock is not quoted on the New
York Stock Exchange or the American Stock Exchange its market
value as determined in accordance with Part VIII of the
Taxation of Chargeable Gains Act 1992 (of the U.K.) and
agreed for the purposes of the Plan with the Inland Revenue
Shares Valuation Division on or before that day; on any day
when the Common Stock is quoted on the New York Stock
Exchange or the American Stock Exchange, its Market Value
shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as
A-4.
<PAGE>
quoted on such Exchange or by the National Association of
Securities Dealers for the last market trading day prior to
that day as reported in The Wall Street Journal.
Schedule 9 shall mean Schedule 9 ICTA 1988.
----------
Subsisting Option shall mean a U.K. Option which has neither
-----------------
lapsed nor been exercised.
U.K. Option shall mean an Option granted to an Employee or
-----------
Consultant which is an Option to acquire Common Stock which satisfies the
conditions specified in paragraphs 10-14 inclusive of Schedule 9.
2.3 Where the context admits the singular shall include the
plural and vice versa and the masculine shall include the feminine.
2.4 Any references in the Addendum to any enactment includes a
reference to that enactment as from time to time modified, extended or re-
enacted.
3. General Limitations on Grants to Employees.
------------------------------------------
3.1 In relation to all Employees and the grant of any U.K. Option
to, or the exercise of any U.K. Option by, such a person, the provisions of the
Plan shall be read and take effect subject to the terms of this Addendum.
3.2 A U.K. Option shall only be capable of exercise in conformity
with the provisions of this Addendum.
4. Administration of the Plan.
--------------------------
4.1 The powers conferred on the Plan Administrator by Section IV
of Article Two of the Plan shall not apply in relation to a U.K. Option.
4.2 None of the other powers conferred on the Plan Administrator
by the Plan shall be exercisable so as to prejudice Inland Revenue approval of
the Addendum under Schedule 9.
5. Eligibility.
-----------
5.1 Any U.K. Option granted to an Eligible U.K. Employee shall be
limited and take effect so that the aggregate Market Value of the shares of
Common Stock subject to that U.K. Option when aggregated with the Market Value
of the shares of Common Stock subject to Subsisting Options shall not exceed
(Pounds)30,000 sterling.
5.2 For the purposes of Clause 5.1 above:
5.2.1 U.K. Options shall include all U.K. Options granted
pursuant to this Addendum and all options granted under any other scheme,
approved under
A-5.
<PAGE>
Schedule 9, and established by the Corporation or any Associated Company, not
being a savings related share option scheme.
5.2.2 The Market Value of the shares of Common Stock shall
be calculated as of the Grant Date or such earlier time as may have been agreed
with the Inland Revenue.
5.2.3 The Market Value of the shares of Common Stock at any
time if quoted or determined in a currency other than Pounds Sterling shall be
converted to sterling at the exchange rate in force at that time.
6. Term of Plan. The provisions of Section II of Article Four
------------
of the Plan shall apply save that no U.K. Option shall be granted prior to the
date on which the Addendum is approved by the Board of Inland Revenue under
Schedule 9.
7. Option Exercise Price.
---------------------
7.1 Notwithstanding the provisions of Section I.A of
Article Two of the Plan, the per share exercise price for the shares of Common
Stock subject to a U.K. Option shall not be less than the Market Value of the
shares on the date of grant.
7.2 Notwithstanding clause (i) Section I.A.2 of Article Two
and Section I of Article Four of the Plan, the exercise price of an option may
not be paid in shares of Common Stock or through a promissory note.
8. Exercise of U.K. Options.
------------------------
8.1 Subject to Section I.C of Article Two of the Plan any
U.K. Option which has not lapsed may not be exercised before the third
anniversary of the Grant Date.
8.2 Any performance criteria to which exercise of any U.K.
Option may be subject shall be of no effect until it is accepted by the Inland
Revenue.
8.3 No U.K. Option may be exercised by an individual at any
time when he is precluded by paragraph 8 of Schedule 9 from participating in the
Plan as amended by the Addendum.
8.4 No U.K. Option may be exercised at any time when the
shares of Common Stock which may be thereby acquired do not satisfy the
conditions specified in paragraphs 10-14 of Schedule 9.
8.5 Shares of Common Stock shall be allotted and issued
pursuant to a notice of exercise within 30 days of the date of exercise and a
definitive stock certificate issued to the Optionee in respect thereof.
A-6.
<PAGE>
9. Adjustments Upon Changes in Capitalization or Corporate
-------------------------------------------------------
Transaction.
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9.1 No adjustment to a U.K. Option made pursuant to Section
V.C.C of Article One of the Plan shall:
9.1.1 be made until it has prior approval of the Board
of Inland Revenue;
9.1.2 cause the aggregate amount payable on exercise of
a U.K. Option in full to increase;
9.1.3 cause the subscription price for a share of Common
Stock to fall below its nominal value;
9.1.4 result in the shares of Common Stock, which are
the subject of a U.K. Option, ceasing to satisfy the conditions specified in
paragraphs 10-14 inclusive of Schedule 9.
9.2 The provisions of Section III of Article Two of the Plan
shall not apply for the benefit of the Optionee of a U.K. Option so as to confer
any new rights (within the meaning of paragraph 15 of Schedule 9) on the
Optionee unless those new rights satisfy the conditions contained in the said
paragraph 15 and are obtained by the Optionee within the appropriate period as
also defined in the said paragraph 15.
10. Amendment and Termination of the Plan.
-------------------------------------
10.1 No amendment to the Plan as amended by the Addendum
which in any way affects the grant or exercise of any U.K. Option or the rights
of any Optionee in relation to a U.K. Option shall take effect until approved by
the Board of Inland Revenue.
11. Exchange of Options. The exchange of an option granted under
-------------------
the Addendum under the provisions of Section III of Article Two of the Plan
shall only take place in accordance with the provisions of Paragraph 15 of
Schedule 9 to the Act.
12. Stock Issuance Program. Not stock shall be issued under this
----------------------
Addendum pursuant to Article Three of the Plan.
13. Effective Date. No U.K. options may be granted until such
--------------
time as the Plan (including the Addendum) has been approved by the Board of
Inland Revenue as an Approved Share Option Scheme.
A-7.
<PAGE>
Exhibit 10.2
U.K. OPTIONEE
PRIME RESPONSE GROUP, 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 Prime Response Group, 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: Non-Statutory Stock Option
Exercise Schedule: The Option shall become exercisable for 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 shall become exercisable for 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 the Option become
exercisable for any additional Option Shares following Optionee's
cessation of Service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the Prime Response Group, 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.
RIGHTS OF FIRST REFUSAL. OPTIONEE HEREBY AGREES THAT ALL OPTION
-----------------------
SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN
RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE
TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE AGREEMENT.
<PAGE>
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
--------------------- ---
PRIME RESPONSE GROUP, 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>
Exhibit 10.3
U.K. OPTIONEE
PRIME RESPONSE GROUP, 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
Paragraph 5 or 6.
3. Limited Transferability. During Optionee's lifetime, this option
-----------------------
shall be exercisable only by Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following Optionee's death.
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 Paragraph 5 or 6.
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
Optionee shall have a
<PAGE>
period of three (3) months (commencing with the date of such cessation of
Service) during which to exercise this option, but in no event shall this option
be exercisable at any time after the Expiration Date.
(b) Should Optionee die while this option is outstanding, 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 twelve (12)-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 Optionee shall have a period of twelve (12) months
(commencing with the date of such cessation of Service) during which to exercise
this option. In no event shall this option be exercisable at any time after the
Expiration Date.
(d) During the limited period of post-Service exercisability, this
option may not be exercised in the aggregate for more than the number of vested
Option Shares for which the option is exercisable at the time of Optionee's
cessation of Service. 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. Accelerated Vesting.
-- -------------------
(a) In the event of any Corporate Transaction, the Option Shares at
the time subject to this option but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for any or all
of the Option Shares at the time subject to this option as fully-vested shares
of Common Stock. However, no such acceleration of this option shall occur if and
to the extent: (i) this option is assumed by the successor corporation (or
parent thereof) in the Corporate Transaction (or parent thereof) or (ii) this
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the Option Shares for which
this option is not otherwise at that time exercisable (the excess of the Fair
Market Value of those Option Shares over the aggregate Exercise Price payable
for such shares) and provides for subsequent payout in accordance with the same
exercise schedule in effect for the option pursuant to the exercise schedule set
forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
2
<PAGE>
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) The exercisability of this option may also accelerate in
accordance with the terms and conditions of any special addendum attached to
this Agreement.
(e) This Agreement shall not in any 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. Stockholder Rights. The holder of this option shall not have any
------------------
stockholder 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:
(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:
3
<PAGE>
(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, 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. 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.
4
<PAGE>
(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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. Stockholder 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 stockholders, then
this option shall be void with respect to such excess shares, unless stockholder
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.
5
<PAGE>
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
---------------------
stockholder-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 Prime Response Group, Inc., a Delaware
-----------
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.
<PAGE>
L. 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 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. 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).
P. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
Q. Non-statutory option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
R. Option Shares shall mean the number of shares of Common Stock
-------------
subject to the option.
2
<PAGE>
S. Optionee shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.
T. 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.
U. Plan shall mean the Corporation's 1998 Stock Option/Stock
----
Issuance Plan.
V. Plan Administrator shall mean either the Board or a committee of
------------------
the Board acting in its capacity as administrator of the Plan.
W. Purchase Agreement shall mean the stock purchase agreement in
------------------
substantially the form of Exhibit B to the Grant Notice.
X. 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.
Y. Stock Exchange shall mean the American Stock Exchange or the
--------------
New York Stock Exchange.
Z. 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.
3
<PAGE>
U.K. OPTIONEE
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Option Agreement dated , 199___ (the
"Option Agreement") by and between Prime Response Group, Inc. (the
"Corporation") and ________________________ ("Optionee") evidencing the
stock option (the "Option") granted on such date to Optionee under the terms of
the Corporation's 1998 Stock Option/Stock Issuance Plan, and such provisions
shall be effective immediately. All capitalized terms in this Addendum, to the
extent not otherwise defined herein, shall have the meanings assigned to them in
the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed in accordance with Paragraph 6 of the Option
Agreement, the exercisability of the Option shall not accelerate upon the
occurrence of that Corporate Transaction, and the Option shall, over Optionee's
continued period of Service following the Corporate Transaction, continue to
become exercisable for the Option Shares in accordance with the provisions of
the Option Agreement. However, upon an Involuntary Termination of Optionee's
Service within eighteen (18) months following such Corporate Transaction, the
exercisability of this Option, to the extent the Option is at the time
outstanding but not otherwise fully exercisable, shall automatically accelerate
so that the Option shall immediately become fully exercisable for all the Option
Shares at the time subject to the Option and may be exercised for any or all of
those shares as fully vested shares of Common Stock at any time prior to the
earlier of (i) the Expiration Date or (ii) the expiration of the one (1)-year
period measured from the date of the Involuntary Termination.
2. For purposes of this Addendum, an INVOLUNTARY TERMINATION shall mean
the termination of Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the Corporation
for reasons other than for Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's duties and responsibilities
or the level of management to which he or she reports, (B) a reduction in
Optionee's level of compensation (including base salary, fringe benefits
and target bonuses under any corporate-performance based incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
Optionee's place of employment by more than fifty (50) miles, provided and
only if such change, reduction or relocation is effected by the Corporation
without Optionee's consent.
<PAGE>
3. The provisions of Paragraph 1 of this Addendum shall govern the period
for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within eighteen (18) months after the
Corporate Transaction and shall supersede any provisions to the contrary in
Paragraph 5 of the Option Agreement. The provisions of this Addendum shall also
supersede any provisions to the contrary in Paragraph 18 of the Option Agreement
concerning the deferred exercisability of the Option.
IN WITNESS WHEREOF, Prime Response Group, Inc. has caused this
Addendum to be executed by its duly-authorized officer as of the Effective Date
specified below.
PRIME RESPONSE GROUP, INC.
By:
--------------------------------
Title:
-----------------------------
EFFECTIVE DATE: _________________, 199__
<PAGE>
EXHIBIT 10.4
U.K. OPTIONEE
PRIME RESPONSE GROUP, INC.
STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT made this ______ day of ________________________ 199___, by
---------
and between Prime Response Group, Inc., a Delaware 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 with respect to the Purchased Shares.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation exercises
the First Refusal Right, Optionee (or any successor in interest) shall have all
the rights of a stockholder (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 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.
<PAGE>
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 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. Purchased Shares shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
<PAGE>
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 First Refusal
Right and (ii) 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. 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. For purposes of this Article D, 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
<PAGE>
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 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:
<PAGE>
(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 D.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 D.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.
E. GENERAL PROVISIONS
------------------
1. ASSIGNMENT. The Corporation may assign the First Refusal Right to
any person or entity selected by the Board, including (without limitation) one
or more stockholders 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.
<PAGE>
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 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.
F. 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.
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
<PAGE>
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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
PRIME RESPONSE GROUP, INC.
By:
---------------------------------
Title:
------------------------------
Address:
----------------------------
----------------------------
-------------------------------------
OPTIONEE
Address:
----------------------------
----------------------------
<PAGE>
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.
-------------------------------------
OPTIONEE'S SPOUSE
Address:
----------------------------
----------------------------
<PAGE>
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. CORPORATION shall mean Prime Response Group, Inc., a Delaware
-----------
corporation.
F. DISPOSITION NOTICE shall have the meaning assigned to such term in
------------------
Paragraph D.2.
G. EXERCISE NOTICE shall have the meaning assigned to such term in
---------------
Paragraph D.3.
H. EXERCISE PRICE shall have the meaning assigned to such term in
--------------
Paragraph A.1.
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 D.
K. GRANT DATE shall have the meaning assigned to such term in Paragraph
----------
A.1.
L. 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.
M. MARKET STAND-OFF shall mean the market stand-off restriction specified
----------------
in Paragraph C.3.
N. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
O. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
--------
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
Q. OPTION shall have the meaning assigned to such term in Paragraph A.1.
------
R. OPTION AGREEMENT shall mean all agreements and other documents
----------------
evidencing the Option.
A-1
<PAGE>
S. OPTIONEE shall mean the person to whom the Option is granted under the
--------
Plan.
T. OWNER shall mean Optionee and all subsequent holders of the Purchased
-----
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.
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. 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.
W. PLAN shall mean the Corporation's 1998 Stock Option/Stock Issuance
----
Plan.
X. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
------------------
Board acting in its capacity as administrator of the Plan.
Y. PURCHASED SHARES shall have the meaning assigned to such term in
----------------
Paragraph A.1.
Z. 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.
AA. 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.
BB. SEC shall mean the Securities and Exchange Commission.
---
A-2
<PAGE>
CC. 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.
DD. 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.
EE. TARGET SHARES shall have the meaning assigned to such term in Paragraph
-------------
D.2.
A-3
<PAGE>
Exhibit 10.5
PRIME RESPONSE GROUP, 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 Prime Response Group, 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 Prime Response Group, 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.
1
<PAGE>
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__
PRIME RESPONSE GROUP, 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>
EXHIBIT 10.6
PRIME RESPONSE GROUP, 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
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. During Optionee's lifetime, this option
-----------------------
shall be exercisable only by Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following Optionee's death .
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 Paragraph 5 or 6.
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 Optionee shall have a period of three (3) months (commencing with the date
of such cessation of Service) during which
<PAGE>
to exercise this option, but in no event shall this option be exercisable at any
time after the Expiration Date.
(b) Should Optionee die while this option is outstanding, 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 twelve (12)-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 Optionee shall have a period of twelve (12)
months (commencing with the date of such cessation of Service) during which to
exercise this option. In no event 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. ACCELERATED VESTING.
-------------------
(a) In the event of any Corporate Transaction, the Option Shares
at the time subject to this option but not otherwise vested shall automatically
vest in full so that this option shall, immediately prior to the effective date
of the Corporate Transaction, become fully exercisable for all of the Option
Shares as fully-vested shares and may be exercised for any or all of those
vested shares. However, the Option Shares shall NOT vest on such an accelerated
basis if and to the extent: (i) this option is assumed by the successor
corporation (or parent thereof) in the Corporate Transaction and the
Corporation's repurchase rights with respect to the unvested Option Shares are
assigned to such successor corporation (or parent thereof) or (ii) this option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested Option Shares at the time of
the Corporate Transaction (the
2
<PAGE>
excess of the Fair Market Value of those Option Shares over the Exercise Price
payable for such shares) and provides for subsequent payout in accordance with
the same Vesting Schedule applicable to those unvested Option Shares as set
forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
--------
(d) The Option Shares may also vest upon an accelerated basis in
accordance with the terms and conditions of any special addendum attached to
this Agreement.
(e) This Agreement shall not in any 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. STOCKHOLDER RIGHTS. The holder of this option shall not have
------------------
any stockholder 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:
(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:
3
<PAGE>
(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, state and local income and employment tax withholding requirements
applicable to the option exercise.
4
<PAGE>
(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.
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
5
<PAGE>
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. STOCKHOLDER 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 stockholders, then
this option shall be void with respect to such excess shares, unless stockholder
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 twelve (12) 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>
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
---------------------
stockholder-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 Prime Response Group, Inc., a Delaware
-----------
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.
A-1
<PAGE>
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:
(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).
A-2
<PAGE>
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.
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.
BB. 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>
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby made
a part of, that certain Stock Option Agreement dated 199
(the "Option Agreement") by and between Prime Response Group, Inc. (the
"Corporation") and
("Optionee") evidencing the stock option (the "Option") granted on such date to
Optionee under the terms of the Corporation's 1998 Stock Option/Stock Issuance
Plan, and such provisions shall be effective immediately. All capitalized terms
in this Addendum, to the extent not otherwise defined herein, shall have the
meanings assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed in accordance with Paragraph 6 of the Option
Agreement, none of the Option Shares shall vest on an accelerated basis upon the
occurrence of that Corporate Transaction, and Optionee shall accordingly
continue, over his or her period of Service following the Corporate Transaction,
to vest in the Option Shares in one or more installments in accordance with the
provisions of the Option Agreement. However, upon an Involuntary Termination of
Optionee's Service within eighteen (18) months following such Corporate
Transaction, all the Option Shares at the time subject to the Option shall
automatically vest in full on an accelerated basis so that the Option shall
immediately become exercisable for all the Option Shares as fully-vested shares
and may be exercised for any or all of those Option Shares as vested shares.
The Option shall remain so exercisable until the earlier of (i) the Expiration
Date or (ii) the expiration of the one (1)-year period measured from the date of
the Involuntary Termination.
2. For purposes of this Addendum, an Involuntary Termination shall mean
the termination of Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the Corporation
for reasons other than for Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's duties and responsibilities
or the level of management to which he or she reports, (B) a reduction in
Optionee's level of compensation (including base salary, fringe benefits
and target bonuses under any corporate-performance based incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
Optionee's place of employment by more than fifty (50) miles, provided and
only if such change, reduction or relocation is effected by the Corporation
without Optionee's consent.
<PAGE>
3. The provisions of Paragraph 1 of this Addendum shall govern the period
for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within eighteen (18) months after the
Corporate Transaction and shall supersede any provisions to the contrary in
Paragraph 5 of the Option Agreement. The provisions of this Addendum shall also
supersede any provisions to the contrary in Paragraph 18 of the Option Agreement
concerning the deferred exercisability of the Option.
IN WITNESS WHEREOF, Prime Response Group, Inc. has caused this Addendum to
be executed by its duly-authorized officer as of the Effective Date specified
below.
PRIME RESPONSE GROUP, INC.
By:
-------------------------------------
Title:
----------------------------------
EFFECTIVE DATE: , 199
----------- --
2
<PAGE>
Exhibit 10.7
PRIME RESPONSE GROUP, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made this _______ day of ___________________ 199__, by and
between Prime Response Group, Inc., a Delaware 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
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1. EXERCISE. Optionee hereby purchases _________________ shares of
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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
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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. STOCKHOLDER RIGHTS. Until such time as the Corporation exercises
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the Repurchase Right or the First Refusal Right, Optionee (or any successor in
interest) shall have all the rights of a stockholder (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
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1. RESTRICTED SECURITIES. The Purchased Shares have not been
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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 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.
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2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee shall
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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
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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
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1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer, Optionee
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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.
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2. TRANSFEREE OBLIGATIONS. Each person (other than the Corporation) to whom
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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.
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(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
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1. GRANT. The Corporation is hereby granted the right (the "Repurchase
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Right"), exercisable at any time during the sixty (60)-day period following the
date Optionee 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
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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
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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
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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
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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
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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.
6. CORPORATE TRANSACTION.
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(a) The Repurchase Right shall automatically terminate in its entirety,
and all the Purchased Shares shall vest in full, immediately prior to the
consummation of any Corporate Transaction, except to the extent the Repurchase
Right is to be assigned to the successor entity in such Corporate Transaction.
(b) To the extent the Repurchase Right remains in effect following a
Corporate Transaction, such right shall apply to any new securities or other
property (including any cash payments) received in exchange for the Purchased
Shares in consummation of the Corporate Transaction, but only to the extent the
Purchased Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Corporation's
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<PAGE>
capital structure; provided, however, that the aggregate purchase price shall
remain the same. The new securities or other property (including any cash
payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Optionee vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an accelerated basis, and
the Purchased Shares shall immediately vest in full, in accordance with the
terms and conditions of any special addendum attached to this Agreement.
E. RIGHT OF FIRST REFUSAL
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1. GRANT. The Corporation is hereby granted the right of first refusal (the
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"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
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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
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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
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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
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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
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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.
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(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
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<PAGE>
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
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(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
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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
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1. ASSIGNMENT. The Corporation may assign the Repurchase Right and/or the
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First Refusal Right to any person or entity selected by the Board, including
(without limitation) one or more stockholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or in the
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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.
3. NOTICES. Any notice required to be given under this Agreement shall be
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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.
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4. NO WAIVER. The failure of the Corporation in any instance to exercise
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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
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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
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1. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever additional
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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
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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
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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
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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
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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.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
PRIME RESPONSE GROUP, INC.
By:
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Title:
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Address:
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OPTIONEE
Address:
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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.
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OPTIONEE'S SPOUSE
Address:
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EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________________________ hereby sell(s),
assign(s) and transfer(s) unto Prime Response Group, 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>
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
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NON-STATUTORY OPTION. If the Purchased Shares are acquired pursuant to the
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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
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EXERCISE OF INCENTIVE OPTION. If the Purchased Shares are acquired pursuant to
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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.
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(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 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.
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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 Prime Response Group, 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 Prime Response Group, 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>
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>
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
---------
stockholder-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 Prime Response Group, Inc., a Delaware
-----------
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 mean an option which satisfies the requirements of Code
----------------
Section 422.
A-1
<PAGE>
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.
BB. PURCHASED SHARES shall have the meaning assigned to such term in
----------------
Paragraph A.1.
CC. 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.
A-2
<PAGE>
DD. 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.
EE. REPURCHASE RIGHT shall mean the right granted to the Corporation in
-----------------
accordance with Article D.
FF. SEC shall mean the Securities and Exchange Commission.
---
GG. 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.
HH. 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.
II. TARGET SHARES shall have the meaning assigned to such term in Paragraph
-------------
E.2.
JJ. 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.
KK. UNVESTED SHARES shall have the meaning assigned to such term in
---------------
Paragraph D.1.
A-3
<PAGE>
ADDENDUM
TO
STOCK PURCHASE AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Purchase Agreement dated_________________
(the "Purchase Agreement") by and between Prime Response Group, Inc. (the
"Corporation") and ___________________________ ("Optionee") evidencing the
shares of Common Stock purchased on such date by Optionee pursuant to the option
granted to him or her under the Corporation's 1998 Stock Option/Stock Issuance
Plan, and such provisions shall be effective immediately. All capitalized terms
in this Addendum, to the extent not otherwise defined herein, shall have the
meanings assigned to such terms in the Purchase Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with a Corporate Transaction, no
accelerated vesting of the Purchased Shares shall occur upon such Corporate
Transaction, and the Repurchase Right shall continue to remain in full force and
effect in accordance with the provisions of the Purchase Agreement. Optionee
shall, over his or her period of Service following the Corporate Transaction,
continue to vest in the Purchased Shares in one or more installments in
accordance with the provisions of the Purchase Agreement. However, upon an
Involuntary Termination of Optionee's Service within eighteen (18) months
following the Corporate Transaction, the Repurchase Right shall terminate
automatically, and all the Purchased Shares shall immediately vest in full at
that time.
2. For purposes of this Addendum, the following definitions shall be in
effect:
An INVOLUNTARY TERMINATION shall mean the termination of Optionee's
Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the Corporation
for reasons other than for Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in his
or her position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces his or her duties and responsibilities or the
level of management to which he or she reports, (B) a reduction in Optionee's
level of compensation (including base salary, fringe benefits and target bonuses
under any corporate-performance based incentive programs) by more than fifteen
percent (15%) or (C) a relocation of Optionee's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or relocation is
effected by the Corporation without Optionee's consent.
<PAGE>
MISCONDUCT shall mean the termination of Optionee's Service by reason
of Optionee's commission of any act of fraud, embezzlement or dishonesty, 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).
IN WITNESS WHEREOF, Prime Response Group, Inc. has caused this
Addendum to be executed by its duly-authorized officer as of the Effective Date
specified below.
PRIME RESPONSE GROUP, INC.
By:
Title:
EFFECTIVE DATE: _________________________, 199__
2.
<PAGE>
EXHIBIT 10.8
PRIME RESPONSE GROUP, INC.
STOCK ISSUANCE AGREEMENT
------------------------
AGREEMENT made as of this _____ day of ______________ 199___, by and
between Prime Response Group, Inc., a Delaware 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.
I. 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. STOCKHOLDER 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 stockholder rights (including voting, dividend and
liquidation rights) with respect to the Purchased Shares, subject, however, to
the transfer restrictions of Articles B and C.
A. 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.
1
<PAGE>
(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."
B. 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. 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.
C. 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>
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.
---------------------
(a) The Repurchase Right shall automatically terminate in its
entirety, and all the Purchased Shares shall vest in full, immediately prior to
the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect following
a Corporate Transaction, such right shall apply to any new securities or other
property (including any cash payments) received in exchange for the Purchased
Shares in consummation of the Corporate Transaction, but only to the extent the
Purchased Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Corporation's
capital structure; provided, however, that the aggregate purchase price shall
remain the same. The new securities or other property (including any cash
payments) issued or distributed with
4
<PAGE>
respect to the Purchased Shares in consummation of the Corporate Transaction
shall be immediately deposited in escrow with the Corporation (or the successor
entity) and shall not be released from escrow until Participant vests in such
securities or other property in accordance with the same Vesting Schedule in
effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an accelerated
basis, and the Purchased Shares shall immediately vest in full, in accordance
with the terms and conditions of any special addendum attached to this
Agreement.
D. 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 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
5
<PAGE>
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.
-------------------------------
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.
(a) 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.
6
<PAGE>
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.
E. 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.
F. 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 stockholders 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.
7
<PAGE>
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 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.
G. 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
8
<PAGE>
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.
PRIME RESPONSE GROUP, INC.
Title:
------------------------------
Address:
----------------------------
----------------------------
-------------------------------------
PARTICIPANT
Address:
----------------------------
----------------------------
9
<PAGE>
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
10
<PAGE>
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ______________________________________________
hereby sell(s), assign(s) and transfer(s) unto Prime Response Group, 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>
EXHIBIT II
SECTION 83(b) TAX ELECTION
<PAGE>
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 Prime Response Group, Inc.
(3) The property was issued on _____________________, 199____.
(4) The taxable year in which the election is being made is the calendar year
1998.
(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 Prime Response Group, 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>
EXHIBIT III
1998 STOCK OPTION/STOCK ISSUANCE PLAN
<PAGE>
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
---------------------
stockholder-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 Prime Response Group, Inc., a Delaware
-----------
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.
--------
A-1
<PAGE>
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 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,
A-2
<PAGE>
(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.
W. REPURCHASE RIGHT shall mean the right granted to the Corporation
----------------
in accordance with Article D.
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.
BB. TARGET SHARES shall have the meaning assigned to such term in
-------------
Paragraph E.2.
CC. 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.
DD. UNVESTED SHARES shall have the meaning assigned to such term in
---------------
Paragraph D.1.
A-3
<PAGE>
ADDENDUM
TO
STOCK ISSUANCE AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Issuance Agreement dated , 199
(the "Issuance Agreement") by and between Prime Response Group, Inc. (the
"Corporation") and ("Participant") evidencing the shares of
Common Stock purchased on such date by Participant pursuant to the shares
granted to him or her under the Corporation's 1998 Stock Option/Stock Issuance
Plan, and such provisions shall be effective immediately. All capitalized terms
in this Addendum, to the extent not otherwise defined herein, shall have the
meanings assigned to such terms in the Issuance Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with a Corporate Transaction, no
accelerated vesting of the Purchased Shares shall occur upon such Corporate
Transaction, and the Repurchase Right shall continue to remain in full force and
effect in accordance with the provisions of the Issuance Agreement. Participant
shall, over his or her period of Service following the Corporate Transaction,
continue to vest in the Purchased Shares in one or more installments in
accordance with the provisions of the Issuance Agreement. However, upon an
Involuntary Termination of Participant's Service within eighteen (18) months
following the Corporate Transaction, the Repurchase Right shall terminate
automatically and all the Purchased Shares shall immediately vest in full.
2. For purposes of this Addendum, the following definitions shall be
in effect:
An INVOLUNTARY TERMINATION shall mean the termination of
Participant's Service by reason of:
a. Participant's involuntary dismissal or discharge by the Corporation
for reasons other than for Misconduct, or
b. Participant's voluntary resignation following (A) a change in his
or her position with the Corporation (or Parent or Subsidiary employing
Participant) which materially reduces his or her duties and
responsibilities or the level of management to which he or she reports,
(B) a reduction in Participant's level of compensation (including base
salary, fringe benefits and target bonuses under any corporate-performance
based incentive programs) by more than fifteen percent (15%) or (C) a
relocation of Participant's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is
effected by the Corporation without Participant's consent.
<PAGE>
MISCONDUCT shall include the termination of Participant's Service by
reason or Participant's commission of any act of fraud, embezzlement or
dishonesty, any unauthorized use or disclosure by Participant of confidential
information or trade secrets of the Corporation (or any Parent or Subsidiary),
or any other intentional misconduct by Participant 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 the Participant or any
other individual in the Service of the Corporation (or any Parent or
Subsidiary).
IN WITNESS WHEREOF, Prime Response Group, Inc. has caused this
Addendum to be executed by its duly-authorized officer as of the Effective Date
specified below.
PRIME RESPONSE GROUP, INC.
By:
------------------------------
Title:
------------------------------
EFFECTIVE DATE: , 199
----------------------- ----
2
<PAGE>
EXHIBIT 10.9
Execution Copy
================================================================================
STOCK PURCHASE AGREEMENT
by and among
PRIME RESPONSE GROUP INC.,
GENERAL ATLANTIC PARTNERS 42, L.P.
and
GAP COINVESTMENT PARTNERS, L.P.
______________________________
Dated as of October 1, 1997
______________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 DEFINITIONS............................................................................1
1.1 Definitions............................................................................1
1.2 Accounting Terms; Financial Statements.................................................8
1.3 Knowledge of the Company...............................................................8
ARTICLE 2 PURCHASE AND SALE OF PREFERRED STOCK...................................................8
2.1 Purchase and Sale of Preferred Stock...................................................8
2.2 Certificate of Designation.............................................................8
2.3 Closing................................................................................8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................9
3.1 Corporate Existence and Power..........................................................9
3.2 Authorization; No Contravention........................................................9
3.3 Governmental Authorization; Third Party Consents......................................10
3.4 Binding Effect........................................................................10
3.5 Litigation............................................................................10
3.6 Compliance with Laws..................................................................10
3.7 Capitalization........................................................................11
3.8 No Default or Breach; Contractual Obligations.........................................12
3.9 Title to Properties...................................................................12
3.10 FIRPTA................................................................................12
3.11 Financial Statements..................................................................12
3.12 Taxes.................................................................................13
3.13 No Material Adverse Change; Ordinary Course of Business...............................13
3.14 Investment Company....................................................................14
3.15 Private Offering......................................................................14
3.16 Labor Relations.......................................................................14
3.17 Employee Benefit Plans................................................................14
3.18 Title to Assets.......................................................................15
3.19 Liabilities...........................................................................15
3.20 Intellectual Property.................................................................15
3.21 Year 2000 Compliance..................................................................17
3.22 Potential Conflicts of Interest.......................................................18
3.23 Trade Relations.......................................................................18
3.24 Outstanding Borrowing.................................................................18
3.25 Insurance.............................................................................18
3.26 Environmental Matters.................................................................19
3.27 Broker's, Finder's or Similar Fees....................................................19
3.28 Disclosure............................................................................19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS.....................................................................19
4.1 Existence and Power...................................................................19
4.2 Authorization; No Contravention.......................................................19
4.3 Governmental Authorization; Third Party Consents......................................20
4.4 Binding Effect........................................................................20
4.5 Litigation............................................................................20
4.6 Purchase for Own Account..............................................................20
4.7 Restricted Securities.................................................................22
4.8 Investment Experience.................................................................22
4.9 Broker's, Finder's or Similar Fees....................................................22
ARTICLE 5 CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE...............................22
5.1 Representations and Warranties........................................................22
5.2 Compliance with this Agreement........................................................22
5.3 Secretary's Certificate...............................................................23
5.4 Officer's Certificate.................................................................23
5.5 Filing of Certificate of Designation..................................................23
5.6 Stockholders Agreement................................................................23
5.7 Registration Rights Agreement.........................................................23
5.8 Opinion of Counsel....................................................................23
5.9 Purchased Shares......................................................................23
5.10 No Material Adverse Change............................................................24
5.11 Consents and Approvals................................................................24
5.12 No Material Judgment or Order.........................................................24
5.13 No Litigation.........................................................................24
5.14 Exchange Agreement....................................................................24
5.15 Stock Option Plan and Option Agreement................................................24
ARTICLE 6 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE ...............................25
6.1 Representation and Warranties.........................................................25
6.2 Compliance with this Agreement........................................................25
6.3 General Partners' Certificates........................................................25
6.4 Stockholders Agreement................................................................25
6.5 Registration Rights Agreement.........................................................25
6.6 Opinion of Counsel....................................................................26
6.7 No Material Judgment or Order.........................................................26
6.8 Payment by the Purchasers.............................................................26
6.9 Consents, Approvals...................................................................26
6.10 Exchange Agreement....................................................................26
6.11 Option Agreement......................................................................26
6.12 Certificate of Designation............................................................26
</TABLE>
ii
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
ARTICLE 7 INDEMNIFICATION.......................................................................27
7.1 Indemnification.......................................................................27
7.2 Notification..........................................................................28
ARTICLE 8 AFFIRMATIVE COVENANTS.................................................................29
8.1 Preservation of Existence.............................................................29
8.2 Fiscal Year End.......................................................................30
8.3 Financial Statements and Other Information............................................30
8.4 Reservation of Common Stock...........................................................31
8.5 Insurance.............................................................................31
8.6 Books and Records.....................................................................31
8.7 Back-Ups of Computer Software.........................................................31
8.8 Inspection............................................................................31
ARTICLE 9 TERMINATION OF AGREEMENT..............................................................32
9.1 Termination...........................................................................32
9.2 Survival..............................................................................32
ARTICLE 10 MISCELLANEOUS.........................................................................33
10.1 Survival of Representations and Warranties............................................33
10.2 Notices...............................................................................33
10.3 Successors and Assigns; Third Party Beneficiaries.....................................34
10.4 Amendment and Waiver..................................................................34
10.5 Counterparts..........................................................................35
10.6 Headings..............................................................................35
10.7 GOVERNING LAW.........................................................................35
10.8 Severability..........................................................................35
10.9 Entire Agreement......................................................................35
10.10 Fees..................................................................................35
10.11 Publicity.............................................................................36
10.12 Further Assurances....................................................................36
</TABLE>
iii
<PAGE>
EXHIBITS
A-1 Certificate of Incorporation
A-2 By-laws
B Form of Stockholders Agreement
C Form of Registration Rights Agreement
SCHEDULES
2.1 Purchased Shares and Purchase Price
3.3 Governmental Authorizations; Third Party Consents
3.5 Litigation
3.7(a) List of Stockholders and Capital Stock and Stock Equivalents.
3.7(b) Options, Warrants and Other Rights
3.8(i) Defaults or Breaches of Contractual Obligations
3.8(ii) Contractual Obligations
3.12 Taxes
3.17 Employee Benefit Plans
3.18 Title to Assets of the Company
3.20(a)(ii) Intellectual Property Owned by the Company or the Subsidiary and
Applications therefor
3.20(a)(iii) Intellectual Property Licenses under which the Company or the
Subsidiary is a Licensor or Licensee
3.20(a)(iv) Infringements of the Company or the Subsidiary
3.20(a)(v) Intellectual Property Litigation
3.20(b) Infringement or Violations of Intellectual Property Rights
3.20(d) License Agreements which require a Material Royalty Payment
3.21 Year 2000 Compliance
3.22(i) Ownership Interests
3.22(ii) Loans to and from the Company
3.24 Outstanding Borrowing
3.25 Insurance
iv
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of October 1, 1997 (this
"Agreement"), among Prime Response Group Inc., a Delaware corporation (the
"Company"), General Atlantic Partners 42, L.P., a Delaware limited partnership
("GAP LP"), and GAP Coinvestment Partners, L.P., a New York limited partnership
("GAP Coinvestment" and, together with GAP LP, the "Purchasers").
WHEREAS, the Company, in connection with the transactions contemplated
hereby, intends to enter into a Stock Exchange Agreement (the "Exchange
Agreement"), with James Carling and Nevin Prakash (together, the
"Stockholders"), pursuant to which the Stockholders will transfer to the Company
all of the issued and outstanding shares of Prime Response Limited, a company
registered in England and Wales under number 2155722 (the "Subsidiary"), in
exchange for newly issued common stock, par value $.01 per share (the "Common
Stock"), of the Company and a promissory note of the Company; and
WHEREAS, upon the terms and conditions set forth in this Agreement,
the Company proposes to issue and sell to (a) GAP LP, for an aggregate purchase
price of $18,779,308.29, an aggregate of 915,310 shares of Series A Convertible
Participating Preferred Stock, par value $.01 per share, of the Company (the
"Preferred Stock") and (b) GAP Coinvestment, for an aggregate purchase price of
$4,917,691.71, an aggregate of 239,690 shares of Preferred Stock.
WHEREAS, each share of Preferred Stock is convertible (subject to
adjustment) into one share of Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
---------
Rule 12b-2 of the General Rules and Regulations under the Exchange Act. The
following shall be deemed to be Affiliates of GAP LP: (a) GAP LLC, the members
<PAGE>
2
of GAP LLC and the limited partners of GAP LP; (b) any Affiliate of GAP LLC, the
members of GAP LLC and the limited partners of GAP LP; and (c) any limited
liability company or partnership a majority of whose members or partners, as the
case may be, are members of GAP LLC. GAP LP and GAP Coinvestment shall be deemed
to be Affiliates of one another.
"Agreement" means this Agreement as the same may be amended
---------
supplemented or modified in accordance with the terms hereof.
"Assets" has the meaning set forth in Section 3.18 of this Agreement.
------
"Audited Financial Statements" has the meaning set forth in
----------------------------
Section 3.11 of this Agreement.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"By-laws" means the by-laws of the Company in effect on the Closing
-------
Date substantially in the form attached hereto as Exhibit A-2, as the same may
-----------
be amended from time to time.
"Capital Lease Obligations" of any Person shall mean, as of the date
-------------------------
of determination, the obligations of such Person to pay rent or other amounts
under any lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of such
Person under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP consistently applied.
"Certificate of Designation" means the Certificate of Designation with
--------------------------
respect to the Preferred Stock adopted by the Board of Directors and filed with
the Secretary of State of the State of Delaware on or before the Closing Date.
"Certificate of Incorporation" means the Certificate of Incorporation
----------------------------
of the Company substantially in the form attached hereto as Exhibit A-1, as the
-----------
same may be amended from time to time.
"Claims" has the meaning set forth in Section 3.5 of this Agreement.
------
"Closing" has the meaning set forth in Section 2.3 of this Agreement.
-------
<PAGE>
3
"Closing Date" has the meaning set forth in Section 2.3 of this
------------
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
----
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning set forth in the recitals to this
------------
Agreement.
"Company" has the meaning set forth in the recitals to this Agreement.
-------
"Condition of the Company" means the assets, business, properties,
------------------------
prospects, operations or financial condition of the Company and the Subsidiary,
taken as a whole.
"Contingent Obligation" means, as applied to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
------------------ ---------------
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligation or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall, unless stated to be
otherwise in the instrument constituting the Contingent Obligation, be deemed to
be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by the Board of Directors.
"Contractual Obligations" means as to any Person, any provision of any
-----------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
<PAGE>
4
"Copyrights" means any foreign or United States copyright
----------
registrations and applications for registration thereof, and any non-registered
copyrights.
"Defined Benefit Plan" means a defined benefit plan within the meaning
--------------------
of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded or
unfunded, qualified or nonqualified (whether or not subject to ERISA or the
Code).
"Environmental Laws" means U.S. federal, state, local and foreign
------------------
laws, principles of common law, civil law, regulations and codes, as well as
orders, decrees, judgments or injunctions issued, promulgated, approved or
entered thereunder relating to pollution, protection of the environment or
public health and safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" means any Person that is treated as a single
---------------
employer with the Company or its Subsidiary under Section 414(b), (c), (m) or
(o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission thereunder.
"Exchange Agreement" has the meaning set forth in the recitals to this
------------------
Agreement.
"Financial Statements" has the meaning set forth in Section 3.11.
--------------------
"GAAP" means generally accepted accounting principles in effect from
----
time to time in the United States or the United Kingdom, as the case may be.
"GAP Coinvestment" has the meaning set forth in the recitals to this
----------------
Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
-------
liability company and the general partner of GAP LP, and any successor to such
entity.
"GAP LP" has the meaning set forth in the recitals to this Agreement.
------
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to
<PAGE>
5
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all Capital Lease
Obligations of such Person, (g) all indebtedness secured by any Lien (other than
Liens in favor of lessors under leases other than leases included in clause (f))
on any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is non-
recourse to the credit of that Person, and (h) any Contingent Obligation of such
Person.
"Indemnified Party" has the meaning set forth in Section 7.1 of this
-----------------
Agreement.
"Indemnifying Party" has the meaning set forth in Section 7.1 of this
------------------
Agreement.
"Intellectual Property" has the meaning set forth in Section 3.20 of
---------------------
this Agreement.
"Internet Assets" means any internet domain names and other computer
---------------
user identifiers and any rights in and to sites on the worldwide web, including
rights in and to any text, graphics, audio and video files and html or other
code incorporated in such sites.
"Liabilities" has the meaning set forth in Section 3.19 of this
-----------
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without
<PAGE>
6
limitation, those created by, arising under or evidenced by any conditional sale
or other title retention agreement, the interest of a lessor under a Capital
Lease Obligation, or any financing lease having substantially the same economic
effect as any of the foregoing.
"Mask Works" means any mask works and registrations and applications
----------
for registrations thereof.
"Material Intellectual Property" has the meaning set forth in Section
------------------------------
3.20(a)(i) of this Agreement.
"Option Agreement" means the Option Agreement to be entered into by
----------------
the Company and Nevin Prakash.
"Orders" has the meaning set forth in Section 3.2 of this Agreement.
------
"Patents" means any foreign or United States patents and patent
-------
applications, including any divisions, continuations, continuations-in-part,
substitutions or reissues thereof, whether or not patents are issued on such
applications and whether or not such applications are modified, withdrawn or
resubmitted.
"Permits" has the meaning set forth in Section 3.6(b)(i) of this
-------
Agreement.
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Plans" has the meaning set forth in Section 3.17 of this Agreement.
-----
"Preferred Stock" has the meaning set forth in the recitals to this
---------------
Agreement.
"Promissory Note" means the promissory note to be issued by the
---------------
Company to Nevin Prakash in connection with the transactions contemplated by the
Exchange Agreement.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
----------------
Agreement.
"Purchasers" has the meaning set forth in the recitals to this
----------
Agreement.
<PAGE>
7
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement substantially in the form attached hereto as Exhibit C.
---------
"Regulations" means the Treasury Regulations promulgated under the
-----------
Code.
"Requirements of Law" means, as to any Person, any law, statute,
-------------------
treaty, rule, regulation, right, privilege, qualification, license or franchise
or determination of an arbitrator or a court or other Governmental Authority or
stock exchange, in each case applicable or binding upon such Person or any of
its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to herein.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission thereunder.
"Stock Equivalents" means any security or obligation which is by its
-----------------
terms convertible into or exchangeable for shares of common stock or other
capital stock or equity securities of the Company, and any option, warrant or
other subscription or purchase right with respect to common stock or such other
capital stock or equity securities.
"Stockholders Agreement" means the Stockholders Agreement
----------------------
substantially in the form attached hereto as Exhibit B.
---------
"Software" means any computer software programs, source code, object
--------
code, data and documentation.
"Stockholders" has the meaning set forth in the recitals to this
------------
Agreement.
"Subsidiary" has the meaning set forth in the recitals to this
----------
Agreement.
"Taxes" has the meaning set forth in Section 3.12 of this Agreement.
-----
"Trade Secrets" means any trade secrets, research records, processes,
-------------
procedures, manufacturing formulae, technical know-how, technology, blue prints,
designs, plans, inventions (whether patentable and whether reduced to practice),
invention disclosures and improvements thereto.
"Trademarks" means any foreign or United States trademarks, service
----------
marks, trade dress, trade names, brand names, designs and logos, corporate
names,
<PAGE>
8
product or service identifiers, whether registered or unregistered, and all
registrations and applications for registration thereof.
"Transaction Documents" means collectively, this Agreement, the
---------------------
Stockholders Agreement, the Registration Rights Agreement and the Exchange
Agreement, the Option Agreement and the Promissory Note.
"Unaudited Financial Statements" has the meaning set forth in
------------------------------
Section 3.11 of this Agreement.
1.2 Accounting Terms; Financial Statements . All accounting terms
--------------------------------------
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
1.3 Knowledge of the Company . All references to the knowledge of
------------------------
the Company shall mean the knowledge of the Stockholders and Shushil Chohan,
Finance Manager of the Subsidiary.
ARTICLE 2
PURCHASE AND SALE OF PREFERRED STOCK
------------------------------------
2.1 Purchase and Sale of Preferred Stock. Subject to the terms and
------------------------------------
conditions herein set forth, the Company agrees to issue and sell to each of the
Purchasers, and each of the Purchasers agrees that it will purchase from the
Company, on the Closing Date, the aggregate number of shares of Preferred Stock
set forth opposite such Purchaser's name on Schedule 2.1 hereto, for the
------------
aggregate purchase price set forth opposite such Purchaser's name on Schedule
--------
2.1 hereto (all of the shares of Preferred Stock being purchased hereunder being
- ---
referred to herein as the "Purchased Shares").
2.2 Certificate of Designation. The Purchased Shares shall be
---------------------------
shares of preferred stock of the Company issued pursuant to the Certificate of
Designation.
2.3 Closing. Unless this Agreement shall have terminated pursuant
-------
to Article 9 and subject to the satisfaction or waiver of the conditions set
forth in Articles 5 and 6, the closing of the sale and purchase of the Purchased
Shares (the "Closing") shall take place at the offices of Paul, Weiss, Rifkind,
Wharton & Garrison, no later than 4:00 p.m., New York time, on the second
Business Day
<PAGE>
9
following the date upon which the conditions set forth in Articles 5 and 6 shall
be satisfied or waived in accordance with this Agreement, or at such other time,
place and date that the Company and the Purchasers may agree in writing (the
"Closing Date"). On the Closing Date, the Company shall deliver to each
Purchaser a certificate representing the Purchased Shares being purchased by
such Purchaser against delivery by such Purchaser to the Company of the
aggregate purchase price therefor (as set forth opposite such Purchaser's name
on Schedule 2.1 hereto) by wire transfer of immediately available funds.
------------
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
(For the purposes of these representations and warranties, the
transactions contemplated by the Exchange Agreement shall be deemed to have
occurred as of the date hereof.) The Company represents and warrants to the
Purchasers as follows:
3.1 Corporate Existence and Power. Each of the Company and the
-----------------------------
Subsidiary (a) is, in the case of the Company, a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and is, in the case of the Subsidiary, a company registered in
England and Wales under number 2155722; (b) has all requisite power and
authority to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently, or is proposed to
be, engaged; (c) is, in the case of the Company, duly qualified as a foreign
corporation, licensed and in good standing, and is, in the case of the
Subsidiary, duly registered and remains subsisting under the laws of each
jurisdiction in which its ownership, lease or operation of property or the
conduct of its business requires such qualification, except to the extent that
the failure to do so would not have a material adverse effect on the Condition
of the Company; and (d) has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement and each of the other
Transaction Documents to which it is a party. No jurisdiction, other than those
referred to in clause (c) above, has claimed, in writing or otherwise, that the
Company or the Subsidiary is required to qualify as a foreign corporation
therein, and neither the Company nor the Subsidiary files any franchise, income
or other tax returns in any other jurisdiction based upon the ownership or use
of property therein or the derivation of income therefrom.
3.2 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby (a) have been
duly authorized by all necessary corporate action of the Company; (b) do not
contravene
<PAGE>
10
the terms of the Certificate of Incorporation or the By-laws, or any certificate
of incorporation or by-laws or other organizational documents of the Subsidiary;
(c) do not violate, conflict with or result in any breach or contravention of,
or the creation of any Lien under, any Contractual Obligation of the Company or
the Subsidiary, or any Requirement of Law applicable to the Company or the
Subsidiary; and (d) do not violate any judgment, injunction, writ, award, decree
or order of any nature (collectively, "Orders") of any Governmental Authority
against, or binding upon, the Company or the Subsidiary.
3.3 Governmental Authorization; Third Party Consents. Except as
------------------------------------------------
set forth in Schedule 3.3, no approval, consent, compliance, exemption,
------------
authorization or other action by, or notice to, or filing with, any Governmental
Authority or any other Person, and no lapse of a waiting period under a
Requirement of Law, is necessary or required in connection with the execution,
delivery or performance (including, without limitation, the sale, issuance and
delivery of the Purchased Shares) by, or enforcement against, the Company of
this Agreement and the other Transaction Documents or the transactions
contemplated hereby and thereby.
3.4 Binding Effect. This Agreement has been, and as of the Closing
--------------
Date each of the other Transaction Documents will have been, duly executed and
delivered by the Company, and this Agreement constitutes, and as of the Closing
Date each of the other Transaction Documents will constitute, the legal, valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
3.5 Litigation. Except as set forth on Schedule 3.5, there are no
---------- ------------
actions, suits, proceedings, claims, complaints, disputes, arbitrations or
investigations (collectively, "Claims") pending or, to the Company's knowledge,
threatened, at law, in equity, in arbitration or before any Governmental
Authority against the Company or the Subsidiary. No Order has been issued by
any court or other Governmental Authority against the Company or the Subsidiary
purporting to enjoin or restrain the execution, delivery or performance of this
Agreement or any of the other Transaction Documents.
3.6 Compliance with Laws.
--------------------
(a) The Company and the Subsidiary are in compliance with all
Requirements of Law and all Orders issued by any court or Governmental Authority
against the Company or the Subsidiary in all respects, except to the extent
<PAGE>
11
that the failure to comply with such Requirements of Law or Orders would not
have a material adverse effect on the Condition of the Company.
(b) (i) The Company and the Subsidiary have all licenses, permits and
approvals of any Governmental Authority (collectively, "Permits") that are
necessary for the conduct of the business of the Company and the Subsidiary,
except to the extent that the failure to have such Permits would not have a
material adverse effect on the Condition of the Company; (ii) such Permits are
in full force and effect; and (iii) to the Company's knowledge, no violations
are or have been recorded in respect of any such Permit.
(c) No material expenditure is presently required by the Company or
the Subsidiary to comply with any existing Requirement of Law or Order.
3.7 Capitalization.
--------------
(a) On the Closing Date, after giving effect to the transactions
contemplated by this Agreement and the Exchange Agreement, the authorized
capital stock of the Company shall consist of (i) 7,500,000 shares of Common
Stock, of which 2,345,000 shares will be issued and outstanding and (ii)
2,500,000 shares of Preferred Stock, of which 1,155,000 shares will be
outstanding and issued to the Purchasers. Schedule 3.7(a) sets forth, at and on
---------------
the Closing Date, a true and complete list of (x) the stockholders of the
Company (including any trust or escrow agent arrangement created in connection
with any employee stock option plan) and, opposite the name of each stockholder,
the amount of all outstanding capital stock and Stock Equivalents owned by such
stockholder and (y) the holders of Stock Equivalents (other than the
stockholders set forth in clause (x) above) and, opposite the name of each such
holder, the amount of all Stock Equivalents owned by such holder. As of the
Closing Date, the Company will have reserved an aggregate of 1,155,000 shares of
Common Stock for issuance upon conversion of the Purchased Shares. Except as
set forth on Schedule 3.7(b), there are no options, warrants, conversion
---------------
privileges, subscription or purchase rights or other rights presently
outstanding to purchase or otherwise acquire (i) any authorized but unissued,
unauthorized or treasury shares of the Company's capital stock, (ii) any Stock
Equivalents or (iii) other securities of the Company. As of the Closing Date,
the Purchased Shares will be duly authorized, and when issued and sold to the
Purchasers after payment therefor in accordance herewith, will be validly
issued, fully paid and nonassessable and will be issued in compliance with the
registration and qualification requirements of all applicable U.S. federal,
state and foreign securities laws (or pursuant to exemptions therefrom). The
shares of Common Stock issuable upon conversion of the Purchased Shares are duly
authorized and, when issued in compliance with the provisions of the Certificate
of Incorporation, will be validly issued, fully paid and nonassessable. As of
the Closing Date, all of the issued and outstanding shares of Common Stock will
be duly
<PAGE>
12
authorized, validly issued, fully paid and nonassessable. As of the Closing
Date, all of the the issued and outstanding shares of Common Stock will be duly
authorized, validly issued, fully paid and nonassessable, and will have been
issued in compliance with the registration and qualification requirements of all
applicable U.S. federal, state and foreign securities laws (or pursuant to
exemptions therefrom).
(b) Except as set forth in Schedule 3.7(b), neither the Company nor
the Subsidiary directly or indirectly owns or has made any investment in any of
the capital stock of, or any other proprietary interest in, any Person other
than the Subsidiary. The Company owns all of the issued and outstanding capital
stock of the Subsidiary, free and clear of all Liens. All of such shares of
capital stock are duly authorized, validly issued and fully paid, and all of
such shares were issued in compliance with the requirements of all applicable
English laws. Except as set forth on Schedule 3.7(b), there are no options,
warrants, conversion privileges, subscription or purchase rights or other rights
to purchase or otherwise acquire any authorized but unissued shares or other
securities of, or any proprietary interest in, the Subsidiary, and there is no
outstanding security of any kind convertible into or exchangeable for such
shares or proprietary interest.
3.8 No Default or Breach; Contractual Obligations. Except as set
---------------------------------------------
forth in Schedule 3.8(i), neither the Company nor the Subsidiary has received
---------------
notice of, or is in default under, or with respect to, any Contractual
Obligation set forth on Schedule 3.8(ii). Schedule 3.8(ii) lists all of the
----------------
Contractual Obligations to which the Company or the Subsidiary is a party,
whether written or oral, which involve an amount in excess of $50,000 or which
are otherwise material to the Condition of the Company. All of such Contractual
Obligations are valid, subsisting, in full force and effect and binding upon the
Company or the Subsidiary and the other parties thereto, and the Company or the
Subsidiary, as the case may be, has paid in full or accrued all amounts due
thereunder and has satisfied in full or provided for all of its liabilities and
obligations thereunder. To the Company's knowledge, no other party to any such
Contractual Obligation is in default thereunder, nor does any condition exist
that with notice or lapse of time or both would constitute a default thereunder.
3.9 Title to Properties. Each of the Company and the Subsidiary
--------------------
has good record and marketable title in fee simple to, or holds interests as
lessee under leases in full force and effect in, all real property used in
connection with its business or otherwise owned or leased by it, except for such
defects in title as would not, individually or in the aggregate, have a material
adverse effect on the Condition of the Company, or a material adverse effect on
the ability of the Company to perform its obligations under this Agreement or
the other Transaction Documents.
3.10 FIRPTA. The Company is not a "foreign person" within the
------
meaning of Section 1445 of the Code.
3.11 Financial Statements. The Company has delivered to the
--------------------
Purchasers the audited financial statements of the Subsidiary (balance sheet and
<PAGE>
13
statements of operation, cash flow and stockholders' equity, together with the
notes thereto) for the fiscal year ended August 31, 1996 (the "Audited Financial
Statements"), and the unaudited financial statements of the Subsidiary (balance
sheet and statement of operations) for the fiscal period ended May 31, 1997 and
for the fiscal period ended August 31, 1997 (the "Unaudited Financial
Statements" and, together with the Audited Financial Statements, the "Financial
Statements"). The Audited Financial Statements have been prepared in accordance
with United Kingdom GAAP applied on a consistent basis throughout the periods
indicated and with each other. The Unaudited Financial Statements have been
prepared in good faith and with reasonable care and skill but do not contain
footnotes or year-end adjustments. The Audited Financial Statements fairly
present the financial condition, operating results and cash flows of the
Subsidiary as of the respective dates and for the respective periods indicated
in accordance with United Kingdom GAAP.
3.12 Taxes. (a) Except for VAT which the Subsidiary pays in the
-----
normal course of business and except as set forth on Schedule 3.12, each of the
Company and the Subsidiary, as appropriate, has paid all federal, state, county,
local, foreign (including the United Kingdom) and other taxes, including,
without limitation, income taxes, estimated taxes, excise taxes, sales taxes,
use taxes, gross receipts taxes, franchise taxes, employment and payroll related
taxes, property taxes and import duties, whether or not measured in whole or in
part by net income (hereinafter, "Taxes" or, individually, a "Tax") which have
come due and are required to be paid by it through the date hereof, and all
deficiencies or other additions to Tax, interest and penalties owed by it in
connection with any such Taxes; (b) each of the Company and the Subsidiary has
timely filed or caused to be filed all returns for Taxes that it is required to
file on and through the date hereof (including all applicable extensions), and
all such Tax returns are accurate and complete; (c) with respect to all Tax
returns of the Company and the Subsidiary, (i) to the Company's knowledge, there
is no deficiency proposed or threatened against the Company or the Subsidiary
and (ii) except as set forth in Schedule 3.12, no audit is in progress with
respect to any return for Taxes, no extension of time is in force with respect
to any date on which any return for Taxes was or is to be filed and no waiver or
agreement is in force for the extension of time for the assessment or payment of
any Tax; (d) all liabilities for Taxes of the Subsidiary attributable to periods
prior to or ending on the Closing Date (or, with respect to VAT, ending on the
period up to which they are drawn) have been adequately provided for on the
Financial Statements; and (e) there are no Liens for Taxes on the assets of the
Company or the Subsidiary except for Liens for current Taxes not yet due. The
consummation of the transactions contemplated by the Exchange Agreement and
Option Agreement shall not cause any Taxes to be imposed on the Company or the
Subsidiary other than stamp taxes.
3.13 No Material Adverse Change; Ordinary Course of Business.
-------------------------------------------------------
Since January 1, 1997, (a) there has not been any material adverse change, nor
to the knowledge of the Company is any such change threatened, in the Condition
of the
<PAGE>
14
Company, (b) neither the Company nor the Subsidiary has participated in any
transaction or otherwise acted outside the ordinary course of business,
including, without limitation, declaring or paying any dividend or declaring or
making any distribution to its stockholders except out of the earnings of the
Company or the Subsidiary other than the transactions contemplated by the
Exchange Agreement and Option Agreement and (c) neither the Company nor the
Subsidiary has increased the compensation of any of its officers or the rate of
pay of any of its employees, except as part of regular compensation increases in
the ordinary course of business. The Company is a newly formed corporation and
except for activities incident to its formation, and in connection with the
transactions contemplated by this Agreement and the other Transaction Documents,
has not engaged in any business activities.
3.14 Investment Company. Neither the Company nor the Subsidiary is
------------------
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
3.15 Private Offering. No form of general solicitation or general
----------------
advertising was used by the Company or its representatives in connection with
the offer or sale of the Purchased Shares. No registration of the Purchased
Shares, pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws, will be required by the offer, sale or issuance of the
Purchased Shares. The Company agrees that neither it, nor anyone acting on its
behalf, shall offer to sell the Purchased Shares or any other securities of the
Company so as to require the registration of the Purchased Shares pursuant to
the provisions of the Securities Act or any state securities or "blue sky" laws,
unless such Purchased Shares or other securities are so registered.
3.16 Labor Relations. (a) Neither the Company nor the Subsidiary
---------------
is engaged in any unfair labor practice; (b) there is (i) no grievance or
arbitration proceeding arising out of or under collective bargaining agreements
pending or, to the knowledge of the Company, threatened against the Company or
the Subsidiary, and (ii) no strike, labor dispute, slowdown or stoppage is
pending or, to the knowledge of the Company, threatened against the Company or
the Subsidiary; (c) neither the Company nor the Subsidiary is a party to any
collective bargaining agreement or contract; (d) there is no union
representation question existing with respect to the employees of the Company or
the Subsidiary; and (e) to the Company's knowledge, no union organizing
activities are taking place.
3.17 Employee Benefit Plans. Neither the Company, the Subsidiary,
----------------------
nor any of their ERISA Affiliates has any actual or contingent, direct or
indirect, liability in respect of any employee benefit plan or arrangement,
including any plan subject to ERISA, other than to make contributions under or
pay benefits pursuant to the plans listed on Schedule 3.17 (collectively, the
-------------
"Plans"). All of the Plans are in compliance with all applicable Requirements
of Law. The Company, the Subsidiary
<PAGE>
15
and all of their ERISA Affiliates have made all payments due from them to date
with respect to each Plan. All amounts properly accrued as liabilities to or
expenses of any Plan which have not been paid have been properly reflected on
the Audited Financial Statements. There are no actions, liens, suits or claims
pending or threatened (other than routine claims for benefits) with respect to
any Plan. Each Plan which is intended to qualify under Section 401(a) of the
Code so qualifies. The Company does not have any liability with respect to a
Plan which (a) is subject to Title IV of ERISA, Section 412 of the Code or is
otherwise a Defined Benefit Plan, or is a multiple employer plan (within the
meaning of Section 413(c) of the Code) or multiemployer plan (within the meaning
of Section 3(37) of ERISA); or (b) provides for post-retirement welfare benefits
or a "parachute payment" (within the meaning of Section 280G(b) of the Code).
The execution and delivery of this Agreement and each of the other Transaction
Documents, the purchase and sale of the Purchased Shares and the consummation of
the transactions contemplated hereby and thereby will not entitle any current or
former employee to severance pay or unemployment compensation or accelerate the
compensation due to any current or former employee.
3.18 Title to Assets. Except as set forth on Schedule 3.18, each
--------------- -------------
of the Company and the Subsidiary owns and has good, valid, and marketable title
to all of its properties and assets used in its business and reflected as owned
on the Financial Statements or so described in any Schedule hereto
(collectively, the "Assets"), in each case free and clear of all Liens, except
for Liens specifically described on the notes to the Financial Statements,
except for Liens for current taxes not yet due and payable and minor
imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Company or the Subsidiary.
3.19 Liabilities. Neither the Company nor the Subsidiary has any
-----------
direct or indirect material obligation or liability (the "Liabilities") other
than (a) Liabilities fully and adequately reflected or reserved against on the
Audited Financial Statements and (b) Liabilities incurred since January 1, 1997
in the ordinary course of business. The Company has no knowledge of any
circumstance, condition, event or arrangement that may hereafter give rise to
any Liabilities of the Company or the Subsidiary except in the ordinary course
of business.
3.20 Intellectual Property.
---------------------
(a) (i) Each of the Company and the Subsidiary is the owner of all,
or has the license or right to use, sell and license, free and clear of all
Liens, all of the Copyrights, Patents, Trade Secrets, Trademarks, Internet
Assets, Mask Works, Software and other proprietary rights (collectively,
"Intellectual Property") that are used in connection with its business as
presently conducted other than (i) such Intellectual Property the absence of
which, individually or in the aggregate, would not
<PAGE>
16
have a material adverse effect on the Condition of the Company (the "Material
Intellectual Property") and (ii) source code for Software licensed to the
Company. Any Trademark listed in Schedule 3.20(a)(ii) and the following
Software, Prime Vantage, Distributed Campaign Manager, Distributed Customer View
and Database Builder, shall be deemed to be Material Intellectual Property.
(a) (ii) Schedule 3.20(a)(ii) sets forth all of the Material
--------------------
Intellectual Property owned by, and filings and applications for any of the
above filed by, the Company or the Subsidiary other than unregistered Copyrights
and Trade Secrets. None of the Intellectual Property listed on Schedule
--------
3.20(a)(ii) is subject to any outstanding Order, and no action, suit,
- -----------
proceeding, hearing, investigation, charge, complaint, claim or demand is
pending or, to the knowledge of the Company, threatened, which challenges the
validity, enforceability, use or ownership of the item.
(a) (iii) Schedule 3.20(a)(iii) sets forth a list of all Intellectual
---------------------
Property licenses, sublicenses, distributor agreements and other agreements
under which the Company or the Subsidiary is either a licensor, licensee or
distributor, except such licenses, sublicenses and other agreements relating to
off-the-shelf software, which is commercially available on a retail basis and
used solely on the computers of the Company or the Subsidiary. Each of the
Company and the Subsidiary has substantially performed all obligations imposed
upon it thereunder, and neither the Company nor the Subsidiary is, nor to the
knowledge of the Company is any other party thereto, in breach of or default of
any material provision thereof in any respect, nor is there any event which with
notice or lapse of time or both would constitute a default thereunder. To the
Company's knowledge, all of the Intellectual Property licenses listed on
Schedule 3.20(a)(iii) are valid, enforceable and in full force and effect, and
- ---------------------
will continue to be so on identical terms immediately following the Closing
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(a) (iv) To the knowledge of the Company, other than as set forth on
Schedule 3.20(a)(iv), none of the Material Intellectual Property currently sold
- --------------------
or licensed by the Company or the Subsidiary to any Person or used by or
licensed to the Company or the Subsidiary infringes upon or otherwise violates
any Intellectual Property rights of others.
(a) (v) Except as set forth on Schedule 3.20(a)(v), no litigation is
-------------------
pending and no Claim has been made against the Company or the Subsidiary or, to
the knowledge of the Company, is threatened, contesting the right of the Company
or
<PAGE>
17
the Subsidiary to sell or license to any Person or use the Material Intellectual
Property presently sold or licensed to such Person or used by the Company or the
Subsidiary.
(b) Except as set forth on Schedule 3.20(b), to the knowledge of the
----------------
Company, no Person is infringing upon or otherwise violating the Material
Intellectual Property rights of the Company or the Subsidiary.
(c) To the knowledge of the Company, no former employer of any
employee of the Company or the Subsidiary, and no current or former client of
any consultant of the Company or the Subsidiary, has made a claim against the
Company or the Subsidiary that such employee or such consultant is utilizing
Intellectual Property of such former employer or client.
(d) Except as set forth on Schedule 3.20(d), neither the Company nor
----------------
the Subsidiary is a party to or bound by, any license or other agreement as
licensee requiring the payment of any material royalty payment, excluding such
agreements relating to software licensed for use solely on the computers of the
Company or the Subsidiary.
(e) To the knowledge of the Company, no employee of the Company or the
Subsidiary (other than Robert Fetter) is in violation of any term of any
employment agreement, patent or invention disclosure agreement or other contract
or agreement relating to the relationship of such employee with the Company or
the Subsidiary.
(f) To the knowledge of the Company, none of the material Trade
Secrets of the Company or the Subsidiary, wherever located, the value of which
is contingent upon maintenance of confidentiality thereof, has been disclosed to
any Person other than employees, representatives and agents of the Company or
the Subsidiary, except as required pursuant to the filing of a patent
application by the Company or the Subsidiary.
3.21 Year 2000 Compliance. Except as to functions where the
--------------------
failure to accomplish the following will not have a material adverse effect on
the Condition of the Company and except as set forth in Schedule 3.21, the
-------------
Software used by the Company and the Subsidiary will (a) accurately process date
information before, during and after January 1, 2000, including, but not limited
to, accepting date input, providing date output and performing calculations on
dates or portions of dates; (b) function accurately and without interruption
before, during and after January 1, 2000 without any change in operations
associated with the advent of the new century; and (c) store and provide output
of date information in ways that are unambiguous as to century.
<PAGE>
18
3.22 Potential Conflicts of Interest. No officer, director or
-------------------------------
stockholder of the Company or the Subsidiary, no spouse of any such officer,
director or stockholder, and, to the Company's knowledge, no relative of such
spouse or of any such officer, director or stockholder and no Affiliate of any
of the foregoing (a) except as set forth in Schedule 3.22(i), owns, directly or
indirectly, any interest in (excepting less than 2% stock holdings for
investment purposes in securities of publicly held and traded companies), or is
an officer, director, employee or consultant of, any Person which is, or is
engaged in business as, a competitor, lessor, lessee, supplier, distributor,
sales agent or customer of, or lender to or borrower from, the Company or the
Subsidiary; (b) owns, directly or indirectly, in whole or in part, any tangible
or intangible property that the Company or the Subsidiary has used, or that the
Company or the Subsidiary is intending to use, in the conduct of business; or
(c) except as set forth in Schedule 3.22 (ii), has any cause of action or other
claim whatsoever against, or owes or has advanced any amount to, the Company or
the Subsidiary, except for claims in the ordinary course of business such as for
accrued vacation pay, accrued benefits under employee benefit plans, and similar
matters and agreements existing on the date hereof.
3.23 Trade Relations. There exists no actual or, to the knowledge
---------------
of the Company, threatened termination, cancellation or limitation of, or any
adverse modification or change in, the business relationship of the Company or
the Subsidiary, or the business of the Company or the Subsidiary, with any
customer or distributor or any group of customers or distributors whose
purchases are individually or in the aggregate material to the Condition of the
Company, or with any material supplier of the Company or the Subsidiary, and, to
the Company's knowledge, there exists no present condition or state of fact or
circumstances that would materially adversely affect the Condition of the
Company or prevent the Company or the Subsidiary from conducting such business
relationships or such business with any such customer, such group of customers
or distributors or such material supplier in the same manner as heretofore
conducted by the Subsidiary.
3.24 Outstanding Borrowing. Schedule 3.24 sets forth (a) the
--------------------- -------------
amount of all Indebtedness of the Company and the Subsidiary as of the date
hereof, (b) the Liens that relate to such Indebtedness and that encumber the
Assets and (c) the name of each lender thereof.
3.25 Insurance. Schedule 3.25 lists all of the insurance policies
--------- -------------
held by or on behalf of the Company or the Subsidiary, with the expiration date
and coverage amounts indicated thereon. Such policies and binders are valid and
enforceable in accordance with their terms and are in full force and effect.
None of such policies will be adversely affected by, or terminate or lapse by
reason of, any transaction contemplated by this Agreement or any of the other
Transaction Documents.
<PAGE>
19
3.26 Environmental Matters. To the Company's knowledge, each of
---------------------
the Company and the Subsidiary is in compliance with all applicable
Environmental Laws. There is no civil, criminal or administrative judgment,
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter pending or, to the knowledge of the Company,
threatened against the Company or the Subsidiary pursuant to Environmental Laws
which would reasonably be expected to result in a fine, penalty or other
obligation, cost or expense that would have a material adverse affect on the
Condition of the Company; and, to the knowledge of the Company, there are no
past or present events, conditions, circumstances, activities, practices,
incidents, agreements, actions or plans which may prevent compliance with, or
which have given rise to or will give rise to liability under, Environmental
Laws that would have a material adverse affect on the Condition of the Company.
3.27 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the Company
or the Subsidiary in connection with the transactions contemplated hereby based
on any agreement, arrangement or understanding with the Company or the
Subsidiary or any action taken by any such Person.
3.28 Disclosure. This Agreement and the documents and certificates
----------
furnished to the Purchasers by the Company and the Subsidiary, taken as a whole,
do not contain any untrue statement of a material fact or to the Company's
knowledge omit to state a material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which they were made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
Each of the Purchasers hereby represents and warrants (severally as to
itself and not jointly) to the Company as follows:
4.1 Existence and Power. Such Purchaser (a) is a partnership duly
-------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, (b) has all requisite power and authority to
conduct the business in which it is currently, or is proposed to be, engaged,
and (c) has the requisite partnership power and authority to execute, deliver
and perform its obligations under this Agreement and each of the other
Transaction Documents to which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and
<PAGE>
20
thereby, including, without limitation, the purchase of the Purchased Shares,
(a) have been duly authorized by all necessary partnership action, (b) do not
contravene the terms of such Purchaser's organizational documents, or any
amendment thereof, (c) do not violate, conflict with or result in any breach or
contravention of or the creation of any Lien under, any Contractual Obligation
of such Purchaser, or any Requirement of Law applicable to such Purchaser and
(d) do not violate any Orders of any Governmental Authority against, or binding
upon, such Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under any Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the purchase of the Purchased Shares) by, or enforcement against,
such Purchaser of this Agreement and each of the other Transaction Documents to
which such Purchaser is a party or the transactions contemplated hereby and
thereby.
4.4 Binding Effect. This Agreement has been, and as of the Closing
--------------
Date each of the other Transaction Documents to which such Purchaser is a party
will have been, duly executed and delivered by such Purchaser, and this
Agreement constitutes, and as of the Closing Date each of the other Transaction
Documents to which such Purchaser is a party will constitute, the legal, valid
and binding obligations of such Purchaser, enforceable against it in accordance
with their terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability (regardless of
whether considered in a proceeding at law or in equity).
4.5 Litigation. No Order has been issued by any court or other
----------
Governmental Authority against such Purchaser purporting to enjoin or restrain
the execution, delivery or performance of this Agreement or any of the other
Transaction Documents to which such Purchaser is a party.
4.6 Purchase for Own Account. The Purchased Shares to be acquired
------------------------
by such Purchaser pursuant to this Agreement and the shares of Common Stock
issuable upon conversion of the Purchased Shares are being or will be acquired
for investment for its own account and with no intention of distributing or
reselling, or granting any participation in, such Purchased Shares, such shares
of Common Stock or any part thereof in any transaction that would be in
violation of the securities laws of the United States of America, or any state
or foreign jurisdiction, without prejudice, however, to the rights of such
Purchaser at all times to sell or otherwise dispose of all or any part of such
Purchased Shares or such shares of Common Stock under an effective registration
statement under the Securities Act and under the applicable state securities
laws, or under an exemption from such registration
<PAGE>
21
available under such laws, and subject, nevertheless, to the disposition of such
Purchaser's property being at all times within its control. If such Purchaser
should in the future decide to dispose of any of such Purchased Shares or such
shares of Common Stock, such Purchaser understands and agrees that it may do so
only in compliance with the Securities Act and applicable state and foreign
securities laws, as then in effect. Such Purchaser agrees to the imprinting, so
long as required by law, of legends on certificates representing all of its
Purchased Shares and shares of Common Stock issuable upon conversion of its
Purchased Shares as required by any applicable state securities laws and to the
following effect (and acknowledges that the Company will make a notation on its
transfer books to such effect):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY JURISDICTION OF THE UNITED STATES. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND UNDER THE APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY, IF REQUESTED BY THE COMPANY, THAT THERE IS AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS AGREEMENT AMONG PRIME RESPONSE GROUP INC., GENERAL ATLANTIC
PARTNERS 42, L.P., GAP COINVESTMENT PARTNERS, L.P. AND THE STOCKHOLDERS
NAMED THEREIN. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS
BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS AGREEMENT. THE
COMPANY WILL MAIL A COPY OF SUCH AGREEMENT, TOGETHER WITH A COPY OF THE
EXPRESS TERMS OF THE SECURITIES AND THE OTHER CLASS OR CLASSES AND SERIES
OF SHARES, IF ANY, WHICH THE COMPANY IS AUTHORIZED TO ISSUE, TO THE RECORD
HOLDER OF THIS CERTIFICATE, WITHOUT CHARGE, WITHIN FIVE DAYS AFTER RECEIPT
OF A WRITTEN REQUEST THEREFOR.
<PAGE>
22
4.7 Restricted Securities. Such Purchaser understands that the
---------------------
Purchased Shares will not be registered under the Securities Act at the time of
their issuance for the reason that the sale provided for in this Agreement is
exempt pursuant to Rule 506 of Regulation D promulgated under the Securities Act
and that the reliance of the Company on such exemption is predicated in part on
such Purchaser's representations set forth herein. Such Purchaser also
represents that it is experienced in evaluating companies such as the Company,
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment and has the ability
to suffer the total loss of its investment. Such Purchaser further represents
that it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering and the Company's
business, management and financial affairs and to obtain additional information
to such Purchaser's satisfaction.
4.8 Investment Experience. Each Purchaser is an investor in
---------------------
securities of companies in the development stage and acknowledges that it has,
by reason of its business and financial experience, the capacity to protect its
own interest in connection with the transaction and that it is able to bear the
economic risk of its investment in the transaction. GAP Coinvestment and each
of the partners of GAP LP is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act.
4.9 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by such
Purchaser, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with such Purchaser or any action taken
by such Purchaser.
ARTICLE 5
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
--------------------------
The obligation of the Purchasers to purchase the Purchased Shares, to
pay the purchase price therefor at the Closing and to perform their other
obligations hereunder shall be subject to the satisfaction as determined by, or
waiver by, the Purchasers of the following conditions on or before the Closing
Date.
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Article 3 hereof shall be true and
correct in all material respects at and on the Closing Date as if made at and on
such date.
5.2 Compliance with this Agreement. The Company shall have
------------------------------
performed and complied in all material respects with all of its agreements and
<PAGE>
23
conditions set forth herein that are required to be performed or complied with
by the Company on or before the Closing Date.
5.3 Secretary's Certificate. The Purchasers shall have received a
-----------------------
certificate from the Company, in form and substance reasonably satisfactory to
the Purchasers, dated the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, certifying that the attached copies of the
Certificate of Incorporation, the By-laws, the Certificate of Designation and
resolutions of the Board of Directors approving this Agreement and each of the
other Transaction Documents to which the Company is a party and the transactions
contemplated hereby and thereby, are all true, complete and correct and remain
unamended and in full force and effect.
5.4 Officer's Certificate. The Purchasers shall have received a
---------------------
certificate from the Company, in form and substance reasonably satisfactory to
the Purchasers, dated the Closing Date and signed by the President of the
Company, certifying that (a) the representations and warranties of the Company
contained in Article 3 hereof are true and correct in all material respects on
the Closing Date and (b) the Company has performed and complied in all material
respects with all of the agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Company on or
before the Closing Date.
5.5 Filing of Certificate of Designation. The Certificate of
------------------------------------
Designation shall be in a form reasonably satisfactory to the Purchasers, and
shall have been duly filed by or on behalf of the Company with the Secretary of
State of the State of Delaware in accordance with the General Corporation Law of
the State of Delaware.
5.6 Stockholders Agreement. The Company and the Stockholders shall
----------------------
have duly executed and delivered the Stockholders Agreement, substantially in
the form attached hereto as Exhibit B.
---------
5.7 Registration Rights Agreement. The Company and the
-----------------------------
Stockholders shall have duly executed and delivered the Registration Rights
Agreement, substantially in the form attached hereto as Exhibit C.
---------
5.8 Opinion of Counsel. The Purchasers shall have received
------------------
opinions of Dewey Ballantine and Rowe & Maw, counsel to the Company and the
Subsidiary, dated the Closing Date, relating to the transactions contemplated by
or referred to herein, in a form reasonably satisfactory to the Purchasers.
5.9 Purchased Shares. The Company shall be prepared to deliver to
----------------
the Purchasers certificates in definitive form representing the number of
Purchased
<PAGE>
24
Shares set forth opposite such Purchaser's name on Schedule 2.1 hereto,
------------
registered in the name of such Purchaser.
5.10 No Material Adverse Change. Since the date hereof, there
--------------------------
shall have been no material adverse change in the Condition of the Company.
5.11 Consents and Approvals. The approval of Inland Revenue of the
----------------------
transactions contemplated by the Exchange Agreement, and all consents,
exemptions, authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
and with respect to those Contractual Obligations of the Company or the
Subsidiary which are necessary or required in connection with the execution,
delivery or performance by, or enforcement against, the Company of this
Agreement and each of the other Transaction Documents shall have been obtained
and be in full force and effect, and the Purchasers shall have been furnished
with appropriate evidence thereof and all applicable waiting periods shall have
expired without any action being taken or threatened which would have a material
adverse effect on the Condition of the Company.
5.12 No Material Judgment or Order. There shall not be on the
-----------------------------
Closing Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which would, in the reasonable judgment of the Purchasers, (a) prohibit or
restrict (i) the purchase of the Purchased Shares or (ii) the consummation of
the transactions contemplated by this Agreement, (b) subject the Purchasers to
any material penalty or onerous condition under or pursuant to any Requirement
of Law if the Purchased Shares were to be purchased hereunder or (c) restrict
the operation of the business of the Company or the Subsidiary as conducted on
the date hereof in a manner that would have a material adverse effect on the
Condition of the Company.
5.13 No Litigation. No action, suit, proceeding, claim or dispute
-------------
shall have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Company which would, if adversely
determined, (a) have a material adverse effect on the Condition of the Company
or (b) have a material adverse effect on the ability of the Company to perform
its obligations under this Agreement or each of the other Transaction Documents.
5.14 Exchange Agreement. Each of the Exchange Agreement and the
------------------
Promissory Note shall be in a form reasonably satisfactory to the Purchasers,
and the closing of the transactions contemplated by the Exchange Agreement shall
have occurred to the reasonable satisfaction of the Purchasers.
5.15 Stock Option Plan and Option Agreement. Each of the Company's
--------------------------------------
1997 Stock Option Plan and the Option Agreement shall be in a form
<PAGE>
25
reasonably satisfactory to the Purchasers, and the Option Agreement shall have
been duly executed and delivered by the Company and Nevin Prakash.
ARTICLE 6
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
------------------------------
The obligation of the Company to issue and sell the Purchased Shares
and the obligation of the Company to perform its other obligations hereunder,
shall be subject to the satisfaction as determined by, or waiver by, the Company
of the following conditions on or before the Closing Date:
6.1 Representation and Warranties. The representations and
-----------------------------
warranties of each Purchaser contained in Article 4 hereof shall be true and
correct in all material respects at and on the Closing Date as if made at and on
such date.
6.2 Compliance with this Agreement. Each of the Purchasers shall
------------------------------
have performed and complied in all material respects with all of its agreements
and conditions set forth herein that are required to be performed or complied
with by such Purchaser on or before the Closing Date, including, without
limitation, payment by the Purchasers of the purchase price for the Purchased
Shares.
6.3 General Partners' Certificates. The Company shall have
------------------------------
received a certificate from a general partner of each of GAP LP and GAP
Coinvestment, in form and substance satisfactory to the Company, dated the
Closing Date and signed by such general partner, certifying that (a) the
representations and warranties of GAP LP or GAP Coinvestment, as the case may
be, contained in Article 4 hereof are true and correct in all material respects
on the Closing Date and (b) GAP LP or GAP Coinvestment, as the case may be, has
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by GAP LP
or GAP Coinvestment, as the case may be, on or before the Closing Date.
6.4 Stockholders Agreement. The Purchasers shall have duly
----------------------
executed and delivered the Stockholders Agreement, substantially in the form
attached hereto as Exhibit B.
---------
6.5 Registration Rights Agreement. The Purchasers shall have duly
-----------------------------
executed and delivered the Registration Rights Agreement, substantially in the
form attached hereto as Exhibit C.
---------
<PAGE>
26
6.6 Opinion of Counsel. The Company shall have received an opinion
------------------
of Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the Purchasers, dated
the Closing Date, relating to the transactions contemplated by or referred to
herein, in a form reasonably satisfactory to the Company.
6.7 No Material Judgment or Order. There shall not be on the
-----------------------------
Closing Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which would, in the judgment of the Company, (a) prohibit or restrict (i) the
sale of the Purchased Shares or (ii) the consummation of the transactions
contemplated by this Agreement, (b) subject the Company to any penalty or
onerous condition under or pursuant to any Requirement of Law if the Purchased
Shares were to be sold hereunder or (c) restrict the operation of the business
of the Company or its Subsidiary as conducted on the date hereof in a manner
that would have a material adverse effect on the Condition of the Company.
6.8 Payment by the Purchasers. Each Purchaser shall have purchased
-------------------------
and paid for the Purchased Shares to be purchased by such Purchaser, and the
aggregate purchase price paid by the Purchasers for the Purchased Shares being
purchased at the Closing shall be $23,697,000.
6.9 Consents, Approvals. The approval of Inland Revenue of the
-------------------
transactions contemplated by the Exchange Agreement shall have been obtained and
be in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
6.10 Exchange Agreement. Each of the Exchange Agreement and the
------------------
Promissory Note shall be in a form reasonably satisfactory to the Company, and
the closing of the transactions contemplated by the Exchange Agreement shall
have occurred.
6.11 Option Agreement. Each of the Company's 1997 Stock Option
----------------
Plan and the Option Agreement shall be in a form reasonably satisfactory to the
Company, and the Option Agreement shall have been duly executed and delivered by
Nevin Prakash.
6.12 Certificate of Designation. The Certificate of Designation
--------------------------
shall be in a form reasonably satisfactory to the Company.
<PAGE>
27
ARTICLE 7
INDEMNIFICATION
---------------
7.1 Indemnification. Except as otherwise provided in this Article
---------------
7, the Company and each of the Purchasers, as applicable (the "Indemnifying
Party"), agrees to indemnify, defend and hold harmless the Purchasers, in the
case of indemnity by the Company, or the Company, in the case of indemnity by
the Purchasers, as applicable, and their Affiliates and their respective
officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, an "Indemnified Party") to the fullest extent
permitted by law from and against any and all losses, Claims (including any
Claim by a third party), damages, expenses (including reasonable fees,
disbursements and other charges of counsel incurred by the Indemnified Party in
any action between the Indemnifying Party and the Indemnified Party or between
the Indemnified Party and any third party or otherwise) or other liabilities
(collectively, "Losses") resulting from, arising out of or relating to any
breach of any representation or warranty, covenant or agreement by the
Indemnifying Party in this Agreement or the other Transaction Documents,
including, without limitation, any legal, administrative or other actions
(including actions brought by the Purchasers or the Company or any equity
holders or partners of such Persons or derivative actions brought by any Person
claiming through or in the Company's name or in the name of either of the
Purchasers), proceedings or investigations (whether formal or informal), or
written threats thereof, based upon, relating to or arising out of this
Agreement or the other Transaction Documents, the transactions contemplated
hereby and thereby, or any Indemnified Party's role therein or in transactions
contemplated thereby; provided, that the Indemnifying Party shall not be liable
--------
under this Section 7.1 to an Indemnified Party to the extent that it is finally
judicially determined that such Losses resulted primarily from the material
breach by such Indemnified Party of any representation, warranty, covenant or
other agreement of such Indemnified Party contained in this Agreement; and
provided, further, that if and to the extent that such indemnification is
- -------- -------
unenforceable for any reason, the Indemnifying Party shall make the maximum
contribution to the payment and satisfaction of such Losses which shall be
permissible under applicable laws. The amount of any payment by any
Indemnifying Party to any Indemnified Party herewith in respect of any Loss
shall be of sufficient amount to make such Indemnified Party whole, and, in the
case of indemnity by the Company, shall consist of an amount sufficient to make
up any diminution in the value of the Purchased Shares held by such Indemnified
Party resulting from the payment by the Company of such indemnification payment.
In connection with the obligation of the Indemnifying Party to indemnify for
expenses as set forth above, the Indemnifying Party shall, upon presentation of
appropriate invoices containing reasonable detail, reimburse each Indemnified
Party for all such expenses (including reasonable fees, disbursements and other
charges of counsel incurred by the Indemnified Party in any action between the
Indemnifying Party and the Indemnified Party or between the Indemnified Party
and
<PAGE>
28
any third party or otherwise) as they are incurred by such Indemnified Party;
provided, however, that if an Indemnified Party is reimbursed hereunder for any
- -------- -------
expenses, such reimbursement of expenses shall be refunded to the extent it is
finally judicially determined that the Losses in question resulted primarily
from the willful misconduct or gross negligence of such Indemnified Party.
Notwithstanding the foregoing, indemnification with respect to this Section 7.1
by the Company shall be limited to the aggregate consideration paid by the
Purchasers for the Purchased Shares, and indemnification by the Purchasers shall
be limited to $2 million in the aggregate, except in the case of any
indemnification by the Purchasers for any breach of Section 4.6, 4.7 or 4.8, in
which such case indemnification by the Purchasers shall be limited to the
aggregate consideration paid by the Purchasers for the Purchased Shares.
7.2 Notification. Each Indemnified Party under this Article 7
------------
shall, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Indemnifying Party under this
Article 7, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party (a) other than pursuant to this Article 7 or
(b) under this Article 7 unless, and only to the extent that, such omission
results in the Indemnifying Party's forfeiture of substantive rights or
defenses. In case any such action, claim or other proceeding shall be brought
against any Indemnified Party, and it shall notify the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any
-------- -------
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense at its own expense. Notwithstanding the foregoing,
in any action, claim or proceeding in which both the Indemnifying Party, on the
one hand, and an Indemnified Party, on the other hand, are, or are reasonably
likely to become, a party, such Indemnified Party shall have the right to employ
separate counsel at the expense of the Indemnifying Party and to control its own
defense of such action, claim or proceeding if, in the reasonable opinion of
counsel to such Indemnified Party, a conflict or potential conflict exists
between the Indemnifying Party, on the one hand, and such Indemnified Party, on
the other hand, that would make such separate representation advisable;
provided, however, that the Indemnifying Party shall not be liable for the fees
- -------- -------
and expenses of more than one counsel to all Indemnified Parties. The
Indemnifying Party agrees that it will not, without the prior written consent of
the Indemnified Party, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated hereby (if any Indemnified Party is a party thereto or
has been actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of each Indemnified
Party
<PAGE>
29
from all liability arising or that may arise out of such claim, action or
proceeding. The Indemnifying Party shall not be liable for any settlement of any
claim, action or proceeding effected against an Indemnified Party without the
Indemnifying Party's written consent, which consent shall not be unreasonably
withheld. The rights accorded to an Indemnified Party hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise; provided, however, that notwithstanding the
-------- -------
foregoing or anything to the contrary contained in this Agreement, nothing in
this Article 7 should restrict or limit any rights that any Indemnified Party
may have to seek equitable relief.
ARTICLE 8
AFFIRMATIVE COVENANTS
---------------------
The Company hereby covenants and agrees with the Purchasers as
follows:
8.1 Preservation of Existence. From the date hereof until the
-------------------------
Closing Date, the Company shall preserve and maintain in full force and effect
its existence and good standing under the laws of its jurisdiction of formation
or organization, and shall cause the Subsidiary to preserve and maintain in full
force and effect, by taking all actions and doing all acts as are necessary, its
existence by maintaining its validly registered status which will be evidenced
by its registration at the Registrar of Companies in England. In addition,
except for the transactions contemplated by the Exchange Agreement and Option
Agreement, from the date hereof until the Closing Date, the Company shall, and
shall cause the Subsidiary to:
(a) preserve and maintain in full force and effect all material
rights, privileges, qualifications, applications, licenses and franchises
necessary in the normal conduct of its business;
(b) conduct its business in the ordinary course in accordance with
sound business practices, keep its properties in good working order and
condition (normal wear and tear excepted), and from time to time make all needed
repairs to, renewals of or replacements of its properties so that the efficiency
of its business operation shall be fully maintained and preserved;
(c) comply in all material respects with all Requirements of Law and
with the directions of any Governmental Authority having jurisdiction over the
Company or the Subsidiary or their respective business or property;
(d) file or cause to be filed in a timely manner all reports,
applications, estimates and licenses that shall be required by a Governmental
<PAGE>
30
Authority and that, if not timely filed, would have a material adverse effect on
the Condition of the Company;
(e) except in the ordinary course of business, refrain from making any
change in the rate or form of compensation or remuneration payable or to become
payable to any of its stockholders, directors, officers, employees or agents;
and
(f) refrain from (i) reserving, declaring, making or paying any
dividend on the issued and outstanding shares of capital stock of the Company,
or making any other distributions of profits or capital or (ii) redeeming,
retiring, repurchasing or otherwise acquiring shares of capital stock of the
Company or the Subsidiary.
8.2 Fiscal Year End. Not later than 30 days after the Closing
---------------
Date, the Company shall, and shall cause the Subsidiary to, have a fiscal year
that ends on December 31.
8.3 Financial Statements and Other Information. For so long as the
------------------------------------------
Purchasers collectively own shares of Common Stock and/or Preferred Stock or
other securities of the Company convertible into or exchangeable for Common
Stock that represent at least 5% of the total number of shares of Common Stock
outstanding on an as converted basis, the Company shall deliver to each
Purchaser, in form and substance reasonably satisfactory to such Purchaser:
(a) as soon as available, but not later than ninety (90) days after
the end of each fiscal year of the Company, a copy of the audited consolidated
balance sheet of the Company and the Subsidiary as of the end of such fiscal
year and the related statements of operations and cash flows for such fiscal
year, setting forth in each case in comparative form the figures for the
previous year, all in conformity with United States GAAP, in reasonable detail
and accompanied by a management summary and analysis of the operations of the
Company and the Subsidiary for such fiscal year and by the opinion of a
nationally recognized independent certified public accounting firm reasonably
satisfactory to the Purchasers;
(b) commencing with the fiscal period ending on March 31, 1998, as
soon as available, but in any event not later than forty-five (45) days after
the end of each of the first three fiscal quarters of each fiscal year, the
consolidated unaudited balance sheet of the Company and the Subsidiary, and the
related statements of operations and cash flows for such quarter and for the
period commencing on the first day of the fiscal year and ending on the last day
of such quarter, all certified by an appropriate officer of the Company as
presenting fairly the consolidated financial condition as of such date and
results of operations and cash flows for the periods indicated in conformity
with United States and United Kingdom
<PAGE>
31
GAAP applied on a consistent basis, subject to normal year-end adjustments and
reserves and the absence of footnotes required by United States and United
Kingdom GAAP;
(c) as promptly as practicable, if requested by either of the
Purchasers, a certificate signed by the President of the Company that the
Company is not a "foreign person" within the meaning of Section 1445 of the
Code; and
(d) annual budgets and such other financial and operating data which
are customarily prepared by the Company, as the Purchasers reasonably may
request.
8.4 Reservation of Common Stock. From and after the Closing Date,
---------------------------
the Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issue or delivery upon
conversion of the Preferred Stock as provided in the Certificate of
Incorporation, the maximum number of shares of Common Stock that may be issuable
or deliverable upon such conversion or exchange. Such shares of Common Stock
are or will be duly authorized and, when issued or delivered in accordance with
the Certificate of Incorporation and against payment therefor, shall be validly
issued, fully paid and non-assessable. The Company shall issue such shares of
Common Stock in accordance with the terms of the Certificate of Incorporation
and otherwise comply with the terms hereof and thereof.
8.5 Insurance. The Company shall maintain, and shall cause the
---------
Subsidiary to maintain, insurance with insurance companies or associations with
a rating of "A" or better as established by Best's Rating Guide or Standard &
Poor's Ratings Group (or an equivalent rating with such other publication of a
similar nature as shall be in current use) in such amounts and covering such
risks as are usually and customarily carried with respect to similar businesses
according to their respective locations.
8.6 Books and Records. The Company shall keep, and shall cause the
-----------------
Subsidiary to keep, proper books of record and account, in accordance with
United States or United Kingdom GAAP, as applicable, consistently applied.
8.7 Back-Ups of Computer Software. The Company shall, and shall
-----------------------------
cause the Subsidiary to, make back-ups of all material computer software
programs and databases and shall maintain such back-up software programs and
databases at a secure off-site location.
8.8 Inspection. The Company shall, and shall cause the Subsidiary
----------
to, permit representatives of the Purchasers, at their expense, to visit and
inspect any of its properties, to examine its corporate, financial and operating
records and make
<PAGE>
32
copies thereof or abstracts therefrom, and to discuss its affairs, finances and
accounts with its directors, officers and independent public accountants, all at
such reasonable times during normal business hours and as often as may be
reasonably requested upon reasonable advance notice to the Company.
ARTICLE 9
TERMINATION OF AGREEMENT
------------------------
9.1 Termination. This Agreement may be terminated prior to the
-----------
Closing as follows:
(a) at any time on or prior to the Closing Date, by mutual
written consent of the Company and the Purchasers;
(b) at the election of the Company or the Purchasers by written notice
to the other parties hereto after 5:00 p.m., New York time, on November 30,
1997, if the Closing shall not have occurred, unless such date is extended by
the mutual written consent of the Company and the Purchasers; provided, however,
-------- -------
that the right to terminate this Agreement under this Section 9.1(b) shall not
be available (i) to any party whose breach of any representation, warranty,
covenant or agreement under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date or (ii) if the
Closing has not occurred solely because any party hereto has not yet obtained a
necessary approval from any Governmental Authority or because approval of Inland
Revenue has not yet been obtained;
(c) at the election of the Company, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of
either of the Purchasers contained in this Agreement, which breach has not been
cured within fifteen (15) Business Days of notice to the Purchasers of such
breach; or
(d) at the election of the Purchasers, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of the
Company contained in this Agreement, which breach has not been cured within
fifteen (15) Business Days notice to the Company of such breach.
If this Agreement so terminates, it shall become null and void and have no
further force or effect, except as provided in Section 9.2.
9.2 Survival. If this Agreement is terminated and the transactions
--------
contemplated hereby are not consummated as described above, this Agreement shall
become void and of no further force and effect; except for the provisions of
Article 1,
<PAGE>
33
Section 10.10 and this Section 9.2; provided that (a) none of the parties hereto
--------
shall have any liability in respect of a termination of this Agreement pursuant
to Section 9.1(a) or Section 9.1(b) and (b) nothing shall relieve any of the
parties from liability for actual damages resulting from a termination of this
Agreement pursuant to Section 9.1(c) or 9.1(d); and provided, further, that none
-------- -------
of the parties hereto shall have any liability for speculative, indirect,
unforeseeable or consequential damages resulting from any legal action relating
to this Agreement or any termination of this Agreement.
ARTICLE 10
MISCELLANEOUS
-------------
10.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Company or
the Purchasers, or acceptance of the Purchased Shares or termination of this
Agreement until the third anniversary of the Closing Date.
10.2 Notices. All notices, demands and other communications
-------
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
(a) if to the Company:
Prime Response Group Inc.
885 Third Avenue
Suite 2930
New York, New York 10022
Telecopy: (212) 303-5532
Attention: James A. Carling
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019-6092
Telecopy: (212) 259-6333
Attention: Stanton J. Lovenworth, Esq.
<PAGE>
34
(b) if to GAP LP or GAP Coinvestment:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. Stephen P. Reynolds
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if properly telecopied.
10.3 Successors and Assigns; Third Party Beneficiaries. This
-------------------------------------------------
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. Subject to applicable securities laws,
each of the Purchasers may assign any of its rights under any of the Transaction
Documents to any of its Affiliates. The Company may not assign any of its
rights under this Agreement without the written consent of the Purchasers.
Except as provided in Article 7, no Person other than the parties hereto and
their successors and permitted assigns is intended to be a beneficiary of this
Agreement.
10.4 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the Purchasers
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by the Company or the Purchasers from the terms of any
<PAGE>
35
provision of this Agreement, shall be effective only if it is made or given in
writing and signed by the Company and the Purchasers. Except where notice is
specifically required by this Agreement, no notice to or demand on the Company
in any case shall entitle the Company to any other or further notice or demand
in similar or other circumstances.
10.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
10.6 Headings. The headings in this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
10.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
10.8 Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
10.9 Entire Agreement. This Agreement, together with the exhibits
----------------
and schedules hereto and the other Transaction Documents, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
hereto, and the other Transaction Documents supersede all prior agreements and
understandings between the parties with respect to such subject matter.
10.10 Fees. Upon the Closing the Company shall reimburse the
----
Purchasers, in an aggregate amount not to exceed $55,000, for their reasonable
fees, disbursements and other charges of counsel incurred in connection with the
transactions contemplated by this Agreement. Except as provided in the
preceding sentence, each party hereto shall bear their own costs and expenses in
connection with the preparation, execution and delivery of this Agreement and
other Transaction Documents, and the transactions contemplated hereby and
thereby. If this Agreement
<PAGE>
36
is terminated before the Closing occurs or if the Closing does not occur for any
reason, each party hereto shall bear their own costs and expenses (including
fees, disbursements and other charges of counsel) in connection with the
preparation, execution and delivery of this Agreement and the other Transaction
Documents, and the transactions contemplated hereby and thereby.
10.11 Publicity. Except as may be required by any applicable
---------
Requirement of Law, none of the parties hereto shall issue a publicity release
or public announcement or otherwise make any disclosure concerning this
Agreement or the transactions contemplated hereby, without prior approval by the
other parties hereto (which approval shall not be unreasonably withheld);
provided, however, that nothing in this Agreement shall restrict any Purchaser
- -------- -------
from disclosing information (a) that is already publicly available; (b) to the
prospective transferee in connection with any contemplated transfer of any of
the Purchased Shares; and (c) to its attorneys, accountants, consultants and
other advisors to the extent necessary to obtain their services in connection
with such Purchaser's investment in the Company. If any announcement is
required by any applicable Requirement of Law to be made by any party hereto,
prior to making such announcement such party will deliver a draft of such
announcement to the other parties and shall give the other parties an
opportunity to comment thereon.
10.12 Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person, and otherwise fulfilling, or causing the fulfillment of, the
conditions to Closing set forth in Articles 5 and 6) as may be reasonably
required or desirable to carry out or to perform the provisions of this
Agreement and to consummate and make effective as promptly as possible the
transactions contemplated by this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be executed and delivered by their respective officers hereunto
duly authorized on the date first above written.
PRIME RESPONSE GROUP INC.
By: /s/ James Carling
---------------------------------------
Name: James Carling
Title: President
GENERAL ATLANTIC PARTNERS 42, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ Stephen P. Reynolds
----------------------------------
Name: Stephen P. Reynolds
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ Stephen P. Reynolds
---------------------------------------
Name: Stephen P. Reynolds
Title: A General Partner
<PAGE>
Schedule 2.1
------------
Purchased Shares and Purchase Price
-----------------------------------
Purchaser Purchased Shares Purchase Price
--------- ---------------- --------------
GAP LP 915,310 $18,779,308.29
GAP Coinvestment 239,690 $ 4,917,691.71
Total: 1,155,000 $23,697,000.00
<PAGE>
Exhibit 10.10
AMENDMENT NO. 1 TO
STOCK PURCHASE AGREEMENT
Amendment No. 1 (the "Amendment"), dated as of October 23, 1997, to
the Stock Purchase Agreement (the "Agreement") dated as of October 1, 1997 by
and among Prime Response Group Inc. (the "Company"), General Atlantic Partners
42, L.P. ("GAP LP") and GAP Coinvestment Partners, L.P. ("GAP Coinvestment").
WHEREAS, the Company, GAP LP and GAP Coinvestment are parties to the
Agreement pursuant to which the Company is selling to GAP LP and GAP
Coinvestment 1,155,000 shares of Series A Convertible Participating Preferred
Stock, par value $.01 per share, of the Company (the "Purchased Shares"); and
WHEREAS, GAP LP and GAP Coinvestment desire to change the number of
Purchased Shares being purchased by each of them without changing the total
number of Purchased Shares being purchased by them.
NOW, THEREFORE, the parties hereto agree as follows:
1. Recitals. The second recital of the Agreement is hereby amended
--------
and restated in its entirety as follows:
WHEREAS, upon the terms and conditions set forth in this Agreement,
the Company proposes to issue and sell to (a) GAP LP, for an aggregate purchase
price of $18,667,450.24, an aggregate of 909,858 shares of Series A Convertible
Participating Preferred Stock, par value $.01 per share, of the Company (the
"Preferred Stock") and (b) GAP Coinvestment, for an aggregate purchase price of
$5,029,549.76, an aggregate of 245,142 shares of Preferred Stock.
2. Schedule 2.1. Schedule 2.1 to the Agreement is hereby amended as
------------
follows:
(a) the numbers set forth in the columns next to GAP LP are deleted
and replaced with "909,858" and "$18,667,450.24," respectively; and
(b) the numbers set forth in the columns next to GAP Coinvestment are
deleted and replaced with "245,142" and "$5,029,549.76," respectively.
3. Schedule 3.7(a). Schedule 3.7(a) to the Agreement is hereby
---------------
amended as follows:
(a) the number set forth in the column next to GAP LP is deleted
and replaced with "909,858;" and
<PAGE>
2
(b) the number set forth in the column next to GAP Coinvestment
is deleted and replaced with "245,142."
4. Miscellaneous.
-------------
(a) Counterparts. This Amendment may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(b) Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of New York, without regard to the
principles of conflicts of laws of any jurisdiction.
[Remainder of page intentionally left blank.]
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective officers hereunto duly authorized
on the first day above written.
PRIME RESPONSE GROUP INC.
By: /s/ N.Prakash
-----------------------------
Name: N. Prakash
Title: Treasurer
GENERAL ATLANTIC PARTNERS 42, L.P.
By: General Atlantic Partners, LLC
its general partner
/s/ Stephen P. Reynolds
By: _____________________________
Name:Stephen P. Reynolds
Title:A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
/s/ Stephen P. Reynolds
By: _____________________________
Name:Stephen P. Reynolds
Title: A General Partner
<PAGE>
Exhibit 10.11
Execution Copy
===============================================================================
STOCK PURCHASE AGREEMENT
by and among
PRIME RESPONSE GROUP INC.,
GENERAL ATLANTIC PARTNERS 48, L.P.,
GAP COINVESTMENT PARTNERS, L.P.
and
THE STOCKHOLDERS NAMED HEREIN
______________________________
Dated as of September 21, 1998
______________________________
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
ARTICLE 1
DEFINITIONS.....................................................................................1
1.1 Definitions............................................................................1
1.2 Accounting Terms; Financial Statements.................................................6
ARTICLE 2
PURCHASE AND SALE OF PREFERRED STOCK............................................................6
2.1 Purchase and Sale of Preferred Stock...................................................6
2.2 Certificate of Designation.............................................................6
2.3 First Closing..........................................................................6
2.4 Second Closing.........................................................................7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................7
3.1 Corporate Existence and Power..........................................................7
3.2 Authorization; No Contravention........................................................8
3.3 Governmental Authorization; Third Party Consents.......................................8
3.4 Binding Effect.........................................................................8
3.5 Capitalization.........................................................................9
3.6 Financial Statements..................................................................10
3.7 No Default or Breach; Contractual Obligations.........................................10
3.8 No Material Adverse Change; Ordinary Course of Business. .............................10
3.9 Private Offering......................................................................10
3.10 Broker's, Finder's or Similar Fees....................................................11
3.11 Disclosure............................................................................11
3.12 Revised Product Plan of Record........................................................11
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...............................................11
4.1 Existence and Power...................................................................11
4.2 Capacity..............................................................................11
4.3 Authorization; No Contravention.......................................................11
4.4 Governmental Authorization; Third Party Consents......................................12
4.5 Binding Effect........................................................................12
4.6 Purchase for Own Account..............................................................12
4.7 Restricted Securities.................................................................13
4.8 Investment Experience.................................................................14
4.9 Broker's, Finder's or Similar Fees....................................................14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 5
CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE........................................14
5.1 GAP Purchasers'Conditions.............................................................14
ARTICLE 6
CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE...........................................17
6.1 First Closing Conditions..............................................................17
6.2 Second First Closing Conditions.......................................................18
ARTICLE 7
INDEMNIFICATION................................................................................18
7.1 Indemnification.......................................................................18
7.2 Notification..........................................................................19
ARTICLE 8
AFFIRMATIVE COVENANTS..........................................................................20
8.1 Preservation of Existence.............................................................21
ARTICLE 9
TERMINATION OF AGREEMENT.......................................................................22
9.1 Termination...........................................................................22
9.2 Survival..............................................................................22
ARTICLE 10
MISCELLANEOUS..................................................................................23
10.1 Survival of Representations and Warranties............................................23
10.2 Notices...............................................................................23
10.3 Successors and Assigns; Third Party Beneficiaries.....................................24
10.4 Amendment and Waiver..................................................................24
10.5 Counterparts..........................................................................25
10.6 Headings..............................................................................25
10.7 GOVERNING LAW.........................................................................25
10.8 Severability..........................................................................25
10.9 Entire Agreement......................................................................25
10.10 Fees..................................................................................25
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
10.11 Publicity.............................................................................26
10.12 Further Assurances....................................................................26
</TABLE>
EXHIBITS
A Form of Amendment to the Stockholders Agreement
B Form of Amendment to the Registration Rights Agreement
SCHEDULES
2.1 Purchased Shares and Purchase Price
3.5(a) List of Stockholders and Capital Stock and Stock Equivalents
3.5(b) Subsidiaries and Investments
iii
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of September 21, 1998 (this
"Agreement"), among Prime Response Group Inc., a Delaware corporation (the
"Company"), General Atlantic Partners 48, L.P., a Delaware limited partnership
("GAP LP"), GAP Coinvestment Partners, L.P., a New York limited partnership
("GAP Coinvestment"), Richard S. Braddock ("Braddock") and Allen Swann ("Swann"
and, collectively with GAP LP, GAP Coinvestment and Braddock, the "Purchasers").
WHEREAS, upon the terms and conditions set forth in this Agreement,
the Company proposes to issue and sell to (a) GAP LP, for an aggregate purchase
price of $3,642,786, an aggregate of 607,131 shares of Series B Convertible
Participating Preferred Stock, par value $.01 per share, of the Company (the
"Preferred Stock"), (b) GAP Coinvestment, for an aggregate purchase price of
$873,714, an aggregate of 145,619 shares of Preferred Stock, (c) Braddock, for
an aggregate purchase price of $82,500, an aggregate of 13,750 shares of
Preferred Stock and (d) Swann, for an aggregate purchase price of $600,000, an
aggregate of 100,000 shares of Preferred Stock.
WHEREAS, each share of Preferred Stock is convertible (subject to
adjustment) into one share of common stock, par value $.01 per share of the
Company (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
---------
Rule 12b-2 of the General Rules and Regulations under the Exchange Act. The
following shall be deemed to be Affiliates of GAP LP: (a) GAP LLC, the members
of GAP LLC and the limited partners of GAP LP; (b) any Affiliate of GAP LLC, the
members of GAP LLC and the limited partners of GAP LP; and (c) any limited
liability company or partnership a majority of whose members or partners, as the
case
<PAGE>
may be, are members of GAP LLC. GAP LP and GAP Coinvestment shall be
deemed to be Affiliates of one another.
"Agreement" means this Agreement as the same may be amended
---------
supplemented or modified in accordance with the terms hereof.
"Audited Financial Statements" has the meaning set forth in Section
----------------------------
3.6 of this Agreement.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Braddock" has the meaning set forth in the recitals to this
--------
Agreement.
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"By-laws" means the by-laws of the Company in effect on the Closing
-------
Date, as the same may be amended from time to time.
"Certificate of Designation" means the Certificate of Designation with
--------------------------
respect to the Preferred Stock adopted by the Board of Directors and filed with
the Secretary of State of the State of Delaware on or before the Closing Date.
"Certificate of Incorporation" means the Certificate of Incorporation
----------------------------
of the Company, as the same may be amended from time to time.
"Claims" means any actions, suits, proceedings, claims, complaints,
------
disputes, arbitrations or investigations.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning set forth in the recitals to this
------------
Agreement.
"Company" has the meaning set forth in the recitals to this Agreement.
-------
"Condition of the Company" means the assets, business, properties,
------------------------
prospects, operations or financial condition of the Company and the
Subsidiaries, taken as a whole.
"Contingent Obligation" means, as applied to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend,
<PAGE>
guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
------------------ ---------------
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligation or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall, unless stated to be
otherwise in the instrument constituting the Contingent Obligation, be deemed to
be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by the Board of Directors.
"Contractual Obligations" means as to any Person, any provision of any
-----------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Financial Statements" has the meaning set forth in Section 3.6.
--------------------
"First Closing" has the meaning set forth in Section 2.3 of the
-------------
Agreement.
"First Closing Date" has the meaning set forth in Section 2.3 of the
------------------
Agreement.
"GAAP" means generally accepted accounting principles in effect from
----
time to time in the United States or the United Kingdom, as the case may be.
"GAP Coinvestment" has the meaning set forth in the recitals to this
----------------
Agreement.
"GAP 42" means General Atlantic Partners 42, L.P., a Delaware limited
------
partnership.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
-------
liability company and the general partner of GAP LP, and any successor to such
entity.
<PAGE>
"GAP LP" has the meaning set forth in the recitals to this Agreement.
------
"GAP/Braddock Purchased Shares" has the meaning set forth in Section
-----------------------------
2.1 of the Agreement.
"GAP Purchasers" means GAP LP and GAP Coinvestment.
--------------
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Indemnified Party" has the meaning set forth in Section 7.1 of this
-----------------
Agreement.
"Indemnifying Party" has the meaning set forth in Section 7.1 of this
------------------
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Orders" has the meaning set forth in Section 3.2 of this Agreement.
------
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning set forth in the recitals to this
---------------
Agreement.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
----------------
Agreement.
"Purchasers" has the meaning set forth in the recitals to this
----------
Agreement.
<PAGE>
"Registration Rights Agreement Amendment" means Amendment No. 1 to the
---------------------------------------
Registration Rights Agreement dated as of October 24, 1997, among the Company,
GAP 42, GAP Coinvestment and the stockholders named therein, substantially in
the form attached hereto as Exhibit B.
---------
"Requirements of Law" means, as to any Person, any law, statute,
-------------------
treaty, rule, regulation, right, privilege, qualification, license or franchise
or determination of an arbitrator or a court or other Governmental Authority or
stock exchange, in each case applicable or binding upon such Person or any of
its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to herein.
"Second Closing" has the meaning set forth in Section 2.4 of the
--------------
Agreement.
"Second Closing Date" has the meaning set forth in Section 2.4 of the
-------------------
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission thereunder.
"Stock Equivalents" means any security or obligation which is by its
-----------------
terms convertible into or exchangeable for shares of common stock or other
capital stock or equity securities of the Company, and any option, warrant or
other subscription or purchase right with respect to common stock or such other
capital stock or equity securities.
"Stockholders Agreement" has the meaning set forth in Section 5.8 of
----------------------
this Agreement.
"Stockholders Agreement Amendment" means Amendment No. 1 to the
--------------------------------
Stockholders Agreement dated as of October 24, 1997, among the Company, GAP 42,
GAP Coinvestment and the stockholders named therein, substantially in the form
attached hereto as Exhibit A.
---------
"Subsidiaries" means Prime Response Limited, a company registered in
------------
England and Wales under number 2155722, and a corporation or other Person of
which 50% or more of the voting power of the outstanding voting equity
securities or 50% or more of the outstanding economic equity interest is held,
directly or indirectly, by such Person. Unless otherwise qualified, or the
contest otherwise requires, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company.
"Swann" has the meaning set forth in the recitals to this Agreement.
-----
<PAGE>
"Swann Purchased Shares" has the meaning set forth in Section 2.1 of
----------------------
this Agreement.
"Transaction Documents" means collectively, this Agreement, the
---------------------
Stockholders Agreement Amendment and the Registration Rights Agreement
Amendment.
"Unaudited Financial Statements" has the meaning set forth in Section
------------------------------
3.6 of this Agreement.
1.2 Accounting Terms; Financial Statements. All accounting terms
--------------------------------------
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
ARTICLE 2
PURCHASE AND SALE OF PREFERRED STOCK
------------------------------------
2.1 Purchase and Sale of Preferred Stock. Subject to the terms and
------------------------------------
conditions herein set forth, (a) the Company agrees to issue and sell to each of
the GAP Purchasers and Braddock, and each of the GAP Purchasers and Braddock
agrees that it or he will purchase from the Company, at the First Closing, and
(b) the Company agrees to issue and sell to Swann, and Swann agrees that he will
purchase from the Company, at the Second Closing, the aggregate number of shares
of Preferred Stock set forth opposite such Purchaser's name on Schedule 2.1
------------
hereto, for the aggregate purchase price set forth opposite such Purchaser's
name on Schedule 2.1 hereto (the shares of Preferred Stock being purchased
------------
hereunder by the GAP Purchasers and Braddock being referred to herein as the
"GAP/Braddock Purchased Shares" and the shares of Preferred Stock being
purchased hereunder by Swann being referred to herein as the "Swann Purchased
Shares" and, together with the GAP/Braddock Purchased Shares, the "Purchased
Shares").
2.2 Certificate of Designation. The Purchased Shares shall be
--------------------------
shares of Preferred Stock of the Company issued pursuant to the Certificate of
Designation.
2.3 First Closing. Unless this Agreement shall have terminated
-------------
pursuant to Article 9 and subject to the satisfaction or waiver of the
conditions set forth in Sections 5.1 and 6.1, the closing of the sale and
purchase of the GAP/Braddock Purchased Shares (the "First Closing") shall take
place at the offices
<PAGE>
of Paul, Weiss, Rifkind, Wharton & Garrison, no later than 4:00 p.m., New York
time, on the first Business Day following the date upon which the conditions set
forth in Sections 5.1 and 6.1 shall be satisfied or waived in accordance with
this Agreement, or at such other time, place, and date that the Company and the
Purchasers may agree in writing (the "First Closing Date"). On the First Closing
Date, the Company shall deliver to each GAP Purchaser and Braddock a certificate
representing the GAP/Braddock Purchased Shares being purchased by such GAP
Purchaser and Braddock against delivery by such GAP Purchaser and Braddock to
the Company of the aggregate purchase price therefor (as set forth opposite such
GAP Purchaser's and Braddock's name on Schedule 2.1 hereto) by wire transfer of
------------
immediately available funds.
2.4 Second Closing. Subject to the satisfaction or waiver of the
--------------
conditions set forth in Sections 5.2 and 6.2, the closing of the sale and
purchase of the Swann Purchased Shares (the "Second Closing") shall take place
at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, no later than 4:00
p.m., New York time, on the first Business Day following the date upon which the
conditions set forth in Sections 5.2 and 6.2 shall be satisfied or waived in
accordance with this Agreement, or at such other time, place and date that the
Company and Swann may agree in writing (the "Second Closing Date"), but in no
event later than October 31, 1998. On the Second Closing Date, the Company
shall deliver to Swann a certificate representing the Swann Purchased Shares
being purchased by Swann against delivery by Swann to the Company of the
aggregate purchase price therefor (as set forth opposite Swann's name on
Schedule 2.1 hereto) by wire transfer of immediately available funds.
- ------------
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to the Purchasers as follows:
3.1 Corporate Existence and Power. Each of the Company and the
-----------------------------
Subsidiaries (a) is, in the case of the Company and its Subsidiaries (other than
Prime Response Limited), a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation, and in
the case of Prime Response Limited, is a company registered in England and Wales
under number 2155722; (b) has all requisite power and authority to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently, or is proposed to be, engaged; (c) is, in
the case of the Company and its Subsidiaries (other than Prime Response
Limited), duly qualified as a foreign corporation, licensed and in good
standing, and in the case of Prime Response Limited, is duly registered and
remains subsisting under the laws of each
<PAGE>
jurisdiction in which its ownership, lease or operation of property or the
conduct of its business requires such qualification, except to the extent that
the failure to do so would not have a material adverse effect on the Condition
of the Company; and (d) has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement and each of the other
Transaction Documents to which it is a party. No jurisdiction, other than those
referred to in clause (c) above, has claimed, in writing or otherwise, that the
Company or any of the Subsidiaries is required to qualify as a foreign
corporation therein, and neither the Company nor the Subsidiaries files any
franchise, income or other tax returns in any other jurisdiction based upon the
ownership or use of property therein or the derivation of income therefrom.
3.2 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby (a) have been
duly authorized by all necessary corporate action of the Company; (b) do not
contravene the terms of the Certificate of Incorporation or the By-laws, or any
certificate of incorporation or by-laws or other organizational documents of any
of the Subsidiaries; (c) do not violate, conflict with or result in any breach
or contravention of, or the creation of any Lien under, any Contractual
Obligation of the Company or any of the Subsidiaries, or any Requirement of Law
applicable to the Company or any of the Subsidiaries; and (d) do not violate any
judgment, injunction, writ, award, decree or order of any nature (collectively,
"Orders") of any Governmental Authority against, or binding upon, the Company or
any of the Subsidiaries.
3.3 Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the sale, issuance and delivery of the Purchased Shares) by, or
enforcement against, the Company of this Agreement and the other Transaction
Documents or the transactions contemplated hereby and thereby.
3.4 Binding Effect. Each of the Transaction Documents has been
--------------
duly executed and delivered by the Company, and each constitutes the legal,
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
<PAGE>
3.5 Capitalization.
--------------
(a) On the Second Closing Date, after giving effect to the
transactions contemplated by this Agreement, the authorized capital stock of the
Company shall consist of (i) 30,000,000 shares of Common Stock, of which
9,380,000 shares are issued and outstanding, (ii) 1,155,000 shares of Series A
Convertible Participating Preferred Stock of the Company, all of which are
issued and outstanding to GAP 42 and GAP Coinvestment and (iii) 866,500 shares
of Preferred Stock, of which 866,500 shares will be issued and outstanding to
the Purchasers. Schedule 3.5(a) sets forth, at and on the Second Closing Date, a
---------------
true and complete list of (x) the stockholders of the Company (including any
trust or escrow agent arrangement created in connection with any employee stock
option plan) and, opposite the name of each stockholder, the amount of all
outstanding capital stock and Stock Equivalents owned by such stockholder and
(y) the holders of Stock Equivalents (other than the stockholders set forth in
clause (x) above) and, opposite the name of each such holder, the amount of all
Stock Equivalents owned by such holder. As of the Second Closing Date, the
Company will have reserved an aggregate of 866,500 shares of Common Stock for
issuance upon conversion of the Purchased Shares. Except as set forth on
Schedule 3.5(a), there are no options, warrants, conversion privileges,
- ---------------
subscription or purchase rights or other rights presently outstanding to
purchase or otherwise acquire (i) any authorized but unissued, unauthorized or
treasury shares of the Company's capital stock, (ii) any Stock Equivalents or
(iii) other securities of the Company. As of the First Closing Date and the
Second Closing Date, respectively, the GAP/Braddock Purchased Shares and the
Swann Purchased Shares, respectively, will be duly authorized, and when issued
and sold to the GAP Purchasers and Swann, respectively, after payment therefor
in accordance herewith, will be validly issued, fully paid and nonassessable and
will be issued in compliance with the registration and qualification
requirements of all applicable U.S. federal, state and foreign securities laws
(or pursuant to exemptions therefrom). The shares of Common Stock issuable upon
conversion of the Purchased Shares are duly authorized and, when issued in
compliance with the provisions of the Certificate of Incorporation, will be
validly issued, fully paid and nonassessable.
(b) Except as set forth in Schedule 3.5(b), neither the Company nor
any of the Subsidiaries directly or indirectly owns or has made any investment
in any of the capital stock of, or any other proprietary interest in, any Person
other than Prime Response Limited, a company registered in England and Wales
under number 2155722. The Company owns all of the issued and outstanding
capital stock of the Subsidiaries, free and clear of all Liens. All of such
shares of capital stock are duly authorized, validly issued and fully paid, and
all of such shares were issued in compliance with the requirements of all
applicable Requirements of Law. Except as set forth on Schedule 3.5(b), there
are no options, warrants, conversion privileges, subscription or purchase rights
or other rights to purchase or otherwise acquire any authorized but unissued
shares or other securities of, or any
<PAGE>
proprietary interest in, the Subsidiaries, and there is no outstanding security
of any kind convertible into or exchangeable for such shares or proprietary
interest.
3.6 Financial Statements. By the First Closing Date, the Company
--------------------
shall have delivered to the Purchasers its audited consolidated financial
statements (balance sheet and statements of operation, cash flow and
stockholders' equity, together with the notes thereto) for the fiscal years
ended December 31, 1996 and December 31, 1997 (the "Audited Financial
Statements"), and its consolidated unaudited financial statements (balance sheet
and statement of operations) for the six months ended June 30, 1998 (the
"Unaudited Financial Statements" and, together with the Audited Financial
Statements, the "Financial Statements"). The Financial Statements shall be
prepared in accordance with United States GAAP applied on a consistent basis
throughout the periods indicated and with each other, except that the Unaudited
Financial Statements shall not contain footnotes or normal year-end adjustments.
The Financial Statements, at the time of their delivery to the Purchasers and at
all other times, shall fairly present the financial condition, operating results
and cash flows of the Company as of the respective dates and for the respective
periods indicated in accordance with United States GAAP, except that the
Unaudited Financial Statements shall not contain footnotes or normal year-end
adjustments.
3.7 No Default or Breach; Contractual Obligations. Neither the
---------------------------------------------
Company nor any of its Subsidiaries has received notice of, and is not in
default under, or with respect to, any Contractual Obligation in any respect,
which, individually or together with all such defaults, could have a material
adverse effect on (i) the Condition of the Company or (ii) the ability of the
Company to perform its obligations under this Agreement or the other Transaction
Documents to which it is a party.
3.8 No Material Adverse Change; Ordinary Course of Business. Since
-------------------------------------------------------
January 1, 1998, (a) there has not been any material adverse change, nor to the
knowledge of the Company is any such change threatened, in the Condition of the
Company, (b) except for the acquisition of the "MIND" product from Admiral
Computing plc, the Company has not participated in any transaction or otherwise
acted outside the ordinary course of business, including, without limitation,
declaring or paying any dividend or declaring or making any distribution to its
stockholders except out of the earnings of the Company and (c) the Company has
not increased the compensation of any of its officers or the rate of pay of any
of its employees, except as part of regular compensation increases in the
ordinary course of business.
3.9 Private Offering. No form of general solicitation or general
----------------
advertising was used by the Company or its representatives in connection with
the offer or sale of the Purchased Shares. No registration of the Purchased
Shares, pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws, will be required by the offer, sale or issuance of the
Purchased Shares.
<PAGE>
3.10 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the Company
or any of its Subsidiaries in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with the Company or
any of its Subsidiaries or any action taken by any such Person.
3.11 Disclosure. This Agreement and the documents and certificates
----------
furnished to the Purchasers by the Company, taken as a whole, do not contain any
untrue statement of a material fact or to the Company's knowledge omit to state
a material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
3.12 Revised Product Plan of Record. The Company has delivered to
------------------------------
each of GAP LP and GAP Coinvestment a revised Product Plan of Record.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
Each of the Purchasers hereby represents and warrants (severally as to
itself and not jointly) to the Company as follows:
4.1 Existence and Power. Each of GAP LP and GAP Coinvestment (a)
-------------------
is a partnership duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation, (b) has all requisite power and
authority to conduct the business in which it is currently, or is proposed to
be, engaged, and (c) has the requisite partnership power and authority to
execute, deliver and perform its obligations under this Agreement and each of
the other Transaction Documents to which it is a party.
4.2 Capacity. Each of the Purchasers (other than GAP LP and GAP
--------
Coinvestment) has the legal capacity to execute, deliver and perform his
obligations under this Agreement and each of the other Transaction Documents to
which he is a party.
4.3 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby, including, without limitation, the purchase of the Purchased
Shares, (a) have, in the case of GAP LP and GAP Coinvestment, been duly
authorized by all necessary partnership action, (b) do not, in the case of GAP
LP and GAP Coinvestment, contravene the terms of such Purchaser's organizational
documents, or any amendment thereof, (c) do not violate, conflict with or result
in any breach or
<PAGE>
contravention of or the creation of any Lien under, any Contractual Obligation
of such Purchaser, or any Requirement of Law applicable to such Purchaser and
(d) do not violate any Orders of any Governmental Authority against, or binding
upon, such Purchaser.
4.4 Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under any Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the purchase of the Purchased Shares) by, or enforcement against,
such Purchaser of this Agreement and each of the other Transaction Documents to
which such Purchaser is a party or the transactions contemplated hereby and
thereby.
4.5 Binding Effect. Each of the Transaction Documents to which
--------------
such Purchaser is a party has been duly executed and delivered by such
Purchaser, and each constitutes the legal, valid and binding obligations of such
Purchaser, enforceable against it in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability (regardless of whether considered in a
proceeding at law or in equity).
4.6 Purchase for Own Account. The Purchased Shares to be acquired
------------------------
by such Purchaser pursuant to this Agreement and the shares of Common Stock
issuable upon conversion of the Purchased Shares are being or will be acquired
for investment for its own account and with no intention of distributing or
reselling, or granting any participation in, such Purchased Shares, such shares
of Common Stock or any part thereof in any transaction that would be in
violation of the securities laws of the United States of America, or any state
or foreign jurisdiction, without prejudice, however, to the rights of such
Purchaser at all times to sell or otherwise dispose of all or any part of such
Purchased Shares or such shares of Common Stock under an effective registration
statement under the Securities Act and under the applicable state or foreign
securities laws, or under an exemption from such registration available under
such laws, and subject, nevertheless, to the disposition of such Purchaser's
property being at all times within its control. If such Purchaser should in the
future decide to dispose of any of such Purchased Shares or such shares of
Common Stock, such Purchaser understands and agrees that it may do so only in
compliance with the Securities Act and applicable state and foreign securities
laws, as then in effect. Such Purchaser agrees to the imprinting, so long as
required by law, of legends on certificates representing all of its Purchased
Shares and shares of Common Stock issuable upon conversion of its Purchased
Shares as required by any applicable state securities laws and to the following
effect (and acknowledges that the Company will make a notation on its transfer
books to such effect):
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY JURISDICTION OF THE UNITED STATES. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND UNDER THE APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY, IF REQUESTED BY THE COMPANY, THAT THERE IS AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS AGREEMENT, DATED OCTOBER 24, 1997, AMONG PRIME RESPONSE GROUP
INC. AND THE STOCKHOLDERS NAMED THEREIN AS AMENDED BY AMENDMENT NO. 1
THERETO (THE "STOCKHOLDERS AGREEMENT"). THE COMPANY WILL NOT REGISTER THE
TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL
THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS
AGREEMENT. THE COMPANY WILL MAIL A COPY OF SUCH AGREEMENT, TOGETHER WITH A
COPY OF THE EXPRESS TERMS OF THE SECURITIES AND THE OTHER CLASS OR CLASSES
AND SERIES OF SHARES, IF ANY, WHICH THE COMPANY IS AUTHORIZED TO ISSUE, TO
THE RECORD HOLDER OF THIS CERTIFICATE, WITHOUT CHARGE, WITHIN FIVE DAYS
AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR.
4.7 Restricted Securities. Such Purchaser understands that the
---------------------
Purchased Shares will not be registered under the Securities Act at the time of
their issuance for the reason that the sale provided for in this Agreement is
exempt pursuant to Rule 506 of Regulation D promulgated under the Securities Act
and that the reliance of the Company on such exemption is predicated in part on
such Purchaser's representations set forth herein. Such Purchaser also
represents that it is experienced in evaluating companies such as the Company,
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment and has the ability
to suffer the total loss of its investment. Such Purchaser further represents
that it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the
<PAGE>
offering and the Company's business, management and financial affairs and to
obtain additional information to such Purchaser's satisfaction.
4.8 Investment Experience. Each Purchaser is an investor in
---------------------
securities of companies in the development stage and acknowledges that it has,
by reason of its business and financial experience, the capacity to protect its
own interest in connection with the transaction and that it is able to bear the
economic risk of its investment in the transaction. GAP Coinvestment and each
of the partners of GAP LP is an "Accredited Investor" as defined in Rule 501(a)
under the Securities Act.
4.9 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by such
Purchaser, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with such Purchaser or any action taken
by such Purchaser.
ARTICLE 5
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
--------------------------
5.1 GAP Purchasers' and Braddock's Conditions. The obligation
-----------------------------------------
of the GAP Purchasers and Braddock to purchase the GAP/Braddock Purchased
Shares, to pay the purchase price therefor at the First Closing and to perform
their other obligations hereunder shall be subject to the satisfaction as
determined by, or waiver by, the GAP Purchasers and Braddock of the following
conditions on or before the First Closing Date:
(a) Secretary's Certificate. The GAP Purchasers and Braddock shall
-----------------------
have received a certificate from the Company, in form and substance reasonably
satisfactory to the GAP Purchasers and Braddock, dated the First Closing Date
and signed by the Secretary or an Assistant Secretary of the Company, certifying
that the attached copies of the Certificate of Incorporation, the By-laws, the
Certificate of Designation and resolutions of the Board of Directors approving
this Agreement and each of the other Transaction Documents to which the Company
is a party and the transactions contemplated hereby and thereby, are all true,
complete and correct and remain unamended and in full force and effect.
<PAGE>
(b) Filing of Certificate of Designation. The Certificate of
------------------------------------
Designation shall be in a form reasonably satisfactory to the GAP Purchasers and
Braddock, and shall have been duly filed by or on behalf of the Company with the
Secretary of State of the State of Delaware in accordance with the General
Corporation Law of the State of Delaware.
(c) Stockholders Agreement Amendment. The Company, James Carling,
--------------------------------
Nevin Prakash and the other stockholders party thereto shall have duly executed
and delivered the Stockholders Agreement Amendment.
(d) Registration Rights Agreement Amendment. The Company, James
---------------------------------------
Carling and Nevin Prakash shall have duly executed and delivered the
Registration Rights Agreement Amendment.
(e) Purchased Shares. The Company shall be prepared to deliver to the
----------------
GAP Purchasers and Braddock certificates in definitive form representing the
number of Purchased Shares set forth opposite such GAP Purchaser's and
Braddock's name on Schedule 2.1 hereto, registered in the name of such GAP
------------
Purchaser and Braddock.
(f) Revised Budget. Each GAP Purchaser shall have received a
--------------
revised budget of the Company for fiscal year 1999 in form and substance
reasonably satisfactory to such Purchasers.
(g) Financials. Each GAP Purchaser shall have received the Financial
----------
Statements in form and substance reasonably satisfactory to such Purchasers.
(h) Waivers. James Carling and Nevin Prakash shall have waived any
-------
preemptive rights with respect to the Purchased Shares pursuant to Section 4 of
the Stockholders Agreement dated as of October 24, 1997, among the Company, GAP
42, GAP Coinvestment and the Stockholders named therein (the "Stockholders
Agreement").
(i) Representations and Warranties. All of the representations and
------------------------------
warranties of the Company contained in Article 3 hereof shall be true and
correct in all material respects (except for any such representations and
warranties which are qualified by their terms by a reference to materiality or
material adverse effect, which representations and warranties as so qualified
shall be true and correct in all respects) on and as of First Closing Date, as
if made by the Company on and as of such date.
(j) Compliance with this Agreement. The Company shall have performed
------------------------------
and complied in all material respects with all of the agreements and
<PAGE>
conditions set forth herein that are required to be performed or complied with
by it on or before the First Closing Date.
(k) Officer's Certificate. The GAP Purchasers and Braddock shall have
---------------------
received a certificate from the Company, in form and substance reasonably
satisfactory to the GAP Purchasers and Braddock, dated the First Closing Date
and signed by the President of the Company, certifying that (a) the
representations and warranties of the Company contained in Article 3 hereof are
true and correct in all material respects (except for any such representations
and warranties which are qualified by their terms by a reference to materiality
or material adverse effect, which representations and warranties as so qualified
are true and correct in all respects) on and as of the First Closing Date as if
made by the Company on as of such date; and (b) the Company has performed and
complied in all material respects with all of the agreements and conditions set
forth or contemplated herein that are required to be performed or complied with
by it on or before the First Closing Date.
(l) No Material Adverse Change. Since the date hereof, there shall
--------------------------
have been no material adverse change in the Condition of the Company.
(m) No Material Judgment or Order. There shall not be on the First
-----------------------------
Closing Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which would, in the reasonable judgment of the GAP Purchasers and Braddock, (a)
prohibit or restrict (i) the purchase of the Purchased Shares or (ii) the
consummation of the transactions contemplated by this Agreement, (b) subject the
GAP Purchasers and Braddock to any material penalty or onerous condition under
or pursuant to any Requirement of Law if the Purchased Shares were to be
purchased hereunder or (c) restrict the operation of the business of the Company
or any of the Subsidiaries as conducted on the date hereof in a manner that
would have a material adverse effect on the Condition of the Company.
(n) No Litigation. No action, suit, proceeding, claim or dispute
-------------
shall have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Company which would, if adversely
determined, (a) have a material adverse effect on the Condition of the Company
or (b) have a material adverse effect on the ability of the Company to perform
its obligations under this Agreement or each of the other Transaction Documents.
5.2 Swann's Conditions. The obligation of Swann to purchase the
------------------
Swann Purchased Shares, to pay the purchase price therefor at the Second Closing
and to perform his other obligations hereunder shall be subject to the
satisfaction as determined by, or waiver by, Swann of the following conditions
on or before the Second Closing Date:
<PAGE>
(a) Purchased Shares. The Company shall be prepared to deliver to
----------------
Swann certificates in definitive form representing the number of Swann Purchased
Shares set forth opposite Swann's name on Schedule 2.1 hereto, registered in the
name Swann.
ARTICLE 6
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
------------------------------
6.1 First Closing Conditions. The obligation of the Company to
------------------------
issue and sell the GAP/Braddock Purchased Shares and the obligation of the
Company to perform its other obligations hereunder, shall be subject to the
satisfaction as determined by, or waiver by, the Company of the following
conditions on or before the First Closing Date:
(a) Stockholders Agreement Amendment. The GAP Purchasers and Braddock
--------------------------------
shall have duly executed and delivered the Stockholders Agreement Amendment.
(b) Registration Rights Agreement Amendment. The GAP Purchasers shall
---------------------------------------
have duly executed and delivered the Registration Rights Agreement Amendment.
(c) Payment by the GAP Purchasers. Each GAP Purchaser and Braddock
-----------------------------
shall be prepared to pay the aggregate purchase price for its Purchased Shares.
(d) Certificate of Designation. The Certificate of Designation shall
--------------------------
be in a form reasonably satisfactory to the Company.
(e) Waiver. GAP 42 shall have waived any preemptive rights with
------
respect to the Purchased Shares pursuant to Section 4 of the Stockholders
Agreement.
(f) Representations and Warranties. The representations and
------------------------------
warranties of the GAP Purchasers and Braddock contained in Article 4 hereof
shall be true and correct in all material respects on and as of the First
Closing Date as if made on and as of such date.
(g) Compliance with this Agreement. Each of the GAP Purchasers and
------------------------------
Braddock shall have performed and complied in all material respects with all of
the agreements and conditions set forth herein that are required to be
<PAGE>
performed or complied with by such GAP Purchaser and Braddock on or before the
First Closing Date.
(h) No Material Judgment or Order. There shall not be on the First
-----------------------------
Closing Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which would, in the judgment of the Company, (a) prohibit or restrict (i) the
sale of the Purchased Shares or (ii) the consummation of the transactions
contemplated by this Agreement, (b) subject the Company to any penalty or
onerous condition under or pursuant to any Requirement of Law if the Purchased
Shares were to be sold hereunder or (c) restrict the operation of the business
of the Company or any of the Subsidiaries as conducted on the date hereof in a
manner that would have a material adverse effect on the Condition of the
Company.
6.2 Second Closing Conditions. The obligation of the Company to
-------------------------
issue and sell the Swann Purchased Shares shall be subject to the satisfaction
as determined by, or waiver by, the Company of the following conditions on or
before the Second Closing Date:
(a) Stockholders Agreement Amendment. Swann shall have duly executed
--------------------------------
and delivered the Stockholders Agreement Amendment.
(b) Payment by Swann. Swann shall be prepared to pay the aggregate
----------------
purchase price for his Purchased Shares.
(c) Representations and Warranties. The representations and
------------------------------
warranties of Swann contained in Article 4 hereof shall be true and correct in
all material respects on and as of the Second Closing Date as if made on and as
of such date.
(d) Compliance with this Agreement. Swann shall have performed and
------------------------------
complied in all material respects with all of his agreements and conditions set
forth herein that are required to be performed or complied with by it on or
before the Second Closing Date.
ARTICLE 7
INDEMNIFICATION
---------------
7.1 Indemnification. Except as otherwise provided in this Article
---------------
7, the Company and each of the Purchasers, severally and not jointly, as
applicable (the "Indemnifying Party"), agrees to indemnify, defend and hold
harmless the Purchasers, in the case of indemnity by the Company, or the
Company, in the case of indemnity
<PAGE>
by the Purchasers, as applicable, and their Affiliates and their respective
officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, an "Indemnified Party") to the fullest extent
permitted by law from and against any and all losses, Claims (including any
Claim by a third party), damages, expenses (including reasonable fees,
disbursements and other charges of counsel incurred by the Indemnified Party in
any action between the Indemnifying Party and the Indemnified Party or between
the Indemnified Party and any third party or otherwise) or other liabilities
(collectively, "Losses") resulting from, arising out of or relating to any
breach of any representation or warranty, covenant or agreement by the
Indemnifying Party in this Agreement or the other Transaction Documents,
including, without limitation, any legal, administrative or other actions
(including actions brought by the Purchasers or the Company or any equity
holders or partners of such Persons or derivative actions brought by any Person
claiming through or in the Company's name or in the name of either of the
Purchasers), proceedings or investigations (whether formal or informal), or
written threats thereof, based upon, relating to or arising out of this
Agreement or the other Transaction Documents, the transactions contemplated
hereby and thereby, or any Indemnified Party's role therein or in transactions
contemplated thereby; provided, that the Indemnifying Party shall not be
--------
liable under this Section 7.1 to an Indemnified Party to the extent that it is
finally judicially determined that such Losses resulted primarily from the
material breach by such Indemnified Party of any representation, warranty,
covenant or other agreement of such Indemnified Party contained in this
Agreement; and provided, further, that if and to the extent that such
-------- -------
indemnification is unenforceable for any reason, the Indemnifying Party shall
make the maximum contribution to the payment and satisfaction of such Losses
which shall be permissible under applicable laws. The amount of any payment by
any Indemnifying Party to any Indemnified Party herewith in respect of any Loss
shall be of sufficient amount to make such Indemnified Party whole, and, in the
case of indemnity by the Company, shall consist of an amount sufficient to make
up any diminution in the value of the Purchased Shares held by such Indemnified
Party resulting from the payment by the Company of such indemnification payment.
In connection with the obligation of the Indemnifying Party to indemnify for
expenses as set forth above, the Indemnifying Party shall, upon presentation of
appropriate invoices containing reasonable detail, reimburse each Indemnified
Party for all such expenses (including reasonable fees, disbursements and other
charges of counsel incurred by the Indemnified Party in any action between the
Indemnifying Party and the Indemnified Party or between the Indemnified Party
and any third party or otherwise) as they are incurred by such Indemnified
Party; provided, however, that if an Indemnified Party is reimbursed hereunder
-------- -------
for any expenses, such reimbursement of expenses shall be refunded to the
extent it is finally judicially determined that the Losses in question resulted
primarily from the willful misconduct or gross negligence of such Indemnified
Party. Notwithstanding the foregoing, indemnification with respect to this
Section 7.1 by the Company shall be limited to the aggregate consideration paid
by the Purchasers for the Purchased
<PAGE>
Shares, and indemnification by the Purchasers shall be limited to the aggregate
consideration paid by such Purchaser for its Purchased Shares.
7.2 Notification. Each Indemnified Party under this Article 7
------------
shall, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Indemnifying Party under this
Article 7, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party (a) other than pursuant to this Article 7 or
(b) under this Article 7 unless, and only to the extent that, such omission
results in the Indemnifying Party's forfeiture of substantive rights or
defenses. In case any such action, claim or other proceeding shall be brought
against any Indemnified Party, and it shall notify the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any
-------- -------
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense at its own expense. Notwithstanding the foregoing,
in any action, claim or proceeding in which both the Indemnifying Party, on the
one hand, and an Indemnified Party, on the other hand, are, or are reasonably
likely to become, a party, such Indemnified Party shall have the right to employ
separate counsel at the expense of the Indemnifying Party and to control its own
defense of such action, claim or proceeding if, in the reasonable opinion of
counsel to such Indemnified Party, a conflict or potential conflict exists
between the Indemnifying Party, on the one hand, and such Indemnified Party, on
the other hand, that would make such separate representation advisable;
provided, however, that the Indemnifying Party shall not be liable for the fees
- -------- -------
and expenses of more than one counsel to all Indemnified Parties. The
Indemnifying Party agrees that it will not, without the prior written consent of
the Indemnified Party, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated hereby (if any Indemnified Party is a party thereto or
has been actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of each Indemnified
Party from all liability arising or that may arise out of such claim, action or
proceeding. The Indemnifying Party shall not be liable for any settlement of
any claim, action or proceeding effected against an Indemnified Party without
the Indemnifying Party's written consent, which consent shall not be
unreasonably withheld. The rights accorded to an Indemnified Party hereunder
shall be in addition to any rights that any Indemnified Party may have at common
law, by separate agreement or otherwise; provided, however, that notwithstanding
-------- -------
the foregoing or anything to the contrary contained in this Agreement, nothing
in this Article 7 should restrict or limit any rights that any Indemnified Party
may have to seek equitable relief.
<PAGE>
ARTICLE 8
AFFIRMATIVE COVENANTS
---------------------
The Company hereby covenants and agrees with the Purchasers as
follows:
8.1 Preservation of Existence. From the date hereof until the
-------------------------
First Closing Date, the Company shall and shall cause each of its Subsidiaries
to:
(a) preserve and maintain in full force and effect its existence and
good standing under the laws of its jurisdiction of formation or organization;
(b) preserve and maintain in full force and effect all material
rights, privileges, qualifications, applications, estimates, licenses and
franchises necessary in the normal conduct of its business;
(c) use its reasonable efforts to preserve its business
organization;
(d) conduct its business in the ordinary course and in accordance with
sound business practices, keep its properties in good working order and
condition (normal wear and tear excepted), and from time to time make all needed
repairs to, renewals of or replacement of its properties (except to the extent
that any of such properties are obsolete or are being replaced) so that the
efficiency of its business operations shall be fully maintained and preserved;
(e) comply in all material respects with all Requirements of Law and
with the directions of any Governmental Authority having jurisdiction over the
Company or any of its Subsidiaries or their respective business or property;
(f) file or cause to be filed in a timely manner all reports,
applications, estimates and licenses that shall be required by a Governmental
Authority and that, if not timely filed, would have a material adverse effect on
the Condition of the Company;
(g) except in the ordinary course of business, refrain from making any
change in the rate or form of compensation or remuneration payable or to become
payable to any of its stockholders, directors, officers, employees or agents;
and
(h) refrain from (i) reserving, declaring, making or paying any
dividend on the issued and outstanding shares of capital stock of the Company or
<PAGE>
any of its Subsidiaries, or making any other distributions or appropriations of
profits or capital, or (ii) redeeming, retiring, repurchasing or otherwise
acquiring shares of capital stock of the Company or any of its Subsidiaries.
ARTICLE 9
TERMINATION OF AGREEMENT
------------------------
9.1 Termination. This Agreement may be terminated prior to the
-----------
First Closing as follows:
(a) at any time on or prior to the First Closing Date, by mutual
written consent of the Company and the GAP Purchasers;
(b) at the election of the Company or the GAP Purchasers by written
notice to the other parties hereto after 5:00 p.m., New York time, on September
30, 1998, if the First Closing shall not have occurred, unless such date is
extended by the mutual written consent of the Company and the GAP Purchasers;
provided, however, that the right to terminate this Agreement under this Section
- -------- -------
9.1(b) shall not be available to any party whose breach of any representation,
warranty, covenant or agreement under this Agreement has been the cause of, or
resulted in, the failure of the First Closing to occur on or before such date;
(c) at the election of the Company, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of any
Purchaser contained in this Agreement, which breach has not been cured within
fifteen (15) Business Days of notice to the Purchasers of such breach; or
(d) at the election of the GAP Purchasers, if there has been a
material breach of any representation, warranty, covenant or agreement on the
part of the Company contained in this Agreement, which breach has not been cured
within fifteen (15) Business Days notice to the Company of such breach.
If this Agreement so terminates, it shall become null and void and have no
further force or effect, except as provided in Section 9.2.
9.2 Survival. If this Agreement is terminated and the transactions
--------
contemplated hereby are not consummated as described above, this Agreement shall
become void and of no further force and effect; except for the provisions of
Article 1, Section 10.10 and this Section 9.2; provided that (a) none of the
--------
parties hereto shall have any liability in respect of a termination of this
Agreement pursuant to Section 9.1(a) or Section 9.1(b) and (b) nothing shall
relieve any party from any liability for actual damages resulting from a
termination of this Agreement pursuant to Section
<PAGE>
9.1(c) or 9.1(d); and provided, further, that none of the parties hereto shall
-------- -------
have any liability for speculative, indirect, unforeseeable or consequential
damages resulting from any legal action relating to this Agreement or any
termination of this Agreement.
ARTICLE 10
MISCELLANEOUS
-------------
10.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Company or
the Purchasers, or acceptance of the Purchased Shares or termination of this
Agreement until the third anniversary of the First Closing Date.
10.2 Notices. All notices, demands and other communications
-------
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
(a) if to the Company or any party
(other than GAP LP or
GAP Coinvestment):
Prime Response Group Inc.
Goat Wharf, Brentwood,
TW8OPD
United Kingdom
Telecopy: 011-441-814-003-133
Attention: Nigel Cannings, Esq.
with a copy to:
Brobeck Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Telecopy: (650) 496-2755
Attention: Thomas A. Bevilacqua, Esq.
<PAGE>
(b) if to GAP LP or GAP Coinvestment:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: William E. Ford and
David A. Rosenstein, Esq.
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if properly telecopied.
10.3 Successors and Assigns; Third Party Beneficiaries. This
-------------------------------------------------
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. Subject to applicable securities laws,
each of the Purchasers may assign any of its rights under any of the Transaction
Documents to any of its Affiliates. The Company may not assign any of its
rights under this Agreement without the written consent of the holders of a
majority of the Purchased Shares. No Person other than the parties hereto and
their successors and permitted assigns is intended to be a beneficiary of this
Agreement.
10.4 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the Purchasers
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
<PAGE>
consent to any departure by the Company or the Purchasers from the terms of any
provision of this Agreement, shall be effective only if it is made or given in
writing and signed by the Company and the holders of a majority of the Purchased
Shares. Except where notice is specifically required by this Agreement, no
notice to or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances.
10.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
10.6 Headings. The headings in this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
10.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
10.8 Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
10.9 Entire Agreement. This Agreement, together with the exhibits
----------------
and schedules hereto and the other Transaction Documents, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
hereto, and the other Transaction Documents supersede all prior agreements and
understandings between the parties with respect to such subject matter.
10.10 Fees. Upon the First Closing the Company shall reimburse GAP
----
LP and GAP Coinvestment, in an aggregate amount not to exceed $30,000, for their
reasonable fees, disbursements and other charges of counsel incurred in
connection with the transactions contemplated by this Agreement. Except as
provided in the preceding sentence, each party hereto shall bear their own costs
and expenses
<PAGE>
in connection with the preparation, execution and delivery of this Agreement and
other Transaction Documents, and the transactions contemplated hereby and
thereby.
10.11 Publicity. Except as may be required by any applicable
---------
Requirement of Law, none of the parties hereto shall issue a publicity release
or public announcement or otherwise make any disclosure concerning this
Agreement or the transactions contemplated hereby, without prior approval by the
other parties hereto (which approval shall not be unreasonably withheld);
provided, however, that nothing in this Agreement shall restrict any Purchaser
- -------- -------
from disclosing information (a) that is already publicly available; (b) to the
prospective transferee in connection with any contemplated transfer of any of
the Purchased Shares; and (c) to its attorneys, accountants, consultants and
other advisors to the extent necessary to obtain their services in connection
with such Purchaser's investment in the Company. GAP LLC may disclose on its
worldwide web page, www.gapartners.com, the name of the Company, its address,
the identity of its Chief Executive Officer, a description of the Company's
business (which description shall be reasonably acceptable to the Company) and
the aggregate dollar amount invested by GAP LLC and its Affiliates in the
Company. If any announcement is required by any applicable Requirement of Law
to be made by any party hereto, prior to making such announcement such party
will deliver a draft of such announcement to the other parties and shall give
the other parties an opportunity to comment thereon.
10.12 Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person, and otherwise fulfilling, or causing the fulfillment of, the
conditions to First Closing and the Second Closing set forth in Articles 5 and
6) as may be reasonably required or desirable to carry out or to perform the
provisions of this Agreement and to consummate and make effective as promptly as
possible the transactions contemplated by this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be executed and delivered by their respective officers hereunto
duly authorized on the date first above written.
PRIME RESPONSE GROUP INC.
By: /s/ James A. Carling
____________________________
Name: James A. Carling
Title: President
GENERAL ATLANTIC PARTNERS 48, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By:/s/ Franchon M. Smithson
________________________
Name: Franchon M. Smithson
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By:/s/ Franchon M. Smithson
_____________________________
Name: Franchon M. Smithson
Title: A General Partner
/s/ Allen Swann
__________________________________________
Allen Swann
<PAGE>
/s/ Richard S. Braddock
__________________________________________
Richard S. Braddock
<PAGE>
Schedule 2.1
------------
Purchased Shares and Purchase Price
-----------------------------------
<TABLE>
<CAPTION>
Purchaser Purchased Shares Purchase Price
----------- ------------------ ----------------
<S> <C> <C>
GAP LP 607,131 $3,642,786
GAP Coinvestment 145,619 873,714
Richard S. Braddock 13,750 82,500
Allen Swann 100,000 600,000
Total: 866,500 $5,199,000
</TABLE>
<PAGE>
Exhibit 10.12
Execution Copy
================================================================================
STOCK AND WARRANT PURCHASE AGREEMENT
among
PRIME RESPONSE GROUP INC.,
GENERAL ATLANTIC PARTNERS 52, L.P.
and
GAP COINVESTMENT PARTNERS II, L.P.
______________________________
Dated March 2, 1999
______________________________
================================================================================
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page #
<S> <C>
ARTICLE I. DEFINITIONS...................................................................... 1
A. Definitions...................................................................... 1
B. Accounting Terms; Financial Statements........................................... 5
ARTICLE II. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS................................ 5
A. Purchase and Sale of Preferred Stock and Warrants................................ 6
B. Certificate of Incorporation..................................................... 6
C. Closing.......................................................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY................................................................... 6
A. Corporate Existence and Power.................................................... 6
B. Authorization; No Contravention.................................................. 7
C. Governmental Authorization; Third Party Consents................................. 7
D. Binding Effect................................................................... 7
E. Capitalization................................................................... 7
F. Financial Statements............................................................. 8
G. No Default or Breach; Contractual Obligations.................................... 9
H. No Material Adverse Change; Ordinary Course of Business.......................... 9
I. Private Offering................................................................. 9
J. Broker's, Finder's or Similar Fees............................................... 9
K. Disclosure....................................................................... 9
L. Revised Product Plan of Record................................................... 10
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS................................. 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
A. Existence and Power............................................................... 10
B. Authorization; No Contravention................................................... 10
C. Governmental Authorization; Third Party Consents.................................. 10
D. Binding Effect.................................................................... 10
E. Purchase for Own Account.......................................................... 11
F. Restricted Securities............................................................. 12
G. Investment Experience............................................................. 12
H. Broker's, Finder's or Similar Fees................................................ 12
ARTICLE V. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE........................... 12
ARTICLE VI. CONDITIONS TO THE OBLIGATION OF THE
COMPANY TO CLOSE.................................................................. 14
ARTICLE VII. INDEMNIFICATION................................................................... 14
A. Indemnification................................................................... 14
B. Notification...................................................................... 15
ARTICLE VIII. AFFIRMATIVE COVENANTS............................................................. 16
A. Financial Statements and Other Information........................................ 16
ARTICLE IX. MISCELLANEOUS..................................................................... 17
A. Survival of Representations and Warranties........................................ 17
B. Notices........................................................................... 17
C. Successors and Assigns; Third Party Beneficiaries................................. 18
D. Amendment and Waiver.............................................................. 19
E. Counterparts...................................................................... 19
F. Headings.......................................................................... 19
G. GOVERNING LAW..................................................................... 19
H. Severability...................................................................... 19
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
I. Entire Agreement.................................................................. 19
J. Fees.............................................................................. 20
K. Publicity......................................................................... 20
L. Further Assurances................................................................ 20
</TABLE>
iii
<PAGE>
EXHIBITS
A Form of Stockholders Agreement Amendment
B Form of Registration Rights Agreement Amendment
C Form of GAP LP and GAPCO Warrants
SCHEDULES
2.1 Purchased Shares, Warrants and Purchase Price
3.5(a) List of Stockholders and Capital Stock and Stock Equivalents
3.5(b) Subsidiaries
<PAGE>
STOCK AND WARRANT PURCHASE AGREEMENT
STOCK AND WARRANT PURCHASE AGREEMENT, dated February 26, 1999 (this
"Agreement"), among Prime Response Group Inc., a Delaware corporation (the
"Company"), General Atlantic Partners 52, L.P., a Delaware limited partnership
("GAP LP"), and GAP Coinvestment Partners II, L.P., a Delaware limited
partnership ("GAP Coinvestment" and, together with GAP LP, the "Purchasers").
WHEREAS, upon the terms and conditions set forth in this Agreement,
the Company proposes to issue and sell to (a) GAP LP, for an aggregate purchase
price of $4,082,016, an aggregate of 680,200 shares of Series B Convertible
Participating Preferred Stock, par value $.01 per share, of the Company (the
"Preferred Stock") and a warrant (the "GAP LP Warrant") to purchase, subject to
the terms and conditions thereof, an aggregate of 340,100 shares of common
stock, par value $.01 per share, of the Company (the "Common Stock") at an
exercise price of $2.56 per share (subject to adjustment), containing the terms
and conditions set forth in the form of warrant attached hereto as Exhibit C;
---------
and (b) GAP Coinvestment, for an aggregate purchase price of $918,988, an
aggregate of 153,134 shares of Preferred Stock and a warrant (the "GAPCO
Warrant" and, together with the GAP LP Warrant, the "Warrants") to purchase,
subject to the terms and conditions thereof, an aggregate of 76,567 shares of
Common Stock, at an exercise price of $2.56 per share (subject to adjustment),
containing the terms and conditions set forth in the form of warrant attached
hereto as Exhibit C; and
---------
WHEREAS, each share of Preferred Stock is convertible (subject to
adjustment) into one share of common stock, par value $.01 per share of the
Company (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
I.
DEFINITIONS
-----------
A. Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
---------
Rule 12b2 of the General Rules and Regulations under the Exchange Act. The
following shall be deemed to be Affiliates of GAP LP: (a) GAP LLC, the members
of GAP LLC and the limited partners of GAP LP; (b) any Affiliate of GAP LLC, the
members of GAP LLC and the limited partners of GAP LP; and (c) any limited
liability company or partnership a majority of whose members or partners, as the
case may be, are members
<PAGE>
of GAP LLC. GAP LP and GAP Coinvestment shall be deemed to be Affiliates of one
another.
"Agreement" means this Agreement as the same may be amended
---------
supplemented or modified in accordance with the terms hereof.
"Audited Financial Statements" has the meaning set forth in Section
----------------------------
3.6 of this Agreement.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"By-laws" means the by-laws of the Company in effect on the Closing
-------
Date, as the same may be amended from time to time.
"Certificate of Incorporation" means the Certificate of Incorporation
----------------------------
of the Company, as the same shall have been amended from time to time.
"Claims" means any actions, suits, proceedings, claims, complaints,
------
disputes, arbitrations or investigations.
"Closing" has the meaning set forth in Section 2.3 of this Agreement.
-------
"Closing Date" has the meaning set forth in Section 2.3 of this
------------
Agreement.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning set forth in the recitals to this
------------
Agreement.
"Company" has the meaning set forth in the recitals to this Agreement.
-------
"Condition of the Company" means the assets, business, properties,
------------------------
prospects, operations or financial condition of the Company and the
Subsidiaries, taken as a whole.
"Contingent Obligation" means, as applied to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
------------------ ---------------
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligation or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to
<PAGE>
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet item, level of income
or financial condition of the primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (d) otherwise to assure or hold harmless the owner
of any such primary obligation against loss or failure or inability to perform
in respect thereof. The amount of any Contingent Obligation shall, unless stated
to be otherwise in the instrument constituting the Contingent Obligation, be
deemed to be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by the Board of Directors.
"Contractual Obligations" means as to any Person, any provision of any
-----------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Financial Statements" has the meaning set forth in Section 3.6.
--------------------
"GAAP" means generally accepted accounting principles in effect from
----
time to time in the United States or the United Kingdom, as the case may be.
"GAP Coinvestment" has the meaning set forth in the recitals to this
----------------
Agreement.
"GAP Coinvestment I" means GAP Coinvestment Partners, L.P., a New York
------------------
limited partnership.
"GAP 48" means General Atlantic Partners 48, L.P., a Delaware limited
------
partnership.
"GAP 42" means General Atlantic Partners 42, L.P., a Delaware limited
------
partnership.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
-------
liability company and the general partner of GAP LP, and any successor to such
entity.
"GAP LP" has the meaning set forth in the recitals to this Agreement.
------
"GAP LP Warrant" has the meaning assigned to such term in the recital
--------------
to this Agreement.
"GAPCO Warrant" has the meaning assigned to such term in the recital
-------------
to this Agreement.
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision thereof, any entity exercising
executive,
<PAGE>
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Indemnified Party" has the meaning set forth in Section 7.1 of this
-----------------
Agreement.
"Indemnifying Party" has the meaning set forth in Section 7.1 of this
------------------
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Orders" has the meaning set forth in Section 3.2 of this Agreement.
------
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning set forth in the recitals to this
---------------
Agreement.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
----------------
Agreement.
"Purchasers" has the meaning set forth in the recitals to this
----------
Agreement.
"Registration Rights Agreement Amendment" means Amendment No. 2 to the
---------------------------------------
Registration Rights Agreement, dated as of October 24, 1997, among the Company,
GAP 42, GAP Coinvestment I and the stockholders named therein, substantially in
the form attached hereto as Exhibit B.
---------
"Requirements of Law" means, as to any Person, any law, statute,
-------------------
treaty, rule, regulation, right, privilege, qualification, license or franchise
or determination of an arbitrator or a court or other Governmental Authority or
stock exchange, in each case applicable or binding upon such Person or any of
its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to herein.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission thereunder.
<PAGE>
"Stock Equivalents" means any security or obligation which is by its
-----------------
terms convertible into or exchangeable for shares of common stock or other
capital stock or equity securities of the Company, and any option, warrant or
other subscription or purchase right with respect to common stock or such other
capital stock or equity securities.
"Stockholders Agreement" has the meaning set forth in Section 5.8 of
----------------------
this Agreement.
"Stockholders Agreement Amendment" means Amendment No. 1 to the
--------------------------------
Stockholders Agreement, dated as of October 24, 1997, among the Company, GAP 42,
GAP Coinvestment I and the stockholders named therein, substantially in the form
attached hereto as Exhibit A.
---------
"Subsidiaries" means Prime Response Limited, a company registered in
------------
England and Wales under number 2155722, and a corporation or other Person of
which 50% or more of the voting power of the outstanding voting equity
securities or 50% or more of the outstanding economic equity interest is held,
directly or indirectly, by such Person. Unless otherwise qualified, or the
contest otherwise requires, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company.
"Transaction Documents" means collectively, this Agreement, the
---------------------
Stockholders Agreement Amendment and the Registration Rights Agreement
Amendment.
"Unaudited Financial Statements" has the meaning set forth in Section
------------------------------
3.6 of this Agreement.
"Warrant Shares" has the meaning set forth in Section 2.1 of this
--------------
Agreement.
"Warrants" has the meaning assigned to such term in the recital to
--------
this Agreement.
B. Accounting Terms; Financial Statements. All accounting terms
--------------------------------------
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
II.
PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS
-------------------------------------------------
<PAGE>
A. Purchase and Sale of Preferred Stock and Warrants. Subject to
-------------------------------------------------
the terms and conditions herein set forth, the Company agrees to issue and sell
to each of the Purchasers, and each of the Purchasers agrees that it will
purchase from the Company, at the Closing, the aggregate number of shares of
Preferred Stock, and the Warrants to purchase the aggregate number of shares of
Common Stock, set forth opposite such Purchaser's name on Schedule 2.1 hereto,
------------
for the aggregate purchase price set forth opposite such Purchaser's name on
Schedule 2.1 hereto (all of the shares of Preferred Stock being purchased
- ------------
hereunder by the Purchasers being referred to herein as the "Purchased Shares"
and all of the shares of Common Stock issuable upon exercise of the Warrants
being purchased pursuant hereto being referred to herein as the "Warrant
Shares").
B. Certificate of Incorporation. The Purchased Shares shall be
----------------------------
shares of Preferred Stock of the Company issued pursuant to the Certificate of
Incorporation.
C. Closing. The closing of the sale and purchase of the Purchased
-------
Shares and the Warrants (the "Closing") shall take place at the offices of Paul,
Weiss, Rifkind, Wharton & Garrison, no later than 4:00 p.m., New York time, on
the date hereof, or at such other time, place, and date that the Company and the
Purchasers may agree in writing (the "Closing Date"). On the Closing Date, the
Company shall deliver to each Purchaser (a) a certificate representing the
Purchased Shares being purchased by such Purchaser and (b) the Warrants, against
delivery by the Purchasers to the Company of the aggregate purchase price
therefor by wire transfer of immediately available funds.
III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to the Purchasers as follows:
A. Corporate Existence and Power. Each of the Company and the
-----------------------------
Subsidiaries (a) is, in the case of the Company and its Subsidiaries (other than
Prime Response Limited), a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation, and in
the case of Prime Response Limited, is a company registered in England and Wales
under number 2155722; (b) has all requisite power and authority to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently, or is proposed to be, engaged; (c) is, in
the case of the Company and its Subsidiaries (other than Prime Response
Limited), duly qualified as a foreign corporation, licensed and in good
standing, and in the case of Prime Response Limited, is duly registered and
remains subsisting under the laws of each jurisdiction in which its ownership,
lease or operation of property or the conduct of its business requires such
qualification, except to the extent that the failure to do so would not have a
material adverse effect on the Condition of the Company; and (d) has the
corporate power and
<PAGE>
authority to execute, deliver and perform its obligations under this Agreement
and each of the other Transaction Documents to which it is a party. No
jurisdiction, other than those referred to in clause (c) above, has claimed, in
writing or otherwise, that the Company or any of the Subsidiaries is required to
qualify as a foreign corporation therein, and neither the Company nor the
Subsidiaries files any franchise, income or other tax returns in any other
jurisdiction based upon the ownership or use of property therein or the
derivation of income therefrom.
B. Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby (a) have been
duly authorized by all necessary corporate action of the Company; (b) do not
contravene the terms of the Certificate of Incorporation or the By-laws, or any
certificate of incorporation or by-laws or other organizational documents of any
of the Subsidiaries; (c) do not violate, conflict with or result in any breach
or contravention of, or the creation of any Lien under, any Contractual
Obligation of the Company or any of the Subsidiaries, or any Requirement of Law
applicable to the Company or any of the Subsidiaries; and (d) do not violate any
judgment, injunction, writ, award, decree or order of any nature (collectively,
"Orders") of any Governmental Authority against, or binding upon, the Company or
any of the Subsidiaries.
C. Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the sale, issuance and delivery of the Purchased Shares or the
Warrants) by, or enforcement against, the Company of this Agreement and the
other Transaction Documents or the transactions contemplated hereby and thereby.
D. Binding Effect. Each of the Transaction Documents has been duly
--------------
executed and delivered by the Company, and each constitutes the legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
E. Capitalization.
--------------
(a) On the Closing Date, after giving effect to the transactions
contemplated by this Agreement, the authorized capital stock of the Company
shall consist of (i) 30,000,000 shares of Common Stock, of which 7,714,000
shares are issued and outstanding, (ii) 1,155,000 shares of Series A Convertible
Participating Preferred Stock of the Company, all of which are issued and
outstanding to GAP 42 and GAP Coinvestment I and (iii) 1,699,834 shares of
Preferred Stock, of which 866,500 shares are issued and outstanding to GAP 48,
GAP Coinvestment I, Richard S.
<PAGE>
Braddock and Allen Swann and of which 833,334 shares will be outstanding and
issued to the Purchasers. Schedule 3.5(a) sets forth, at and on the Closing
---------------
Date, a true and complete list of (x) the stockholders of the Company (including
any trust or escrow agent arrangement created in connection with any employee
stock option plan) and, opposite the name of each stockholder, the amount of all
outstanding capital stock and Stock Equivalents owned by such stockholder and
(y) the holders of Stock Equivalents (other than the stockholders set forth in
clause (x) above) and, opposite the name of each such holder, the amount of all
Stock Equivalents owned by such holder. As of the Closing Date, the Company
will have reserved an aggregate of 833,334 shares of Common Stock for issuance
upon conversion of the Purchased Shares and an aggregate of 416,667 Warrant
Shares. Except for the Warrants and as set forth on Schedule 3.5(a), there are
---------------
no options, warrants, conversion privileges, subscription or purchase rights or
other rights presently outstanding to purchase or otherwise acquire (i) any
authorized but unissued, unauthorized or treasury shares of the Company's
capital stock, (ii) any Stock Equivalents or (iii) other securities of the
Company. On the Closing Date, the Purchased Shares will be duly authorized, and
when issued and sold to the Purchasers, after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable and will be
issued in compliance with the registration and qualification requirements of all
applicable United States federal, state and foreign securities laws (or pursuant
to exemptions therefrom). The shares of Common Stock issuable upon conversion
of the Purchased Shares and the Warrants are duly authorized and, when issued in
compliance with the provisions of the Certificate of Incorporation or the
Warrants, as the case may be, will be validly issued, fully paid and
nonassessable and will be issued in compliance with the registration and
qualification requirements of all applicable United States federal, state and
foreign securities laws (or pursuant to exemptions therefrom).
(b) Except as set forth in Schedule 3.5(b), neither the Company nor
---------------
any of the Subsidiaries directly or indirectly owns or has made any investment
in any of the capital stock of, or any other proprietary interest in, any Person
other than Prime Response Limited, a company registered in England and Wales
under number 2155722. The Company owns all of the issued and outstanding capital
stock of the Subsidiaries, free and clear of all Liens. All of such shares of
capital stock are duly authorized, validly issued and fully paid, and all of
such shares were issued in compliance with the requirements of all applicable
Requirements of Law. Except as set forth in Schedule 3.5(b), there are no
---------------
options, warrants, conversion privileges, subscription or purchase rights or
other rights to purchase or otherwise acquire any authorized but unissued shares
or other securities of, or any proprietary interest in, the Subsidiaries, and
there is no outstanding security of any kind convertible into or exchangeable
for such shares or proprietary interest.
F. Financial Statements. By the Closing Date, the Company shall
--------------------
have delivered to the Purchasers its audited consolidated financial statements
(balance sheet and statements of operation, cash flow and stockholders' equity,
together with the notes thereto) for the fiscal years ended December 31, 1996
and December 31, 1997 (the "Audited Financial Statements"), and its consolidated
unaudited financial statements (balance sheet and statement of operations) for
the fiscal quarters ending March 30, 1998, June 30, 1998 and September 30, 1998
(the "Unaudited Financial
<PAGE>
Statements" and, together with the Audited Financial Statements, the "Financial
Statements"). The Financial Statements shall be prepared in accordance with
United States GAAP applied on a consistent basis throughout the periods
indicated and with each other, except that the Unaudited Financial Statements
shall not contain footnotes or normal year-end adjustments. The Financial
Statements, at the time of their delivery to the Purchasers and at all other
times, shall fairly present the financial condition, operating results and cash
flows of the Company as of the respective dates and for the respective periods
indicated in accordance with United States GAAP, except that the Unaudited
Financial Statements shall not contain footnotes or normal year-end adjustments.
G. No Default or Breach; Contractual Obligations. Neither the
---------------------------------------------
Company nor any of its Subsidiaries has received notice of, and is not in
default under, or with respect to, any Contractual Obligation in any respect,
which, individually or together with all such defaults, could have a material
adverse effect on (i) the Condition of the Company or (ii) the ability of the
Company to perform its obligations under this Agreement or the other Transaction
Documents to which it is a party.
H. No Material Adverse Change; Ordinary Course of Business. Since
-------------------------------------------------------
September 30, 1998, (a) there has not been any material adverse change, nor to
the knowledge of the Company is any such change threatened, in the Condition of
the Company, (b) the Company has not participated in any transaction or
otherwise acted outside the ordinary course of business, including, without
limitation, declaring or paying any dividend or declaring or making any
distribution to its stockholders except out of the earnings of the Company and
(c) the Company has not increased the compensation of any of its officers or the
rate of pay of any of its employees, except as part of regular compensation
increases in the ordinary course of business.
I. Private Offering. No form of general solicitation or general
----------------
advertising was used by the Company or its representatives in connection with
the offer or sale of the Purchased Shares or the Warrants. No registration of
the Purchased Shares, the Warrants or the Warrant Shares, pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws,
will be required by the offer, sale or issuance of the Purchased Shares, the
Warrants or the Warrant Shares.
J. Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the Company
or any of its Subsidiaries in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with the Company or
any of its Subsidiaries or any action taken by any such Person.
K. Disclosure. This Agreement and the documents and certificates
----------
furnished to the Purchasers by the Company, taken as a whole, do not contain any
untrue statement of a material fact or to the Company's knowledge omit to state
a material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
<PAGE>
L. Revised Product Plan of Record. The Company has delivered to
------------------------------
each of the Purchasers a revised Product Plan of Record, including feature
functionality by release.
IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
Each of the Purchasers hereby represents and warrants (severally as to
itself and not jointly) to the Company as follows:
A. Existence and Power. Each of GAP LP and GAP Coinvestment (a) is
-------------------
a partnership duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation, (b) has all requisite power and
authority to conduct the business in which it is currently, or is proposed to
be, engaged, and (c) has the requisite partnership power and authority to
execute, deliver and perform its obligations under this Agreement and each of
the other Transaction Documents to which it is a party.
B. Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby (a) have been duly authorized by all necessary partnership
action, (b) do not contravene the terms of such Purchaser's organizational
documents, or any amendment thereof, (c) do not violate, conflict with or result
in any breach or contravention of or the creation of any Lien under, any
Contractual Obligation of such Purchaser, or any Requirement of Law applicable
to such Purchaser and (d) do not violate any Orders of any Governmental
Authority against, or binding upon, such Purchaser.
C. Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under any Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the purchase of the Purchased Shares and the Warrants) by, or
enforcement against, such Purchaser of this Agreement and each of the other
Transaction Documents to which such Purchaser is a party or the transactions
contemplated hereby and thereby.
D. Binding Effect. Each of the Transaction Documents to which such
--------------
Purchaser is a party has been duly executed and delivered by such Purchaser, and
each constitutes the legal, valid and binding obligations of such Purchaser,
enforceable against it in accordance with their terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability (regardless of whether considered in a proceeding at law or in
equity).
<PAGE>
E. Purchase for Own Account. The Purchased Shares and the Warrants
------------------------
to be acquired by such Purchaser pursuant to this Agreement, the shares of
Common Stock issuable upon conversion of the Purchased Shares and the Warrant
Shares are being or will be acquired for investment for its own account and with
no intention of distributing or reselling, or granting any participation in,
such Purchased Shares, such shares of Common Stock, such Warrants, such Warrant
Shares or any part thereof in any transaction that would be in violation of the
securities laws of the United States of America, or any state or foreign
jurisdiction, without prejudice, however, to the rights of such Purchaser at all
times to sell or otherwise dispose of all or any part of such Purchased Shares,
such shares of Common Stock, such Warrants or such Warrant Shares under an
effective registration statement under the Securities Act and under the
applicable state or foreign securities laws, or under an exemption from such
registration available under such laws, and subject, nevertheless, to the
disposition of such Purchaser's property being at all times within its control.
If such Purchaser should in the future decide to dispose of any of such
Purchased Shares, such shares of Common Stock, such Warrants or such Warrant
Shares, such Purchaser understands and agrees that it may do so only in
compliance with the Securities Act and applicable state and foreign securities
laws, as then in effect. Such Purchaser agrees to the imprinting, so long as
required by law, of legends on certificates representing all of its Purchased
Shares, shares of Common Stock issuable upon conversion of its Purchased Shares
and Warrant Shares as required by any applicable state securities laws and to
the following effect (and acknowledges that the Company will make a notation on
its transfer books to such effect):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY JURISDICTION OF THE UNITED STATES. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND UNDER THE APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY, IF REQUESTED BY THE COMPANY, THAT THERE IS AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS AGREEMENT, DATED OCTOBER 24, 1997, AMONG PRIME RESPONSE GROUP
INC. AND THE STOCKHOLDERS NAMED THEREIN AS AMENDED BY AMENDMENT NO. 1
THERETO AND AS AMENDED BY AMENDMENT NO. 2 THERETO (THE "STOCKHOLDERS
AGREEMENT"). THE COMPANY WILL NOT REGISTER THE
<PAGE>
TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL
THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS
AGREEMENT. THE COMPANY WILL MAIL A COPY OF SUCH AGREEMENT, TOGETHER WITH A
COPY OF THE EXPRESS TERMS OF THE SECURITIES AND THE OTHER CLASS OR CLASSES
AND SERIES OF SHARES, IF ANY, WHICH THE COMPANY IS AUTHORIZED TO ISSUE, TO
THE RECORD HOLDER OF THIS CERTIFICATE, WITHOUT CHARGE, WITHIN FIVE DAYS
AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR.
F. Restricted Securities. Such Purchaser understands that the
---------------------
Purchased Shares and the Warrants will not be registered under the Securities
Act at the time of their issuance for the reason that the sale provided for in
this Agreement is exempt pursuant to Rule 506 of Regulation D promulgated under
the Securities Act and that the reliance of the Company on such exemption is
predicated in part on such Purchaser's representations set forth herein. Such
Purchaser also represents that it is experienced in evaluating companies such as
the Company, has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of its investment and has
the ability to suffer the total loss of its investment. Such Purchaser further
represents that it has had the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of the offering and
the Company's business, management and financial affairs and to obtain
additional information to such Purchaser's satisfaction.
G. Investment Experience. Such Purchaser is an investor in
---------------------
securities of companies in the development stage and acknowledges that it has,
by reason of its business and financial experience, the capacity to protect its
own interest in connection with the transaction and that it is able to bear the
economic risk of its investment in the transaction. GAP LP is an "Accredited
Investor" as defined in Rule 501(a) under the Securities Act.
H. Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by such
Purchaser, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with such Purchaser or any action taken
by such Purchaser.
V.
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
--------------------------
The obligation of the Purchasers to purchase the Purchased Shares and
the Warrants, to pay the purchase price therefor at the Closing and to perform
their
<PAGE>
other obligations hereunder shall be subject to the satisfaction as determined
by, or waiver by, the Purchasers of the following conditions on or before the
Closing Date:
(a) Secretary's Certificate. The Purchasers shall have received a
-----------------------
certificate from the Company, in form and substance reasonably satisfactory to
the Purchasers, dated the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, certifying that the attached copies of the
Certificate of Incorporation, the By-laws and resolutions of the Board of
Directors approving this Agreement and each of the other Transaction Documents
to which the Company is a party and the transactions contemplated hereby and
thereby, are all true, complete and correct and remain unamended and in full
force and effect.
(b) Amendment of Certificate of Incorporation. The Certificate of
-----------------------------------------
Incorporation shall have been amended, pursuant to an amendment in form and
substance satisfactory to the Purchasers, to increase the authorized number of
shares of Preferred Stock and such amendment shall have been duly filed by or on
behalf of the Company with the Secretary of State of the State of Delaware in
accordance with the General Corporation Law of the State of Delaware.
(c) Stockholders Agreement Amendment. The Company, James Carling,
--------------------------------
Nevin Prakash, Richard S. Braddock and Allen Swann and the other stockholders
party thereto shall have duly executed and delivered the Stockholders Agreement
Amendment.
(d) Registration Rights Agreement Amendment. The Company, James
---------------------------------------
Carling and Nevin Prakash shall have duly executed and delivered the
Registration Rights Agreement Amendment.
(e) Purchased Shares. The Company shall be prepared to deliver to
----------------
each of the Purchasers certificates in definitive form representing the number
of Purchased Shares set forth opposite such Purchaser's name on Schedule 2.1
------------
hereto, registered in the name of such Purchaser.
(f) Warrants. The Company shall have duly executed and delivered to
--------
GAP LP the GAP LP Warrant and to GAP Coinvestment the GAPCO Warrant, each
substantially in the form attached hereto as Exhibit C, and registered in the
---------
name of GAP LP and GAP Coinvestment, respectively.
(g) Revised Budget. Each of the Purchasers shall have received a
--------------
revised budget of the Company for each fiscal quarter of 1999 in form and
substance reasonably satisfactory to such Purchasers.
(h) Revised Product Plan of Record. Each of the Purchasers shall have
------------------------------
received Purchaser shall have received a revised Product Plan of Record,
including feature functionality by release.
(i) Waivers. James Carling, Nevin Prakash, Richard S. Braddock and
-------
Allen Swann shall have waived any preemptive rights with respect to the
<PAGE>
Purchased Shares pursuant to Section 4 of the Stockholders Agreement, dated as
of October 24, 1997, among the Company, GAP 42, GAP Coinvestment and the
stockholders named therein, as amended (as so amended, the "Stockholders
Agreement").
VI.
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
---------------------------
The obligation of the Company to issue and sell the Purchased Shares
and the Warrants and the obligation of the Company to perform its other
obligations hereunder, shall be subject to the satisfaction as determined by, or
waiver by, the Company of the following conditions on or before the Closing
Date:
(a) Stockholders Agreement Amendment. The Purchasers shall have duly
--------------------------------
executed and delivered the Stockholders Agreement Amendment.
(b) Registration Rights Agreement Amendment. The Purchasers shall
---------------------------------------
have duly executed and delivered the Registration Rights Agreement Amendment.
(c) Payment by the Purchasers. Each of the Purchasers shall be
-------------------------
prepared to pay the aggregate purchase price for its Purchased Shares and its
Warrants.
(d) Waiver. GAP 42, GAP 48 and GAP Coinvestment I shall have waived
------
any preemptive rights with respect to the Purchased Shares pursuant to Section 4
of the Stockholders Agreement.
VII.
INDEMNIFICATION
---------------
A. Indemnification. Except as otherwise provided in this Article
---------------
7, the Company and each of the Purchasers, severally and not jointly, as
applicable (the "Indemnifying Party"), agrees to indemnify, defend and hold
harmless the Purchasers, in the case of indemnity by the Company, or the
Company, in the case of indemnity by the Purchasers, as applicable, and their
Affiliates and their respective officers, directors, agents, employees,
subsidiaries, partners, members and controlling persons (each, an "Indemnified
Party") to the fullest extent permitted by law from and against any and all
losses, Claims (including any Claim by a third party), damages, expenses
(including reasonable fees, disbursements and other charges of counsel incurred
by the Indemnified Party in any action between the Indemnifying Party and the
Indemnified Party or between the Indemnified Party and any third party or
otherwise) or other liabilities (collectively, "Losses") resulting from, arising
out of or relating to any
<PAGE>
breach of any representation or warranty, covenant or agreement by the
Indemnifying Party in this Agreement or the other Transaction Documents,
including, without limitation, any legal, administrative or other actions
(including actions brought by the Purchasers or the Company or any equity
holders or partners of such Persons or derivative actions brought by any Person
claiming through or in the Company's name or in the name of either of the
Purchasers), proceedings or investigations (whether formal or informal), or
written threats thereof, based upon, relating to or arising out of this
Agreement or the other Transaction Documents, the transactions contemplated
hereby and thereby, or any Indemnified Party's role therein or in transactions
contemplated thereby; provided, that the Indemnifying Party shall not be liable
under this Section 7.1 to an Indemnified Party to the extent that it is finally
judicially determined that such Losses resulted primarily from the material
breach by such Indemnified Party of any representation, warranty, covenant or
other agreement of such Indemnified Party contained in this Agreement; and
provided, further, that if and to the extent that such indemnification is
unenforceable for any reason, the Indemnifying Party shall make the maximum
contribution to the payment and satisfaction of such Losses which shall be
permissible under applicable laws. The amount of any payment by any Indemnifying
Party to any Indemnified Party herewith in respect of any Loss shall be of
sufficient amount to make such Indemnified Party whole, and, in the case of
indemnity by the Company, shall consist of an amount sufficient to make up any
diminution in the value of the Purchased Shares held by such Indemnified Party
resulting from the payment by the Company of such indemnification payment. In
connection with the obligation of the Indemnifying Party to indemnify for
expenses as set forth above, the Indemnifying Party shall, upon presentation of
appropriate invoices containing reasonable detail, reimburse each Indemnified
Party for all such expenses (including reasonable fees, disbursements and other
charges of counsel incurred by the Indemnified Party in any action between the
Indemnifying Party and the Indemnified Party or between the Indemnified Party
and any third party or otherwise) as they are incurred by such Indemnified
Party; provided, however, that if an Indemnified Party is reimbursed hereunder
for any expenses, such reimbursement of expenses shall be refunded to the extent
it is finally judicially determined that the Losses in question resulted
primarily from the willful misconduct or gross negligence of such Indemnified
Party. Notwithstanding the foregoing, indemnification with respect to this
Section 7.1 by the Company shall be limited to the aggregate consideration paid
by the Purchasers for the Purchased Shares, and indemnification by the
Purchasers shall be limited to the aggregate consideration paid by such
Purchaser for its Purchased Shares.
B. Notification. Each Indemnified Party under this Article 7
------------
shall, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Indemnifying Party under this
Article 7, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not relieve the Indemnifying Party from any liability which it
may have to such Indemnified Party (a) other than pursuant to this Article 7 or
(b) under this Article 7 unless, and only to the extent that, such omission
results in the Indemnifying Party's forfeiture of substantive rights or
defenses. In case any such action, claim or other proceeding shall be brought
against any Indemnified Party, and it shall notify the Indemnifying Party of
<PAGE>
the commencement thereof, the Indemnifying Party shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense at its own expense. Notwithstanding the foregoing,
in any action, claim or proceeding in which both the Indemnifying Party, on the
one hand, and an Indemnified Party, on the other hand, are, or are reasonably
likely to become, a party, such Indemnified Party shall have the right to employ
separate counsel at the expense of the Indemnifying Party and to control its own
defense of such action, claim or proceeding if, in the reasonable opinion of
counsel to such Indemnified Party, a conflict or potential conflict exists
between the Indemnifying Party, on the one hand, and such Indemnified Party, on
the other hand, that would make such separate representation advisable;
provided, however, that the Indemnifying Party shall not be liable for the fees
and expenses of more than one counsel to all Indemnified Parties. The
Indemnifying Party agrees that it will not, without the prior written consent of
the Indemnified Party, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated hereby (if any Indemnified Party is a party thereto or
has been actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of each Indemnified
Party from all liability arising or that may arise out of such claim, action or
proceeding. The Indemnifying Party shall not be liable for any settlement of any
claim, action or proceeding effected against an Indemnified Party without the
Indemnifying Party's written consent, which consent shall not be unreasonably
withheld. The rights accorded to an Indemnified Party hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise; provided, however, that notwithstanding the
foregoing or anything to the contrary contained in this Agreement, nothing in
this Article 7 should restrict or limit any rights that any Indemnified Party
may have to seek equitable relief.
VIII.
AFFIRMATIVE COVENANTS
---------------------
The Company hereby covenants and agrees with the Purchasers as
follows:
A. Financial Statements and Other Information. The Company shall
------------------------------------------
deliver to each Purchaser, in form and substance satisfactory to such Purchaser:
(a) as soon as available, but not later than one hundred twenty (120)
days after the end of each fiscal year of the Company, a copy of the audited
balance sheet of the Company as of the end of such fiscal year and the related
statements of operations and cash flows for such fiscal year, setting forth in
each case in comparative form the figures for the previous year, all in
reasonable detail and accompanied by a management summary and analysis of the
operations of the Company for such fiscal year and by the opinion of a
nationally recognized independent certified public accounting firm which report
shall state without qualification that such financial
<PAGE>
statements present fairly the financial condition as of such date and results of
operations and cash flows for the periods indicated in conformity with GAAP
applied on a consistent basis;
(b) commencing with the fiscal period ending on March 31, 1999, as
soon as available, but in any event not later than forty-five (45) days after
the end of each of the first three fiscal quarters of each fiscal year, the
unaudited balance sheet of the Company, and the related statements of operations
and cash flows for such quarter and for the period commencing on the first day
of the fiscal year and ending on the last day of such quarter, all certified by
an appropriate officer of the Company as presenting fairly the financial
condition as of such date and results of operations and cash flows for the
periods indicated in conformity with GAAP applied on a consistent basis, subject
to normal year-end adjustments and the absence of footnotes required by GAAP;
and
(c) as promptly as practicable, but not later than five (5) days after
the end of each fiscal year of the Company, a certificate signed by the Chief
Executive Officer of the Company in customary form certifying that the Company
is not a "foreign person" within the meaning of Section 1445 of the Code.
(d) Reservation of Common Stock and Preferred Stock. The Company
-----------------------------------------------
shall at all times (a) reserve and keep available out of its authorized shares
of Common Stock, solely for the purpose of issue or delivery upon conversion of
the Purchased Shares, and (b) reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issue or delivery upon
exercise of the Warrants, as provided in the Certificate of Incorporation and
the Warrants (in the case of the Warrant Shares), the maximum number of shares
of Common Stock that may be issuable or deliverable upon such conversion or
exercise, as the case may be. Such shares of Common Stock are duly authorized
and, when issued or delivered in accordance with the Certificate of
Incorporation and the Warrants (in the case of the Warrant Shares), as the case
may be, against payment therefor, shall be validly issued, fully paid and non-
assessable. The Company shall issue such shares of Common Stock in accordance
with the terms of the Certificate of Incorporation or the Warrants, as the case
may be, and otherwise comply with the terms hereof and thereof.
IX.
MISCELLANEOUS
-------------
A. Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Company or
the Purchasers, or acceptance of the Purchased Shares and the Warrants or
termination of this Agreement until the third anniversary of the Closing Date.
B. Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
<PAGE>
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) if to the Company:
Prime Response Group Inc.
Goat Wharf, Brentwood,
TW8OPD
United Kingdom
Telecopy: 011-441-814-003-133
Attention: Nigel Cannings, Esq.
with a copy to:
Brobeck Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Telecopy: (650) 496-2755
Attention: Thomas A. Bevilacqua, Esq.
(b) if to the Purchasers:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: William E. Ford
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if properly telecopied.
C. Successors and Assigns; Third Party Beneficiaries. This
-------------------------------------------------
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. Subject to applicable securities laws,
each of the Purchasers may assign any of its rights under any of the Transaction
Documents to any of its Affiliates. The Company may not assign any of its
rights under this
<PAGE>
Agreement without the written consent of the holders of a majority of the
Purchased Shares. No Person other than the parties hereto and their successors
and permitted assigns is intended to be a beneficiary of this Agreement.
D. Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the Purchasers
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement, any waiver of any provision of this Agreement, and any
consent to any departure by the Company or the Purchasers from the terms of any
provision of this Agreement, shall be effective only if it is made or given in
writing and signed by the Company and the holders of a majority of the Purchased
Shares. Except where notice is specifically required by this Agreement, no
notice to or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances.
E. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
F. Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
G. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
H. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
I. Entire Agreement. This Agreement, together with the exhibits
----------------
and schedules hereto and the other Transaction Documents, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises,
<PAGE>
warranties or undertakings, other than those set forth or referred to herein or
therein. This Agreement, together with the exhibits hereto, and the other
Transaction Documents supersede all prior agreements and understandings between
the parties with respect to such subject matter.
J. Fees. Upon the Closing the Company shall reimburse GAP LP and
----
GAP Coinvestment, in an aggregate amount not to exceed $30,000, for their
reasonable fees, disbursements and other charges of counsel incurred in
connection with the transactions contemplated by this Agreement. Except as
provided in the preceding sentence, each party hereto shall bear their own costs
and expenses in connection with the preparation, execution and delivery of this
Agreement and other Transaction Documents, and the transactions contemplated
hereby and thereby.
K. Publicity. Except as may be required by any applicable
---------
Requirement of Law, none of the parties hereto shall issue a publicity release
or public announcement or otherwise make any disclosure concerning this
Agreement or the transactions contemplated hereby, without prior approval by the
other parties hereto (which approval shall not be unreasonably withheld);
provided, however, that nothing in this Agreement shall restrict any Purchaser
- -------- -------
from disclosing information (a) that is already publicly available; (b) to the
prospective transferee in connection with any contemplated transfer of any of
the Purchased Shares or the Warrants; and (c) to its attorneys, accountants,
consultants and other advisors to the extent necessary to obtain their services
in connection with such Purchaser's investment in the Company. GAP LLC may
disclose on its worldwide web page, www.gapartners.com, the name of the Company,
its address, the identity of its Chief Executive Officer, a description of the
Company's business (which description shall be reasonably acceptable to the
Company) and the aggregate dollar amount invested by GAP LLC and its Affiliates
in the Company. If any announcement is required by any applicable Requirement
of Law to be made by any party hereto, prior to making such announcement such
party will deliver a draft of such announcement to the other parties and shall
give the other parties an opportunity to comment thereon.
L. Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person, and otherwise fulfilling, or causing the fulfillment of, the
conditions to the Closing set forth in Articles 5 and 6) as may be reasonably
required or desirable to carry out or to perform the provisions of this
Agreement and to consummate and make effective as promptly as possible the
transactions contemplated by this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers hereunto duly authorized
on the date first above written.
PRIME RESPONSE GROUP INC.
By: /s/ James Carling
-------------------------------
Name: James Carling
Title:
GENERAL ATLANTIC PARTNERS 52, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ David C. Hodgan
--------------------------
Name: David C. Hodgan
Title: A Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ David C. Hodgan
-------------------------------
Name: David C. Hodgan
Title: A General Partner
<PAGE>
Schedule 2.1
------------
Purchased Shares, Warrants and Purchase Price
---------------------------------------------
<TABLE>
<CAPTION>
Shares of Common Stock
Purchaser Purchased Shares Issuable Upon Purchase Price
- --------- ---------------- Exercise of Warrants --------------
--------------------
<S> <C> <C> <C>
GAP LP 680,200 340,100 $4,082,016
GAP Coinvestment 153,134 76,567 918,988
------- ------- ----------
Total: 833,334 416,667 $5,001,004
</TABLE>
<PAGE>
Exhibit 10.13
Execution Copy
===============================================================================
STOCK AND WARRANT PURCHASE AGREEMENT
among
PRIME RESPONSE GROUP INC.,
GENERAL ATLANTIC PARTNERS 52, L.P.
and
GAP COINVESTMENT PARTNERS II, L.P.
______________________________
Dated as of July 15, 1999
______________________________
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
-----------------
Page #
------
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................1
1.1 Definitions............................................................................1
1.2 Accounting Terms; Financial Statements.................................................6
ARTICLE II PURCHASE AND SALE OF PREFERRED STOCK
AND WARRANTS..................................................................6
2.1 Purchase and Sale of Preferred Stock...................................................6
2.2 Purchase and Sale of Warrants..........................................................6
2.3 Certificate of Designations............................................................6
2.4 Use of Proceeds........................................................................6
2.5 Closing................................................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
THE COMPANY...................................................................7
3.1 Corporate Existence and Power..........................................................7
3.2 Authorization; No Contravention........................................................7
3.3 Governmental Authorization; Third Party Consents.......................................8
3.4 Binding Effect.........................................................................8
3.5 Capitalization.........................................................................8
3.6 Financial Statements...................................................................9
3.7 No Default or Breach; Contractual Obligations..........................................9
3.8 No Material Adverse Change; Ordinary Course of Business...............................10
3.9 Private Offering......................................................................10
3.10 Broker's, Finder's or Similar Fees....................................................10
3.11 Disclosure............................................................................10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE PURCHASERS...............................................................10
4.1 Existence and Power...................................................................10
4.2 Authorization; No Contravention.......................................................11
4.3 Governmental Authorization; Third Party Consents......................................11
4.4 Binding Effect........................................................................11
4.5 Purchase for Own Account..............................................................11
4.6 Restricted Securities.................................................................13
4.7 Investment Experience.................................................................13
4.8 Broker's, Finder's or Similar Fees....................................................13
ARTICLE V CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE ..................................................13
5.1 Secretary's Certificate...............................................................13
5.2 Filing of Certificate of Designations.................................................14
5.3 Stockholders Agreement Amendment......................................................14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page #
------
<S> <C> <C>
5.4 Registration Rights Agreement Amendment...............................................14
5.5 Purchased Shares......................................................................14
5.6 Warrants..............................................................................14
5.7 Waivers...............................................................................14
5.8 Opinion of Counsel....................................................................14
5.9 Adjustments to Series A and Series B Conversion Prices................................14
ARTICLE VI CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE......................................................15
6.1 Stockholders Agreement Amendment......................................................15
6.2 Registration Rights Agreement Amendment...............................................15
6.3 Payment by the Purchasers.............................................................15
6.4 Waiver................................................................................15
ARTICLE VII INDEMNIFICATION..............................................................15
7.1 Indemnification.......................................................................15
7.2 Notification..........................................................................16
ARTICLE VIII AFFIRMATIVE COVENANTS........................................................17
8.1 Financial Statements and Other Information............................................17
ARTICLE IX MISCELLANEOUS................................................................19
9.1 Survival of Representations and Warranties............................................19
9.2 Notices...............................................................................19
9.3 Successors and Assigns; Third Party Beneficiaries.....................................20
9.4 Amendment and Waiver..................................................................20
9.5 Counterparts..........................................................................20
9.6 Headings..............................................................................21
9.7 GOVERNING LAW.........................................................................21
9.8 Severability..........................................................................21
9.9 Entire Agreement......................................................................21
9.10 Fees..................................................................................21
9.11 Publicity.............................................................................21
9.12 Further Assurances....................................................................22
</TABLE>
EXHIBITS
A Form of Certificate of Designations
B Form of Stockholders Agreement Amendment
C Form of Registration Rights Agreement Amendment
D Form of Opinion of Brobeck Hale and Dorr International
E Form of GAP LP Warrant and GAPCO Warrant
ii
<PAGE>
SCHEDULES
2.1 Purchased Shares, Warrants and Purchase Price
3.5(a) List of Stockholders and Capital Stock and Stock Equivalents
iii
<PAGE>
STOCK AND WARRANT PURCHASE AGREEMENT
STOCK AND WARRANT PURCHASE AGREEMENT, dated as of July 15, 1999 (this
"Agreement"), among Prime Response Group Inc., a Delaware corporation (the
"Company"), General Atlantic Partners 52, L.P., a Delaware limited partnership
("GAP LP"), and GAP Coinvestment Partners II, L.P., a Delaware limited
partnership ("GAP Coinvestment" and, together with GAP LP, the "Purchasers").
WHEREAS, upon the terms and conditions set forth in this Agreement,
the Company proposes to issue and sell to (a) GAP LP, for an aggregate purchase
price of $2,442,855, an aggregate of 814,285 shares of Series C Convertible
Preferred Stock, par value $.01 per share, of the Company (the "Preferred
Stock") and a warrant (the "GAP LP Warrant") to purchase, subject to the terms
and conditions thereof, an aggregate of 273,099 shares of common stock, par
value $.01 per share, of the Company (the "Common Stock") at an exercise price
of $0.01 per share (subject to adjustment), containing the terms and conditions
set forth in the form of warrant attached hereto as Exhibit E; and (b) GAP
---------
Coinvestment, for an aggregate purchase price of $557,145, an aggregate of
185,715 shares of Preferred Stock and a warrant (the "GAPCO Warrant" and,
together with the GAP LP Warrant, the "Warrants") to purchase, subject to the
terms and conditions thereof, an aggregate of 62,286 shares of Common Stock, at
an exercise price of $0.01 per share (subject to adjustment), containing the
terms and conditions set forth in the form of warrant attached hereto as Exhibit
-------
E; and
- -
WHEREAS, each share of Preferred Stock is convertible (subject to
adjustment) into one share of Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
-----------
A. Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
---------
Rule 12b2 of the General Rules and Regulations under the Exchange Act. The
following shall be deemed to be Affiliates of GAP LP: (a) GAP LLC, the members
of GAP LLC and the limited partners of GAP LP; (b) any Affiliate of GAP LLC, the
<PAGE>
2
members of GAP LLC and the limited partners of GAP LP; and (c) any limited
liability company or partnership a majority of whose members or partners, as the
case may be, are members of GAP LLC. GAP LP and GAP Coinvestment shall be
deemed to be Affiliates of one another.
"Agreement" means this Agreement as the same may be amended
---------
supplemented or modified in accordance with the terms hereof.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"By-laws" means the by-laws of the Company in effect on the Closing
-------
Date, as the same may be amended from time to time.
"Certificate of Designations" means the Certificate of Designations
---------------------------
with respect to the Preferred Stock adopted by the Board of Directors and filed
with the Secretary of State of the State of Delaware on or before the Closing
Date substantially in the form attached hereto as Exhibit A.
---------
"Certificate of Incorporation" means the Certificate of Incorporation
----------------------------
of the Company, as the same shall have been amended from time to time.
"Claims" means any actions, suits, proceedings, claims, complaints,
------
disputes, arbitrations or investigations.
"Closing" has the meaning set forth in Section 2.5 of this Agreement.
-------
"Closing Date" has the meaning set forth in Section 2.5 of this
------------
Agreement.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" has the meaning set forth in the recitals to this
------------
Agreement.
"Company" has the meaning set forth in the recitals to this Agreement.
-------
"Condition of the Company" means the assets, business, properties,
------------------------
prospects, operations or financial condition of the Company and the
Subsidiaries, taken as a whole.
<PAGE>
3
"Contingent Obligation" means, as applied to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
------------------ ---------------
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligation or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof. The amount of any Contingent Obligation shall, unless stated to be
otherwise in the instrument constituting the Contingent Obligation, be deemed to
be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by the Board of Directors.
"Contractual Obligations" means as to any Person, any provision of any
-----------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Financial Statements" has the meaning set forth in Section 3.6.
--------------------
"GAAP" means generally accepted accounting principles in effect from
----
time to time in the United States or the United Kingdom, as the case may be.
"GAP Coinvestment" has the meaning set forth in the recitals to this
----------------
Agreement.
"GAP Coinvestment I" means GAP Coinvestment Partners, L.P., a New York
------------------
limited partnership.
"GAPCO Warrant" has the meaning set forth in the recitals to this
-------------
Agreement.
"GAP 42" means General Atlantic Partners 42, L.P., a Delaware limited
------
partnership.
"GAP 48" means General Atlantic Partners 48, L.P., a Delaware limited
------
partnership.
<PAGE>
4
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
-------
liability company and the general partner of GAP LP, and any successor to such
entity.
"GAP LP" has the meaning set forth in the recitals to this Agreement.
------
"GAP LP Warrant" has the meaning set forth in the recitals to this
--------------
Agreement.
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Indemnified Party" has the meaning set forth in Section 7.1 of this
-----------------
Agreement.
"Indemnifying Party" has the meaning set forth in Section 7.1 of this
------------------
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences),
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing.
"Orders" has the meaning set forth in Section 3.2 of this Agreement.
------
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning set forth in the recitals to this
---------------
Agreement.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
----------------
Agreement.
"Purchasers" has the meaning set forth in the recitals to this
----------
Agreement.
<PAGE>
5
"Registration Rights Agreement Amendment" means Amendment No. 3 to the
---------------------------------------
Registration Rights Agreement, dated as of October 24, 1997, among the Company,
GAP 42, GAP Coinvestment I and the stockholders named therein, substantially in
the form attached hereto as Exhibit C.
---------
"Requirements of Law" means, as to any Person, any law, statute,
-------------------
treaty, rule, regulation, right, privilege, qualification, license or franchise
or determination of an arbitrator or a court or other Governmental Authority or
stock exchange, in each case applicable or binding upon such Person or any of
its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to herein.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission thereunder.
"Series A Preferred Stock" means the Series A Convertible
------------------------
Participating Preferred Stock, par value $.01 per share, of the Company.
"Series B Preferred Stock" means the Series B Convertible
------------------------
Participating Preferred Stock, par value $.01 per share, of the Company.
"Stock Equivalents" means any security or obligation which is by its
-----------------
terms convertible into or exchangeable for shares of common stock or other
capital stock or equity securities of the Company, and any option, warrant or
other subscription or purchase right with respect to common stock or such other
capital stock or equity securities.
"Stockholders Agreement" has the meaning set forth in Section 5.7 of
----------------------
this Agreement.
"Stockholders Agreement Amendment" means Amendment No. 3 to the
--------------------------------
Stockholders Agreement, dated as of October 24, 1997, among the Company, GAP 42,
GAP Coinvestment I and the stockholders named therein, substantially in the form
attached hereto as Exhibit B.
---------
"Subsidiaries" means Prime Response Limited, a company registered in
------------
England and Wales under number 2155722, and a corporation or other Person of
which 50% or more of the voting power of the outstanding voting equity
securities or 50% or more of the outstanding economic equity interest is held,
directly or indirectly, by such Person. Unless otherwise qualified, or the
contest otherwise requires, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company.
"Transaction Documents" means collectively, this Agreement, the
---------------------
Stockholders Agreement Amendment, the Registration Rights Agreement Amendment
and the Warrants.
<PAGE>
6
"Warrants" has the meaning set forth in the recitals to this
--------
Agreement.
"Warrant Shares" has the meaning set forth in Section 2.2 of this
--------------
Agreement.
1.2 Accounting Terms; Financial Statements. All accounting terms
--------------------------------------
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
ARTICLE II.
PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS
-------------------------------------------------
2.1 Purchase and Sale of Preferred Stock. Subject to the terms and
------------------------------------
conditions herein set forth, the Company agrees to issue and sell to each of the
Purchasers, and each of the Purchasers agrees that it will purchase from the
Company, at the Closing, the aggregate number of shares of Preferred Stock set
forth opposite such Purchaser's name on Schedule 2.1 hereto, for the aggregate
------------
purchase price set forth opposite such Purchaser's name on Schedule 2.1 hereto
------------
(all of the shares of Preferred Stock being purchased hereunder by the
Purchasers being referred to herein as the "Purchased Shares").
2.2 Purchase and Sale of Warrants. Subject to the terms and
-----------------------------
conditions herein set forth, the Company agrees to issue and sell to each of the
Purchasers, and each of the Purchasers agrees that it will purchase from the
Company, on the Closing Date, its Warrant, for the aggregate purchase price set
forth opposite such Purchaser's name on Schedule 2.1 hereto (all of the shares
------------
of Preferred Stock issuable upon exercise of the Warrants being referred to
herein as the "Warrant Shares").
2.3 Certificate of Designations. The Purchased Shares shall have
---------------------------
the rights and preferences set forth in the Certificate of Designations.
2.4 Use of Proceeds. The Company shall use the proceeds from the
---------------
issue and sale of the Purchased Shares and the Warrants to the Purchasers for
working capital needs of the Company.
2.5 Closing. The closing of the sale and purchase of the Purchased
-------
Shares (the "Closing") shall take place at the offices of Paul, Weiss, Rifkind,
Wharton & Garrison, no later than 4:00 p.m., New York time, on the date hereof,
or at such other time, place, and date that the Company and the Purchasers may
agree in
<PAGE>
7
writing (the "Closing Date"). On the Closing Date, the Company shall deliver to
each Purchaser (a) a certificate representing the Purchased Shares being
purchased by such Purchaser and (b) its Warrant, against delivery by such
Purchaser to the Company of the aggregate purchase price therefor by wire
transfer of immediately available funds.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to the Purchasers as follows:
3.1 Corporate Existence and Power. Each of the Company and the
-----------------------------
Subsidiaries (a) is, in the case of the Company and its Subsidiaries (other than
Prime Response Limited), a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation, and in
the case of Prime Response Limited, is a company registered in England and Wales
under number 2155722; (b) has all requisite power and authority to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently, or is proposed to be, engaged; (c) is, in
the case of the Company and its Subsidiaries (other than Prime Response
Limited), duly qualified as a foreign corporation, licensed and in good
standing, and in the case of Prime Response Limited, is duly registered and
remains subsisting under the laws of each jurisdiction in which its ownership,
lease or operation of property or the conduct of its business requires such
qualification, except to the extent that the failure to do so would not have a
material adverse effect on the Condition of the Company; and (d) has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and each of the other Transaction Documents to which it is
a party. No jurisdiction, other than those referred to in clause (c) above, has
claimed, in writing or otherwise, that the Company or any of the Subsidiaries is
required to qualify as a foreign corporation therein, and neither the Company
nor the Subsidiaries files any franchise, income or other tax returns in any
other jurisdiction based upon the ownership or use of property therein or the
derivation of income therefrom.
3.2 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby (a) have been
duly authorized by all necessary corporate action of the Company; (b) do not
contravene the terms of the Certificate of Incorporation or the By-laws, or any
certificate of incorporation or by-laws or other organizational documents of any
of the Subsidiaries; (c) do not violate, conflict with or result in any breach
or contravention of, or the creation of any Lien under, any Contractual
Obligation of the Company or any of the Subsidiaries, or any Requirement of Law
applicable to the Company or any of the Subsidiaries; and (d) do not violate any
judgment, injunction, writ, award, decree or
<PAGE>
8
order of any nature (collectively, "Orders") of any Governmental Authority
against, or binding upon, the Company or any of the Subsidiaries.
3.3 Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the sale, issuance and delivery of the Purchased Shares) by, or
enforcement against, the Company of this Agreement and the other Transaction
Documents or the transactions contemplated hereby and thereby.
3.4 Binding Effect. Each of the Transaction Documents has been duly
--------------
executed and delivered by the Company, and each constitutes the legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
3.5 Capitalization.
--------------
(a) On the Closing Date, after giving effect to the transactions
contemplated by this Agreement, the authorized capital stock of the Company
shall consist of (i) 30,000,000 shares of Common Stock, of which 10,228,300
shares are issued and outstanding, and (ii) 3,855,000 shares of preferred stock,
par value $.01 per share, of the Company, of which (x) 1,155,000 shares are
Series A Preferred Stock, all of which are issued and outstanding to GAP 42 and
GAP Coinvestment I, (y) 1,699,834 shares are Series B Preferred Stock, all of
which are issued and outstanding to GAP 48, GAP 52, GAP Coinvestment I, GAP
Coinvestment II, Richard S. Braddock and Allen Swann and (z) 1,000,000 shares
are Preferred Stock, all of which will be outstanding and issued to the
Purchasers. Schedule 3.5(a) sets forth, at and on the Closing Date, a true and
---------------
complete list of (x) the stockholders of the Company (including any trust or
escrow agent arrangement created in connection with any employee stock option
plan) and, opposite the name of each stockholder, the amount of all outstanding
capital stock and Stock Equivalents owned by such stockholder and (y) the
holders of Stock Equivalents (other than the stockholders set forth in clause
(x) above) and, opposite the name of each such holder, the amount of all Stock
Equivalents owned by such holder. As of the Closing Date, the Company will have
reserved an aggregate of 1,000,000 shares of Common Stock for issuance upon
conversion of the Purchased Shares and an aggregate of 335,385 shares of Common
Stock for issuance upon exercise of the Warrants. Except as set forth on
Schedule 3.5(a), there are no options, warrants, conversion privileges,
- ---------------
subscription or purchase rights or other rights presently outstanding to
purchase or otherwise acquire (i) any authorized but unissued, unauthorized or
treasury shares of
<PAGE>
9
the Company's capital stock, (ii) any Stock Equivalents or (iii) other
securities of the Company. On the Closing Date, the Purchased Shares and the
Warrants will be duly authorized, and when issued and sold to the Purchasers,
after payment therefor in accordance herewith, will be validly issued, fully
paid and nonassessable and will be issued in compliance with the registration
and qualification requirements of all applicable United States federal, state
and foreign securities laws (or pursuant to exemptions therefrom). The shares of
Common Stock issuable upon conversion of the Purchased Shares are duly
authorized and, when issued in compliance with the provisions of the Certificate
of Designations, will be validly issued, fully paid and nonassessable and will
be issued in compliance with the registration and qualification requirements of
all applicable United States federal, state and foreign securities laws (or
pursuant to exemptions therefrom). The Warrant Shares issuable upon exercise of
the Warrants are duly authorized and, when issued in compliance with the
provisions of the Warrants, will be validly issued, fully paid and non-
assessable and will be issued in compliance with the registration and
qualification requirements of all applicable United States federal, state and
foreign securities laws (or pursuant to exceptions therefrom).
(b) Neither the Company nor any of the Subsidiaries directly or
indirectly owns or has made any investment in any of the capital stock of, or
any other proprietary interest in, any Person other than Prime Response Limited,
a company registered in England and Wales under number 2155722. The Company
owns all of the issued and outstanding capital stock of the Subsidiaries, free
and clear of all Liens. All of such shares of capital stock are duly
authorized, validly issued and fully paid, and all of such shares were issued in
compliance with the requirements of all applicable Requirements of Law. There
are no options, warrants, conversion privileges, subscription or purchase rights
or other rights to purchase or otherwise acquire any authorized but unissued
shares or other securities of, or any proprietary interest in, the Subsidiaries,
and there is no outstanding security of any kind convertible into or
exchangeable for such shares or proprietary interest.
3.6 Financial Statements. By the Closing Date, the Company shall
--------------------
have delivered to the Purchasers its unaudited consolidated financial statements
(balance sheet and statement of operations) for the period ending April 30,
1999, (the "Financial Statements"). The Financial Statements shall be prepared
in accordance with United States GAAP applied on a consistent basis throughout
the periods indicated and with each other, except that the Financial Statements
shall not contain footnotes or normal year-end adjustments. The Financial
Statements, at the time of their delivery to the Purchasers and at all other
times, shall fairly present the financial condition, operating results and cash
flows of the Company as of the respective dates and for the respective periods
indicated in accordance with United States GAAP, except that the Financial
Statements shall not contain footnotes or normal year-end adjustments.
3.7 No Default or Breach; Contractual Obligations. Neither the
---------------------------------------------
Company nor any of its Subsidiaries has received notice of, and is not in
default
<PAGE>
10
under, or with respect to, any Contractual Obligation in any respect, which,
individually or together with all such defaults, could have a material adverse
effect on (i) the Condition of the Company or (ii) the ability of the Company to
perform its obligations under this Agreement or the other Transaction Documents
to which it is a party.
3.8 No Material Adverse Change; Ordinary Course of Business. Since
-------------------------------------------------------
January 1, 1999 (a) there has not been any material adverse change, nor to the
knowledge of the Company is any such change threatened, in the Condition of the
Company, (b) the Company has not participated in any transaction or otherwise
acted outside the ordinary course of business, including, without limitation,
declaring or paying any dividend or declaring or making any distribution to its
stockholders except out of the earnings of the Company and (c) the Company has
not increased the compensation of any of its officers or the rate of pay of any
of its employees, except as part of regular compensation increases in the
ordinary course of business.
3.9 Private Offering. No form of general solicitation or general
----------------
advertising was used by the Company or its representatives in connection with
the offer or sale of the Purchased Shares or the Warrants. No registration of
the Purchased Shares, the Warrants or the Warrant Shares pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws,
will be required for the offer, sale or issuance of the Purchased Shares, the
Warrants or the Warrant Shares.
3.10 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the Company
or any of its Subsidiaries in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with the Company or
any of its Subsidiaries or any action taken by any such Person.
3.11 Disclosure. This Agreement and the documents and certificates
----------
furnished to the Purchasers by the Company, taken as a whole, do not contain any
untrue statement of a material fact or to the Company's knowledge omit to state
a material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
Each of the Purchasers hereby represents and warrants (severally as to
itself and not jointly) to the Company as follows:
4.1 Existence and Power. Each of GAP LP and GAP Coinvestment (a) is
-------------------
a partnership duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation, (b) has all requisite power and
authority to
<PAGE>
11
conduct the business in which it is currently, or is proposed to be, engaged,
and (c) has the requisite partnership power and authority to execute, deliver
and perform its obligations under this Agreement and each of the other
Transaction Documents to which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby (including, without limitation, the purchase of the Purchased
Shares and the Warrants) (a) have been duly authorized by all necessary
partnership action, (b) do not contravene the terms of such Purchaser's
organizational documents, or any amendment thereof, (c) do not violate, conflict
with or result in any breach or contravention of or the creation of any Lien
under, any Contractual Obligation of such Purchaser, or any Requirement of Law
applicable to such Purchaser and (d) do not violate any Orders of any
Governmental Authority against, or binding upon, such Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under any Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the purchase of the Purchased Shares and the Warrants) by, or
enforcement against, such Purchaser of this Agreement and each of the other
Transaction Documents to which such Purchaser is a party or the transactions
contemplated hereby and thereby.
4.4 Binding Effect. Each of the Transaction Documents to which such
--------------
Purchaser is a party has been duly executed and delivered by such Purchaser, and
each constitutes the legal, valid and binding obligations of such Purchaser,
enforceable against it in accordance with their terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability (regardless of whether considered in a proceeding at law or in
equity).
4.5 Purchase for Own Account. The Purchased Shares and the Warrants
------------------------
to be acquired by such Purchaser pursuant to this Agreement and the shares of
Common Stock issuable upon conversion of the Purchased Shares and its Warrant
Shares are being or will be acquired for investment for its own account and with
no intention of distributing or reselling, or granting any participation in,
such Purchased Shares, such shares of Common Stock, such Warrants, such Warrant
Shares or any part thereof in any transaction that would be in violation of the
securities laws of the United States of America, or any state or foreign
jurisdiction, without prejudice, however, to the rights of such Purchaser at all
times to sell or otherwise dispose of all or any part of such Purchased Shares,
such shares of Common Stock, such Warrants or such Warrant Shares under an
effective registration statement under the Securities
<PAGE>
12
Act and under the applicable state or foreign securities laws, or under an
exemption from such registration available under such laws, and subject,
nevertheless, to the disposition of such Purchaser's property being at all times
within its control. If such Purchaser should in the future decide to dispose of
any of such Purchased Shares, such shares of Common Stock, such Warrants or such
Warrant Shares, such Purchaser understands and agrees that it may do so only in
compliance with the Securities Act and applicable state and foreign securities
laws, as then in effect. Such Purchaser agrees to the imprinting, so long as
required by law, of legends on certificates representing all of its Purchased
Shares, shares of Common Stock issuable upon conversion of its Purchased Shares
and its Warrant Shares as required by any applicable state securities laws and
to the following effect (and acknowledges that the Company will make a notation
on its transfer books to such effect):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY JURISDICTION OF THE UNITED STATES. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND UNDER THE APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY, IF REQUESTED BY THE COMPANY, THAT THERE IS AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
STOCKHOLDERS AGREEMENT, DATED OCTOBER 24, 1997, AMONG PRIME RESPONSE GROUP
INC. AND THE STOCKHOLDERS NAMED THEREIN AS AMENDED BY EACH OF AMENDMENT NO.
1, AMENDMENT NO. 2 AND AMENDMENT NO. 3 THERETO (THE "STOCKHOLDERS
AGREEMENT"). THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES
ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN
COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS AGREEMENT. THE COMPANY WILL
MAIL A COPY OF SUCH AGREEMENT, TOGETHER WITH A COPY OF THE EXPRESS TERMS OF
THE SECURITIES AND THE OTHER CLASS OR CLASSES AND SERIES OF SHARES, IF ANY,
WHICH THE COMPANY IS AUTHORIZED TO ISSUE, TO THE RECORD HOLDER OF THIS
CERTIFICATE, WITHOUT CHARGE, WITHIN
<PAGE>
13
FIVE DAYS AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR.
4.6 Restricted Securities. Such Purchaser understands that the
---------------------
Purchased Shares, its Warrant and the Warrant Shares issuable upon exercise of
its Warrant will not be registered under the Securities Act at the time of their
issuance for the reason that the sale provided for in this Agreement is exempt
pursuant to Rule 506 of Regulation D promulgated under the Securities Act and
that the reliance of the Company on such exemption is predicated in part on such
Purchaser's representations set forth herein. Such Purchaser also represents
that it is experienced in evaluating companies such as the Company, has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment and has the ability to suffer
the total loss of its investment. Such Purchaser further represents that it has
had the opportunity to ask questions of and receive answers from the Company
concerning the terms and conditions of the offering and the Company's business,
management and financial affairs and to obtain additional information to such
Purchaser's satisfaction.
4.7 Investment Experience. Such Purchaser is an investor in
---------------------
securities of companies in the development stage and acknowledges that it has,
by reason of its business and financial experience, the capacity to protect its
own interest in connection with the transaction and that it is able to bear the
economic risk of its investment in the transaction. Such Purchaser is an
"Accredited Investor" as defined in Rule 501(a) under the Securities Act.
4.8 Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by such
Purchaser, in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with such Purchaser or any action taken
by such Purchaser.
ARTICLE V.
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
----------------------------
The obligation of the Purchasers to purchase the Purchased Shares and
the Warrants, to pay the purchase price therefor at the Closing and to perform
their other obligations hereunder shall be subject to the satisfaction as
determined by, or waiver by, the Purchasers of the following conditions on or
before the Closing Date:
5.1 Secretary's Certificate. The Purchasers shall have received a
-----------------------
certificate from the Company, in form and substance reasonably satisfactory to
the Purchasers, dated the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, certifying that the attached copies of the
Certificate of
<PAGE>
14
Incorporation, the Certificate of Designations, the By-laws and resolutions of
the Board of Directors approving this Agreement and each of the other
Transaction Documents to which the Company is a party and the transactions
contemplated hereby and thereby, are all true, complete and correct and remain
unamended and in full force and effect.
5.2 Filing of Certificate of Designations. The Certificate of
-------------------------------------
Designations shall have been duly filed by the Company with the Secretary of
State of the State of Delaware in accordance with the General Corporation Law of
the State of Delaware.
5.3 Stockholders Agreement Amendment. The Company, James Carling,
--------------------------------
Nevin Prakash, Richard S. Braddock and Allen Swann and the other stockholders
party thereto shall have duly executed and delivered the Stockholders Agreement
Amendment.
5.4 Registration Rights Agreement Amendment. The Company, James
---------------------------------------
Carling and Nevin Prakash shall have duly executed and delivered the
Registration Rights Agreement Amendment.
5.5 Purchased Shares. The Company shall be prepared to deliver to
----------------
each of the Purchasers certificates in definitive form representing the number
of Purchased Shares set forth opposite such Purchaser's name on Schedule 2.1
------------
hereto, registered in the name of such Purchaser.
5.6 Warrants. The Company shall have duly executed and delivered to
--------
GAP LP the GAP LP Warrant and to GAP Coinvestment the GAPCO Warrant, each
substantially in the form attached hereto as Exhibit E, and registered in the
---------
name of GAP LP and GAP Coinvestment, respectively.
5.7 Waivers. James Carling, Nevin Prakash, Richard S. Braddock and
-------
Allen Swann shall have waived any preemptive rights with respect to the
Purchased Shares pursuant to Section 4 of the Stockholders Agreement, dated as
of October 24, 1997, among the Company, GAP 42, GAP Coinvestment and the
stockholders named therein, as amended (as so amended, the "Stockholders
Agreement").
5.8 Opinion of Counsel. The Purchasers shall have received an
------------------
opinion of Brobeck Hale and Dorr, counsel to the Company, dated the Closing
Date, relating to the transactions contemplated by or referred to herein,
substantially in the form attached hereto as Exhibit D.
---------
5.9 Adjustments to Series A and Series B Conversion Prices. The
------------------------------------------------------
Purchasers shall have received resolutions of the Board of Directors, in form
and substance satisfactory to the Purchasers, approving the anti-dilution
adjustments to the conversion prices set forth in the certificates of
designations relating to the Series A
<PAGE>
15
Preferred Stock and the Series B Preferred Stock respectively which are
triggered by the issuance of the shares of Series C Preferred Stock and the
Warrants contemplated by this Agreement.
ARTICLE VI.
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
--------------------------
The obligation of the Company to issue and sell the Purchased Shares
and the Warrants and the obligation of the Company to perform its other
obligations hereunder, shall be subject to the satisfaction as determined by, or
waiver by, the Company of the following conditions on or before the Closing
Date:
6.1 Stockholders Agreement Amendment . The Purchasers shall
--------------------------------
have duly executed and delivered the Stockholders Agreement Amendment.
6.2 Registration Rights Agreement Amendment . The Purchasers
---------------------------------------
shall have duly executed and delivered the Registration Rights Agreement
Amendment.
6.3 Payment by the Purchasers . Each of the Purchasers shall be
---------------------------------------
prepared to pay the aggregate purchase price for its Purchased Shares and its
Warrant.
6.4 Waiver. GAP 42, GAP 48 and GAP Coinvestment I shall have
------
waived any preemptive rights with respect to the Purchased Shares, the Warrants
and the Warrant Shares pursuant to Section 4 of the Stockholders Agreement.
ARTICLE VII.
INDEMNIFICATION
---------------
7.1 Indemnification. Except as otherwise provided in this Article
---------------
7, the Company and each of the Purchasers, severally and not jointly, as
applicable (the "Indemnifying Party"), agrees to indemnify, defend and hold
harmless the Purchasers, in the case of indemnity by the Company, or the
Company, in the case of indemnity by the Purchasers, as applicable, and their
Affiliates and their respective officers, directors, agents, employees,
subsidiaries, partners, members and controlling persons (each, an "Indemnified
Party") to the fullest extent permitted by law from and against any and all
losses, Claims (including any Claim by a third party), damages, expenses
(including reasonable fees, disbursements and other charges of counsel incurred
by the Indemnified Party in any action between the Indemnifying Party and the
Indemnified Party or between the Indemnified Party and any third party
<PAGE>
16
or otherwise) or other liabilities (collectively, "Losses") resulting from,
arising out of or relating to any breach of any representation or warranty,
covenant or agreement by the Indemnifying Party in this Agreement or the other
Transaction Documents, including, without limitation, any legal, administrative
or other actions (including actions brought by the Purchasers or the Company or
any equity holders or partners of such Persons or derivative actions brought by
any Person claiming through or in the Company's name or in the name of either of
the Purchasers), proceedings or investigations (whether formal or informal), or
written threats thereof, based upon, relating to or arising out of this
Agreement or the other Transaction Documents, the transactions contemplated
hereby and thereby, or any Indemnified Party's role therein or in transactions
contemplated thereby; provided, that the Indemnifying Party shall not be liable
--------
under this Section 7.1 to an Indemnified Party to the extent that it is finally
judicially determined that such Losses resulted primarily from the material
breach by such Indemnified Party of any representation, warranty, covenant or
other agreement of such Indemnified Party contained in this Agreement; and
provided, further, that if and to the extent that such indemnification is
- -------- -------
unenforceable for any reason, the Indemnifying Party shall make the maximum
contribution to the payment and satisfaction of such Losses which shall be
permissible under applicable laws. The amount of any payment by any
Indemnifying Party to any Indemnified Party herewith in respect of any Loss
shall be of sufficient amount to make such Indemnified Party whole, and, in the
case of indemnity by the Company, shall consist of an amount sufficient to make
up any diminution in the value of the Purchased Shares or the Warrants held by
such Indemnified Party resulting from the payment by the Company of such
indemnification payment. In connection with the obligation of the Indemnifying
Party to indemnify for expenses as set forth above, the Indemnifying Party
shall, upon presentation of appropriate invoices containing reasonable detail,
reimburse each Indemnified Party for all such expenses (including reasonable
fees, disbursements and other charges of counsel incurred by the Indemnified
Party in any action between the Indemnifying Party and the Indemnified Party or
between the Indemnified Party and any third party or otherwise) as they are
incurred by such Indemnified Party; provided, however, that if an Indemnified
-------- -------
Party is reimbursed hereunder for any expenses, such reimbursement of expenses
shall be refunded to the extent it is finally judicially determined that the
Losses in question resulted primarily from the willful misconduct or gross
negligence of such Indemnified Party. Notwithstanding the foregoing,
indemnification with respect to this Section 7.1 by the Company shall be limited
to the aggregate consideration paid by the Purchasers for the Purchased Shares
and the Warrants, and indemnification by the Purchasers shall be limited to the
aggregate consideration paid by such Purchaser for its Purchased Shares and its
Warrant.
7.2 Notification. Each Indemnified Party under this Article 7
------------
shall, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Indemnifying Party under this
Article 7, notify the Indemnifying Party in writing of the commencement thereof.
The omission of any Indemnified Party to so notify the Indemnifying Party of any
such action shall not
<PAGE>
17
relieve the Indemnifying Party from any liability which it may have to such
Indemnified Party (a) other than pursuant to this Article 7 or (b) under this
Article 7 unless, and only to the extent that, such omission results in the
Indemnifying Party's forfeiture of substantive rights or defenses. In case any
such action, claim or other proceeding shall be brought against any Indemnified
Party, and it shall notify the Indemnifying Party of the commencement thereof,
the Indemnifying Party shall be entitled to assume the defense thereof at its
own expense, with counsel satisfactory to such Indemnified Party in its
reasonable judgment; provided, however, that any Indemnified Party may, at its
-------- -------
own expense, retain separate counsel to participate in such defense at its own
expense. Notwithstanding the foregoing, in any action, claim or proceeding in
which both the Indemnifying Party, on the one hand, and an Indemnified Party, on
the other hand, are, or are reasonably likely to become, a party, such
Indemnified Party shall have the right to employ separate counsel at the expense
of the Indemnifying Party and to control its own defense of such action, claim
or proceeding if, in the reasonable opinion of counsel to such Indemnified
Party, a conflict or potential conflict exists between the Indemnifying Party,
on the one hand, and such Indemnified Party, on the other hand, that would make
such separate representation advisable; provided, however, that the Indemnifying
-------- -------
Party shall not be liable for the fees and expenses of more than one counsel to
all Indemnified Parties. The Indemnifying Party agrees that it will not, without
the prior written consent of the Indemnified Party, settle, compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding relating to the matters contemplated hereby (if any Indemnified
Party is a party thereto or has been actually threatened to be made a party
thereto) unless such settlement, compromise or consent includes an unconditional
release of each Indemnified Party from all liability arising or that may arise
out of such claim, action or proceeding. The Indemnifying Party shall not be
liable for any settlement of any claim, action or proceeding effected against an
Indemnified Party without the Indemnifying Party's written consent, which
consent shall not be unreasonably withheld. The rights accorded to an
Indemnified Party hereunder shall be in addition to any rights that any
Indemnified Party may have at common law, by separate agreement or otherwise;
provided, however, that notwithstanding the foregoing or anything to the
- -------- -------
contrary contained in this Agreement, nothing in this Article 7 should restrict
or limit any rights that any Indemnified Party may have to seek equitable
relief.
ARTICLE VIII.
AFFIRMATIVE COVENANTS
---------------------
The Company hereby covenants and agrees with the Purchasers as
follows:
8.1 Financial Statements and Other Information. The Company shall
------------------------------------------
deliver to each Purchaser, in form and substance satisfactory to such Purchaser:
<PAGE>
18
(a) as soon as available, but not later than one hundred twenty (120)
days after the end of each fiscal year of the Company, a copy of the audited
balance sheet of the Company as of the end of such fiscal year and the related
statements of operations and cash flows for such fiscal year, setting forth in
each case in comparative form the figures for the previous year, all in
reasonable detail and accompanied by a management summary and analysis of the
operations of the Company for such fiscal year and by the opinion of a
nationally recognized independent certified public accounting firm which report
shall state without qualification that such financial statements present fairly
the financial condition as of such date and results of operations and cash flows
for the periods indicated in conformity with GAAP applied on a consistent basis;
(b) commencing with the fiscal period ending on June 30, 1999, as soon
as available, but in any event not later than forty-five (45) days after the end
of each of the first three fiscal quarters of each fiscal year, the unaudited
balance sheet of the Company, and the related statements of operations and cash
flows for such quarter and for the period commencing on the first day of the
fiscal year and ending on the last day of such quarter, all certified by an
appropriate officer of the Company as presenting fairly the financial condition
as of such date and results of operations and cash flows for the periods
indicated in conformity with GAAP applied on a consistent basis, subject to
normal year-end adjustments and the absence of footnotes required by GAAP; and
(c) as promptly as practicable, but not later than five (5) days after
the end of each fiscal year of the Company, a certificate signed by the Chief
Executive Officer of the Company in customary form certifying that the Company
is not a "foreign person" within the meaning of Section 1445 of the Code.
(d) Reservation of Common Stock. The Company shall at all times (i)
---------------------------
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issue or delivery upon conversion of the Purchased Shares,
and (ii) reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issue or delivery upon exercise of the
Warrants, as provided in the Certificate of Designations and the Warrants (in
the case of the Warrant Shares), the maximum number of shares of Common Stock
that may be issuable or deliverable upon such conversion or exercise, as the
case may be. Such shares of Common Stock are duly authorized and, when issued
or delivered in accordance with the Certificate of Designations and the Warrants
(in the case of the Warrant Shares), as the case may be, against payment
therefor, shall be validly issued, fully paid and non-assessable. The Company
shall issue such shares of Common Stock in accordance with the terms of the
Certificate of Designations or the Warrants, as the case may be, and otherwise
comply with the terms hereof and thereof.
<PAGE>
19
ARTICLE IX
MISCELLANEOUS
-------------
9.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Company or
the Purchasers, or acceptance of the Purchased Shares and the Warrants or
termination of this Agreement until the third anniversary of the Closing Date.
9.2 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) if to the Company:
Prime Response Group Inc.
150 CambridgePark Drive
Cambridge, MA 02140
Telecopy: (617) 876-8383
Attention: Chief Executive Officer
with a copy to:
Brobeck Hale and Dorr
Hasilwood House
60 Bishopsgate
London EC2N 4AJ
England
Telecopy: 44 171 638 5888
Attention: David Ayres
(b) if to the Purchasers:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: William E. Ford
<PAGE>
20
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if properly telecopied.
9.3 Successors and Assigns; Third Party Beneficiaries. This
-------------------------------------------------
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. Subject to applicable securities laws,
each of the Purchasers may assign any of its rights under any of the Transaction
Documents to any of its Affiliates. The Company may not assign any of its
rights under this Agreement without the written consent of the holders of a
majority of the Purchased Shares. No Person other than the parties hereto and
their successors and permitted assigns is intended to be a beneficiary of this
Agreement.
9.4 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchasers from the terms of
any provision of this Agreement, shall be effective only if it is made or given
in writing and signed by the Company and the holders of a majority of the
Purchased Shares. Except where notice is specifically required by this
Agreement, no notice to or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
9.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE>
21
9.6 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
9.8 Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.9 Entire Agreement. This Agreement, together with the exhibits
----------------
and schedules hereto and the other Transaction Documents, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
and schedules hereto and the other Transaction Documents, supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
9.10 Fees. Upon the Closing the Company shall reimburse GAP LP and
----
GAP Coinvestment for their reasonable fees, disbursements and other charges of
counsel incurred in connection with the transactions contemplated by this
Agreement. Except as provided in the preceding sentence, each party hereto
shall bear their own costs and expenses in connection with the preparation,
execution and delivery of this Agreement and other Transaction Documents, and
the transactions contemplated hereby and thereby.
9.11 Publicity. Except as may be required by any applicable
---------
Requirement of Law, none of the parties hereto shall issue a publicity release
or public announcement or otherwise make any disclosure concerning this
Agreement or the transactions contemplated hereby, without prior approval by the
other parties hereto (which approval shall not be unreasonably withheld);
provided, however, that nothing in this Agreement shall restrict any Purchaser
- -------- -------
from disclosing information (a) that is already publicly available; (b) to the
prospective transferee in connection with any contemplated transfer of any of
the Purchased Shares; and (c) to its attorneys, accountants, consultants and
other advisors to the extent necessary to obtain their services in connection
with such Purchaser's investment in the Company. GAP LLC may disclose on its
worldwide web page, www.gapartners.com, the name of the Company, its address,
the identity of its Chief Executive Officer, a description of the
<PAGE>
22
Company's business (which description shall be reasonably acceptable to the
Company) and the aggregate dollar amount invested by GAP LLC and its Affiliates
in the Company. If any announcement is required by any applicable Requirement of
Law to be made by any party hereto, prior to making such announcement such party
will deliver a draft of such announcement to the other parties and shall give
the other parties an opportunity to comment thereon.
9.12 Further Assurances. Each of the parties shall execute such
------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person, and otherwise fulfilling, or causing the fulfillment of, the
conditions to the Closing set forth in Articles 5 and 6) as may be reasonably
required or desirable to carry out or to perform the provisions of this
Agreement and to consummate and make effective as promptly as possible the
transactions contemplated by this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock and
Warrant Purchase Agreement to be executed and delivered by their respective
officers hereunto duly authorized on the date first above written.
PRIME RESPONSE GROUP INC.
By: /s/ Peter J. Boni
________________________________
Name: Peter J. Boni
Title: President & CEO
GENERAL ATLANTIC PARTNERS 52, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ illegible
___________________________
Name:
Title: A Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ illegible
________________________________
Name:
Title: A General Partner
<PAGE>
Schedule 2.1
------------
Purchased Shares, Warrants and Purchase Price
---------------------------------------------
<TABLE>
<CAPTION>
Shares of Common Stock
Issuable Upon
Purchaser Purchased Shares Exercise of Warrants Purchase Price
- --------- ---------------- -------------------- --------------
<S> <C> <C> <C>
GAP LP 814,285 273,099 $2,442,855
GAP Coinvestment 185,715 62,286 557,145
--------- ------- ----------
Total: 1,000,000 335,385 $3,000,000
</TABLE>
<PAGE>
EXHIBIT 10.14
Execution Copy
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT, SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS OR PURSUANT TO A WRITTEN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION
SHALL BE REASONABLY SATISFACTORY TO THE COMPANY) THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION
(EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS
WARRANT AND THE SECURITIES ACQUIRED PURSUANT TO THE EXERCISE OF THIS WARRANT ARE
RESTRICTED BY THE TERMS OF THE STOCKHOLDERS AGREEMENT, DATED OCTOBER 24, 1997,
AS THE SAME MAY HAVE BEEN AMENDED FROM TIME TO TIME, AMONG PRIME RESPONSE GROUP
INC., GENERAL ATLANTIC PARTNERS 42, L.P., GAP COINVESTMENT PARTNERS, L.P. AND
THE STOCKHOLDERS NAMED THEREIN, A COPY OF WHICH MAY BE INSPECTED AT THE
COMPANY'S PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN
MADE IN COMPLIANCE WITH THE TERMS OF THE SHAREHOLDERS AGREEMENT.
__________________________________________________
PRIME RESPONSE GROUP INC.
COMMON STOCK PURCHASE WARRANT
___________________________________________________
This certifies that, for good and valuable consideration, Prime Response
Group Inc., a Delaware corporation (the "Company"), grants to General Atlantic
----------------
Partners 52, L.P., a Delaware limited partnership (the "Warrantholder"), the
- -----------------
right to subscribe for and purchase from the Company, at any time on or prior to
the Expiration Date, 340,100 validly issued, fully paid and nonassessable
shares, par value $.01 per share, of common stock of the Company (the "Warrant
Shares"), at the exercise price per share of $2.56 (the "Exercise Price"), all
subject to the terms, conditions and adjustments herein set forth. Capitalized
terms used herein shall have the meanings ascribed to such terms in Section 9
below.
<PAGE>
2
This Warrant is issued pursuant to, and in accordance, with Section 2.1 of
the Stock and Warrant Purchase Agreement and is subject to the terms thereof.
Section 2.1 of the Stock and Warrant Purchase Agreement requires the Company to
issue to the Warrantholder a warrant to purchase an aggregate of 340,100 shares
of Common Stock.
1. Warrant Shares. This Warrant entitles the holder to purchase 340,100
--------------
shares of Common Stock.
2. Exercise of Warrant; Payment of Taxes.
-------------------------------------
2.1 Exercise of Warrant. Subject to the terms and conditions set
-------------------
forth herein, this Warrant may be exercised, in whole or in part, by the
Warrantholder at any time on or prior to the Expiration Date by:
(a) the surrender of this Warrant to the Company, with a duly
executed Exercise Form, and
(b) the delivery of payment to the Company, for the account of
the Company, by cash, wire transfer, certified or official bank check or any
other means approved by the Company, of the Exercise Price in lawful money of
the United States of America.
The Company agrees that the Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid.
2.2 Cashless Exercise.
-----------------
(a) In lieu of the payment of the Exercise Price, the
Warrantholder shall have the right (but not the obligation), to require the
Company to convert this Warrant, in whole or, from time to time, in part, into
shares of Common Stock (the "Conversion Right") as provided for in this Section
2.2. Upon exercise of the Conversion Right, the Company shall deliver to the
Warrantholder (without payment by the Warrantholder of any of the Exercise
Price) that number of shares of Common Stock equal to the quotient obtained by
dividing (i) the value of the Warrant (or the part thereof being converted) at
the time the Conversion Right is exercised (determined by subtracting the
aggregate Exercise Price in effect immediately prior to the exercise of the
Conversion Right from the aggregate Current Market Price for the shares of
Common Stock issuable upon exercise of the Warrant (or the part thereof being
converted) immediately prior to the exercise of the Conversion Right) by (ii)
the Current Market Price of one share of Common Stock immediately prior to the
exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Warrantholder on
any Business Day on or prior to the Expiration Date by delivering
<PAGE>
3
this Warrant, with a duly executed Exercise Form with the conversion section
completed, to the Company, exercising the Conversion Right and specifying the
total number of shares of Common Stock that the Warrantholder will be issued
pursuant to such conversion.
2.3 Warrant Shares Certificate. A stock certificate or certificates
--------------------------
for the Warrant Shares specified in the Exercise Form shall be delivered to the
Warrantholder within five Business Days after receipt of the Exercise Form by
the Company and, if the Conversion Right is not exercised, payment by the
Warrantholder of the purchase price. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant.
2.4 Payment of Taxes. The issuance of certificates for Warrant
----------------
Shares shall be made without charge to the Warrantholder at any time.
3. Restrictions on Transfer; Restrictive Legends.
---------------------------------------------
3.1 This Warrant may not be offered, sold, transferred, pledged or
otherwise disposed of, in whole or in part, to any Person other than to an
Affiliate of the Warrantholder, without the written consent of the Company,
which shall not be unreasonably withheld, and the Warrant Shares may not be
offered, sold, transferred, pledged or otherwise disposed of, in whole or in
part, to any Person other than in accordance with the Stockholders Agreement (so
long as such agreement is in effect).
3.2 Except as otherwise permitted by this Section 3, each Warrant
(and each Warrant issued in substitution for any Warrant pursuant to Section 4)
shall be stamped or otherwise imprinted with a legend in substantially the form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT, SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A
WRITTEN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY) THAT SUCH REGISTRATION IS NOT REQUIRED.
<PAGE>
4
Except as otherwise permitted by this Section 3, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the form stipulated in the Stockholders Agreement (so long as such agreement is
in effect). Notwithstanding the foregoing, the Warrantholder may require the
Company to issue a Warrant or a stock certificate for Warrant Shares, in each
case without a legend, if and to the extent permitted by, and in accordance
with, the Stockholders Agreement (so long as such agreement is in effect).
4. Reservation and Registration of Shares. The Company covenants and
--------------------------------------
agrees as follows:
(a) All Warrant Shares that are issued upon the exercise of this
Warrant shall, upon issuance, be validly issued, fully paid and nonassessable,
not subject to any preemptive rights, and, except as provided in the
Stockholders Agreement, free from all taxes, liens, security interests, charges,
and other encumbrances with respect to the issuance thereof, other than taxes in
respect of any transfer occurring contemporaneously with such issue.
(b) The Company shall at all times have authorized and reserved,
and shall keep available free from preemptive rights, a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented by
this Warrant.
(c) The Company shall 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 action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
and shall at all times in good faith assist in performing and giving effect to
the terms hereof and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the Warrantholder against dilution
or other impairment.
5. Anti-dilution Adjustments. The number of Warrant Shares to be
-------------------------
received upon exercise of this Warrant shall be subject to adjustment as
follows:
5.1 Dividend, Subdivision, Combination or Reclassification of Common
----------------------------------------------------------------
Stock. In the event that the Company shall at any time or from time to time,
- -----
after the issuance of this Warrant but prior to the exercise hereof, (w) pay a
dividend or make a distribution on the outstanding shares of Common Stock
payable in Capital Stock, (x) subdivide the outstanding shares of Common Stock
into a larger number of shares, (y) combine the outstanding shares of Common
Stock into a smaller number of shares or (z) issue any shares of its Capital
Stock in a reclassification of the Common Stock (other than any such event for
which an adjustment is made pursuant to another clause of this Section 5), then,
and in each such case, (A) the aggregate number of Warrant Shares for which this
Warrant is exercisable (the "Warrant Share Number") immediately prior to such
event shall be adjusted (and any other appropriate actions shall be taken by the
Company) so that the Warrantholder shall be entitled to receive
<PAGE>
5
upon exercise of this Warrant the number of shares of Common Stock or other
securities of the Company that it would have owned or would have been entitled
to receive upon or by reason of any of the events described above, had this
Warrant been exercised immediately prior to the occurrence of such event and (B)
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
purchasable immediately thereafter; provided, however, that the Exercise Price
-------- -------
for each Warrant Share shall in no event be less than the par value of such
Warrant Share. An adjustment made pursuant to this Section 5.1 shall become
effective retroactively (x) in the case of any such dividend or distribution, to
a date immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution or (y) in the case of any such subdivision, combination or
reclassification, to the close of business on the day upon which such corporate
action becomes effective.
5.2 Certain Distributions. In case the Company shall at any time or
---------------------
from time to time distribute to all holders of shares of its Common Stock
(including any such distribution made in connection with a merger or
consolidation in which the Company is the resulting or surviving Person and the
Common Stock is not changed or exchanged) cash, evidences of indebtedness of the
Company or another Person, securities of the Company or another Person or other
assets (excluding dividends payable in shares of Common Stock for which
adjustment is made under Section 5.1) or rights or warrants to subscribe for or
purchase the foregoing, then, and in each such case, (A) the Warrant Share
----
Number shall be increased by being multiplied by a fraction (i) the numerator of
which shall be the Current Market Price of one share of Common Stock immediately
prior to the record date for the distribution of such cash, evidences of
indebtedness, securities, other assets or rights or warrants and (ii) the
denominator of which shall be the Current Market Price of one share of Common
Stock immediately prior to such record date less the Fair Market Value of the
portion of such cash, evidences of indebtedness, securities, other assets or
rights or warrants so distributed and (B) the Exercise Price in effect
immediately prior to such record date shall be decreased (and any other
appropriate actions shall be taken by the Corporation) by being multiplied by a
fraction (i) the numerator of which shall be such Current Market Price of the
Common Stock less the then Fair Market Value of the portion of the cash,
evidences of indebtedness, securities or other assets so distributed or of such
subscription rights or warrants applicable to one share of Common Stock and (ii)
the denominator of which shall be the Current Market Price of the Common Stock
on the record date referred to below (such decreased Exercise Price, the
"Adjusted Exercise Price"). Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution; provided,
--------
however, that no adjustment shall be made with respect to any distribution of
- -------
rights to purchase securities of the Company if the Warrantholder would
otherwise be entitled to receive such rights upon exercise at any time of this
Warrant. Such adjustment shall be made whenever any such distribution is made
and
<PAGE>
6
shall become effective retroactively to the date immediately following the close
of business on the record date for the determination of shareholders entitled to
receive such distribution.
5.3 Other Changes. In case the Company at any time or from time to
-------------
time, after the issuance of this Warrant but prior to the exercise hereof, shall
take any action affecting its Common Stock similar to or having an effect
similar to any of the actions described in any of Sections 5.1, 5.2 or 5.7 (but
not including any action described in any such Section) and the Board of
Directors of the Company in good faith determines that it would be equitable in
the circumstances to adjust the Warrant Share Number as a result of such action,
then, and in each such case, the Warrant Share Number shall be adjusted in such
manner and at such time as the Board of Directors of the Company in good faith
determines would be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed to the
Warrantholders).
5.4 De Minimis Adjustments. Notwithstanding anything herein to the
----------------------
contrary, no adjustment under this Section 5 need be made to the Warrant Share
Number if the Company receives written notice from the Warrantholder that no
such adjustment is required.
5.5 Abandonment. If the Company shall take a record of the holders
-----------
of its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
shareholders thereof legally abandon its plan to pay or deliver such dividend or
distribution, then no adjustment in the Warrant Share Number shall be required
by reason of the taking of such record.
5.6 Certificate as to Adjustments. Upon any increase in the Warrant
-----------------------------
Share Number or adjustment of the Exercise Price, the Company shall within a
reasonable period (not to exceed 10 days) following any of the foregoing
transactions deliver to the Warrantholder a certificate, signed by (i) the
President or a Vice President of the Company and (ii) the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the increased
Warrant Share Number then in effect following such adjustment.
5.7 Reorganization, Reclassification, Merger or Sale. In case of any
------------------------------------------------
spin-off by the Company of another Person (the "Spin-off Entity"), in addition
to all other adjustments of the Warrant Share Number and the Exercise Price
pursuant to this Section 5, the Company shall issue to the Warrantholder a new
warrant, in form and substance satisfactory to the Company and the
Warrantholder, entitling the Warrantholder to purchase, at an exercise price
equal to the excess of the Exercise Price in effect immediately prior to such
spin-off over the Adjusted Exercise Price, the number of shares of common stock
of the Spin-off Entity that the Warrantholder would have owned had the
Warrantholder, immediately prior to such spin-off, exercised this
<PAGE>
7
Warrant, and in case of any capital reorganization, reclassification, a Merger,
a Sale or a consolidation of the Company with or into another Person or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value) (each, a
"Transaction"), the Company shall execute and deliver to the Warrantholder at
least ten (10) Business Days prior to effecting such Transaction a certificate
stating that the Warrantholder shall have the right thereafter to exercise this
Warrant for the kind and amount of shares of stock or other securities, property
or cash receivable upon such Transaction by a holder of the number of shares of
Common Stock into which this Warrant could have been exercised immediately prior
to such Transaction and provision shall be made therefor in the agreement, if
any, relating to such Transaction. Such certificate shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5. The provisions of this Section 5.7
and any equivalent thereof in any such certificate similarly shall apply to
successive transactions.
5.8 Dilution Notices. In case at any time or from time to time:
----------------
(x) the Company shall declare a dividend (or any other
distribution) on its shares of Common Stock;
(y) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any shares
of stock of any class or of any other rights or warrants; or
(z) there shall occur a spin-off or Transaction;
then the Company shall mail to the Warrantholder, as promptly as possible but in
any event at least ten (10) days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or granting of rights or warrants or,
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution or granting of rights or
warrants are to be determined, or (B) the date on which such spin-off or
Transaction is expected to become effective and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for shares of stock or other securities or property or cash
deliverable upon such Transaction. Notwithstanding the foregoing, in the case
of any event to which Section 5.7 is applicable, the Company shall also deliver
the certificate described in such Section 5.7 to the Warrantholder at least 10
Business Days prior to effecting such reorganization or reclassification as
aforesaid.
6. Loss or Destruction of Warrant. Subject to the terms and conditions
------------------------------
hereof, upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company may
reasonably
<PAGE>
8
require, and, in the case of such mutilation, upon surrender and cancellation of
this Warrant, the Company will execute and deliver a new Warrant of like tenor.
7. Ownership of Warrant. The Company may deem and treat the person in
--------------------
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of
transfer.
8. Amendments. Any provision of this Warrant may be amended and the
----------
observance thereof waived only with the written consent of the Company and the
Warrantholder.
9. Definitions. As used herein, unless the context otherwise requires,
-----------
the following terms have the following respective meanings:
"Adjusted Exercise Price" has the meaning specified in Section 5.2 of this
-----------------------
Warrant.
"Affiliate" has the meaning specified in the Stock and Warrant Purchase
----------
Agreement.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or a day on
------------
which national banks are authorized by law to close in the State of New York.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests, participation, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock (but excluding any debt security whether or not it is exchangeable
for or convertible into such capital stock).
"Common Stock" means the common stock, par value $.01 per share, of the
------------
Company.
"Common Stock Equivalent" means any security or obligation which is by its
-----------------------
terms convertible into shares of Common Stock or another Common Stock
Equivalent, including, without limitation, any option, warrant or other
subscription or purchase right with respect to Common Stock.
"Company" has the meaning specified on the cover of this Warrant.
-------
"Current Market Price" means, as of the date of determination, (a) the
--------------------
average of the daily Market Price under clause (a), (b) or (c) of the definition
thereof of the Common Stock during the immediately preceding thirty (30) trading
days ending on such date, and (b) if the Common Stock is not then listed or
admitted to trading on any
<PAGE>
9
securities exchange or quoted in the over-the-counter market, then the Market
Price under clause (d) of the definition thereof on such date.
"Excluded Transaction" means (a) options to purchase shares of Common Stock
--------------------
which may be granted to employees, consultants or directors of the Company
pursuant to a stock option plan approved by the Board of Directors of the
Company, (b) a subdivision of the outstanding shares of Common Stock into a
larger number of shares of Common Stock or (c) capital stock issued upon
exercise, conversion or exchange of any Common Stock Equivalent.
"Exercise Form" means an Exercise Form in the form annexed hereto as
-------------
Exhibit A.
"Exercise Price" has the meaning specified on the cover of this Warrant.
--------------
"Expiration Date" means February ___, 2004.
---------------
"Fair Market Value" means the amount which a willing buyer would pay a
-----------------
willing seller in an arm's length transaction reasonably determined in good
faith by the Board of Directors or, if such determination is not reasonably
satisfactory to the Warrantholder, such determination as shall be made by a
nationally recognized investment banking firm selected by the Company and the
Warrantholder, the expenses for which shall be borne equally by the Company and
the Warrantholder. Any determination of the Fair Market Value by the Board of
Directors or such investment banking firm shall be made based on a valuation of
the Company as an entirety without regard to any discount for minority interests
or disparate voting rights among classes of capital stock.
"GAP Coinvestment II" means GAP Coinvestment Partners II, L.P., a New
--------------------
York limited partnership.
"GAP LP" means General Atlantic Partners 52, L.P., a Delaware limited
------
partnership.
"Market Price" means, as of the date of determination, (a) the closing
------------
price per share of Common Stock on such date published in The Wall Street
Journal or, if no such closing price on such date is published in The Wall
Street Journal, the average of the closing bid and asked prices on such date, as
officially reported on the principal securities exchange (including, without
limitation, The Nasdaq Stock Market, Inc.) on which the Common Stock is then
listed or admitted to trading; or (b) if the Common Stock is not then listed or
admitted to trading on any securities exchange but is designated as a national
market system security by the National Association of Securities Dealers, Inc.,
the last trading price of the Common Stock on such date; or (c) if there shall
have been no trading on such date or if the Common Stock is not so designated,
the average of the reported closing bid and asked prices of the Common Stock on
such date as shown by the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotations System and reported by any member
firm of the New York Stock Exchange selected by the Corporation; or (d)
<PAGE>
10
if none of (a), (b) or (c) is applicable, a market price per share determined in
good faith by the Board of Directors and reasonably acceptable to the
Warrantholder; provided, however, that if such determination is not reasonably
-------- -------
acceptable to the Warrantholder then a market price per share determined at the
Company's expense by an appraiser chosen by mutual agreement of the Company and
the Warrantholder; provided further, that if the Company shall have paid for any
-------- -------
such appraisal in connection with any of its outstanding Warrants within one
fiscal quarter prior to the surrender of this Warrant to the Company by a
Warrantholder, with a duly executed Exercise Form, then the market price per
share determined by such appraisal may be used without conducting an additional
appraisal. Any determination of the Market Price by an appraiser shall be based
on a valuation of the Company as an entirety without regard to any discount for
minority interests or disparate voting rights among classes of capital stock.
"Merger" means (x) the merger or consolidation of the Company into or with
------
one or more Persons or (y) the merger or consolidation of one or more Persons
into or with the Company, if, in the case of (x) or (y), the shareholders of the
Company prior to such merger or consolidation do not retain at least a majority
of the voting power of the surviving Person.
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Purchaser" has the meaning specified in the Stock and Warrant Purchase
---------
Agreement.
"Sale" means the sale, conveyance, exchange or transfer to another Person
----
of (a) the voting shares of the Company if, after such sale, conveyance,
exchange or transfer, the shareholders of the Company prior to such sale,
conveyance, exchange or transfer do not, directly or indirectly, retain at least
a majority of the votes attached to the shares in the capital of the surviving
Person or (b) all or substantially all of the assets of the Company.
"Securities Act" has the meaning specified on the cover of this Warrant, or
--------------
any similar Federal statute, and the rules and regulations of the United States
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time. Reference to a particular section of the Securities Act
shall be deemed to include a reference to the comparable section, if any, of any
such similar Federal statute.
"Spin-off Entity" has the meaning specified in Section 5.7 of this Warrant.
---------------
"Stock and Warrant Purchase Agreement" means the Stock and Warrant Purchase
------------------------------------
Agreement, dated February ___, 1999, among the Company, GAP LP and GAP
Coinvestment II.
<PAGE>
11
"Stockholders Agreement" has the meaning specified on the cover of this
----------------------
Warrant.
"Transaction" has the meaning specified in Section 5.7 of this Warrant.
-----------
"Warrantholder" has the meaning specified on the cover of this Warrant.
-------------
"Warrant Share Number" has the meaning specified in Section 5.1 of this
--------------------
Warrant.
"Warrant Shares" has the meaning specified on the cover of this Warrant.
--------------
10. Miscellaneous
-------------
10.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to the Warrant.
10.2 Binding Effect; Benefits. This Warrant shall inure to the
------------------------
benefit of and shall be binding upon the Company and the Warrantholder and their
respective permitted successors and assigns. Nothing in this Warrant, expressed
or implied, is intended to or shall confer on any person other than the Company
and the Warrantholder, or their respective permitted successors or assigns, any
rights, remedies, obligations or liabilities under or by reason of this Warrant.
10.3 Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
10.4 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service, overnight mail or personal delivery:
(a) if to the Warrantholder:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: William E. Ford
with a copy to:
<PAGE>
12
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(b) if to the Company:
Prime Response Group Inc.
Goat Wharf, Brentwood,
TW80PD
United Kingdom
Telecopy: 011-441-814-003-133
Attention: Nigel Cannings, Esq.
with a copy to:
Brobeck Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Telecopy: (650) 496-2755
Attention: Thomas A. Bevilacqua, Esq.
All such notices and communications shall be deemed to have been duly given
when delivered by hand, if personally delivered; when delivered by courier or
overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied. Any party
may by notice given in accordance with this Section 10.4 designate another
address or Person for receipt of notices hereunder.
10.5 Severability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
<PAGE>
13
10.7 No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be determined as conferring upon the Warrantholder any rights
as a shareholder of the Company or as imposing any liabilities on the
Warrantholder to purchase any securities whether such liabilities are asserted
by the Company or by creditors or shareholders of the Company or otherwise.
<PAGE>
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
PRIME RESPONSE GROUP INC.
By: /s/ James Carling
-----------------------------------
Name: James Carling
Title: President
Dated: February 28, 1999
<PAGE>
EXHIBIT 10.15
Execution Copy
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT, SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS OR PURSUANT TO A WRITTEN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION
SHALL BE REASONABLY SATISFACTORY TO THE COMPANY) THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION
(EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS
WARRANT AND THE SECURITIES ACQUIRED PURSUANT TO THE EXERCISE OF THIS WARRANT ARE
RESTRICTED BY THE TERMS OF THE STOCKHOLDERS AGREEMENT, DATED OCTOBER 24, 1997,
AS THE SAME MAY HAVE BEEN AMENDED FROM TIME TO TIME, AMONG PRIME RESPONSE GROUP
INC., GENERAL ATLANTIC PARTNERS 42, L.P., GAP COINVESTMENT PARTNERS, L.P. AND
THE STOCKHOLDERS NAMED THEREIN, A COPY OF WHICH MAY BE INSPECTED AT THE
COMPANY'S PRINCIPAL, OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN
MADE IN COMPLIANCE WITH THE TERMS OF THE SHAREHOLDERS AGREEMENT.
____________________________________________________
PRIME RESPONSE GROUP INC.
COMMON STOCK PURCHASE WARRANT
____________________________________________________
This certifies that, for good and valuable consideration, Prime Response
Group Inc., a Delaware corporation (the "Company"), grants to GAP Coinvestment
----------------
Partners II, L.P., a New York limited partnership (the "Warrantholder"), the
- ----------------
right to subscribe for and purchase from the Company, at any time on or prior to
the Expiration Date, 76,567 validly issued, fully paid and nonassessable shares,
par value $.01 per share, of common stock of the Company (the "Warrant Shares"),
at the exercise price per share of $2.56 (the "Exercise Price"), all subject to
the terms, conditions and adjustments herein set forth. Capitalized terms used
herein shall have the meanings ascribed to such terms in Section 9 below.
<PAGE>
2
This Warrant is issued pursuant to, and in accordance, with Section 2.1 of
the Stock and Warrant Purchase Agreement and is subject to the terms thereof.
Section 2.1 of the Stock and Warrant Purchase Agreement requires the Company to
issue to the Warrantholder a warrant to purchase an aggregate of 76,567 shares
of Common Stock.
1. Warrant Shares. This Warrant entitles the holder to purchase 76,567
--------------
shares of Common Stock.
2. Exercise of Warrant: Payment of Taxes.
-------------------------------------
2.1 Exercise of Warrant. Subject to the terms and conditions set
-------------------
forth herein, this Warrant may be exercised, in whole or in part, by the
Warrantholder at any time on or prior to the Expiration Date by:
(a) the surrender of this Warrant to the Company, with a duly
executed Exercise Form, and
(b) the delivery of payment to the Company, for the account of
the Company, by cash, wire transfer, certified or official bank check or any
other means approved by the Company, of the Exercise Price in lawful money of
the United States of America.
The Company agrees that the Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid.
2.2 Cashless Exercise.
-----------------
(a) In lieu of the payment of the Exercise Price, the
Warrantholder shall have the right (but not the obligation), to require the
Company to convert this Warrant, in whole or, from time to time, in part, into
shares of Common Stock (the "Conversion Right") as provided for in this Section
2.2. Upon exercise of the Conversion Right, the Company shall deliver to the
Warrantholder (without payment by the Warrantholder of any of the Exercise
Price) that number of shares of Common Stock equal to the quotient obtained by
dividing (i) the value of the Warrant (or the part thereof being converted) at
the time the Conversion Right is exercised (determined by subtracting the
aggregate Exercise Price in effect immediately prior to the exercise of the
Conversion Right from the aggregate Current Market Price for the shares of
Common Stock issuable upon exercise of the Warrant (or the part thereof being
converted) immediately prior to the exercise of the Conversion Right) by (ii)
the Current Market Price of one share of Common Stock immediately prior to the
exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Warrantholder
on any Business Day on or prior to the Expiration Date by delivering
<PAGE>
3
this Warrant, with a duly executed Exercise Form with the conversion section
completed, to the Company, exercising the Conversion Right and specifying the
total number of shares of Common Stock that the Warrantholder will be issued
pursuant to such conversion.
2.3 Warrant Shares Certificate. A stock certificate or certificates
--------------------------
for the Warrant Shares specified in the Exercise Form shall be delivered to the
Warrantholder within five Business Days after receipt of the Exercise Form by
the Company and, if the Conversion Right is not exercised, payment by the
Warrantholder of the purchase price. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the remaining Warrant Shares, which new
Warrant shall in all other respects be identical with this Warrant.
2.4 Payment of Taxes. The issuance of certificates for Warrant
----------------
Shares shall be made without charge to the Warrantholder at any time.
3. Restrictions on Transfer, Restrictive Legends.
---------------------------------------------
3.1 This Warrant may not be offered, sold, transferred, pledged or
otherwise disposed of, in whole or in part, to any Person other than to an
Affiliate of the Warrantholder, without the written consent of the Company,
which shall not be unreasonably withheld, and the Warrant Shares may not be
offered, sold, transferred, pledged or otherwise disposed of, in whole or in
part, to any Person other than in accordance with the Stockholders Agreement (so
long as such agreement is in effect).
3.2 Except as otherwise permitted by this Section 3, each Warrant
(and each Warrant issued in substitution for any Warrant pursuant to Section 4)
shall be stamped or otherwise imprinted with a legend in substantially the form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT, SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A
WRITTEN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY) THAT SUCH REGISTRATION IS NOT REQUIRED.
<PAGE>
Except as otherwise permitted by this Section 3, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the form stipulated in the Stockholders Agreement (so long as such agreement is
in effect). Notwithstanding the foregoing, the Warrantholder may require the
Company to issue a Warrant or a stock certificate for Warrant Shares, in each
case without a legend, if and to the extent permitted by, and in accordance
with, the Stockholders Agreement (so long as such agreement is in effect).
4. Reservation and Registration of Shares. The Company covenants and
--------------------------------------
agrees as follows:
(a) All Warrant Shares that are issued upon the exercise of this
Warrant shall, upon issuance, be validly issued, fully paid and nonassessable,
not subject to any preemptive rights, and, except as provided in the
Stockholders Agreement, free from all taxes, liens, security interests, charges,
and other encumbrances with respect to the issuance thereof, other than taxes in
respect of any transfer occurring contemporaneously with such issue.
(b) The Company shall at all times have authorized and reserved,
and shall keep available free from preemptive rights, a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented by
this Warrant.
(c) The Company shall 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 action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
and shall at all times in good faith assist in performing and giving effect to
the terms hereof and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the Warrantholder against dilution
or other impairment.
5. Anti-dilution Adjustments. The number of Warrant Shares to be
-------------------------
received upon exercise of this Warrant shall be subject to adjustment as
follows:
5.1 Dividend, Subdivision, Combination or Reclassification of Common
----------------------------------------------------------------
Stock. In the event that the Company shall at any time or from time to time,
- -----
after the issuance of this Warrant but prior to the exercise hereof, (w) pay a
dividend or make a distribution on the outstanding shares of Common Stock
payable in Capital Stock, (x) subdivide the outstanding shares of Common Stock
into a larger number of shares, (y) combine the outstanding shares of Common
Stock into a smaller number of shares or (z) issue any shares of its Capital
Stock in a reclassification of the Common Stock (other than any such event for
which an adjustment is made pursuant to another clause of this Section 5), then,
and in each such case, (A) the aggregate number of Warrant Shares for which this
Warrant is exercisable (the "Warrant Share Number") immediately prior to such
event shall be adjusted (and any other appropriate actions shall be taken by the
Company) so that the Warrantholder shall be entitled to receive
<PAGE>
5
upon exercise of this Warrant the number of shares of Common Stock or other
securities of the Company that it would have owned or would have been entitled
to receive upon or by reason of any of the events described above, had this
Warrant been exercised immediately prior to the occurrence of such event and (B)
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of Warrant Shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
purchasable immediately thereafter; provided, however, that the Exercise Price
-------- -------
for each Warrant Share shall in no event be less than the par value of such
Warrant Share. An adjustment made pursuant to this Section 5.1 shall become
effective retroactively (x) in the case of any such dividend or distribution, to
a date immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution or (y) in the case of any such subdivision, combination or
reclassification, to the close of business on the day upon which such corporate
action becomes effective.
5.2 Certain Distributions. In case the Company shall at any time or
---------------------
from time to time distribute to all holders of shares of its Common Stock
(including any such distribution made in connection with a merger or
consolidation in which the Company is the resulting or surviving Person and the
Common Stock is not changed or exchanged) cash, evidences of indebtedness of the
Company or another Person, securities of the Company or another Person or other
assets (excluding dividends payable in shares of Common Stock for which
adjustment is made under Section 5.1) or rights or warrants to subscribe for or
purchase the foregoing, then, and in each such case, (A) the Warrant Share
----
Number shall be increased by being multiplied by a fraction (i) the numerator of
which shall be the Current Market Price of one share of Common Stock immediately
prior to the record date for the distribution of such cash, evidences of
indebtedness, securities, other assets or rights or warrants and (ii) the
denominator of which shall be the Current Market Price of one share of Common
Stock immediately prior to such record date less the Fair Market Value of the
portion of such cash, evidences of indebtedness, securities, other assets or
rights or warrants so distributed and (B) the Exercise Price in effect
immediately prior to such record date shall be decreased (and any other
appropriate actions shall be taken by the Corporation) by being multiplied by a
fraction (i) the numerator of which shall be such Current Market Price of the
Common Stock less the then Fair Market Value of the portion of the cash,
evidences of indebtedness, securities or other assets so distributed or of such
subscription rights or warrants applicable to one share of Common Stock and (ii)
the denominator of which shall be the Current Market Price of the Common Stock
on the record date referred to below (such decreased Exercise Price, the
"Adjusted Exercise Price"). Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution; provided,
--------
however, that no adjustment shall be made with respect to any distribution of
- -------
rights to purchase securities of the Company if the Warrantholder would
otherwise be entitled to receive such rights upon exercise at any time of this
Warrant. Such adjustment shall be made whenever any such distribution is made
and
<PAGE>
6
shall become effective retroactively to the date immediately following the close
of business on the record date for the determination of shareholders entitled to
receive such distribution.
5.3 Other Changes. In case the Company at any time or from time to
-------------
time, after the issuance of this Warrant but prior to the exercise hereof, shall
take any action affecting its Common Stock similar to or having an effect
similar to any of the actions described in any of Sections 5.1, 5.2 or 5.7 (but
not including any action described in any such Section) and the Board of
Directors of the Company in good faith determines that it would be equitable in
the circumstances to adjust the Warrant Share Number as a result of such action,
then, and in each such case, the Warrant Share Number shall be adjusted in such
manner and at such time as the Board of Directors of the Company in good faith
determines would be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed to the
Warrantholders).
5.4 De Minimis Adjustments. Notwithstanding anything herein to the
----------------------
contrary, no adjustment under this Section 5 need be made to the Warrant Share
Number if the Company receives written notice from the Warrantholder that no
such adjustment is required.
5.5 Abandonment. If the Company shall take a record of the holders
-----------
of its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
shareholders thereof legally abandon its plan to pay or deliver such dividend or
distribution, then no adjustment in the Warrant Share Number shall be required
by reason of the taking of such record.
5.6 Certificate as to Adjustments. Upon any increase in the Warrant
-----------------------------
Share Number or adjustment of the Exercise Price, the Company shall within a
reasonable period (not to exceed 10 days) following any of the foregoing
transactions deliver to the Warrantholder a certificate, signed by (i) the
President or a Vice President of the Company and (ii) the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the increased
Warrant Share Number then in effect following such adjustment.
5.7 Reorganization, Reclassification, Merger or Sale. In case of any
------------------------------------------------
spin-off by the Company of another Person (the "Spin-off Entity"), in addition
to all other adjustments of the Warrant Share Number and the Exercise Price
pursuant to this Section 5, the Company shall issue to the Warrantholder a new
warrant, in form and substance satisfactory to the Company and the
Warrantholder, entitling the Warrantholder to purchase, at an exercise price
equal to the excess of the Exercise Price in effect immediately prior to such
spin-off over the Adjusted Exercise Price, the number of shares of common stock
of the Spin-off Entity that the Warrantholder would have owned had the
Warrantholder, immediately prior to such spin-off, exercised this
<PAGE>
7
Warrant, and in case of any capital reorganization, reclassification, a Merger,
a Sale or a consolidation of the Company with or into another Person or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value) (each, a
"Transaction"), the Company shall execute and deliver to the Warrantholder at
least ten (10) Business Days prior to effecting such Transaction a certificate
stating that the Warrantholder shall have the right thereafter to exercise this
Warrant for the kind and amount of shares of stock or other securities, property
or cash receivable upon such Transaction by a holder of the number of shares of
Common Stock into which this Warrant could have been exercised immediately prior
to such Transaction and provision shall be made therefor in the agreement, if
any, relating to such Transaction. Such certificate shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5. The provisions of this Section 5.7
and any equivalent thereof in any such certificate similarly shall apply to
successive transactions.
5.8 Dilution Notices. In case at any time or from time to time:
----------------
(x) the Company shall declare a dividend (or any other
distribution) on its shares of Common Stock;
(y) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any shares
of stock of any class or of any other rights or warrants; or
(z) there shall occur a spin-off or Transaction;
then the Company shall mail to the Warrantholder, as promptly as possible but in
any event at least ten (10) days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or granting of rights or warrants or,
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution or granting of rights or
warrants are to be determined, or (B) the date on which such spin-off or
Transaction is expected to become effective and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for shares of stock or other securities or property or cash
deliverable upon such Transaction. Notwithstanding the foregoing, in the case
of any event to which Section 5.7 is applicable, the Company shall also deliver
the certificate described in such Section 5.7 to the Warrantholder at least 10
Business Days prior to effecting such reorganization or reclassification as
aforesaid.
6. Loss or Destruction of Warrant. Subject to the terms and conditions
------------------------------
hereof, upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company may
reasonably
<PAGE>
8
require, and, in the case of such mutilation, upon surrender and cancellation of
this Warrant, the Company will execute and deliver a new Warrant of like tenor.
7. Ownership of Warrant. The Company may deem and treat the person in
--------------------
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of
transfer.
8. Amendments. Any provision of this Warrant may be amended and the
----------
observance thereof waived only with the written consent of the Company and the
Warrantholder.
9. Definitions. As used herein, unless the context otherwise requires,
-----------
the following terms have the following respective meanings:
"Adjusted Exercise Price" has the meaning specified in Section 5.2 of this
-----------------------
Warrant.
"Affiliate" has the meaning specified in the Stock and Warrant Purchase
---------
Agreement.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or a day on
------------
which national banks are authorized by law to close in the State of New York.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests, participation, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock (but excluding any debt security whether or not it is exchangeable
for or convertible into such capital stock).
"Common Stock" means the common stock, par value $.01 per share, of the
------------
Company.
"Common Stock Equivalent" means any security or obligation which is by
-----------------------
its terms convertible into shares of Common Stock or another Common Stock
Equivalent, including, without limitation, any option, warrant or other
subscription or purchase right with respect to Common Stock.
"Company" has the meaning specified on the cover of this Warrant.
-------
"Current Market Price" means, as of the date of determination, (a) the
--------------------
average of the daily Market Price under clause (a), (b) or (c) of the definition
thereof of the Common Stock during the immediately preceding thirty (30) trading
days ending on such date, and (b) if the Common Stock is not then listed or
admitted to trading on any
<PAGE>
9
securities exchange or quoted in the over-the-counter market, then the Market
Price under clause (d) of the definition thereof on such date.
"Excluded Transaction" means (a) options to purchase shares of Common Stock
--------------------
which may be granted to employees, consultants or directors of the Company
pursuant to a stock option plan approved by the Board of Directors of the
Company, (b) a subdivision of the outstanding shares of Common Stock into a
larger number of shares of Common Stock or (c) capital stock issued upon
exercise, conversion or exchange of any Common Stock Equivalent.
"Exercise Form" means an Exercise Form in the form annexed hereto as
-------------
Exhibit A.
"Exercise Price" has the meaning specified on the cover of this Warrant.
--------------
"Expiration Date" means February __, 2004.
---------------
"Fair Market Value" means the amount which a willing buyer would pay a
-----------------
willing seller in an arm's length transaction reasonably determined in good
faith by the Board of Directors or, if such determination is not reasonably
satisfactory to the Warrantholder, such determination as shall be made by a
nationally recognized investment banking firm selected by the Company and the
Warrantholder, the expenses for which shall be borne equally by the Company and
the Warrantholder. Any determination of the Fair Market Value by the Board of
Directors or such investment banking firm shall be made based on a valuation of
the Company as an entirety without regard to any discount for minority interests
or disparate voting rights among classes of capital stock.
"GAP Coinvestment II" means GAP Coinvestment Partners II, L.P., a New York
-------------------
limited partnership.
"GAP LP" means General Atlantic Partners 52, L.P., a Delaware limited
------
partnership.
"Market Price" means, as of the date of determination, (a) the closing
------------
price per share of Common Stock on such date published in The Wall Street
Journal or, if no such closing price on such date is published in The Wall
Street Journal, the average of the closing bid and asked prices on such date, as
officially reported on the principal securities exchange (including, without
limitation, The Nasdaq Stock Market, Inc.) on which the Common Stock is then
listed or admitted to trading; or (b) if the Common Stock is not then listed or
admitted to trading on any securities exchange but is designated as a national
market system security by the National Association of Securities Dealers, Inc.,
the last trading price of the Common Stock on such date; or (c) if there shall
have been no trading on such date or if the Common Stock is not so designated,
the average of the reported closing bid and asked prices of the Common Stock on
such date as shown by the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotations System and reported by any member
firm of the New York Stock Exchange selected by the Corporation; or (d)
<PAGE>
10
if none of (a), (b) or (c) is applicable, a market price per share determined in
good faith by the Board of Directors and reasonably acceptable to the
Warrantholder; provided, however, that if such determination is not reasonably
-------- -------
acceptable to the Warrantholder then a market price per share determined at the
Company's expense by an appraiser chosen by mutual agreement of the Company and
the Warrantholder; provided further, that if the Company shall have paid for any
-------- -------
such appraisal in connection with any of its outstanding Warrants within one
fiscal quarter prior to the surrender of this Warrant to the Company by a
Warrantholder, with a duly executed Exercise Form, then the market price per
share determined by such appraisal may be used without conducting an additional
appraisal. Any determination of the Market Price by an appraiser shall be based
on a valuation of the Company as an entirety without regard to any discount for
minority interests or disparate voting rights among classes of capital stock.
"Merger" means (x) the merger or consolidation of the Company into or with
------
one or more Persons or (y) the merger or consolidation of one or more Persons
into or with the Company, if, in the case of (x) or (y), the shareholders of the
Company prior to such merger or consolidation do not retain at least a majority
of the voting power of the surviving Person.
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Purchaser" has the meaning specified in the Stock and Warrant Purchase
---------
Agreement.
"Sale" means the sale, conveyance, exchange or transfer to another Person
----
of (a) the voting shares of the Company if, after such sale, conveyance,
exchange or transfer, the shareholders of the Company prior to such sale,
conveyance, exchange or transfer do not, directly or indirectly, retain at least
a majority of the votes attached to the shares in the capital of the surviving
Person or (b) all or substantially all of the assets of the Company.
"Securities Act" has the meaning specified on the cover of this Warrant, or
--------------
any similar Federal statute, and the rules and regulations of the United States
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time. Reference to a particular section of the Securities Act
shall be deemed to include a reference to the comparable section, if any, of any
such similar Federal statute.
"Spin-off Entity" has the meaning specified in Section 5.7 of this Warrant.
---------------
"Stock and Warrant Purchase Agreement" means the Stock and Warrant Purchase
------------------------------------
Agreement, dated February __, 1999, among the Company, GAP LP and GAP
Coinvestment II.
<PAGE>
11
"Stockholders Agreement" has the meaning specified on the cover of this
----------------------
Warrant.
"Transaction" has the meaning specified in Section 5.7 of this Warrant.
-----------
"Warrantholder" has the meaning specified on the cover of this Warrant.
-------------
"Warrant Share Number" has the meaning specified in Section 5.1 of this
--------------------
Warrant.
"Warrant Shares" has the meaning specified on the cover of this Warrant.
---------------
10. Miscellaneous
-------------
10.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to the Warrant.
10.2 Binding Effect; Benefits. This Warrant shall inure to the
------------------------
benefit of and shall be binding upon the Company and the Warrantholder and their
respective permitted successors and assigns. Nothing in this Warrant, expressed
or implied, is intended to or shall confer on any person other than the Company
and the Warrantholder, or their respective permitted successors or assigns, any
rights, remedies, obligations or liabilities under or by reason of this Warrant.
10.3 Section and Other Headings. The section and other headings
---------------------------
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
10.4 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service, overnight mail or personal delivery:
(a) if to the Warrantholder:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: William E. Ford
with a copy to:
<PAGE>
12
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(b) if to the Company:
Prime Response Group Inc.
Goat Wharf, Brentwood,
TW80PD
United Kingdom
Telecopy: 011-441-814-003-133
Attention: Nigel Cannings, Esq.
with a copy to:
Brobeck Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Telecopy: (650) 496-2755
Attention: Thomas A. Bevilacqua, Esq.
All such notices and communications shall be deemed to have been duly given
when delivered by hand, if personally delivered; when delivered by courier or
overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied. Any party
may by notice given in accordance with this Section 10.4 designate another
address or Person for receipt of notices hereunder.
10.5 Severability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the tenrns or provisions of
this Warrant in any other jurisdiction.
10.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
<PAGE>
13
10.7 No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be determined as conferring upon the Warrantholder any rights
as a shareholder of the Company or as imposing any liabilities on the
Warrantholder to purchase any securities whether such liabilities are asserted
by the Company or by creditors or shareholders of the Company or otherwise.
<PAGE>
14
IN WITNESS WHEREOF, ft Company has caused this Warrant to be signed by its
duly authorized officer.
PRIME RESPONSE GROUP INC.
By: /s/ James Carling
----------------------------------
Name: James Carling
Title: President
Dated: February 28, 1999
<PAGE>
EXHIBIT 10.16
Execution Copy
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT,
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF
COUNSEL (WHICH COUNSEL AND OPINION SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY) THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION
(EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS
WARRANT AND THE SECURITIES ACQUIRED PURSUANT TO THE EXERCISE OF THIS WARRANT ARE
RESTRICTED BY THE TERMS OF THE STOCKHOLDERS AGREEMENT, DATED OCTOBER 24, 1997,
AMONG PRIME RESPONSE GROUP INC. AND THE STOCKHOLDERS NAMED THEREIN AS AMENDED
BY EACH OF AMENDMENT NO. 1, AMENDMENT NO. 2 AND AMENDMENT NO. 3 THERETO (THE
"STOCKHOLDERS AGREEMENT). THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
WARRANT OR SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE
TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS
AGREEMENT. THE COMPANY WILL MAIL A COPY OF SUCH AGREEMENT, TOGETHER WITH A COPY
OF THE EXPRESS TERMS OF THE SECURITIES AND THE OTHER CLASS OR CLASSES AND SERIES
OF SHARES, IF ANY, WHICH THE COMPANY IS AUTHORIZED TO ISSUE, TO THE RECORD
HOLDER OF THIS CERTIFICATE, WITHOUT CHARGE, WITHIN FIVE DAYS AFTER RECEIPT OF A
WRITTEN REQUEST THEREFOR.
__________________________________________________
PRIME RESPONSE GROUP INC.
COMMON STOCK PURCHASE WARRANT
__________________________________________________
This certifies that, for good and valuable consideration, Prime Response
Group Inc., a Delaware corporation (the "Company"), grants to General Atlantic
Partners 52, L.P., a Delaware limited partnership (the "Warrantholder"), the
right to subscribe for and purchase from the Company, at any time on or prior to
the Expiration Date, 273,099 validly issued, fully paid and nonassessable
shares, par value $.01 per share, of common stock of the Company (the "Warrant
Shares"), at the exercise price per share of $0.01 (the "Exercise Price").
Capitalized terms used herein shall have the meanings ascribed to such terms in
Section 9 below.
<PAGE>
2
1. Warrant. This Warrant is issued pursuant to, and in accordance with,
-------
the Stock and Warrant Purchase Agreement and is subject to the terms thereof.
2. Exercise of Warrant; Payment of Taxes.
-------------------------------------
2.1 Exercise of Warrant. Subject to the terms and conditions set
-------------------
forth herein, this Warrant may be exercised, in whole or in part, by the
Warrantholder at any time on or prior to the Expiration Date by:
(a) the surrender of this Warrant to the Company, with a duly
executed Exercise Form, and
(b) the delivery of payment to the Company, for the account of
the Company, by cash, wire transfer, certified or official bank check or any
other means approved by the Company, of the Exercise Price in lawful money of
the United States of America.
The Company agrees that the Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid.
2.2 Cashless Exercise.
-----------------
(a) In lieu of the payment of the Exercise Price, the
Warrantholder shall have the right (but not the obligation), to require the
Company to convert this Warrant, in whole or, from time to time, in part, into
shares of Common Stock (the "Conversion Right") as provided for in this Section
2.2. Upon exercise of the Conversion Right, the Company shall deliver to the
Warrantholder (without payment by the Warrantholder of any of the Exercise
Price) that number of shares of Common Stock equal to the quotient obtained by
dividing (i) the value of the Warrant (or the part thereof being converted) at
the time the Conversion Right is exercised (determined by subtracting the
aggregate Exercise Price in effect immediately prior to the exercise of the
Conversion Right from the aggregate Current Market Price for the shares of
Common Stock issuable upon exercise of the Warrant (or the part thereof being
converted) immediately prior to the exercise of the Conversion Right) by (ii)
the Current Market Price of one share of Common Stock immediately prior to the
exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Warrantholder on
any Business Day on or prior to the Expiration Date by delivering this Warrant,
with a duly executed Exercise Form with the conversion section completed, to the
Company, exercising the Conversion Right and specifying the total
<PAGE>
3
number of shares of Common Stock that the Warrantholder will be issued pursuant
to such conversion.
2.3 Warrant Shares Certificate. A stock certificate or certificates
--------------------------
for the Warrant Shares specified in the Exercise Form shall be delivered to the
Warrantholder within five Business Days after receipt of the Exercise Form by
the Company and, if the Conversion Right is not exercised, payment by the
Warrantholder of the aggregate Exercise Price. If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the right to purchase the remaining Warrant Shares, which new Warrant
shall in all other respects be identical with this Warrant.
2.4 Payment of Taxes. The issuance of certificates for Warrant
----------------
Shares shall be made without charge to the Warrantholder at any time.
3. Restrictions on Transfer; Restrictive Legends.
---------------------------------------------
3.1 This Warrant may not be offered, sold, transferred, pledged or
otherwise disposed of, in whole or in part, to any Person other than to an
Affiliate of the Warrantholder without the written consent of the Company, which
shall not be unreasonably withheld, and the Warrant Shares may not be offered,
sold, transferred, pledged or otherwise disposed of, in whole or in part, to any
Person other than in accordance with the Stockholders Agreement (so long as such
agreement is in effect).
3.2 Except as otherwise permitted by this Section 3, (a) each Warrant
(and each Warrant issued in substitution for any Warrant pursuant to Section 4)
shall be stamped or otherwise imprinted with a legend in substantially the form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT,
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF
COUNSEL (WHICH COUNSEL AND OPINION SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY) THAT SUCH REGISTRATION IS NOT REQUIRED.
<PAGE>
4
Except as set forth in this Section 3, each stock certificate for Warrant
Shares issued upon the exercise of any Warrant and each stock certificate issued
upon the direct or indirect transfer of any such Warrant Shares shall be stamped
or otherwise imprinted with a legend in substantially the form stipulated in the
Stockholders Agreement (so long as such agreement is in effect).
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a Warrant or a stock certificate for Warrant Shares, in each case without
a legend, if and to the extent permitted by, and in accordance with, the
Stockholders Agreement (so long as such agreement is in effect).
4. Reservation and Registration of Shares. The Company covenants and
--------------------------------------
agrees as follows:
(a) All Warrant Shares that are issued upon the exercise of this
Warrant shall, upon issuance, be validly issued, fully paid and nonassessable,
not subject to any preemptive rights, and, except as provided in the
Stockholders Agreement, free from all taxes, liens, security interests, charges,
and other encumbrances with respect to the issuance thereof, other than taxes in
respect of any transfer occurring contemporaneously with such issue.
(b) The Company shall at all times have authorized and reserved, and
shall keep available free from preemptive rights, a sufficient number of shares
of Common Stock to provide for the exercise of the rights represented by this
Warrant.
(c) The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, spin-off,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and shall at all times in good faith assist in performing and
giving effect to the terms hereof and in the taking of all such actions as may
be necessary or appropriate in order to protect the rights of the Warrantholder
against dilution or other impairment.
5. Anti-dilution Adjustments. The number of Warrant Shares to be
-------------------------
received upon exercise of this Warrant shall be subject to adjustment as
follows:
5.1 Dividend, Subdivision, Combination or Reclassification of Common
----------------------------------------------------------------
Stock. In the event that the Company shall at any time or from time to time,
- -----
after the issuance of this Warrant but prior to the exercise hereof, (w) pay a
dividend or make a distribution on the outstanding shares of Common Stock
payable in Capital Stock, (x) subdivide the outstanding shares of Common Stock
into a larger number of shares, (y) combine the outstanding shares of Common
Stock into a smaller number of shares or (z) issue any shares of its Capital
Stock in a reclassification of the Common Stock (other than any such event for
which an
<PAGE>
5
adjustment is made pursuant to another clause of this Section 5), then, and in
each such case, the aggregate number of Warrant Shares for which this Warrant is
exercisable (the "Warrant Share Number") immediately prior to such event shall
be adjusted (and any other appropriate actions shall be taken by the Company) so
that the Warrantholder shall be entitled to receive upon exercise of this
Warrant the number of shares of Common Stock or other securities of the Company
that it would have owned or would have been entitled to receive upon or by
reason of any of the events described above, had this Warrant been exercised
immediately prior to the occurrence of such event. An adjustment made pursuant
to this Section 5.1 shall become effective retroactively (x) in the case of any
such dividend or distribution, to a date immediately following the close of
business on the record date for the determination of holders of Common Stock
entitled to receive such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
5.2 Certain Distributions. In case the Company shall at any time or
---------------------
from time to time distribute to all holders of shares of its Common Stock
(including any such distribution made in connection with a merger or
consolidation in which the Company is the resulting or surviving Person and the
Common Stock is not changed or exchanged) cash, evidences of indebtedness of the
Company or another Person, securities of the Company or another Person or other
assets (excluding dividends payable in shares of Common Stock for which
adjustment is made under Section 5.1) or rights or warrants to subscribe for or
purchase the foregoing, then, and in each such case, the Warrant Share Number
----
shall be increased by being multiplied by a fraction (i) the numerator of which
shall be the Current Market Price of one share of Common Stock immediately prior
to the record date for the distribution of such cash, evidences of indebtedness,
securities, other assets or rights or warrants and (ii) the denominator of which
shall be the Current Market Price of one share of Common Stock immediately prior
to such record date less the Fair Market Value of the portion of such cash,
evidences of indebtedness, securities, other assets or rights or warrants so
distributed divided by the number of shares of Common Stock outstanding
immediately prior to such distribution. Such adjustment shall be made whenever
any such distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution; provided,
--------
however, that no adjustment shall be made with respect to any distribution of
- -------
rights to purchase securities of the Company if the Warrantholder would
otherwise be entitled to receive such rights upon exercise at any time of this
Warrant. Such adjustment shall be made whenever any such distribution is made
and shall become effective retroactively to the date immediately following the
close of business on the record date for the determination of shareholders
entitled to receive such distribution.
5.3 Other Changes. In case the Company at any time or from time to
-------------
time, after the issuance of this Warrant but prior to the exercise hereof, shall
take any action affecting its Common Stock similar to or having an effect
similar
<PAGE>
6
to any of the actions described in any of Sections 5.1, 5.2 or 5.7 (but not
including any action described in any such Section) and the Board of Directors
of the Company in good faith determines that it would be equitable in the
circumstances to adjust the Warrant Share Number as a result of such action,
then, and in each such case, the Warrant Share Number shall be adjusted in such
manner and at such time as the Board of Directors of the Company in good faith
determines would be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed to the
Warrantholders).
5.4 De Minimis Adjustments. Notwithstanding anything herein to the
----------------------
contrary, no adjustment under this Section 5 need be made to the Warrant Share
Number if the Company receives written notice from the Warrantholder that no
such adjustment is required.
5.5 Abandonment. If the Company shall take a record of the holders
-----------
of its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
shareholders thereof legally abandon its plan to pay or deliver such dividend or
distribution, then no adjustment in the Warrant Share Number shall be required
by reason of the taking of such record.
5.6 Certificate as to Adjustments. Upon any increase in the Warrant
-----------------------------
Share Number or adjustment of the Exercise Price, the Company shall within a
reasonable period (not to exceed 10 days) following any of the foregoing
transactions deliver to the Warrantholder a certificate, signed by (i) the
President or a Vice President of the Company and (ii) the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the increased
Warrant Share Number then in effect following such adjustment.
5.7 Reorganization, Reclassification, Merger or Sale. In case of any
------------------------------------------------
spin-off by the Company of another Person (the "Spin-off Entity"), in addition
to all other adjustments of the Warrant Share Number and the Exercise Price
pursuant to this Section 5, the Company shall issue to the Warrantholder a new
warrant, in form and substance satisfactory to the Company and the Majority
Warrantholders, entitling the Warrantholder to purchase, at an exercise price
equal to the Exercise Price, the number of shares of common stock of the Spin-
off Entity that the Warrantholder would have owned had the Warrantholder,
immediately prior to such spin-off, exercised this Warrant, and in case of any
capital reorganization, reclassification, a Merger, a Sale or a consolidation of
the Company with or into another Person or other change of outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value) (each, a "Transaction"), the Company
shall execute and deliver to the Warrantholder at least ten (10) Business Days
prior to effecting such Transaction a
<PAGE>
7
certificate stating that the Warrantholder shall have the right thereafter to
exercise this Warrant for the kind and amount of shares of stock or other
securities, property or cash receivable upon such Transaction by a holder of the
number of shares of Common Stock into which this Warrant could have been
exercised immediately prior to such Transaction and provision shall be made
therefor in the agreement, if any, relating to such Transaction. Such
certificate shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 5. The
provisions of this Section 5.7 and any equivalent thereof in any such
certificate similarly shall apply to successive transactions.
5.8 Dilution Notices. In case at any time or from time to time:
----------------
(x) the Company shall declare a dividend (or any other
distribution) on its shares of Common Stock;
(y) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any shares
of stock of any class or of any other rights or warrants; or
(z) there shall occur a spin-off or Transaction;
then the Company shall mail to the Warrantholder, as promptly as possible but in
any event at least ten (10) days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or granting of rights or warrants or,
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution or granting of rights or
warrants are to be determined, or (B) the date on which such spin-off or
Transaction is expected to become effective and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for shares of stock or other securities or property or cash
deliverable upon such Transaction. Notwithstanding the foregoing, in the case
of any event to which Section 5.7 is applicable, the Company shall also deliver
the certificate described in such Section 5.7 to the Warrantholder at least 10
Business Days prior to effecting such reorganization or reclassification as
aforesaid.
6. Loss or Destruction of Warrant. Subject to the terms and conditions
------------------------------
hereof, upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company may
reasonably require, and, in the case of such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor.
7. Ownership of Warrant. The Company may deem and treat the person in
--------------------
whose name this Warrant is registered as the holder and owner hereof
<PAGE>
8
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of
transfer.
8. Amendments. Any provision of this Warrant may be amended and the
----------
observance thereof waived only with the written consent of the Company and the
Warrantholder.
9. Definitions. As used herein, unless the context otherwise requires,
-----------
the following terms have the following respective meanings:
"Affiliate" has the meaning specified in the Stock and Warrant Purchase
---------
Agreement.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or a day on
------------
which national banks are authorized by law to close in the State of New York.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests, participation, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock (but excluding any debt security whether or not it is exchangeable
for or convertible into such capital stock).
"Common Stock" means the common stock, par value $.01 per share, of the
------------
Company.
"Common Stock Equivalent" means any security or obligation which is by its
-----------------------
terms convertible into shares of Common Stock or another Common Stock
Equivalent, including, without limitation, any option, warrant or other
subscription or purchase right with respect to Common Stock.
"Company" has the meaning specified on the cover of this Warrant.
-------
"Conversion Right" has the meaning specified in Section 2.2 of this
----------------
Warrant.
"Current Market Price" means, as of the date of determination, (a) the
--------------------
average of the daily Market Price under clause (a), (b) or (c) of the definition
thereof of the Common Stock during the immediately preceding thirty (30) trading
days ending on such date, or (b) if the Common Stock is not then listed or
admitted to trading on any securities exchange or quoted in the over-the-counter
market, then the Market Price under clause (d) of the definition thereof on such
date.
<PAGE>
9
"Excluded Transaction" means (a) options to purchase shares of Common Stock
--------------------
which may be granted to employees, consultants or directors of the Company
pursuant to a stock option plan approved by the Board of Directors of the
Company, (b) a subdivision of the outstanding shares of Common Stock into a
larger number of shares of Common Stock or (c) capital stock issued upon
exercise, conversion or exchange of any Common Stock Equivalent.
"Exercise Form" means an Exercise Form in the form annexed hereto as
-------------
Exhibit A.
"Exercise Price" has the meaning specified on the cover of this Warrant.
--------------
"Expiration Date" means the earlier of (a) July 15, 2006 and (b) the
---------------
closing of the Initial Public Offering.
"Fair Market Value" means the amount which a willing buyer would pay a
-----------------
willing seller in an arm's length transaction reasonably determined in good
faith by the Board of Directors or, if such determination is not reasonably
satisfactory to the Warrantholder, such determination as shall be made by a
nationally recognized investment banking firm selected by the Company and the
Warrantholder, the expenses for which shall be borne equally by the Company and
the Warrantholder. Any determination of the Fair Market Value by the Board of
Directors or such investment banking firm shall be made based on a valuation of
the Company as an entirety without regard to any discount for minority interests
or disparate voting rights among classes of capital stock.
"GAP Coinvestment II" means GAP Coinvestment Partners II, L.P., a New York
-------------------
limited partnership.
"GAP LP" means General Atlantic Partners 52, L.P., a Delaware limited
------
partnership.
"Initial Public Offering" means the initial public offering of shares of
-----------------------
Common Stock of the Company pursuant to an effective registration statement
filed under the Securities Act.
"Majority Warrantholders" means the holders of a majority of the shares of
-----------------------
Common Stock issuable upon exercise of all of the warrants issued pursuant to
the Stock and Warrant Purchase Agreement assuming the exercise of all such
warrants.
"Market Price" means, as of the date of determination, (a) the closing
------------
price per share of Common Stock on such date published in The Wall Street
Journal or, if no such closing price on such date is published in The Wall
Street Journal, the
<PAGE>
10
average of the closing bid and asked prices on such date, as officially reported
on the principal securities exchange (including, without limitation, The Nasdaq
Stock Market, Inc.) on which the Common Stock is then listed or admitted to
trading; or (b) if the Common Stock is not then listed or admitted to trading on
any securities exchange but is designated as a national market system security
by the National Association of Securities Dealers, Inc., the last trading price
of the Common Stock on such date; or (c) if there shall have been no trading on
such date or if the Common Stock is not so designated, the average of the
reported closing bid and asked prices of the Common Stock on such date as shown
by the National Market System of the National Association of Securities Dealers,
Inc. Automated Quotations System and reported by any member firm of the New York
Stock Exchange selected by the Company; or (d) if none of (a), (b) or (c) is
applicable, a market price per share determined in good faith by the Board of
Directors and reasonably acceptable to the Majority Warrantholders; provided,
--------
however, that if such determination is not reasonably acceptable to the Majority
- -------
Warrantholders, then a market price per share determined at the Company's
expense by an appraiser chosen by mutual agreement of the Company and the
Majority Warrantholders. Any determination of the Market Price by an appraiser
shall be based on a valuation of the Company as an entirety without regard to
any discount for minority interests or disparate voting rights among classes of
capital stock.
"Merger" means (x) the merger or consolidation of the Company into or with
------
one or more Persons or (y) the merger or consolidation of one or more Persons
into or with the Company, if, in the case of (x) or (y), the stockholders of the
Company prior to such merger or consolidation do not retain at least a majority
of the voting power of the surviving Person.
"Permitted Transferee" has the meaning set forth in the Stockholders
--------------------
Agreement.
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Purchaser" has the meaning specified in the Stock and Warrant Purchase
---------
Agreement.
"Sale" means the sale, conveyance, exchange or transfer to another Person
----
of (a) the voting Capital Stock of the Company if, after such sale, conveyance,
exchange or transfer, the stockholders of the Company prior to such sale,
conveyance, exchange or transfer do not, directly or indirectly, retain at least
a majority of the voting power of the surviving Person or (b) all or
substantially all of the assets of the Company.
<PAGE>
11
"Securities Act" has the meaning specified on the cover of this Warrant, or
--------------
any similar Federal statute, and the rules and regulations of the United States
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time. Reference to a particular section of the Securities Act
shall be deemed to include a reference to the comparable section, if any, of any
such similar Federal statute.
"Spin-off Entity" has the meaning specified in Section 5.7 of this Warrant.
---------------
"Stock and Warrant Purchase Agreement" means the Stock and Warrant Purchase
------------------------------------
Agreement, dated July 15, 1999, among the Company, GAP LP and GAP Coinvestment
II.
"Stockholders Agreement" has the meaning specified on the cover of this
----------------------
Warrant.
"Transaction" has the meaning specified in Section 5.7 of this Warrant.
-----------
"Transfer" has the meaning specified on the cover of this Warrant.
--------
"Warrantholder" has the meaning specified on the cover of this Warrant.
-------------
"Warrant Share Number" has the meaning specified in Section 5.1 of this
--------------------
Warrant.
"Warrant Shares" has the meaning specified on the cover of this Warrant.
--------------
10. Miscellaneous
-------------
10.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to the Warrant.
10.2 Binding Effect, Benefits. This Warrant shall inure to the
------------------------
benefit of and shall be binding upon the Company and the Warrantholder and their
respective permitted successors and assigns. Nothing in this Warrant, expressed
or implied, is intended to or shall confer on any person other than the Company
and the Warrantholder, or their respective permitted successors or assigns, any
rights, remedies, obligations or liabilities under or by reason of this Warrant.
10.3 Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant are for reference purposes only and shall not be
<PAGE>
12
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
10.4 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service, overnight mail or personal delivery:
(a) if to the Warrantholder:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: William E. Ford
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(b) if to the Company:
Prime Response Group Inc.
150 CambridgePark Drive
Cambridge, MA 02140
Telecopy: (617) 876-8383
Attention: Chief Executive Officer
with a copy to:
Brobeck Hale and Dorr
Hasilwood House
60 Bishopsgate
London EC2N 4AJ
England
Telecopy: 44 171 638 5888
Attention: David Ayres
<PAGE>
13
All such notices and communications shall be deemed to have been duly given
when delivered by hand, if personally delivered; when delivered by courier or
overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied. Any party
may by notice given in accordance with this Section 10.4 designate another
address or Person for receipt of notices hereunder.
10.5 Severability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
10.7 No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be determined as conferring upon the Warrantholder any rights
as a shareholder of the Company or as imposing any liabilities on the
Warrantholder to purchase any securities whether such liabilities are asserted
by the Company or by creditors or shareholders of the Company or otherwise.
<PAGE>
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
PRIME RESPONSE GROUP INC.
By: /s/ Peter J. Boni
-----------------------------------
Name: Peter J. Boni
Title: President & CEO
Dated: As of July 15, 1999
<PAGE>
EXHIBIT 10.17
Execution Copy
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT,
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF
COUNSEL (WHICH COUNSEL AND OPINION SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY) THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION
(EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES REPRESENTED BY THIS
WARRANT AND THE SECURITIES ACQUIRED PURSUANT TO THE EXERCISE OF THIS WARRANT ARE
RESTRICTED BY THE TERMS OF THE STOCKHOLDERS AGREEMENT, DATED OCTOBER 24, 1997,
AMONG PRIME RESPONSE GROUP INC AND THE STOCKHOLDERS NAMED THEREIN AS AMENDED BY
EACH OF AMENDMENT NO. 1, AMENDMENT NO. 2 AND AMENDMENT NO. 3 THERETO (THE
"STOCKHOLDERS AGREEMENT"). THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
WARRANT OR SUCH SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE
TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE STOCKHOLDERS
AGREEMENT. THE COMPANY WILL MAIL A COPY OF SUCH AGREEMENT, TOGETHER WITH A COPY
OF THE EXPRESS TERMS OF THE SECURITIES AND THE OTHER CLASS OR CLASSES AND SERIES
OF SHARES, IF ANY, WHICH THE COMPANY IS AUTHORIZED TO ISSUE, TO THE RECORD
HOLDER OF THIS CERTIFICATE, WITHOUT CHARGE, WITHIN FIVE DAYS AFTER RECEIPT OF A
WRITTEN REQUEST THEREFOR.
___________________________________________________
PRIME RESPONSE GROUP INC.
COMMON STOCK PURCHASE WARRANT
___________________________________________________
This certifies that, for good and valuable consideration, Prime Response
Group Inc., a Delaware corporation (the "Company"), grants to GAP Coinvestment
II, L.P., a Delaware limited partnership (the "Warrantholder"), the right to
subscribe for and purchase from the Company, at any time on or prior to the
Expiration Date, 62,286 validly issued, fully paid and nonassessable shares, par
value $.01 per share, of common stock of the Company (the "Warrant Shares"), at
the exercise price per share of $0.01 (the "Exercise Price"). Capitalized terms
used herein shall have the meanings ascribed to such terms in Section 9 below.
<PAGE>
2
1. Warrant. This Warrant is issued pursuant to, and in accordance with,
-------
the Stock and Warrant Purchase Agreement and is subject to the terms thereof.
2. Exercise of Warrant; Payment of Taxes.
-------------------------------------
2.1 Exercise of Warrant. Subject to the terms and conditions set
-------------------
forth herein, this Warrant may be exercised, in whole or in part, by the
Warrantholder at any time on or prior to the Expiration Date by:
(a) the surrender of this Warrant to the Company, with a duly
executed Exercise Form, and
(b) the delivery of payment to the Company, for the account of
the Company, by cash, wire transfer, certified or official bank check or any
other means approved by the Company, of the Exercise Price in lawful money of
the United States of America.
The Company agrees that the Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid.
2.2 Cashless Exercise.
-----------------
(a) In lieu of the payment of the Exercise Price, the
Warrantholder shall have the right (but not the obligation), to require the
Company to convert this Warrant, in whole or, from time to time, in part, into
shares of Common Stock (the "Conversion Right") as provided for in this Section
2.2. Upon exercise of the Conversion Right, the Company shall deliver to the
Warrantholder (without payment by the Warrantholder of any of the Exercise
Price) that number of shares of Common Stock equal to the quotient obtained by
dividing (i) the value of the Warrant (or the part thereof being converted) at
the time the Conversion Right is exercised (determined by subtracting the
aggregate Exercise Price in effect immediately prior to the exercise of the
Conversion Right from the aggregate Current Market Price for the shares of
Common Stock issuable upon exercise of the Warrant (or the part thereof being
converted) immediately prior to the exercise of the Conversion Right) by (ii)
the Current Market Price of one share of Common Stock immediately prior to the
exercise of the Conversion Right.
(b) the Conversion Right may be exercised by the WarranthoIder
on any Business Day on or prior to the Expiration Date by delivering this
Warrant, with a duly executed Exercise Form with the conversion section
completed, to the Company, exercising the Conversion Right and specifying the
total
<PAGE>
3
number of shares of Common Stock that the Warrantholder will be issued pursuant
to such conversion.
2.3 Warrant Shares Certificate. A stock certificate or certificates
--------------------------
for the Warrant Shares specified in the Exercise Form shall be delivered to the
Warrantholder within five Business Days after receipt of the Exercise Form by
the Company and, if the Conversion Right is not exercised, payment by the
Warrantholder of the aggregate Exercise Price. If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the right to purchase the remaining Warrant Shares, which new Warrant
shall in all other respects be identical with this Warrant.
2.4 Payment of Taxes. The issuance of certificates for Warrant
----------------
Shares shall be made without charge to the Warrantholder at any time.
3. Restrictions on Transfer, Restrictive Legends.
---------------------------------------------
3.1 This Warrant may not be offered, sold, transferred, pledged or
otherwise disposed of, in whole or in part, to any Person other than to an
Affiliate of the Warrantholder without the written consent of the Company, which
shall not be unreasonably withheld, and the Warrant Shares may not be offered,
sold, transferred, pledged or otherwise disposed of, in whole or in part, to any
Person other than in accordance with the Stockholders Agreement (so long as such
agreement is in effect).
3.2 Except as otherwise permitted by this Section 3, (a) each Warrant
(and each Warrant issued in substitution for any Warrant pursuant to Section 4)
shall be stamped or otherwise imprinted with a legend in substantially the form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT,
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF
COUNSEL (WHICH COUNSEL AND OPINION SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY) THAT SUCH REGISTRATION IS NOT REQUIRED.
<PAGE>
4
Except as set forth in this Section 3, each stock certificate for Warrant
Shares issued upon the exercise of any Warrant and each stock certificate issued
upon the direct or indirect transfer of any such Warrant Shares shall be stamped
or otherwise imprinted with a legend in substantially the form stipulated in the
Stockholders Agreement (so long as such agreement is in effect).
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a Warrant or a stock certificate for Warrant Shares, in each case without
a legend, if and to the extent permitted by, and in accordance with, the
Stockholders Agreement (so long as such agreement is in effect).
4. Reservation and Registration of Shares. The Company covenants and
--------------------------------------
agrees as follows:
(a) All Warrant Shares that are issued upon the exercise of this
Warrant shall, upon issuance, be validly issued, fully paid and nonassessable,
not subject to any preemptive rights, and, except as provided in the
Stockholders Agreement, free from all taxes, liens, security interests, charges,
and other encumbrances with respect to the issuance thereof, other than taxes in
respect of any transfer occurring contemporaneously with such issue.
(b) The Company shall at all times have authorized and reserved,
and shall keep available free from preemptive rights, a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented by
this Warrant.
(c) The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, spin-off,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and shall at all times in good faith assist in performing and
giving effect to the terms hereof and in the taking of all such actions as may
be necessary or appropriate in order to protect the rights of the Warrantholder
against dilution or other impairment.
5. Anti-dilution Adjustments. The number of Warrant Shares to be
-------------------------
received upon exercise of this Warrant shall be subject to adjustment as
follows:
5.1 Dividend, Subdivision, Combination or Reclassification of Common
----------------------------------------------------------------
Stock. In the event that the Company shall at any time or from time to time,
- -----
after the issuance of this Warrant but prior to the exercise hereof, (w) pay a
dividend or make a distribution on the outstanding shares of Common Stock
payable in Capital Stock, (x) subdivide the outstanding shares of Common Stock
into a larger number of shares, (y) combine the outstanding shares of Common
Stock into a smaller number of shares or (z) issue any shares of its Capital
Stock in a reclassification of the Common Stock (other than any such event for
which an
<PAGE>
5
adjustment is made pursuant to another clause of this Section 5), then, and in
each such case, the aggregate number of Warrant Shares for which this Warrant is
exercisable (the "Warrant Share Number") immediately prior to such event shall
be adjusted (and any other appropriate actions shall be taken by the Company) so
that the Warrantholder shall be entitled to receive upon exercise of this
Warrant the number of shares of Common Stock or other securities of the Company
that it would have owned or would have been entitled to receive upon or by
reason of any of the events described above, had this Warrant been exercised
immediately prior to the occurrence of such event. An adjustment made pursuant
to this Section 5.1 shall become effective retroactively (x) in the case of any
such dividend or distribution, to a date immediately following the close of
business on the record date for the determination of holders of Common Stock
entitled to receive such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
5.2 Certain Distributions. In case the Company shall at any time or
---------------------
from time to time distribute to all holders of shares of its Common Stock
(including any such distribution made in connection with a merger or
consolidation in which the Company is the resulting or surviving Person and the
Common Stock is not changed or exchanged) cash, evidences of indebtedness of the
Company or another Person, securities of the Company or another Person or other
assets (excluding dividends payable in shares of Common Stock for which
adjustment is made under Section 5.1) or rights or warrants to subscribe for or
purchase the foregoing, then, and in each such case, the Warrant Share Number
----
shall be increased by being multiplied by a fraction (i) the numerator of which
shall be the Current Market Price of one share of Common Stock immediately prior
to the record date for the distribution of such cash, evidences of indebtedness,
securities, other assets or rights or warrants and (ii) the denominator of which
shall be the Current Market Price of one share of Common Stock immediately prior
to such record date less the Fair Market Value of the portion of such cash,
evidences of indebtedness, securities, other assets or rights or warrants so
distributed divided by the number of shares of Common Stock outstanding
immediately prior to such distribution. Such adjustment shall be made whenever
any such distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution; provided,
--------
however, that no adjustment shall be made with respect to any distribution of
- -------
rights to purchase securities of the Company if the Warrantholder would
otherwise be entitled to receive such rights upon exercise at any time of this
Warrant. Such adjustment shall be made whenever any such distribution is made
and shall become effective retroactively to the date immediately following the
close of business on the record date for the determination of shareholders
entitled to receive such distribution.
5.3 Other Changes. In case the Company at any time or from time to
-------------
time, after the issuance of this Warrant but prior to the exercise hereof, shall
take any action affecting its Common Stock similar to or having an effect
similar
<PAGE>
6
to any of the actions described in any of Sections 5.1, 5.2 or 5.7 (but not
including any action described in any such. Section) and the Board of Directors
of the Company in good faith determines that it would be equitable in the
circumstances to adjust the Warrant Share Number as a result of such action,
then, and in each such case, the Warrant Share Number shall be adjusted in such
manner and at such time as the Board of Directors of the Company in good faith
determines would be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed to the
Warrantholders).
5.4 De Minimis Adjustments. Notwithstanding anything herein to the
----------------------
contrary, no adjustment under this Section 5 need be made to the Warrant Share
Number if the Company receives written notice from the Warrantholder that no
such adjustment is required.
5.5 Abandonment. If the Company shall take a record of the holders
-----------
of its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
shareholders thereof legally abandon its plan to pay or deliver such dividend or
distribution, then no adjustment in the Warrant Share Number shall be required
by reason of the taking of such record.
5.6 Certificate as to Adjustments. Upon any increase in the Warrant
-----------------------------
Share Number or adjustment of the Exercise Price, the Company shall within a
reasonable period (not to exceed 10 days) following any of the foregoing
transactions deliver to the Warrantholder a certificate, signed by (i) the
President or a Vice President of the Company and (ii) the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the increased
Warrant Share Number then in effect following such adjustment.
5.7 Reorganization, Reclassification, Merger or Sale. In case of any
------------------------------------------------
spin-off by the Company of another Person (the "Spin-off Entity"), in addition
to all other adjustments of the Warrant Share Number and the Exercise Price
pursuant to this Section 5, the Company shall issue to the Warrantholder a new
warrant, in form and substance satisfactory to the Company and the Majority
Warrantholders, entitling the Warrantholder to purchase, at an exercise price
equal to the Exercise Price, the number of shares of common stock of the Spin-
off Entity that the Warrantholder would have owned had the Warrantholder,
immediately prior to such spin-off, exercised this Warrant, and in case of any
capital reorganization, reclassification, a Merger, a Sale or a consolidation of
the Company with or into another Person or other change of outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value) (each, a "Transaction"), the Company
shall execute and deliver to the Warrantholder at least ten (10) Business Days
prior to effecting such Transaction a
<PAGE>
7
certificate stating that the Warrantholder shall have the right thereafter to
exercise this Warrant for the kind and amount of shares of stock or other
securities, property or cash receivable upon such Transaction by a holder of the
number of shares of Common Stock into which this Warrant could have been
exercised immediately prior to such Transaction and provision shall be made
therefor in the agreement, if any, relating to such Transaction. Such
certificate shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 5. The
provisions of this Section 5.7 and any equivalent thereof in any such
certificate similarly shall apply to successive transactions.
5.8 Dilution Notices. In case at any time or from time to time
----------------
(x) the Company shall declare a dividend (or any other
distribution) on its shares of Common Stock;
(y) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any shares
of stock of any class or of any other rights or warrants; or
(z) there shall occur a spin-off or Transaction;
then the Company shall mail to the Warrantholder, as promptly as possible but in
any event at least ten (10) days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or granting of rights or warrants or,
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution or granting of rights or
warrants are to be determined, or (B) the date on which such spin-off or
Transaction is expected to become effective and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for shares of stock or other securities or property or cash
deliverable upon such Transaction. Notwithstanding the foregoing, in the case of
any event to which Section 5.7 is applicable, the Company shall also deliver the
certificate described in such Section 5.7 to the Warrantholder at least 10
Business Days prior to effecting such reorganization or reclassification as
aforesaid.
6. Loss or Destruction of Warrant. Subject to the terms and conditions
------------------------------
hereof, upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company may
reasonably require, and, in the case of such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor.
7. Ownership of Warrant. The Company may deem and treat the person in
--------------------
whose name this Warrant is registered as the holder and owner hereof
<PAGE>
8
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of
transfer.
8. Amendments. Any provision of this Warrant may be amended and the
----------
observance thereof waived only with the written consent of the Company and the
Warrantholder.
9. Definitions. As used herein, unless the context otherwise requires,
-----------
the following terms have the following respective meanings:
"Affiliate" has the meaning specified in the Stock and Warrant Purchase
---------
Agreement.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or a day on
------------
which national banks are authorized by law to close in the State of New York.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests, participation, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock (but excluding any debt security whether or not it is exchangeable
for or convertible into such capital stock).
"Common Stock" means the common stock, par value $.01 per share, of the
------------
Company.
"Common Stock Equivalent" means any security or obligation which is by its
-----------------------
terms convertible into shares of Common Stock or another Common Stock
Equivalent, including, without limitation, any option, warrant or other
subscription or purchase right with respect to Common Stock.
"Company" has the meaning specified on the cover of this Warrant.
-------
"Conversion Right" has the meaning specified in Section 2.2 of this
----------------
Warrant.
"Current Market Price" means, as of the date of determination, (a) the
--------------------
average of the daily Market Price under clause (a), (b) or (c) of the definition
thereof of the Common Stock during the immediately preceding thirty (30) trading
days ending on such date, or (b) if the Common Stock is not then listed or
admitted to trading on any securities exchange or quoted in the over-the-counter
market, then the Market Price under clause (d) of the definition thereof on such
date.
<PAGE>
9
"Excluded Transaction" means (a) options to purchase shares of Common Stock
--------------------
which may be granted to employees, consultants or directors of the Company
pursuant to a stock option plan approved by the Board of Directors of the
Company, (b) a subdivision of the outstanding shares of Common Stock into a
larger number of shares of Common Stock or (c) capital stock issued upon
exercise, conversion or exchange of any Common Stock Equivalent.
"Exercise Form" means an Exercise Form in the form annexed hereto as
-------------
Exhibit A.
"Exercise Price" has the meaning specified on the cover of this Warrant.
--------------
"Expiration Date" means the earlier of (a) July 15, 2006 and (b) the
---------------
closing of the Initial Public Offering.
"Fair Market Value" means the amount which a willing buyer would pay a
-----------------
willing seller in an arm's length transaction reasonably determined in good
faith by the Board of Directors or, if such determination is not reasonably
satisfactory to the Warrantholder, such determination as shall be made by a
nationally recognized investment banking firm selected by the Company and the
Warrantholder, the expenses for which shall be borne equally by the Company and
the Warrantholder. Any determination of the Fair Market Value by the Board of
Directors or such investment banking firm shall be made based on a valuation of
the Company as an entirety without regard to any discount for minority interests
or disparate voting rights among classes of capital stock.
"GAP Coinvestment II" means GAP Coinvestment Partners II, L.P., a New York
-------------------
limited partnership.
"GAP LP" means General Atlantic Partners 52, L.P., a Delaware limited
------
partnership.
"Initial Public Offering" means the initial public offering of shares of
-----------------------
Common Stock of the Company pursuant to an effective registration statement
filed under the Securities Act.
"Majority Warrantholders" means the holders of a majority of the shares of
-----------------------
Common Stock issuable upon exercise of all of the warrants issued pursuant to
the Stock and Warrant Purchase Agreement assuming the exercise of all such
warrants.
"Market Price" means, as of the date of determination, (a) the closing
------------
price per share of Common Stock on such date published in The Wall Street
Journal or, if no such closing price on such date is published in The Wall
Street Journal, the
<PAGE>
10
average of the closing bid and asked prices on such date, as officially reported
on the principal securities exchange (including, without limitation, The Nasdaq
Stock Market, Inc.) on which the Common Stock is then listed or admitted to
trading; or (b) if the Common Stock is not then listed or admitted to trading on
any securities exchange but is designated as a national market system security
by the National Association of Securities Dealers, Inc., the last trading price
of the Common Stock on such date; or (c) if there shall have been no trading on
such date or if the Common Stock is not so designated, the average of the
reported closing bid and asked prices of the Common Stock on such date as shown
by the National Market System of the National Association of Securities Dealers,
Inc. Automated Quotations System and reported by any member firm of the New York
Stock Exchange selected by the Company; or (d) if none of (a), (b) or (c) is
applicable, a market price per share determined in good faith by the Board of
Directors and reasonably acceptable to the Majority Warrantholders; provided,
--------
however, that if such determination is not reasonably acceptable to the Majority
- -------
Warrantholders, then a market price per share determined at the Company's
expense by an appraiser chosen by mutual agreement of the Company and the
Majority Warrantholders. Any determination of the Market Price by an appraiser
shall be based on a valuation of the Company as an entirety without regard to
any discount for minority interests or disparate voting rights among classes of
capital stock.
"Merger" means (x) the merger or consolidation of the Company into or with
------
one or more Persons or (y) the merger or consolidation of one or more Persons
into or with the Company, if, in the case of (x) or (y), the stockholders of the
Company prior to such merger or consolidation do not retain at least a majority
of the voting power of the surviving Person.
"Permitted Transferee" has the meaning set forth in the Stockholders
--------------------
Agreement.
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Purchaser" has the meaning specified in the Stock and Warrant Purchase
---------
Agreement.
"Sale" means the sale, conveyance, exchange or transfer to another Person
----
of (a) the voting Capital Stock of the Company if, after such sale, conveyance,
exchange or transfer, the stockholders of the Company prior to such sale,
conveyance, exchange or transfer do not, directly or indirectly, retain at least
a majority of the voting power of the surviving Person or (b) all or
substantially all of the assets of the Company.
<PAGE>
11
"Securities Act" has the meaning specified on the cover of this Warrant, or
--------------
any similar Federal statute, and the rules and regulations of the United States
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time. Reference to a particular section of the Securities Act
shall be deemed to include a reference to the comparable section, if any, of any
such similar Federal statute.
"Spin-off Entity" has the meaning specified in Section 5.7 of this Warrant.
---------------
"Stock and Warrant Purchase Agreement" means the Stock and Warrant Purchase
------------------------------------
Agreement, dated July 15, 1999, among the Company, GAP LP and GAP Coinvestment
II.
"Stockholders Agreement" has the meaning specified on the cover of this
----------------------
Warrant.
"Transaction" has the meaning specified in Section 5.7 of this Warrant.
-----------
"Transfer" has the meaning specified on the cover of this Warrant.
--------
"Warrantholder" has the meaning specified on the cover of this Warrant.
-------------
"Warrant Share Number" has the meaning specified in Section 5.1 of this
--------------------
Warrant.
"Warrant Shares" has the meaning specified on the cover of this Warrant.
--------------
10. Miscellaneous
-------------
10.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to the Warrant.
10.2 Binding Effect; Benefits. This Warrant shall inure to the
------------------------
benefit of and shall be binding upon the Company and the Warrantholder and their
respective permitted successors and assigns. Nothing in this Warrant, expressed
or implied, is intended to or shall confer on any person other than the Company
and the Warrantholder, or their respective permitted successors or assigns, any
rights, remedies, obligations or liabilities under or by reason of this Warrant.
10.3 Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant are for reference purposes only and shall not be
<PAGE>
12
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
10.4 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service, overnight mail or personal delivery:
(a) if to the Warrantholder:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: William E. Ford
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(b) if to the Company:
Prime Response Group Inc.
150 CambridgePark Drive
Cambridge, MA 02140
Telecopy: (617) 876-8383
Attention: Chief Executive Officer
with a copy to:
Brobeck Hale and Dorr
Hasilwood House
60 Bishopsgate
London EC2N 4AJ
England
Telecopy: 44 171 638 5888
Attention: David Ayres
<PAGE>
13
All such notices and communications shall be deemed to have been duly given
when delivered by hand, if personally delivered; when delivered by courier or
overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied. Any party
may by notice given in accordance with this Section 10.4 designate another
address or Person for receipt of notices hereunder.
10.5 Severability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
10.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
10.7 No Rights or Liabilities as Shareholder. Nothing contained in
---------------------------------------
this Warrant shall be determined as conferring upon the Warrantholder any rights
as a shareholder of the Company or as imposing any liabilities on the
Warrantholder to purchase any securities whether such liabilities are asserted
by the Company or by creditors or shareholders of the Company or otherwise.
<PAGE>
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
PRIME RESPONSE GROUP INC.
By: /s/ Peter J. Boni
----------------------------------
Name: Peter J. Boni
Title: President & CEO
Dated: As of July 15, 1999
<PAGE>
EXHIBIT 10.18
================================================================================
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
among
PRIME RESPONSE, INC.
and
THE OTHER PARTIES NAMED HEREIN
---------------------
Dated as of December 6, 1999
---------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
1. Definitions.......................................................................... 1
2. General; Securities Subject to this Agreement........................................ 5
(a) Grant of Rights............................................................. 5
(b) Registrable Securities...................................................... 5
(c) Holders of Registrable Securities........................................... 6
3. Demand Registration.................................................................. 6
(a) Request for Demand Registration............................................. 6
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand Registration..... 6
(c) Effective Demand Registration.............................................. 7
(d) Expenses................................................................... 7
(e) Underwriting Procedures.................................................... 7
(f) Selection of Underwriters.................................................. 8
4. Incidental or "Piggy-Back" Registration............................................. 8
(a) Request for Incidental Registration........................................ 8
(b) Expenses................................................................... 9
5. Form S-3 Registration............................................................... 9
(a) Request for a Form S-3 Registration........................................ 9
(b) Form S-3 Underwriting Procedures........................................... 9
(c) Limitations on Form S-3 Registrations...................................... 10
(d) Expenses................................................................... 10
(e) No Demand Registration..................................................... 10
6. Holdback Agreements................................................................. 11
(a) Restrictions on Public Sale by Designated Holders.......................... 11
(b) Restrictions on Public Sale by the Company................................. 11
7. Registration Procedures............................................................. 11
(a) Obligations of the Company................................................. 11
(b) Seller Information......................................................... 14
(c) Notice to Discontinue...................................................... 14
(d) Registration Expenses...................................................... 14
8. Indemnification; Contribution....................................................... 15
(a) Indemnification by the Company............................................. 15
(b) Indemnification by Designated Holders...................................... 15
(c) Conduct of Indemnification Proceedings..................................... 16
(d) Contribution............................................................... 16
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
9. Rule 144............................................................................ 17
10. Miscellaneous....................................................................... 17
(a) Recapitalizations, Exchanges, etc.......................................... 17
(b) No Inconsistent Agreements................................................. 17
(c) Remedies................................................................... 18
(d) Amendments and Waivers..................................................... 18
(e) Notices.................................................................... 18
(f) Successors and Assigns; Third Party Beneficiaries.......................... 19
(g) Counterparts............................................................... 20
(h) Headings................................................................... 20
(i) GOVERNING LAW.............................................................. 20
(j) Severability............................................................... 20
(k) Entire Agreement........................................................... 20
(l) Further Assurances......................................................... 20
</TABLE>
-ii-
<PAGE>
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of
December 6, 1999 (this "Agreement"), among Prime Response, Inc. (previously
named "Prime Response Group, Inc."), a Delaware corporation (the "Company"),
General Atlantic Partners 42, L.P., a Delaware limited partnership ("GAP LP"),
GAP Coinvestment Partners, L.P., a New York limited partnership ("GAP
Coinvestment"), General Atlantic Partners 48, L.P., a Delaware limited
partnership ("GAP 48"), General Atlantic Partners 52, L.P., a Delaware limited
partnership ("GAP 52"), GAP Coinvestment Partners II, L.P., a Delaware limited
partnership ("GAP Coinvestment II"), General Atlantic Partners 57, L.P., a
Delaware limited partnership ("GAP 57"), Andersen Consulting LLP, an Illinois
limited liability partnership ("Andersen"), AC Ventures B.V., a Netherlands
limited liability corporation ("AC Ventures"), KITE LIMITED ("KITE") and James
Carling ("Carling").
WHEREAS, the parties hereto (other than Andersen) are parties to a
Registration Rights Agreement dated as of October 24, 1997, as amended as of
September 21, 1998, February 28, 1999 and July 15, 1999 (as amended, the
"Original Agreement"); and
WHEREAS, GAP 57 is a Permitted Transferee (as defined in the
Stockholders Agreement) of one or more General Atlantic Stockholders and KITE is
a Permitted Transferee of Nevin Prakash and, accordingly, are parties to the
Original Agreement; and
WHEREAS, the parties hereto desire to grant Andersen certain
registration rights with respect to securities of the Company as set forth in
this Agreement and to otherwise restate the provisions of the Original
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used in this Agreement the following terms have
-----------
the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
---------
Rule 12b-2 of the General Rules and Regulations under the Exchange Act. The
following shall be deemed to be Affiliates of GAP LP: (a) GAP LLC, the members
of GAP LLC and the limited partners of GAP LP, GAP 48, GAP 52 or GAP 57; (b) any
Affiliate of GAP LLC, the members of GAP LLC and the limited partners of GAP LP,
GAP 48, GAP 52 or GAP 57; and (c) any limited liability company or partnership a
majority of whose members or partners, as the case may be, are members of GAP
LLC. GAP LP, GAP 48, GAP 52, GAP 57, GAP Coinvestment and GAP Coinvestment II
shall be deemed to be Affiliates of one another.
"Andersen Stockholders" means Andersen Consulting LLP, an Illinois
---------------------
limited liability partnership, AC Ventures B.V., a Netherlands limited liability
corporation, and all Affiliates of the foregoing.
"Andersen Warrants" means (i) that certain warrant to purchase Common
-----------------
Stock dated as of December 6, 1999, issued by the Company pursuant to that
certain Common Stock and Warrant Purchase Agreement, of the same date, among the
Company, Andersen and AC
<PAGE>
Ventures, and (ii) those certain warrants to purchase Common Stock, dated as of
December 6, 1999, issued by the Company pursuant to that certain Warrant
Purchase Agreement, of the same date, between the Company and Andersen.
"Approved Underwriter" has the meaning set forth in Section 3(f) of
--------------------
this Agreement.
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"Carling" has the meaning set forth in the recitals to this Agreement.
-------
"Closing Price" means, with respect to the Registrable Securities, as
-------------
of the date of determination, (a) the closing price per share of a Registrable
Security on such date published in the Wall Street Journal or, if no such
closing price on such date is published in the Wall Street Journal, the average
of the closing bid and asked prices on such date, as officially reported on the
principal national securities exchange (including, without limitation, The
Nasdaq Stock Market, Inc.) on which the Registrable Securities are then listed
or admitted to trading; or (b) if the Registrable Securities are not then listed
or admitted to trading on any national securities exchange but are designated as
national market system securities by the NASD, the last trading price per share
of a Registrable Security on such date; or (c) if there shall have been no
trading on such date or if the Registrable Securities are not so designated, the
average of the reported closing bid and asked prices of the Registrable
Securities on such date as shown by The Nasdaq Stock Market, Inc. (or its
successor) and reported by any member firm of the New York Stock Exchange, Inc.
selected by the Company; or (d) if none of (a), (b) or (c) is applicable, a
market price per share reasonably determined in good faith by the Company's
Board of Directors or, if such determination is not reasonably satisfactory to
the Designated Holder for whom such determination is being made, by a nationally
recognized investment banking firm selected by the Company and such Designated
Holder, the expenses for which shall be borne equally by the Company and such
Designated Holder.
"Common Stock" means the Common Stock, par value $.01 per share, of
------------
the Company or any other equity securities of the Company into which such
securities are converted, reclassified, reconstituted or exchanged or any other
common stock of the Company.
"Company" has the meaning set forth in the recitals to this Agreement.
-------
"Company Underwriter" has the meaning set forth in Section 4(a) of
-------------------
this Agreement.
"Demand Registration" has the meaning set forth in Section 3(a) of
-------------------
this Agreement.
"Designated Holder" means (i) each of the Major Stockholders, the
-----------------
General Atlantic Stockholders and any transferee of any of them to whom
Registrable Securities have been transferred in accordance with the provisions
of the Stockholders Agreement and Section 10(f) of this Agreement, other than a
transferee to whom Registrable Securities have been
<PAGE>
transferred pursuant to a Registration Statement under the Securities Act or
Rule 144 or Regulation S under the Securities Act, and (ii) Andersen, AC
Ventures and any transferee of Andersen or AC Ventures to whom Registrable
Securities have been transferred in accordance with the provisions of Section
10(f) of this Agreement, other than a transferee to whom Registrable Securities
have been transferred pursuant to a Registration Statement under the Securities
Act or Rule 144 or Regulation S under the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"GAP 48" has the meaning set forth in the recitals to this Agreement.
------
"GAP 52" has the meaning set forth in the recitals to this Agreement.
------
"GAP 57" has the meaning set forth in the recitals to this Agreement.
------
"GAP Coinvestment" has the meaning set forth in the recitals to this
----------------
Agreement.
"GAP Coinvestment II" has the meaning set forth in the recitals to
-------------------
this Agreement.
"GAP LP Warrant" has the meaning set forth in the Stock and Warrant
--------------
Purchase Agreement, dated February 28, 1999, among the Company, GAP 52 and GAP
Coinvestment II.
"GAPCO Warrant" has the meaning set forth in the Stock and Warrant
-------------
Purchase Agreement, dated February 28, 1999, among the Company, GAP 52 and GAP
Coinvestment II.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
-------
liability company and the general partner of GAP LP, and any successor to such
entity.
"GAP LP" has the meaning set forth in the recitals to this Agreement.
------
"General Atlantic Stockholders" means GAP LP, GAP 48, GAP 52, GAP 57,
-----------------------------
GAP Coinvestment, GAP Coinvestment II and any Permitted Transferee (as defined
in the Stockholders Agreement) of any of them to which Registrable Securities
are transferred in accordance with Section 2.2 of the Stockholders Agreement.
"Holders' Counsel" has the meaning set forth in Section 7(a)(i) of
----------------
this Agreement.
"Incidental Registration" has the meaning set forth in Section 4(a) of
-----------------------
this Agreement.
"Indemnified Party" has the meaning set forth in Section 8(c) of this
-----------------
Agreement.
"Indemnifying Party" has the meaning set forth in Section 8(c) of this
------------------
Agreement.
"Initial Public Offering" means an underwritten initial public
-----------------------
offering pursuant to an effective Registration Statement filed under the
Securities Act.
<PAGE>
"Initiating Holders" has the meaning set forth in Section 3(a) of this
------------------
Agreement.
"Inspector" has the meaning set forth in Section 7(a)(vii) of this
---------
Agreement.
"IPO Effectiveness Date" means the date upon which the Company
----------------------
commences its Initial Public Offering.
"KITE" has the meaning set forth in the recitals to this Agreement.
----
"Major Stockholders" means KITE, Carling and any Permitted Transferee
------------------
of any of them to which Registrable Securities are transferred in accordance
with Section 2.2 of the Stockholders Agreement.
"Market Price" means, on any date of determination, the average of the
------------
daily Closing Price of the Registrable Securities for the immediately preceding
thirty (30) days on which the national securities exchanges are open for
trading.
"NASD" has the meaning set forth in Section 7(a)(xiii) of this
----
Agreement.
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"Preferred Stock" means (a) the Series A Convertible Participating
---------------
Preferred Stock, par value $.01 per share, of the Company, (b) the Series B
Convertible Participating Preferred Stock, par value $.01 per share, of the
Company, (c) the Series C Convertible Participating Preferred Stock, par value
$0.1 per share, of the Company, and (d) any other series of preferred stock of
the Company issued to GAP LP, GAP 48, GAP 52, GAP 57, GAP Coinvestment, GAP
Coinvestment II or any other Affiliate of GAP LLC.
"Records" has the meaning set forth in Section 7(a)(vii) of this
-------
Agreement.
"Registrable Securities" means each of the following: (a) any and all
----------------------
shares of Common Stock owned by the Designated Holders or issued or issuable
upon conversion of shares of Preferred Stock or exercise of the Warrants or any
other warrants, including, without limitation, any shares of Common Stock issued
or issuable upon conversion of any shares of preferred stock or exercise of any
warrants owned by any of the Designated Holders on the date hereof or acquired
by any of the Designated Holders after the date hereof, (b) any other shares of
Common Stock acquired or owned by any of the Designated Holders prior to the IPO
Effectiveness Date, or acquired or owned by any of the Designated Holders after
the IPO Effectiveness Date if such Designated Holder is an Affiliate of the
Company and (c) any shares of Common Stock or voting common stock issued or
issuable to any of the Designated Holders with respect to the Registrable
Securities, shares of Preferred Stock, preferred stock, the Warrants or other
warrants by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise and any shares of Common Stock or voting common
stock issuable upon conversion, exercise or exchange thereof; provided, however,
that any shares of Common Stock owned by
<PAGE>
KITE that are subject to the Option Agreement, dated October 23, 1997, between
the Company and KITE shall not be Registrable Securities.
"Registration Expenses" has the meaning set forth in Section 7(d) of
---------------------
this Agreement.
"Registration Statement" means a Registration Statement filed pursuant
----------------------
to the Securities Act.
"S-3 Initiating Holders" has the meaning set forth in Section 5(a) of
----------------------
this Agreement.
"S-3 Registration" has the meaning set forth in Section 5(a) of this
----------------
Agreement.
"SEC" means the Securities and Exchange Commission or any similar
---
agency then having jurisdiction to enforce the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Stockholders Agreement" means the Stockholders Agreement, dated as of
----------------------
October 24, 1997, among the Company, GAP LP, GAP Coinvestment, Carling and KITE
(as successor-in-interest to Prakash), as amended by Amendment No. 1 thereto,
dated as of September 21, 1998, among the Company, GAP LP, GAP 48, GAP
Coinvestment, Carling, KITE, Richard S. Braddock ("Braddock") and Allen Swann
("Swann"), as amended by Amendment No. 2 thereto, dated as of March 3, 1999,
among the Company, GAP LP, GAP 48, GAP 52, GAP Coinvestment, GAP Coinvestment
II, Carling, Prakash, Braddock and Swann, and as amended by Amendment No. 3
thereto, dated as of July 15, 1999, among the Company, GAP LP, GAP 48, GAP 52,
GAP Coinvestment, GAP Coinvestment II, Carling, Prakash, Braddock and Swann.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated as
------------------------
of October 1, 1997 among the Company, GAP LP and GAP Coinvestment, as amended.
"Warrants" means the GAP LP Warrant, the GAPCO Warrant and the
--------
Andersen Warrants.
2. General; Securities Subject to this Agreement.
---------------------------------------------
(a) Grant of Rights. The Company hereby grants registration rights to the
---------------
Major Stockholders, the General Atlantic Stockholders and the Andersen
Stockholders upon the terms and conditions set forth in this Agreement.
(b) Registrable Securities. For the purposes of this Agreement, Registrable
----------------------
Securities will cease to be Registrable Securities when (i) a Registration
Statement covering such Registrable Securities has been declared effective under
the Securities Act by the SEC and such Registrable Securities have been disposed
of pursuant to such effective Registration Statement, (ii) the entire amount of
Registrable Securities proposed to be sold in a
<PAGE>
single sale, in the opinion of counsel satisfactory to the Company and the
Designated Holder, each in their reasonable judgment, may be distributed to the
public without any limitation as to volume pursuant to Rule 144 (or any
successor provision then in effect) under the Securities Act or (iii) the
Registrable Securities are proposed to be sold or distributed by a Person not
entitled to the registration rights granted by this Agreement.
(c) Holders of Registrable Securities. A Person is deemed to be a holder of
---------------------------------
Registrable Securities whenever such Person owns of record Registrable
Securities, or holds an option to purchase, or a security convertible into or
exercisable or exchangeable for, Registrable Securities whether or not such
acquisition or conversion has actually been effected. If the Company receives
conflicting instructions, notices or elections from two or more Persons with
respect to the same Registrable Securities, the Company may act upon the basis
of the instructions, notice or election received from the registered owner of
such Registrable Securities. Registrable Securities issuable upon exercise of an
option or upon conversion of another security shall be deemed outstanding for
the purposes of this Agreement.
3. Demand Registration.
-------------------
(a) Request for Demand Registration. At any time after the IPO
-------------------------------
Effectiveness Date and prior to the time the Company is eligible to file a
Registration Statement on Form S-3 or any successor thereto, each of (i) one or
more of the General Atlantic Stockholders as a group, acting through GAP LLC or
its written designee, and (ii) one or more of the Major Stockholders (the
"Initiating Holders") may make a written request to the Company to register,
under the Securities Act (other than pursuant to a Registration Statement on
Form S-4 or S-8 or any successor thereto) (a "Demand Registration"), the number
of Registrable Securities stated in such request; provided, however, that the
Company shall not be obligated to effect more than one Demand Registration for
the General Atlantic Stockholders and one Demand Registration for the Major
Stockholders pursuant to this Section 3. For purposes of the preceding sentence,
two or more Registration Statements filed in response to one demand shall be
counted as one Registration Statement. If at the time of any request to register
Registrable Securities pursuant to this Section 3(a), the Company is engaged in,
or has fixed plans to engage in within sixty (60) days of the time of such
request, a registered public offering or is engaged in any other activity which,
in the good faith determination of the Board of Directors of the Company, would
be adversely affected by the requested registration to the material detriment of
the Company, then the Company may at its option direct that such request be
delayed for a reasonable period not in excess of three (3) months from the
effective date of such offering or the date of completion of such other material
activity, as the case may be, such right to delay a request to be exercised by
the Company not more than once in any one-year period. In addition, the Company
shall not be required to effect any registration within sixty (60) days after
the effective date of any other Registration Statement of the Company. Each
request for a Demand Registration by the Initiating Holders shall state the
amount of the Registrable Securities proposed to be sold and the intended method
of disposition thereof. Upon a request for a Demand Registration, the Company
shall promptly take such steps as are necessary or appropriate to prepare for
the registration of the Registrable Securities to be registered.
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand
----------------------------------------------------------
Registration. Each of the Designated Holders (other than Initiating Holders
- ------------
which have
<PAGE>
requested a registration under Section 3(a)) may offer its or his Registrable
Securities under any Demand Registration pursuant to this Section 3. Within ten
(10) days after the receipt of a request for a Demand Registration from an
Initiating Holder, the Company shall (i) give written notice thereof to all of
the Designated Holders (other than Initiating Holders which have requested a
registration under Section 3(a)) and (ii) subject to Section 3(e), include in
such registration all of the Registrable Securities held by such Designated
Holders from whom the Company has received a written request for inclusion
therein within ten (10) days of the receipt by such Designated Holders of such
written notice referred to in clause (i) above. Each such request by such
Designated Holders shall specify the number of Registrable Securities proposed
to be registered and the intended method of disposition thereof. The failure of
any Designated Holder to respond within such 10-day period referred to in clause
(ii) above shall be deemed to be a waiver of such Designated Holder's rights
under this Section 3 with respect to such Demand Registration, provided that any
Designated Holder may waive its rights under this Section 3 prior to the
expiration of such 10-day period by giving written notice to the Company, with a
copy to the Initiating Holders. If a Designated Holder sends the Company a
written request for inclusion of part or all of such Designated Holder's
Registrable Securities in a registration, such Designated Holder shall not be
entitled to withdraw or revoke such request without the prior written consent of
the Company in its sole discretion unless, as a result of facts or circumstances
arising after the date on which such request was made relating to the Company or
to market conditions, such Designated Holder reasonably determines that
participation in such registration would have a material adverse effect on such
Designated Holder.
(c) Effective Demand Registration. The Company shall use all reasonable
-----------------------------
commercial efforts to cause any such Demand Registration to become and remain
effective not later than ninety (90) days after it receives a request under
Section 3(a) hereof. A registration shall not constitute a Demand Registration
until it has become effective and remains continuously effective for the lesser
of (i) the period during which all Registrable Securities registered in the
Demand Registration are sold and (ii) ninety (90) days; provided, however that a
registration shall not constitute a Demand Registration if (x) after such Demand
Registration has become effective, such registration or the related offer, sale
or distribution of Registrable Securities thereunder is interfered with by any
stop order, injunction or other order or requirement of the SEC or other
governmental agency or court for any reason not attributable to the Initiating
Holders and such interference is not thereafter eliminated or (y) the conditions
specified in the underwriting agreement, if any, entered into in connection with
such Demand Registration are not satisfied or waived, other than by reason of a
failure by the Initiating Holders.
(d) Expenses. In any registration initiated as a Demand Registration, the
--------
Company shall pay all Registration Expenses (other than broker's commissions and
underwriter's discounts and commissions) in connection therewith, whether or not
such Demand Registration becomes effective.
(e) Underwriting Procedures. If the Company or the Initiating Holders
-----------------------
holding a majority of the Registrable Securities held by all of the Initiating
Holders to which the requested Demand Registration relates so elect, the Company
shall use its reasonable efforts to cause such Demand Registration to be in the
form of a firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be the Approved
<PAGE>
Underwriter selected in accordance with Section 3(f). In connection with any
Demand Registration under this Section 3 involving an underwritten offering,
none of the Registrable Securities held by any Designated Holder making a
request for inclusion of such Registrable Securities pursuant to Section 3(b)
hereof shall be included in such underwritten offering unless such Designated
Holder accepts the terms of the offering as agreed upon by the Company, the
Initiating Holders and the Approved Underwriter, and then only in such quantity
as will not, in the opinion of the Approved Underwriter, jeopardize the success
of such offering by the Initiating Holders. If the Approved Underwriter advises
the Company in writing that in its opinion the aggregate amount of such
Registrable Securities requested to be included in such offering is sufficiently
large to have a material adverse effect on the success of such offering, then
the Company shall include in such registration only the aggregate amount of
Registrable Securities that in the opinion of the Approved Underwriter may be
sold without any such material adverse effect and shall reduce the amount of
Registrable Securities to be included in such registration, first as to the
Company, second as to the Designated Holders (who are not Initiating Holders and
who requested to participate in such registration pursuant to Section 3(b)
hereof) as a group, if any, and third as to the Initiating Holders as a group,
pro rata within each group based on the number of Registrable Securities owned
by each such Designated Holder or Initiating Holder, as the case may be.
(f) Selection of Underwriters. If any Demand Registration or S-3
-------------------------
Registration, as the case may be, of Registrable Securities is in the form of an
underwritten offering, the Company shall select and obtain an investment banking
firm of national reputation to act as the managing underwriter of the offering
(the "Approved Underwriter"); provided, however, that the Approved Underwriter
shall, in any case, also be approved by the Initiating Holders or S-3 Initiating
Holders, as the case may be, such approval not to be unreasonably withheld.
4. Incidental or "Piggy-Back" Registration.
---------------------------------------
(a) Request for Incidental Registration. At any time, if the Company
-----------------------------------
proposes to file a Registration Statement under the Securities Act with respect
to an offering (including an Initial Public Offering) by the Company for its own
account (other than a Registration Statement on Form S-4 or S-8 or any successor
thereto), then the Company shall give written notice of such proposed filing to
each of the Designated Holders at least thirty (30) days before the anticipated
filing date, and such notice shall describe the proposed registration and
distribution and offer such Designated Holders the opportunity to register the
number of Registrable Securities as each such holder may request (an "Incidental
Registration"). The Company shall, and shall use all reasonable commercial
efforts (within ten (10) days of the notice provided for in the preceding
sentence) to cause the managing underwriter or underwriters of a proposed
underwritten offering (the "Company Underwriter") to permit each of the
Designated Holders who have requested in writing to participate in the
Incidental Registration to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company
included therein. In connection with any Incidental Registration under this
Section 4(a) involving an underwritten offering, the Company shall not be
required to include any Registrable Securities in such underwritten offering
unless the holders thereof accept the terms of the underwritten offering as
agreed upon between the Company and the Company Underwriter, and then only in
such quantity as will not, in the opinion of the Company
<PAGE>
Underwriter, jeopardize the success of the offering by the Company. If in the
written opinion of the Company Underwriter the registration of all or part of
the Registrable Securities which the Designated Holders have requested to be
included would materially adversely affect the success of such offering, then
the Company shall be required to include in such Incidental Registration, to the
extent of the amount that the Company Underwriter believes may be sold without
causing such adverse effect, first, all of the securities to be offered for the
account of the Company; second, the Registrable Securities to be offered for the
account of the Designated Holders pursuant to this Section 4, pro rata based on
the number of Registrable Securities owned by each such Designated Holder; and
third, any other securities requested to be included in such underwritten
offering.
(b) Expenses. The Company shall bear all Registration Expenses (other than
--------
broker's commissions and underwriter's discounts and commissions with respect to
the sale of any Registrable Securities) in connection with any Incidental
Registration pursuant to this Section 4, whether or not such Incidental
Registration becomes effective.
5. Form S-3 Registration.
---------------------
(a) Request for a Form S-3 Registration. Upon the Company becoming
-----------------------------------
eligible, in the event that the Company shall receive from (i) one or more of
the General Atlantic Stockholders as a group, acting through GAP LLC or its
written designee, or (ii) one or more of the Major Stockholders (the "S-3
Initiating Holders") a written request that the Company register, under the
Securities Act, on Form S-3 (or any successor form then in effect) (an "S-3
Registration"), all or a portion of the Registrable Securities owned by such S-3
Initiating Holders, the Company shall give written notice of such request to all
of the Designated Holders (other than S-3 Initiating Holders which have
requested an S-3 Registration under this Section 5(a)) at least thirty (30) days
before the anticipated filing date of such Form S-3, and such notice shall
describe the proposed registration and offer such Designated Holders the
opportunity to register the number of Registrable Securities as each such
Designated Holder may request in writing to the Company, given within fifteen
(15) days after their receipt from the Company of the written notice of such
registration. The Company shall (i) take such steps as are necessary or
appropriate to prepare for the registration of the Registrable Securities to be
registered and (ii) subject to Section 5(b), use all reasonable commercial
efforts to (x) cause such registration pursuant to this Section 5(a) to become
and remain effective as soon as practicable, but in any event not later than
ninety (90) days after it receives a request therefor and (y) include in such
offering the Registered Securities of the Designated Holders (other than S- 3
Initiating Holders which have requested an S-3 Registration under this Section
5(a)) who have requested in writing to participate in such registration on the
same terms and conditions as the Registrable Securities of the S-3 Initiating
Holders included therein.
(b) Form S-3 Underwriting Procedures. If the Company or the S-3 Initiating
--------------------------------
Holders holding a majority of the Registrable Securities held by all of the S-3
Initiating Holders to which the requested S-3 Registration relates so elect, the
Company shall use its reasonable efforts to cause such S-3 Registration pursuant
to this Section 5 to be in the form of a firm commitment underwritten offering
and the managing underwriter or underwriters selected for such offering shall be
the Approved Underwriter selected in accordance with Section 3(f). In connection
with any S-3 Registration under Section 5(a) involving an underwritten offering,
the
<PAGE>
Company shall not be required to include any Registrable Securities in such
underwritten offering unless the Designated Holders thereof accept the terms of
the underwritten offering as agreed upon between the Company, the Approved
Underwriter and the S-3 Initiating Holders, and then only in such quantity as
will not, in the opinion of such underwriter, jeopardize the success of such
offering by the S-3 Initiating Holders. If in the written opinion of the
Approved Underwriter the registration of all or part of the Registrable
Securities which the S-3 Initiating Holders and the other Designated Holders
have requested to be included would materially adversely affect the success of
such public offering, then the Company shall be required to include in the
underwritten offering, to the extent of the amount that the Approved Underwriter
believes may be sold without causing such adverse effect, first, all of the
Registrable Securities to be offered for the account of the S-3 Initiating
Holders pro rata based on the number of Registrable Securities owned by such S-3
Initiating Holders; second, the Registrable Securities to be offered for the
account of the other Designated Holders who requested inclusion of their
Registrable Securities pursuant to Section 5(a), pro rata based on the number of
Registrable Securities owned by such Designated Holders, and third, any other
securities requested to be included in such underwritten offering.
(c) Limitations on Form S-3 Registrations. If at the time of any request to
-------------------------------------
register Registrable Securities pursuant to Section 5(a), the Company is engaged
in, or has fixed plans to engage in within sixty (60) days of the time of such
request, a registered public offering or is engaged in any other activity which,
in the good faith determination of the Board of Directors of the Company, would
be adversely affected by the requested S-3 Registration to the material
detriment of the Company, then the Company may at its option direct that such
request be delayed for a reasonable period not in excess of three (3) months
from the effective date of such offering or the date of completion of such other
material activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any one-year period. In addition,
the Company shall not be required to effect any registration pursuant to Section
5(a)(i) within three (3) months after the effective date of any other
Registration Statement of the Company, (ii) if within the 12-month period
preceding the date of such request, the Company has effected two registrations
on Form S- 3 pursuant to Section 5(a) and all of the Registrable Securities
registered therein have been sold, (iii) if Form S-3 is not available for such
offering by the S-3 Initiating Holders or (iv) if the S-3 Initiating Holders,
together with the Designated Holders (other than S-3 Initiating Holders which
have requested an S-3 Registration under Section 5(a)) registering Registrable
Securities in such registration, propose to sell their Registrable Securities at
an aggregate price (calculated based upon the Market Price of the Registrable
Securities on the date of filing of the Form S-3 with respect to such
Registrable Securities) to the public of less than $5,000,000.
(d) Expenses. In connection with any registration pursuant to this Section
--------
5, the Company shall pay all Registration Expenses (other than broker's
commissions and underwriter's discounts and commissions), whether or not such
registration becomes effective.
(e) No Demand Registration. No registration requested by any Designated
----------------------
Holder pursuant to this Section 5 shall be deemed a Demand Registration pursuant
to Section 3.
<PAGE>
6. Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Designated Holders. If and to the extent
-------------------------------------------------
requested by the Company, the Initiating Holders or the S-3 Initiating Holders,
as the case may be, in the case of a non-underwritten public offering or if and
to the extent requested by the Approved Underwriter or the Company Underwriter,
as the case may be, in the case of an underwritten public offering, each
Designated Holder of Registrable Securities agrees (i) not to effect any public
sale or distribution of any Registrable Securities or of any securities
convertible into or exchangeable or exercisable for such Registrable Securities,
including a sale pursuant to Rule 144 under the Securities Act, and (ii) not to
make any request for a Demand Registration or S-3 Registration under this
Agreement, during the 90-day period or such shorter period agreed upon by such
Designated Holder and the requesting party beginning on the effective date of
such Registration Statement (except as part of such registration).
(b) Restrictions on Public Sale by the Company. The Company agrees not to
------------------------------------------
effect any public sale or distribution of any of its securities, or any
securities convertible into or exchangeable or exercisable for such securities
(except pursuant to registrations on Form S-4 or S-8 or any successor thereto),
during the period beginning on the effective date of any Registration Statement
in which the Designated Holders of Registrable Securities are participating and
ending on the earlier of (i) the date on which all Registrable Securities
registered on such Registration Statement are sold and (ii) 90 days after the
effective date of such Registration Statement (except as part of such
registration).
7. Registration Procedures.
-----------------------
(a) Obligations of the Company. Whenever registration of Registrable
--------------------------
Securities has been requested pursuant to Section 3, Section 4 or Section 5 of
this Agreement, the Company shall use all reasonable commercial efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly as practicable, and
in connection with any such request, the Company shall, as expeditiously as
possible:
(i) prepare and file with the SEC a Registration Statement on any form for
which the Company then qualifies or which counsel for the Company shall deem
appropriate and which form shall be available for the sale of such Registrable
Securities in accordance with the intended method of distribution thereof, and
use all reasonable commercial efforts to cause such Registration Statement to
become effective; provided, however, that (x) before filing a Registration
Statement or prospectus or any amendments or supplements thereto, the Company
shall provide counsel selected by the Designated Holders holding a majority of
the Registrable Securities being registered in such registration ("Holders'
Counsel") and any other Inspector with an adequate and appropriate opportunity
to review and comment on of such Registration Statement and each prospectus
included therein (and each amendment or supplement thereto) to be filed with the
SEC, subject to such documents being under the Company's control, and (y) the
Company shall notify the Holders' Counsel and each seller of Registrable
Securities of any stop order issued or threatened by the SEC and take all
reasonable action required to prevent the entry of such stop order or to remove
it if entered;
<PAGE>
(ii) prepare and file with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for the lesser of (x) 90
days and (y) such shorter period which will terminate when all Registrable
Securities covered by such Registration Statement have been sold, and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such Registration Statement;
(iii) as soon as reasonably possible, furnish to each seller of Registrable
Securities, prior to filing a Registration Statement, at least one copy of such
Registration Statement as is proposed to be filed, and thereafter such number of
copies of such Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto), and the prospectus included in such
Registration Statement (including each preliminary prospectus) as each such
seller may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(iv) register or qualify such Registrable Securities under such other
securities or "blue sky" laws of such jurisdictions as any seller of Registrable
Securities may request, and to continue such qualification in effect in such
jurisdiction for as long as permissible pursuant to the laws of such
jurisdiction, or for as long as any such seller requests or until all of such
Registrable Securities are sold, whichever is shortest, and do any and all other
acts and things which may be reasonably necessary or advisable to enable any
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided, however, that the Company
shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 7(a)(iv) (y) subject itself to taxation in any such jurisdiction or (z)
consent to general service of process in any such jurisdiction;
(v) notify each seller of Registrable Securities at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such Registration Statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus and furnish to
each seller a reasonable number of copies of such supplement to or an amendment
of such prospectus as may be necessary so that, after delivery to the purchasers
of such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
(vi) enter into and perform customary agreements (including an underwriting
agreement in customary form with the Approved Underwriter or Company
Underwriter, if any, selected as provided in Section 3, Section 4 or Section 5,
as the case may be) and take such other actions as are prudent and reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
<PAGE>
(vii) make available at reasonable times for inspection by any seller of
Registrable Securities, any managing underwriter participating in any
disposition of such Registrable Securities pursuant to a Registration Statement,
Holders' Counsel and any attorney, accountant or other agent retained by any
such seller or any managing underwriter (each, an "Inspector" and collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's and its subsidiaries'
officers, directors and employees, and the independent public accountants of the
Company, to supply all information reasonably requested by any such Inspector in
connection with such Registration Statement. Records that the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors (and the
Inspectors shall confirm their agreement in writing in advance to the Company if
the Company shall so request) unless (x) the disclosure of such Records is
necessary, in the Company's judgment, to avoid or correct a misstatement or
omission in the Registration Statement, (y) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction after exhaustion of all appeals therefrom or (z) the information in
such Records was known to the Inspectors on a non-confidential basis prior to
its disclosure by the Company or has been made generally available to the
public. Each seller of Registrable Securities agrees that it shall, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at the Company's
expense, to undertake appropriate action to prevent disclosure of the Records
deemed confidential;
(viii) if such sale is pursuant to an underwritten offering, use all
reasonable commercial efforts to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as Holders'
Counsel or the managing underwriter reasonably request;
(ix) use all reasonable commercial efforts to furnish, at the request of
any seller of Registrable Securities on the date such securities are delivered
to the underwriters for sale pursuant to such registration or, if such
securities are not being sold through underwriters, on the date the Registration
Statement with respect to such securities becomes effective, an opinion, dated
such date, of counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the seller making
such request, covering such legal matters with respect to the registration in
respect of which such opinion is being given as such seller may reasonably
request and are customarily included in such opinions;
(x) otherwise use all reasonable commercial efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable but no later than fifteen (15) months
after the effective date of the Registration Statement, an earnings statement
covering a period of twelve (12) months beginning after the effective date of
the Registration Statement, in a manner which satisfies the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(xi) cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed,
provided that the applicable listing requirements are satisfied;
<PAGE>
(xii) keep Holders' Counsel advised in writing as to the initiation and
progress of any registration under Section 3, Section 4 or Section 5 hereunder;
(xiii) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD"); and
(xiv) take all other steps reasonably necessary to effect the registration
of the Registrable Securities contemplated hereby.
(b) Seller Information. The Company may require each seller of Registrable
------------------
Securities as to which any registration is being effected to furnish to the
Company such information regarding the distribution of such securities as the
Company may from time to time reasonably request in writing.
(c) Notice to Discontinue. Each Designated Holder of Registrable Securities
---------------------
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 7(a)(v), such Designated Holder shall
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such
Designated Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 7(a)(v) and, if so directed by the Company,
such Designated Holder shall deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Designated Holder's
possession, of the prospectus covering such Registrable Securities which is
current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 7(a)(ii)) by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 7(a)(v) to and including the date when sellers of such
Registrable Securities under such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by and meeting the
requirements of Section 7(a)(v).
(d) Registration Expenses. The Company shall pay all expenses arising from
---------------------
or incident to the performance of, or compliance with, this Agreement,
including, without limitation, (i) SEC, stock exchange and NASD registration and
filing fees, (ii) all fees and expenses incurred in complying with securities or
"blue sky" laws (including reasonable fees, charges and disbursements of counsel
in connection with "blue sky" qualifications of the Registrable Securities),
(iii) all printing, messenger and delivery expenses, (iv) the fees, charges and
disbursements of counsel to the Company and of its independent public
accountants and any other accounting fees, charges and expenses incurred by the
Company (including, without limitation, any expenses arising from any "cold
comfort" letters or any special audits incident to or required by any
registration or qualification) and any legal fees, charges and expenses incurred
by the Company and, in the case of a Demand Registration, the Initiating Holders
and (v) any liability insurance or other premiums for insurance obtained in
connection with any Demand Registration or piggy-back registration thereon,
Incidental Registration or S-3 Registration pursuant to the terms of this
Agreement, regardless of whether such Registration
<PAGE>
Statement is declared effective. All of the expenses described in the preceding
sentence of this Section 7(d) are referred to herein as "Registration Expenses."
The Designated Holders of Registrable Securities sold pursuant to a Registration
Statement shall bear the expense of any broker's commission or underwriter's
discount or commission relating to such registration and sale of such Holders'
Registrable Securities.
8. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless, to the fullest extent permitted by law, each Designated Holder,
its officers, directors, trustees, partners, employees, advisors and agents and
each Person who controls (within the meaning of the Securities Act or the
Exchange Act) such Designated Holder from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue, or allegedly untrue,
statement of a material fact contained in any Registration Statement, prospectus
or preliminary prospectus or notification or offering circular (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are caused by
or contained in any information concerning such Designated Holder furnished in
writing to the Company by such Designated Holder expressly for use therein,
including, without limitation, the information furnished to the Company pursuant
to Section 8(b). The Company shall also provide customary indemnities to any
underwriters of the Registrable Securities, their officers, directors and
employees and each Person who controls such underwriters (within the meaning of
the Securities Act and the Exchange Act) to the same extent as provided above
with respect to the indemnification of the Designated Holders of Registrable
Securities.
(b) Indemnification by Designated Holders. In connection with any
-------------------------------------
Registration Statement in which a Designated Holder is participating pursuant to
Section 3, Section 4 or Section 5 hereof, each such Designated Holder shall
promptly furnish to the Company in writing such information with respect to such
Designated Holder as the Company may reasonably request or as may be required by
law for use in connection with any such Registration Statement or prospectus and
all information required to be disclosed in order to make the information
previously furnished to the Company by such Designated Holder not materially
misleading or necessary to cause such Registration Statement not to omit a
material fact with respect to such Designated Holder necessary in order to make
the statements therein not misleading. Each Designated Holder agrees to
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, any underwriter retained by the Company and their respective directors,
trustees, partners, officers, employees, advisors and agents and each Person who
controls the Company or such underwriter (within the meaning of the Securities
Act and the Exchange Act) to the same extent as the foregoing indemnity from the
Company to the Designated Holders, but only with respect to any such information
with respect to such Designated Holder furnished in writing to the Company by
such Designated Holder expressly for use therein, including, without limitation,
the information furnished to the Company pursuant to this Section 8(b);
provided, however, that the total amount to be indemnified by such Designated
Holder pursuant to this Section 8(b) shall be limited to the net proceeds
received by such Designated Holder in the offering to which the Registration
Statement or prospectus relates.
<PAGE>
(c) Conduct of Indemnification Proceedings. Any Person entitled to
--------------------------------------
indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, however, that the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder; except to the extent that
the Indemnifying Party is materially prejudiced or otherwise forfeits
substantive rights or defenses by reason of such failure. If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to the
extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel (other than reasonable costs of investigation) shall be paid by the
Indemnified Party unless (i) the Indemnifying Party agrees to pay the same, (ii)
the Indemnifying Party fails to assume the defense of such action with counsel
satisfactory to the Indemnified Party in its reasonable judgment or (iii) the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party), and such parties have been
advised by such counsel that either (x) representation of such Indemnified Party
and the Indemnifying Party by the same counsel would be inappropriate under
applicable standards of professional conduct or (y) there may be one or more
legal defenses available to the Indemnified Party which are different from or
additional to those available to the Indemnifying Party. In any of such cases,
the Indemnifying Party shall not have the right to assume the defense of such
action on behalf of such Indemnified Party, it being understood, however, that
the Indemnifying Party shall not be liable for the fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel) for all
Indemnified Parties. No Indemnifying Party shall be liable for any settlement
entered into without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the consent of such
Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which such Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability for claims that are the subject matter of such proceeding.
(d) Contribution. If the indemnification provided for in this Section 8
------------
from the Indemnifying Party is unavailable to an Indemnified Party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative faults of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the
<PAGE>
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Sections 8(a), 8(b) and 8(c), any legal or other fees, charges or expenses
reasonably incurred by such party in connection with any investigation or
proceeding; provided that the total amount to be indemnified by such Designated
Holder shall be limited to the net proceeds received by such Designated Holder
in the offering.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
9. Rule 144. The Company covenants that from and after the IPO
--------
Effectiveness Date it shall (a) file any reports required to be filed by it
under the Exchange Act and (b) take such further action as each Designated
Holder of Registrable Securities may reasonably request (including providing any
information necessary to comply with Rule 144 under the Securities Act), all to
the extent required from time to time to enable such Designated Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (i) Rule 144 under the Securities Act,
as such rule may be amended from time to time, or (ii) any similar rules or
regulations hereafter adopted by the SEC. The Company shall, upon the request of
any Designated Holder of Registrable Securities, deliver to such Designated
Holder a written statement as to whether it has complied with such requirements.
10. Miscellaneous.
-------------
(a) Recapitalizations, Exchanges, etc. The provisions of this Agreement
---------------------------------
shall apply, to the full extent set forth herein with respect to (i) the shares
of Common Stock, (ii) any and all shares of voting common stock of the Company
into which the shares of Common Stock are converted, exchanged or substituted in
any recapitalization or other capital reorganization by the Company and (iii)
any and all equity securities of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) which
may be issued in respect of, in conversion of, in exchange for or in
substitution of, the shares of Common Stock and shall be appropriately adjusted
for any stock dividends, splits, reverse splits, combinations, recapitalizations
and the like occurring after October 24, 1997. The Company shall cause any
successor or assign (whether by sale, merger or otherwise) to enter into a new
registration rights agreement with the Designated Holders on terms substantially
the same as this Agreement as a condition of any such transaction.
(b) No Inconsistent Agreements. The Company represents and warrants that it
--------------------------
has not granted to any Person the right to request or require the Company to
register any securities issued by the Company, other than the rights granted to
the Designated Holders herein. The Company shall not enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Designated Holders in this Agreement or grant
<PAGE>
any additional registration rights to any Person or with respect to any
securities which are not Registrable Securities which are prior in right to or
inconsistent with the rights granted in this Agreement.
(c) Remedies. The Designated Holders, in addition to being entitled to
--------
exercise all rights granted by law, including recovery of damages, shall be
entitled to specific performance of their rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive in any action for specific performance the defense
that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless consented to in writing by (i) the Company, (ii) the Major Stockholders
holding Registrable Securities representing (after giving effect to any
adjustments) at least a majority of the aggregate number of Registrable
Securities owned by all of the Major Stockholders, (iii) the General Atlantic
Stockholders holding Registrable Securities representing (after giving effect to
any adjustments) at least a majority of the aggregate number of Registrable
Securities owned by all of the General Atlantic Stockholders and (iv) the
Andersen Stockholders holding Registrable Securities representing (after giving
effect to any adjustments) at least a majority of the aggregate number of
Registrable Securities owned by all of the Andersen Stockholders. Any such
written consent shall be binding upon the Company and all of the Designated
Holders.
(e) Notices. All notices, demands and other communications provided for or
-------
permitted hereunder shall be made in writing and shall be made by registered or
certified first-class mail, return receipt requested, telecopier, courier
service, overnight mail or personal delivery:
(i) if to the Company or the Major Stockholders:
Prime Response, Inc.
150 Cambridge Park Drive
Cambridge, Massachusetts 02140
Telecopy: (617) 876-8383
Attention: President
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Telecopy: (617) 526-5000
Attention: John A. Burgess, Esq.
(ii) if to a General Atlantic Stockholder:
<PAGE>
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. William E. Ford
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(iii) if to an Andersen Stockholder: Andersen Consulting LLP
333 South Seventh Street Minneapolis, MN 55402
Telecopy: (612) 277-0000 Attention: J. Patrick
O'Halloran
(iv) if to any other Designated Holder, at its address as it
appears on the record books of the Company.
All such notices and communications shall be deemed to have been duly given
when delivered by hand, if personally delivered; when delivered by courier or
overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if properly telecopied.
(f) Successors and Assigns; Third Party Beneficiaries. This Agreement shall
-------------------------------------------------
inure to the benefit of and be binding upon the heirs, legatees, legal
representatives, successors and permitted assigns of each of the parties hereto
as hereinafter provided. The Demand Registration rights of the General Atlantic
Stockholders and the Major Stockholders contained in Section 3 hereof and the
other rights of each of the General Atlantic Stockholders and the Major
Stockholders with respect thereto shall be, with respect to any Registrable
Security, (i) automatically transferred, in the case of such rights of the
General Atlantic Stockholders, among the General Atlantic Stockholders and, in
the case of such rights of the Major Stockholders, among the Major Stockholders
and (ii) in all other cases, transferred only with the consent of the Company.
The incidental or "piggy-back" registration rights of the Designated Holders
contained in Sections 3(b) and 4 hereof, the S-3 Registration rights contained
in Section 5 hereof and the other rights of each of the Designated Holders with
respect thereto shall be, with respect to any Registrable Security,
automatically transferred by such Designated Holder to any Person who is the
transferee of such Registrable Security; provided that (x) the Company receives
notice of such transfer and (y) prior to such transfer, such assignee shall
assume all of the applicable assignor's obligations hereunder. All of the
obligations of the
<PAGE>
Company hereunder shall survive any such transfer. No Person other than the
parties hereto and their heirs, legatees, legal representatives, successors and
permitted assigns is intended to be a beneficiary of any of the rights granted
hereunder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
(j) Severability. If any one or more of the provisions contained herein, or
------------
the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, it being intended that all
of the rights and privileges of the Designated Holders shall be enforceable to
the fullest extent permitted by law.
(k) Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
in the Stock Purchase Agreement and Stockholders Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter, including, without limitation, the Original
Agreement.
(l) Further Assurances. Each of the parties shall execute such documents
------------------
and perform such further acts as may be reasonably required or necessary to
carry out or to perform the provisions of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amended and Restated Registration Rights Agreement on the date
first written above.
PRIME RESPONSE, INC.
By: /s/ Peter J. Boni
----------------------------------
Name: Peter J. Boni
Title: Chief Executive Officer and President
GENERAL ATLANTIC PARTNERS 42, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ William E. Ford
----------------------------------
Name: William E. Ford
Title: A Managing Member
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ William E. Ford
----------------------------------
Name: William E. Ford
Title: A General Partner
GENERAL ATLANTIC PARTNERS 48, L.P.
By: General Atalntic Partners, LLC, its general partner
By: /s/ William E. Ford
----------------------------------
Name: William E. Ford
Title: A Managing Member
GENERAL ATLANTIC PARTNERS 52, L.P.
By: General Atalntic Partners, LLC, its general partner
By: /s/ William E. Ford
----------------------------------
Name: William E. Ford
Title: A Managing Member
<PAGE>
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ William E. Ford
-------------------------------------
Name: William E. Ford
Title: A General Partner
GENERAL ATLANTIC PARTNERS 57, L.P.
By: General Atlantic Partners, LLC, is general partner
By: /s/ William E. Ford
-------------------------------------
Name: William E. Ford
Title: A Managing Member
KITE LIMITED
By: /s/ Mark Gill for Anson Limited
-------------------------------------
Name: Mark Gill
Title: Director
/s/ James Carling
-------------------------------------
James Carling
ANDERSEN CONSULTING LLP
By: /s/ J. Patrick O'Halloran
-------------------------------------
Name: J. Patrick O'Halloran
Title: Partner
<PAGE>
AC VENTURES B.V.
By: /s/ M.G. McGrath
---------------------------------
Name: M.G. McGrath
Title: Chief Financial Officer
<PAGE>
EXHIBIT 10.19
PRIME RESPONSE, INC.
COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
DECEMBER 6, 1999
<PAGE>
COMMON STOCK AND WARRANT
------------------------
PURCHASE AGREEMENT
------------------
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement") is made
---------
as of the 6th day of December, 1999, by and between (i) Prime Response, Inc.
(f/k/a Prime Response Group, Inc.), a Delaware corporation (the "Company") and
-------
(ii) Andersen Consulting LLP, an Illinois limited liability partnership
("Andersen Consulting"), and AC Ventures B.V., a limited liability corporation
-------------------
formed in the Netherlands ("AC Ventures", hereinafter referred to, together with
-----------
Andersen Consulting, as "AC").
--
WHEREAS, the Company and Andersen Consulting desire to enter into certain
marketing alliance and consulting arrangements with each other and, in
connection therewith, are entering into a Marketing Agreement of even date
herewith (the "Marketing Agreement"); and
-------------------
WHEREAS, as a condition precedent to entering into the Marketing Agreement,
and vice versa, the Company and AC have agreed, among other things, to enter
into the transactions contemplated by this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the Company and AC hereby agree as
follows:
1. PURCHASE AND SALE OF PURCHASED SECURITIES.
-----------------------------------------
1.1 Sale and Issuance of Common Stock and Warrants. Subject to the
----------------------------------------------
terms and conditions of this Agreement, at the Closing (as defined below), (a)
AC Ventures agrees to purchase, and the Company agrees to sell and issue to AC
Ventures, an aggregate of 570,409 shares (the "Purchased Shares") of the
----------------
Company's common stock, $0.01 par value per share (the "Common Stock"), at an
------------
aggregate price of $4,000,000, and (b) Andersen Consulting agrees to purchase,
and the Company agrees to sell and issue to Andersen Consulting, warrants to
purchase an aggregate of 909,709 shares of Common Stock (the "Warrants"), at an
--------
initial exercise price per share equal to $7.01 and substantially in the form
attached hereto as Exhibit A, and at the purchase price of $0.01. The Purchased
---------
Shares and the Warrants shall hereinafter be referred to, collectively, as the
"Purchased Securities".
--------------------
1.2 Closing. Subject to the fulfillment of the conditions set forth
-------
in Sections 5 and 6 below (or the waiver thereof by the appropriate party), the
purchase and sale of the Purchased Securities and the consummation of the
transactions set forth herein (the "Closing") shall take place at the offices of
-------
Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts 02110, at 10:00
A.M., on or before December 8, 1999 (the "Closing Date"), (the "Closing"),
------------ -------
provided, that if the Company fails to deliver the Final Audited Financial
- --------
Statements (as defined in Section 5.10) on or before the Closing Date,
<PAGE>
-3-
the Closing Date may be unilaterally extended at the sole option and discretion
of AC. At the Closing, the Company shall deliver to AC Ventures a certificate
representing the Purchased Shares and to Andersen the Warrants against payment
therefor by AC Ventures and Andersen by check or wire transfer to an account
specified in writing by the Company (or, in the case of the Warrants, in cash).
2. Representations, Warranties and Covenants of the Company. The Company
--------------------------------------------------------
hereby represents, warrants and covenants to AC that:
2.1 Organization and Authority. The Company is a corporation duly
---------------------------
organized, validly existing, and in good standing under the laws of the State of
Delaware. The Company has all requisite corporate power and authority to own or
lease and operate its properties and to carry on its business as now conducted
and as proposed to be conducted. The minute books of the Company have been made
available to AC for inspection and accurately record therein all corporate
actions taken by the Board of Directors and stockholders of the Company.
2.2 Corporate Power; Binding Effect. The Company has all requisite
--------------------------------
power and full legal right to execute and deliver this Agreement, and to perform
all of its obligations hereunder in accordance with the terms set forth herein.
This Agreement and the transactions contemplated hereby have been duly approved
and authorized by all requisite corporate action on the part of the Company and
its stockholders, and this Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid, and binding obligation of the Company,
enforceable against it in accordance with the terms set forth herein. The
execution, delivery, and performance by the Company of this Agreement in
accordance with the terms set forth herein, and the consummation by the Company
of the transactions contemplated hereby, will not result (with or without the
giving of notice or the lapse of time or both) in any conflict, violation,
breach, or default, or the creation of any lien , security interest, option or
other charge or encumbrance, or the termination, acceleration, vesting, or
modification of any right or obligation, under or in respect of (x) the
Certificate of Incorporation (as amended and in effect as of the date hereof) or
by-laws of the Company, (y) any judgment, decree, order, statute, rule, or
regulation binding on or applicable to the Company, or (z) any agreement or
instrument to which the Company is a party or by which it or any of its assets
is or are bound.
2.3 Foreign Qualification. The Company is duly qualified to do
----------------------
business and is in good standing as a foreign corporation in the Commonwealth of
Massachusetts and, except as set forth in Schedule 2.3, in each jurisdiction in
which the character of the properties owned or leased by the Company or the
nature of its activities makes such qualification necessary, other than any
jurisdictions in which the failure so to qualify or be in good standing would
not, either in any case or in the aggregate, have a material adverse effect on
the business, current prospects, results of operations or financial condition of
the Company (a "Material Adverse Effect").
-----------------------
2.4 Subsidiaries. Schedule 2.4 sets forth a list of all of the
------------ ------------
Subsidiaries
<PAGE>
-4-
of the Company and, with respect to each Subsidiary, (a) the name of each
stockholder or other holder of record or beneficial owner of capital stock,
securities or other equity interests, (b) the number of shares of capital stock,
securities or other equity interests authorized, issued and outstanding, (c) the
class, series or type of capital stock, securities or other equity interests
authorized, issued and/or outstanding, and (d) the jurisdiction of incorporation
and/or formation and the type and/or form of entity (e.g., partnership,
corporation, limited liability company, etc.). Each of the Subsidiaries set
forth on Schedule 2.4 is duly organized, validly existing, and in good
------------
standing (to the extent applicable) under the laws of its jurisdiction of
incorporation or formation. Each of the Subsidiaries has all requisite
corporate or other power and authority to own or lease and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted. The minute books of each of the Subsidiaries have been made
available to AC for inspection and accurately record therein all actions taken
by the Board of Directors (or other similar governing committee or body) and
stockholders (or other equity holders) of such Subsidiary. For purposes of this
Agreement, the term "Subsidiary" means, with respect to a party, any corporation
----------
or other organization, whether incorporated or unincorporated, of which (i) such
party or any other Subsidiary of such party is a general partner or a managing
member, (ii) at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the Board of Directors
or others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries. For purposes of Section 2 of this Agreement, all references to
the Company shall be deemed to include the Subsidiaries set forth on
Schedule 2.4.
- ------------
2.5 Capitalization.
--------------
(a) Immediately after the Closing, giving effect to the sale and
purchase of the Purchased Securities provided for in this Agreement, the
authorized and the outstanding capital stock of the Company will be as set forth
in Schedule 2.5(a), and all such outstanding shares of capital stock will be
---------------
owned (of record and beneficially) by the Persons and in the amounts there
indicated. All such outstanding shares of capital stock will be duly
authorized, validly issued, fully paid, and non-assessable, and, to the
Company's knowledge, free and clear of any liens, security interests, options or
other charges or encumbrances. Except as set forth on Schedule 2.5(a), no
---------------
adjustment has previously been made (or should have been made) nor will any
adjustment be required to be made as a result of the Company's issuance of the
Purchased Securities (and the issuance of Common Stock upon the exercise of the
Warrants) to the rate at which shares of the Series A Convertible Participating
Preferred Stock, $.01 par value per share (the "Series A Preferred Stock"), the
------------------------
Series B Convertible Participating Preferred Stock, $.01 par value per share
(the "Series B Preferred Stock"), and the Series C Convertible Preferred Stock,
------------------------
$.01 par value per share (the "Series C Preferred Stock"), and any other capital
------------------------
stock or other security of the Company are convertible into or exercisable for
shares of Common Stock or Preferred Stock (as defined in the next sentence) (by
reason of any "anti-dilution" provisions or agreements or otherwise). The term
"Preferred
---------
<PAGE>
-5-
Stock" shall refer, collectively, to the Series A Preferred Stock, the Series B
- -----
Preferred Stock and the Series C Preferred Stock.
(b) Except as set forth in Schedule 2.5(b), the Company does not have,
is not bound by, and has no obligation to grant or enter into, any (i)
outstanding subscriptions, options, warrants, calls, commitments, or agreements
of any character calling for it to issue, deliver, or sell, or cause to be
issued, delivered, or sold, any shares of its capital stock, any membership
interests or any other equity security, or any securities described in the
following clause, or (ii) securities convertible into, exchangeable for, or
representing the right to subscribe for, purchase, or otherwise acquire any
shares of its capital stock, any membership interests or any other equity
security. Except as set forth in Schedule 2.5(b), no adjustment has previously
---------------
been made (or should have been made) nor will any adjustment be required to be
made as a result of the Company's issuance of the Purchased Securities (or the
issuance of Common Stock upon the exercise of the Warrants) to the number of
shares of capital stock or security of the Company into which any subscriptions,
options, warrants, calls, commitments or agreements are convertible (by reason
of any "anti-dilution" provisions or agreements or otherwise).
(c) Except as set forth in Schedule 2.5(c), the Company (i) has no
---------------
outstanding obligations, contractual or otherwise, to repurchase, redeem, or
otherwise acquire any shares of capital stock or other equity securities of the
Company, (ii) is not a party to or bound by, and has no knowledge of, any
agreement or instrument relating to the voting of any of its securities, and
(iii) is not a party to or bound by any agreement or instrument under which any
person has the right to require it to effect, or to include any securities held
by such person in, any registration under the Securities Act of 1933, as amended
(the "Securities Act"). There are no other agreements, contracts, instruments
--------------
or documents to which the Company is a party or of which the Company is aware,
except as set forth in Schedule 2.5(c), which govern or affect in any way the
---------------
rights of the holders of securities, including any class of capital stock, of
the Company.
(d) The Company has reserved, solely for the purpose of issuance upon
exercise of the Warrants, a number of shares of Common Stock sufficient to cover
the exercise of all such Warrants.
2.6 Lawful Issuance. All of the outstanding shares of capital stock
---------------
and other securities of the Company were offered, issued, and sold, and the
Purchased Securities have been offered and at the Closing will be issued and
sold, in compliance with (i) all applicable preemptive, participation, rights of
first refusal or similar rights of all persons, and (ii) assuming the
truthfulness and accuracy of the representations made by AC in Section 3 hereof,
all applicable provisions of the Securities Act, and the rules and regulations
thereunder, and all applicable state securities laws and the rules and
regulations thereunder. No person has any valid right to rescind any purchase
of any shares of capital stock or other securities of the Company.
<PAGE>
-6-
2.7 Valid Issuance of Purchased Securities. The Purchased Securities
--------------------------------------
shall, upon issuance pursuant to the terms hereof, be duly authorized and
validly issued, fully paid and non-assessable and free and clear of any lien,
security interest, option or other charge or encumbrance. In addition, the
shares of Common Stock issuable upon the exercise of the Warrants shall, upon
issuance pursuant to the terms thereof, be duly authorized and validly issued,
fully paid and non-assessable and free and clear of any lien, security interest,
option or other charge or encumbrance. The issuance of the Purchased Securities
and the Common Stock upon the exercise of the Warrants are not and will not be
subject to any pre-emptive rights, first refusal rights, right to purchase or
similar rights with respect to such Purchased Securities and the Common Stock
issuable upon the exercise of the Warrants.
2.8 Financial Statements. The Company has delivered to AC a draft
---------------------
(the "Draft Audited Financial Statements") of the audited consolidated balance
sheet of the Company as of December 31, 1996, 1997 and 1998, and September 30,
1999 (the "Most Recent Balance Sheet"), and the related consolidated statements
-------------------------
of income, changes in stockholders' equity, and cash flows for the years ended
December 31, 1996, 1997 and 1998 and for the nine month period ended September
30, 1999, a copy of which is attached hereto as Exhibit D. Each of such
---------
financial statements was prepared in accordance with generally accepted
accounting principles (GAAP) applied on a basis consistent with prior periods.
Each of such balance sheets is true and correct and accurately presents the
financial condition of the Company as of its date; and each of such statements
of income, changes in stockholders' equity, and cash flows accurately presents
the results of operations, changes in stockholders' equity, or cash flows, as
the case may be, of the Company for the period covered thereby. The Final
Audited Financial Statements (as defined in Section 5.10) shall be the same in
all material respects to the Draft Audited Financial Statements.
2.9 Absence of Certain Changes. Since the date of the Most Recent
--------------------------
Balance Sheet, there has not been:
(a) any (i) acquisition (by purchase, lease as lessee, license as
licensee, or otherwise) or disposition (by sale, lease as lessor, license as
licensor, or otherwise) by the Company of any material properties or assets, or
(ii) other transaction by, or any agreement or commitment on the part of, the
Company, other than those in the ordinary course of business, that have not
caused and will not cause, either in any case or in the aggregate, a Material
Adverse Effect;
(b) except as set forth in Schedule 2.9(b), any material change in the
---------------
condition (financial or otherwise), properties, assets, liabilities,
investments, revenues, expenses, income, operations, business, or current
prospects of the Company, or in any of its relationships with any clients,
suppliers, customers, or other third parties with whom it has financial,
commercial, or other business relationships, other than changes in the ordinary
course of business that have not caused and cannot reasonably be expected to
cause, either in any case or in the aggregate, a Material Adverse Effect;
<PAGE>
-7-
(c) any transaction or change in compensation by the Company with any
of its stockholders, directors or officers other than the payment of
compensation and reimbursement of reasonable employee travel and other business
expenses in accordance with existing employment arrangements and usual past
practices;
(d) any damage, destruction, or loss, whether or not covered by
insurance, that, either in any case or in the aggregate, has caused, or could
reasonably be expected to cause, a Material Adverse Effect;
(e) any declaration, setting aside, or payment of any dividend or any
other distribution (in cash, stock, and/or property or otherwise) in respect of
any shares of the capital stock, equity interests or other securities of the
Company;
(f) except as set forth in Schedule 2.9(f), any issuance of any shares
-------- ------
of the capital stock, equity interests or other securities of the Company, or
any direct or indirect redemption, purchase, or other acquisition by the Company
of any shares of capital stock, equity interests or other securities;
(g) except as set forth in Schedule 2.9(g), any change in the
-------- ------
officers, directors or strategic partners of the Company;
(h) any labor or employee trouble or claim of unfair labor or
employment practices involving the Company, any increase in any single case in
excess of $50,000 in the compensation or other benefits payable or to become
payable by the Company to any of its officers, employees, or independent
contractors, or any bonus payments or arrangements made to or with any of such
officers, employees, or independent contractors;
(i) any forgiveness or cancellation of any debt or claim by the
Company or any waiver by the Company of any right of material value, other than
compromises of accounts receivable in the ordinary course of business of less
than $50,000;
(j) any incurrence or any payment, discharge, or satisfaction by the
Company of any material indebtedness or any material obligations or material
liabilities, whether absolute, accrued, contingent, or otherwise (including
without limitation liabilities, as guarantor or otherwise, with respect to
obligations of others);
(k) any incurrence, discharge, or satisfaction of any material lien,
charge or other encumbrance (i) by the Company, or (ii) on any of the capital
stock, other securities or equity interests, properties, or assets owned, held
or leased by the Company;
(l) any change in the financial or tax accounting principles,
<PAGE>
-8-
practices, or methods of the Company; or
(m) any agreement, understanding, or commitment by or on behalf of the
Company, whether in writing or otherwise, to do or permit any of the things
referred to in this Section 2.9.
2.10 Properties, Leases, Etc.
-----------------------
(a) Title to Properties; Condition of Personal Properties. The
-----------------------------------------------------
Company has (i) good and marketable title to all of the assets and properties
owned by it, including without limitation all assets and properties reflected in
the Most Recent Balance Sheet, free and clear of all Liens, (ii) valid title to
the lessee interest in all assets and properties leased by them as lessee, free
and clear of all liens, charges and other encumbrances, and (iii) full right to
hold and use all of the assets and properties used in or necessary to their
respective businesses and operations, in each case all free and clear of all
liens, charges and other encumbrances, and in each case subject to applicable
laws and the terms of any lease under which the Company leases such assets or
properties as lessee. All such assets and properties are in good condition and
repair, reasonable wear and tear excepted, and are adequate and sufficient to
carry on the businesses of the Company as presently conducted and as currently
proposed to be conducted.
(b) No Owned Real Properties. The Company does not own any real
------------------------
property or any interest (other than a leasehold interest) in any real property.
(c) Leased Properties. Schedule 2.10(c) sets forth a complete and
----------------- -------- -------
correct description of all leases of real or personal property under which the
Company is lessor or lessee. Complete and correct copies of all such leases and
all amendments, supplements, and modifications thereto, other than any personal
property lease with an annual rent of less than $20,000 and total remaining
rental payments of less than $10,000, have been delivered to AC. Each such
lease is valid and subsisting and no event or condition exists that constitutes,
or after notice or lapse of time or both would constitute, a default thereunder
by the Company or, to the Company's knowledge, any other party thereto. The
Company's leasehold interests are subject to no liens, charges or other
encumbrances, and the Company is in quiet possession of the properties covered
by such leases.
2.11 Indebtedness. Except to the extent reflected or reserved in
-------------
the Most Recent Balance Sheet, incurred in the ordinary course of business since
the date of the Most Recent Balance Sheet, or as set forth on Schedule 2.11, the
-------------
Company has no Indebtedness outstanding. The Company is not in default with
respect to any outstanding Indebtedness or any instrument or agreement relating
thereto, and no such Indebtedness or any instrument or agreement relating
thereto purports to limit the issuance of any securities by the Company or the
operation of the business of the Company. Complete and correct copies of all
instruments and agreements (including all amendments, supplements, waivers, and
consents) relating to any Indebtedness of the Company have
<PAGE>
-9-
been furnished to AC. As used in this Agreement, the term "Indebtedness" means
------------
(a) all indebtedness for borrowed money, whether current or long-term, or
secured or unsecured, (b) all indebtedness for the deferred purchase price of
property or services represented by a note or security agreement, (c) all
indebtedness created or arising under any conditional sale or other title
retention agreement (even though the rights and remedies of the seller or lender
under such agreement in the event of default may be limited to repossession or
sale of such property), (d) all indebtedness secured by a purchase money
mortgage or other lien to secure all or part of the purchase price of property
subject to such mortgage or lien, (e) all obligations under leases that have
been or must be, in accordance with generally accepted accounting principles
(GAAP), recorded as capital leases in respect of which it is liable as lessee,
(f) any liability in respect of banker's acceptances or letters of credit, and
(g) all indebtedness of any person that is directly or indirectly guaranteed by
the Company or that it has agreed (contingently or otherwise) to purchase or
otherwise acquire or in respect of which it has otherwise assured a creditor
against loss.
2.12 Absence of Undisclosed Liabilities. Except to the extent
-----------------------------------
reflected or reserved in the Most Recent Balance Sheet, or incurred after the
date of such balance sheet in the ordinary course of business, or incurred in
connection with the transactions contemplated by this Agreement, the Company has
no material liabilities or obligations of any nature, whether accrued, absolute,
contingent, or otherwise (including without limitation liabilities as guarantor
or otherwise with respect to obligations of others) and whether due or to become
due.
2.13 Tax Matters.
-----------
(a) Filing of Tax Returns and Payment of Taxes. Except as set forth
------------------------------------------
on Schedule 2.13(a), the Company has timely filed all Tax Returns required to be
-------- -------
filed by the Company, each such Tax Return has been prepared in compliance with
all applicable laws and regulations, and all such Tax Returns are true and
accurate in all respects. All Taxes due and payable by the Company have been
paid, and the Company will not be liable for any additional Taxes in respect of
any taxable period ending on or before the Closing Date in an amount that
exceeds the corresponding reserve therefor, if any, reflected in the accounting
records of the Company as of the Closing Date. No claim has ever been made by a
taxing authority in a jurisdiction where the Company does not pay Tax or file
Tax Returns that the Company is or may be subject to Taxes assessed by such
jurisdiction. There are no liens for Taxes (other than current Taxes not yet
due and payable) on the assets of the Company.
(b) Audit History, Extensions, Etc. There is no action, suit, taxing
-------------------------------
authority proceeding, or audit with respect to any Tax now in progress, pending,
or to the best of the Company's knowledge, threatened, against or with respect
to the Company. No deficiency or proposed adjustment in respect of Taxes that
has not been settled or otherwise resolved has been asserted or assessed by any
taxing authority against the Company. The Company has not consented to extend
the time in which any Tax may be assessed or collected by any taxing authority.
The Company has not requested or been
<PAGE>
-10-
granted an extension of the time for filing any Tax Return to a date on or after
the Closing Date.
(c) Membership in Affiliated Groups, Etc. The Company has never been
------------------------------------
a member of any Affiliated Group, nor has ever filed or been included in a
combined, consolidated, or unitary Tax Return. The Company is not a party to or
bound by any tax sharing or allocation agreement nor has any current or
potential contractual obligation to indemnify any other person with respect to
Taxes. As used in herein, the term "Affiliated Group" has the meaning given to
it in Section 1504 of the Code, and in addition includes any analogous combined,
consolidated or unitary group, as defined under any applicable state, local or
foreign income Tax law.
(d) Withholding Taxes. The Company has withheld and paid all Taxes
-----------------
required to have been withheld and paid by it in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other Person.
(e) Certain Defined Terms. As used herein, the term "Tax" or "Taxes"
--------------------- --- -----
means any federal, state, local, or foreign income, gross receipts, franchise,
estimated, alternative minimum, add-on minimum, sales, use, transfer,
registration, value added, excise, severance, stamp, occupation, premium,
windfall profit, customs, duties, real property, personal property, capital
stock, intangibles, social security, unemployment, disability, payroll, license,
employee, or other tax or levy, of any kind whatsoever, including any interest,
penalties, or additions to tax in respect of the foregoing. In addition, the
term "Tax Return" means any return, declaration, report, claim for refund,
----------
information return, or other document (including any related or supporting
estimates, elections, schedules, statements, or information) filed or required
to be filed in connection with the determination, assessment, or collection of
any Tax or the administration of any laws, regulations, or administrative
requirements relating to any Tax.
2.14 Litigation, Etc. Except as set forth on Schedule 2.14, no
--------------- -------------
litigation, arbitration, action, suit, claim, demand, proceeding or
investigation (whether conducted by or before any judicial or regulatory body,
arbitrator, commission) is pending or, to the Company's knowledge, threatened,
against the Company, its property or assets, nor is there any basis therefor
known to the Company.
2.15 Safety, Zoning, and Environmental Matters.
-----------------------------------------
(a) The Company is not nor has ever been in violation in any material
respect of any applicable statute, law, or regulation relating to occupational
health or safety, and no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice has been filed or commenced against or
received by it alleging any failure by it to comply with any such statute, law,
or regulation, nor is there any basis therefor known to the Company.
<PAGE>
-11-
(b) To the best of the Company's knowledge, none of the real
properties presently leased, or operated by the Company, nor any leasehold
improvements thereto, nor any business conducted by the Company thereon, are in
violation in any material respect of any applicable land use or zoning
requirements, including without limitation any building line or use or occupancy
restriction, any public utility or other easement, any limitation, condition, or
covenant of record, or any zoning or building law, code, or ordinance.
(c) The Company is not presently, and has never been, in violation of
any judgment, decree, order, statute, law, permit, license, rule, or regulation
pertaining to environmental matters, including without limitation those arising
under any Environmental Laws, nor has any of them received any written notice
alleging any such violation. As used herein, the term "Environmental Laws"
------------------
means, collectively, the Resource Conservation and Recovery Act, CERCLA, the
Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water
Act, the Federal Clean Air Act, the Toxic Substances Control Act, and any and
all state or local statutes, regulations, ordinances, orders, and decrees
relating to health, safety, or the environment, each, as the case may be, as
amended. The term "CERCLA" means the Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended.
(d) None of the Company and its Subsidiaries has received any notice
or request for information from any third party, including without limitation
any federal, state, or local governmental authority, (i) that any of them has
been identified by the EPA or any state environmental regulatory authority as a
potentially responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 C.F.R. Part 300 Appendix B, or under any equivalent
state law; (ii) that any Hazardous Substances that any of them has generated,
transported, or disposed of have been found at any site at which a federal,
state, or local agency or other third party has conducted or has ordered it to
conduct a remedial investigation, removal or other response action pursuant to
any Environmental Law; or (iii) that any of them is or will or may be a named
party to any claim, action, cause of action, complaint, or legal or
administrative proceeding arising out of any third party's incurrence of Damages
in connection with the release (within the meaning of CERCLA) of any Hazardous
Substances or any other environmental matters. No circumstances exist that
could reasonably be expected to give rise to any such notice or request for
information or to any Damages. As used herein, the term "Hazardous Substances"
--------------------
means, collectively, any hazardous waste, as defined by 42 U.S.C. (S) 6903(5),
any hazardous substances as defined by 42 U.S.C. (S) 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. (S) 9601(33), or any toxic substance,
methane gas, oil, or hazardous materials or other chemicals or substances
regulated by any Environmental Laws. In addition, as used herein, the term
"Damages" means all damages, losses, claims, demands, actions, causes of action,
-------
suits, litigations, arbitrations, liabilities, costs, and expenses, including
without limitation court costs and the fees and expenses of counsel and experts.
2.16 Labor Relations. The Company is in compliance in all material
---------------
<PAGE>
-12-
respects with all applicable federal and state laws respecting employment and
employment practices, terms and conditions of employment, wages and hours, and
nondiscrimination in employment, and is not engaged in any unfair labor
practice. There is no charge pending or, to the best of the Company's
knowledge, threatened, against or with respect to the Company before any court
or agency and alleging unlawful discrimination in employment practices, and
there is no charge of or proceeding with regard to any unfair labor practice
against the Company pending before the National Labor Relations Board. There is
no labor strike, dispute, slow-down, or work stoppage pending or, to the
Company's knowledge, threatened against or involving the Company. None of the
employees of the Company is covered by any collective bargaining agreement, and
no such collective bargaining agreement is currently being negotiated. No one
has petitioned and, to the Company's knowledge, no one is now petitioning, for
union representation of any employees of the Company. The Company has not
experienced any work stoppage or other material labor difficulty.
2.17 Material Contracts. Except for the contracts, agreements and
------------------
other arrangements listed in Schedule 2.17 and contracts, agreements, or other
-------- ----
arrangements that have been fully performed and with respect to which the
Company has no further obligations or liabilities, the Company is not a party to
or otherwise bound by (i) any agreement, instrument, or commitment that may
affect its ability to consummate the transactions contemplated hereby, or (ii)
any other material agreement, instrument, or commitment; including without
limitation any:
(a) agreement for the purchase, sale, lease, or license by or from it
of services, products, or assets, requiring total payments by or to it in excess
of $50,000 in any instance, or entered into other than in the ordinary course of
business;
(b) agreement requiring it to purchase all or substantially all of its
requirements for a particular product or service from a particular supplier or
suppliers, or requiring it to supply all of a particular customer's or
customers' requirements for a certain service or product;
(c) agreement or other commitment pursuant to which it has agreed
to indemnify or hold harmless any other person;
(d) (i) employment agreement, (ii) consulting agreement, or (iii)
agreement providing for severance payments or other additional rights or
benefits (whether or not optional) in the event of the sale or other change in
control of it;
(e) agreement with any current or former affiliate, stockholder,
officer, director, or strategic partner of the Company, or with any person in
which any such affiliate is known by the Company to have an interest;
(f) joint venture, partnership or teaming agreement;
<PAGE>
-13-
(g) agreement with any domestic or foreign government or agency or
executive office thereof or any subcontract between it and any third party
relating to a contract between such third party and any domestic or foreign
government or agency or executive office thereof;
(h) agreement imposing non-competition or exclusive dealing
obligations on it;
(i) agreement with respect to the confidentiality of the Company's
Proprietary Information (as described in Section 2.20 hereof), and the
------------
assignment to the Company of any and all rights employees of the Company might
have to acquire with respect to technology, inventions, developments, etc.,
developed in connection with this employment with the Company; and
(j) agreement the performance of which is reasonably likely to
result in a loss to it.
The Company has delivered or caused to be delivered to AC correct and
complete copies of each agreement, instrument, and commitment listed in Schedule
--------
2.17, each as amended to date. Each such agreement, instrument, and commitment
- ----
is a valid, binding and enforceable obligation of the Company and, to the
Company's knowledge, of the other party or parties thereto, and is in full force
and effect. The Company is not nor, to the Company's knowledge, is any other
party thereto, (nor to the Company's knowledge is the Company considered by any
other party thereto to be) in breach of or noncompliance with any term of any
such agreement, instrument, or commitment (nor is there any basis for any of the
foregoing), except for any breach or non-compliance that singly or in the
aggregate would not have a Material Adverse Effect. No claim, change order,
request for equitable adjustment, or request for contract price or schedule
adjustment, between the Company and any client, supplier or customer, relating
to any agreement, instrument, or commitment listed in Schedule 2.17 is pending
-------------
or, to the Company's knowledge, threatened, nor to the Company's knowledge is
there any basis for any of the foregoing. No agreement, instrument, or
commitment listed in Schedule 2.17 includes or incorporates any provision, the
-------------
effect of which may be to enlarge or accelerate any of the obligations of the
Company or to give additional rights to any other party thereto, or will
terminate, lapse, or in any other material way be affected, by reason of the
transactions contemplated by this Agreement.
2.18 Employee Benefit Plans.
----------------------
(a) Identification of Plans. Except for the arrangements set forth in
-----------------------
Schedule 2.18, the Company does not now maintain or contribute to any pension,
- -------- ----
profit-sharing, deferred compensation, bonus, stock option, share appreciation
right, severance, group or individual health, medical, life insurance, survivor
benefit, or similar plan, policy or arrangement, whether formal or informal, for
the benefit of any director, officer, consultant, or employee of any of them,
whether active or terminated; nor has it
<PAGE>
-14-
ever maintained or contributed to any such plan, policy, or arrangement that was
subject to ERISA. Each of the arrangements set forth in Schedule 2.18 is herein
-------------
referred to as an "Employee Benefit Plan." As used herein, the term "ERISA"
--------------------- -----
means the Employee Retirement Income Security Act of 1974, as amended.
(b) Compliance with Terms and Law. Each Employee Benefit Plan is and
-----------------------------
has been maintained and operated in compliance in all material respects with the
terms of such plan and with the requirements prescribed (whether as a matter of
substantive law or as necessary to secure favorable tax treatment) by any and
all statutes, governmental, or court orders, or governmental rules or
regulations in effect from time to time, including but not limited to ERISA and
the Internal Revenue Code of 1986, as amended (the "Code"), and applicable to
----
such plan. Each Employee Benefit Plan that is intended to qualify under Section
401(a) of the Code is so qualified.
(c) Absence of Certain Events and Arrangements.
------------------------------------------
(1) There is no pending or, to the Company's knowledge, threatened,
legal action, proceeding, or investigation, other than routine claims for
benefits, concerning any Employee Benefit Plan, or any fiduciary or service
provider thereof and there is no basis for any such legal action or proceeding.
(2) No Employee Benefit Plan, nor any party in interest in respect
thereof has engaged in a prohibited transaction that could subject the Company,
directly or indirectly, to liability under Section 409 or 502(i) of ERISA or
Section 4975 of the Code.
(3) No communication, report, or disclosure has been made that, at the
time made, did not accurately reflect the terms and operations of any Employee
Benefit Plan.
(4) No Employee Benefit Plan provides welfare benefits subsequent to
termination of employment to employees or their beneficiaries (except to the
extent required by applicable state insurance laws and Title I, Part 6 of
ERISA).
(5) The Company has not undertaken to maintain any Employee Benefit
Plan for any specific period of time and each such plan is terminable at the
sole discretion of the Company, subject only to such constraints as may imposed
by applicable law.
(6) No Employee Benefit Plan is maintained pursuant to a collective
bargaining agreement or is or has been subject to the minimum funding
requirements of Section 302 of ERISA or Section 412 of the Code.
(d) Funding of Certain Plans. With respect to each Employee Benefit
------------------------
Plan for which a separate fund of assets is or is required to be maintained,
full
<PAGE>
-15-
payment has been made of all amounts that, under the terms of each such plan, it
is required to have paid as contributions to that plan as of the end of such
plan's most recently ended year.
2.19 Potential Conflicts of Interest. Except as set forth on
-------------------------------
Schedule 2.19, neither the Company nor any of its officers, directors, partners,
- -------------
members or employees, (i) owns, directly or indirectly, any interest (excepting
passive holdings for investment purposes of not more than 1% of the securities
of any publicly held and traded company) in, or is an officer, director,
employee, or consultant of, any person that is a competitor, lessor, lessee,
customer, or supplier of the Company; (ii) owns, directly or indirectly, any
interest in any tangible or intangible property used in or necessary to the
business of the Company; (iii) has any cause of action or other claim whatsoever
against the Company, or owes any amount to the Company, except for claims in the
ordinary course of business, such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements.
2.20 Proprietary Information.
-----------------------
(a) Schedule 2.20 lists all patents, patent applications, trademarks,
-------------
trade names, service marks, logos, copyrights, and licenses used in or necessary
to the Company's business as now being conducted or as proposed to be conducted
(other than commercially available off-the-shelf software, so long as such
software is not packaged with, imbedded in, or sold in connection with any of
the Company's products) (collectively, and together with any technology, know-
how, trade secrets, processes, formulas, and techniques used in or necessary to
the Company's business, "Proprietary Information"). The Company owns, or is
-----------------------
licensed or otherwise has the full and unrestricted exclusive right to use,
without the payment of royalties or other further consideration, all Proprietary
Information, and no other intellectual property rights, privileges, licenses,
contracts, or other agreements, instruments, or evidences of interests (other
than commercially available off-the-shelf software) are necessary to or used in
the conduct of its business.
(b) In any instance where the Company's rights to Proprietary
Information arise under a license or similar agreement (other than for software
programs that have not been customized for its use), this is indicated in
Schedule 2.20 and such rights are licensed exclusively to it except as indicated
- -------------
in Schedule 2.20. No other person has an interest in or right or license to use
-------------
any of the Proprietary Information. To the best of the Company's knowledge,
none of the Proprietary Information is being infringed by others, or is subject
to any outstanding order, decree, judgment, or stipulation. No litigation (or
other proceedings in or before any court or other governmental, adjudicatory,
arbitral, or administrative body) relating to the Proprietary Information is
pending or, to the Company's knowledge, threatened, nor, to the best of the
Company's knowledge, is there any basis for any such litigation or proceeding.
The Company maintains adequate and sufficient security measures for the
preservation of the secrecy and proprietary nature of the Proprietary
Information.
<PAGE>
-16-
(c) (i) Neither the Company nor, to the Company's knowledge, any of
its employees has infringed or made unlawful use of, or is infringing or making
unlawful use of, any proprietary or confidential information of any Person,
including without limitation any former employer of any past or present employee
or consultant of the Company; and (ii) to the Company's knowledge, the
activities of the Company's employees in connection with their employment do not
violate any agreements or arrangements that any such employees or consultants
have with any former employer or any other Person. No litigation (or other
proceedings in or before any court or other governmental, adjudicatory,
arbitral, or administrative body) charging the Company with infringement or
unlawful use of any patent, trademark, copyright, or other proprietary right is
pending or, to the Company's knowledge, threatened, nor is there any basis for
any such litigation or proceeding.
(d) No officer, director, employee, partner, member or consultant of
the Company, to the Company's knowledge, is presently obligated under or bound
by any agreement or instrument, or any judgment, decree, or order of any court
of administrative agency, that (i) conflicts or may conflict with his or her
agreements and obligations to use his or her reasonable best efforts to promote
the interests of the Company, (ii) conflicts or may conflict with the business
or operations of the Company as presently conducted or as proposed to be
conducted, or (iii) restricts or may restrict the use or disclosure of any
information that may be useful to the Company.
2.21 Insurance. Schedule 2.21 lists the policies of theft, fire,
--------- -------- ----
liability, worker's compensation, life, property and casualty, directors' and
officers', and other insurance owned or held by the Company and the basis on
which such policies provide coverage. Such policies of insurance are maintained
with financially sound and reputable insurance companies, funds, or
underwriters, are of the kinds and cover such risks, and are in such amounts and
with such deductibles and exclusions, as are consistent with prudent business
practice. All such policies are, and at all times since the respective dates
set forth in Schedule 2.21, have been, in full force and effect, are sufficient
-------------
for compliance in all respects by the Company with all requirements of law and
of all agreements to which it is a party, and provide that they will remain in
full force and effect through the respective dates set forth in Schedule 2.21,
-------------
and will not terminate or lapse or otherwise be affected in any way by reason of
the transactions contemplated hereby.
2.22 Governmental and Other Third-Party Consents. Except as set
-------------------------------------------
forth on Schedule 2.22, no consent, approval, or authorization of, or
-------- ----
registration, designation, declaration, or filing with, any governmental
authority, federal or other, or any other person is required on the part of the
Company in connection with its execution, delivery, or performance of this
Agreement and its consummation of the transactions contemplated hereby, other
than pursuant to any applicable federal or state securities laws, or the
continued conduct of the present business of the Company after the Closing Date.
2.23 Brokers. No finder, broker, agent, or other intermediary has
-------
acted
<PAGE>
-17-
for or on behalf of the Company in connection with the negotiation or
consummation of the transactions contemplated hereby, and no fee will be payable
by the Company to any such person in connection with such transactions.
2.24 Compliance with Other Instruments, Laws, Etc. The Company has
--------------------------------------------
complied with, and is in compliance with, (i) all laws, statutes, governmental
regulations, judicial or administrative tribunal orders, judgments, writs,
injunctions, decrees, and similar commands applicable to it and its business,
and all unwaived terms and provisions of all agreements, instruments, and
commitments to which it is a party or to which it or any of its assets or
properties is subject, except for any non-compliances that, either individually
and in the aggregate, have not had and could not reasonably be expected to have
a Material Adverse Effect, and (ii) its charter documents and by-laws, each as
amended to date. The Company has not committed, been charged with, or, to the
Company's knowledge, been under investigation with respect to, nor does there
exist, any violation by the Company of any provision of any federal, state, or
local law or administrative regulation, except for any violations that, both
singly or in the aggregate, have not had and could not reasonably be expected to
have a material adverse effect on the business, prospects, results of operations
or financial condition of the Company. The Company has and maintains all
licenses, permits, and other authorizations from all such governmental
authorities that are legally required for the conduct of its business or in
connection with the ownership or use of its properties, except for any licenses,
permits, and other authorizations, the failure to obtain or maintain which in
effect, both singly or in the aggregate, has not had and could not reasonably be
expected to have a material adverse effect on the business, prospects, results
of operations or financial condition, and all of which are in full force and
effect in all material respects, and true and complete copies of all of which
have been delivered to AC.
2.25 Compliance with Securities Laws. Assuming the accuracy of the
-------------------------------
representations of AC contained in Section 3 hereof, the offer, issuance, and
delivery of the Purchased Securities as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act, and are exempt
from registration or qualification under applicable states' securities laws.
Neither the Company nor anyone acting on its behalf will hereafter offer to
sell, solicit offers to buy, or sell any securities of the Company so as to
subject the offer, issuance, and sale of the Purchased Securities to the
registration requirements of the Securities Act.
2.26 Real Property Holding Corporation. The Company hereby
---------------------------------
represents that it is not a "United States real property holding corporation"
within the meaning of Section 897 of the Code, as amended, and Treasury
Regulation (S)1.897-2.
2.27 Foreign Corrupt Practices Act. The Company has not taken any
-----------------------------
action which would cause it to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any rules or regulations thereunder. To the
Company's knowledge, there is not now, and there has never been, any employment
by the Company of, or beneficial ownership in the Company by, any governmental
or political official in any
<PAGE>
-18-
country in the world.
2.28 Year 2000. Except as to functions where the failure to
---- ----
accomplish the following will not have a Material Adverse Effect, all computer
software programs, source code, object code, data and documentation used by the
Company will (a) accurately process date information before, during and after
January 1, 2000, including, but not limited to, accepting date input, providing
date output and performing calculations on dates or portions of dates; (b)
function accurately and without interruption before, during and after January 1,
2000 without any change in operations associated with the advent of the new
century; and (c) store and provide output of date information in ways that are
unambiguous as to century.
2.29 Disclosure. No representation or warranty by the Company in
----------
this Agreement, in any schedule to this Agreement or in the draft of the Form
S-1 dated November 16, 1999 (the "Form S-1") provided by the Company to AC,
--------
contains any untrue statement of a material fact or omits to state a material
fact required to be stated herein or necessary to make the statements contained
herein not false or misleading, provided, however, that all financial
information in such draft registration statement is superceded by the financial
statements referred in Section 2.8. There is no fact or circumstance relating
specifically to the business or condition of the Company that could reasonably
be expected to result in a Material Adverse Effect that is not disclosed in a
Schedule attached hereto or in the Form S-1.
2A. Covenant Pending Closing. The Company shall use its best efforts
------------------------
to deliver to AC the Final Audited Financial Statements (as defined in Section
5.10 below) on or before December 8, 1999.
3. Representations and Warranties of AC. AC hereby represents and warrants
------------------------------------
that:
3.1 Authorization. AC has full power and authority to enter into
-------------
this Agreement and such agreement constitutes its valid and legally binding
obligation, enforceable against AC in accordance with its terms.
3.2 Purchase Entirely for Own Account. AC is acquiring the Purchased
----------------------------------
Securities for investment for AC's own account, not as a nominee or agent
(provided that loans from affiliates for the purchase price of the Purchased
Securities shall not constitute action as a nominee or agent), and not with a
view to the resale or distribution of any part thereof. AC has no present
intention of selling, granting any participation in or otherwise distributing
the same. By executing this Agreement, AC further represents that AC 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 Purchased Securities.
<PAGE>
-19-
3.3 Investment Experience. AC is an investor in securities of
---------------------
companies in the development stage and 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 the investment in the Common Stock. AC also represents it
has not been organized for the purpose of acquiring the Purchased Securities.
3.4 Accredited Investor. AC is an "accredited investor" within the
-------------------
meaning of Rule 501 of Regulation D, as promulgated by the Securities and
Exchange Commission, as presently in effect.
3.5 Restricted Securities. AC understands that the Purchased
---------------------
Securities are "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 Securities Act only
in certain limited circumstances.
3.6 Legends. It is understood that the certificates or other
-------
instruments evidencing the Purchased Securities may bear one or all of the
legends in substantially the form specified below:
"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 EXEMPTION THEREFROM."
4. REPURCHASE OF SECURITIES.
---------- -- ----------
4.1 Right to Put Securities. At any time and from time to time, on
----- -- --- ----------
or after January 1, 2001 (the "Put Exercise Date"), in the event that the
-----------------
Company has not consummated an underwritten public offering of its capital stock
registered pursuant to the Securities Act on or before the Put Exercise Date, AC
may, by written notice to the Company (the "Put Notice"), elect to sell to the
----------
Company (and the Company hereby agrees to repurchase from such holders) (the
"Put Right"), at the Repurchase Price specified in Section 4.4 hereof, all (but
---------
not less than all) of the Purchased Shares then held by AC (the "Put Shares").
----------
4.2 Put Closing. The closing (the "Put Closing") shall take place at
--- -------
the offices of the Company at 10:00 a.m. (Boston time) on a date, to be
specified in the Put Notice, which date shall be not less than fourteen (14)
days after the date of the Put Notice (the "Put Closing Date"), or at such other
----------------
place or on such other date as the Company and AC shall agree. At the closing,
the holders of the Put Shares will deliver to the Company, free and clear of all
liens and encumbrances, a certificate or certificates evidencing the Put Shares
then to be purchased by the Company (properly endorsed or
<PAGE>
-20-
accompanied by stock powers or similar appropriate documentation or authority to
transfer) against payment of the Repurchase Price to such holders in the manner
specified in Section 4.3 hereof. Except to the extent prohibited by applicable
law, prior to the Put Closing Date, the Company will provide AC with all
available information that may be material to the exercise of AC's rights under
this Section 4, including any plans or proposals for any mergers, sales of
assets, acquisitions and substantial sales of stock (either by its stockholders
or through new issuances).
4.3. Payment. The Company shall pay the Repurchase Price at any
-------
closing under Section 4.2 hereof out of funds legally available therefor in cash
or immediately available funds in three installments as follows: (a) one-half
at the Put Closing; (b) one-fourth on or before the later to occur of March 31,
2001 and the date which is three months after the Put Closing Date; and (c)
one-fourth on or before the later to occur of June 30, 2001 and the date which
is six months after the Put Closing Date. If the funds of the Company legally
available for the purchase of the Put Shares are insufficient to pay the
Repurchase Price when due in accordance with the foregoing sentence, those funds
which are legally available will be used to purchase the maximum possible number
of Put Shares ratably on the basis of the number of Put Shares that would be
purchased on such date if the funds of the Company legally available therefor
had been sufficient to purchase all Put Shares required to be purchased on such
date. At any time thereafter when additional funds of the Company become
legally available for the purchase of the remaining Put Shares, such funds will
be used, as soon as practicable, to purchase the balance of the Put Shares that
the Company was theretofore obligated to purchase, ratably on the basis and on
the dates set forth in the first sentence. In the event that any portion of the
Repurchase Price is not paid as a result of any insufficiency of legally
available funds or otherwise, until such time as the unpaid portion of the
Repurchase Price and any interest thereon is paid to the holders of the Put
Shares in full, (a) the holders of the Put Shares shall retain all rights
hereunder and in connection with the Put Shares (including all rights under this
Agreement and the Registration Rights Agreement), and (b) AC shall, by delivery
of a rescission notice to the Company, at any time or from time to time, be
entitled to rescind the put of the Put Shares by giving written notice of such
rescission (the "Rescission Notice") whereupon the Company shall immediately
-----------------
return to AC the uncancelled original stock certificate(s) representing the Put
Shares, provided that AC shall immediately repay to the Company any portion of
the Repurchase Price theretofor paid. Unless and until the Company receives
such Rescission Notice, the unpaid portion of the Repurchase Price shall remain
an obligation of the Company and shall become due and payable, in cash or
immediately available funds, as soon as there are funds legally available
therefor.
4.4. Repurchase Price for Put Shares; Additional Interest Rate. The
----------------------------------------------------------
repurchase price (the "Repurchase Price") of the Put Shares shall be equal to
---------- -----
$4,000,000 plus interest, which interest shall accrue commencing on January 1,
2001 through the date on which the entire Repurchase Price has been paid at a
rate per annum equal to eight percent (8%) (compounded annually),
notwithstanding any partial payments of the Repurchase Price. Such interest
shall become due and payable on the date when the
<PAGE>
-21-
Repurchase Price is due and payable (in accordance with Section 4.3) or, if not
then paid, on such later date as the Repurchase Price (or any portion thereof)
is paid. In the event that the Company shall fail to make any payments of the
Repurchase Price when due (in accordance with Section 4.3), then an additional
interest rate of seven percent (7%) per annum (compounded annually) for an
aggregate interest rate of fifteen percent (15%) (or such lesser amount if
required by applicable usury laws) will accrue on such amounts commencing on the
date on which the Company failed to make such payment when due and through the
date on which the entire amount has been paid.
4.5 Termination; Acceleration. In the event that the Company
----------- ------------
consummates an underwritten public offering of its capital stock registered
pursuant to the Securities Act on or before January 1, 2001, then the Put Right
set forth in this Section 4 shall automatically terminate. In addition, the
Company shall give AC written notice at least fourteen (14) days prior to the
consummation of any Liquidity Event, and in the event of such a Liquidity Event,
AC shall by written notice to the Company given at any time prior to the
consummation of such Liquidity Event, either (a) accelerate the put right under
this Section 4, whereupon the obligations of the Company under this Section 4
shall be fulfilled either immediately prior to or simultaneously with the
consummation of such Liquidity Event, or (b) waive the Put Right (or give a
Rescission Notice in the event that AC has already exercised such Put Right, in
which case AC shall immediately repay to the Company any portion of the
Repurchase Price theretofore paid and the Company shall immediately return to AC
the uncancelled original stock certificate(s) representing the Put Shares) under
this Section 4. The term "Liquidity Event" shall mean (x) an underwritten
---------------
initial public offering of the Company's capital stock which occurs after
January 1, 2001, (y) the sale of all or substantially all of the property and
assets of the Company in one transaction or a series of one or more related
transactions, or (z) the acquisition of the Company by another person or entity
by means of stock purchase (whether by transfer or outstanding shares or through
new issuances), merger, consolidation or otherwise which would result in the
exchange of shares of capital stock of the Company for cash, securities or other
consideration paid by the acquiring person or entity, or any similar
transaction.
5. Conditions of AC's Obligations at Closing. The obligation of AC to
-----------------------------------------
purchase the Purchased Securities from the Company is 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
date hereof with the same effect as though such representations and warranties
had been made on and as of the Closing Date.
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.
<PAGE>
-22-
5.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to AC 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 required in connection with the lawful issuance and sale of
the Purchased Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
5.5 Marketing Agreement. The Company shall have entered into,
-------------------
executed and delivered the Marketing Agreement.
5.6 Stockholder Approval. The Company shall have obtained all
--------------------
requisite stockholder approval in order to consummate the transactions
contemplated by this Agreement.
5.7 Waivers. The Company shall have obtained the consents of any
-------
third parties required to consummate the transactions contemplated by this
Agreement and waivers from all persons who have pre-emptive rights, first
refusal rights, participation rights or other similar rights to purchase, with
respect to the Purchased Securities.
5.8 Legal Opinion of Hale and Dorr LLP. AC shall have received an
----------------------------------
executed legal opinion of Hale and Dorr LLP, counsel to the Company, in
substantially the form attached hereto as Exhibit B.
---------
5.9 Registration Rights Agreement. The Company shall have entered
-----------------------------
into, executed and delivered the Amended and Restated Registration Rights
Agreement, in substantially the form attached hereto as Exhibit C (the
---------
"Registration Rights Agreement").
-----------------------------
5.10 Financial Statements. The Company shall have delivered to AC,
---------------------
and signed by Pricewaterhouse Coopers LLP, the final audited consolidated
balance sheet of the Company as of December 31, 1996, 1997 and 1998 and as of
September 30, 1999 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended December 31, 1996, 1997
and 1998 and for the nine month period ended September 30, 1999 (the "Final
-----
Audited Financial Statements"), which shall be the same in all material respects
- ----------------------------
to the financial statements attached hereto as Exhibit D and acceptable to AC in
---------
its sole discretion.
6. Conditions of the Company's Obligations at Closing. The obligation of
--------------------------------------------------
the Company to issue and sell the Purchased Securities to AC is subject to the
fulfillment on or before the Closing of each of the following conditions:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of AC contained in Section 3 shall be true on and as of the date
hereof with the
<PAGE>
-23-
same effect as though such representations and warranties had been made on and
as of the Closing Date.
6.2 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 Purchased Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6.3 Marketing Agreement. Andersen shall have entered into, executed
-------------------
and delivered the Marketing Agreement.
6.4 Registration Rights Agreement. AC shall have entered into,
-----------------------------
executed and delivered the Registration Rights Agreement.
7. Purchaser Rights.
----------------
7.1 Information Rights. In the event that the Company does not
------------------
consummate an underwritten initial public offering of its common stock on or
before February 14, 2000, and so long as ac holds not less than 25% of the
Purchased Shares and the Company has not consummated an underwritten public
offering of its capital stock registered pursuant to the Securities Act, then AC
shall be entitled to the following:
(a) Annual Statements. As soon as available and in any event within
-----------------
ninety (90) days after the close of each fiscal year, commencing with the fiscal
year ending on December 31, 1999, the Company will deliver a consolidated
balance sheet and statements of income, retained earnings, and cash flows,
audited by a "big five" independent public accounting firm selected by the
Company, showing the financial condition of the Company as of the close of such
fiscal year and the results of its operations during such fiscal year. Each of
the financial statements delivered hereunder will be certified by such
accounting firm without material qualification to have been prepared in
accordance with GAAP consistently applied (except for changes in the application
of such principles that have been approved by the Company's Board of Directors).
(b) Quarterly and Monthly Statements.
--------------------------------
(i) As soon as available, and in any event within forty-five (45) days
after the end of each of the first three fiscal quarters of each fiscal year,
commencing with the fiscal quarter ending March 31, 2000, the Company will
deliver an unaudited consolidated balance sheet and statements of income,
retained earnings, and cash flows of the Company and its Subsidiaries as of the
end of and for such fiscal quarter, certified by the chief financial officer (or
other officer acting in a similar capacity, including the Treasurer) of the
Company to be true and correct and to have been prepared in accordance with GAAP
consistently applied (except for changes in the application of such principles
that have been approved by the Company's Board of Directors), subject to the
absence of footnotes and to adjustments consisting of normal
<PAGE>
-24-
year-end accruals, the effect of which, both individually and in the aggregate,
is not material.
(ii) As soon as available and in any event within thirty (30) days
after the end of each month, commencing with the month ending January 31, 2000,
the Company will deliver unaudited consolidated balance sheets and statements of
income and cash flows of the Company and its Subsidiaries as of the end of each
such month, as well as summary information as to backlog and bookings as of such
month-end, certified by the treasurer or chief financial officer (or other
officer acting in a similar capacity) of the Company to be true and correct and
to have been prepared in accordance with GAAP consistently applied (except for
changes in the application of such principles that have been approved by the
Company's Board of Directors), subject to the absence of footnotes and to
adjustments consisting of normal year-end accruals, the effect of which, both
individually and in the aggregate, is not material.
7.2 Pre-Emptive Rights. So long as AC shall hold not less than 25%
------------------
of the Purchased Shares, AC shall be entitled to the rights, and the Company
shall be bound by the obligations, set forth in this Section 7.2.
(a) Right to Purchase. If at any time after the Closing the Company
-----------------
authorizes the offer, issuance, or sale, or offers, issues or sells to any
Person (the "Offeree") any shares of capital stock or other securities (whether
-------
convertible or not) of the Company (whether as newly issued shares or other
securities or from the Company's treasury) in an offering or issuance not
registered under the Securities Act, the Company will first offer to sell, by
written notice, to AC a portion (such holder's "Portion") of such capital stock
-------
or other securities authorized to be offered, issued or sold, or proposed to be
offered, issued or sold equal to the product obtained by multiplying (i) the
number of such shares or securities authorized to be offered, issued or sold, or
proposed to be offered, issued or sold, by (ii) the quotient obtained by
dividing (A) the number of shares of Common Stock held by AC (for this purpose
assuming the conversion into Common Stock of all other securities held by AC at
such time, including without limitation the Warrants), by (B) the sum of (I) the
aggregate number of shares of Common Stock issued and outstanding as of such
date and (II) the aggregate number of shares of Preferred Stock issued and
outstanding as of such date (on an as-converted basis).
(b) Procedure. AC will be entitled (but not obligated) to purchase
---------
all or part of such holder's Portion at the same price and on the same terms as
such stock or securities are to be offered to the Offeree. AC may exercise such
purchase rights within 20 days after receipt of written notice from the Company
describing in reasonable detail the stock or securities to be offered to the
Offeree, the purchase price thereof, the payment terms, and such holder's
percentage allotment. If AC fails in whole or in part to exercise the purchase
rights hereunder within such 20-day period (other than by reason of the
Company's failure to comply with the provisions of this Section 7.2(b)), then
the Company may sell so much, and only so much, of any Portion as to which AC,
having been offered the right to purchase such Portion in accordance with all of
the provisions of
<PAGE>
-25-
this Section 7.2, have exercised such purchase rights, to the Offeree at the
same price and on the same terms as those offered to such holder, provided, that
in the event that such shares or other securities are not sold to the Offeree
within 60 days following the lapse of the 20-day exercise period provided to AC,
such unsold shares or other securities will once again be subject to the
purchase rights of AC hereunder. In the event that shares of Common Stock, other
shares of capital stock or other securities are authorized to be issued and sold
by the Company for services, property, or other non-cash consideration, AC will
be allowed to participate in such issue and sale by substituting cash in the
amount of the fair market value, per share, of such non-cash consideration.
(c) Excluded Transactions. The prohibitions and rights provided in
---------------------
this Section 7 will not apply to (i) shares of Common Stock issued by the
Company pursuant to stock dividends, stock splits, recapitalizations, and
similar transactions; (ii) shares of Common Stock issued upon the conversion of
shares of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock outstanding as of the date of this Agreement; and (iii)
options or other rights to purchase or receive Common Stock, and any shares of
Common Stock issued upon the exercise thereof or upon such a purchase, in each
case to officers, directors, consultants, agents and employees of the Company
pursuant to the Company's 1998 Stock Option Plan (in effect as of the date
hereof and as amended from time to time (except for amendments which increase
the number of shares reserved under such 1998 Stock Option Plan)); (iv) shares
of Common Stock or other shares of capital stock issuable upon the exercise of
options and warrants specifically identified on Schedule 2.5(a) or 2.5(b)
--------------- ------
hereof; provided, that such issuance is otherwise permitted under the terms of
--------
the Company's Certificate of Incorporation.
(d) Termination. The rights and obligations set forth in this Section
-----------
7.2 shall automatically terminate upon the consummation by the Company of an
underwritten initial public offering of its common stock pursuant to the
Securities Act.
7.3 Restriction on Transfer. AC agrees that it shall not transfer to
-----------------------
persons (other than its affiliates, who shall be bound by the provisions of this
Section) the shares of Common Stock issuable upon the exercise of the Warrant
and the warrants issuable pursuant to that certain Warrant Purchase Agreement,
dated the date hereof, between the Company and AC during the 360 days following
the consummation by the Company of an underwritten initial public offering of
its common stock pursuant to the Securities Act without the consent of the
Company.
8. Miscellaneous.
-------------
8.1 Survival of Obligations. The terms and provisions of Sections 4
-----------------------
and 7 hereof shall survive the execution and delivery of this Agreement and the
Closing for so long as by their respective terms they shall be in force and
effect.
<PAGE>
-26-
8.2 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 Purchased Securities).
8.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the Commonwealth of Massachusetts.
8.4 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.
8.5 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.
8.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effective given upon personal delivery to the party to be notified, upon
confirmation of facsimile transmission or upon 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 days' advance written notice to the other parties.
8.7 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. AC 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 AC or any of its officers, partners, employees or
representatives is responsible. The Company agrees to indemnify and hold
harmless AC 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.
8.8 Expenses. Each party shall bear its own costs and expenses
--------
incurred in connection with the negotiation, execution, delivery and performance
of this Agreement, including the costs and expenses of legal counsel.
8.9 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 parties hereto. 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
<PAGE>
-27-
such securities are convertible), each future holder of all such securities and
the Company.
8.10 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 this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
8.11 Aggregation of Stock. All shares of Common Stock and Preferred
--------------------
Stock and any other 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.
8.12 Entire Agreement. This Agreement, the exhibits and schedules
----------------
hereto 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.
8.13 Disclosure. AC hereby acknowledges and agrees that the Company
----------
shall be entitled to disclose the existence and terms of this Agreement, only to
the extent required by law, in any registration statement, prospectus, report or
other document filed by the Company pursuant to any state or federal securities
laws or other applicable laws. The Company agrees to provide to AC a reasonable
opportunity to review and consent to such disclosure (which consent shall not be
unreasonably withheld or delayed) in advance of such filing.
<PAGE>
-28-
IN WITNESS WHEREOF, the parties have executed this Common Stock and Warrant
Purchase Agreement as of the date first above written.
PRIME RESPONSE, INC.
By: /s/ Peter J. Boni
--------------------------------
Name: Peter J. Boni
--------------------------
Title: Chief Executive Officer and
President
----------------------------
Address: 150 Cambridge Park Drive
Cambridge, MA 02140
Attention: President and Chief Executive
Officer
ANDERSEN CONSULTING LLP
By: /s/ J. Patrick O'Halloran
Name: J. Patrick O'Halloran
---------------------------------
Title: Partner
--------------------------------
Address: 333 South Seventh Street
Minneapolis, MN 55402
<PAGE>
-29-
AC VENTURES B.V.
By: /s/ M.G. McGrath
---------------------------------
Name: M.G. McGrath
---------------------------
Title: Chief Financial Officer
--------------------------
Address: c/o Andersen Consulting LLP
1661 Page Mill Road
Palo Alto, CA 94304
<PAGE>
Exhibit 10.20
PRIME RESPONSE, INC.
WARRANT PURCHASE AGREEMENT
--------------------------
This Agreement dated as of December 6, 1999 is entered into by and among
Prime Response, Inc. (f/k/a Prime Response Group, Inc.), a Delaware corporation
(the "Company"), and Andersen Consulting LLP, an Illinois limited liability
partnership (the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
--------------------------------
1.1 Authorization. The Company has, or before the Closing (as
-------------
defined in Section 2) will have, duly authorized the sale and issuance,
pursuant to the terms of this Agreement, of (i) a warrant to purchase up to
500,000 shares of its Common Stock, $.01 par value per share ("Common Stock"),
in the form attached hereto as Exhibit A, and (ii) a warrant to purchase up to
---------
500,000 shares of Common Stock, in the form attached hereto as Exhibit B
---------
(collectively with the warrant referred to in clause (i) of this sentence, the
"Warrants").
1.2 Sale of Warrants. Subject to the terms and conditions of this
----------------
Agreement, at the Closing the Company will sell and issue to the Purchaser, and
the Purchaser will purchase, the Warrants for the aggregate purchase price of
$.01 (the "Purchase Price").
2. The Closing. The closing (the "Closing") of the sale and purchase of
-----------
the Warrants under this Agreement shall take place at the offices of Bingham
Dana LLP, 150 Federal Street, Boston, MA simultaneously with the execution
hereof, or at such other time, date and place as are mutually agreeable to the
Company and the Purchaser. At the Closing, the Company shall deliver to the
Purchaser the Warrants, against payment to the Company of the Purchase Price, by
wire transfer or certified check of immediately available funds. The date of
the Closing is hereinafter referred to as the "Closing Date."
3. Representations of the Company. The Company hereby represents and
------------------------------
warrants to the Purchaser that the representations and warranties of the Company
contained in Section 2 of the Common Stock and Warrant Purchase Agreement dated
as of the date hereof between the Company and the Purchaser (the "Stock and
Warrant Purchase Agreement") are true, complete and correct except as otherwise
set forth in any schedule thereto.
4. Representations of the Purchaser. The Purchaser hereby represents and
--------------------------------
warrants to the Company that the representations and warranties of the Purchaser
contained in Section 3 of the Stock and Warrant Purchase Agreement are true,
complete and correct.
<PAGE>
5. Conditions to the Obligations of the Purchaser. The obligation of the
----------------------------------------------
Purchaser to purchase Shares at the Closing is subject to the fulfillment, or
the waiver by the Purchaser, of each of the following conditions on or before
the Closing:
5.1 Opinion of Counsel. The Purchaser shall have received an
------------------
opinion from Hale and Dorr LLP, counsel for the Company, dated the Closing Date,
addressed to the Purchaser, and satisfactory in form and substance to the
Purchaser, to the effect set forth on Exhibit C.
---------
5.2 Other Agreements. The Stock and Warrant Purchase Agreement and
----------------
Marketing Agreement (as defined in the Stock and Warrant Purchase Agreement)
shall have been executed and delivered by the Company.
6. Condition to the Obligations of the Company. The obligations of the
-------------------------------------------
Company under Section 1.2 of this Agreement are subject to fulfillment, or the
waiver, of the following condition on or before the Closing:
6.1 Other Agreements. The Stock and Warrant Purchase Agreement and
----------------
Marketing Agreement (as defined in the Stock and Warrant Purchase Agreement)
shall have been executed and delivered by the Purchaser.
7. Transfer of Shares.
------------------
7.1 Restricted Shares. "Restricted Securities" means (i) the
-----------------
Warrants, (ii) the shares of Common Stock issued or issuable upon exercise of
the Warrants, and (iii) any other securities of the Company issued in respect of
such shares or Warrants (as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); provided, however,
-------- -------
that shares of Common Stock which are Restricted Securities shall cease to be
Restricted Securities upon any sale pursuant to a registration statement under
the Securities Act, Section 4(1) of the Securities Act or Rule 144 under the
Securities Act.
7.2 Requirements for Transfer. Restricted Securities shall not be
-------------------------
sold or transferred unless (i) they first shall have been registered under the
Securities Act, (ii) they are transferred to an affiliate in a transaction that
is exempt from the registration requirements of the Securities Act, or (iii) the
Company first shall have been furnished with an opinion of legal counsel,
reasonably satisfactory to the Company, to the effect that such sale or transfer
(to persons other than affiliates) is exempt from the registration requirements
of the Securities Act.
7.3 Legend. Each certificate representing Restricted Securities
------
shall bear a legend substantially in the following form:
"Neither this warrant nor the shares issuable upon the
exercise of this warrant have been registered under the
Securities Act of 1933, as amended, and neither this
warrant nor the shares issuable upon the exercise of this
warrant may be offered, sold or otherwise transferred,
unless the registration provisions of such Act have been
complied with or unless compliance with such provisions
is not required."
-2-
<PAGE>
The foregoing legend shall be removed from the certificates representing any
Restricted Securities, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
8. Miscellaneous.
-------------
8.1 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties and their respective successors and
permitted assigns. No party hereto may assign its rights under this Agreement
without the prior written consent of the other party hereto.
8.2 Confidentiality. The Purchaser agrees that it will keep
---------------
confidential and will not disclose, divulge or use for any purpose other than to
monitor his, her or its investment in the Company any confidential, proprietary
or secret information which the Purchaser may obtain from the Company pursuant
to any financial statements, reports or other materials submitted by the Company
to the Purchaser in connection with this Agreement ("Confidential Information"),
unless such Confidential Information is known, or until such Confidential
Information becomes known, to the public (other than as a result of a breach of
this section by the Purchaser); provided, however, that the Purchaser may
disclose Confidential Information (i) to its attorneys, accountants,
consultants, and other professionals to the extent necessary to obtain their
services in connection with monitoring its investment in the Company, or (ii)
as may otherwise be required by law, provided that the Purchaser takes
reasonable steps to minimize the extent of any such required disclosure.
8.3 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
8.4 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of Delaware (without
reference to the conflicts of law provisions thereof).
8.5 Notices. All notices, requests, consents, and other
-------
communications under this Agreement shall be in writing and shall be deemed
delivered (i) two business days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (ii) one business day after
being sent via a reputable nationwide overnight courier service guaranteeing
next business day delivery, in each case to the intended recipient as set forth
below:
If to the Company, at 150 Cambridge Park Drive, Cambridge, MA 02140,
Attention: President, or at such other address or addresses as may have been
furnished in writing by the Company to the Purchaser, with a copy to Hale and
Dorr LLP, 60 State Street, Boston, MA 02109, Fax 617-526-5000, Attention: John
A. Burgess, Esq.; or
If to the Purchaser, at 333 South Seventh Street, Minneapolis, MN 55402,
Attention: J. Patrick O'Halloran, or at such other address or addresses as may
have been furnished to the Company in writing by the Purchaser, with a copy to
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, Attention: Wayne D.
Bennett, Esq. and Meerie Joung, Esq.
-3-
<PAGE>
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
8.6 Complete Agreement. This Agreement constitutes the entire
------------------
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating to
such subject matter.
8.7 Waivers. No waivers of or exceptions to any term, condition or
-------
provision of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
8.8 Pronouns. Whenever the context may require, any pronouns used
--------
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
8.9 Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which shall constitute one and the same document. This
Agreement may be executed by facsimile signatures.
8.10 Section Headings. The section headings are for the convenience
----------------
of the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
[signatures on following page]
-4-
<PAGE>
Executed as of the date first written above.
COMPANY:
PRIME RESPONSE, INC.
By: /s/ Peter J. Boni
-------------------------------
Name: Peter J. Boni
Title: Chief Executive Officer
and President
PURCHASER:
ANDERSEN CONSULTING LLP
By: /s/ J. Patrick O'Halloran
-------------------------------
Name: J. Patrick O'Halloran
Title: Partner
-5-
<PAGE>
Exhibit 10.21
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER
THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE SOLD
OR TRANSFERRED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT HAVE BEEN COMPLIED
WITH OR UNLESS COMPLIANCE WITH SUCH PROVISIONS IS NOT REQUIRED.
No. AC-1 Dated: December 9, 1999
PRIME RESPONSE, INC.
Common Stock
Purchase Warrant
THIS IS TO CERTIFY THAT, for value received, Andersen Consulting LLP (the
"Initial Warrant Holder"), and its registered successors and permitted assigns
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are entitled, subject to the terms and conditions set forth below, to purchase
from PRIME RESPONSE, INC. (f/k/a Prime Response Group, Inc.), a Delaware
corporation (the "Corporation"), at any time or from time to time on and after
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the date hereof and prior to 5:00 P.M., Boston, Massachusetts time, on the
Expiration Date (as defined in Section 1 below), all or any portion of the
Warrant Shares (as defined in Section 1), at a purchase price per share equal to
the Exercise Price (as defined in Section 1 below). The number and character of
the Warrant Shares and the Exercise Price are subject to adjustment as provided
herein.
1. DEFINITIONS. As used in this Warrant, the following terms shall
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have the respective meanings set forth below or elsewhere in this Warrant as
referred to below:
"Certificate of Incorporation" shall mean the Certificate of Incorporation
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of the Corporation, as amended and in effect from time to time.
"Common Stock" shall mean shares of the Common Stock of the Corporation,
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$0.01 par value per share of the Corporation and shall also include any capital
stock of any class of the Corporation authorized after the date hereof which
shall neither be limited to a fixed sum or percentage of par value in respect of
the rights of the holders thereof to participate in dividends or any
distribution of earnings or assets (in liquidation or otherwise) of the
Corporation, whether or not such capital stock is entitled to a preference in
the distribution of assets upon the voluntary of involuntary liquidation,
dissolution or winding up of the Corporation.
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"Corporation" shall mean Prime Response, Inc. and/or any Person that shall
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succeed to, or assume the obligations hereunder of, Prime Response, Inc.
"Derivative Securities" shall mean (i) all shares of stock and other
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securities that are, directly or indirectly, convertible into or exchangeable
for shares of Common Stock and (ii) all options, warrants and other rights to
acquire, directly or indirectly, shares of Common Stock or securities, directly
or indirectly, convertible into or exchangeable for shares of Common Stock.
"Exercise Date" shall have the meaning set forth in Section 2.2 hereof.
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"Exercise Price" shall mean, as of the Initial Exercise Date, the Initial
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Exercise Price and after the Initial Exercise Date, the Initial Exercise Price
as adjusted from time to time pursuant to the terms of this Warrant.
"Expiration Date" shall mean December 9, 2006.
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"Fair Market Value" shall mean (i) the last reported sale price per share
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of Stock on the Nasdaq National Market or any national securities exchange in
which such Stock is quoted or listed, as the case may be, on the date
immediately preceding the Exercise Date or, if no such sale price is reported on
such date, such price on the next preceding business day in which such price was
reported, or (ii) if such Stock is not quoted or listed on the Nasdaq National
Market or any national securities exchange, the fair market value of a share of
such Stock, as determined in good faith by the Board of Directors of the
Corporation and based upon the fair market value of the Corporation as a whole,
using customary and appropriate valuation methods (and not taking into account
any discounts for minority ownership or restrictions or transfer of the capital
stock of the Corporation).
"Holder" shall mean, as applicable, (i) the Initial Warrant Holder, or (ii)
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any successor of the Initial Warrant Holder.
"Initial Exercise Date" shall mean the date on which this Warrant first
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vests in accordance with the provisions of the second paragraph of Section 2.1
hereof.
"Initial Exercise Price" shall mean an amount equal to $7.01 per share.
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"Initial Warrant Holder" shall have the meaning set forth in the first
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paragraph of this Warrant.
"Initial Warrant Shares" shall mean 909,709 shares of Common Stock.
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"Issue Date" shall mean the date hereof.
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"Person" shall mean an individual, partnership, corporation, limited
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liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Preferred Stock" shall mean the Series A Preferred Stock, the Series B
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Preferred Stock and the Series C Preferred Stock and all other capital stock of
the Corporation having a preference on dissolution or liquidation of the
Corporation.
"Purchase Agreement" shall mean that certain Common Stock and Warrant
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Purchase Agreement, dated as of December 6, 1999, by and between the Corporation
and Andersen Consulting LLP.
"Registrable Securities" shall have the meaning ascribed to it in the
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Registration Rights Agreement.
"Registration Rights Agreement" shall mean the Amended and Restated
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Registration Rights Agreement, dated as of December 6, 1999, by and among the
Corporation and the other parties thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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"Series A Preferred Stock" shall mean the Series A Convertible
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Participating Preferred Stock of the Corporation, $0.01 par value per share.
"Series B Preferred Stock" shall mean the Series B Convertible
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Participating Preferred Stock of the Corporation, $0.01 par value per share.
"Series C Preferred Stock" shall mean the Series C Convertible Preferred
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Stock of the Corporation, $0.01 par value per share.
"Stock" shall mean (i) Common Stock, (ii) capital stock of the Corporation
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(other than Common Stock) or of any other Person or any other securities of the
Corporation or of any other Person that the Holder is entitled to receive, or
receives, upon exercise of this Warrant, in lieu of or in addition to Common
Stock, and/or (iii) capital stock of the Corporation (other than Common Stock)
or of any other Person or any other securities of the Corporation or of any
other Person that may be issued in replacement of, substitution, exchange or
redemption for, or upon reclassification or conversion of, Common Stock or any
other Stock, in each case whether as a result of a reorganization,
reclassification, merger, consolidation or sale of substantially all of the
assets of the Corporation.
"Warrant" shall have the meaning set forth in the second paragraph of this
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Warrant.
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"Warrant Shares" shall mean, at any time, the Initial Warrant Shares after
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giving effect to the number of shares of Stock previously purchased by the
Holder pursuant to any and all exercises of this Warrant prior to such time and
after giving effect to all adjustments with respect to the number of Warrant
Shares purchaseable hereunder as provided for herein, including, without
limitation, those set forth in Section 4 hereof, prior to such time.
2. EXERCISE OF WARRANT.
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2.1 METHOD OF EXERCISE. Subject to and upon all of the terms and conditions
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set forth in this Warrant, the Holder may exercise this Warrant, in whole or in
part with respect to any Warrant Shares, at any time and from time to time
during the period commencing on the date that this Warrant vests in accordance
with the second paragraph of this Section 2.1 and ending at 5:00 p.m., Boston,
Massachusetts time, on the Expiration Date, by presentation and surrender of
this Warrant to the Corporation at its principal office, together with (a) a
properly completed and duly executed subscription form, in the form attached
hereto, which subscription form shall specify the number of Warrant Shares for
which this Warrant is then being exercised, and (b) payment of the aggregate
Exercise Price payable hereunder in respect of the number of Warrant Shares
being purchased upon exercise of this Warrant. Payment of such aggregate
Exercise Price shall be made (i) in cash or by money order, certified or bank
cashier's check or wire transfer (in each case in lawful currency of the United
States of America), or (ii) by cancellation of indebtedness owing from the
Corporation to the Holder, (iii) if the Common Stock is then traded on the
Nasdaq National Market or a national securities exchange, by cancellation of a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (A) the total Exercise Price payable in respect of the
number of Warrant Shares being purchased upon such exercise by (B) the excess of
the Fair Market Value per share of Common Stock as of the Exercise Date (as
defined below) over the Exercise Price per share; if the Holder wishes to
exercise this Warrant pursuant to this clause (iii) with respect to the maximum
number of Warrant Shares purchasable pursuant to this method, then the number of
Warrant Shares so purchased shall be equal to the total number of Warrant
Shares, minus the product obtained by multiplying (x) the total number of
Warrant Shares by (y) a fraction, the numerator of which shall be the Exercise
Price per share and the denominator of which shall be the Fair Market Value per
share of Common Stock as of the Exercise Date, or (iv) any combination of the
methods described in the foregoing clauses (i), (ii) or (iii).
This Warrant will become exercisable ("vest") in full automatically and
without further action upon the earlier to occur of September 9, 2000 [9-
months after the Issue Date] and (ii) a Liquidity Event. The term "Liquidity
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Event" shall mean (y) the sale of all or substantially all of the property and
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assets of the Corporation in one transaction or a series of one or more related
transactions, or (z) the acquisition of the Company by another person or entity
by means of stock purchase (whether by transfer or outstanding
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shares or through new issuances), merger, consolidation or otherwise which would
result in the exchange of shares of capital stock of the Company for cash,
securities or other consideration paid by the acquiring person or entity, or any
similar transaction.
2.2 EFFECTIVENESS OF EXERCISE; OWNERSHIP. Each exercise of this Warrant by
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the Holder shall be deemed to have been effected immediately prior to the close
of business on the date upon which all of the requirements of Section 2.1 hereof
with respect to such exercise shall have been complied with in full (each such
date, an "Exercise Date"). On the applicable Exercise Date with respect to any
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exercise of this Warrant by the Holder, the Corporation shall be deemed to have
issued to the Holder, and the Holder shall be deemed to have become the holder
of record and legal owner of, the number of Warrant Shares being purchased upon
such exercise of this Warrant, notwithstanding that the stock transfer books of
the Corporation shall then be closed or that certificates representing such
number of Warrant Shares being purchased shall not then be actually delivered to
the Holder.
2.3 DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
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after the exercise of this Warrant, and in any event within ten (10) days
thereafter, the Corporation, at its expense and in accordance with applicable
securities laws, will cause to be issued in the name of and delivered to the
Holder, or as the Holder may direct (subject in all cases, to the provisions of
Section 9 hereof), a certificate or certificates for the number of Warrant
Shares purchased by the Holder on such exercise, plus, in lieu of any fractional
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share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the Fair Market Value.
2.4 SHARES TO BE FULLY PAID AND NONASSESSABLE. All Warrant Shares issued
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upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable, free of all liens, transfer taxes, charges and other encumbrances
or restrictions on sale (other than those set forth herein) and free and clear
of all preemptive rights.
2.5 FRACTIONAL SHARES. No fractional shares of Stock or scrip representing
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fractional shares of Stock shall be issued upon the exercise of this Warrant.
With respect to any fraction of a share of Stock called for upon any exercise
hereof, the Corporation shall make a cash payment to the Holder as set forth in
Section 2.3 hereof.
2.6 ISSUANCE OF NEW WARRANTS; CORPORATION ACKNOWLEDGMENT. Upon any partial
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exercise of this Warrant, the Corporation, at its expense, will forthwith and,
in any event, within ten (10) days after such partial exercise issue and deliver
to the Holder a new warrant or warrants of like tenor, registered in the name of
the Holder, exercisable, in the aggregate, for the balance of the Warrant
Shares.
2.7 PAYMENT OF TAXES AND EXPENSES. The Corporation shall pay any recording,
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filing, stamp or similar tax which may be payable in respect of any transfer
involved in the issuance of, and the preparation and delivery of certificates
(if applicable)
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representing, (i) any Warrant Shares purchased upon exercise of this Warrant
and/or (ii) new or replacement warrants in the Holder's name or the name of any
transferee of all or any portion of this Warrant.
3. REGISTRATION AND OTHER RIGHTS.
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(A) REGISTRATION RIGHTS. The Holder of this Warrant shall have the
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right to cause the Corporation to register any and all Warrant Shares under the
Securities Act and under any blue sky or securities laws of any jurisdictions
within the United States, at the time and in the manner specified and as
provided for in the Registration Rights Agreement, and any and all Warrant
Shares shall be deemed to be included within the definition of Registrable
Securities for all purposes thereof.
(B) PURCHASE AGREEMENT. Subject to Section 10.4 of this Warrant, for
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the purposes of the Purchase Agreement, the shares of Common Stock issuable upon
exercise of this Warrant shall be included for the purposes of determining the
number of shares of Common Stock held by such Holder for all purposes of such
agreement.
4. ADJUSTMENTS.
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4.1 ADJUSTMENTS FOR STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
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(a) In the event that, at any time and from time to time after the
Issue Date, the Corporation shall (A) issue any additional shares of Stock as a
dividend or distribution on its outstanding Stock or options, warrants or other
rights to purchase, directly or indirectly, Stock as a dividend or distribution
on its outstanding Stock or securities convertible, directly or indirectly, into
Stock as a dividend or distribution on its outstanding Stock (other than shares
of Stock issued upon conversion of Preferred Stock), (B) subdivide its
outstanding shares of Stock into a greater number of shares of Stock or (C)
combine its outstanding shares of Stock into a smaller number of shares of
Stock, then and in each such event, (x) the Exercise Price shall, simultaneously
with the happening of such event, be adjusted by multiplying the then current
Exercise Price by a fraction, (i) the numerator of which shall be the number of
shares of Stock outstanding immediately prior to such event on a fully-diluted
basis, assuming exercise in full of all options, warrants or other rights to
purchase Stock, directly or indirectly, outstanding immediately prior to such
event and conversion into or exchange for Stock, directly or indirectly, of all
securities convertible into or exchangeable for Stock outstanding immediately
prior to such event, each in accordance with their terms, and (ii) the
denominator of which shall be the number of shares of Stock outstanding
immediately after such event on a fully-diluted basis, assuming exercise in full
of all options, warrants or other rights to purchase Stock, directly or
indirectly, outstanding immediately after such event and conversion into or
exchange for Stock, directly or indirectly, of all securities convertible into
or exchangeable for Stock outstanding immediately after such event, each in
accordance with their terms, and the product so obtained shall thereafter be the
Exercise Price then in effect, and (y) the number of Warrant
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Shares shall be adjusted by increasing or decreasing, as the case may be, the
number of shares of Stock included within the Warrant Shares by the percentage
increase or decrease in the total number of shares of Stock outstanding
immediately after such event as compared to the total number of shares of Stock
outstanding immediately prior to such event and the result so obtained shall be
the number of Warrant Shares then in effect.
(b) The Exercise Price and the number of Warrant Shares, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 4.1
4.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION OR MERGER. In the event
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that, at any time or from time to time after the Issue Date, the Corporation
shall (a) effect a reorganization, (b) consolidate with or merge into any other
Person, or (c) sell or transfer all or substantially all of its properties or
assets or more than 50% of the voting capital stock of the Corporation (whether
issued and outstanding, newly issued, from treasury, or any combination thereof)
to any other Person under any plan or arrangement contemplating the
reorganization, consolidation or merger, sale or transfer, or dissolution of the
Corporation, then, in each such case, the Holder, upon the exercise of this
Warrant as provided in Section 2 hereof at any time or from time to time after
the consummation of such reorganization, consolidation, merger or sale or the
effective date of such dissolution (subject to the limitation contained in
Section 4.6, if applicable), as the case may be, shall receive, in lieu of the
Warrant Shares issuable on such exercise immediately prior to such consummation
or such effective date, as the case may be, the Stock and property (including
cash) to which the Holder would have been entitled upon the consummation of such
reorganization, consolidation or merger, or sale or transfer, or in connection
with such dissolution, as the case may be, if the Holder had so exercised this
Warrant immediately prior thereto (assuming the payment by the Holder of the
Exercise Price therefor as required hereby in a form permitted hereby, which
payment shall be included in the assets of the Corporation for the purposes of
determining the amount available for distribution), all subject to successive
adjustments thereafter from time to time pursuant to, and in accordance with,
the provisions of this Section 4.
4.3 ADJUSTMENTS FOR RECLASSIFICATIONS. If the Common Stock issuable upon
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the conversion of this Warrant shall be changed into the same or a different
number of shares of any class(es) or series of stock, whether by
reclassification or otherwise (other than an adjustment under Section 4.1 or a
merger, consolidation, or sale of assets provided for under Section 4.2), then
and in each such event, the Holder hereof shall have the right thereafter to
convert each Warrant Share into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, or other change
by holders of the number of shares of Common Stock into which such Warrant
Shares would have been convertible immediately prior to such reclassification,
or change, all subject to further adjustment as provided herein.
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4.4 DISTRIBUTIONS. In the event that, at any time or from time to time
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after the Issue Date, the Corporation shall make or issue, or shall fix a record
date for the determination of eligible holders entitled to receive, a dividend
or other distribution with respect to Common Stock payable in (i) shares of its
capital stock (other than a stock dividend provided for in Section 4.1), (ii)
other securities of the Corporation or any other Person, (iii) evidences of
indebtedness issued by the Company or any other Person, (iv) options, warrants
or rights to subscribe for or purchase any of the foregoing, or (v) assets
(excluding cash dividends) then, in each such case, the Holder of this Warrant
shall receive, in addition to the shares of Stock issuable upon the exercise of
this Warrant prior to such date, and without the payment of additional
consideration therefor, the shares of capital stock, other securities, evidence
of indebtedness, options, warrants or other rights or assets, as the case may
be, to which such Holder would have been entitled upon such date as if such
Holder had exercised this Warrant on the date hereof and had thereafter, during
the period from the date hereof to and including the date of the actual exercise
of this Warrant, retained such shares and/or all other additional stock
available to it as aforesaid during such period, giving effect to all
adjustments pursuant to this Section 4. The Company shall reserve and set aside,
for the life of this Warrant or until exercised in full, all such distributions
to which the Holder is entitled to receive pursuant to the this Section 4.4.
4.5 CONTINUATION OF TERMS. Upon any reorganization, reclassification, sale,
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consolidation, merger or other transfer (and any liquidation, dissolution or
winding up of the Corporation following any such transfer) referred to in this
Section 4, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of Stock and property (including cash,
where applicable) receivable upon the exercise of this Warrant after the
consummation of such reorganization, reclassification, sale, consolidation,
merger or other transfer or the effective date of liquidation, dissolution or
winding up of the Corporation following any such transfer, as the case may be,
and shall be binding upon the issuer of any such Stock, including, in the case
of any such transfer, the Person acquiring all or substantially all of the
properties or assets or more than 50% of the voting capital stock of the
Corporation (whether issued and outstanding, newly issued or from treasury or
any combination thereof), whether or not such Person shall have expressly
assumed the terms of this Warrant.
5. OFFICER'S CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment
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or readjustment in the number and kind of Warrant Shares, or property, issuable
hereunder from time to time, or the Exercise Price, the Corporation, at its
expense, will promptly cause an officer of the Corporation to compute such
adjustment or readjustment in accordance with the terms of this Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing
the facts upon which such adjustment or readjustment is based. The Corporation
will forthwith send a copy of each such certificate to the Holder in accordance
with Section 10.5 below.
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6. NOTICES OF RECORD DATE, ETC. In the event of
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(a) any taking by the Corporation of a record of the holders of Stock for
the purpose of determining the holders thereof who are entitled to receive any
shares of Stock as a dividend or other distribution or pursuant to a stock
split, or
(b) any reorganization of the Corporation, or any sale or transfer, in a
single transaction or a series of related transactions, of all or substantially
all the assets of the Corporation to, or the consolidation or merger of the
Corporation with or into, any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Corporation, or
(d) any sale, in a single transaction or a series of related transactions,
of a majority of the Corporation's voting stock (whether newly issued, or from
treasury, or previously issued and then outstanding, or any combination
thereof),
then and in each such event the Corporation will mail or cause to be mailed to
the Holder a notice specifying (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or stock split, and stating
the amount and character of such dividend, distribution or stock split, or (ii)
the date on which any such reorganization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of any one or more classes of
Stock shall be entitled to exchange their shares of Stock for securities or
other property deliverable on such reorganization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, or (iii) the date on which any
such sale of a majority of the Corporation's voting stock is to take place and
the material terms thereof , as the case may be. Such notice shall be mailed at
least ten (10) days prior to the date specified in such notice on which any such
action is to be taken.
7. EXCHANGE OF WARRANT. Subject to the provisions of Section 9 hereof (if
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and to the extent applicable), this Warrant shall be exchangeable, upon the
surrender hereof by the Holder at the principal office of the Corporation, for
new warrants of like tenor, each registered in the name of the Holder or in the
name of such other Persons as the Holder may direct. Each of such new warrants
shall be exercisable for such number of Warrant Shares as the Holder shall
direct, provided that all of such new warrants shall represent, in the
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aggregate, the right to purchase the same number of Warrant Shares and cash,
securities or other property, if any, which may be purchased by the Holder upon
exercise of this Warrant at the time of its surrender.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
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to the Corporation of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of a customary
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affidavit of the Holder and an indemnity agreement or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Corporation at
its expense will execute and deliver, in lieu thereof, a new warrant of like
tenor.
9. TRANSFER PROVISIONS, ETC.
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9.1 LEGENDS.
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(a) Each certificate representing any Warrant Shares issued upon
exercise of this Warrant shall bear the following legend:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE TRANSFERRED ONLY PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED.
(b) Each certificate representing any shares of Stock issued from time
to time upon exercise of this Warrant shall also bear any legend required under
any applicable state securities or blue sky laws.
9.2 MECHANICS OF TRANSFER. Any transfer of all or any portion of this
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Warrant, or of any interest therein, that is otherwise in compliance with
applicable law shall be effected by surrendering this Warrant to the Corporation
at its principal office, together with (i) a duly executed form of assignment,
in the form attached hereto, (ii) payment of any applicable transfer taxes, if
any. In the event of any such transfer of this Warrant, in whole, the
Corporation shall issue a new warrant of like tenor to the transferee,
representing the right to purchase the same number of Warrant Shares, and cash,
securities or other property, if any, which were purchasable by the Holder upon
exercise of this Warrant at the time of its transfer. In the event of any such
transfer of any portion of this Warrant, (i) the Corporation shall issue a new
warrant of like tenor to the transferee, representing the right to purchase the
same number of Warrant Shares, and cash, securities or other property, if any,
which were purchasable by the Holder upon exercise of the transferred portion of
this Warrant at the time of such transfer, and (ii) the Corporation shall issue
a new warrant of like tenor to the Holder, representing the right to purchase
the number of Warrant Shares, and cash, securities or other property, if any,
purchasable by the Holder upon exercise of the portion of this Warrant not
transferred to such transferee. Until this Warrant or any portion thereof is
transferred on the books of the Corporation, the Corporation may treat the
Holder as the absolute holder of this Warrant and all right, title and interest
therein for all purposes, notwithstanding any notice to the contrary.
9.3. RESTRICTIONS ON TRANSFER. Subject to compliance with applicable
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securities laws and any contractual restrictions to which the Holder may be
subject, this Warrant,
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and any portion hereof, and the Warrant Shares, may be transferred by the Holder
in its sole discretion at any time to affiliates of the Holder without the
consent of the Corporation. Except as permitted pursuant to the foregoing
sentence, this warrant may not be transferred without the consent of the
Corporation.
10. GENERAL.
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10.1 STATEMENT ON WARRANT. Irrespective of any adjustments in the Exercise
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Price or the number or kind of Warrant Shares, this Warrant may continue to
express the same kind of Warrant Shares as are stated on the front page hereof.
10.2 AUTHORIZED SHARES; RESERVATION OF SHARES FOR ISSUANCE. At all times
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while this Warrant is outstanding, the Corporation shall maintain its corporate
authority to issue, and shall have authorized and reserved for issuance upon
exercise of this Warrant, such number of shares of Stock as shall be sufficient
to perform its obligations under this Warrant (after giving effect to any and
all adjustments to the number and kind of Warrant Shares purchasable upon
exercise of this Warrant).
10.3 NO IMPAIRMENT. The Corporation will not, by amendment of its
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Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, sale or
other transfer of any of its assets or properties, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder hereunder against
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of Stock receivable upon the
exercise of this Warrant above the amount payable therefor on such exercise, and
(b) will take all action that may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Stock on the exercise of this Warrant.
10.4 NO RIGHTS AS STOCKHOLDER. The Holder shall not be entitled to vote or
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to receive dividends or to be deemed the holder of Stock that may at any time be
issuable upon exercise of this Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holder any of the
rights of a stockholder of the Corporation until the Holder shall have exercised
this Warrant and been issued Warrant Shares in accordance with the provisions
hereof.
10.5 NOTICES. All notices, demands, requests, certificates or other
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communications under this Warrant shall be in writing and shall be either mailed
by certified mail, postage prepaid, in which case such notice, demand, request,
certificate or other communications shall be deemed to have been given three (3)
days after the date on which it is first deposited in the mails, or hand
delivered or sent by facsimile
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transmission, by tested or otherwise authenticated telex or cable or by private
expedited courier for overnight delivery with signature required, in each such
case, such notice, demand, request, certificate or other communications being
deemed to have been given upon delivery or receipt, as the case may be:
(i) if to the Corporation, Prime Response, Inc., 150 Cambridge Park Drive,
Cambridge, MA 02140, Attention: President, or at such other address as the
Corporation may have furnished in writing to the Holder; and
(ii) if to the Holder, at the Holder's address appearing in the books
maintained by the Corporation.
10.6 AMENDMENT AND WAIVER. No failure or delay of the Holder in exercising
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any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any rights
or remedies which it would otherwise have. The provisions of this Warrant may
be amended, modified or waived with (and only with) the written consent of the
Corporation and the Holder.
10.7 GOVERNING LAW. This Warrant shall be governed by, and construed and
-------------
enforced in accordance with, the laws of the Commonwealth of Massachusetts.
10.8 COVENANTS TO BIND SUCCESSOR AND ASSIGNS. All covenants, stipulations,
---------------------------------------
promises and agreements in this Warrant contained by or on behalf of the
Corporation shall bind its successors and assigns, whether so expressed or not.
10.9 SEVERABILITY. In case any one or more of the provisions contained in
------------
this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
10.10 CONSTRUCTION. The definitions of this Warrant shall apply equally to
------------
both the singular and the plural forms of the terms defined. Wherever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The section and paragraph headings used herein are
for convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
<PAGE>
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10.11 REMEDIES. The Holder, in addition to being entitled to exercise all
--------
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Corporation agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
of this Warrant or where any provision hereof is validly asserted as a defense,
the successful party to such action or proceeding shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
[rest of page intentionally left blank]
<PAGE>
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IN WITNESS WHEREOF, the Corporation has caused this Common Stock Purchase
Warrant to be executed as an instrument under seal in its corporate name by one
of its officers thereunto duly authorized, all as of the day and year first
above written.
PRIME RESPONSE, INC.
[Corporate Seal]
By: /s/ Frederick H. Phillips
---------------------------------
Name: Frederick H. Phillips
Title: Secretary, Treasury,
Senior Vice President and
Chief Executive Officer
<PAGE>
FORM OF SUBSCRIPTION
(To be executed upon exercise of Warrant)
To: PRIME RESPONSE, INC.
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the attached Warrant for, and to exercise thereunder, _______
shares of Common Stock, $.01 par value per share ("Common Stock"), of Prime
------ -----
Response, Inc., a Delaware corporation, and tenders herewith payment of
$__________, representing the aggregate purchase price for such shares based on
the price per share provided for in such Warrant. Such payment is being made in
accordance with [Section 2.1(b)(i)] [Section 2.1(b)(ii)] [Section 2.1(b)(iii)]
of the attached Warrant.
Please issue a certificate or certificates for such shares of Common Stock
in the following name or names and denominations and deliver such certificate or
certificates to the person or persons listed below at their respective addresses
set forth below:
Dated:
--------------------- --------------------------------
--------------------------------
(Address)
If said number of shares of Common Stock shall not be all the shares of
Common Stock issuable upon exercise of the attached Warrant, a new Warrant is to
be issued in the name of the undersigned for the balance remaining of such
shares of Common Stock less any fraction of a share of Common Stock paid in
cash.
Dated:
---------------, ---- ---------------------------------
NOTE: The above signature should
correspond exactly with the name on the
face of the attached Warrant or with the
name of the assignee appearing in the
assignment form below.
<PAGE>
FORM OF ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _____________________________________ hereby sells,
assigns and transfers unto _________________ the attached Warrant [__% of the
attached Warrant], together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ___________________________ attorney
to transfer said Warrant [said percentage of said Warrant] on the books of Prime
Response, Inc., a Delaware corporation, with full power of substitution in the
premises.
If not all of the attached Warrant is to be so transferred, a new Warrant
is to be issued in the name of the undersigned for the balance of said Warrant.
Dated:
--------------, ---- ---------------------------------
NOTE: The above signature should
correspond exactly with the name on the
face of the attached Warrant.
<PAGE>
Exhibit 10.22
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER
THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE SOLD
OR TRANSFERRED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT HAVE BEEN COMPLIED
WITH OR UNLESS COMPLIANCE WITH SUCH PROVISIONS IS NOT REQUIRED.
No. AC-2 Dated: December 9, 1999
PRIME RESPONSE, INC.
Common Stock
Purchase Warrant
THIS IS TO CERTIFY THAT, for value received, Andersen Consulting LLP (the
"Initial Warrant Holder"), and its registered successors and permitted assigns
are entitled, subject to the terms and conditions set forth below, to purchase
from PRIME RESPONSE, INC. (f/k/a Prime Response Group, Inc.), a Delaware
corporation (the "Corporation"), at any time or from time to time on and after
the date hereof and prior to 5:00 P.M., Boston, Massachusetts time, on the
Expiration Date (as defined in Section 1 below), all or any portion of the
Warrant Shares (as defined in Section 1), at a purchase price per share equal to
the Exercise Price (as defined in Section 1 below). The number and character of
the Warrant Shares and the Exercise Price are subject to adjustment as provided
herein.
1. Definitions. As used in this Warrant, the following terms shall have
the respective meanings set forth below or elsewhere in this Warrant as referred
to below:
"Certificate of Incorporation" shall mean the Certificate of Incorporation
of the Corporation, as amended and in effect from time to time.
"Common Stock" shall mean shares of the Common Stock of the Corporation,
$0.01 par value per share of the Corporation and shall also include any capital
stock of any class of the Corporation authorized after the date hereof which
shall neither be limited to a fixed sum or percentage of par value in respect of
the rights of the holders thereof to participate in dividends or any
distribution of earnings or assets (in liquidation or otherwise) of the
Corporation, whether or not such capital stock is entitled to a
<PAGE>
preference in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
"Corporation" shall mean Prime Response, Inc. and/or any Person that shall
succeed to, or assume the obligations hereunder of, Prime Response, Inc.
"Derivative Securities" shall mean (i) all shares of stock and other
securities that are, directly or indirectly, convertible into or exchangeable
for shares of Common Stock and (ii) all options, warrants and other rights to
acquire, directly or indirectly, shares of Common Stock or securities, directly
or indirectly, convertible into or exchangeable for shares of Common Stock.
"Exercise Date" shall have the meaning set forth in Section 2.2 hereof.
"Exercise Price" shall mean, as of the Initial Exercise Date, the Initial
Exercise Price and after the Initial Exercise Date, the Initial Exercise Price
as adjusted from time to time pursuant to the terms of this Warrant.
"Expiration Date" shall mean December 9, 1999.
"Fair Market Value" shall mean (i) the last reported sale price per share
of Stock on the Nasdaq National Market or any national securities exchange in
which such Stock is quoted or listed, as the case may be, on the date
immediately preceding the Exercise Date or, if no such sale price is reported on
such date, such price on the next preceding business day in which such price was
reported, or (ii) if such Stock is not quoted or listed on the Nasdaq National
Market or any national securities exchange, the fair market value of a share of
such Stock, as determined in good faith by the Board of Directors of the
Corporation and based upon the fair market value of the Corporation as a whole,
(and not taking into account any discounts for minority ownership or
restrictions or transfer of capital stock of the Corporation).
"Holder" shall mean, as applicable, (i) the Initial Warrant Holder, or (ii)
any successor of the Initial Warrant Holder.
"Initial Exercise Date" shall mean the date on which this Warrant first
vests in accordance with the provisions of the second paragraph of Section 2.1
hereof.
"Initial Exercise Price" shall mean an amount equal to $7.01 per share.
"Initial Warrant Holder" shall have the meaning set forth in the first
paragraph of this Warrant.
"Initial Warrant Shares" shall mean 500,000 shares of Common Stock.
-2-
<PAGE>
"Issue Date" shall mean the date hereof.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Preferred Stock" shall mean the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock and all other capital stock of
the Corporation having a preference on dissolution or liquidation of the
Corporation.
"Purchase Agreement" shall mean that certain Common Stock and Warrant
Purchase Agreement, dated of December 6, 1999, by and between the Corporation
and Andersen Consulting LLP.
"Registrable Securities" shall have the meaning ascribed to it in the
Registration Rights Agreement.
"Registration Rights Agreement" shall mean the Amended and Restated
Registration Rights Agreement, dated as of December 6, 1999, by and among the
Corporation and the other parties thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Preferred Stock" shall mean the Series A Convertible
Participating Preferred Stock of the Corporation, $0.01 par value per share.
"Series B Preferred Stock" shall mean the Series B Convertible
Participating Preferred Stock of the Corporation, $0.01 par value per share.
"Series C Preferred Stock" shall mean the Series C Convertible Preferred
Stock of the Corporation, $0.01 par value per share.
"Stock" shall mean (i) Common Stock, (ii) capital stock of the Corporation
(other than Common Stock) or of any other Person or any other securities of the
Corporation or of any other Person that the Holder is entitled to receive, or
receives, upon exercise of this Warrant, in lieu of or in addition to Common
Stock, and/or (iii) capital stock of the Corporation (other than Common Stock)
or of any other Person or any other securities of the Corporation or of any
other Person that may be issued in replacement of, substitution, exchange or
redemption for, or upon reclassification or conversion of, Common Stock or any
other Stock, in each case whether as a result of a reorganization,
reclassification, merger, consolidation or sale of substantially all of the
assets of the Corporation.
-3-
<PAGE>
"Warrant" shall have the meaning set forth in the second paragraph of this
Warrant.
"Warrant Shares" shall mean, at any time, the Initial Warrant Shares after
giving effect to the number of shares of Stock previously purchased by the
Holder pursuant to any and all exercises of this Warrant prior to such time and
after giving effect to all adjustments with respect to the number of Warrant
Shares purchaseable hereunder as provided for herein, including, without
limitation, those set forth in Section 4 hereof, prior to such time.
2. Exercise Of Warrant.
2.1 Method of Exercise. Subject to and upon all of the terms and
conditions set forth in this Warrant, the Holder may exercise this Warrant, in
whole or in part with respect to any Warrant Shares, at any time and from time
to time during the period commencing on the date that this Warrant vests in
accordance with the second paragraph of this Section 2.1 and ending at 5:00
p.m., Boston, Massachusetts time, on the Expiration Date, by presentation and
surrender of this Warrant to the Corporation at its principal office, together
with (a) a properly completed and duly executed subscription form, in the form
attached hereto, which subscription form shall specify the number of Warrant
Shares for which this Warrant is then being exercised, and (b) payment of the
aggregate Exercise Price payable hereunder in respect of the number of Warrant
Shares being purchased upon exercise of this Warrant. Payment of such aggregate
Exercise Price shall be made (i) in cash or by money order, certified or bank
cashier's check or wire transfer (in each case in lawful currency of the United
States of America), (ii) by cancellation of indebtedness owing from the
Corporation to the Holder, (iii) if the Common Stock is then traded on the
Nasdaq National Market or a national securities exchange, by cancellation of a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (A) the total Exercise Price payable in respect of the
number of Warrant Shares being purchased upon such exercise by (B) the excess of
the Fair Market Value per share of Common Stock as of the Exercise Date (as
defined below) over the Exercise Price per share; if the Holder wishes to
exercise this Warrant pursuant to this clause (iii) with respect to the maximum
number of Warrant Shares purchasable pursuant to this method, then the number of
Warrant Shares so purchased shall be equal to the total number of Warrant
Shares, minus the product obtained by multiplying (x) the total number of
Warrant Shares by (y) a fraction, the numerator of which shall be the Exercise
Price per share and the denominator of which shall be the Fair Market Value per
share of Common Stock as of the Exercise Date, or (iv) any combination of the
methods described in the foregoing clauses (i), (ii) or (iii).
The Warrant will become exercisable ("vest") based on the extent (if any) to
which the Market Capitalization (as defined below) of the Company exceeds the
IPO Capitalization (as defined below) of the Company, in accordance with the
following schedule:
-4-
<PAGE>
If the Market Capitalization is less than $2 billion, warrants
to purchase such number of shares of Common Stock as is equal to
(i) 400,000 divided by (ii) (a) $2 billion minus the IPO
Capitalization divided by (b) $100 million, will become
exercisable for each $100 million by which the Market
Capitalization exceeds the IPO Capitalization.
If the Market Capitalization is between $2 billion and $3 billion,
inclusive, warrants to purchase 10,000 shares of Common Stock will
become exercisable for each $100 million by which the Market
Capitalization exceeds the IPO Capitalization.
No additional warrants will become exercisable once the Market
Capitalization exceeds $3 billion. In no event shall this Warrant become
exercisable for more than 500,000 shares of Common Stock.
For purposes of the foregoing, the Market Capitalization shall be measured
on the following dates and on no other dates: December 31, 2000, 2001 and 2002
and on the final day that the Marketing Agreement (as defined below) is in
effect.
Once this Warrant becomes exercisable with respect to Warrant Shares in
accordance with the foregoing provisions, this Warrant shall not cease to be
exercisable with respect to such Warrant Shares as a result of the Market
Capitalization decreasing below the amount that resulted in this Warrant (or any
portion hereof) becoming exercisable. Notwithstanding anything to the contrary
contained herein, upon termination of the Marketing Agreement between the
Company and Andersen Consulting LLP ("Andersen") dated the date hereof (the
"Marketing Agreement") at the election of the Company as a result of a breach by
Andersen pursuant to Section 10.2(a) thereof, no further vesting of this Warrant
shall occur, but the Warrant shall remain exercisable during its term to the
extent then vested.
"Market Capitalization" on any given date shall equal (i) the last sale
price of the Common Stock as reported by the Nasdaq National Market (or, if
applicable, The Nasdaq Stock Market or any national securities exchange on which
the common stock is then traded) on such date, multiplied by (ii) the number of
shares of Common Stock outstanding as of the close of business on such date as
reflected on the stock records of the Company.
"IPO Capitalization" shall equal (i) the price to public reflected in the
prospectus filed pursuant to Rule 424(b) under the Securities Act relating to
the Company's initial public offering of Common Stock registered under the
Securities Act, multiplied by (ii) the number of shares of Common Stock to be
outstanding after such offering as reflected in such prospectus under the
heading "The Offering."
-5-
<PAGE>
2.2 Effectiveness of Exercise; Ownership. Each exercise of this Warrant by
------------------------------------
the Holder shall be deemed to have been effected immediately prior to the close
of business on the date upon which all of the requirements of Section 2.1 hereof
with respect to such exercise shall have been complied with in full (each such
date, an "Exercise Date"). On the applicable Exercise Date with respect to any
-------------
exercise of this Warrant by the Holder, the Corporation shall be deemed to have
issued to the Holder, and the Holder shall be deemed to have become the holder
of record and legal owner of, the number of Warrant Shares being purchased upon
such exercise of this Warrant, notwithstanding that the stock transfer books of
the Corporation shall then be closed or that certificates representing such
number of Warrant Shares being purchased shall not then be actually delivered to
the Holder.
2.3 Delivery of Stock Certificates on Exercise. As soon as practicable
after the exercise of this Warrant, and in any event within ten (10) days
thereafter, the Corporation, at its expense and in accordance with applicable
securities laws, will cause to be issued in the name of and delivered to the
Holder, or as the Holder may direct (subject in all cases, to the provisions of
Section 9 hereof), a certificate or certificates for the number of Warrant
Shares purchased by the Holder on such exercise, plus, in lieu of any fractional
share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the Fair Market Value.
2.4 Shares To Be Fully Paid and Nonassessable. All Warrant Shares issued
upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable, free of all liens, transfer taxes, charges and other encumbrances
or restrictions on sale (other than those set forth herein) and free and clear
of all preemptive rights.
2.5 Fractional Shares. No fractional shares of Stock or scrip
representing fractional shares of Stock shall be issued upon the exercise of
this Warrant. With respect to any fraction of a share of Stock called for upon
any exercise hereof, the Corporation shall make a cash payment to the Holder as
set forth in Section 2.3 hereof.
2.6 Issuance of New Warrants; Corporation Acknowledgment. Upon any
partial exercise of this Warrant, the Corporation, at its expense, will
forthwith and, in any event, within ten (10) days after such partial exercise
issue and deliver to the Holder a new warrant or warrants of like tenor,
registered in the name of the Holder, exercisable, in the aggregate, for the
balance of the Warrant Shares.
2.7 Payment of Taxes and Expenses. The Corporation shall pay any
recording, filing, stamp or similar tax which may be payable in respect of any
transfer involved in the issuance of, and the preparation and delivery of
certificates (if applicable) representing, (i) any Warrant Shares purchased upon
exercise of this Warrant and/or (ii) new or replacement warrants in the Holder's
name or the name of any transferee of all or any portion of this Warrant.
-6-
<PAGE>
3. Registration and Other Rights.
(a) Registration Rights. The Holder of this Warrant shall have the right
to cause the Corporation to register any and all Warrant Shares under the
Securities Act and under any blue sky or securities laws of any jurisdictions
within the United States, at the time and in the manner specified and as
provided for in the Registration Rights Agreement, and any and all Warrant
Shares shall be deemed to be included within the definition of Registrable
Securities for all purposes thereof.
(b) Purchase Agreement. Subject to Section 10.4 of this Warrant, for the
purposes of the Purchase Agreement, the shares of Common Stock issuable upon
exercise of this Warrant shall be included for the purposes of determining the
number of shares of Common Stock held by such Holder for all purposes of such
agreement.
4. Adjustments.
4.1 Adjustments for Stock Dividends, Subdivisions and Combinations.
(a) In the event that, at any time and from time to time after the Issue
Date, the Corporation shall (A) issue any additional shares of Stock as a
dividend or distribution on its outstanding Stock or options, warrants or other
rights to purchase, directly or indirectly, Stock as a dividend or distribution
on its outstanding Stock or securities convertible, directly or indirectly, into
Stock as a dividend or distribution on its outstanding Stock (other than shares
of Stock issued upon conversion of Preferred Stock), (B) subdivide its
outstanding shares of Stock into a greater number of shares of Stock or (C)
combine its outstanding shares of Stock into a smaller number of shares of
Stock, then and in each such event, (x) the Exercise Price shall, simultaneously
with the happening of such event, be adjusted by multiplying the then current
Exercise Price by a fraction, (i) the numerator of which shall be the number of
shares of Stock outstanding immediately prior to such event on a fully-diluted
basis, assuming exercise in full of all options, warrants or other rights to
purchase Stock, directly or indirectly, outstanding immediately prior to such
event and conversion into or exchange for Stock, directly or indirectly, of all
securities convertible into or exchangeable for Stock outstanding immediately
prior to such event, each in accordance with their terms, and (ii) the
denominator of which shall be the number of shares of Stock outstanding
immediately after such event on a fully-diluted basis, assuming exercise in full
of all options, warrants or other rights to purchase Stock, directly or
indirectly, outstanding immediately after such event and conversion into or
exchange for Stock, directly or indirectly, of all securities convertible into
or exchangeable for Stock outstanding immediately after such event, each in
accordance with their terms, and the product so obtained shall thereafter be the
Exercise Price then in effect, and (y) the number of Warrant Shares shall be
adjusted by increasing or decreasing, as the case may be, the number of shares
of Stock included within the Warrant Shares by the percentage increase or
decrease in the total number of shares of Stock outstanding immediately after
such event as compared to
-7-
<PAGE>
the total number of shares of Stock outstanding immediately prior to such event
and the result so obtained shall be the number of Warrant Shares then in effect.
(b) The Exercise Price and the number of Warrant Shares, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
event or events described in this Section 4.1.
4.2 Adjustment for Reorganization, Consolidation or Merger. In the event
that, at any time or from time to time after the Issue Date, the Corporation
shall (a) effect a reorganization, (b) consolidate with or merge into any other
Person, or (c) sell or transfer all or substantially all of its properties or
assets or more than 50% of the voting capital stock of the Corporation (whether
issued and outstanding, newly issued, from treasury, or any combination thereof)
to any other Person under any plan or arrangement contemplating the
reorganization, consolidation or merger, sale or transfer, or dissolution of the
Corporation, then, in each such case, the Holder, upon the exercise of this
Warrant as provided in Section 2 hereof at any time or from time to time after
the consummation of such reorganization, consolidation, merger or sale or the
effective date of such dissolution (subject to the limitation contained in
Section 4.6, if applicable), as the case may be, shall receive, in lieu of the
Warrant Shares issuable on such exercise immediately prior to such consummation
or such effective date, as the case may be, the Stock and property (including
cash) to which the Holder would have been entitled upon the consummation of such
reorganization, consolidation or merger, or sale or transfer, or in connection
with such dissolution, as the case may be, if the Holder had so exercised this
Warrant immediately prior thereto (assuming the payment by the Holder of the
Exercise Price therefor as required hereby in a form permitted hereby, which
payment shall be included in the assets of the Corporation for the purposes of
determining the amount available for distribution), all subject to successive
adjustments thereafter from time to time pursuant to, and in accordance with,
the provisions of this Section 4.
4.3 Adjustments for Reclassifications. If the Common Stock issuable upon
the conversion of this Warrant shall be changed into the same or a different
number of shares of any class(es) or series of stock, whether by
reclassification or otherwise (other than an adjustment under Section 4.1 or a
merger, consolidation, or sale of assets provided for under Section 4.2), then
and in each such event, the Holder hereof shall have the right thereafter to
convert each Warrant Share into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, or other change
by holders of the number of shares of Common Stock into which such Warrant
Shares would have been convertible immediately prior to such reclassification,
or change, all subject to further adjustment as provided herein.
4.4 Distributions. In the event that, at any time or from time to time
after the Issue Date, the Corporation shall make or issue, or shall fix a record
date for the determination of eligible holders entitled to receive, a dividend
or other distribution with respect to Common Stock payable in (i) shares of its
capital stock (other than a stock
-8-
<PAGE>
dividend provided for in Section 4.1), (ii) other securities of the Corporation
or any other Person, (iii) evidences of indebtedness issued by the Company or
any other Person, (iv) options, warrants or rights to subscribe for or purchase
any of the foregoing, or (v) assets (excluding cash dividends) then, in each
such case, the Holder of this Warrant shall receive, in addition to the shares
of Stock issuable upon the exercise of this Warrant prior to such date, and
without the payment of additional consideration therefor, the shares of capital
stock, other securities, evidence of indebtedness, options, warrants or other
rights or assets, as the case may be, to which such Holder would have been
entitled upon such date as if such Holder had exercised this Warrant on the date
hereof and had thereafter, during the period from the date hereof to and
including the date of the actual exercise of this Warrant, retained such shares
and/or all other additional stock available to it as aforesaid during such
period, giving effect to all adjustments pursuant to this Section 4. The Company
shall reserve and set aside, for the life of this Warrant or until exercised in
full, all such distributions to which the Holder is entitled to receive pursuant
to this Section 4.4.
4.5 Continuation of Terms. Upon any reorganization, reclassification,
sale, consolidation, merger or other transfer (and any liquidation, dissolution
or winding up of the Corporation following any such transfer) referred to in
this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of Stock and property (including
cash, where applicable) receivable upon the exercise of this Warrant after the
consummation of such reorganization, reclassification, sale, consolidation,
merger or other transfer or the effective date of liquidation, dissolution or
winding up of the Corporation following any such transfer, as the case may be,
and shall be binding upon the issuer of any such Stock, including, in the case
of any such transfer, the Person acquiring all or substantially all of the
properties or assets or more than 50% of the voting capital stock of the
Corporation (whether issued and outstanding, newly issued or from treasury or
any combination thereof), whether or not such Person shall have expressly
assumed the terms of this Warrant.
5. Officer's Certificate as to Adjustments. In each case of any
adjustment or readjustment in the number and kind of Warrant Shares, or
property, issuable hereunder from time to time, or the Exercise Price, the
Corporation, at its expense, will promptly cause an officer of the Corporation
to compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing the facts upon which such adjustment or readjustment is based. The
Corporation will forthwith send a copy of each such certificate to the Holder in
accordance with Section 10.5 below.
-9-
<PAGE>
6. Notices of Record Date, Etc. In the event of
(a) any taking by the Corporation of a record of the holders of Stock for
the purpose of determining the holders thereof who are entitled to receive any
shares of Stock as a dividend or other distribution or pursuant to a stock
split, or
(b) any reorganization of the Corporation, or any sale or transfer, in a
single transaction or a series of related transactions, of all or substantially
all the assets of the Corporation to, or the consolidation or merger of the
Corporation with or into, any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Corporation, or
(d) any sale, in a single transaction or a series of related transactions,
of a majority of the Corporation's voting stock (whether newly issued, or from
treasury, or previously issued and then outstanding, or any combination
thereof),
then and in each such event the Corporation will mail or cause to be mailed to
the Holder a notice specifying (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or stock split, and stating
the amount and character of such dividend, distribution or stock split, or (ii)
the date on which any such reorganization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of any one or more classes of
Stock shall be entitled to exchange their shares of Stock for securities or
other property deliverable on such reorganization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, or (iii) the date on which any
such sale of a majority of the Corporation's voting stock is to take place and
the material terms thereof, as the case may be. Such notice shall be mailed at
least ten (10) days prior to the date specified in such notice on which any such
action is to be taken.
7. Exchange of Warrant. Subject to the provisions of Section 9 hereof (if
and to the extent applicable), this Warrant shall be exchangeable, upon the
surrender hereof by the Holder at the principal office of the Corporation, for
new warrants of like tenor, each registered in the name of the Holder or in the
name of such other Persons as the Holder may direct. Each of such new warrants
shall be exercisable for such number of Warrant Shares as the Holder shall
direct, provided that all of such new warrants shall represent, in the
aggregate, the right to purchase the same number of Warrant Shares and cash,
securities or other property, if any, which may be purchased by the Holder upon
exercise of this Warrant at the time of its surrender.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Corporation of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of a customary
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<PAGE>
affidavit of the Holder and an indemnity agreement or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Corporation at
its expense will execute and deliver, in lieu thereof, a new warrant of like
tenor.
9. Transfer Provisions, etc.
9.1 Legends.
(a) Each certificate representing any Warrant Shares issued upon
exercise of this Warrant shall bear the following legend:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE TRANSFERRED ONLY PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED.
(b) Each certificate representing any shares of Stock issued from time
to time upon exercise of this Warrant shall also bear any legend required under
any applicable state securities or blue sky laws.
9.2 Mechanics of Transfer. Any transfer of all or any portion of this
Warrant, or of any interest therein, that is otherwise in compliance with
applicable law shall be effected by surrendering this Warrant to the Corporation
at its principal office, together with (i) a duly executed form of assignment,
in the form attached hereto, (ii) payment of any applicable transfer taxes, if
any. In the event of any such transfer of this Warrant, in whole, the
Corporation shall issue a new warrant of like tenor to the transferee,
representing the right to purchase the same number of Warrant Shares, and cash,
securities or other property, if any, which were purchasable by the Holder upon
exercise of this Warrant at the time of its transfer. In the event of any such
transfer of any portion of this Warrant, (i) the Corporation shall issue a new
warrant of like tenor to the transferee, representing the right to purchase the
same number of Warrant Shares, and cash, securities or other property, if any,
which were purchasable by the Holder upon exercise of the transferred portion of
this Warrant at the time of such transfer, and (ii) the Corporation shall issue
a new warrant of like tenor to the Holder, representing the right to purchase
the number of Warrant Shares, and cash, securities or other property, if any,
purchasable by the Holder upon exercise of the portion of this Warrant not
transferred to such transferee. Until this Warrant or any portion thereof is
transferred on the books of the Corporation, the Corporation may treat the
Holder as the absolute holder of this Warrant and all right, title and interest
therein for all purposes, notwithstanding any notice to the contrary.
-11-
<PAGE>
9.3. Restrictions on Transfer. Subject to compliance with applicable
securities laws and any other contractual restrictions to which the Holder may
be subject, this Warrant, and any portion hereof, and the Warrant Shares may be
transferred by the Holder in its sole discretion at any time to affiliates of
the Holder without the consent of the Corporation. Except as permitted pursuant
to the foregoing sentence, this warrant may not be transferred without the
consent of the Corporation.
10. General.
10.1 Statement on Warrant. Irrespective of any adjustments in the
Exercise Price or the number or kind of Warrant Shares, this Warrant may
continue to express the same kind of Warrant Shares as are stated on the front
page hereof.
10.2 Authorized Shares; Reservation of Shares for Issuance. At all times
while this Warrant is outstanding, the Corporation shall maintain its corporate
authority to issue, and shall have authorized and reserved for issuance upon
exercise of this Warrant, such number of shares of Stock as shall be sufficient
to perform its obligations under this Warrant (after giving effect to any and
all adjustments to the number and kind of Warrant Shares purchasable upon
exercise of this Warrant).
10.3 No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, sale or
other transfer of any of its assets or properties, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder hereunder against
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of Stock receivable upon the
exercise of this Warrant above the amount payable therefor on such exercise, and
(b) will take all action that may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Stock on the exercise of this Warrant.
10.4 No Rights as Stockholder. The Holder shall not be entitled to vote
or to receive dividends or to be deemed the holder of Stock that may at any time
be issuable upon exercise of this Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holder any of the
rights of a stockholder of the Corporation until the Holder shall have exercised
this Warrant and been issued Warrant Shares in accordance with the provisions
hereof.
10.5 Notices. All notices, demands, requests, certificates or other
communications under this Warrant shall be in writing and shall be either mailed
by certified mail, postage prepaid, in which case such notice, demand, request,
certificate or
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<PAGE>
other communications shall be deemed to have been given three (3) days after the
date on which it is first deposited in the mails, or hand delivered or sent by
facsimile transmission, by tested or otherwise authenticated telex or cable or
by private expedited courier for overnight delivery with signature required, in
each such case, such notice, demand, request, certificate or other
communications being deemed to have been given upon delivery or receipt, as the
case may be:
(i) if to the Corporation, Prime Response, Inc., 150 Cambridge Park Drive,
Cambridge, MA 02140, Attention: President, or at such other address as the
Corporation may have furnished in writing to the Holder; and
(ii) if to the Holder, at the Holder's address appearing in the books
maintained by the Corporation.
10.6 Amendment and Waiver. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and only
with) the written consent of the Corporation and the Holder.
10.7 Governing Law. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Massachusetts.
10.8 Covenants To Bind Successor and Assigns. All covenants,
stipulations, promises and agreements in this Warrant contained by or on behalf
of the Corporation shall bind its successors and assigns, whether so expressed
or not.
10.9 Severability. In case any one or more of the provisions contained in
this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
10.10 Construction. The definitions of this Warrant shall apply equally
to both the singular and the plural forms of the terms defined. Wherever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The section and paragraph headings used herein are
for convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
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<PAGE>
10.11 Remedies. The Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Corporation agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
of this Warrant or where any provision hereof is validly asserted as a defense,
the successful party to such action or proceeding shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
[rest of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Common Stock Purchase
Warrant to be executed as an instrument under seal in its corporate name by one
of its officers thereunto duly authorized, all as of the day and year first
above written.
PRIME RESPONSE, INC.
[Corporate Seal]
By: /s/ Frederick H. Phillips
---------------------------------
Name: Frederick H. Phillips
Title: Secretary, Treasurer,
Senior Vice President and
Chief Financial Officer
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<PAGE>
FORM OF SUBSCRIPTION
(To be executed upon exercise of Warrant)
To: PRIME RESPONSE, INC.
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the attached Warrant for, and to exercise thereunder, _______
shares of Common Stock, $.01 par value per share ("Common Stock"), of Prime
Response, Inc., a Delaware corporation, and tenders herewith payment of
$__________, representing the aggregate purchase price for such shares based on
the price per share provided for in such Warrant. Such payment is being made in
accordance with [Section 2.1(b)(i)] [Section 2.1(b)(ii)] [Section 2.1(b)(iii)]
of the attached Warrant.
Please issue a certificate or certificates for such shares of Common Stock
in the following name or names and denominations and deliver such certificate or
certificates to the person or persons listed below at their respective addresses
set forth below:
Dated:
(Address)
If said number of shares of Common Stock shall not be all the shares of
Common Stock issuable upon exercise of the attached Warrant, a new Warrant is to
be issued in the name of the undersigned for the balance remaining of such
shares of Common Stock less any fraction of a share of Common Stock paid in
cash.
Dated: ____________, ____
NOTE: The above signature should
correspond exactly with the name
on the face of the attached
Warrant or with the name of the
assignee appearing in the
assignment form below.
<PAGE>
FORM OF ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _____________________________________ hereby sells,
assigns and transfers unto _________________ the attached Warrant [__% of the
attached Warrant], together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ___________________________ attorney
to transfer said Warrant [said percentage of said Warrant] on the books of Prime
Response, Inc., a Delaware corporation, with full power of substitution in the
premises.
If not all of the attached Warrant is to be so transferred, a new Warrant
is to be issued in the name of the undersigned for the balance of said Warrant.
Dated: ____________, ____
NOTE: The above
signature should
correspond exactly with
the name on the face of
the attached Warrant.
<PAGE>
Exhibit 10.23
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER
THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE SOLD
OR TRANSFERRED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT HAVE BEEN COMPLIED
WITH OR UNLESS COMPLIANCE WITH SUCH PROVISIONS IS NOT REQUIRED.
No. AC-3 Dated: December 9, 1999
PRIME RESPONSE, INC.
COMMON STOCK
PURCHASE WARRANT
THIS IS TO CERTIFY THAT, for value received, Andersen Consulting LLP
(the "Initial Warrant Holder"), and its registered successors and permitted
assigns are entitled, subject to the terms and conditions set forth below, to
purchase from PRIME RESPONSE, INC. (f/k/a Prime Response Group, Inc.), a
Delaware corporation (the "Corporation"), at any time or from time to time on
and after the date hereof and prior to 5:00 P.M., Boston, Massachusetts time, on
the Expiration Date (as defined in Section 1 below), all or any portion of the
Warrant Shares (as defined in Section 1), at a purchase price per share equal to
the Exercise Price (as defined in Section 1 below). The number and character of
the Warrant Shares and the Exercise Price are subject to adjustment as provided
herein.
1. DEFINITIONS. As used in this Warrant, the following terms shall
have the respective meanings set forth below or elsewhere in this Warrant as
referred to below:
"Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
"Common Stock" shall mean shares of the Common Stock of the
Corporation, $0.01 par value per share of the Corporation and shall also include
any capital stock of any class of the Corporation authorized after the date
hereof which shall neither be limited to a fixed sum or percentage of par value
in respect of the rights of the holders thereof to participate in dividends or
any distribution of earnings or assets (in liquidation or otherwise) of the
Corporation, whether or not such capital stock is entitled to a
<PAGE>
preference in the distribution of assets upon the voluntary of involuntary
liquidation, dissolution or winding up of the Corporation.
"Corporation" shall mean Prime Response, Inc. and/or any Person that
shall succeed to, or assume the obligations hereunder of, Prime Response, Inc.
"Derivative Securities" shall mean (i) all shares of stock and other
securities that are, directly or indirectly, convertible into or exchangeable
for shares of Common Stock and (ii) all options, warrants and other rights to
acquire, directly or indirectly, shares of Common Stock or securities, directly
or indirectly, convertible into or exchangeable for shares of Common Stock.
"Exercise Date" shall have the meaning set forth in Section 2.2
hereof.
"Exercise Price" shall mean, as of the Initial Exercise Date, the
Initial Exercise Price and after the Initial Exercise Date, the Initial Exercise
Price as adjusted from time to time pursuant to the terms of this Warrant.
"Expiration Date" shall mean December 9, 2006.
"Fair Market Value" shall mean (i) the last reported sale price per
share of Stock on the Nasdaq National Market or any national securities exchange
in which such Stock is quoted or listed, as the case may be, on the date
immediately preceding the Exercise Date or, if no such sale price is reported on
such date, such price on the next preceding business day in which such price was
reported, or (ii) if such Stock is not quoted or listed on the Nasdaq National
Market or any national securities exchange, the fair market value of a share of
such Stock, as determined in good faith by the Board of Directors of the
Corporation and based upon the fair market value of the Corporation as a whole,
(and not taking into account any discounts for minority ownership or
restrictions or transfer of capital stock of the Corporation).
"Holder" shall mean, as applicable, (i) the Initial Warrant Holder, or
(ii) any successor of the Initial Warrant Holder.
"Initial Exercise Date" shall mean the date on which this Warrant
first vests in accordance with the provisions of the second paragraph of Section
2.1 hereof.
"Initial Exercise Price" shall mean an amount equal to $7.01 per
share.
"Initial Warrant Holder" shall have the meaning set forth in the first
paragraph of this Warrant.
"Initial Warrant Shares" shall mean 500,000 shares of Common Stock.
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<PAGE>
"Issue Date" shall mean the date hereof.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Preferred Stock" shall mean the Series A Preferred Stock, the Series
B Preferred Stock and the Series C Preferred Stock and all other capital stock
of the Corporation having a preference on dissolution or liquidation of the
Corporation.
"Purchase Agreement" shall mean that certain Common Stock and Warrant
Purchase Agreement, dated of December 6, 1999, by and between the Corporation
and Andersen Consulting LLP.
"Registrable Securities" shall have the meaning ascribed to it in the
Registration Rights Agreement.
"Registration Rights Agreement" shall mean the Amended and Restated
Registration Rights Agreement, dated as of December 6, 1999, by and among the
Corporation and the other parties hereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Preferred Stock" shall mean the Series A Convertible
Participating Preferred Stock of the Corporation, $0.01 par value per share.
"Series B Preferred Stock" shall mean the Series B Convertible
Participating Preferred Stock of the Corporation, $0.01 par value per share.
"Series C Preferred Stock" shall mean the Series C Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"Stock" shall mean (i) Common Stock, (ii) capital stock of the
Corporation (other than Common Stock) or of any other Person or any other
securities of the Corporation or of any other Person that the Holder is entitled
to receive, or receives, upon exercise of this Warrant, in lieu of or in
addition to Common Stock, and/or (iii) capital stock of the Corporation (other
than Common Stock) or of any other Person or any other securities of the
Corporation or of any other Person that may be issued in replacement of,
substitution, exchange or redemption for, or upon reclassification or conversion
of, Common Stock or any other Stock, in each case whether as a result of a
reorganization, reclassification, merger, consolidation or sale of substantially
all of the assets of the Corporation.
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<PAGE>
"Warrant" shall have the meaning set forth in the second paragraph of
this Warrant.
"Warrant Shares" shall mean, at any time, the Initial Warrant Shares
after giving effect to the number of shares of Stock previously purchased by the
Holder pursuant to any and all exercises of this Warrant prior to such time and
after giving effect to all adjustments with respect to the number of Warrant
Shares purchaseable hereunder as provided for herein, including, without
limitation, those set forth in Section 4 hereof, prior to such time.
2. EXERCISE OF WARRANT.
2.1 METHOD OF EXERCISE. Subject to and upon all of the terms and
conditions set forth in this Warrant, the Holder may exercise this Warrant, in
whole or in part with respect to any Warrant Shares, at any time and from time
to time during the period commencing on the date that this Warrant vests in
accordance with the second paragraph of this Section 2.1 and ending at 5:00
p.m., Boston, Massachusetts time, on the Expiration Date, by presentation and
surrender of this Warrant to the Corporation at its principal office, together
with (a) a properly completed and duly executed subscription form, in the form
attached hereto, which subscription form shall specify the number of Warrant
Shares for which this Warrant is then being exercised, and (b) payment of the
aggregate Exercise Price payable hereunder in respect of the number of Warrant
Shares being purchased upon exercise of this Warrant. Payment of such aggregate
Exercise Price shall be made (i) in cash or by money order, certified or bank
cashier's check or wire transfer (in each case in lawful currency of the United
States of America), (ii) by cancellation of indebtedness owing from the
Corporation to the Holder, (iii) if the Common Stock is then traded on the
Nasdaq National Market or a national securities exchange, by cancellation of a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (A) the total Exercise Price payable in respect of the
number of Warrant Shares being purchased upon such exercise by (B) the excess of
the Fair Market Value per share of Common Stock as of the Exercise Date (as
defined below) over the Exercise Price per share; if the Holder wishes to
exercise this Warrant pursuant to this clause (iii) with respect to the maximum
number of Warrant Shares purchasable pursuant to this method, then the number of
Warrant Shares so purchased shall be equal to the total number of Warrant
Shares, minus the product obtained by multiplying (x) the total number of
Warrant Shares by (y) a fraction, the numerator of which shall be the Exercise
Price per share and the denominator of which shall be the Fair Market Value per
share of Common Stock as of the Exercise Date, or (iv) any combination of the
methods described in the foregoing clauses (i), (ii) or (iii).
This Warrant will become exercisable ("vest") based on the Product Revenue
("Product Revenue") achieved under the Marketing Agreement (the "Marketing
Agreement") dated the date hereof between the Company and Andersen Consulting
LLP ("Andersen") that
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<PAGE>
is attributable to joint marketing efforts of the Company and Andersen pursuant
to Section 2.3 of such Marketing Agreement, as follows:
<TABLE>
<CAPTION>
Product Revenue Warrants Becoming Exercisable
----------------- -----------------------------
<S> <C>
First $25 million 14,000 for each $1 million of sales revenue
Next $25 million 6,000 for each $1 million of sales revenue
</TABLE>
Product Revenue shall be determined in accordance with the procedures set
forth in Sections 4.3 and 4.4 of the Marketing Agreement. Once this Warrant
becomes exercisable with respect to Warrant Shares in accordance with the
foregoing provisions, this Warrant shall not cease to be exercisable with
respect to such Warrant Shares as a result of the Product Revenue decreasing
below the amount that resulted in this Warrant (or any portion hereof) becoming
exercisable.
In no event shall this Warrant become exercisable for more than 500,000
shares of Common Stock. Notwithstanding anything to the contrary contained
herein, upon termination of the Marketing Agreement at the election of the
Company as a result of a breach by Andersen pursuant to Section 10.2(a) thereof,
no further vesting of this Warrant shall occur, but the Warrant shall remain
exercisable during its term to the extent then vested.
2.2 EFFECTIVENESS OF EXERCISE; OWNERSHIP. Each exercise of this Warrant
------------------------------------
by the Holder shall be deemed to have been effected immediately prior to the
close of business on the date upon which all of the requirements of Section 2.1
hereof with respect to such exercise shall have been complied with in full (each
such date, an "Exercise Date"). On the applicable Exercise Date with respect to
-------------
any exercise of this Warrant by the Holder, the Corporation shall be deemed to
have issued to the Holder, and the Holder shall be deemed to have become the
holder of record and legal owner of, the number of Warrant Shares being
purchased upon such exercise of this Warrant, notwithstanding that the stock
transfer books of the Corporation shall then be closed or that certificates
representing such number of Warrant Shares being purchased shall not then be
actually delivered to the Holder.
2.3 DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as
practicable after the exercise of this Warrant, and in any event within ten (10)
days thereafter, the Corporation, at its expense and in accordance with
applicable securities laws, will cause to be issued in the name of and delivered
to the Holder, or as the Holder may direct (subject in all cases, to the
provisions of Section 9 hereof), a certificate or certificates for the number of
Warrant Shares purchased by the Holder on such exercise, plus, in lieu of any
fractional share to which the Holder would otherwise be entitled, cash equal to
such fraction multiplied by the Fair Market Value.
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<PAGE>
2.4 SHARES TO BE FULLY PAID AND NONASSESSABLE. All Warrant Shares
issued upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable, free of all liens, taxes, charges and other encumbrances or
restrictions on sale (other than those set forth herein) and free and clear of
all preemptive rights.
2.5 FRACTIONAL SHARES. No fractional shares of Stock or scrip
representing fractional shares of Stock shall be issued upon the exercise of
this Warrant. With respect to any fraction of a share of Stock called for upon
any exercise hereof, the Corporation shall make a cash payment to the Holder as
set forth in Section 2.3 hereof.
2.6 ISSUANCE OF NEW WARRANTS; CORPORATION ACKNOWLEDGMENT. Upon any
partial exercise of this Warrant, the Corporation, at its expense, will
forthwith and, in any event, within ten (10) days after such partial exercise
issue and deliver to the Holder a new warrant or warrants of like tenor,
registered in the name of the Holder, exercisable, in the aggregate, for the
balance of the Warrant Shares.
2.7 PAYMENT OF TAXES AND EXPENSES. The Corporation shall pay any
recording, filing, stamp or similar tax which may be payable in respect of any
transfer involved in the issuance of, and the preparation and delivery of
certificates (if applicable) representing, (i) any Warrant Shares purchased upon
exercise of this Warrant and/or (ii) new or replacement warrants in the Holder's
name or the name of any transferee of all or any portion of this Warrant.
3. REGISTRATION AND OTHER RIGHTS.
(a) REGISTRATION RIGHTS. The Holder of this Warrant shall have the
right to cause the Corporation to register any and all Warrant Shares under the
Securities Act and under any blue sky or securities laws of any jurisdictions
within the United States, at the time and in the manner specified and as
provided for in the Registration Rights Agreement, and any and all Warrant
Shares shall be deemed to be included within the definition of Registrable
Securities for all purposes thereof.
(b) PURCHASE AGREEMENT. Subject to Section 10.4 of this Warrant, for
the purposes of the Purchase Agreement, the shares of Common Stock issuable upon
exercise of this Warrant shall be included for the purposes of determining the
number of shares of Common Stock held by such Holder for all purposes of such
agreement.
4. ADJUSTMENTS.
4.1 ADJUSTMENTS FOR STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
(a) In the event that, at any time and from time to time after the
Issue Date, the Corporation shall (A) issue any additional shares of Stock as a
dividend or
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<PAGE>
distribution on its outstanding Stock or options, warrants or other rights to
purchase, directly or indirectly, Stock as a dividend or distribution on its
outstanding Stock or securities convertible, directly or indirectly, into Stock
as a dividend or distribution on its outstanding Stock (other than shares of
Stock issued upon conversion of Preferred Stock), (B) subdivide its outstanding
shares of Stock into a greater number of shares of Stock or (C) combine its
outstanding shares of Stock into a smaller number of shares of Stock, then and
in each such event, (x) the Exercise Price shall, simultaneously with the
happening of such event, be adjusted by multiplying the then current Exercise
Price by a fraction, (i) the numerator of which shall be the number of shares of
Stock outstanding immediately prior to such event on a fully-diluted basis,
assuming exercise in full of all options, warrants or other rights to purchase
Stock, directly or indirectly, outstanding immediately prior to such event and
conversion into or exchange for Stock, directly or indirectly, of all securities
convertible into or exchangeable for Stock outstanding immediately prior to such
event, each in accordance with their terms, and (ii) the denominator of which
shall be the number of shares of Stock outstanding immediately after such event
on a fully-diluted basis, assuming exercise in full of all options, warrants or
other rights to purchase Stock, directly or indirectly, outstanding immediately
after such event and conversion into or exchange for Stock, directly or
indirectly, of all securities convertible into or exchangeable for Stock
outstanding immediately after such event, each in accordance with their terms,
and the product so obtained shall thereafter be the Exercise Price then in
effect, and (y) the number of Warrant Shares shall be adjusted by increasing or
decreasing, as the case may be, the number of shares of Stock included within
the Warrant Shares by the percentage increase or decrease in the total number of
shares of Stock outstanding immediately after such event as compared to the
total number of shares of Stock outstanding immediately prior to such event and
the result so obtained shall be the number of Warrant Shares then in effect.
(b) The Exercise Price and the number of Warrant Shares, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 4.1
4.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION OR MERGER. In the
event that, at any time or from time to time after the Issue Date, the
Corporation shall (a) effect a reorganization, (b) consolidate with or merge
into any other Person, or (c) sell or transfer all or substantially all of its
properties or assets or more than 50% of the voting capital stock of the
Corporation (whether issued and outstanding, newly issued, from treasury, or any
combination thereof) to any other Person under any plan or arrangement
contemplating the reorganization, consolidation or merger, sale or transfer, or
dissolution of the Corporation, then, in each such case, the Holder, upon the
exercise of this Warrant as provided in Section 2 hereof at any time or from
time to time after the consummation of such reorganization, consolidation,
merger or sale or the effective date of such dissolution (subject to the
limitation contained in Section 4.6, if applicable), as the case may be, shall
receive, in lieu of the Warrant Shares issuable on such exercise immediately
prior to such consummation or such effective date, as the case may be, the Stock
and property (including cash) to which the Holder would have been entitled upon
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<PAGE>
the consummation of such reorganization, consolidation or merger, or sale or
transfer, or in connection with such dissolution, as the case may be, if the
Holder had so exercised this Warrant immediately prior thereto (assuming the
payment by the Holder of the Exercise Price therefor as required hereby in a
form permitted hereby, which payment shall be included in the assets of the
Corporation for the purposes of determining the amount available for
distribution), all subject to successive adjustments thereafter from time to
time pursuant to, and in accordance with, the provisions of this Section 4.
4.3 ADJUSTMENTS FOR RECLASSIFICATIONS. If the Common Stock issuable
upon the conversion of this Warrant shall be changed into the same or a
different number of shares of any class(es) or series of stock, whether by
reclassification or otherwise (other than an adjustment under Section 4.1 or a
merger, consolidation, or sale of assets provided for under Section 4.2), then
and in each such event, the Holder hereof shall have the right thereafter to
convert each Warrant Share into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, or other change
by holders of the number of shares of Common Stock into which such Warrant
Shares would have been convertible immediately prior to such reclassification,
or change, all subject to further adjustment as provided herein.
4.4 DISTRIBUTIONS. In the event that, at any time or from time to
time after the Issue Date, the Corporation shall make or issue, or shall fix a
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to Common Stock payable in (i)
shares of its capital stock (other than a stock dividend provided for in Section
4.1), (ii) other securities of the Corporation or any other Person, (iii)
evidences of indebtedness issued by the Company or any other Person, (iv)
options, warrants or rights to subscribe for or purchase any of the foregoing,
or (v) assets (excluding cash dividends) then, in each such case, the Holder of
this Warrant shall receive, in addition to the shares of Stock issuable upon the
exercise of this Warrant prior to such date, and without the payment of
additional consideration therefor, the shares of capital stock, other
securities, evidence of indebtedness, options, warrants or other rights or
assets, as the case may be, to which such Holder would have been entitled upon
such date as if such Holder had exercised this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the date
of the actual exercise of this Warrant, retained such shares and/or all other
additional stock available to it as aforesaid during such period, giving effect
to all adjustments pursuant to this Section 4. The Company shall reserve and
set aside, for the life of this Warrant or until exercised in full, all such
distributions to which the Holder is entitled to receive pursuant to the this
Section 4.4.
4.5 CONTINUATION OF TERMS. Upon any reorganization,
reclassification, sale, consolidation, merger or other transfer (and any
liquidation, dissolution or winding up of the Corporation following any such
transfer) referred to in this Section 4, this Warrant shall continue in full
force and effect and the terms hereof shall be applicable to the shares of Stock
and property (including cash, where applicable) receivable upon the
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<PAGE>
exercise of this Warrant after the consummation of such reorganization,
reclassification, sale, consolidation, merger or other transfer or the effective
date of liquidation, dissolution or winding up of the Corporation following any
such transfer, as the case may be, and shall be binding upon the issuer of any
such Stock, including, in the case of any such transfer, the Person acquiring
all or substantially all of the properties or assets or more than 50% of the
voting capital stock of the Corporation (whether issued and outstanding, newly
issued or from treasury or any combination thereof), whether or not such Person
shall have expressly assumed the terms of this Warrant.
5. OFFICER'S CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the number and kind of Warrant Shares, or
property, issuable hereunder from time to time, or the Exercise Price, the
Corporation, at its expense, will promptly cause an officer of the Corporation
to compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing the facts upon which such adjustment or readjustment is based. The
Corporation will forthwith send a copy of each such certificate to the Holder in
accordance with Section 10.5 below.
6. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Corporation of a record of the holders of Stock
for the purpose of determining the holders thereof who are entitled to receive
any shares of Stock as a dividend or other distribution or pursuant to a stock
split, or
(b) any reorganization of the Corporation, or any sale or transfer, in
a single transaction or a series of related transactions, of all or
substantially all the assets of the Corporation to, or the consolidation or
merger of the Corporation with or into, any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Corporation, or
(d) any sale, in a single transaction or a series of related
transactions, of a majority of the Corporation's voting stock (whether newly
issued, or from treasury, or previously issued and then outstanding, or any
combination thereof),
then and in each such event the Corporation will mail or cause to be mailed to
the Holder a notice specifying (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or stock split, and stating
the amount and character of such dividend, distribution or stock split, or (ii)
the date on which any such reorganization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of any one or more classes of
Stock shall be entitled to exchange their shares of Stock for securities or
other property deliverable on such reorganization, transfer, consolidation,
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<PAGE>
merger, dissolution, liquidation or winding-up, or (iii) the date on which any
such sale of a majority of the Corporation's voting stock is to take place and
the material terms thereof, as the case may be. Such notice shall be mailed at
least ten (10) days prior to the date specified in such notice on which any such
action is to be taken.
7. EXCHANGE OF WARRANT. Subject to the provisions of Section 9
hereof (if and to the extent applicable), this Warrant shall be exchangeable,
upon the surrender hereof by the Holder at the principal office of the
Corporation, for new warrants of like tenor, each registered in the name of the
Holder or in the name of such other Persons as the Holder may direct. Each of
such new warrants shall be exercisable for such number of Warrant Shares as the
Holder shall direct, provided that all of such new warrants shall represent, in
the aggregate, the right to purchase the same number of Warrant Shares and cash,
securities or other property, if any, which may be purchased by the Holder upon
exercise of this Warrant at the time of its surrender.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of a customary affidavit of the Holder and an indemnity
agreement or, in the case of any such mutilation, on surrender and cancellation
of this Warrant, the Corporation at its expense will execute and deliver, in
lieu thereof, a new warrant of like tenor.
9. TRANSFER PROVISIONS, ETC.
9.1 LEGENDS.
(a) Each certificate representing any Warrant Shares issued upon
exercise of this Warrant shall bear the following legend:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE TRANSFERRED ONLY PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED.
(b) Each certificate representing any shares of Stock issued from
time to time upon exercise of this Warrant shall also bear any legend required
under any applicable state securities or blue sky laws.
9.2 MECHANICS OF TRANSFER. Any transfer of all or any portion of this
Warrant, or of any interest therein, that is otherwise in compliance with
applicable law shall be effected by surrendering this Warrant to the Corporation
at its principal office, together with (i) a duly executed form of assignment,
in the form attached hereto, (ii) payment of
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<PAGE>
any applicable transfer taxes, if any. In the event of any such transfer of this
Warrant, in whole, the Corporation shall issue a new warrant of like tenor to
the transferee, representing the right to purchase the same number of Warrant
Shares, and cash, securities or other property, if any, which were purchasable
by the Holder upon exercise of this Warrant at the time of its transfer. In the
event of any such transfer of any portion of this Warrant, (i) the Corporation
shall issue a new warrant of like tenor to the transferee, representing the
right to purchase the same number of Warrant Shares, and cash, securities or
other property, if any, which were purchasable by the Holder upon exercise of
the transferred portion of this Warrant at the time of such transfer, and (ii)
the Corporation shall issue a new warrant of like tenor to the Holder,
representing the right to purchase the number of Warrant Shares, and cash,
securities or other property, if any, purchasable by the Holder upon exercise of
the portion of this Warrant not transferred to such transferee. Until this
Warrant or any portion thereof is transferred on the books of the Corporation,
the Corporation may treat the Holder as the absolute holder of this Warrant and
all right, title and interest therein for all purposes, notwithstanding any
notice to the contrary.
9.3. RESTRICTIONS ON TRANSFER. Subject to compliance with applicable
securities laws and any other contractual restrictions to which the Holder may
be subject, this Warrant, and any portion hereof, and the Warrant Shares may be
transferred by the Holder in its sole discretion at any time to affiliates of
the Holder without the consent of the Corporation. Except as permitted pursuant
to the foregoing sentence, this warrant may not be transferred without the
consent of the Corporation.
10. GENERAL.
10.1 STATEMENT ON WARRANT. Irrespective of any adjustments in the Exercise
Price or the number or kind of Warrant Shares, this Warrant may continue to
express the same kind of Warrant Shares as are stated on the front page hereof.
10.2 AUTHORIZED SHARES; RESERVATION OF SHARES FOR ISSUANCE. At all times
while this Warrant is outstanding, the Corporation shall maintain its corporate
authority to issue, and shall have authorized and reserved for issuance upon
exercise of this Warrant, such number of shares of Stock as shall be sufficient
to perform its obligations under this Warrant (after giving effect to any and
all adjustments to the number and kind of Warrant Shares purchasable upon
exercise of this Warrant).
10.3 NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, sale or
other transfer of any of its assets or properties, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder hereunder against
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<PAGE>
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of Stock receivable upon the
exercise of this Warrant above the amount payable therefor on such exercise, and
(b) will take all action that may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Stock on the exercise of this Warrant.
10.4 NO RIGHTS AS STOCKHOLDER. The Holder shall not be entitled to vote or
to receive dividends or to be deemed the holder of Stock that may at any time be
issuable upon exercise of this Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holder any of the
rights of a stockholder of the Corporation until the Holder shall have exercised
this Warrant and been issued Warrant Shares in accordance with the provisions
hereof.
10.5 NOTICES. All notices, demands, requests, certificates or other
communications under this Warrant shall be in writing and shall be either mailed
by certified mail, postage prepaid, in which case such notice, demand, request,
certificate or other communications shall be deemed to have been given three (3)
days after the date on which it is first deposited in the mails, or hand
delivered or sent by facsimile transmission, by tested or otherwise
authenticated telex or cable or by private expedited courier for overnight
delivery with signature required, in each such case, such notice, demand,
request, certificate or other communications being deemed to have been given
upon delivery or receipt, as the case may be:
(i) if to the Corporation, Prime Response, Inc., 150 Cambridge Park Drive,
Cambridge, MA 02140, Attention: President, or at such other address as the
Corporation may have furnished in writing to the Holder; and
(ii) if to the Holder, at the Holder's address appearing in the books
maintained by the Corporation.
10.6 AMENDMENT AND WAIVER. No failure or delay of the Holder in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any rights
or remedies which it would otherwise have. The provisions of this Warrant may
be amended, modified or waived with (and only with) the written consent of the
Corporation and the Holder.
10.7 GOVERNING LAW. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Massachusetts.
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<PAGE>
10.8 COVENANTS TO BIND SUCCESSOR AND ASSIGNS. All covenants, stipulations,
promises and agreements in this Warrant contained by or on behalf of the
Corporation shall bind its successors and assigns, whether so expressed or not.
10.9 SEVERABILITY. In case any one or more of the provisions contained in
this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
10.10 CONSTRUCTION. The definitions of this Warrant shall apply equally to
both the singular and the plural forms of the terms defined. Wherever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The section and paragraph headings used herein are
for convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
10.11 REMEDIES. The Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Corporation agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
of this Warrant or where any provision hereof is validly asserted as a defense,
the successful party to such action or proceeding shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
[rest of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Common Stock Purchase
Warrant to be executed as an instrument under seal in its corporate name by one
of its officers thereunto duly authorized, all as of the day and year first
above written.
PRIME RESPONSE, INC.
[Corporate Seal]
By: /s/ Frederick H. Phillips
---------------------------------
Name: Frederick H. Phillips
Title: Secretary, Treasurer,
Senior Vice President and
Chief Financial Officer
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<PAGE>
FORM OF SUBSCRIPTION
(To be executed upon exercise of Warrant)
To: PRIME RESPONSE, INC.
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the attached Warrant for, and to exercise thereunder, _______
shares of Common Stock, $.01 par value per share ("Common Stock"), of Prime
Response, Inc., a Delaware corporation, and tenders herewith payment of
$__________, representing the aggregate purchase price for such shares based on
the price per share provided for in such Warrant. Such payment is being made in
accordance with [Section 2.1(b)(i)] [Section 2.1(b)(ii)] [Section 2.1(b)
(iii)] of the attached Warrant.
Please issue a certificate or certificates for such shares of Common Stock
in the following name or names and denominations and deliver such certificate or
certificates to the person or persons listed below at their respective addresses
set forth below:
Dated:
(Address)
If said number of shares of Common Stock shall not be all the shares of
Common Stock issuable upon exercise of the attached Warrant, a new Warrant is to
be issued in the name of the undersigned for the balance remaining of such
shares of Common Stock less any fraction of a share of Common Stock paid in
cash.
Dated: ____________, ____
NOTE: The above signature should
correspond exactly with the name on the
face of the attached Warrant or with the
name of the assignee appearing in the
assignment form below.
<PAGE>
FORM OF ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _____________________________________ hereby sells,
assigns and transfers unto _________________ the attached Warrant [__% of the
attached Warrant], together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ___________________________ attorney
to transfer said Warrant [said percentage of said Warrant] on the books of Prime
Response, Inc., a Delaware corporation, with full power of substitution in the
premises.
If not all of the attached Warrant is to be so transferred, a new Warrant is
to be issued in the name of the undersigned for the balance of said Warrant.
Dated: ____________, ____
NOTE: The above signature should
correspond exactly with the name on the
face of the attached Warrant.
<PAGE>
Exhibit 10.24
MARKETING AGREEMENT
This Marketing Agreement is entered into as of December 6, 1999 (EFFECTIVE
DATE) by and between Prime Response, Inc., a Delaware corporation (PR) and
Andersen Consulting LLP, an Illinois partnership (ANDERSEN CONSULTING)
Background
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PR develops, manufactures and sells multi-channel marketing automation software
products for the customer relationship management (CRM) market; Andersen
Consulting provides consulting services, including third party software
developer and Business Integration Services, to clients; and PR and Andersen
Consulting desire to enter into an agreement granting Andersen Consulting the
right to market the Products (as defined below).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, PR and Andersen Consulting agree
as follows:
1. DEFINITIONS.
Capitalized terms used in this Agreement and not otherwise defined herein
shall have the meaning set forth below.
AFFILIATE means with respect to either party, any Person that, directly or
indirectly, is controlled by, controls or is under common control with such
party and, with respect to Andersen Consulting, Proquire LLC. For purposes of
this Agreement, CONTROL means, with respect to any Person, the direct or
indirect ownership of more than fifty percent (50%) of the voting or income
interest in such Person or the possession otherwise, directly or indirectly, of
the power to direct the management or policies of such Person.
BUSINESS INTEGRATION SERVICES shall include, but not be limited to, the
provision by Andersen Consulting or an Affiliate of systems design and
development and implementation of modifications, extensions and interfaces to a
software system, modifications to current applications, identification of
operational strategies and business changes required to take advantage of a
software product, integration, implementation and conversion assistance, and
organization design and conversion training, and as a general matter may include
strategic systems planning, productivity improvement/work simplification,
systems design, change management and training, and systems management and
outsourcing.
CLIENT means those third parties and all subsidiaries or affiliates of
those third parties which have licensed or purchased the Products or that may
license or purchase the Products.
CONFIDENTIAL INFORMATION means all data, specifications, training and any
other know-how related to the design, implementation, performance or manufacture
of the Products, as well as all other information and data provided by either
party to the other party pursuant to this Agreement in written or other tangible
medium and marked as confidential, or if disclosed orally or displayed,
confirmed in writing at the time of disclosure, except any portion thereof
which: (i) is known to the receiving party, as evidenced by the receiving
party's written records, before receipt from the disclosing party; (ii) is
disclosed to the receiving party by a third person who is under no obligation of
confidentiality to the
<PAGE>
disclosing party hereunder with respect to such information and who otherwise
has a right to make such disclosure; (iii) is or becomes generally known in the
trade through no fault of the receiving party; (iv) is independently developed
by the receiving party, as evidenced by the receiving party's written records,
without access to such information; or (v) is the subject of a subpoena or other
validly issued administrative or judicial process requesting disclosure of such
Confidential Information; provided, the party that receives such order or
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process provide prompt notice to the disclosing party and permits the disclosing
party to contest or narrow such request for disclosure and thereafter complies
with such subpoena or other process.
LIST PRICE means PR's standard published list prices for the Products, as
in effect from time to time.
FORCE MAJEURE means any event beyond the control of the parties, including,
without limitation, failures of computers, computer-related equipment, hardware
or software, fire, flood, riots, strikes, epidemics, war (declared or undeclared
and including the continuance, expansion or new outbreak of any war or conflict
now in existence), embargoes and governmental actions or decrees.
IMPROVEMENTS means any additions, developments, enhancements,
modifications, new versions, updates and other changes in the Products,
including but not limited to any derivatives for any Product(s) and any new
designs for the Product(s) delivered by PR to Andersen Consulting hereunder.
PERSON means any individual, corporation, association, partnership
(general or limited), joint venture, trust, estate, limited liability company,
limited liability partnership, unincorporated organization, government (or any
agency or political subdivision thereof) or other legal entity or organization.
PRODUCTS means the object code (machine readable format); version of and
the user documentation regarding PR's multi-channel customer relationship
management software products marketed under the name "Prime@Vantage" and
"[email protected]," as further described in Attachment A, together with any
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Improvements and any related Third Party Products that are incorporated into the
Product.
PRODUCT SPECIFICATIONS means the specifications for the Product set forth
in Attachment A, as such specifications may be modified from time to time to
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reflect Improvements (if any) as notified by PR to Andersen Consulting.
RESELL means that Andersen Consulting shall purchase copies of a Product
from PR (at a price that is discounted in accordance with Section 4.1(b)) and
distribute such Products in their original form to a Client at a price to be
negotiated by Andersen Consulting and the Client, provided that Andersen
Consulting shall have no right to use, copy or sublicense such Products and the
Client shall be required to enter into a separate license agreement with PR
governing any use of such Product.
THIRD PARTY PRODUCT(S) means the object code version of any software, which
is proprietary to a third party and embedded in the Products.
TRADEMARKS means (i) the trademarks described on Attachment C, and (ii)
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any other trademarks, as may be agreed upon in writing from time to time by the
parties for use by
2
<PAGE>
Andersen Consulting in connection with the promotion, marketing and sale of the
Products in accordance with the terms hereof.
OTHER DEFINED TERMS. Each of the following terms have the meanings
ascribed to it in the section set forth opposite such term:
ANDERSEN CONSULTING Recitals
AGREEMENT Recitals
ASC Section 2.2
CRM Recitals
EAI Section 2.1
EFFECTIVE DATE Recitals
INDEMNIFYING PARTY Section 9.3
Indemnitees Section 9.3
LOSSES Section 9.2
PERSONNEL Section 11.18
PLAN Section 2.2
PRODUCT INFORMATION Section 7.1
PRODUCT REVENUE Section 4.1(c)
PROJECT WORK Section 5.3
PROSPECT REGISTRATION FORM Section 2.3
PR Recitals
REGISTERED PROSPECT Section 2.3
RFP Section 5.2
THIRD PARTY DEVELOPMENT FIRM Section 5.4
WORK PRODUCT Section 5.3
Y2K COMPLIANT Section 8.3
2. MARKETING ARRANGEMENT.
2.1 APPOINTMENT. (a) Subject to the terms of this Agreement, PR
hereby appoints Andersen Consulting as PR's non-exclusive reseller for the
promotion, sale and delivery of the Products to customers. Andersen Consulting
hereby accepts the appointment as non-exclusive reseller.
(b) Subject to the terms set forth in this Agreement, PR will also
designate Andersen Consulting as a "Preferred" Business Integration Services
provider for the Products and will provide Andersen Consulting with the
opportunity to participate in certain joint marketing activities and Client
proposal opportunities described herein. Subject to the terms of this
Agreement, Andersen Consulting may recommend PR as a preferred Enterprise
Application Integration (EAI) technology for its offerings that embody CRM
functionality.
(c) It is understood and agreed that each of Andersen Consulting and
PR reserves the right to continue to recommend the most appropriate available
solution for their client(s). As a result, each party recognizes situations
will arise among target clients where they shall mutually determine it is not
beneficial to pursue an opportunity together. It is further understood and
agreed that: (i) Andersen Consulting may market and demonstrate other software
solutions to its clients, and if a Client selects an alternative or competing
solution, Andersen Consulting will not be restricted from installing or
implementing such alternative or competing solution; (ii) nothing in this
Agreement shall restrict Andersen Consulting or its Affiliates from developing,
marketing or installing competing software or entering into arrangements with
any third party; and (iii) neither party makes any commitment that a minimum
number of sales or licenses of the Products will be effected or
3
<PAGE>
a minimum amount of total revenue will be generated by either party as a result
of this Agreement.
(d) Neither party shall have the right to make commitments of any kind for
or on behalf of the other party without the prior written consent of the other
party, in each and every case. Except as set forth herein, each party will be
responsible for its own costs associated with any marketing activities performed
pursuant to this Agreement.
2.2 MARKET DEVELOPMENT STRATEGY; ALLIANCE STEERING COMMITTEE. (a)
The parties will work together to create a joint marketing and business
development plan (PLAN)each year, which Plan shall be completed and approved by
the parties at least thirty (30) business days prior to the end of each such
year. Each party will use commercially reasonable efforts to implement such
Plan.
(b) An Alliance Steering Committee (ASC) shall be responsible for
quarterly review and oversight of the Plan. The ASC shall consist of four
members, two members to be appointed by each of Andersen Consulting and PR.
Each party may with notice to the other substitute any of its members serving on
the ASC. The initial PR members shall be James Plantan and Anthony O'Donnell
and the initial Andersen Consulting members shall be Patrick O'Halloran and
Jacques Habib.
(c) The ASC shall be responsible for the development management and
execution of the Plan and shall in particular: (i) consider, review and amend
the Plan from time to time in such manner as may be appropriate; (ii) monitor
progress of the Plan; and (iii) report regularly to the management of both
parties upon the progress of the Plan.
(d) The ASC shall hold formal meetings quarterly or at any time upon the
reasonable request of either party during the term of the agreement. Unless
otherwise agreed by the parties all meetings of the ASC shall be held in Chicago
and in Boston on an alternating basis, with the first meeting to be held in
Paris on or around November 17, 1999. Meetings shall be scheduled with at least
twenty-one (21) business days notice; the party that seeks to convene a
particular meeting shall be responsible for the meeting notice and scheduling;
provided, that the hosting party shall be responsible for notice and scheduling
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of the quarterly meetings. The quorum for ASC meetings shall be two, provided
there are at least one member from each of Andersen Consulting and PR present.
The ASC will act by vote of a majority of those present at any meeting, but at
least one member from each party will be required to take any action.
2.3 JOINT MARKETING EFFORTS. (a) Subject to the provisions of this
Agreement, Andersen Consulting and PR will jointly work together to create a
mutual understanding of opportunities which are of priority interest and assist
each party in focusing their marketing efforts. The parties shall also work to
identify target Clients and develop proposals for potential Clients to propose a
solution encompassing PR's Products and Andersen Consulting's professional
services.
(b) For each Client opportunity that either party is aware of, such
party will notify the other party and the parties shall use reasonable efforts
to mutually agree upon and execute a PROSPECT REGISTRATION FORM in the form of
Attachment B, with such changes as the parties may mutually agree upon. The
- ------------
Prospect Registration Form the parties will (i)describe the Client (each a
REGISTERED PROSPECT), (ii) the project, (ii) the specific roles each party will
play in obtaining such Client and performing such project, and (iv) the
4
<PAGE>
applicable Prospect resale/marketing assistance fee Percentage (determined in
accordance with Section 4.1).
(c) If a party does not respond to the other party's submission of a
Prospect Registration Form within five (5) business days, then such non-
responding party will be deemed to have agreed to the Prospect Registration
Form. For each Registered Prospect, as mutually agreed by the parties PR shall:
(i) authorize Andersen Consulting to Resell such Products to the Registered
Prospect; or (ii) provide its Products directly to the Registered Prospect on
PR's standard licensing terms and conditions and, if the Registered Prospect
licenses the Product, remit to Andersen Consulting a marketing assistance fee in
accordance with Section 4.1. In cases where Andersen Consulting does not elect
to Resell Products to a Registered Prospect, Andersen Consulting shall be
entitled to receive a marketing assistance fee in respect of such Registered
Prospect if Andersen Consulting participates, to the extent provided in the
applicable Prospect Registration Form, in the sale to such Registered Prospect
if the Registered Prospect licenses the Product. Participation in a sale may
include: (1) introducing PR to contacts at the Registered Prospect having the
authority to make purchasing decisions; (2) performing software demonstrations
of the Product for the Registered prospect; and (3) making a formal, written
recommendation to the Registered Prospect which details, with a high degree of
specificity, ways in which Products can be used by the Registered Prospect.
Andersen Consulting shall be entitled to Resell or receive a marketing
assistance fee as described in Section 2.3(c)(i)-(ii) for the duration of the
project described in the applicable Prospect Registration Form.
(d) PR and Andersen Consulting will address the specifics of each
client opportunity on a case-by-case basis. These arrangements shall specify
the scope, roles and responsibilities, staffing, and other terms for the
engagement. In general, the parties contemplate PR providing Products and
Andersen Consulting providing its Business Integration Services to Clients,
under separate agreements with the Client. In the event that Andersen
Consulting requires professional services from PR that are directed or
customized to the needs of a particular Client, the parties will use reasonable
efforts to enter into a subcontractor services agreement containing mutually
acceptable terms.
(e) Unless the parties mutually agree otherwise in writing, in the
event that a Registered Prospect requires that PR Products and Business
Integration Services be delivered under a single contract as a condition of
awarding the contract, Andersen Consulting will be the prime contractor and PR
would provide subcontracted services pursuant to the subcontractor agreement
described above. In such event the parties will operate as independent
contractors in providing such services to such Client.
(f) In accordance with Sections 6.1 and 7.1, each party will appoint
one or more business development personnel who will be responsible for the
exchange of information with the other party and for coordinating the
development of jointly pursued leads.
(g) Except as set forth herein, each party will be responsible for its
own costs and expenses associated with activities under this Agreement, such as
any cost or expenses related to marketing to any Registered Prospects.
3. RESELLER PRODUCT ORDERS; MARKETING ASSISTANCE PRODUCT ORDERS
3.1 PRODUCT ORDERS. In the event that Andersen Consulting Resells PR
Products to a Registered Prospect, Proquire LLC or Andersen Consulting shall
place an order for Products by mail or facsimile, or by other means agreed upon
by the parties. No order shall be binding upon PR until the same shall have
been accepted by PR. PR shall use
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reasonable efforts to accept or reject all orders within ten (10) business days
following receipt of same and shall use reasonable efforts to deliver all orders
that are accepted by a mutually agreed upon delivery date. PR may reject any
order that does not comply with the provisions of this Agreement by providing to
Andersen Consulting, a written notice specifying the noncompliance. In case of
conflict between the standard printed terms of purchase/sale of Andersen
Consulting and PR, the former shall prevail, but in no event shall either
party's standard terms override any provisions of this Agreement. When
allocating production with respect to filling orders for Products, PR shall use
reasonable efforts to ensure that Andersen Consulting orders are accepted and
filled in a manner that is in all material respects the same as or superior to
the priority and fill rate PR applies to Products ordered by third parties or
PR's own sales organization.
3.2 CHANGED ORDERS. In the event that Andersen Consulting cancels,
reschedules or otherwise changes a purchase order less than five (5) days in
advance of the scheduled delivery date, Andersen Consulting shall pay to PR a
cancellation fee equal to ten percent (10%) of the price of the Products that
are the subject of such cancellation.
3.3 OBLIGATION TO SUPPLY. PR shall use reasonable efforts to accept
and fill each order for Products submitted by Andersen Consulting. Without
limiting the generality of the foregoing, it is expressly understood PR shall
not be in breach of this Section 3.3 if PR's failure to supply Products is due
to a Force Majeure event.
3.4 PRODUCT PRICES; SHIPPING. (a) Prices for the Products shall be as
described in Section 4.1, exclusive of shipping charges and other costs which
shall be imposed on Andersen Consulting pursuant to Section 3.4(b). At all times
during the term of this Agreement, Andersen Consulting's price for the Products
shall be at least as favorable as the pricing PR is then offering to any third
party with similar volumes and terms. In the event that PR reduces its prices on
any Products ordered by Andersen Consulting but which have not yet been shipped
to Andersen Consulting, then all Andersen Consulting orders that have been
accepted by PR shall be invoiced at a price that reflects the reduction in PR's
price .
(b) PR shall arrange for shipment and invoicing to Andersen Consulting of
the Products ordered by Andersen Consulting or its Affiliates via common
carrier, FCA PR's loading dock (as defined in Incoterms).
3.5. ACCEPTANCE. (a) Andersen Consulting shall notify PR within five
(5) business days of the receipt of a shipment of the Product of any apparent
non-conformity of the Product to the Product Specifications. PR's obligations
under Section 9.2 shall survive acceptance of the Product by Andersen
Consulting.
(b) PR shall at its expense and at no further cost to Andersen Consulting
replace any Products that do not conform to the Product Specifications. All
defective units of the Product shall be returned to PR using the procedure
specified in this Section 3.5(b). Andersen Consulting shall notify PR in
writing of its rejection of Product under Section 3.5(a), shall request a Return
Material Authorization (RMA) number and shall within five (5) business days of
receipt of such RMA number return such rejected Product to PR freight prepaid
and properly insured, along with a reasonably detailed statement of the claimed
defect and proof of date of purchase. In the event PR determines that the
returned Product is defective and properly rejected by Andersen Consulting, PR
shall replace such defective Product. PR shall return to Andersen Consulting
within three (3) business days following receipt of the defective Products,
freight prepaid, all replaced Products properly rejected,
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along with reimbursement of the shipment charges for return of the nonconforming
Product. In the event that any rejected Product is determined by PR to not be
defective, Andersen Consulting shall reimburse PR for all costs and expenses
related to the inspection, repair, if any, and return of such Product to
Andersen Consulting.
3.6. NON-RESELLER SALES. In the event that Andersen Consulting does
not Resell PR Products to a Registered Prospect, the provisions of Sections 3.1-
3.5 shall not apply to such transaction as between Andersen Consulting and PR.
Instead, Andersen Consulting shall place PR in contact with the Registered
Prospect and PR shall negotiate directly with the Registered Prospect concerning
the license of the Products to such Registered Prospect.
4. RESALE DISCOUNTS; MARKETING ASSISTANCE COMPENSATION.
4.1 REVENUE SHARING RATES. (a) Until the earlier of (i) the first
anniversary of the Effective Date or (ii) the licensing of Products to five (5)
Registered Prospects pursuant to this Agreement, PR will provide Andersen
Consulting with Products for Resale to Registered Prospects at a price equal to
one-half (50%) of the List Price or pay Andersen Consulting a marketing
--
assistance fee (if Andersen Consulting elects to have PR sell such Products
directly to such Registered Prospects) equal to one-half (50%) of the Product
Revenue associated with the Registered Prospect. Notwithstanding the sales
strategy and compensation structures set forth in this Section 4, the parties
acknowledge and agree that Andersen Consulting shall have no right to sublicense
the Products to Clients, and that all licenses shall be directly between PR and
the Client.
(b) After the expiration of the period described in Section 4.1(a), PR
will provide Andersen Consulting with Products for Resale to Registered
Prospects at a discount level equal to twenty percent (20%) of the List Price,
or pay Andersen Consulting a marketing assistance fee (if Andersen Consulting
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elects to have PR sell such Products directly to such Registered Prospects)
equal to twenty percent (20%) of the Product Revenue associated with the
Registered Prospect.
(c) PRODUCT REVENUE means the aggregate license fees invoiced to a
Registered Prospect who licenses Products less charges in respect of (i)
outbound shipping, packaging, insurance and delivery, separately billed to the
Registered Prospect or prepaid; (ii) taxes, duties, and similar governmental
charges (not including PR's net income tax); (iii) rebates, discounts and
refunds remitted to the Registered Prospect; and (iv) Product returns by the
Registered Prospect. Product Revenue shall include both initial and subsequent
licenses by PR to such Registered Prospect, at any time during the duration of
the project that is the subject of the Prospect Registration Form. Product
Revenue shall not include any revenue payable in respect of PR's maintenance,
support, training, installation and other professional services. Andersen
Consulting may, however, mark up and resell PR's professional services on a
case-by-case basis pursuant to a mutually agreed subcontract agreement among the
parties.
(d) Neither party shall disclose any billing or cost rates of the other
party to any Client, potential Client or Registered Prospect without prior
written approval of the other party.
(e) It is understood and agreed that Andersen Consulting will retain all
(100%) of its professional fees related to Business Integration Services
provided by Andersen Consulting to third parties, including Registered
Prospects.
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4.2 PAYMENT. Except as otherwise provided in any agreement between the
parties with respect to a particular Registered Prospect, Andersen Consulting
shall pay for Products (or PR shall pay Andersen Consulting the applicable
marketing assistance fee) within thirty (30) business days after receipt of PR's
invoice. All payments shall be stated and paid in U.S. Dollars. Product Revenue
received in currencies other than U.S. Dollars shall be converted to U.S.
Dollars using the exchange rate in effect as of the date that the payment is
received by Andersen Consulting as stated in the Wall Street Journal, New York
edition. All payments will be reduced by any applicable withholding taxes.
Andersen Consulting and PR will cooperate to minimize, to the extent legally
permissible, the tax liabilities related to the transactions contemplated by
this Agreement; provided such cooperation shall not cause any adverse tax
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consequences to be incurred by either party which would not have been incurred
under the terms and conditions as described in this Agreement. Each party shall
provide and make available to the other party any resale certificates,
information regarding out-of-state or out-of-country sales, and other exemption
certificates or information reasonably requested by the other party.
4.3 REPORTS. PR, when accounting for sales of Products and Product
Revenue, shall maintain records in accordance with Generally Accepted Accounting
Principles, as specified by the American Institute of Certified Public Accounts,
consistently applied, sufficient to determine sales revenue and marketing
assistance fees relating to sales of Products to Registered Prospects. Within
forty-five (45) days following each March 31, June 30, September 30 and December
31, PR shall provide Andersen Consulting with a report including at least (a)
the quantity of Products sold to Registered Prospects during the preceding
quarter; (b) the monetary amount, in the applicable national currency, of such
sales; (c) actual Product Revenue, by country; (d) the currency conversion rate
used and U.S. dollar-equivalent of such sales (for sales made in currency other
than U.S. dollars); (e) the calculation of marketing assistance fees thereon;
and (f) the marketing assistance fees so computed and due Andersen Consulting.
Such reports shall be submitted whether or not any sales of Products have been
made during such period. Upon delivery of the report due for the period ending
December 31 of each year, PR shall also report the aggregate sales and aggregate
marketing assistance fees due Andersen Consulting for the entire preceding year.
4.4 AUDITS. Andersen Consulting shall have the right, not more than once
in any twelve (12)-month period, to have PR's relevant books and records audited
by an independent certified public accountant of Andersen Consulting's choosing
and reasonably acceptable to PR, to ascertain the accuracy of the reports under
Section 4.3. All such audits shall be scheduled within thirty (30) days
following delivery of notice by Andersen Consulting, and conducted during PR's
normal business hours, in a manner that does not unreasonably interfere with
PR's normal business activities. If any audit discloses underreporting of sales
of Products to Registered Prospects or underpayment of marketing assistance
fees, PR shall promptly amend the report with respect to aggregate sales of
Registered users and pay Andersen the marketing assistance fees due, as
applicable. Andersen Consulting shall be responsible for all expenses it incurs
in connection with any audit; provided, that if any audit determines that the
reported sales of Products to Registered Prospects or the reported Product
Revenue was less than the actual sales of Products or Product Revenue for the
period in question, the actual out-of-pocket cost of such audit shall be borne
by PR. Andersen Consulting will hold in confidence, and will require any
certified public accountant it retains to perform an audit to hold in
confidence, all information learned in the course of any audit, except to the
extent necessary for Andersen Consulting to enforce its rights under this
Agreement.
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5. CONFIDENTIALITY; PROPRIETARY RIGHTS; LICENSES
5.1. PUBLICITY. (a) Except as is necessary to comply with applicable
laws and regulations or to enforce their respective rights under this Agreement,
or to a party's legal or financial advisors, and except as otherwise agreed to
by the parties in writing, the parties shall: (i) keep the material terms of
this Agreement confidential, (ii) agree upon the text and the exact timing of an
initial public announcement relating to the transactions contemplated by this
Agreement as soon as possible after the Effective Date (such agreement not to be
unreasonably withheld or delayed) and (iii) agree on the text and the timing of
any subsequent public announcements regarding this Agreement or the transactions
contemplated herein. If this Agreement is required to be filed by PR with the
Securities and Exchange Commission, PR shall not file this Agreement with the
Securities and Exchange Commission without first notifying Andersen Consulting
and seeking confidential treatment for any provisions of this Agreement that
Andersen Consulting believes would disclose trade secrets, confidential
commercial or financial information that would impair the value of the
contractual rights represented by this Agreement or provide detailed commercial
and financial information to competitors or third parties.
(b) Except as otherwise provided in Section 5.6, neither party shall use
the name of the other party or any director, officer or employee of the other
party or any adaptation thereof without the prior written approval of the other
party; provided that: (i) Andersen Consulting shall have the right to inform its
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customers and prospective customers of its designation as a Global Reseller of
the Products and its relationship with PR as a marketer and reseller of the
Products as set forth in this Agreement and (ii) subject to approval of the text
of any promotional material(s) or disclosures by Andersen Consulting, PR shall
have the right to promote Andersen Consulting as its Preferred Business
Integration Services provider in its marketing collateral and in customer
presentations (including press tours, industry analyst visits, production of
vision presentations, white papers, speaking engagements, executive events,
trade shows, demonstration center exhibits, marketing brochures, and product
demonstration script/scenario development).
5.2 CONFIDENTIALITY. (a) It is contemplated that in the course of the
performance of this Agreement each party may, from time to time, disclose
Confidential Information to the other. Each party agrees to take all reasonable
steps to prevent disclosure of Confidential Information and not to use any
Confidential Information except for the limited purposes set forth in this
Agreement.
(b) All Confidential Information made available hereunder, including
copies thereof, shall be returned or destroyed upon the first to occur of (a)
termination of this Agreement or (b) written request by the discloser.
(c) In the event either party receives a Requests for Proposals (RFP) from
any client or prospective client under circumstances permitting it to share such
RFP with the other party to this Agreement, then such RFP will be treated as
Confidential Information for purposes of this Agreement.
5.3 PROPRIETARY RIGHTS; WORK PRODUCT; ETC. (a) This Agreement does not
convey to Andersen Consulting any ownership rights in any Products or in any
intellectual property rights embodied in such Products by implication, estoppel
or otherwise except for the license rights expressly granted under this
Agreement. Title to the Products and the intellectual property rights embodied
in the Products shall at all times remain vested in PR or its licensors.
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(b) This Agreement does not convey to PR any ownership rights in any
products, materials, tools and methodologies that are proprietary to Andersen
Consulting or to its licensors or in any intellectual property rights embodied
in such products, materials, tools and methodologies by implication, estoppel or
otherwise except for the rights expressly granted under this Agreement. Title
to all such products, materials, tools and methodologies and the intellectual
property rights embodied in such products, materials, tools and methodologies
shall at all times remain vested in Andersen Consulting or its licensors.
Andersen Consulting may, at its discretion, license such products, materials,
tools and methodologies and the intellectual property rights embodied in such
products, materials, tools and methodologies to Clients under a separate license
agreement.
(c) In the course of performing Business Integration Services for Clients
pursuant to this Agreement, Andersen Consulting may develop new products,
materials, tools and methodologies that operate with, or link to, the Products
and may make modifications or enhancements to its existing products, materials,
tools and methodologies (collectively, WORK PRODUCT). The foregoing does not in
any way, however, grant Andersen Consulting the right to modify, enhance or
create derivative works of the Product; any right to modify, enhance or create
derivative works must be the subject of a separate written agreement between the
parties. Andersen Consulting or the applicable Client, as agreed upon between
such parties, will own any Work Product which is linked, combined or otherwise
operated with the Products. PR shall have or obtain no rights in such Work
Product other than (i) to use them as authorized by Andersen Consulting in
writing from time to time solely for purposes of performing PR's
responsibilities pursuant to an agreement for a particular Client, or (ii)
pursuant to Andersen Consulting's standard license for such Work Product. If
Work Product is made available to PR under Section 5.3(c)(i), it will be made
available in an "AS IS" condition and without express or implied warranties of
any kind.
(d) Subject to the terms hereof, including the confidentiality provisions
of Section 5, in no event shall Andersen Consulting be precluded from
independently developing for itself, or for others, materials which are
competitive with the Products. In addition, Andersen Consulting shall be free to
use its general knowledge, skills and experience, and any ideas, concepts, know-
how, and techniques within the scope of its consulting practice that are used in
the course of providing services to Clients pursuant to this Agreement.
5.4 JOINT DEVELOPMENT OF PRODUCT. PR will not (a) offer or negotiate with
any third party commercial enterprise that engages in software development
projects (excluding individuals or small businesses with whom PR regularly
contracts for such work) (THIRD PARTY DEVELOPMENT FIRM) to have such Third Party
Development Firm design, develop, implement or integrate any modifications,
extensions or interfaces to the Products, or (b) enter into any other form of
collaboration with any Third Party Development Firm for the design, development,
implementation or integration of any modifications, extensions or interfaces
relating to the Products, unless PR shall first offer such opportunity to
Andersen Consulting. For purposes of offering Andersen Consulting any such
opportunity, PR shall notify Andersen Consulting of the opportunity, including
sufficient detail to permit Andersen Consulting to evaluate its interest in the
opportunity, and Andersen Consulting shall meet with PR as soon as possible, but
no later than fifteen (15) business days following such notice to discuss the
technical features of the opportunity. Andersen Consulting shall notify PR
within thirty (30) business ) business days following PR's initial notice of its
interest (or lack of interest) in pursuing such opportunity. If Andersen
Consulting indicates that it wishes to pursue such opportunity, then the parties
shall within ten(10) business days following Andersen Consulting's notice engage
in good faith negotiation of terms for a development and/or integration
agreement which shall be in substantially the form attached hereto as
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Attachment E. If the Parties cannot negotiate mutually acceptable terms for an
agreement within thirty (30) business days from the commencement of
negotiations period, then PR may negotiate with a third party concerning such
opportunity; provided, however, that any such agreement shall contain terms
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that in the aggregate are no more favorable to such third party than those
offered to Andersen Consulting. If PR wishes to offer such opportunity to a
third party on terms that in the aggregate are more favorable than those
offered to Andersen Consulting, PR shall first notify Andersen Consulting and
provide it a period of ten (10) business days to consider such improved terms.
The parties agree that this Section 5.4 shall under no circumstances restrict or
limit PR's right to develop any software using its own resources or personnel.
5.5 ENABLING LICENSES. (a) PR hereby grants to Andersen Consulting a
worldwide, paid-up and royalty-free license during the term of this Agreement to
(i) demonstrate and display the Products, alone or in conjunction with third
party products, in object code form to potential Clients and Andersen Consulting
personnel (including but not limited to activities performed at exhibits and
Andersen Consulting demonstration centers) and (ii) use up to ten (10) copies of
the Products internally, in object code form to (1) develop and demonstrate
proof-of-concepts, implementation methodology, and implementation aides relating
to the Products; (2) train Andersen Consulting personnel; and (3) provide
Business Integration Services to Clients who have a license from PR for the
Products. Andersen Consulting shall provide PR with a copy of all
implementation methodology, aids, etc. and other tools or processes that are
used in conjunction with the Products for PR's review and comment prior to their
release.
(b) Andersen Consulting, its Affiliates shall not (i) copy or reproduce
the Products except as necessary to demonstrate and use internally the Products,
as allowed under this Agreement; (ii) copy the Product documentation except as
necessary to perform its obligations under this Agreement; (iii) translate,
adapt, vary or modify the Products; (iv) disassemble, decompile or reverse
engineer the Products or create any derivative works based thereon; (v)
sublicense, lease, distribute or enter into any time share or service bureau
arrangement with respect to the Products; (vi) make more than one (1) copy of
the Products for back-up purposes, which must be stored in a secure place and be
clearly marked; and (vii) permit use of the Products other than by its own
authorized employees. It is understood and agreed that the limitations imposed
under this Section 5.5(b) shall not restrict Andersen Consulting from producing
Work Product in accordance with Section 5.3.
(c) PR will provide Andersen Consulting at no charge with PR's standard
maintenance and technical support services for the Products licensed under this
Section 5.5 (including installation support).
(d) PR will provide Andersen Consulting at no charge any updates and
upgrades it makes to the Products that PR makes available to its Clients
receiving maintenance or support services. PR will also provide Andersen
Consulting at no charge any new releases it makes for the Products. All such
Improvements shall be considered "Products" for all purposes hereunder. PR
shall use reasonable efforts to deliver updates and upgrades to Andersen
Consulting not later than the date it initially releases such updates and
upgrades to Clients.
(e) Where reasonably possible, PR will provide Andersen Consulting at no
charge with advanced releases of all new versions of the Products (Beta
versions) within the context of PR's Beta testing program. Andersen Consulting
will use such advanced releases
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of the Products only for internal training and demonstration unless PR provides
prior written approval for external use of such advanced releases.
5.6 TRADEMARK LICENSE. (a) Subject to Andersen Consulting's compliance
with this Agreement, PR hereby grants to Andersen Consulting a fully paid up and
royalty-free right and license to use the Trademarks in connection with the
promotion and marketing of the Products during the term of this Agreement. All
right, title and interest to the Trademarks, and all goodwill therein, shall
remain with PR and no other license relating thereto is granted hereunder. PR
shall have no obligation to maintain or file for trademark protection in any
given jurisdiction.
(b) Subject to the wind-down rights set forth in Section 9.3, upon any
expiration or termination of this Agreement, the license to Andersen Consulting
to use the Trademarks shall terminate, and Andersen Consulting shall take all
necessary action and execute and deliver to PR all necessary documents and
instruments to remove Andersen Consulting as a registered user and/or a recorded
licensee of the Trademarks.
(c) Each party hereto agrees to notify the other in writing promptly
(but not later than thirty (30) business days) after obtaining knowledge of any
infringements or imitations of the Trademarks by third parties.
(d) PR reserves the right to modify or abandon the Trademarks or
substitute alternative marks for any or all of the Trademarks at any time
provided, that Andersen Consulting shall not be required to incur any expense to
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re-mark or otherwise modify packaging or sales collateral to adopt such
modified, substituted or alternative marks but shall implement such marks in a
commercially reasonable manner consistent with the depletion of then existing
inventory and sales collateral, but in no event shall Andersen Consulting
display or distribute obsolete marks later than sixty (60) business days after
notice from PR.
(e) No later than thirty (30) business days prior to anticipated release,
Andersen Consulting shall provide PR with a sample of all product packaging and
advertising that makes use of the Trademarks for purposes of permitting PR to
verify that Andersen Consulting's use of the Trademarks is consistent with the
provisions of Attachment C. Andersen Consulting shall not challenge, directly
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or indirectly, PR's rights in respect of the Trademarks, nor shall it register
any trademark, logo, mark or name that is confusingly similar therewith, as a
trademark, trade name, corporate name or domain name in any jurisdiction
provided, that Andersen Consulting shall not waive its rights with respect to
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existing trademarks owned by Andersen Consulting or trademarks that Andersen
Consulting acquires during the term of this Agreement, and Andersen Consulting
shall not waive any rights with respect to the protection of its trademarks.
Andersen Consulting shall comply with the Trademark guidelines set forth in
Attachment C. Andersen Consulting shall not adopt other marks for use in the
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promotion, marketing and sale of the Products without the prior written
consent of PR, which consent shall not be given unless PR jointly owns such
marks.
6. ANDERSEN CONSULTING'S MARKETING OBLIGATIONS.
6.1 JOINT MARKETING FUNDING. Andersen Consulting will provide an
aggregate $1 Million in funding to support targeted industry seminars and
educational events that feature the Products as determined by the ASC. Andersen
Consulting's obligation to provide funding under this Section 6.1 is subject to
and shall accrue upon Andersen Consulting's prior receipt of a corresponding
amount of revenue pursuant to Section 2.3 of this Agreement, in the form of
reseller discounts or marketing assistance fees.
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6.2 BUSINESS DEVELOPMENT STAFFING. Andersen Consulting will appoint two
(2) full-time Business Development Directors for the Products: one based in
Europe and one based in the United States. Said Business Development Directors
shall be responsible for (a) building awareness and acceptance of the Products
within Andersen Consulting and its Affiliates and (b) coordinating joint
marketing and sales efforts pursuant to this Agreement.
6.3 PRODUCT FEEDBACK; SALES TOOLS. Andersen Consulting will provide PR
with guidance and field feedback from Andersen Consulting staff concerning the
Products and PR's software development plans at monthly feedback meetings
organized by the ASC. Such feedback shall be focused on: (a) core architecture
review and enhancements; (b) real time integration capabilities to web and call
center functions; and (c) integration of the Products with analytical tools.
Andersen Consulting will develop return on investment models that demonstrate
the benefit of marketing automation to be used in joint sales efforts according
to a schedule developed by the ASC.
6.4 SALES SUPPORT. Andersen Consulting shall, and shall cause its
Affiliates to, devote commercially reasonable efforts to promote the Products to
appropriate Clients and prospective Clients and the acceptance of the Products
by such Clients and prospective Clients. Andersen Consulting's promotion and
sales efforts shall include the following general activities performed in the
manner dictated by the reasonable business judgment of Andersen Consulting: (a)
considering the Products as a component of any CRM-related offering or venture
it proposes for its customers; (b) considering, as the relationship between PR
and Andersen Consulting progresses, expanding the scope of this Agreement to
include development of industry vertical solutions incorporating the Products;
(c) considering, on a case-by-case basis, speaking at private invitation
conferences and seminars with PR; (d) targeting early engagements that include
the Products to develop case studies and return on investment models, and
customer testimonials to be leveraged in joint marketing efforts incorporating
the Products; (e) tailoring and extending Andersen Consulting's existing
methodologies to reflect the nuances of marketing automation and PR Products;
and (f) otherwise conducting such activities as are reasonably appropriate for
the marketing and sale of the Products. Notwithstanding any provision of this
Agreement to the contrary, Andersen Consulting shall promote the Products using
only the information and sales material provided by PR pursuant to Section 7.3,
and Andersen Consulting shall make no statement or representation regarding the
operation, capabilities or performance of the Products except as stated by PR in
such written materials. Except as set forth herein, it is understood and agreed
that Andersen Consulting will have no obligation to establish or maintain a
formal sales organization or marketing program related to this Agreement.
6.5 PRODUCT TRAINING. Andersen Consulting shall put twenty (20) of its
consulting personnel through PR training concerning the Products. Such training
shall be provided in accordance with Section 7.6 and scheduled by mutual
agreement of the parties.
7. PR'S OTHER OBLIGATIONS.
7.1 THIS SECTION INTENTIONALLY OMITTED.
7.2 BUSINESS DEVELOPMENT STAFFING. PR will appoint one (1) full-time
Alliance Relationship Manager. Said Alliance Relationship Manager shall be
responsible for (a) building awareness and acceptance of the Business
Integration Services within PR and (b) coordinating joint marketing and sales
efforts pursuant to this Agreement.
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7.3 SALES COLLATERAL. (a) PR shall furnish at no cost to Andersen
Consulting reasonable quantities of promotional materials, such as sales
literature, technical data, instruction manuals and technical journal reprints
(the PRODUCT INFORMATION)in order for Andersen Consulting to promote the
Products as provided for in this Agreement. PR shall supply Andersen Consulting
with Product Information in electronic and paper format. Except as otherwise
agreed by the parties, Andersen Consulting may use such Product Information
without any limitation on disclosure. In any event, PR hereby grants Andersen
Consulting permission to disclose certain Product Information to be designated
and furnished by PR to Clients without the requirement for non-disclosure
agreements. PR may require a Client to enter into a nondisclosure agreement
with PR to protect its Confidential Information after a sales opportunity is
qualified and reaches a detailed discussion stage. PR shall control the release
of its Confidential Information to prospective Clients and will be responsible
for putting in place such nondisclosure agreements with prospective Clients. PR
will use reasonable efforts to ensure that the Product Information as provided
to Andersen Consulting shall be accurate in all material respects when provided,
and PR undertakes to update such Product Information when necessary.
(b) PR will provide Andersen Consulting with its current form(s) of license
agreements and maintenance agreements. The current versions of such materials
are attached as Attachment D to this Agreement. PR will provide Andersen
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Consulting with any revisions or updates to such materials and shall provide
additional copies of such materials upon request of Andersen Consulting.
7.4 SALES SUPPORT. PR shall devote commercially reasonable efforts to
support Andersen Consulting's promotion and sales efforts, including the
following general activities: (a) supplying experts to support detailed
technical presentations and meetings relating to the Products; (b) providing
quotations for standard and custom configurations for the Products; and (c)
responding to phone calls from prospective Clients.
7.5 SALES INCENTIVES. PR shall create an incentive structure for the PR
direct sales force that rewards such sales personnel for undertaking and closing
joint engagements as contemplated by this Agreement. Specifically, PR will
implement a sales reward structure that provides the PR sales force with
financial incentives for closing sales with Registered Prospects and Clients
that purchase PR Products and Andersen Consulting services as a combined
solution that are greater than any other PR reward program for its sales force.
7.6 TRAINING; TECHNICAL ASSISTANCE. (a) PR will provide Andersen
Consulting at no charge with a total of at one hundred sixty (160) hours of
training services covering the Products for up to twenty (20) Andersen
Consulting personnel. PR shall also provide Andersen Consulting at no charge
with a reasonable level of update or "delta" training for each major release of
the Products for up to twenty (20) Andersen Consulting personnel; such update
training to be provided in a timely manner to enable Andersen Consulting to
remain current with all Improvements. Training will be performed at a PR
facility. PR will provide Andersen Consulting personnel with written
educational materials as part of the training program and will ensure that
Andersen Consulting personnel are afforded the opportunity to discuss with PR
trainers the operation of the Products. Andersen Consulting may use (but not
copy) PR training materials for purposes of training additional Andersen
Consulting personnel after the initial training. PR will make additional copies
of training materials available to Andersen Consulting at its standard rates.
In the event that Andersen Consulting requests that PR deliver training at a
site other than a PR training facility, Andersen Consulting agrees to reimburse
PR for travel and living expenses based on PR's
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standard internal expense policies. PR shall provide a copy of such expense
policy upon request by Andersen Consulting.
(b) PR shall provide to Andersen Consulting upon request such technical
assistance and/or additional training as Andersen Consulting may reasonably
request to enable Andersen Consulting to more effectively market, sell, and
distribute the Products, and enable Andersen Consulting to install, operate and
use the Products effectively (and train Clients to do so). PR shall also
provide to Andersen Consulting any service or other support information that
would assist Andersen Consulting in marketing the Products. Such technical
assistance or additional training shall be provided at a discount of 30% off of
PR's normal rates for such services.
8. REPRESENTATIONS AND WARRANTIES.
8.1 AUTHORIZATION; ENFORCEABILITY. Each of PR and Andersen Consulting
represent and warrant to the other that: (a) it is duly organized, validly
existing and in good standing under the laws of its incorporating jurisdiction;
(b) it has all requisite corporate power and authority to enter into this
Agreement; (c) it is duly authorized to execute and deliver this Agreement and
to perform its obligations hereunder and consummate the transactions
contemplated hereby; and (d) this Agreement is a valid and binding obligation of
such party enforceable in accordance with its terms.
8.2 PRODUCT WARRANTY. (a) PR represents and warrants to Andersen
Consulting that owns or has valid licenses to all copyrights, patents, trade
secrets, trademarks, and other proprietary or intellectual property rights
relating to the Products and has the right to grant to Andersen Consulting the
rights and licenses purported to be granted by or pursuant to this Agreement,
and has all other rights necessary for the performance of its obligations under
this Agreement.
(b) PR represents and warrants to Andersen Consulting that there have been
no claims filed against PR alleging that the Products infringe a third party's
intellectual property rights.
(c) PR represents and warrants to Andersen Consulting that to its
knowledge there are no products liability or other claims pending or any alleged
problem or defect in any of the Products.
8.3 CLIENT WARRANTIES. (a) PR shall extend to each Client that enters into
an agreement to acquire Products pursuant to this Agreement, the warranties and
indemnification for its Products and services that it generally extends to its
Clients.
(b) PR will offer each Client that enters into an agreement to acquire
Products pursuant to this Agreement, the software maintenance, technical
support and training services that PR generally offers to its Clients.
(c) It is understood and agreed that, as between the parties, PR shall
remain solely responsible to Clients for the performance and good working order
of the Products and the performance of its services. Andersen Consulting is not
responsible for the performance of PR's Products or services, and PR is not
responsible for the performance of Andersen Consulting's products or services.
(d) PR represents and warrants that it will provide each of the Clients
that licenses the Product pursuant to this Agreement with the following warranty
concerning millenium
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compliance: "During the period ending at midnight on June 30, 1999, the Product,
when used properly in accordance with its documentation, is capable of correctly
receiving, processing and providing date data without regard to whether any date
involved in the operation occurs in the 20th or 21st Century and without regard
to the system date at the time the calculation is performed; provided that all
applications, hardware and other systems used in conjunction with the Product
correctly exchange date data with or provide data to the Product and that the
most current and an unaltered version of the Product is being used (Y2K
COMPLIANT). The foregoing warranty shall not apply if any failure of the Product
to be Y2K Compliant results from its interaction with applications, hardware or
other systems not supplied by PR. PR represents and warrants that the Product
does not embody a "windowing" approach to resolve issues concerning the correct
performance of date related operations".
9. RISK ALLOCATION
9.1 LIMITATION OF LIABILITY. EXCEPT FOR INFRINGEMENT OF THE OTHER PARTY'S
INTELLECTUAL PROPERTY RIGHTS OR BREACH OF CONFIDENTIALITY OBLIGATIONS UNDER
SECTION 5.2 AND EXCEPT AS OTHERWISE PROVIDED IN SECTION 9.2 WITH RESPECT TO
THIRD PARTY CLAIMS, THE AGGREGATE LIABILITY OF EITHER PARTY FOR DIRECT DAMAGES
ARISING OUT OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE
LIMITED TO THE AGGREGATE AMOUNT OF $[1,000,000]. IN NO EVENT SHALL EITHER PARTY
BE LIABLE TO THE OTHER FOR LOST PROFITS OR SAVINGS OR FOR ANY INDIRECT,
INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES IN CONNECTION
WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, HOWEVER
CAUSED, UNDER ANY THEORY OF LIABILITY.
9.2. INFRINGEMENT INDEMNIFICATION. (a) Subject to the provisions of Section
9.4, PR shall defend, indemnify and hold harmless Andersen Consulting, its
subsidiaries, parent corporations, Affiliates, officers, directors, independent
contractors, partners, shareholders, employees, agents, successors and assigns
from and against any claim, suit, demand, loss, damage, expense (including
reasonable attorney's fees of indemnitee(s) and those that may be asserted by a
third party) or liability (collectively, LOSSES) arising from or related to an
allegation by any third party (including any Client) that the Products
(including any Improvements) provided by PR to Andersen Consulting pursuant to
this Agreement infringe or misappropriate any intellectual property right of any
third party (including without limitation, any United States patent, copyright,
trade secret or trademark).
(b) Subject to the provisions of Section 9.4, Andersen Consulting shall
defend, indemnify and hold harmless PR, its subsidiaries, parent corporations,
Affiliates, officers, directors, independent contractors, partners,
shareholders, employees, agents, successors and assigns from and against any
Losses arising from or related to an allegation that any
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Business Integration Services of Andersen Consulting (or the offering or
performance thereof) infringe or misappropriate any intellectual property right
of any third party (including without limitation, any United States patent,
copyright, trade secret or trademark).
In addition to its obligations under Section 9.2(a), if any Product licensed to
Andersen Consulting hereunder is held to constitute an infringement or
misappropriation of any third party's intellectual property rights or if in PR's
opinion, any Product is, or is likely to be held to constitute, an infringement
or misappropriation, PR may at its expense and option: (i) procure the right
for Andersen Consulting to continue using the Product; (ii) replace each copy of
the Product in Andersen Consulting's inventory for resale to a Client and each
copy of the Product licensed by Andersen Consulting for use pursuant to Section
5.5 with a non-infringing and non-misappropriating substantially equivalent
product; or (iii) modify the Product to make it non-infringing and non-
misappropriating while conforming to the Product Specifications or if (i), (ii)
and (iii) are not reasonably practical, PR will (iv) terminate the applicable
license and require the return of the infringing Product and refund to Andersen
Consulting the purchase price of such Products.
9.3 OTHER CLAIMS. (a) Subject to the provisions of Section 9.4, each of
PR and Andersen Consulting (each, an INDEMNIFYING PARTY) will defend, indemnify
and hold harmless the other party, its subsidiaries, parent corporations,
affiliates, officers, directors, partners, shareholders, employees, agents, and
their successors and assigns (collectively, the INDEMNITEES) from and against
any Losses imposed upon the Indemnitee(s) by any third party arising from or
related to personal injury or property damage which is proximately caused by any
negligence or intentional misconduct by such Indemnifying Party (or its
employees, agents or representatives) in performing its obligations under this
Agreement. The foregoing indemnification action shall not apply in the event
and to the extent that a court of competent jurisdiction determines that such
Losses arose as a result of any Indemnitee's negligence, intentional misconduct
or breach of this Agreement.
(b) Subject to the provisions of Section 9.4, each party (as an
Indemnifying Party) will defend, indemnify and hold harmless the other party and
its Indemnitees from and against any Losses imposed upon the Indemnitee(s) by
any employee, agent or representative of the Indemnifying Party or its
Affiliates under any applicable termination. labor, social security or other
similar laws or regulations and arising from or related to the transactions
contemplated by this Agreement.
9.4 PROCEDURE. To receive the benefit of indemnification under 9.2 or 9.3,
the party seeking indemnification must promptly notify the other party in
writing of a claim or suit and provide reasonable cooperation (at the
Indemnifying Party's expense) and tender to the Indemnifying Party (and its
insurer) full authority to defend or settle the claim or suit. Neither party
has any obligation to indemnify the other party in connection with any
settlement made without the Indemnifying Party's written consent. The
Indemnitee has the right to participate at its own expense in the claim or suit
and in selecting counsel therefor. The Indemnitee shall cooperate with
Indemnifying Party (and its insurer), as reasonably requested, at Indemnifying
Party's sole cost and expense.
9.5 INSURANCE. Each party shall procure and maintain insurance or self-
insurance, including product liability insurance, adequate to cover its
obligations hereunder and which are consistent with normal business practices of
prudent companies similarly situated. It is understood that such insurance
shall not be construed to create a limit of either party's liability with
respect to its indemnification obligations under this Section 9. Each party
shall
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provide the other with written evidence of such insurance (or financial
information that describes the amounts available under any self-insurance
facility) upon request. Each party shall provide the other with written notice
at least fifteen (15) business days prior to the cancellation, non-renewal or
material change in such insurance or self-insurance which materially adversely
affects the rights of the other party hereunder. If such party does not obtain
replacement insurance or take other measures that allow it to provide comparable
coverage within such 15-day period, the other party shall have the right to
terminate this Agreement effective at the end of such fifteen (15) day period
without notice or any additional waiting periods.
10. TERM AND TERMINATION.
10.1 TERM. This Agreement shall take effect as the Effective Date and
shall remain in effect until the fourth anniversary of the Effective Date,
unless sooner terminated in accordance with Section 10.2 or extended in
accordance with this Section 10.1. Not later than three (3) months prior to the
fourth anniversary of the Effective Date, the parties shall confer regarding
renewal of this Agreement for an additional term. If the parties agree to
renew this Agreement the terms of this Agreement shall remain in effect during
the renewal term, unless expressly amended by mutual agreement of the parties.
10.2 TERMINATION. (a) Either party may terminate this Agreement at any
time upon sixty (60) business days notice to the other party in the event that
the other party shall have breached any of its material obligations hereunder
and shall not have cured such breach prior to the expiration of the sixty (60)-
day period. In addition, either party shall have the right to terminate this
Agreement upon thirty (30) business days notice if a Force Majeure condition has
prevented performance by the other party for more than one hundred twenty (120)
consecutive days. The parties may also terminate this Agreement at any time
upon mutual written agreement of the parties.
(b) Andersen Consulting shall have the right to terminate this Agreement
upon thirty (30) days notice to PR following the closing of any transaction in
which a third party acquires control of PR by means of a merger or acquisition
of PR's capital stock. For purposes of this Section 10.2(b) "control" has the
meaning ascribed to it under the definition of Affiliate.
10.3 EFFECT OF TERMINATION. (a) Upon termination (including expiration) of
this Agreement:
(i) PR and Andersen Consulting will terminate all tasks for all
affected Client projects being performed pursuant to Section 2.3 in an
orderly manner, as soon as practical or in accordance with a schedule
agreed to by Andersen Consulting and PR to minimize disruption to Clients;
(ii) each party shall return to the other party or certify in writing
to the other party that it has destroyed all documents and other tangible
items it or its employees or agents have received or created pertaining,
referring or relating to the Confidential Information of the other party;
(iii) (1) Andersen Consulting and its Affiliates shall discontinue
making any representation regarding its status as a "Global Reseller" or
"Preferred Business Integration Services Provider" for the Products and
shall cease conducting any activities with respect to the marketing,
promotion, sale or distribution of the Products; and (2) PR shall
discontinue making any representation regarding its status
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<PAGE>
as a "Preferred EAI Technology Provider" for offerings that embody CRM
functionality;
(iv) Each party and its Affiliates will discontinue any and all use of
trade names and/or trademarks authorized for use under this Agreement,
except as necessary to fulfill its obligations to Clients in accordance
with this Section 10.3;
(v) Andersen Consulting will discontinue any and all use of the
licenses granted under Section 5.5; and
(vi) each party will return to the other party or certify in writing
to the other party that it has destroyed all documents and other tangible
items it or its employees or agents have received or created pursuant to
this Agreement pertaining, referring or relating to the Confidential
Information of the other party, except that each party may retain one (1)
complete copy of Confidential Information (1) for use in accordance with
Sections 10.3(a)(i) and (2) for archival purposes to assure compliance with
this Agreement.
(b) Termination of this Agreement by either party for any reason shall not
affect the rights and obligations of the parties that accrued prior to the
effective date of termination of this Agreement or release either party from
obligations to resell or license Products made prior to the date of termination,
or affect existing licenses or purchase orders for the Products.
Notwithstanding any provision of this Agreement to the contrary, each party may
continue to exercise the rights and licenses granted hereunder to the extent
necessary to allow such party to fulfill its obligations under existing
engagement agreements or included in any proposal to a Client that was
outstanding at the time of termination.
(c) The provisions of Sections 5.1-5.3, 5.5-5.6, 7.6(a), 8, 9, 10 and 11
shall survive any expiration or termination of this Agreement (except that
Sections 5.5-5.6 and 7.6(a) may subsequently terminate in accordance with the
provisions of Section 10.3(a)-(b)).
(d) In the event of a termination or upon expiration of this Agreement in
accordance with this Section 10, neither party shall have any obligation to the
other party or any of its Affiliates, or to any of their employees for
compensation or for damages of any kind, whether on account of the loss by such
party or any of its Affiliates or their employees of present or prospective
sales, investments, compensation or goodwill. Each party and its Affiliates,
for theirselves and on behalf of each of their employees, hereby waives any
rights which may be granted to them under the laws and regulations of state, any
province, county, district or similar political entity world wide or otherwise
which are not granted to it or them by this Agreement.
11. GENERAL PROVISIONS.
11.1 ISSUE RESOLUTION. In the event that any dispute arises relating to
this Agreement, the Representatives shall promptly meet and attempt to resolve
same through good faith discussions. If the Representatives are unable to
resolve any dispute to their mutual satisfaction within thirty (30) business
days after they commence discussions regarding same, and do not agree to extend
the time for resolution of the issue at the end of their meeting, then they may
by mutual agreement: (a) escalate the matter to higher levels in their
organizations and, (b) if necessary, resort to a mutually agreed alternative
dispute resolution technique prior to resorting to litigation.
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11.2 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts excluding its
rules on conflicts of laws.
11.3 THIS SECTION INTENTIONALLY OMITTED.
11.4 AMENDMENT AND WAIVER. No provision of or right under this Agreement
shall be deemed to have been waived by any act or acquiescence on the part of
either party, its agents or employees, but only by an instrument in writing
signed by an authorized officer of each party. No waiver by either party of any
breach of this Agreement by the other party shall be effective as to any other
breach, whether of the same or any other term or condition and whether occurring
before or after the date of such waiver.
11.5 INDEPENDENT CONTRACTORS. Each party represents that it is acting on
its own behalf as an independent contractor and is not acting as an agent for or
on behalf of any third party. This Agreement and the relations hereby
established by and between PR and Andersen Consulting do not constitute a
partnership, joint venture, franchise, agency or contract of employment.
Neither party is granted, and neither party shall exercise, the right or
authority to assume or create any obligation or responsibility on behalf of or
in the name of the other party or its Affiliates.
11.6 ASSIGNMENT. Neither party may assign its rights or obligations
hereunder without the prior written consent of the other party, which consent
shall not be unreasonably withheld in the case of any assignment; provided that
the proposed assignee under this Section 11.6 agrees in writing to assume all of
the obligations of the assignor party under this Agreement.
11.7 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
11.8 NOTICES. Unless otherwise provided herein, any notice, report,
payment or document to be given by one party to the other shall be in writing
and shall be deemed given when delivered personally or mailed by certified or
registered mail, postage prepaid (such mailed notice to be effective on the date
which is three (3) business days after the date of mailing), or sent by
nationally recognized overnight courier (such notice sent by courier to be
effective one business day after it is deposited with such courier), or sent by
telefax (such notice sent by telefax to be effective when sent, if confirmed by
certified or registered mail or overnight courier as aforesaid):
If to PR:
Prime Response Group, Inc.
150 CambridgePark Drive
Cambridge, MA 02140
Phone: 617-876-8300
Fax: 617-876-8383
If to Andersen Consulting:
Andersen Consulting LLP
333 South Seventh Street
Minneapolis, MN 55402
Attn: J. Patrick O'Halloran
20
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Phone: 612.277.0000
Fax: 612.277.1010
Copy to:
Andersen Consulting LLP
1661 Page Mill Road
Palo Alto, CA 94304
Attn: General Counsel
Phone: 650.213.2136
Fax: 650.213.2222
or to such other place as any party may designate as to itself by written notice
to the other party.
11.9 SEVERABILITY. In the event any provision of this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
provision hereof. The parties agree that they will negotiate in good faith or
will permit a court or arbitrator to replace any provision hereof so held
invalid, illegal or unenforceable with a valid provision which is as similar as
possible in substance to the invalid, illegal or unenforceable provision.
11.10 CONFLICT OR INCONSISTENCY. In the event of any conflict or
inconsistency between the terms and conditions hereof and any terms or
conditions set forth in the Plan, any purchase order or other document relating
to the transactions contemplated by this Agreement, the terms and conditions set
forth in this Agreement shall prevail.
11.11 CAPTIONS. Captions of the sections and subsections of this
Agreement are for reference purposes only and do not constitute terms or
conditions of this Agreement and shall not limit or affect the meaning or
construction of the terms and conditions hereof.
11.12 WORD MEANINGS. Words such as HEREIN, HEREINAFTER, HEREOF and
HEREUNDER refer to this Agreement as a whole and not merely to a section or
paragraph in which such words appear, unless the context otherwise requires.
The singular shall include the plural, and each masculine, feminine and neuter
reference shall include and refer also to the others, unless the context
otherwise requires.
11.13 ENTIRE AGREEMENT. The terms and provisions contained in this
Agreement (including the Attachments) constitute the entire understanding of the
parties with respect to the transactions and matters contemplated hereby and
supersede all previous communications, representations, agreements and
understandings relating to the subject matter hereof. No representations,
inducements, promises or agreements, whether oral or otherwise, between the
parties not contained in this Agreement or incorporated by reference in this
Agreement shall be of any force or effect. No agreement or understanding
extending this Agreement or varying its terms (including any inconsistent terms
in any purchase order, acknowledgment or similar form) shall be binding upon
either party unless it is in a writing specifically referring to this Agreement
and signed by the duly authorized representative of the applicable party.
11.14 RULES OF CONSTRUCTION. The parties agree that they have
participated equally in the formation of this Agreement and that the language
and terms of this Agreement shall not be construed against either party by
reason of the extent to which such party or its professional advisors
participated in the preparation of this Agreement.
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<PAGE>
11.15 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.
11.16 FORCE MAJEURE. Except as otherwise provided in this Agreement, in
the event that a delay or failure of a party to comply with any obligation,
other than a payment obligation, created by this Agreement is caused by a Force
Majeure condition, that obligation shall be suspended during the continuance of
the Force Majeure condition.
11.17 FURTHER ASSURANCES. Each party covenants and agrees that,
subsequent to the execution and delivery of this Agreement and without any
additional consideration, it will execute and deliver any further legal
instruments and perform any acts which are or may become reasonably necessary to
effectuate the purposes of this Agreement.
[REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
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11.18 NON-SOLICITATION. Except as the parties may expressly agree
otherwise in writing, neither party shall solicit, offer work to, employ, or
contract with, whether as a partner, employee or independent contractor,
directly or indirectly, any of the other party's Personnel during their
participation in the activities addressed by this Agreement or during the twelve
(12) months thereafter. For purposes of this Section 11.18, PERSONNEL includes
any Person a party employs as a partner, employee or independent contractor and
with which the other party comes into direct contact in the course of the
transactions contemplated by this Agreement.
BOTH PARTIES REPRESENT THAT THEY HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND
AGREE TO BE BOUND BY THE TERMS AND CONDITIONS STATED HEREIN.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized officers, and have duly delivered and
executed this Agreement under seal as of the date first set forth above.
PRIME RESPONSE, INC. ANDERSEN CONSULTING LLP
By: /s/ Frederick H. Phillips By: /s/ J. Patrick O'Halloran
--------------------------------- ---------------------------------
Name: Frederick H. Phillips Name: J. Patrick O'Halloran
------------------------------- -------------------------------
Title: Secretary, Treasurer, Senior Title: Partner
Vice President and Chief ------------------------------
Financial Officer
------------------------------
Date: December 6, 1999 Date: December 6, 1999
------------------------------ ------------------------------
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<PAGE>
Exhibit 10.25
December 6, 1999
Mr. Peter Boni
CEO
Prime Response, Inc.
150 Cambridge Park Dr
Cambridge, MA 02140
Dear Peter:
Over the past few months, our firms have worked toward creating a comprehensive
and robust relationship that we each believe will benefit our respective
businesses. In our discussions, we have outlined an arrangement whereby Prime
Response will commit to purchase a specified minimum level of consulting
services from Andersen Consulting over the course of the next twenty four (24)
months and we will enter into a joint marketing alliance to market Prime
Response's software and Andersen Consulting's integration services.
This letter documents more specifically our agreement with respect to Prime
Response's purchase of consulting services. This agreement is a material part
of our overall transaction which includes a joint marketing alliance and an
equity investment by Andersen Consulting in Prime Response. Prime Response
agrees to pay Andersen Consulting a minimum $1 million to provide consulting
services between the date of this letter and December 31, 2001 (the "Service
Period"). The specifics of scope of work and costs will be documented in
separate arrangements discussed below. These services provided to Prime Response
will be at Andersen's then current standard rates. This letter is a binding
commitment on Prime Response to, on or before December 31, 2001, either arrange
for and pay for $1 million in consulting services, or pay Andersen Consulting
the difference between $1 million and the total consulting fees paid by Prime
Response to Andersen Consulting during the Service Period. If Andersen
Consulting exercises the option to put the shares back to Prime Response this
agreement will terminate.
These services will be performed under the terms of Andersen Consulting's
standard Consulting Services Agreement. A detailed description of the scope of
our services will be contained in arrangement letters to which we will both
agree prior to the commencement of any work. Each arrangement letter will be
subject to the terms of the Consulting Services Agreement.
The kinds of services we would expect to provide under these arrangements
include creation of prototypes and demos for external presentations, development
of training materials and potentially conducts of the training, product testing,
and other activities to
<PAGE>
support Prime Response's product releases. In addition, Prime Response may
determine that we should work on projects related to the development and
deployment of your business capabilities, for example, deployment of business
systems, planning and analysis work related to marketing, deployment of
technology infrastructure to support your business activities, etc. We do not
expect that we would be involved in Prime Response's product development, where
the results of our work would be a material element in a product that Prime
Response sells and licenses.
Again, we are pleased to have this opportunity to work with you on this
important project. If you have any questions please call me at (612) 277-6099.
Sincerely,
/s/ J. Patrick O'Halloran
Andersen Consulting LLP
J. Patrick O'Halloran
Partner
Agreed and accepted:
PRIME RESPONSE, INC.
By: /s/ Peter J. Boni
---------------------------------
Name: Peter J. Boni
-------------------------------
Title: Chief Executive Officer and President
----------------------------------------
Date: 12/6/99
-------------------------------
<PAGE>
Exhibit 10.26
- --------------------------------------------------------------------------------
[LOGO OF GREYROCK CAPITAL APPEARS HERE]
LOAN AND SECURITY AGREEMENT
BORROWER: PRIME RESPONSE, INC.
ADDRESS: 150 CAMBRIDGE PARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
DATE: OCTOBER 28, 1999
This Loan and Security Agreement is entered into on the above date between
GREYROCK CAPITAL, a Division of Banc of America Commercial Finance Corporation
("GC"), whose address is 10880 Wilshire Boulevard, Suite 1850, Los Angeles,
California 90024 and the borrower named above ("Borrower"), whose chief
executive office is located at the above address ("Borrower's Address"). Banc
of America Commercial Finance Corporation is hereinafter referred to as "GC".
The Schedule to this Agreement (the "Schedule") being signed concurrently is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. GC will make loans to Borrower (the "Loans") up to the amounts
(the "Credit Limit") shown on the Schedule, provided no Default or Event of
Default has occurred and is continuing. If at any time or for any reason the
total of all outstanding Loans and all other Obligations exceeds the Credit
Limit, Borrower shall pay the amount of the excess to GC, without notice or
demand*.
*WITHIN ONE BUSINESS DAY
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement or in another written agreement signed by GC and
Borrower. Interest shall be payable monthly, on the last day of the month.
Unpaid interest* may, in GC's discretion, be charged to Borrower's loan account,
and the same shall thereafter bear interest at the same rate as the other Loans.
*UNPAID INTEREST
1.3 FEES. Borrower shall pay GC the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to GC and are not
refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to GC a security interest in all of
Borrower's interest in the following, whether now owned or hereafter acquired,
and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, Investment Property and General Intangibles, including,
without limitation, all of Borrower's Deposit Accounts, all money, all
collateral in which GC is granted a security interest pursuant to any other
present or future agreement, all property now or at any time in the future in
GC's possession, and all proceeds (including proceeds of any insurance policies,
proceeds of letters of credit, proceeds of proceeds and claims against third
parties), all products of the foregoing, and all books and records related to
any of the foregoing. Borrower's payment and performance of all of the
Obligations when due shall be secured also by the Additional Collateral.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce GC to enter into this Agreement and to make Loans,
Borrower represents and warrants to GC as follows, and Borrower covenants that
the following representations will continue to be true,* and that
-1-
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Borrower will at all times comply with all of the following covenants:
*(EXCEPT AS EXPRESSLY PROVIDED BELOW FOR CHANGES PURSUANT TO WRITTEN NOTICE
BY BORROWER TO GC)
3.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Borrower is and will continue to be
qualified and licensed to do business in all jurisdictions in which any failure
to do so would have a material adverse effect on Borrower. The execution,
delivery and performance by Borrower of this Agreement, and all other documents
contemplated hereby (i) have been duly and validly authorized, (ii) are
enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (iii) do not violate Borrower's articles or certificate of
incorporation or bylaws or any law or any material agreement or instrument which
is binding upon Borrower or its property, and (iv) do not constitute grounds for
acceleration of any material indebtedness or obligation under any material
agreement or instrument which is binding upon Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give GC 30 days prior written notice before changing its name or
doing business under any other name. Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule*. Borrower will give GC at least 30 days' prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral** other than Borrower's
Address or one of the locations set forth on the Schedule.
*(EXCEPT FOR SALES OFFICES AT WHICH NOT MORE THAN $50,000 OF COLLATERAL IS
LOCATED)
**TO ANY NEW LOCATION NOT PREVIOUSLY REPORTED TO GC
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. GC now has, and
will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend GC and the Collateral against all claims of
others. So long as any Loan is outstanding which is a term loan, none of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain any
rights in any of the Collateral* and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by GC, use its best efforts to cause such third party to execute and
deliver to GC, in form acceptable to GC, such waivers and subordinations as GC
shall specify, so as to ensure that GC's rights in the Collateral are, and will
continue to be, superior to the rights of any such third party. Borrower will
keep in full force and effect, and will comply with all the** terms of, any
lease of real property where any of the Collateral now or in the future may be
located***.
*(UNLESS BORROWER PROVIDES GC WITH A LANDLORD WAIVER WITH RESPECT THERETO IN
FORM AND SUBSTANCE SATISFACTORY TO GC, IF SO REQUESTED BY GC, OR UNLESS THE SAME
IS A SALES OFFICE AT WHICH NOT MORE THAN $50,000 OF COLLATERAL IS LOCATED)
**MATERIAL
***EXCEPT FOR LEASES OF SALES OFFICES AT WHICH NOT MORE THAN $50,000 OF
COLLATERAL IS LOCATED
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the *Collateral in
good working condition, ordinary wear and tear excepted, and Borrower will not
use the Collateral for any unlawful purpose. Borrower will immediately advise GC
in writing of any material loss or damage to the Collateral. Borrower will
maintain the validity of, and otherwise maintain, preserve and protect, its
patents, trademarks, copyrights and other intellectual property in accordance
with prudent business practices.
*EQUIPMENT AND OTHER TANGIBLE
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting
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system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to GC have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein stated. Between the last date covered
by any such statement provided to GC and the date hereof, there has been no
material adverse change in the financial condition or business of Borrower.
Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and Borrower has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Borrower*.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies GC in writing of the commencement of, and any material development in,
the proceedings, and (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a lien upon any of the Collateral. Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency. Borrower shall, at all
times, maintain a separate payroll account which shall be used exclusively for
payment of payroll and payroll taxes and other items related directly to
payroll.
*(EXCEPT WHERE FAILURE TO DO SO WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON
BORROWER AND WOULD NOT RESULT IN A LIEN ON ANY OF THE COLLATERAL, BUT ONLY SO
LONG AS THE BORROWER MAINTAINS ADEQUATE RESERVES WITH RESPECT TO SUCH
LIABILITIES IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
CONSISTENTLY APPLIED)
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which *
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform GC in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower**.
*IS REASONABLY LIKELY TO
**WHICH, IF DETERMINED ADVERSELY TO THE BORROWER, WOULD BE REASONABLY LIKELY
TO RESULT IN (I) A JUDGMENT, LOSS OR PAYMENT OF $50,000 OR MORE, OR $100,000 OR
MORE IN THE AGGREGATE, OR (II) A MATERIAL ADVERSE CHANGE IN THE BUSINESS OR
CONDITION OF BORROWER, OR A MATERIAL IMPAIRMENT IN THE ABILITY OF BORROWER TO
CARRY ON ITS BUSINESS IN SUBSTANTIALLY THE SAME MANNER AS IT IS NOW BEING
CONDUCTED
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
3.12 YEAR 2000 COMPLIANCE. The Borrower has (i) initiated a review and
assessment of all areas within its and each of its subsidiaries' business and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its subsidiaries (or its suppliers
and vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, implemented that plan in accordance with
that timetable. The Borrower reasonably believes that all computer applications
(including those of its suppliers and vendors) that are material to its or any
of its subsidiaries' business and operations will on a timely basis 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. The
Borrower will promptly notify GC in the event the
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Borrower discovers or determines that any computer application (including those
of its suppliers and vendors) that is material to its or any of its
subsidiaries' business and operations will not be Year 2000 compliant on a
timely basis, except to the extent that such failure could not reasonably be
expected to have a material adverse effect.
4. RECEIVABLES AND INVESTMENT PROPERTY.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower and each Related
Company represents and warrants to GC that each Receivable with respect to which
Loans are requested by Borrower shall, on the date each Loan is requested and
made, represent an undisputed, bona fide, existing, unconditional obligation of
the Account Debtor created by the sale, delivery, and acceptance of goods* or
the rendition of services, in the ordinary course of Borrower's business or any
Related Company's business**.
*, THE LICENSING OF SOFTWARE,
**(EXCEPT AS DISCLOSED TO AND APPROVED BY GC)
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
and Related Companies each represents and warrants to GC as follows: All
statements made and all unpaid balances appearing in all invoices, instruments
and other documents evidencing the Receivables are and shall be true and correct
and all such invoices, instruments and other documents and all of Borrower's (or
any Related Company's, as the case may be) books and records are and shall be
genuine and in all respects what they purport to be, and all signatories and
endorsers* have the capacity to contract. All sales and other transactions
underlying or giving rise to each Receivable shall comply with all applicable
laws and governmental rules and regulations. All signatures and indorsements on
all documents, instruments, and agreements relating to all Receivables* are and
shall be genuine, and all such documents, instruments and agreements are and
shall be legally enforceable in accordance with their terms.
*(TO THE BEST OF BORROWER'S KNOWLEDGE, FOR PARTIES OTHER THAN BORROWER)
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES AND INVESTMENT
PROPERTY. Borrower shall deliver to GC transaction reports and loan requests,
schedules and assignments of all Receivables, and schedules of collections, all
on GC's standard forms*; provided, however, that Borrower's failure to execute
and deliver the same shall not affect or limit GC's security interest and other
rights in all of Borrower's and any Related Company's Receivables, nor shall
GC's failure to advance or lend against a specific Receivable affect or limit
GC's security interest and other rights therein. Together with each such
schedule and assignment, or later if requested by GC, Borrower shall furnish GC
with copies (or, at GC's request, originals) of all contracts, orders, invoices,
and other similar documents, and all original shipping instructions, delivery
receipts, bills of lading, and other evidence of delivery, for any goods the
sale or disposition of which gave rise to such Receivables, and Borrower
warrants the genuineness of all of the foregoing. Borrower shall also furnish to
GC an aged accounts receivable trial balance in such form and at such intervals
as GC shall request. In addition, Borrower shall deliver to GC the originals of
all instruments, chattel paper, security agreements, guarantees and other
documents and property evidencing or securing any Receivables, immediately upon
receipt thereof and in the same form as received, with all necessary
indorsements, and, upon the request of GC, Borrower shall deliver to GC all
letters of credit and also all certificated securities with respect to any
Investment Property, with all necessary indorsements, and obtain such account
control agreements with securities intermediaries and take such other action
with respect to any Investment Property, as GC shall request, in form and
substance satisfactory to GC. Upon request of GC Borrower additionally shall
obtain consents from any letter of credit issuers with respect to the assignment
to GC of any letter of credit proceeds.
*, AS GC SHALL REASONABLY REQUEST
4.4 COLLECTION OF RECEIVABLES AND INVESTMENT PROPERTY INCOME. Borrower and
Related Companies each shall have the right to collect all Receivables and
retain all Investment Property payments and distributions, unless and until a
Default or an Event of Default has occurred*. Borrower shall hold all payments
on, and proceeds of, and distributions with respect to, Receivables and
Investment Property in trust for GC, and Borrower shall deliver all such
payments, proceeds and distributions to GC, within one business day after
receipt of the same, in their original form, duly endorsed, to be applied to the
Obligations in such order as GC shall determine. Except to the extent otherwise
provided in the Schedule or as otherwise agreed with GC, each Related Company
shall hold all payments on, and proceeds of, and distributions with respect to,
each Related Company's Receivables in trust for GC, and each Related Company
shall deliver all such payments, proceeds and distributions to GC, within one
Business Day after receipt of the same, in their original form, duly endorsed,
to be applied to the Obligations in such order as GC shall determine.
4.5 Upon the request of GC, any such distributions and payments with
respect to any Investment Property held in any securities account shall be held
and retained in such securities account as part of the Collateral.
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*AND IS CONTINUING
**, SUBJECT TO SECTION 7.5
4.6 DISPUTES. Borrower and Related Companies each shall notify GC promptly
of all disputes* or claims relating to Receivables on the regular reports to GC.
Borrower shall not forgive, or settle any Receivable for less than payment in
full, or agree to do any of the foregoing (nor shall any Related Company agree
to do any of the foregoing), except that each of the Related Companies and
Borrower may do so, provided that: (i) Borrower or any Related Company, as the
case may be, does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's-length transactions, which are
reported to GC on the regular reports provided to GC; (ii) no Default or Event
of Default has occurred and is continuing; and (iii) taking into account all
such settlements and forgiveness, the total outstanding Loans and other
Obligations will not exceed the Credit Limit.
*IN EXCESS OF $50,000
4.7 RETURNS. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower (or a Related Company)
in the ordinary course of its business, Borrower (or a Related Company) shall
promptly determine the reason for such return and promptly issue a credit
memorandum to the Account Debtor in the appropriate amount (sending a copy to
GC). In the event any attempted return occurs after the occurrence of any Event
of Default, Borrower (or a Related Company) shall (i) not accept any return
without GC's prior written consent, (ii) hold the returned Inventory in trust
for GC, (iii) segregate all returned Inventory from all of Borrower's (or a
Related Company's) other property, (iv) conspicuously label the returned
Inventory as GC's property, and (v) immediately notify GC of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on GC's request deliver such returned Inventory to
GC.
4.8 VERIFICATION. GC may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or a Related Company or GC or such other name as GC may choose, and GC
or its designee may, at any time, notify Account Debtors that it has a security
interest in the Receivables.
4.9 NO LIABILITY. GC shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall GC be deemed to be responsible for any of Borrower's obligations under any
contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve GC from liability for its own gross negligence or willful
misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 INSURANCE. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to GC, in such form and amounts as GC may
reasonably require, and Borrower shall provide evidence of such insurance to GC,
so that GC is satisfied that such insurance is, at all times, in full force and
effect. All such insurance policies shall name GC as an additional loss payee,
and shall contain a lenders loss payee endorsement in form reasonably acceptable
to GC. Upon receipt of the proceeds of any such insurance, GC shall apply such
proceeds in reduction of the Obligations as GC shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, GC shall release to Borrower* insurance proceeds with respect
to Equipment totaling less than $100,000, which shall be utilized by Borrower
for the replacement of the Equipment with respect to which the insurance
proceeds were paid**. GC may require reasonable assurance that the insurance
proceeds so released will be so used. If Borrower fails to provide or pay for
any insurance, GC may, but is not obligated to, obtain the same at Borrower's
expense. Borrower shall promptly deliver to GC copies of all**** reports made
to insurance companies.
*(I)
**AND (II) INSURANCE PROCEEDS WITH RESPECT TO INVENTORY TOTALING LESS THAN
$100,000, WHICH SHALL BE UTILIZED BY BORROWER FOR THE REPLACEMENT OF THE
INVENTORY WITH RESPECT TO WHICH THE INSURANCE PROCEEDS WERE PAID.
*** MATERIAL
5.2 REPORTS. Borrower, at its expense, shall provide GC with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower and the Related Companies (including budgets, sales projections,
operating plans and other financial documentation), as GC shall from time to
time reasonably specify.
5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one business day's notice, GC, or its agents, shall have the right to inspect
the Collateral,
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and the right to audit and copy Borrower's and any Related Company's books and
records. GC shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but GC shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $600 per person per day (or such higher amount as shall represent GC's
then current standard charge for the same), plus reasonable out-of-pockets
expenses. Borrower shall not be charged more than $3,000 per audit (plus
reasonable out-of-pockets expenses), nor shall audits be done more frequently
than four times per calendar year, provided that * the foregoing limits shall
not apply after the occurrence of a Default or Event of Default, nor shall they
restrict GC's right to conduct audits at its own expense (whether or not a
Default or Event of Default has occurred). Borrower will not enter into any
agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address,
without first obtaining GC's written consent, which may be conditioned upon such
accounting firm, service bureau or other third party agreeing to give GC the
same rights with respect to access to books and records and related rights as GC
has under this Agreement.
* GC SHALL NOT CHARGE FOR MORE THAN ONE SUCH AUDIT PER YEAR; AND PROVIDED
FURTHER THAT
5.4 REMITTANCE OF PROCEEDS. All proceeds arising from the sale or other
disposition of any Collateral shall be delivered, in kind, by Borrower or any
Related Company to GC* in the original form in which received by Borrower or
such Related Company not later than the following business day after receipt by
Borrower**, to be applied to the Obligations in such order as GC shall
determine***; provided that, if no Default or Event of Default has occurred and
is continuing, and if no term loan is outstanding hereunder, then Borrower shall
not be obligated to remit to GC the proceeds of the sale of Equipment which is
sold in the ordinary course of business, in a good-faith arm's-length
transaction****. Except for the proceeds of the sale of Equipment as set forth
above and except as provided in the Schedule as to Related Company, Borrower and
each Related Company shall not commingle proceeds of Collateral with any of
Borrower's or a Related Company's other funds or property, and shall hold such
proceeds separate and apart from such other funds and property and in an express
trust for GC. Nothing in this Section limits the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
*(OR, AT GC'S REQUEST, INTO A LOCKBOX ACCOUNT, OR OTHER BLOCKED ACCOUNT,
ESTABLISHED PURSUANT TO AN AGREEMENT ACCEPTABLE TO GC, AND WITH A BANK SELECTED
BY BORROWER WHICH IS ACCEPTABLE TO GC)
**(EXCEPT WIRE TRANSFER REMITTANCES RECEIVED BY BORROWER OR A RELATED
COMPANY SHALL BE TRANSMITTED TO GC IN TOTAL THE DAY FOLLOWING POSTING TO
BORROWER'S BANK ACCOUNT)
***(SUBJECT TO SECTION 7.5)
****NOR SHALL BORROWER OR ANY RELATED COMPANY BE OBLIGATED TO REMIT TO GC ANY
SUCH PROCEEDS UNLESS THE AGGREGATE AMOUNT THEREOF RECEIVED AND HELD BY THE
BORROWER OR SUCH RELATED COMPANY EQUALS OR EXCEEDS $25,000
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule, neither
Borrower nor any Related Company shall, without GC's prior written consent, do
any of the following: (i) merge or consolidate with another corporation or
entity; (ii) acquire any assets, except in the ordinary course of business;
(iii) sell or transfer any Collateral, except that, provided no Default or Event
of Default has occurred and is continuing, each of Borrower and the Related
Companies may (A) sell finished Inventory in the ordinary course of Borrower's
or such Related Company's business, (B) sell Equipment in the ordinary course of
business, in good-faith arm's-length transactions, and (C) license or sublicense
on a non-exclusive basis intellectual property in the ordinary course of
Borrower's or such Related Company's business; (IV) store any Inventory or other
Collateral with any warehouseman or other third party*; (V) sell any Inventory
on a sale-or-return, guaranteed sale, consignment, or other contingent basis;
(VI) make any loans of any money or other assets**; (VII) incur any debts,
outside the ordinary course of business, which would have a material, adverse
effect on Borrower or a Related Company or on the prospect of repayment of the
Obligations; (VIII) guarantee or otherwise become liable with respect to the
obligations of another party or entity***; (IX) pay or declare any dividends on
Borrower's or a Related Company's stock (except for dividends payable solely in
stock of Borrower or a Related Company) other than to Parent Company; (X)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's or a Related Company's stock****; (XI) make any change in Borrower's
or a Related Company's capital structure which would have a material adverse
effect on Borrower or a Related Company or on the prospect of repayment of the
Obligations; (XII) dissolve or elect to dissolve; or (XIII) agree to do any of
the foregoing.
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*, UNLESS SUCH WAREHOUSEMAN OR OTHER THIRD PARTY ENTERS INTO A BAILEE
AGREEMENT WITH GC ON TERMS SATISFACTORY TO GC IN ITS SOLE DISCRETION
**, EXCEPT (A) ADVANCES TO SUBSIDIARIES OF THE BORROWER OR A RELATED COMPANY
AND CUSTOMERS OR SUPPLIERS, IN EACH CASE, IF CREATED, ACQUIRED OR MADE IN THE
ORDINARY COURSE OF BUSINESS, (B) TRAVEL ADVANCES IN THE ORDINARY COURSE OF
BUSINESS, (C) EMPLOYEE RELOCATION LOANS IN THE ORDINARY COURSE OF BUSINESS, (D)
INTERCOMPANY ADVANCES, (E) OTHER EMPLOYEE LOANS AND ADVANCES IN THE ORDINARY
COURSE OF BUSINESS, (F) LOANS TO EMPLOYEES, OFFICERS AND DIRECTORS FOR THE
PURPOSE OF PURCHASING EQUITY SECURITIES OF THE PARENT COMPANY, (G) OTHER LOANS
TO OFFICERS AND EMPLOYEES APPROVED BY THE BOARD OF DIRECTORS OF THE BORROWER OR
THE APPLICABLE RELATED COMPANY AND (H) OTHER LOANS OR EXTENSIONS OF CREDIT NOT
OTHERWISE PERMITTED HEREUNDER, PROVIDED THAT THE AGGREGATE AMOUNT OF ALL OF THE
FOREGOING ITEMS SET FORTH IN (A), (B), (E), (F), (G) AND (H) SHALL NOT EXCEED
$1,000,000 AT ANY ONE TIME OUTSTANDING EXCEPT THAT ANY LOANS MADE PRIOR TO THE
DATE HEREOF PURSUANT TO ITEM (A) SHALL NOT BE INCLUDED IN SAID $1,000,000 LIMIT,
AND PROVIDED, FURTHER, THAT NO DEFAULT OR EVENT OF DEFAULT SHALL EXIST EITHER
IMMEDIATELY PRIOR TO OR AFTER GIVING EFFECT TO THE MAKING OF ANY OF THE
FOREGOING ADVANCES, LOANS OR OTHER EXTENSIONS OF CREDIT IN CLAUSES (A) THROUGH
(H)
***EXCEPT THAT PARENT COMPANY MAY ISSUE GUARANTEES OF ITS SUBSIDIARIES'
OBLIGATIONS IN THE ORDINARY COURSE OF BUSINESS
****(EXCEPT THAT THE PARENT COMPANY MAY REPURCHASE OR REDEEM SHARES OF ITS
CAPITAL STOCK (A) PURSUANT TO EMPLOYEE OPTION PLANS FOR AN AGGREGATE PURCHASE
PRICE NOT TO EXCEED $250,000 PLUS PAYMENTS MADE FROM THE PROCEEDS OF THE
EXERCISE OF STOCK OPTIONS PER FISCAL YEAR, ON A NON-CUMULATIVE BASIS AND (B) IF
A CAPITAL CONTRIBUTION TO THE PARENT COMPANY HAS BEEN MADE PRIOR TO ANY SUCH
PURCHASE OR REDEMPTION IN AN AGGREGATE AMOUNT AT LEAST EQUAL TO THE AMOUNT OF
THE PURCHASE OR REDEMPTION)
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against GC with respect to any Collateral or in any manner
relating to Borrower or any Related Company, Borrower or any Related Company, as
the case may be, shall, without expense to GC, make available Borrower and its
officers, employees and agents, and Borrower's or any Related Company's, as the
case may be, books and records, without charge, to the extent that GC may deem
them reasonably necessary in order to prosecute or defend any such suit or
proceeding.
5.7 NOTIFICATION OF CHANGES. Borrower and the Related Companies each will
promptly notify GC in writing of any change in its*, the opening of any
new bank account or other deposit account, the opening of any new securities
account, and any material adverse change in the business or financial affairs of
Borrower.
*EXECUTIVE OFFICERS
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by GC,
to execute all documents and take all actions, as GC may deem reasonably
necessary or useful in order to perfect and maintain GC's perfected security
interest in the Collateral, and in order to fully consummate the transactions
contemplated by this Agreement.
5.9 INDEMNITY. Borrower hereby agrees to indemnify GC and hold GC harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including attorneys'
fees), of every nature, character and description, which GC may sustain or incur
based upon or arising out of any of the Obligations, any actual or alleged
failure to collect and pay over any withholding or other tax relating to
Borrower or its employees, any relationship or agreement between GC and
Borrower, any actual or alleged failure of GC to comply with any writ of
attachment or other legal process relating to Borrower or any of its property,
or any other matter, cause or thing whatsoever occurred, done, omitted or
suffered to be done by GC relating to Borrower or the Obligations (except any
such amounts sustained or incurred as the result of the gross negligence or
willful misconduct of GC or any of its directors, officers, employees, agents,
attorneys, or any other person affiliated with or representing GC).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement and shall for all purposes continue in full force and effect.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty days prior to the next Maturity Date, that such party elects to terminate
this Agreement effective on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three business days after
written notice of termination is given to GC; or (ii) by GC at any time after
the occurrence of an Event of Default, without notice, effective immediately. If
this Agreement is terminated by Borrower or by GC under this Section 6.2,
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<PAGE>
Borrower shall pay to GC a termination fee (the "Termination Fee") in the amount
shown on the Schedule. The Termination Fee shall be due and payable on the
effective date of termination and thereafter shall bear interest at a rate equal
to the highest rate applicable to any of the Obligations.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding letters of
credit issued based upon an application, guarantee, indemnity or similar
agreement on the part of GC, then on such date Borrower shall provide to GC cash
collateral in an amount equal to 110% of the face amount of all such letters of
credit plus all interest, fees and costs due or (in GC's estimation) likely to
become due in connection therewith, to secure all of the Obligations relating to
said letters of credit, pursuant to GC's then standard form cash pledge
agreement. Notwithstanding any termination of this Agreement, all of GC's
security interests in all of the Collateral and all of the terms and provisions
of this Agreement shall continue in full force and effect until all Obligations
have been paid and performed in full; provided that GC may, in its sole
discretion, refuse to make any further Loans after termination. No termination
shall in any way affect or impair any right or remedy of GC, nor shall any such
termination relieve Borrower of any Obligation to GC, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, GC shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be reasonably required to terminate GC's
security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
GC immediate written notice thereof: (A) Any warranty, representation,
statement, report or certificate made or delivered to GC by Borrower or any
Guarantor or any of Borrower's or any Guarantor's officers, employees or agents,
now or in the future, shall be untrue or misleading in a material respect*; or
(B) Borrower shall fail to pay when due any Loan or any interest thereon or any
other monetary Obligation**; or (C) the total Loans and other Obligations
outstanding at any time shall exceed the Credit Limit***; or (D) Borrower shall
fail to perform any non-monetary Obligation which by its nature cannot be cured;
or (e) Borrower shall fail to perform any other non-monetary Obligation, which
failure is not cured within **** business days after the date performance is
due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within ***** days after the occurrence of the same; or (g) any
default or event of default occurs under any obligation secured by a Permitted
Lien, which is not cured within any applicable cure period or waived in writing
by the holder of the Permitted Lien+; or (h) Borrower or any Guarantor breaches
any material contract or obligation, which has or may reasonably be expected to
have a material adverse effect on Borrower's or such Guarantor's business or
financial condition; or (i) dissolution, termination of existence, insolvency or
business failure of Borrower or any Guarantor; or appointment of a receiver,
trustee or custodian, for all or any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceeding by Borrower or
any Guarantor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect; or (j) the commencement of any
proceeding against Borrower or any Guarantor under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect,
which is not cured by the dismissal thereof within 45 days after the date
commenced; or (k) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing; or (l) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset pledged by any other Person to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such Person under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (m) Borrower or
any Guarantor makes any payment on account of any indebtedness or obligation
which has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits or terminates its
subordination agreement; or (n) there shall be a change in the record or
beneficial ownership of an aggregate of more than 20% of the outstanding shares
of stock of Parent Company, in one or more transactions, compared to the
ownership of outstanding shares of stock of Parent Company in effect on the date
hereof, ++ without the prior written consent of GC; or (o) Borrower or any
Guarantor shall generally not pay its debts as they become due, or Borrower or
any Guarantor shall conceal, remove or transfer any part of its property, with
intent to hinder, delay or defraud its creditors, or make or suffer any
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transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or (p) there shall be a material adverse
change in Borrower's or any Guarantor's business or financial condition; or (q)
there shall be a change in the record or beneficial ownership of Borrower or
Borrower Affiliate such that Parent Company ceases to hold 100% of the common
stock and all other capital stock of Borrower and Borrower Affiliate, without
the prior written consent of GC; or (r) any defined "Event of Default" shall
exist under any Related Company Guaranty or Security Agreement, or the security
provided by the Borrower Affiliate shall become enforceable. GC may cease making
any Loans hereunder during any of the above cure periods, and thereafter if an
Event of Default has occurred.
*WHEN MADE
**AND IN THE CASE OF ANY AMOUNT OTHER THAN PRINCIPAL, SUCH DEFAULT SHALL
CONTINUE FOR THREE BUSINESS DAYS
***AND ARE NOT PROMPTLY REPAID TO THE EXTENT OF SUCH EXCESS WITHIN ONE
BUSINESS DAY
****20
*****30
+, PROVIDED THAT IF THE AMOUNT INVOLVED IS LESS THAN $50,000 THEN THE SAME
SHALL NOT BE AN EVENT OF DEFAULT UNLESS AND UNTIL THE HOLDER OF THE PERMITTED
LIEN COMMENCES ANY ACTION TO ENFORCE ITS LIEN AGAINST ANY COLLATERAL;
++, OTHER THAN IN CONNECTION WITH AN INITIAL PUBLIC OFFERING OF PARENT
COMPANY'S SECURITIES OR ANY PUBLIC OFFERING THEREAFTER,
7.2 REMEDIES. Upon the occurrence and during the continuance of any Event of
Default,* GC, at its option, and without notice or demand of any kind (all of
which are hereby expressly waived by Borrower), may do any one or more of the
following**: (A) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement; (B) Accelerate and
declare all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any Obligation; (C) Take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes GC without judicial process to enter onto any of Borrower's
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as GC deems it reasonably necessary in order to complete the enforcement of its
rights under this Agreement or any other agreement; provided, however, that
should GC seek to take possession of any of the Collateral by Court process,
Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession; (ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and (iii) any requirement that
GC retain possession of, and not dispose of, any such Collateral until after
trial or final judgment; (D) Require Borrower to assemble any or all of the
Collateral and make it available to GC at places designated by GC which are
reasonably convenient to GC and Borrower, and to remove the Collateral to such
locations as GC may deem advisable; (e) Complete the processing, manufacturing
or repair of any Collateral prior to a disposition thereof and, for such purpose
and for the purpose of removal, GC shall have the right to use Borrower's
premises, vehicles, hoists, lifts, cranes, equipment and all other property
without charge; (f) Sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time GC obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. GC shall have the right to conduct
such disposition on Borrower's premises without charge, for such time or times
as GC deems reasonable, or on GC's premises, or elsewhere and the Collateral
need not be located at the place of disposition. GC may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Receivables and General Intangibles comprising Collateral
and, in connection therewith, Borrower irrevocably authorizes GC to endorse or
sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in GC's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables, General Intangibles and the like for
less than face value; (h) Collect, receive, dispose of and realize upon any
Investment Property, including withdrawal of any and all funds from any
securities accounts; and (i) Demand and receive possession of any of Borrower's
federal and state income tax returns and the books and records utilized in the
preparation thereof or
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referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by GC with respect to the foregoing shall be added to
and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations.
*AND AT ANY TIME THEREAFTER, WHILE SUCH EVENT OF DEFAULT IS CONTINUING
**(EXCEPT THAT, PRIOR TO OR CONCURRENTLY WITH THE TAKING OF THE FIRST OF ANY
OF THE FOLLOWING ACTIONS, GC SHALL GIVE BORROWER ONE GENERAL WRITTEN NOTICE
STATING THAT GC IS "PROCEEDING TO EXERCISE ITS RIGHTS AND REMEDIES" OR WORDS TO
THAT EFFECT)
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and GC
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by GC, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m.;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, GC may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. GC shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable. Without limiting the generality of the
foregoing, Borrower recognizes that GC may be unable to make a public sale of
any or all of the Investment Property, by reason of prohibitions contained in
applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall * be considered a commercially **sale ***.
*NOT
**UNREASONABLE
***FOR SUCH REASON
7.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of
any Event of Default, without limiting GC's other rights and remedies, Borrower
grants to GC an irrevocable power of attorney coupled with an interest,
authorizing and permitting GC (acting through any of its employees, attorneys or
agents) at any time*, at its option, but without obligation, with or without
notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but GC agrees to exercise the
following powers in a commercially reasonable manner: (A) Execute on behalf of
Borrower any documents that GC may, in its sole discretion, deem advisable in
order to perfect and maintain GC's security interest in the Collateral, or in
order to exercise a right of Borrower or GC, or in order to fully consummate all
the transactions contemplated under this Agreement, and all other present and
future agreements; (B) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
GC's Collateral or in which GC has an interest; (C) Execute on behalf of
Borrower, any invoices relating to any Receivable, any draft against any Account
Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy,
any Notice of Lien, claim of mechanic's, materialman's or other lien, or
assignment or satisfaction of mechanic's, materialman's or other lien; (D) Take
control in any manner of any cash or non-cash items of payment or proceeds of
Collateral; endorse the name of Borrower upon any instruments, or documents,
evidence of payment or Collateral that may come into GC's possession; (e)
Endorse all checks and other forms of remittances received by GC; (f) Pay,
contest or settle any lien, charge, encumbrance, security interest and adverse
claim in or to any of the Collateral, or any judgment based thereon, or
otherwise take any action to terminate or discharge the same; (g) Grant
extensions of time to pay, compromise claims and settle Receivables and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give GC the same rights of access and other rights with respect
thereto as GC has under this Agreement; (k) Execute and deliver to any
securities intermediary or other Person any entitlement order, account control
agreement or other notice, document or instrument with respect to any Investment
Property; and (l) Take any action or pay any sum required of Borrower pursuant
to this Agreement and any other present or future agreements. Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and reasonable attorneys' fees incurred by GC with respect to the
foregoing shall be added to and become part of the Obligations, shall be payable
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. In no event shall GC's rights under the
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foregoing power of attorney or any of GC's other rights under this Agreement be
deemed to indicate that GC is in control of the business, management or
properties of Borrower.
*DURING THE CONTINUANCE OF SUCH EVENT OF DEFAULT
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale or other disposition of the Collateral shall be applied by GC first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by GC in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as GC shall determine in its sole discretion. Any
surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to GC for any deficiency. If, GC, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, GC shall have
the option, exercisable at any time, in its sole discretion, of either reducing
the Obligations by the principal amount of purchase price or deferring the
reduction of the Obligations until the actual receipt by GC of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, GC shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between GC and Borrower, and all of such rights and remedies
are cumulative and none is exclusive. Exercise or partial exercise by GC of one
or more of its rights or remedies shall not be deemed an election, nor bar GC
from subsequent exercise or partial exercise of any other rights or remedies.
The failure or delay of GC to exercise any rights or remedies shall not operate
as a waiver thereof, but all rights and remedies shall continue in full force
and effect until all of the Obligations have been fully paid and performed.
8. DEFINITIONS. AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS HAVE THE
FOLLOWING MEANINGS:
"Account Debtor" means the obligor on a Receivable.
--------------
"Additional Collateral" means all property and interests in property and
---------------------
proceeds thereof described as collateral in the Related Company Security
Agreements.
"Affiliate" means, with respect to any Person, a relative, partner,
---------
shareholder, director, member, officer, or employee of such Person, or any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person.
"Agreement" and "this Agreement" means this Loan and Security Agreement and
--------- --------------
all modifications and amendments thereto, extensions thereof, and replacements
therefor.
"Borrower Affiliate" means Prime Response, Ltd., a corporation organized under
------------------
the laws of England.
"Business Day" means a day on which GC is open for business.
------------
"Code" means the Uniform Commercial Code as adopted and in effect in the State
----
of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
----------
"Default" means any event which with notice or passage of time or both, would
-------
constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
---------------
"Eligible Receivables" means unconditional Receivables arising in the ordinary
--------------------
course of Borrower's or a Related Company's business from the completed sale of
goods or rendition of services*, which GC, in its sole judgment, shall deem
eligible for borrowing, based on such considerations as GC may from time to time
deem appropriate.
*OR THE LICENSING OF SOFTWARE
"Equipment" means all of Borrower's present and hereafter acquired
---------
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"Event of Default" means any of the events set forth in Section 7.1 of this
----------------
Agreement.
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lists, security and other deposits, rights in all litigation presently or
hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, all claims of
Borrower against GC, rights to purchase or sell real or personal property,
rights as a licensor or licensee of any kind, royalties, telephone numbers,
proprietary information, purchase orders, and all insurance policies and claims
(including life insurance, key man insurance, credit insurance, liability
insurance, property insurance and other insurance), tax refunds and claims,
computer programs, discs, tapes and tape files, claims under guaranties,
security interests or other security held by or granted to Borrower, all rights
to indemnification and all other intangible property of every kind and nature
(other than Receivables).
"Guarantor" means any Person who has guaranteed any of the Obligations.
---------
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"Investment Property" means any and all investment property of Borrower,
-------------------
including all securities, whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts and commodity accounts,
and all financial assets held in any securities account or otherwise, wherever
located, and whether now existing or hereafter acquired or arising.
"Obligations" means all present and future Loans, advances, debts,
-----------
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to GC, whether evidenced by this Agreement or any note or
other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect, absolute or
contingent, due or to become due, including, without limitation, all interest,
charges, expenses, fees, attorney's fees, expert witness fees, audit fees,
letter of credit fees, loan fees, termination fees, minimum interest charges and
any other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and GC.
"Parent Company" means Prime Response Group, Inc., a corporation organized
--------------
under the laws of __________________.
"Permitted Liens" means the following: (i) purchase money security interests
-----------------
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes*; (iv) additional security interests and
liens which are subordinate to the security interest in favor of GC and are
consented to in writing by GC (which consent shall not be unreasonably
withheld); (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent**; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods***. GC will have the
right to require, as a condition to its consent under subparagraph (iv) above,
that the holder of the additional security interest or lien sign an
intercreditor agreement on GC's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of GC, and
agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
*, OR GOVERNMENTAL FEES, ASSESSMENTS OR OTHER GOVERNMENTAL CHARGES OR
LEVIES, EITHER NOT DELINQUENT OR BEING CONTESTED IN GOOD FAITH BY APPROPRIATE
PROCEEDINGS, PROVIDED THE SAME HAVE NO PRIORITY OVER ANY OF GC'S SECURITY
INTERESTS AND THE BORROWER OR RELATED COMPANY MAINTAINS ADEQUATE RESERVES
THEREFOR IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
CONSISTENTLY APPLIED.
**MORE THAN 45 DAYS, OR ARE BEING CONTESTED IN GOOD FAITH (PROVIDED SUCH
LIEN IS NOT FORECLOSED)
***;(IX) ANY JUDGMENT, ATTACHMENT OR SIMILAR LIEN, UNLESS THE JUDGMENT IT
SECURES IS NOT FULLY COVERED BY INSURANCE AND HAS NOT BEEN DISCHARGED OR
EXECUTION THEREOF EFFECTIVELY STAYED AND BONDED AGAINST PENDING APPEAL WITHIN 45
DAYS OF THE ENTRY THEREOF PROVIDED THAT, IF THE JUDGMENT IS NOT FULLY COVERED BY
INSURANCE OR EXECUTION THEREOF HAS NOT BEEN SO STAYED AND BONDED, GC SHALL NOT
BE REQUIRED TO MAKE ANY LOANS OR OTHERWISE EXTEND CREDIT TO OR FOR THE BENEFIT
OF
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BORROWER; (X) LICENSES OR SUBLICENSES GRANTED TO OTHERS NOT INTERFERING IN ANY
MATERIAL RESPECT WITH THE BUSINESS OF BORROWER OR RELATED COMPANY; AND (XI)
LIENS WHICH CONSTITUTE RIGHTS OF SET-OFF OF A CUSTOMARY NATURE OR BANKER'S LIENS
ON AMOUNTS ON DEPOSIT, WHETHER ARISING BY CONTRACT OR BY OPERATION OF LAW, IN
CONNECTION WITH ARRANGEMENTS ENTERED INTO WITH DEPOSITORY INSTITUTIONS IN THE
ORDINARY COURSE OF BUSINESS
"Person" means any individual, sole proprietorship, partnership, joint
------
venture trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Receivables" means all of Borrower's or a Related Company's now owned and
-----------
hereafter acquired accounts (whether or not earned by performance), letters of
credit, contract rights, chattel paper, instruments, documents and all other
forms of obligations at any time owing to Borrower or a Related Company, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower or a Related Company, and all rights of stoppage in
transit and all other rights or remedies of an unpaid vendor, lienor or secured
party.
"Related Company" means Parent Company or Borrower Affiliate.
---------------
"Related Company Guaranty" means a guaranty of a Related Company, in form
------------------------
and substance satisfactory to GC, pursuant to which such Related Company
guarantees the Obligations.
"Related Company Obligations" means all obligations of a Related Company
---------------------------
under a Related Company Guaranty.
"Related Company Security Agreement" means (i) as to Parent Company, a
----------------------------------
security agreement between Borrower Affiliate and GC, and (ii) as to Borrower
Affiliate, a Debenture of Parent Company in favor of GC, each in form and
substance satisfactory to GC, pursuant to which such Related Company pledges to
GC, and grants to GC a security interest in, such Related Company's accounts
receivable and other property and interests in property described therein as
security for the Obligations.
Other Terms. All accounting terms used in this Agreement, unless otherwise
-----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
Each reference to Borrower in Sections 9.5 through 9.17 below shall be
deemed to include a reference to each Related Company.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by GC (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by GC on account of the Obligations THREE Business Days after receipt by
GC of immediately available funds. GC shall not, however, be required to credit
Borrower's account for the amount of any item of payment which is unsatisfactory
to GC in its discretion, and GC may charge Borrower's Loan account for the
amount of any item of payment which is returned to GC unpaid.
9.2 APPLICATION OF PAYMENTS. *payments with respect to the Obligations
may be applied, and in GC's sole discretion reversed and reapplied, to the
Obligations, in such order and manner as GC shall determine in its sole
discretion.
*SUBJECT TO SECTION 7.5, ALL
9.3 CHARGES TO ACCOUNT. GC may, in its discretion, require that Borrower
pay monetary Obligations in cash to GC, or charge them to Borrower's Loan
account, in which event they will bear interest at the same rate applicable to
the Loans.
9.4 MONTHLY ACCOUNTINGS. GC shall provide Borrower monthly with an account
of advances, charges, expenses and payments made pursuant to this Agreement.
Such account shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by GC), unless Borrower notifies GC in writing
to the contrary within *days after each account is rendered, describing
the nature of any alleged errors or admissions.
*90
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service, or by facsimile, or by regular first-class mail, or certified mail
return receipt requested, addressed to GC or Borrower at the addresses shown in
the heading to this Agreement, or at any other address designated in writing by
one party to the other party. All notices shall be deemed to have been given
upon delivery in the case of notices personally delivered, or at the expiration
of one business day following delivery to the private delivery service, or one
day after the date sent by facsimile, or two business days
-13-
<PAGE>
following the deposit thereof in the United States mail, with postage prepaid*.
* (OR FIVE DAYS FOLLOWING THE DEPOSIT THEREOF IN THE U.K. MAIL, WITH POSTAGE
PREPAID)
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and GC and supersede all
prior and contemporaneous negotiations and oral representations and agreements,
all of which are merged and integrated in this Agreement. There are no oral
-----------------
understandings, representations or agreements between the parties which are not
- -------------------------------------------------------------------------------
set forth in this Agreement or in other written agreements signed by the parties
- --------------------------------------------------------------------------------
in connection herewith.
- ----------------------
9.8 WAIVERS. The failure of GC at any time or times to require Borrower to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and GC shall not waive or diminish
any right of GC later to demand and receive strict compliance therewith. Any
waiver of any default shall not waive or affect any other default, whether prior
or subsequent, and whether or not similar. None of the provisions of this
Agreement or any other agreement now or in the future executed by Borrower and
delivered to GC shall be deemed to have been waived by any act or knowledge of
GC or its agents or employees, but only by a specific written waiver signed by
an authorized officer of GC and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, General Intangible, document or guaranty
at any time held by GC on which Borrower is or may in any way be liable, and
notice of any action taken by GC, unless expressly required by this Agreement.
9.9 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of GC.
9.10 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.11 ATTORNEYS' FEES AND COSTS. Borrower shall reimburse GC for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by GC, pursuant to, or in
connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any reasonable attorneys' fees and costs
GC incurs in order to do the following: prepare and negotiate this Agreement and
the documents relating to this Agreement; obtain legal advice in connection with
this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce GC's
security interest in, the Collateral; and otherwise represent GC in any
litigation relating to Borrower. If either GC or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. All attorneys' fees and costs to which GC may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
9.12 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and GC; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of GC, and any prohibited assignment shall be
void. No consent by GC to any assignment shall release Borrower from its
liability for the Obligations.
9.13 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against GC, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by GC, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted
-14-
<PAGE>
by Borrower by the commencement of an action or proceeding in a court of
competent jurisdiction by the filing of a complaint within one year after* the
first act, occurrence or omission upon which such claim or cause of action, or
any part thereof, is based, and the service of a summons and complaint on an
officer of GC, or on any other person authorized to accept service on behalf of
GC, within thirty (30) days thereafter. Borrower agrees that such one-year
period is a reasonable and sufficient time for Borrower to investigate and act
upon any such claim or cause of action. The one-year period provided herein
shall not be waived, tolled, or extended except by the written consent of GC in
its sole discretion. This provision shall survive any termination of this
Agreement or any other present or future agreement.
*BORROWER LEARNS OF, OR IN THE EXERCISE OF REASONABLE DILIGENCE SHOULD HAVE
LEARNED OF,
9.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and GC acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including,"
whenever used in this Agreement, shall mean "including (but not limited to)."
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against GC or Borrower under any rule of construction or
otherwise.
9.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of GC and Borrower shall
be governed by the laws of the State of California. As a material part of the
consideration to GC to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement shall,
at GC's option, be litigated in courts located within California*, and that the
exclusive venue for ** shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such
action or proceeding.
* OR THE UNITED KINGDOM
** ANY ACTION OR PROCEEDING IN CALIFORNIA
9.17 Mutual Waiver of Jury Trial. BORROWER AND GC EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GC AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GC OR BORROWER, IN ALL OF
THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
(remainder of page intentionally left blank)
-15-
<PAGE>
BORROWER:
PRIME RESPONSE, INC.
By: /s/ Jamie Gunn
--------------------------------------
President or Vice President
By: /s/ Jamie Gunn
--------------------------------------
Secretary or Ass't Secretary
GC:
GREYROCK CAPITAL,
A DIVISION OF BANC OF AMERICA COMMERCIAL FINANCE
CORPORATION
By: /s/ Lisa Nagano
--------------------------------------
TITLE: Senior Vice President
-----------------------------------
RELATED COMPANY CONSENTS
------------------------
Each of Prime Response Group, Inc., a
corporation organized under the laws of
Delaware, and Prime Response, Ltd., a
corporation organized under the laws of
England, hereby approves of, agrees to and
consents to all of the terms and provisions
of the foregoing as they relate to it, and
agrees to be bound thereby.
RELATED COMPANIES:
PRIME RESPONSE GROUP, INC.
BY: /s/ Jamie Gunn
--------------------------------------
TITLE: Vice President
-----------------------------------
PRIME RESPONSE, LTD.
BY: /s/ Jamie Gunn
--------------------------------------
TITLE: Vice President
-----------------------------------
-16-
<PAGE>
[GREYROCK LOGO APPEARS HERE]
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: PRIME RESPONSE, INC.
Address: 150 CAMBRIDGE PARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
Date: OCTOBER 28, 1999
This Schedule is an integral part of the Loan and Security Agreement between
GREYROCK CAPITAL, A DIVISION OF BANC OF AMERICA COMMERCIAL FINANCE CORPORATION
("GC") and the borrower named above ("Borrower") of even date.
===============================================================================
1. CREDIT LIMIT
(Section 1.1):
An amount not to exceed the lesser of (1) or (2) below:
(1) $5,000,000 at any one time outstanding; or
(2) an amount equal to the sum of the following (without
duplication): (A) the amount equal to 85% of the amount
of Borrower's Eligible Receivables (as defined in
Section 8 above), plus (B) the unpaid principal balance
----
of the Term Loan in the original principal amount of
$2,000,000 being made concurrently herewith by GC to
Borrower (the "Term Loan") and evidenced by the Secured
Promissory Note (the "Term Note") of even date herewith
made by Borrower to the order of GC.
===============================================================================
2. INTEREST
INTEREST RATE (Section 1.2):
The interest rate in effect throughout each calendar
month during the term of this Agreement shall be the
highest "Prime Rate" in effect during such month, plus
2% per annum; provided that the interest rate in effect
in each month shall not be less than 7% per annum, and
provided further that the interest charged for each
month shall be a minimum of $12,000, regardless of the
amount of the Obligations outstanding. Interest shall be
calculated on the basis of a 360-day year for the actual
number of days elapsed. As used herein, "Prime Rate"
shall mean the actual prime rate or the substitute
therefor of Bank of
<PAGE>
America, N.A. ("BofA") whether or not that rate is the
lowest interest rate charged by BofA. If the Prime Rate,
as so defined, is unavailable on any date of
determination, "Prime Rate" shall mean the highest of
the prime rates published in the Wall Street Journal, on
such date of determination, as the base rate on
corporate loans at large United States money center
commercial banks, as determined in good faith by GC,
which determination shall be conclusive absent manifest
error.
================================================================================
3. FEES (Section 1.3/Section 6.2):
LOAN FEE: $50,000, payable on the Closing Date.
TERMINATION FEE: None.
NSF CHECK CHARGE: $15.00 per item.
WIRE TRANSFERS: $15.00 per transfer.
===============================================================================
4. MATURITY DATE November 30, 2000, subject to automatic renewal
Section 6.1 (Section 6.1): as provided in above, and early termination as
provided in Section 6.2 above.
===============================================================================
5. REPORTING Borrower shall provide GC with the following:
(Section 5.2):
1. Annual financial statements, as soon as available,
and in any event within 90 days following the end of
Parent Company's fiscal year, certified by
independent certified public accountants acceptable
to GC.
2. Quarterly unaudited financial statements, as soon as
available, and in any event within 30 days after the
end of each fiscal quarter of Parent Company.
3. Copies of the regular, periodic or special reports
that Parent Company or any subsidiary may make to,
or file with, any governmental authority or entity
in the U.S. or U.K. within 5 days after the earlier
of the date they are filed or required to be filed.
4. Monthly unaudited financial statements as soon as
available and, in any event, no later than 30 days
after the end of each month.
5. Monthly Receivable agings, aged by invoice date,
within 10 days after the end of each month.
6. Monthly accounts payable agings, aged by invoice
date, and outstanding or held check registers within
10 days after the end of each month.
7. Such other information as GC shall from time to time
reasonably request with respect to Receivables of
Borrower and the Related Companies and such other
information reasonably requested by GC relating
thereto.
==============================================================================
-2-
<PAGE>
6. BORROWER INFORMATION:
PRIOR NAMES OF BORROWER
(Section 3.2): ---------------------------------------------
PRIOR TRADE NAMES OF BORROWER
(Section 3.2): ---------------------------------------------
EXISTING TRADE NAMES OF
BORROWER
(Section 3.2): ---------------------------------------------
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): 1099 18th Street, Suite 500, Denver, CO 80202
---------------------------------------------
MATERIAL ADVERSE LITIGATION
(Section 3.10): See attached
---------------------------------------------
===============================================================================
7. ADDITIONAL 1. RELATED COMPANY RECEIVABLES. (A) In order
PROVISIONS: to be Eligible Receivables, the Borrower
Affiliate's Receivables (the "U.K.
Receivables") shall be billed from and payable
to offices in England (even though bills may
be sent to, and payments may be remitted from,
other countries). Currencies in other than
U.S. Dollars or English pounds sterling in
which U.K. Receivables are denominated shall
be acceptable to GC in its sole discretion.
For purposes hereof, all determinations based
on any Receivables denominated in a currency
other than U.S. Dollars shall be made using
the equivalent amount in U.S. Dollars at the
spot rate of exchange of Bank of America, N.A.
(B) Daily reporting of transactions and daily
schedules and assignments of Receivables and
schedules of collections, called for by
Section 4.3 of the Loan Agreement, will not be
required with respect to any Related Company's
Receivables. Instead, Borrower will provide GC
with a monthly Borrowing Base Certificate, in
such form as GC shall from time to time
specify, within 10 days after the end of each
month, with respect to any Related Company's
Receivables. In the event, as of the end of
any month, the total of all Loans and all
other Obligations secured by all Eligible
Receivables (determined after including all
Related Company Receivables) exceeds the
Credit Limit set forth above, Borrower shall
immediately pay the amount of the excess to
GC. (C) Delivery of the proceeds of any
Related Company's Receivables and other
Additional Collateral within one business day
after receipt, as called for by Sections 4.4
and 5.4 of the Loan Agreement, will not be
required. (D) The foregoing provisions of this
Section 7 shall immediately terminate if any
Default or Event of Default occurs and is
continuing. Upon any such termination,
Borrower shall, then and thereafter, provide
GC with the daily reporting of transactions
and daily schedules and assignments of the
Related Company's Receivables and schedules of
collections, as called for by Section 4.3 of
the Loan Agreement, and Borrower shall deliver
all proceeds of the Related Company's
Receivables and other Additional Collateral to
GC, within one business day after receipt,
-3-
<PAGE>
as called for by Sections 4.4 and 5.4 of the
Loan Agreement.
2. CERTAIN CONDITIONS PRECEDENT. The
availability of all Loans shall be subject to
the conditions precedent that GC shall have
received, in form and substance satisfactory
to GC and its counsel:
(i) the Parent Company's Security Agreement,
duly executed by the Parent Company; and
(ii) the Parent Company's Guaranty, duly
executed by the Parent Company.
The availability of Loans secured by any U.K.
Receivables shall be subject to the conditions
precedent that GC shall have received, in form
and substance satisfactory to GC and its
counsel:
(i) a certificate of the Secretary or other
appropriate officer of Borrower Affiliate
certifying (A) copies of the articles of
incorporation and bylaws (or other
applicable organizational documents), of
the Borrower Affiliate and the
resolutions and other actions taken or
adopted by the Borrower Affiliate
authorizing the execution, delivery and
performance of the Borrower Affiliate
Security Agreement and Guaranty to which
it is a party (the "U.K. Documents"), and
(B) the incumbency, authority and
signatures of each officer of Borrower
Affiliate authorized to execute and
deliver the U.K. Documents, and act with
respect thereto; and
(ii) a favorable legal opinion of U.K. counsel
to the Borrower Affiliate as to such
matters as GC may reasonably request.
The availability of Loans to be secured by any
Related Company Receivables shall be subject
to the condition precedent that GC shall have
received, in form and substance satisfactory
to GC and its counsel, evidence that all
filings, registrations and recordings have
been made in the appropriate governmental
offices, and all other action has been taken,
which shall be necessary to create, in favor
of GC, a perfected first priority pledge of
and security interest in the Additional
Collateral.
3. CORPORATE STRUCTURE. Borrower represents
and warrants that its corporate structure is
as follows: Parent Company owns (directly or
indirectly) 100% of the outstanding stock of
Borrower and Borrower Affiliate. The Parent
Company has no other subsidiaries, other than
as set forth above.
4. FOREIGN LAW PROVISIONS. (A) Each of
Borrower and the Related Companies (each an
"Obligor") shall pay all amounts of principal,
interest, fees and other amounts due under
this Agreement and any and all related
instruments and agreements (collectively, the
"Loan Documents") free and clear of, and
without reduction for or on account of, any
present and future taxes, levies, imposts,
duties, fees, assessments, charges,
-4-
<PAGE>
deductions or withholdings and all liabilities
with respect thereto excluding, in the case of
GC, income and franchise taxes imposed on it
by the jurisdiction under the laws of which GC
is organized or in which its principal
executive offices may be located or any
political subdivision or taxing authority
thereof or therein, and by the jurisdiction of
GC's lending office and any political
subdivision or taxing authority thereof or
therein (all such nonexcluded taxes, levies,
imposts, duties, fees, assessments, charges,
deductions, with-holdings and liabilities
being hereinafter referred to as "Taxes"). If
any Taxes shall be required by law to be
deducted or withheld from any payment, Obligor
shall increase the amount paid so that GC
receives when due (and is entitled to retain),
after deduction or with-holding for or on
account of such Taxes (including deductions or
withholdings applicable to additional sums
payable under this Section), the full amount
of the payment pro-vided for in the Loan
Documents. (B) If an Obligor makes any payment
hereunder in respect of which it is required
by law to make any deduction or withholding,
it shall pay the full amount to be deducted or
withheld to the relevant taxation or other
authority within the time allowed for such
payment under applicable law and promptly
thereafter shall furnish to GC an original or
certified copy of a receipt evidencing payment
thereof, together with such other information
and documents as GC may reasonably request. If
no Taxes are payable in respect of any payment
hereunder or in connection herewith, the
Obligor shall, upon request of GC, furnish to
GC a certificate from each appropriate taxing
authority, or an opinion of counsel acceptable
to GC, in either case stating that such
payment is exempt from or not subject to
Taxes. (C) If GC is required by law to make
any payment on account of Taxes, or any
liability in respect of any Tax is imposed,
levied or assessed against GC, the Obligor
shall indemnify GC for and against such
payment or liability, together with any
incremental taxes, interest or penalties, and
all costs and expenses, payable or incurred in
connection therewith, including Taxes imposed
on amounts payable under this Section 8,
whether or not such payment or liability was
correctly or legally asserted. A certificate
of GC as to the amount of any such payment
shall, in the absence of manifest error, be
conclusive and binding for all purposes. (D)
The Obligor agrees to indemnify GC against and
hold it harmless from any and all present and
future stamp, transfer, documentary and other
such taxes, levies, fees, assessments and
other charges made by any jurisdiction by
reason of the execution, delivery, performance
and enforcement of the Loan Documents. (E)
Payment in U.S. Dollars of all amounts due
under the Loan Documents is of the essence,
and U.S. Dollars shall be the currency of
account in all events. The payment obligations
of an Obligor under the Loan Documents shall
not be discharged by an amount paid in another
currency or in another place, whether pursuant
to a judgment or otherwise, to
-5-
<PAGE>
the extent that the amount so paid on
conversion to U.S. Dollars and transfer to GC
under normal banking procedures (after premium
and costs of exchange) does not yield the
amount of U.S. Dollars due under the Loan
Documents. If, for the purposes of obtaining
judgment in any court, it is necessary to
convert a sum due hereunder or any other Loan
Document in U.S. Dollars into another currency
(the "Other Currency"), the rate of exchange
used shall be that at which in accordance with
normal banking procedures GC could purchase
U.S. Dollars with the Other Currency on the
Business Day preceding that on which final
judgment is given. The obligation of any
Obligor in respect of any such sum due from it
to GC under the Loan Documents shall,
notwithstanding any judgment in such Other
Currency, be discharged only to the extent
that on the Business Day following receipt by
GC of any sum adjudged to be so due in the
Other Currency, GC may in accordance with
normal banking procedures purchase U.S.
Dollars with the Other Currency; if the U.S.
Dollars so purchased are less than the sum
originally due to GC in U.S. Dollars, each
Obligor agrees, as a separate and independent
obligation and notwithstanding any such
judgment, to indemnify GC against such loss,
and if the U.S. Dollars so purchased exceed
the sum originally due to GC in U.S. Dollars,
GC agrees to remit to Borrower such excess.
5. CLOSING AS TO BORROWER AFFILIATE. Not
later than 30 days from the date hereof, all
documentary conditions precedent set forth in
Section 7(2) above as to Borrower Affiliate
must be satisfied. It shall be an Event of
Default if such conditions are not satisfied
by such date.
(remainder of page intentionally left blank)
-6-
<PAGE>
BORROWER: GC:
PRIME RESPONSE, INC. GREYROCK CAPITAL,
A DIVISION OF BANC OF AMERICA COMMERCIAL
FINANCE CORPORATION
By: /s/ Jamie Gunn By: /s/ Lisa Nagano
-------------------------- ---------------------------------
President or Vice President Title: Senior Vice President
------------------------------
By: /s/ Jamie Gunn
--------------------------
Secretary or Ass't Secretary
RELATED COMPANY CONSENTS
------------------------
Each of Prime Response Group, Inc.,
a corporation organized under the laws of
Delaware, and Prime Response, Ltd., a
corporation organized under the laws of
England, hereby approves of, agrees to and
consents to all of the terms and provisions
of the foregoing as they relate to it, and
agrees to be bound thereby.
RELATED COMPANIES:
PRIME RESPONSE GROUP, INC.
BY: /s/ Jamie Gunn
--------------------------------
TITLE: Vice President
-----------------------------
PRIME RESPONSE, LTD.
BY: /s/ Jamie Gunn
--------------------------------
TITLE: Vice President
-----------------------------
-7-
<PAGE>
Exhibit 10.27
- --------------------------------------------------------------------------------
[LOGO OF GREYROCK CAPITAL APPEARS HERE]
SECURITY AGREEMENT
Debtor: PRIME RESPONSE GROUP, INC.
ADDRESS: 150 CAMBRIDGE PARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
DATE: OCTOBER 28, 1999
THIS SECURITY AGREEMENT is entered into as of the above date at Los Angeles,
California, between the above-named debtor (the "Debtor"), whose chief executive
office is set forth above ("Debtor's Address"), and Greyrock Capital, a Division
of Banc of America Commercial Finance Corporation ("GC"), whose address is
10880 Wilshire Blvd., Suite 1850, Los Angeles, CA 90024.
1. DEFINITIONS OF OBLIGATIONS AND COLLATERAL; GRANT OF SECURITY INTEREST.
1.1 OBLIGATIONS. The term "Obligations" as used in this Agreement shall mean
and include each and all of the following: the obligation to pay and perform
when due all indebtedness, liabilities, obligations, guarantees, covenants,
agreements, warranties and representations of Debtor to GC, whether heretofore,
now or hereafter existing, owing or arising; whether primary, secondary, direct,
absolute, contingent, fixed, secured or unsecured; joint or several, monetary or
non-monetary; and whether created pursuant to, or caused by Debtor's breach of,
this Agreement, or any other present or future agreement or instrument, or
created by operation of law or otherwise. The Obligations include without
limitation the obligations of Debtor under that certain Continuing Guaranty in
favor of GC with respect to the indebtedness of Prime Response, Inc. (the
"Borrower") delivered under the Loan and Security Agreement dated October 28,
1999 between GC and the Borrower (the "Loan Agreement"), and all extensions and
renewals thereof.
1.2 COLLATERAL. As security and collateral for all Obligations, Debtor hereby
grants to GC a continuing security interest in, and assigns to GC, all of
Debtor's interest in the following, whether now owned or hereafter acquired, and
wherever located (collectively, the "Collateral"): All Inventory, Equipment,
Receivables, Investment Property and General Intangibles, including, without
limitation, all of Debtor's Deposit Accounts, all money, all collateral in which
GC is granted a security interest pursuant to any other present or future
agreement, all property now or at any time in the future in GC's possession, and
all proceeds (including proceeds of any insurance policies, proceeds of letters
of credit, proceeds of proceeds and claims against third parties), all products
of the foregoing, and all books and records related to any of the foregoing.
Payment and performance of the Obligations are collateralized by the Collateral
and by any security interest created in any other agreement now or hereafter
existing between GC and Debtor unless such other agreement is a deed of trust or
other security instrument having real property or rents from real property as
its subject matter and expressly provides to the contrary.
-1-
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
Debtor represents and warrants that each of the following representations and
warranties now is, and hereafter will continue to be, true and that Debtor will
at all times comply with each of the following covenants:
2.1 CORPORATE EXISTENCE AND POWER. Debtor, if a corporation, is and will
continue to be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Debtor is and will continue to
be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Debtor, and Debtor has
and will continue to have all requisite power and authority to carry on its
business as it is now, or may hereafter be, conducted.
2.2 AUTHORITY. Debtor is, and will continue to be, authorized to enter into,
to grant security interests in its property pursuant to, and to perform its
obligations under, this Agreement, and all other instruments and transactions
contemplated herein. The execution, delivery and performance by Debtor of this
Agreement, and all other documents contemplated hereby (i) have been duly and
validly authorized, (ii) are enforceable against Debtor in accordance with their
terms (except as enforcement may be limited by equitable principles and by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
creditors' rights generally), (iii) do not violate Debtor's articles or
certificate of incorporation, or Debtor's by-laws, or any law or any material
agreement or instrument which is binding upon Debtor or its property, and
(iv) do not constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Debtor or its property.
2.3 NAME; TRADE NAMES AND STYLES. The name of Debtor set forth in the heading
to this Agreement is its correct name. Listed on the Schedule are all prior
names of Debtor and all of Debtor's present and prior trade names. Debtor shall
give GC 30 days' prior written notice before changing its name or doing business
under any other name. Debtor has complied, and will in the future comply, with
all laws relating to the conduct of business under a fictitious business name.
2.4 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Debtor's chief executive office. In addition,
Debtor has places of business and Collateral is located only at the locations
set forth on the Schedule*. Debtor will give GC at least 30 days' prior written
notice before opening any additional place of business, changing its chief
executive office, or moving any of the Collateral** other than Debtor's Address
or one of the locations set forth on the Schedule.
*(EXCEPT FOR SALES OFFICES AT WHICH NOT MORE THAN $50,000 OF COLLATERAL IS
LOCATED)
** TO ANY NEW LOCATION NOT PREVIOUSLY REPORTED TO GC
2.5 TITLE TO COLLATERAL; PERMITTED LIENS. Debtor is now, and will at all times
in the future be, the sole owner of all the Collateral, except for items of
Equipment which are leased by Debtor. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. GC now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Debtor will at all
times defend GC and the Collateral against all claims of others. So long as any
Loan is outstanding which is a term loan, none of the Collateral now is or will
be affixed to any real property in such a manner, or with such intent, as to
become a fixture. Debtor is not and will not become a lessee under any real
property lease pursuant to which the lessor may obtain any rights in any of the
Collateral* and no such lease now prohibits, restrains, impairs or will
prohibit, restrain or impair Debtor's right to remove any Collateral from the
leased premises. Whenever any Collateral is located upon premises in which any
third party has an interest (whether as owner, mortgagee, beneficiary under a
deed of trust, lien or otherwise), Debtor shall, whenever requested by GC, use
its best efforts to cause such third party to execute and deliver to GC, in form
acceptable to GC, such waivers and subordinations as GC shall specify, so as to
ensure that GC's rights in the Collateral are, and will continue to be, superior
to the rights of any such third
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party. Debtor will keep in full force and effect, and will comply with all the**
terms of, any lease of real property where any of the Collateral now or in the
future may be located***.
*(UNLESS DEBTOR PROVIDES GC WITH A LANDLORD WAIVER WITH RESPECT THERETO IN
FORM AND SUBSTANCE SATISFACTORY TO GC, IF SO REQUESTED BY GC, OR UNLESS THE SAME
IS A SALES OFFICE AT WHICH NOT MORE THAN $50,000 OF COLLATERAL IS LOCATED)
**MATERIAL
***EXCEPT FOR LEASES OF SALES OFFICES AT WHICH NOT MORE THAN $50,000 OF
COLLATERAL IS LOCATED
2.6 MAINTENANCE OF COLLATERAL. Debtor will maintain the * Collateral in good
working condition, ordinary wear and tear excepted, and Debtor will not use the
Collateral for any unlawful purpose. Debtor will immediately advise GC in
writing of any material loss or damage to the Collateral. Debtor will maintain
the validity of, and otherwise maintain, preserve and protect, its patents,
trademarks, copyrights and other intellectual property in accordance with
prudent business practices.
*EQUIPMENT AND OTHER TANGIBLE
2.7 BOOKS AND RECORDS. Debtor has maintained and will maintain at Debtor's
Address complete and accurate books and records comprising an accounting system
in accordance with generally accepted accounting principles.
2.8 FINANCIAL CONDITION AND STATEMENTS. All financial statements now or in the
future delivered to GC have been, and will be, prepared in conformity with
generally accepted accounting principles and now and in the future will
completely and fairly reflect the financial condition of Debtor, at the times
and for the periods therein stated. Between the last date covered by any such
statement provided to GC and the date hereof, there has been no material adverse
change in the financial condition or business of Debtor. Debtor is now and will
continue to be solvent in both the "equity" and "bankruptcy" sense. Debtor will
deliver to GC a copy of all financial statements prepared with respect to Debtor
no later than five (5) days after the preparation or receipt thereof by Debtor.
Debtor will cause to be prepared, and will provide GC (i) within thirty (30)
days following the end of each fiscal quarter, complete quarterly financial
statements, and (ii) within ninety (90) days following the end of Debtor's
fiscal year, complete annual financial statements, certified by independent
certified public accountants acceptable to GC.
2.9 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Debtor has timely filed,
and will timely file, all tax returns and reports required by foreign, federal,
state or local law. Debtor has timely paid, and will timely pay, all foreign,
federal, state and local taxes, assessments, deposits and contributions now or
hereafter owed by Debtor *. Debtor may defer payment of any contested taxes
provided that Debtor (i) in good faith contests Debtor's obligation to pay such
taxes by appropriate proceedings promptly and diligently instituted and
conducted, (ii) notifies GC in writing of the commencement of and any material
development in such proceedings, and (iii) posts bonds or takes any other steps
required to keep such contested taxes from becoming a lien against or charge
upon any of the Collateral. Debtor shall, at all times, maintain a separate
payroll account which shall be used exclusively for payment of payroll and
payroll taxes and other items related directly to payroll. Debtor is unaware of
any claims or adjustments proposed for any of Debtor's prior tax years which
could result in additional taxes becoming due and payable by Debtor. Debtor has
paid, and shall continue to pay, all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms, and Debtor has not and will not withdraw from participation
in, permit partial or complete termination of, or permit the occurrence of any
other event with respect to, any such plan which could result in any liability
of Debtor, including, without limitation, any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
*(EXCEPT WHERE FAILURE TO DO SO WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON
DEBTOR AND WOULD NOT RESULT IN A LIEN ON ANY OF THE COLLATERAL, BUT ONLY SO LONG
AS THE DEBTOR MAINTAINS ADEQUATE RESERVES WITH RESPECT TO SUCH LIABILITIES IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES CONSISTENTLY APPLIED)
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2.10 COMPLIANCE WITH LAW. Debtor has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Debtor, including, but not limited to, those
relating to Debtor's ownership of real or personal property, the conduct and
licensing of Debtor's business and employment of Debtor's personnel and all
environmental matters.
2.11 LITIGATION. Except as disclosed in the Schedule, there is no claim, suit,
litigation, proceeding or investigation pending or (to best of Debtor's
knowledge) threatened by or against or affecting Debtor in any court or before
any governmental agency (or any basis therefor known to Debtor) which * result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Debtor, or in any material impairment in the
ability of Debtor to carry on its business in substantially the same manner as
it is now being conducted. Debtor will promptly inform GC in writing of any
claim, proceeding, litigation or investigation in the future threatened or
instituted by or against Debtor **.
**IS REASONABLY LIKELY TO
**WHICH, IF DETERMINED ADVERSELY TO THE DEBTOR, WOULD BE REASONABLY LIKELY TO
RESULT IN (I) A JUDGMENT, LOSS OR PAYMENT OF $50,000 OR MORE, OR $100,000 OR
MORE IN THE AGGREGATE, OR (II) A MATERIAL ADVERSE CHANGE IN THE BUSINESS OR
CONDITION OF DEBTOR, OR A MATERIAL IMPAIRMENT IN THE ABILITY OF DEBTOR TO CARRY
ON ITS BUSINESS IN SUBSTANTIALLY THE SAME MANNER AS IT IS NOW BEING CONDUCTED
2.12 YEAR 2000 COMPLIANCE. The Debtor has (i) initiated a review and
assessment of all areas within its and each of its subsidiaries' business and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Debtor or any of its subsidiaries (or its suppliers and
vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, implemented that plan in accordance with
that timetable. The Debtor reasonably believes that all computer applications
(including those of its suppliers and vendors) that are material to its or any
of its subsidiaries' business and operations will on a timely basis 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. The Debtor will promptly notify GC in the event the Debtor discovers or
determines that any computer application (including those of its suppliers and
vendors) that is material to its or any of its subsidiaries' business and
operations will not be Year 2000 compliant on a timely basis, except to the
extent that such failure could not reasonably be expected to have a material
adverse effect.
2.13 REPRESENTATIONS RELATING TO RECEIVABLES. Debtor represents and warrants
to GC that each of its Receivables represents an undisputed, bona fide,
existing, unconditional obligation of the Account Debtor created by the sale,
delivery, and acceptance of goods* or the rendition of services, in the ordinary
course of Debtor's business business**.
*, THE LICENSING OF SOFTWARE,
**(EXCEPT AS DISCLOSED TO AND APPROVED BY GC)
2.14 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Debtor
represents and warrants to GC as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Debtor's books and records are and
shall be genuine and in all respects what they purport to be, and all
signatories and endorsers* have the capacity to contract. All sales and other
transactions underlying or giving rise to each Receivable shall comply with all
applicable laws and governmental rules and regulations. All signatures and
indorsements on all documents, instruments, and agreements relating to all
Receivables* are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.
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*(TO THE BEST OF DEBTOR'S KNOWLEDGE, FOR PARTIES OTHER THAN DEBTOR)
2.15 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES AND INVESTMENT PROPERTY.
Debtor shall deliver to GC transaction reports and loan requests, schedules and
assignments of all Receivables, and schedules of collections, all on GC's
standard forms*; provided, however, that Debtor's failure to execute and deliver
the same shall not affect or limit GC's security interest and other rights in
all of Debtor's Receivables, nor shall GC's failure to advance or lend against a
specific Receivable affect or limit GC's security interest and other rights
therein. Together with each such schedule and assignment, or later if requested
by GC, Debtor shall furnish GC with copies (or, at GC's request, originals) of
all contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Debtor warrants the genuineness of all of the foregoing.
Debtor shall also furnish to GC an aged accounts receivable trial balance in
such form and at such intervals as GC shall request. In addition, Debtor shall
deliver to GC the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, immediately upon receipt thereof and in the same form as
received, with all necessary indorsements, and, upon the request of GC, Debtor
shall deliver to GC all letters of credit and also all certificated securities
with respect to any Investment Property, with all necessary indorsements, and
obtain such account control agreements with securities intermediaries and take
such other action with respect to any Investment Property, as GC shall request,
in form and substance satisfactory to GC. Upon request of GC Debtor additionally
shall obtain consents from any letter of credit issuers with respect to the
assignment to GC of any letter of credit proceeds.
*, AS GC SHALL REASONABLY REQUEST
2.16 COLLECTION OF RECEIVABLES AND INVESTMENT PROPERTY INCOME. Debtor shall
have the right to collect all Receivables and retain all Investment Property
payments and distributions, unless and until a Default or an Event of Default
has occurred. Except as otherwise provided in the Schedule to the Loan
Agreement, Debtor shall hold all payments on, and proceeds of, and distributions
with respect to, Receivables and Investment Property in trust for GC, and Debtor
shall deliver all such payments, proceeds and distributions to GC, within one
business day after receipt of the same, in their original form, duly endorsed,
to be applied to the Obligations in such order as GC shall determine. Upon the
occurrence of a Default or an Event of Default, any such distributions and
payments with respect to any Investment Property held in any securities account
shall be held and retained in such securities account as part of the Collateral.
2.17 DISPUTES. Debtor shall notify GC promptly of all disputes * or claims
relating to Receivables, as requested by GC. Debtor shall not forgive, or
settle any Receivable for less than payment in full, or agree to do any of the
foregoing, except that Debtor may do so, provided that: (i) Debtor does so in
good faith, in a commercially reasonable manner, in the ordinary course of
business, and in arm's length transactions, which are reported to GC on in any
reports requested by to GC hereunder; and (ii) no Default or Event of Default
has occurred and is continuing.
* IN EXCESS OF $50,000
2.18 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Debtor in the ordinary course of its
business, Debtor shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (and, if requested by GC with respect to such returns, sending a copy to
GC). In the event any attempted return occurs after the occurrence of any Event
of Default, Debtor shall (i) not accept any return without GC's prior written
consent, (ii) hold the returned Inventory in trust for GC, (iii) segregate all
returned Inventory from all of Debtor's other property, (iv) conspicuously label
the returned Inventory as GC's property, and (v) immediately notify GC of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on GC's request deliver such returned
Inventory to GC.
2.19 VERIFICATION. GC may, from time to time, verify directly with the
respective Account Debtors
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the validity, amount and other matters relating to the Receivables, by means of
mail, telephone or otherwise, either in the name of Debtor or GC or such other
name as GC may choose, and GC or its designee may, at any time, notify Account
Debtors that it has a security interest in the Receivables.
2.20 NO LIABILITY. GC shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall GC be deemed to be responsible for any of Debtor's obligations under any
contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve GC from liability for its own gross negligence or willful
misconduct.
2.21 CONTINUING EFFECT. All representations, warranties and covenants of
Debtor contained in this Agreement and any other agreement with GC shall be true
and correct at the time of the effective date of each such agreement and shall
be deemed continuing and shall remain true, correct and in full force and effect
until payment and satisfaction in full of all of the Obligations, and Debtor
acknowledges that GC is and will be expressly relying on such representations,
warranties and covenants.
3. ADDITIONAL DUTIES OF DEBTOR.
3.1 INSURANCE. Debtor shall, at all times, insure all of the tangible personal
property Collateral and carry such other business insurance, with insurers
reasonably acceptable to GC, in such form and amounts as GC may reasonably
require, and Debtor shall provide evidence of such insurance to GC, so that GC
is satisfied that such insurance is, at all times, in full force and effect.
All such insurance policies shall name GC as an additional loss payee, and shall
contain a lenders loss payee endorsement in form reasonably acceptable to GC.
Upon receipt of the proceeds of any such insurance, GC shall apply such proceeds
in reduction of the Obligations as GC shall determine in its sole discretion,
except that, provided no Default or Event of Default has occurred and is
continuing, GC shall release to Debtor* insurance proceeds with respect to
Equipment totaling less than $100,000, which shall be utilized by Debtor for the
replacement of the Equipment with respect to which the insurance proceeds were
paid**. GC may require reasonable assurance that the insurance proceeds so
released will be so used. If Debtor fails to provide or pay for any insurance,
GC may, but is not obligated to, obtain the same at Debtor's expense. Debtor
shall promptly deliver to GC copies of all*** reports made to insurance
companies.
*(I)
**AND (II) INSURANCE PROCEEDS WITH RESPECT TO INVENTORY TOTALING LESS THAN
$100,000, WHICH SHALL BE UTILIZED BY DEBTOR FOR THE REPLACEMENT OF THE INVENTORY
WITH RESPECT TO WHICH THE INSURANCE PROCEEDS WERE PAID.
*** MATERIAL
3.2 REPORTS. At its expense, Debtor shall report, in form satisfactory to GC,
such information as GC may from time to time reasonably specify regarding Debtor
or the Collateral; such reports shall be rendered with such frequency as GC may
reasonably specify. All reports furnished GC shall be complete and accurate in
all respects.
3.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
business day's notice, GC, or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy Debtor's books and records. GC
shall take reasonable steps to keep confidential all information obtained in any
such inspection or audit, but GC shall have the right to disclose any such
information to its auditors, regulatory agencies, and attorneys, and pursuant to
any subpoena or other legal process. The foregoing inspections and audits shall
be at Debtor's expense. Debtor will not enter into any agreement with any
accounting firm, service bureau or third party to store Debtor's books or
records at any location other than Debtor's Address, without first obtaining
GC's written consent, which may be conditioned upon such accounting firm,
service bureau or other third party agreeing to give GC the same rights with
respect to access to books and records and related rights as GC has under this
Agreement.
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3.4 REMITTANCE OF PROCEEDS. Except as otherwise provided in the Schedule to
the Loan Agreement, all proceeds arising from the sale or other disposition of
any Collateral shall be delivered, in kind, by Debtor to GC* in the original
form in which received by Debtor not later than the following business day after
receipt by Debtor**, to be applied to the Obligations in such order as GC shall
determine; provided that, if no Default or Event of Default has occurred and is
continuing, and if no term loan is outstanding hereunder, then Debtor shall not
be obligated to remit to GC the proceeds of the sale of Equipment which is sold
in the ordinary course of business, in a good-faith arm's-length transaction***.
Except for the proceeds of the sale of Equipment as set forth above and except
as provided in the Schedule to the Loan Agreement, Debtor shall not commingle
proceeds of Collateral with any of Debtor's other funds or property, and shall
hold such proceeds separate and apart from such other funds and property and in
an express trust for GC. Nothing in this Section limits the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.
*(OR, AT GC'S REQUEST, INTO A LOCKBOX ACCOUNT, OR OTHER BLOCKED ACCOUNT,
ESTABLISHED PURSUANT TO AN AGREEMENT ACCEPTABLE TO GC, AND WITH A BANK SELECTED
BY DEBTOR WHICH IS ACCEPTABLE TO GC)
**(EXCEPT WIRE TRANSFER REMITTANCES RECEIVED BY DEBTOR SHALL BE TRANSMITTED TO
GC IN TOTAL THE DAY FOLLOWING POSTING TO DEBTOR'S BANK ACCOUNT)
***NOR SHALL DEBTOR BE OBLIGATED TO REMIT TO GC ANY SUCH PROCEEDS UNLESS THE
AGGREGATE AMOUNT THEREOF RECEIVED AND HELD BY THE DEBTOR EQUALS OR EXCEEDS
$25,000
3.5 PROHIBITED TRANSACTIONS. Debtor shall not without GC's prior written
consent *: merge, consolidate, dissolve, or acquire any other corporation or
entity; guarantee or otherwise become in any way liable with respect to the
obligations of another party or entity (except by endorsements of instruments or
items of payment for deposit to the general account of Debtor or which are
transmitted or turned over to GC on account of the Obligations); pay or declare
any dividends upon Debtor's stock; redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Debtor's stock; make any change in
Debtor's capital structure which would have a material adverse effect on Debtor
or on the prospect of payment of the Obligations; sell or transfer any
Collateral, except for the sale of finished Inventory or Equipment in the
ordinary course of Debtor's business, and licenses and sublicenses of
intellectual property on a non-exclusive basis in the ordinary course of
Debtor's business, in good-faith arm's length transactions, provided that, in
each case, no Event of Default has occurred and is continuing; lend or
distribute any of Debtor's property or assets, or incur any debts, outside of
the ordinary course of Debtor's business.
* EXCEPT AS PERMITTED BY THE LOAN AGREEMENT
3.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against GC with respect to any Collateral or in any manner
relating to Debtor, Debtor shall, without expense to GC, make available Debtor
and its officers, employees and agents, and Debtor's books and records to the
extent that GC may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
3.7 NOTIFICATION OF CHANGES. Debtor will promptly notify GC in writing of any
change in its *, the opening of any new bank account or other deposit account,
the opening of any new securities account, and any material adverse change in
the business or financial affairs of Debtor.
*EXECUTIVE OFFICERS
3.8 FURTHER ASSURANCES. Debtor agrees, at its expense, on request by GC, to
execute all documents and take all actions, as GC may deem reasonably necessary
or useful in order to perfect and maintain GC's perfected security interest in
the Collateral, and in order to fully consummate the transactions contemplated
by this Agreement.
3.9 INDEMNITY. Debtor hereby agrees to indemnify GC and hold GC harmless from
and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including attorneys'
fees), of every nature, character and description, which GC may sustain or incur
based upon or arising out of any of the Obligations, any actual or alleged
failure to collect and pay over any withholding or other tax relating to Debtor
or its employees, any relationship or
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agreement between GC and Debtor, any actual or alleged failure of GC to comply
with any writ of attachment or other legal process relating to Debtor or any of
its property, or any other matter, cause or thing whatsoever occurred, done,
omitted or suffered to be done by GC relating to Debtor or the Obligations
(except any such amounts sustained or incurred as the result of the gross
negligence or willful misconduct of GC or any of its directors, officers,
employees, agents, attorneys, or any other person affiliated with or
representing GC). Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full force
and effect.
4. EVENTS OF DEFAULT AND REMEDIES.
4.1 EVENTS OF DEFAULT. If any of the following events shall occur, such an
occurrence shall constitute an "Event of Default" and Debtor shall provide GC
with immediate written notice thereof: (a) Debtor shall fail to perform when
due any term or condition contained in this Agreement or any other agreement
between GC and Debtor; or (b) any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) for any cause or reason whatsoever,
upon all or any part of the Collateral (unless discharged by payment, release or
fully bonded against not more than * days after such event has occurred); or
(c) the occurrence of any "Event of Default" as defined in that certain Loan and
Security Agreement dated October 28, 1999, between GC and Borrower.
* THIRTY (30)
4.2 REMEDIES. Upon the occurrence of any Event of Default, and at any time
thereafter, GC, at its option, and without notice or demand of any kind (all of
which are hereby expressly waived by Debtor), may do any one or more of the
following: (a) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (b) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Debtor hereby authorizes GC without judicial
process to enter onto any of the Debtor's premises without hindrance to search
for, take possession of, keep, store, or remove any of the Collateral and remain
on such premises or cause a custodian to remain thereon in exclusive control
thereof without charge for so long as GC deems necessary in order to complete
the enforcement of its rights under this Agreement or any other agreement;
provided, however, that should GC seek to take possession of any or all of the
Collateral by Court process, Debtor hereby irrevocably waives: (i) any bond and
any surety or security relating thereto required by any statute, court rule or
otherwise as an incident to such possession; (ii) any demand for possession
prior to the commencement of any suit or action to recover possession thereof;
and (iii) any requirement that GC retain possession of and not dispose of any
such Collateral until after trial or final judgment; (c) Require Debtor to
assemble any or all of the Collateral and make it available to GC at a place or
places to be designated by GC which are reasonably convenient to GC and Debtor,
and to remove the Collateral to such locations as GC may deem advisable; (d)
Complete processing, manufacturing or repair of all or any portion of the
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, GC shall have the right to use Debtor's premises, vehicles,
hoists, lifts, cranes, equipment and all other property without charge. Without
limiting any security interest granted GC in other provisions of this Agreement
or any other agreement, for the purpose of completing manufacturing, processing
or repair of Collateral and the disposition thereof, GC is hereby granted a
security interest in, and GC and any purchaser from GC may use without charge,
all of the Debtor's plant, machinery, equipment, labels, licenses, processes,
patents, patent applications, copyrights, names, trade names, trademarks, trade
secrets, logos, advertising material and all other assets, and may also utilize
all of Debtor's rights under any license or franchise agreement; (e) Sell, ship,
reclaim, lease or otherwise dispose of all or any portion of the Collateral in
its condition at the time GC obtains possession or after further manufacturing,
processing or repair, at any one or more public and/or private sales (including
execution sales), in lots or in bulk, for cash, exchange or other property or on
credit and to adjourn any such sale from time to time without notice other than
oral announcement at the time scheduled for sale. GC shall have the right to
conduct such disposition on Debtor's premises without charge for such time or
times as GC deems fit, or on GC's premises, or
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elsewhere and the Collateral need not be located at the place of disposition. GC
may directly or through any affiliated company purchase or lease any Collateral
at any such public disposition and, if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Debtor of any liability Debtor may have if any Collateral is defective
as to title or physical condition or otherwise at the time of sale; (f) Demand
payment of, and collect any Receivables and General Intangibles comprising part
or all of the Collateral and, in connection therewith, Debtor irrevocably
authorizes GC to endorse or sign Debtor's name on all collections, receipts,
instruments and other documents, to take possession of and open mail addressed
to Debtor and remove therefrom payments made with respect to any item of the
Collateral or proceeds thereof, and, in GC's sole discretion, to grant
extensions of time to pay, compromise claims and settle Receivables, General
Intangibles and the like for less than face value; (g) Collect, receive, dispose
of and realize upon any Investment Property, including withdrawal of any and all
funds from any securities accounts; and (h) Demand and receive possession of any
of Debtor's federal and state income tax returns and the Records utilized in the
preparation thereof or referring thereto. All reasonable attorneys' fees,
expenses, costs, liabilities and obligations incurred by GC with respect to the
foregoing shall be added to and become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
4.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Debtor and GC agree
that a sale or other disposition (collectively, "sale") of any Collateral which
complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Debtor at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by GC, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, GC may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Debtor any and all information concerning the same. GC shall be free to employ
other methods of noticing and selling the Collateral, in its discretion, if they
are commercially reasonable. Without limiting the generality of the foregoing,
Debtor recognizes that GC may be unable to make a public sale of any or all of
the Investment Property, by reason of prohibitions contained in applicable
securities laws or otherwise, and expressly agrees that a private sale to a
restricted group of purchasers for investment and not with a view to any
distribution thereof shall be considered a commercially reasonable sale.
4.4 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by GC first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by GC in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as GC shall determine in its sole discretion. Any
surplus shall be paid to Debtor or other persons legally entitled thereto;
Debtor shall remain liable to GC for any deficiency. If GC, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, GC shall have
the option, exercisable at any time, in its sole discretion, of either reducing
the Obligations by the principal amount of purchase price or deferring the
reduction of the Obligations until the actual receipt by GC of the cash
therefor.
4.5 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, GC shall have all the other rights and remedies accorded a
secured party under the Code and under any and all other applicable laws and in
any other instrument or agreement now or hereafter entered into between GC and
Debtor and all of such rights and remedies are cumulative and none is exclusive.
Exercise or partial exercise by GC of one or more of its rights or remedies
shall not be deemed an election, nor bar GC from subsequent exercise or partial
exercise of any other rights or remedies. The failure or delay of GC to
exercise any rights or remedies shall not operate as a waiver thereof, but all
rights and remedies shall continue in full force and effect until all of the
Obligations have been fully paid and performed.
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<PAGE>
5. POWER OF ATTORNEY.
Upon the occurrence of any Event of Default, without limiting GC's other
rights and remedies, Debtor grants to GC an irrevocable power of attorney
coupled with an interest, authorizing and permitting GC (acting through any of
its employees, attorneys or agents) at any time*, at its option, but without
obligation, with or without notice to Debtor, and at Debtor's expense, to do any
or all of the following, in Debtor's name or otherwise, but GC agrees to
exercise the following powers in a commercially reasonable manner: (a) Execute
on behalf of Debtor any documents that GC may, in its sole discretion, deem
advisable in order to perfect and maintain GC's security interest in the
Collateral, or in order to exercise a right of Debtor or GC, or in order to
fully consummate all the transactions contemplated under this Agreement, and all
other present and future agreements; (b) Execute on behalf of Debtor any
document exercising, transferring or assigning any option to purchase, sell or
otherwise dispose of or to lease (as lessor or lessee) any real or personal
property which is part of GC's Collateral or in which GC has an interest; (c)
Execute on behalf of Debtor, any invoices relating to any Receivables, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Debtor upon any instruments, or
documents, evidence of payment or Collateral that may come into GC's possession;
(e) Endorse all checks and other forms of remittances received by GC; (f) Pay,
contest or settle any lien, charge, encumbrance, security interest and adverse
claim in or to any of the Collateral, or any judgment based thereon, or
otherwise take any action to terminate or discharge the same; (g) Grant
extensions of time to pay, compromise claims and settle Receivables and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Debtor's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Debtor to give GC the same rights of access and other rights with respect
thereto as GC has under this Agreement; and (k) Execute and deliver to any
securities intermediary or other Person any entitlement order, account control
agreement or other notice, document or instrument with respect to any Investment
Property; and (l) Take any action or pay any sum required of Debtor pursuant to
this Agreement and any other present or future agreements. Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and reasonable attorneys' fees incurred by GC with respect to the
foregoing shall be added to and become part of the Obligations, shall be payable
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. In no event shall GC's rights under the
foregoing power of attorney or any of GC's other rights under this Agreement be
deemed to indicate that GC is in control of the business, management or
properties of Debtor.
*DURING THE CONTINUANCE OF SUCH EVENT OF DEFAULT
6. TERM.
This Agreement shall continue in effect until all of the Obligations have been
paid and performed in full and all agreements between GC and Debtor have been
terminated.
7. GENERAL WAIVERS.
The failure of GC at any time or times hereafter to require Debtor to strictly
comply with any of the provisions of this Agreement or any other present or
future agreement between Debtor and GC shall not waive or diminish any right of
GC thereafter to demand and receive strict compliance therewith. Any waiver of
any default shall not waive or affect any other default, whether prior or
subsequent thereto. None of the provisions of this Agreement or other agreement
now or hereafter executed by Debtor and delivered to GC shall be deemed to have
been waived by any act or knowledge of GC or its agents or employees, but only
by a specific written waiver signed by an officer of GC and delivered to Debtor.
Debtor waives the benefit of all statute(s) of limitations in any action or
proceeding based upon or arising out of this Agreement or any other present or
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<PAGE>
future instrument or agreement between GC and Debtor. Debtor waives any and all
notices or demands which Debtor might be entitled to receive with respect to
this Agreement, or any other agreement by virtue of any applicable law*. Debtor
hereby waives demand, protest, notice of protest and notice of default or
dishonor, notice of payment and nonpayment, release, compromise, settlement,
extension or renewal of any commercial paper, instrument, Receivables, General
Intangible, document or guaranty at any time held by GC on which Debtor is or
may in any way be liable, and notice of any action taken by GC unless expressly
required by this Agreement.
*(EXCEPT THAT, PRIOR TO OR CONCURRENTLY WITH THE TAKING OF THE FIRST OF ANY OF
THE FOLLOWING ACTIONS, GC SHALL GIVE DEBTOR ONE GENERAL WRITTEN NOTICE STATING
THAT GC IS "PROCEEDING TO EXERCISE ITS RIGHTS AND REMEDIES" OR WORDS TO THAT
EFFECT)
8. ATTACHMENT WAIVERS.
To the extent that GC, in its sole and absolute discretion, determines, prior
to the disposition of all of the Collateral, that the amount to be realized by
GC from the disposition of all of the Collateral may be less than the amount of
the Obligations, and to the full extent of any such anticipated deficiency,
Debtor waives the benefit of Section 483.010(b) of the California Code of Civil
Procedure and of any and all other statutes requiring GC to first resort to and
exhaust all of the Collateral before seeking or obtaining any attachment remedy
against Debtor, and Debtor expressly agrees that, to the extent of such
anticipated deficiency, GC shall have all of the rights of an unsecured
creditor, including, but not limited to, the right of GC, prior to the
disposition of all of the Collateral, to obtain a temporary protective order and
writ of attachment or other available remedy. GC shall have no liability to
Debtor if the actual deficiency realized by GC is less than the anticipated
deficiency on the basis of which GC obtained a temporary protective order or
writ of attachment. In the event GC should seek a temporary protective order,
or writ of attachment, or both, Debtor hereby irrevocably waives any bond and
any surety or security relating thereto required by any statute, court rule or
otherwise as an incident or condition precedent to the issuance of any temporary
protective order or writ of attachment.
9. DEFINITIONS
As used in this Agreement, the following terms have the following meanings:
"Account Debtor" means the obligor on a Receivable.
--------------
"Agreement" and "this Agreement" means this Security Agreement and all
--------- --------------
modifications and amendments thereto, extensions thereof, and replacements
therefor.
"Code" means the Uniform Commercial Code as adopted and in effect in the State
----
of California from time to time.
"Collateral" has the meaning set forth in Section 1.2 of this Agreement.
----------
"Default" means any event which with notice or passage of time or both, would
-------
constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
---------------
"Equipment" means all of Debtor's present and hereafter acquired machinery,
---------
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Debtor's operations or owned by Debtor and any interest in any of the foregoing,
and all attachments, accessories, accessions, replacements, substitutions,
additions or improvements to any of the foregoing, wherever located.
"Event of Default" means any of the events set forth in Section 4.1 of this
----------------
Agreement.
"General Intangibles" means all general intangibles of Debtor, whether now
-------------------
owned or hereafter created or acquired by Debtor, including, without limitation,
all choses in action, causes of action, corporate or other business records,
Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent
applications, trademarks and the goodwill of the business symbolized thereby,
names, trade names, trade secrets, goodwill, copyrights,
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<PAGE>
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Debtor against GC, rights to purchase
or sell real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including life insurance, key man insurance,
credit insurance, liability insurance, property insurance and other insurance),
tax refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or granted to
Debtor, all rights to indemnification and all other intangible property of every
kind and nature (other than Receivables).
"Inventory" means all of Debtor's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Debtor's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"Investment Property" means any and all investment property of Debtor,
-------------------
including all securities, whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts and commodity accounts,
and all financial assets held in any securities account or otherwise, wherever
located, and whether now existing or hereafter acquired or arising.
"Obligations" has the meaning set forth in Section 1.1 of this Agreement.
-----------
"Permitted Liens" means the following: (i) purchase money security interests
---------------
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes *; (iv) additional security interests and liens which are
subordinate to the security interest in favor of GC and are consented to in
writing by GC (which consent shall not be unreasonably withheld); (v) security
interests being terminated substantially concurrently with this Agreement;
(vi) liens of materialmen, mechanics, warehousemen, carriers, or other similar
liens arising in the ordinary course of business and securing obligations which
are not delinquent**; (vii) liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by liens of the type
described above in clauses (i) or (ii) above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; (viii) Liens in favor of customs and
revenue authorities which secure payment of customs duties in connection with
the importation of goods***. GC will have the right to require, as a condition
to its consent under subparagraph (iv) above, that the holder of the additional
security interest or lien sign an intercreditor agreement on GC's then standard
form, acknowledge that the security interest is subordinate to the security
interest in favor of GC, and agree not to take any action to enforce its
subordinate security interest so long as any Obligations remain outstanding, and
that Debtor agree that any uncured default in any obligation secured by the
subordinate security interest shall also constitute an Event of Default under
this Agreement.
*, OR GOVERNMENTAL FEES, ASSESSMENTS OR OTHER GOVERNMENTAL CHARGES OR LEVIES,
EITHER NOT DELINQUENT OR BEING CONTESTED IN GOOD FAITH BY APPROPRIATE
PROCEEDINGS, PROVIDED THE SAME HAVE NO PRIORITY OVER ANY OF GC'S SECURITY
INTERESTS AND THE DEBTOR MAINTAINS ADEQUATE RESERVES THEREFOR IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED.
**MORE THAN 45 DAYS, OR ARE BEING CONTESTED IN GOOD FAITH (PROVIDED SUCH LIEN
IS NOT FORECLOSED)
***;(IX) ANY JUDGMENT, ATTACHMENT OR SIMILAR LIEN, UNLESS THE JUDGMENT IT
SECURES IS NOT FULLY COVERED BY INSURANCE AND HAS NOT BEEN DISCHARGED OR
EXECUTION THEREOF EFFECTIVELY STAYED AND BONDED AGAINST PENDING APPEAL WITHIN 45
DAYS OF THE ENTRY THEREOF PROVIDED THAT, IF THE JUDGMENT IS NOT FULLY COVERED BY
INSURANCE OR EXECUTION THEREOF HAS NOT BEEN SO STAYED AND BONDED, GC SHALL NOT
BE REQUIRED TO MAKE ANY LOANS OR OTHERWISE EXTEND
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<PAGE>
CREDIT TO OR FOR THE BENEFIT OF DEBTOR; (X) LICENSES OR SUBLICENSES GRANTED TO
OTHERS NOT INTERFERING IN ANY MATERIAL RESPECT WITH THE BUSINESS OF DEBTOR; AND
(XI) LIENS WHICH CONSTITUTE RIGHTS OF SET-OFF OF A CUSTOMARY NATURE OR BANKER'S
LIENS ON AMOUNTS ON DEPOSIT, WHETHER ARISING BY CONTRACT OR BY OPERATION OF LAW,
IN CONNECTION WITH ARRANGEMENTS ENTERED INTO WITH DEPOSITORY INSTITUTIONS IN THE
ORDINARY COURSE OF BUSINESS
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Receivables" means all of Debtor's now owned and hereafter acquired accounts
-----------
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, documents and all other forms of obligations at any
time owing to Debtor, all guaranties and other security therefor, all
merchandise returned to or repossessed by Debtor, and all rights of stoppage in
transit and all other rights or remedies of an unpaid vendor, lienor or secured
party.
Other Terms. All accounting terms used in this Agreement, unless otherwise
-----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
10. GENERAL PROVISIONS.
10.1 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service,
or by facsimile, or by regular first-class mail, or certified mail return
receipt requested, addressed to GC or Debtor at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, or at the expiration of
one business day following delivery to the private delivery service, or one day
after the date sent by facsimile, or two business days following the deposit
thereof in the United States mail, with postage prepaid.
10.2 SEVERABILITY. Should any provision, clause or condition of this Agreement
be held by any court of competent jurisdiction to be void or unenforceable, such
defect shall not affect the remainder of this Agreement.
10.3 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith shall be construed as
the entire and complete agreement between Debtor and GC and shall supersede all
prior negotiations, all of which are merged and integrated herein. There are no
------------
oral understandings, representations or agreements between the parties which are
- --------------------------------------------------------------------------------
not set forth in this Agreement or in other written agreements signed by the
- ----------------------------------------------------------------------------
parties in connection herewith.
- ------------------------------
10.4 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended except in a writing executed by Debtor and a duly authorized officer
of GC.
10.5 TIME OF ESSENCE. Time is of the essence in the performance by Debtor of
each and every obligation under this Agreement.
10.6 ATTORNEYS' FEES AND COSTS. Debtor shall reimburse GC for all reasonable
attorneys' fees and all filing, recording, search, title insurance, appraisal,
audit, and other reasonable costs incurred by GC, pursuant to, or in connection
with, or relating to this Agreement (whether or not a lawsuit is filed),
including, but not limited to, any reasonable attorneys' fees and costs GC
incurs in order to do the following: prepare and negotiate this Agreement and
the documents relating to this Agreement; obtain legal advice in connection with
this Agreement or Debtor; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Debtor's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce GC's
security interest
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<PAGE>
in, the Collateral; and otherwise represent GC in any litigation relating to
Debtor. If either GC or Debtor files any lawsuit against the other predicated on
a breach of this Agreement, the prevailing party in such action shall be
entitled to recover its reasonable costs and attorneys' fees, including (but not
limited to) reasonable attorneys' fees and costs incurred in the enforcement of,
execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which GC may be entitled pursuant to this Paragraph
shall immediately become part of Debtor's Obligations, shall be due on demand,
and shall bear interest at a rate equal to the highest interest rate applicable
to any of the Obligations.
10.7 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of the parties hereto; provided, however, that
Debtor may not assign or transfer any of its rights under this Agreement without
the prior written consent of GC, and any prohibited assignment shall be void.
No consent by GC to any assignment shall relieve Debtor or any guarantor from
its liability for the Obligations.
10.8 JOINT AND SEVERAL LIABILITY. If Debtor consists of more than one Person,
the liability of each Debtor shall be joint and several and the compromise of
any claim with, or the release of, any Debtor shall not constitute a compromise
with, or a release of, any other Debtor.
10.9 LIMITATION OF ACTIONS. Any claim or cause of action by Debtor against GC,
its directors, officers, employees, agents, accountants or attorneys, based
upon, arising from, or relating to this Agreement, or any other present or
future document or agreement, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, occurred, done, omitted or suffered to be done by GC, its directors,
officers, employees, agents, accountants or attorneys, shall be barred unless
asserted by Debtor by the commencement of an action or proceeding in a court of
competent jurisdiction by the filing of a complaint within one year after* the
act, occurrence or omission upon which such claim or cause of action, or any
part thereof, is based, and the service of a summons and complaint on an officer
of GC, or on any other person authorized to accept service on behalf of GC,
within thirty (30) days thereafter. Debtor agrees that such one-year period is a
reasonable and sufficient time for Debtor to investigate and act upon any such
claim or cause of action. The one-year period provided herein shall not be
waived, tolled, or extended except by the written consent of GC in its sole
discretion. This provision shall survive any termination of this Agreement or
any other present or future agreement.
*DEBTOR LEARNS OF, OR IN THE EXERCISE OF REASONABLE DILIGENCE SHOULD HAVE
LEARNED OF,
10.10 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are used herein for
convenience only. Debtor acknowledges that the same may not describe completely
the subject matter of the applicable paragraph, and the same shall not be used
in any manner to construe, limit, define or interpret any term or provision
hereof. This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against GC or Debtor under any rule of
construction or otherwise.
10.11 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of GC and Debtor shall be
governed by and in accordance with the laws of the State of California. As a
material part of the consideration to GC to enter into this Agreement, Debtor
(i) agrees that all actions and proceedings relating directly or indirectly
hereto shall, at GC's option, be litigated in courts located within California,
and that the exclusive venue therefor shall be Los Angeles County; (ii) consents
to the jurisdiction and venue of any such court and consents to service of
process in any such action or proceeding by personal delivery or any other
method permitted by law; and (iii) waives any and all rights Debtor may have to
object to the jurisdiction of any such court, or to transfer or change the venue
of any such action or proceeding.
10.12 MUTUAL WAIVER OF JURY TRIAL. DEBTOR AND GC EACH HEREBY WAIVE THE RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING TO, THIS AGREEMENT OR ANY
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<PAGE>
OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GC AND DEBTOR, OR ANY
CONDUCT, ACTS OR OMISSIONS OF GC OR DEBTOR, ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GC OR DEBTOR,
IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
(remainder of page intentionally left blank)
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<PAGE>
DEBTOR:
Prime Response Group, Inc.
By: /s/ Jamie Gunn
---------------------------------
Title: Vice President
------------------------------
GC:
GREYROCK CAPITAL,
A DIVISION OF BANC OF AMERICA
COMMERCIAL FINANCE CORPORATION
By: /s/ Lisa Nagano
---------------------------------
Title: Senior Vice President
------------------------------
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<PAGE>
[LOGO OF GREYLOCK CAPITAL APPEARS HERE]
Exhibit 10.28
CONTINUING GUARANTY
Borrower: Prime Response, Inc.
Guarantor(s): Prime Response Group, Inc.
Date: October 28, 1999
This Continuing Guaranty is executed by the above-named guarantor(s) (jointly
and severally, the "Guarantor"), as of the above date, in favor of GREYROCK
CAPITAL, A DIVISION OF BANC OF AMERICA COMMERCIAL FINANCE CORPORATION ("GC"),
whose address is 10880 Wilshire Boulevard, Suite 1850, Los Angeles, California
90024, with respect to the Indebtedness of the above-named borrower
("Borrower").
1. CONTINUING GUARANTY. Guarantor hereby unconditionally guarantees and promises
to pay on demand to GC, at the address indicated above, or at such other address
as GC may direct, in lawful money of the United States, and to perform for the
benefit of GC, all Indebtedness of Borrower now or hereafter owing to or held by
GC. As used herein, the term "Indebtedness" is used in its most comprehensive
sense and shall mean and include without limitation: (a) any and all debts,
duties, obligations, liabilities, representations, warranties and guaranties of
Borrower or any one or more of them, heretofore, now, or hereafter made,
incurred, or created, however arising, whether voluntary or involuntary, due or
not due, absolute or contingent, liquidated or unliquidated, certain or
uncertain, determined or undetermined, monetary or nonmonetary, written or oral,
and whether Borrower may be liable individually or jointly with others, and
regardless of whether recovery thereon may be or hereafter become barred by any
statute of limitations, discharged or uncollectible in any bankruptcy,
insolvency or other proceeding, or otherwise unenforceable; and (b) any and all
amendments, modifications, renewals and extensions of any or all of the
foregoing, including without limitation amendments, modifications, renewals and
extensions which are evidenced by any new or additional instrument, document or
agreement; and (c) any and all attorneys' fees, court costs, and collection
charges incurred in endeavoring to collect or enforce any of the foregoing
against Borrower, Guarantor, or any other person liable thereon (whether or not
suit be brought) and any other expenses of, for or incidental to collection
thereof. As used herein, the term "Borrower" shall include any successor to the
business and assets of Borrower, and shall also include Borrower in its capacity
as a debtor or debtor in possession under the federal Bankruptcy Code, and any
trustee, custodian or receiver for Borrower or any of its assets, should
Borrower hereafter become the subject of any bankruptcy or insolvency
proceeding, voluntary or involuntary; and all indebtedness, liabilities and
obligations incurred by any such person shall be included in the Indebtedness
guaranteed hereby. This Guaranty is given in consideration for credit and other
financial accommodations which may, from time to time, be given by GC to
Borrower in GC's sole discretion, but Guarantor acknowledges and agrees that
acceptance by GC of this Guaranty shall not constitute a commitment of any kind
by GC to extend such credit or other financial accommodation to Borrower or to
permit Borrower to incur Indebtedness to GC. All sums due under this Guaranty
shall bear interest from the date due until the date paid at the highest rate
charged with respect to any of the Indebtedness.
2. WAIVERS. Guarantor hereby waives: (a) presentment for payment, notice of
dishonor, demand, protest, and notice thereof as to any instrument, and all
other notices and demands to which Guarantor might be entitled, including
without limitation notice of all of the following: the acceptance hereof; the
creation, existence, or acquisition of any Indebtedness; the amount of the
Indebtedness from time to time outstanding; any
<PAGE>
foreclosure sale or other disposition of any property which secures any or all
of the Indebtedness or which secures the obligations of any other guarantor of
any or all of the Indebtedness; any adverse change in Borrower's financial
position; any other fact which might increase Guarantor's risk; any default,
partial payment or non-payment of all or any part of the Indebtedness; the
occurrence of any other Event of Default (as hereinafter defined); any and all
agreements and arrangements between GC and Borrower and any changes,
modifications, or extensions thereof, and any revocation, modification or
release of any guaranty of any or all of the Indebtedness by any person
(including without limitation any other person signing this Guaranty); (b) any
right to require GC to institute suit against, or to exhaust its rights and
remedies against, Borrower or any other person, or to proceed against any
property of any kind which secures all or any part of the Indebtedness, or to
exercise any right of offset or other right with respect to any reserves,
credits or deposit accounts held by or maintained with GC or any indebtedness of
GC to Borrower, or to exercise any other right or power, or pursue any other
remedy GC may have; (c) any defense arising by reason of any disability or other
defense of Borrower or any other guarantor or any endorser, co-maker or other
person, or by reason of the cessation from any cause whatsoever of any liability
of Borrower or any other guarantor or any endorser, co-maker or other person,
with respect to all or any part of the Indebtedness, or by reason of any act or
omission of GC or others which directly or indirectly results in the discharge
or release of Borrower or any other guarantor or any other person or any
Indebtedness or any security therefor, whether by operation of law or otherwise;
(d) any defense arising by reason of any failure of GC to obtain, perfect,
maintain or keep in force any security interest in, or lien or encumbrance upon,
any property of Borrower or any other person; (e) any defense based upon any
failure of GC to give Guarantor notice of any sale or other disposition of any
property securing any or all of the Indebtedness, or any defects in any such
notice that may be given, or any failure of GC to comply with any provision of
applicable law in enforcing any security interest in or lien upon any property
securing any or all of the Indebtedness including, but not limited to, any
failure by GC to dispose of any property securing any or all of the Indebtedness
in a commercially reasonable manner; (f) any defense based upon or arising out
of any bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, liquidation or dissolution proceeding commenced by or against Borrower or
any other guarantor or any endorser, co-maker or other person, including without
limitation any discharge of, or bar against collecting, any of the Indebtedness
(including without limitation any interest thereon), in or as a result of any
such proceeding; and (g) the benefit of any and all statutes of limitation with
respect to any action based upon, arising out of or related to this Guaranty.
Until all of the Indebtedness has been paid, performed, and discharged in full,
nothing shall discharge or satisfy the liability of Guarantor hereunder except
the full performance and payment of all of the Indebtedness. If any claim is
ever made upon GC for repayment or recovery of any amount or amounts received by
GC in payment of or on account of any of the Indebtedness, because of any claim
that any such payment constituted a preferential transfer or fraudulent
conveyance, or for any other reason whatsoever, and GC repays all or part of
said amount by reason of any judgment, decree or order of any court or
administrative body having jurisdiction over GC or any of its property, or by
reason of any settlement or compromise of any such claim effected by GC with any
such claimant (including without limitation the Borrower), then and in any such
event, Guarantor agrees that any such judgment, decree, order, settlement and
compromise shall be binding upon Guarantor, notwithstanding any revocation or
release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to GC under this Guaranty for the
amount so repaid or recovered, to the same extent as if such amount had never
originally been received by GC, and the provisions of this sentence shall
survive, and continue in effect, notwithstanding any revocation or release of
this Guaranty. Until all of the Indebtedness has been irrevocably paid and
performed in full, Guarantor hereby expressly and unconditionally waives all
rights of subrogation, reimbursement and indemnity of every kind against
Borrower, and all rights of recourse to any assets or property of Borrower, and
all rights to any collateral or security held for the payment and performance of
any Indebtedness, including (but not limited to) any of the foregoing rights
which Guarantor may have under any present or future document or agreement with
any Borrower or other person, and including (but not limited to) any of the
foregoing rights which Guarantor may have under any equitable doctrine of
subrogation, implied contract, or unjust enrichment, or any other equitable or
legal doctrine. Neither GC, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing GC shall
be liable for any claims, demands, losses or damages, of any kind whatsoever,
made, claimed, incurred or suffered by Guarantor or any other party through the
ordinary negligence of GC, or any of its
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directors, officers, employees, agents, attorneys or any other person affiliated
with or representing GC.
3. CONSENTS. Guarantor hereby consents and agrees that, without notice to or by
Guarantor and without affecting or impairing in any way the obligations or
liability of Guarantor hereunder, GC may, from time to time before or after
revocation of this Guaranty, do any one or more of the following in GC's sole
and absolute discretion: (a) accelerate, accept partial payments of, compromise
or settle, renew, extend the time for the payment, discharge, or performance of,
refuse to enforce, and release all or any parties to, any or all of the
Indebtedness; (b) grant any other indulgence to Borrower or any other person in
respect of any or all of the Indebtedness or any other matter; (c) accept,
release, waive, surrender, enforce, exchange, modify, impair, or extend the time
for the performance, discharge, or payment of, any and all property of any kind
securing any or all of the Indebtedness or any guaranty of any or all of the
Indebtedness, or on which GC at any time may have a lien, or refuse to enforce
its rights or make any compromise or settlement or agreement therefor in respect
of any or all of such property; (d) substitute or add, or take any action or
omit to take any action which results in the release of, any one or more
endorsers or guarantors of all or any part of the Indebtedness, including,
without limitation one or more parties to this Guaranty, regardless of any
destruction or impairment of any right of contribution or other right of
Guarantor; (e) amend, alter or change in any respect whatsoever any term or
provision relating to any or all of the Indebtedness, including the rate of
interest thereon; (f) apply any sums received from Borrower, any other
guarantor, endorser, or co-signer, or from the disposition of any collateral or
security, to any indebtedness whatsoever owing from such person or secured by
such collateral or security, in such manner and order as GC determines in its
sole discretion, and regardless of whether such indebtedness is part of the
Indebtedness, is secured, or is due and payable; (g) apply any sums received
from Guarantor or from the disposition of any collateral or security securing
the obligations of Guarantor, to any of the Indebtedness in such manner and
order as GC determines in its sole discretion, regardless of whether or not such
Indebtedness is secured or is due and payable. Guarantor consents and agrees
that GC shall be under no obligation to marshal any assets in favor of
Guarantor, or against or in payment of any or all of the Indebtedness. Guarantor
further consents and agrees that GC shall have no duties or responsibilities
whatsoever with respect to any property securing any or all of the Indebtedness.
Without limiting the generality of the foregoing, GC shall have no obligation to
monitor, verify, audit, examine, or obtain or maintain any insurance with
respect to, any property securing any or all of the Indebtedness.
4. ACCOUNT STATED. GC's books and records showing the account between it and the
Borrower shall be admissible in evidence in any action or proceeding as prima
facie proof of the items therein set forth.
5. EXERCISE OF RIGHTS AND REMEDIES; FORECLOSURE OF TRUST DEEDS. Guarantor
consents and agrees that, without notice to or by Guarantor and without
affecting or impairing in any way the obligations or liability of Guarantor
hereunder, GC may, from time to time, before or after revocation of this
Guaranty, exercise any right or remedy it may have with respect to any or all of
the Indebtedness or any property securing any or all of the Indebtedness or any
guaranty thereof, including without limitation judicial foreclosure, nonjudicial
foreclosure, exercise of a power of sale, and taking a deed, assignment or
transfer in lieu of foreclosure as to any such property, and Guarantor expressly
waives any defense based upon the exercise of any such right or remedy,
notwithstanding the effect thereof upon any of Guarantor's rights, including
without limitation, any destruction of Guarantor's right of subrogation against
Borrower and any destruction of Guarantor's right of contribution or other right
against any other guarantor of any or all of the Indebtedness or against any
other person, whether by operation of Sections 580a, 580d or 726 of the
California Code of Civil Procedure, or any comparable provisions of the laws of
any other jurisdiction, or any other statutes or rules of law now or hereafter
in effect, or otherwise. Without limiting the generality of the foregoing, (a)
Guarantor waives all rights and defenses arising out of an election of remedies
by GC, even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for any of the Indebtedness, has destroyed the
guarantor's rights of subrogation and reimbursement against the principal by the
operation of Section 580d of the Code of Civil Procedure or otherwise. (b)
Guarantor further waives all rights and defenses arising out of an election of
remedies by GC, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for any of the Indebtedness, has destroyed
the guarantor's rights of subrogation, reimbursement and contribution against
any other guarantor of the guaranteed obligation, by the operation of Section
580d of the Code of Civil Procedure or otherwise. (c) Guarantor understands that
if GC forecloses any present or future trust deed, which secures any or all of
the Indebtedness or which secures any other
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guaranty of any or all of the Indebtedness, by nonjudicial foreclosure,
Guarantor may, as a result, have a complete defense to liability under this
Guaranty, based on the legal doctrine of estoppel and Sections 580a, 580d or 726
of the California Code of Civil Procedure, and Guarantor hereby expressly waives
-------------------------------
all such defenses. (d) Guarantor understands and agrees that, in the event GC in
- -----------------
its sole discretion forecloses any trust deed now or hereafter securing any or
all of the Indebtedness, by nonjudicial foreclosure, Guarantor will remain
liable to GC for any deficiency, even though Guarantor will lose its right of
subrogation against the Borrower, and even though Guarantor will be unable to
recover from the Borrower the amount of the deficiency for which Guarantor is
liable, and even though Guarantor may have retained its right of subrogation
against Borrower if GC had foreclosed said trust deed by judicial foreclosure as
opposed to nonjudicial foreclosure, and even though absent the waivers set forth
herein Guarantor may have had a complete defense to any liability for any
deficiency hereunder. (e) Guarantor understands and agrees that, in the event GC
in its sole discretion forecloses any trust deed now or hereafter securing any
other guaranty of any or all of the Indebtedness, by nonjudicial foreclosure,
Guarantor will remain liable to GC for any deficiency, even though Guarantor
will lose its right of subrogation or contribution against the other guarantor,
and even though Guarantor will be unable to recover from the other guarantor any
part of the deficiency for which Guarantor is liable, and even though Guarantor
may have retained its right of subrogation or contribution against the other
guarantor if GC had foreclosed said trust deed by judicial foreclosure as
opposed to nonjudicial foreclosure, and even though absent the waivers set forth
herein Guarantor may have had a complete defense to any liability for any
deficiency hereunder.
6. ACCELERATION. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, at the option of GC, immediately become due and
payable, without notice, and without regard to the expressed maturity of any of
the Indebtedness, in the event: (a) Borrower shall fail to pay or perform when
due all or any part of the Indebtedness; or (b) Guarantor shall revoke this
Guaranty or contest or deny liability under this Guaranty. All of the foregoing
are hereinafter referred to as "Events of Default".
7. RIGHT TO ATTACHMENT REMEDY. Guarantor agrees that, notwithstanding the
existence of any property securing any or all of the Indebtedness, GC shall have
all of the rights of an unsecured creditor of Guarantor, including without
limitation the right to obtain a temporary protective order and writ of
attachment against Guarantor with respect to any sums due under this Guaranty.
Guarantor further agrees that in the event any property secures the obligations
of Guarantor under this Guaranty, to the extent that GC, in its sole and
absolute discretion, determines prior to the disposition of such property that
the amount to be realized by GC therefrom may be less than the indebtedness of
the Guarantor under this Guaranty, GC shall have all the rights of an unsecured
creditor against Guarantor, including without limitation the right of GC, prior
to the disposition of said property, to obtain a temporary protective order and
writ of attachment against Guarantor. Guarantor waives the benefit of Section
483.010(b) of the California Code of Civil Procedure and of any and all other
statutes and rules of law now or hereafter in effect requiring GC to first
resort to or exhaust all such collateral before seeking or obtaining any
attachment remedy against Guarantor. GC shall have no liability to Guarantor as
a result thereof, whether or not the actual deficiency realized by GC is less
than the anticipated deficiency on the basis of which GC obtains a temporary
protective order or writ of attachment.
8. INDEMNITY. Guarantor hereby agrees to indemnify GC and hold GC harmless from
and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including without
limitation attorneys' fees), of every nature, character and description, which
GC may sustain or incur based upon or arising out of any of the Indebtedness,
any actual or alleged failure to collect and pay over any withholding or other
tax relating to Borrower or its employees, any relationship or agreement between
GC and Borrower, any actual or alleged failure of GC to comply with any writ of
attachment or other legal process relating to Borrower or any of its property,
or any other matter, cause or thing whatsoever occurred, done, omitted or
suffered to be done by GC relating in any way to Borrower or the Indebtedness
(except any such amounts sustained or incurred as the result of the gross
negligence or willful misconduct of GC or any of its directors, officers,
employees, agents, attorneys, or any other person affiliated with or
representing GC). Notwithstanding any provision in this Guaranty to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination or revocation of this Guaranty and shall for all purposes continue
in full force and effect.
9. SUBORDINATION. Any and all rights of Guarantor under any and all
debts, liabilities and obligations owing
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from Borrower to Guarantor, including any security for and guaranties of any
such obligations, whether now existing or hereafter arising, are hereby
subordinated in right of payment to the prior payment in full of all of the
Indebtedness. No payment in respect of any such subordinated obligations shall
at any time be made to or accepted by Guarantor if at the time of such payment
any Indebtedness is outstanding. If any Event of Default has occurred, Borrower
and any assignee, trustee in bankruptcy, receiver, or any other person having
custody or control over any or all of Borrower's property are hereby authorized
and directed to pay to GC the entire unpaid balance of the Indebtedness before
making any payments whatsoever to Guarantor, whether as a creditor, shareholder,
or otherwise; and insofar as may be necessary for that purpose, Guarantor hereby
assigns and transfers to GC all rights to any and all debts, liabilities and
obligations owing from Borrower to Guarantor, including any security for and
guaranties of any such obligations, whether now existing or hereafter arising,
including without limitation any payments, dividends or distributions out of the
business or assets of Borrower. Any amounts received by Guarantor in violation
of the foregoing provisions shall be received and held as trustee for the
benefit of GC and shall forthwith be paid over to GC to be applied to the
Indebtedness in such order and sequence as GC shall in its sole discretion
determine, without limiting or affecting any other right or remedy which GC may
have hereunder or otherwise and without otherwise affecting the liability of
Guarantor hereunder. Guarantor hereby expressly waives any right to set-off or
assert any counterclaim against Borrower.
10. REVOCATION. This is a Continuing Guaranty relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. Guarantor waives all benefits of California Civil Code Section 2815,
and agrees that the obligations of Guarantor hereunder may not be terminated or
revoked in any manner except by giving 90 days' advance written notice of
revocation to GC at its address above by registered first-class U.S. mail,
postage prepaid, return receipt requested, and only as to new loans made by GC
to Borrower more than 90 days after actual receipt of such written notice by GC.
No termination or revocation of this Guaranty shall be effective until 90 days
following the date of actual receipt of said written notice of revocation by GC.
Notwithstanding such written notice of revocation or any other act of Guarantor
or any other event or circumstance, Guarantor agrees that this Guaranty and all
consents, waivers and other provisions hereof shall continue in full force and
effect as to any and all Indebtedness which is outstanding on or before the 90th
day following actual receipt of said written notice of revocation by GC, and all
extensions, renewals and modifications of said Indebtedness (including without
limitation amendments, extensions, renewals and modifications which are
evidenced by new or additional instruments, documents or agreements executed
before or after expiration of said 90-day period), and all interest thereon,
accruing before or after expiration of said 90-day period, and all attorneys'
fees, court costs and collection charges, incurred before or after expiration of
said 90-day period, in endeavoring to collect or enforce any of the foregoing
against Borrower, Guarantor or any other person liable thereon (whether or not
suit be brought) and any other expenses of, for or incidental to collection
thereof.
11. INDEPENDENT LIABILITY. Guarantor hereby agrees that one or more successive
or concurrent actions may be brought hereon against Guarantor, in the same
action in which Borrower may be sued or in separate actions, as often as deemed
advisable by GC. The liability of Guarantor hereunder is exclusive and
independent of any other guaranty of any or all of the Indebtedness whether
executed by Guarantor or by any other guarantor (including without limitation
any other persons signing this Guaranty). The liability of Guarantor hereunder
shall not be affected, revoked, impaired, or reduced by any one or more of the
following: (a) the fact that the Indebtedness exceeds the maximum amount of
Guarantor's liability, if any, specified herein or elsewhere (and no agreement
specifying a maximum amount of Guarantor's liability shall be enforceable unless
set forth in a writing signed by GC or set forth in this Guaranty); or (b) any
direction as to the application of payment by Borrower or by any other party; or
(c) any other continuing or restrictive guaranty or undertaking or any
limitation on the liability of any other guarantor (whether under this Guaranty
or under any other agreement); or (d) any payment on or reduction of any such
other guaranty or undertaking; or (e) any revocation, amendment, modification or
release of any such other guaranty or undertaking; or (f) any dissolution or
termination of, or increase, decrease, or change in membership of any Guarantor
which is a partnership. Guarantor hereby expressly represents that it was not
induced to give this Guaranty by the fact that there are or may be other
guarantors either under this Guaranty or otherwise, and Guarantor agrees that
any release of any one or more of such other guarantors shall not release
Guarantor from its obligations hereunder either in full or to any lesser extent.
If Guarantor is a
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married person, Guarantor hereby expressly agrees that recourse may be had
against his or her separate property for all of his or her obligations
hereunder.
12. FINANCIAL CONDITION OF BORROWER. Guarantor is fully aware of the financial
condition of Borrower and is executing and delivering this Guaranty at
Borrower's request and based solely upon its own independent investigation of
all matters pertinent hereto, and Guarantor is not relying in any manner upon
any representation or statement of GC with respect thereto. Guarantor represents
and warrants that it is in a position to obtain, and Guarantor hereby assumes
full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting GC to
furnish to him any information now or hereafter in GC's possession concerning
the same or any other matter. By executing this Guaranty, Guarantor knowingly
accepts the full range of risks encompassed within a contract of continuing
guaranty, which risks Guarantor acknowledges include without limitation the
possibility that Borrower will incur additional Indebtedness for which Guarantor
will be liable hereunder after Borrower's financial condition or ability to pay
such Indebtedness has deteriorated and/or after bankruptcy or insolvency
proceedings have been commenced by or against Borrower. Guarantor shall have no
right to require GC to obtain or disclose any information with respect to the
Indebtedness, the financial condition or character of Borrower, the existence of
any collateral or security for any or all of the Indebtedness, the filing by or
against Borrower of any bankruptcy or insolvency proceeding, the existence of
any other guaranties of all or any part of the Indebtedness, any action or non-
action on the part of GC, Borrower, or any other person, or any other matter,
fact, or occurrence.
13. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and warrants
that (i) it is in Guarantor's direct interest to assist Borrower in procuring
credit, because Borrower is an affiliate of Guarantor, furnishes goods or
services to Guarantor, purchases or acquires goods or services from Guarantor,
and/or otherwise has a direct or indirect corporate or business relationship
with Guarantor, (ii) this Guaranty has been duly and validly authorized,
executed and delivered and constitutes the valid and binding obligation of
Guarantor, enforceable in accordance with its terms, and (iii) the execution and
delivery of this Guaranty does not violate or constitute a default under (with
or without the giving of notice, the passage of time, or both) any order,
judgment, decree, instrument or agreement to which Guarantor is a party or by
which it or its assets are affected or bound.
14. COSTS. Whether or not suit be instituted, Guarantor agrees to reimburse GC
on demand for all reasonable attorneys' fees and all other reasonable costs and
expenses incurred by GC in enforcing this Guaranty, or arising out of or
relating in any way to this Guaranty, or in enforcing any of the Indebtedness
against Borrower, Guarantor, or any other person, or in connection with any
property of any kind securing all or any part of the Indebtedness. Without
limiting the generality of the foregoing, and in addition thereto, Guarantor
shall reimburse GC on demand for all reasonable attorneys' fees and costs GC
incurs in any way relating to Guarantor, Borrower or the Indebtedness, in order
to: obtain legal advice; enforce or seek to enforce any of its rights; commence,
intervene in, respond to, or defend any action or proceeding; file, prosecute or
defend any claim or cause of action in any action or proceeding (including
without limitation any probate claim, bankruptcy claim, third-party claim,
secured creditor claim, reclamation complaint, and complaint for relief from any
stay under the Bankruptcy Code or otherwise); protect, obtain possession of,
sell, lease, dispose of or otherwise enforce any security interest in or lien on
any property of any kind securing any or all of the Indebtedness; or represent
GC in any litigation with respect to Borrower's or Guarantor's affairs. In the
event either GC or Guarantor files any lawsuit against the other predicated on a
breach of this Guaranty, the prevailing party in such action shall be entitled
to recover its attorneys' fees and costs of suit from the non-prevailing party.
15. NOTICES. Any notice which a party shall be required or shall desire to give
to the other hereunder (except for notice of revocation, which shall be governed
by Section 10 of this Guaranty) shall be given by personal delivery or by
facsimile or by depositing the same in the United States mail, first class
postage pre-paid, addressed to GC at its address set forth in the heading of
this Guaranty and to Guarantor at its address set forth under its signature
hereon, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date sent by facsimile or two business days after
the date of mailing as aforesaid. GC and Guarantor may change their address for
purposes of receiving notices hereunder by giving written notice thereof to the
other party in accordance herewith. Guarantor shall give GC immediate written
notice of any change in its address.
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16. CLAIMS. Guarantor agrees that any claim or cause of action by Guarantor
against GC, or any of GC's directors, officers, employees, agents, accountants
or attorneys, based upon, arising from, or relating to this Guaranty, or any
other present or future agreement between GC and Guarantor or between GC and
Borrower, or any other transaction contemplated hereby or thereby or relating
hereto or thereto, or any other matter, cause or thing whatsoever, whether or
not relating hereto or thereto, occurred, done, omitted or suffered to be done
by GC, or by GC's directors, officers, employees, agents, accountants or
attorneys, whether sounding in contract or in tort or otherwise, shall be barred
unless asserted by Guarantor by the commencement of an action or proceeding in a
court of competent jurisdiction within Los Angeles County, California, by the
filing of a complaint within one year after the first act, occurrence or
omission upon which such claim or cause of action, or any part thereof, is based
and service of a summons and complaint on an officer of GC or any other person
authorized to accept service of process on behalf of GC, within 30 days
thereafter. Guarantor agrees that such one year period is a reasonable and
sufficient time for Guarantor to investigate and act upon any such claim or
cause of action. The one year period provided herein shall not be waived,
tolled, or extended except by a specific written agreement of GC. This provision
shall survive any termination of this Guaranty or any other agreement.
17. CONSTRUCTION; SEVERABILITY. If more than one person has executed this
Guaranty, the term "Guarantor" as used herein shall be deemed to refer to all
and any one or more such persons and their obligations hereunder shall be joint
and several. Without limiting the generality of the foregoing, if more than one
person has executed this Guaranty, this Guaranty shall in all respects be
interpreted as though each person signing this Guaranty had signed a separate
Guaranty, and references herein to "other guarantors" or words of similar effect
shall include without limitation other persons signing this Guaranty. As used in
this Guaranty, the term "property" is used in its most comprehensive sense and
shall mean all property of every kind and nature whatsoever, including without
limitation real property, personal property, mixed property, tangible property
and intangible property. Words used herein in the masculine gender shall include
the neuter and feminine gender, words used herein in the neuter gender shall
include the masculine and feminine, words used herein in the singular shall
include the plural and words used in the plural shall include the singular,
wherever the context so reasonably requires. If any provision of this Guaranty
or the application thereof to any party or circumstance is held invalid, void,
inoperative or unenforceable, the remainder of this Guaranty and the application
of such provision to other parties or circumstances shall not be affected
thereby, the provisions of this Guaranty being severable in any such instance.
18. GENERAL PROVISIONS. GC shall have the right to seek recourse against
Guarantor to the full extent provided for herein and in any other instrument or
agreement evidencing obligations of Guarantor to GC, and against Borrower to the
full extent of the Indebtedness. No election in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of GC's right to proceed in any other form of action or proceeding or
against any other party. The failure of GC to enforce any of the provisions of
this Guaranty at any time or for any period of time shall not be construed to be
a waiver of any such provision or the right thereafter to enforce the same. All
remedies hereunder shall be cumulative and shall be in addition to all rights,
powers and remedies given to GC by law or under any other instrument or
agreement. Time is of the essence in the performance by Guarantor of each and
every obligation under this Guaranty. If Borrower is a corporation, partnership
or other entity, Guarantor hereby agrees that GC shall have no obligation to
inquire into the power or authority of Borrower or any of its officers,
directors, partners, or agents acting or purporting to act on its behalf, and
any Indebtedness made or created in reliance upon the professed exercise of any
such power or authority shall be included in the Indebtedness guaranteed hereby.
This Guaranty is the entire and only agreement between Guarantor and GC with
respect to the guaranty of the Indebtedness of Borrower by Guarantor, and all
representations, warranties, agreements, or undertakings heretofore or
contemporaneously made, which are not set forth herein, are superseded hereby.
No course of dealings between the parties, no usage of the trade, and no parol
or extrinsic evidence of any nature shall be used or be relevant to supplement
or explain or modify any term or provision of this Guaranty. There are no
conditions to the full effectiveness of this Guaranty. The terms and provisions
hereof may not be waived, altered, modified, or amended except in a writing
executed by Guarantor and a duly authorized officer of GC. All rights, benefits
and privileges hereunder shall inure to the benefit of and be enforceable by GC
and its successors and assigns and shall be binding upon Guarantor and its
heirs, executors, administrators, personal representatives, successors and
assigns. Neither the death of Guarantor nor notice thereof to GC shall terminate
this Guaranty as to its
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estate, and, notwithstanding the death of Guarantor or notice thereof to GC,
this Guaranty shall continue in full force and effect with respect to all
Indebtedness, including without limitation Indebtedness incurred or created
after the death of Guarantor and notice thereof to GC. Section headings are used
herein for convenience only. Guarantor acknowledges that the same may not
describe completely the subject matter of the applicable Section, and the same
shall not be used in any manner to construe, limit, define or interpret any term
or provision hereof.
19. GOVERNING LAW; VENUE AND JURISDICTION. This instrument and all acts and
transactions pursuant or relating hereto and all rights and obligations of the
parties hereto shall be governed, construed, and interpreted in accordance with
the internal laws of the State of California. In order to induce GC to accept
this Guaranty, and as a material part of the consideration therefor, Guarantor
(i) agrees that all actions or proceedings relating directly or indirectly
hereto shall, at the option of GC, be litigated in courts located within Los
Angeles County, California, (ii) consents to the jurisdiction of any such court
and consents to the service of process in any such action or proceeding by
personal delivery or any other method permitted by law; and (iii) waives any and
all rights Guarantor may have to transfer or change the venue of any such action
or proceeding.
20. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. GC AND GUARANTOR HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS GUARANTEE OR ANY SUPPLEMENT
OR AMENDMENT THERETO; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN GC AND GUARANTOR ; OR (III) ANY BREACH, CONDUCT, ACTS OR
OMISSIONS OF GC OR GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
GC OR GUARANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE.
21. RECEIPT OF COPY. Guarantor acknowledges receipt of a copy of this Guaranty:
Guarantor Signature
Prime Response Group, Inc.
By: /s/ Jamie Gunn
-----------------------------------
Address:
150 Cambridge Park Drive
Cambridge, Massachusetts 02140
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Exhibit 10.29
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[LOGO OF GREYROCK CAPITAL APPEARS HERE]
STREAMLINED FACILITY AGREEMENT
October 28, 1999
Prime Response, Inc.
150 Cambridge Park Drive
Cambridge, Massachusetts 02140
Gentlemen:
This Streamlined Facility Agreement (this "Agreement") is entered into
between GREYROCK CAPITAL, a Division of Banc of America Commercial Finance
Corporation ("GC"), and Prime Response, Inc. ("Borrower"), in connection with
the Loan and Security between GC and Borrower dated October 28, 1999 (the "Loan
Agreement"). (This Agreement, the Loan Agreement, and all other written
documents and agreements between GC and Borrower are referred to herein
collectively as the "Loan Documents". Capitalized terms used but not defined in
this Agreement, shall have the meanings set forth in the Loan Agreement.)
This will confirm our agreement that the following provisions (the
"Streamlined Provisions") shall apply, effective on the date hereof, until
terminated as provided below:
1. Daily reporting of transactions and daily schedules and assignments
of Receivables and schedules of collections, called for by Section 4.3 of the
Loan Agreement, will not be required. Instead, Borrower will provide GC with a
monthly Borrowing Base Certificate, in such form as GC shall from time to time
specify, within 10 days after the end of each month. In the event, as of the end
of any month, the total of all Loans and all other Obligations exceeds the
Credit Limit, Borrower shall immediately pay the amount of the excess to GC.
2. Delivery of the proceeds of Receivables and other Collateral within
one Business Day after receipt, as called for by Sections 4.4 and 5.4 of the
Loan Agreement, will not be required.
Upon notice to Borrower, the Streamlined Provisions shall terminate if
any Default or Event of Default occurs and is continuing.
1
<PAGE>
Upon any termination of the Streamlined Provisions, Borrower shall,
then and thereafter, provide GC with the daily reporting of transactions and
daily schedules and assignments of Receivables and schedules of collections, as
called for by Section 4.3 of the Loan Agreement, and Borrower shall deliver all
proceeds of Receivables and other Collateral to GC, within one Business Day
after receipt, as called for by Sections 4.4 and 5.4 of the Loan Agreement.
Please confirm your agreement to the foregoing by signing the enclosed
copy of this Agreement and returning it to us.
Sincerely yours,
GREYROCK CAPITAL,
a Division of Banc of America
Commercial Corporation
By /s/ Lisa Nagano
--------------------------
Title: Senior Vice President
-----------------------
Accepted and agreed:
Prime Response, Inc.
By /s/ Jamie Gunn
---------------------------
President or Vice President
2
<PAGE>
Exhibit 10.30
- --------------------------------------------------------------------------------
[LOGO OF GREYROCK CAPITAL APPEARS HERE]
LETTER OF CREDIT AGREEMENT
BORROWER: PRIME RESPONSE U.S., INC.
(FORMERLY KNOWN AS PRIME RESPONSE, INC.)
ADDRESS: 150 CAMBRIDGE PARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
DATE: NOVEMBER 24, 1999
THIS LETTER OF CREDIT AGREEMENT ("Agreement"), dated the above date, is
entered into between GREYROCK CAPITAL, a Division of Banc of America Commercial
Finance Corporation ("GC") and the borrower named above ("Borrower"), in
connection with the Loan and Security Agreement ("Loan Agreement") between GC
and Borrower dated October 28, 1999. This Agreement is an integral part of the
Loan Agreement, and all of the terms and provisions of the Loan Agreement are
incorporated herein by this reference. (Capitalized terms used in this
Agreement, which are not defined in this Agreement, shall have the meanings set
forth in the Loan Agreement. This Agreement, the Loan Agreement and all other
present and future documents instruments and agreements between GC and the
Borrower are referred to herein collectively as the "Loan Documents."
1. LETTERS OF CREDIT. From time to time, in order to assist Borrower in
establishing or opening Letters of Credit (the "LCs") with a bank, trust company
or other issuer ("Bank") to cover the purchase of goods or for other purposes,
including the provision of overdraft facilities, Borrower may request that GC
join in the applications for the LCs, and/or provide guarantees of, and/or
indemnities with respect to, payment or performance of the LCs and/or any drafts
or acceptances thereunder and/or Borrower's obligations in connection therewith
(collectively, "Guarantees"). The decision to do so shall be a matter of GC's
sole discretion. In the event GC joins in such applications and/or provides
Guarantees, the transactions shall be subject to the terms and conditions of
this Agreement. The amount, extent, terms and conditions of the LCs and any
drafts or acceptance relating thereto, shall in all respects be determined
solely by GC and shall be subject to change, modification and revision by GC at
any time and from time to time, in its discretion.
2. INDEMNITY. Borrower unconditionally agrees to indemnify, defend and hold
GC harmless from any and all indebtedness, liabilities, obligations, losses and
claims, of every sort whatsoever, however arising, whether present or future,
fixed or contingent, due or to become due, paid or incurred, arising, incurred
in connection with, or relating to, any LCs, applications for LCs, Guarantees,
drafts or acceptances thereunder or LC Collateral (as defined below), including
without limitation (i) any and all losses and claims due to any action or
omission by any Bank, any errors or omissions of GC or any Bank, or otherwise,
(ii) all amounts due or which may become due under LCs, or any drafts or
acceptances thereunder, (iii) all liabilities and obligations under any
steamship or airway guarantees or releases or any Guarantees, (iv) all amounts
charged or chargeable to Borrower or to GC by any Bank, any other financial
institution or any correspondent bank which opens, issues or is involved with
the LCs, (v) all other bank charges, and (vi) all fees, commissions, duties,
taxes, costs of insurance, and all such other charges and expenses which may
pertain either directly or indirectly to any LC, draft, acceptance, or Guarantee
or to the goods or documents relating thereto (except any such amounts sustained
or incurred as the result of the gross negligence or willful misconduct of GC or
any of its
<PAGE>
directors, officers, employees, agents, attorneys, or any other person
affiliated with or representing GC). Borrower's obligation to indemnify GC under
this Agreement and Borrower's other obligations under this Agreement are
referred to herein as the "LC Obligations" (which shall include, without
limitation, the aggregate face amounts of all LCs and Guarantees). Borrower's LC
Obligations shall not be modified or diminished for any reason or in any manner
whatsoever, shall be included in the "Obligations" (as defined in the Loan
Agreement), and shall survive termination of the Loan Agreement and any other
Loan Document. Without limiting the generality of the foregoing, Borrower agrees
that any charges made to GC by any Bank for Borrower's account or relating to
any LC shall be conclusive on Borrower and may be charged to any of Borrower's
Loan accounts with GC. GC shall have the right, at any time and without notice
to Borrower, to charge any of Borrower's Loan accounts with GC with the amount
of any and all sums due from Borrower to GC under this Agreement, and the same
shall constitute Loans for all purposes of the Loan Documents and shall bear
interest at the rate provided in the Loan Agreement. All sums payable by
Borrower to GC under this Agreement shall be paid solely in United States
dollars.
3. LC LIMITS. Without limiting the fact that GC's decisions to join in
an application for an LC or issue a Guarantee are a matter of its sole
discretion, the total amount of all outstanding LC Obligations shall not at any
time exceed $1,000,000 in the aggregate, and if for any reason they do, Borrower
shall provide cash collateral to GC in an amount equal to the excess, to secure
all of the Obligations, and Borrower shall execute and deliver to GC a pledge
agreement with respect thereto on GC's standard form. In addition, the total
amount of all LC Obligations and all outstanding "Loans" and other "Obligations"
(as defined in the Loan Agreement) shall not at any time exceed the maximum
amount of all Loans and other Obligations specified in Section 1.1 of the Loan
Agreement, and if for any reason they do, Borrower shall immediately pay the
excess to GC to be applied to the Obligations in such order and manner as GC
shall determine in its sole discretion.
4. LOAN AVAILABILITY RESERVE. The amount of Loans which would otherwise
be available to Borrower from time to time under the lending formulas set forth
in the Loan Agreement and the other Loan Documents shall be reduced by 100% of
the total amount of all LC Obligations from time to time outstanding.
5. CHARGES. In addition to any charges, fees or expenses of any Bank or
other person in connection with any LC (all of which shall be charged to
Borrower's Loan account), GC shall be entitled to charge Borrower's Loan account
with a fee in an amount equal to three percent (3%) per annum of the amount of
all LC Obligations from time to time outstanding, calculated on the basis of a
360-day year for the actual number of days elapsed.
6. SECURITY. Without limiting the security interests granted in the Loan
Documents, Borrower hereby grants GC a security interest in the following (the
"LC Collateral"), whether now owned or hereafter acquired by Borrower, wherever
located, whether in transit or not, to secure all of the Obligations: all bills
of lading, shipping documents, documents of title, chattel paper, invoices,
cash, checks, drafts, notes, documents, warehouse, shipping and dock receipts,
and other title, payment, or other instruments, and instruments, whether
negotiable or not, relating to any LC, and all goods and inventory relating
thereto in all stages of manufacture, process or production, and all cash and
non-cash proceeds and insurance proceeds thereof of whatever sort and however
arising. All references in the Loan Agreement to "Collateral" shall, for all
purposes, include without limitation the LC Collateral, and all terms and
provisions of the Loan Agreement applicable to Collateral shall also apply to
the LC Collateral.
7. NON-RESPONSIBILITY. GC shall not be responsible for: the existence,
character, quality, quantity, condition, packing, value or delivery of the goods
purporting to be represented by any documents; any difference or variation in
the character, quality, quantity, condition, packing, value or delivery of the
goods from that expressed in the documents; the validity, sufficiency or
genuineness of any documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; the time, place, manner or order in which
shipment is made; partial or incomplete shipment, or failure or omission to ship
any or all of the goods referred to in the LCs or documents; any deviation from
instructions, delay, default, or fraud by the shipper and/or anyone else in
connection with the LC Collateral or the shipping thereof; or any breach of
contract between the shipper or vendors and Borrower. Furthermore, without being
limited by the foregoing, GC shall not be responsible for any act or omission
with respect to or in connection with any LC Collateral.
-2-
<PAGE>
8. GC'S AUTHORITY. Borrower agrees that any action taken by GC, if taken in
good faith, or any action taken by any Bank, under or in connection with the
LCs, the Guarantees, the drafts or acceptances, or the LC Collateral, shall be
binding on Borrower and shall not result in any liability of GC to Borrower. In
furtherance thereof, GC shall have the full right and authority to clear and
resolve any questions of non-compliance of documents; to give any instructions
as to acceptance or rejection of any documents or goods; to execute any and all
applications for steamship or airway guarantees, indemnities or delivery orders;
to grant any extensions of the maturity of, time or payment for, or time of
presentation of, any drafts, acceptances, or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, LCs, drafts or
acceptances; all in GC's sole name, and the Bank shall be entitled to comply
with and honor any and all such documents or instruments executed by or received
solely from GC, all without any notice to or any consent from Borrower.
9. GC'S RIGHTS. Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any Bank in any application for LCs, or any standing
agreement relating to LCs or otherwise, shall be deemed to have been granted to
GC and apply in all respects to GC and shall be in addition to any rights,
remedies, duties or obligations contained herein. Borrower hereby agrees that
prior to the payment of all Obligations to GC, GC may be deemed to be the
absolute owner of, with unqualified rights to possession and disposition of, all
LC Collateral, all of which may be held by GC as security as herein provided.
Should possession of any LC Collateral be transferred to Borrower, said LC
Collateral shall continue to serve as security as herein provided, and any goods
or inventory covered hereby may be sold, transferred or disposed of only as
permitted by the Loan Documents.
10. NEGATIVE COVENANTS. Without GC's prior written approval, Borrower agrees
not to clear or resolve any questions of non-compliance of documents; not to
give any instructions as to acceptance or rejection of any documents or goods;
not to execute any applications for steamship or airway guarantees, indemnities
or delivery orders; not to grant any extensions of the maturity of, time of
payment for, or time of presentation of, any drafts, acceptances or documents;
and not to agree to any amendments, renewals, extensions, modifications, changes
or cancellations of any of the terms or conditions of any of the applications,
LCs, drafts or acceptances.
11. AFFIRMATIVE COVENANTS. Borrower shall cause: all necessary import,
export or other licenses or certificates for the import or handling of the LC
Collateral to be promptly procured; all foreign and domestic governmental laws
and regulations in regard to the shipment and importation of the LC Collateral,
or the financing thereof to be promptly and fully complied with; and any
certificates in that regard that GC may at any time request to be promptly
furnished. In this connection, Borrower warrants and represents to GC that all
shipments made under the LCs are and shall be in accordance with the
governmental laws and regulations of the countries in which the shipments
originate and terminate, and shall not be prohibited by any such laws or
regulations. Borrower assumes all risk, liability and responsibility for, and
agrees to pay and discharge, all present and future local, state, federal or
foreign taxes, duties, and levies. Any embargo, restriction, laws, customs or
regulations of any country, state, city, or other political subdivision, where
the Collateral is or may be located, or wherein payments are to be made, or
wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely
Borrower's risk, liability and responsibility.
12. TERMINATION. Without limiting any of the terms of the Loan Agreement,
on the effective date of termination of the Loan Agreement, in addition to
paying and performing in full all other Obligations, Borrower shall provide cash
collateral to GC in an amount equal to 110% of the amount of all LC Obligations,
to secure all of the Obligations, and Borrower shall execute and deliver to GC a
pledge agreement with respect thereto on GC's standard form. (If the Loan
Agreement provides for a lesser amount of cash collateral, this Agreement shall
control.)
13. DEFAULT. On any failure to pay or perform any Obligation when due, or
the occurrence of any other "Event of Default" (as defined in the Loan
Agreement), GC shall have all of the rights and remedies set forth in the Loan
Documents and which it otherwise has under applicable law, and without limiting
the generality of the foregoing, GC shall have the right to require Borrower to
deposit cash collateral with GC in an amount equal to 110% of the amount of all
LC Obligations, to secure all of the Obligations, and Borrower shall execute and
deliver to GC a pledge agreement with respect thereto on GC's standard form.
-3-
<PAGE>
14. POWER OF ATTORNEY. Without limiting the terms of any of the Loan
Documents, Borrower hereby appoints each employee, attorney or agent of GC as
Borrower's attorney-in-fact, with full power and authority in each of them, at
GC's option, but without obligation, with or without notice to Borrower, in
connection with any LC and any purchase agreement or other document or agreement
entered into, or goods delivered, in connection therewith, at Borrower's
expense, to do any or all of the following in Borrower's name or otherwise: (i)
to sign or endorse all warehouse, shipping, dock or other receipts, letters of
credit, notes, acceptances, checks, drafts, money orders and all other evidence
of indebtedness, and all financing statements, invoices, trust receipts, bills
of lading and other title documents; (ii) to complete any transaction in
connection with, arising out of, or which is the subject of any LC or Guarantee,
to obtain, execute and deliver all necessary or proper documents in connection
therewith and to collect the proceeds thereof; (iii) upon any Event of Default
under the Loan Agreement, or this Agreement, to cancel, rescind, terminate,
modify, amend, or adjust, in any other way, in whole or in part, any transaction
in connection with, arising out of, or which is the subject of any LC or
Guarantee; and (iv) to do any and all other acts and things which may be
necessary or appropriate in connection with this Agreement or any LC, or any
transaction relating thereto, or to enable GC to obtain payment of any
Obligations. The power of attorney granted hereunder is coupled with an
interest and shall be irrevocable until all Obligations have been paid in full.
15. GENERAL. Without limiting any of the other provisions of this
Agreement, all of the General Provisions of Section 9 of the Loan Agreement, as
well as all other provisions of the Loan Agreement, are hereby incorporated
herein by this reference.
16. MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GC EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GC AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GC OR BORROWER, IN ALL OF
THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
PRIME RESPONSE U.S., INC.
BY /s/ Jamie Gunn
----------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ Jamie Gunn
----------------------------------
SECRETARY OR ASS'T SECRETARY
GC:
GREYROCK CAPITAL,
A DIVISION OF BANC OF AMERICA
COMMERCIAL FINANCE CORPORATION
BY: /s/ Lisa Nagano
---------------------------------
TITLE Senior Vice President
------------------------------
-4-
<PAGE>
EXHIBIT 10.31
PRIME RESPONSE
PRIME RESPONSE LTD.
Goat Wharf
Brontford, TW OBA
United Kingdom
January 13, 1999
Mr. Peter Boni
338 Marlborough Street
Boston, MA 02116
Dear Peter:
We are incredibly excited to have you join Prime Response. Accordingly, we are
pleased to extend to you an offer to join us as President and CEO, reporting
directly to the Board of Directors. You will also join the Board of Directors.
Per our conversations, we have structured a compensation package that consists
of five primary components. They are as follows:
. You will receive an annual base salary of $290,000.
. You will have the ability to earn an annual bonus equal to 50% of your
annual base salary, which will be paid annually. The parameters of the bonus
will be mutually agreed upon by yourself and the compensation committee of
the Board of Directors and based on a board-approved budget that you will
submit within the first 90 days of your employment. For 1999, 50% of the
bonus potential will be guaranteed.
. You will be granted an option to purchase 5% of the Company's stock on a
fully diluted basis. Your 5% option position will be protected from dilution
from a private equity investment completed within 1999. The exercise price
will be $2.56 per share. The Company will loan you interest free the exercise
value of the option package so that you can immediately exercise your option
grant. The stock will serve as collateral for the loan. The Company expects
this transaction to occur within 30 days your start date. Restrictions on the
stock will be lifted over a four-year period consistent with the Company's
existing option plan vesting schedule, beginning on your date of employment.
. You are eligible for all standard benefits according to the Company's
benefits plan. In addition, you will be eligible for an annual car allowance
of $10,000 and temporary housing in London or Denver as needed, plus
transportation for your spouse.
. Your employment with the Company is "at will," which means the
employment relationship can be terminated by either of us for any reason at
any time. However if you are asked to
<PAGE>
resign or terminated for any reason other than cause or as in the case of
acquisition are asked to take a lesser responsible position, you will be
given 12 months of base salary and bonus, plus benefits. In the event of a
change of control of Prime Response, you will be given 100% vesting on your
options and all restrictions will be lifted on stock that you own.
This letter sets forth, fully, all understandings and agreements between you and
Prime Response regarding your employment. This offer stands until end of day
January 13, 1999. Your authorization below acknowledges your acceptance of
these terms.
Peter, I cannot tell you how excited we all are to have you join Prime Response.
I sincerely believe that this presents an opportunity for you to leverage all of
your skills and experience to date. I personally look forward to working
closely with you over the years and know that we will all be incredibly
successful together.
Best regards,
/s/ James Carling /s/ Peter J. Boni
- ----------------------------- --------------------------------
James Carling Peter J. Boni
Chairman, Prime Response January 13, 1999
cc: Terry H. Osborne
William E. Ford
Alan Seiler
<PAGE>
EXHIBIT 10.34
PRIME
RESPONSE
April 29th/ 1999
Dear Jamie,
Following the Prime Response Group Inc. Board Meeting yesterday, April 28th,
in New York City, I am pleased to inform you that the Board would like to extend
to you the offer of becoming the Company's Chief Financial Officer effective
immediately, reporting to myself.
This position will be based in the USA, at the soon to be established Company
Headquarters in Boston (Cambridge), Massachusetts. The exact timing of your
move will clearly be dependent on acquiring, the appropriate Visa, and the
Company will naturally sponsor your application, but it is expected that you
will be able to complete the move sometime between mid-June 1999 and mid-July.
Your salary will be $180,000, the exact translation of your existing Sterling
salary. Your 1999 Bonus Scheme, already confirmed by the Compensation
Committee, will move with you, under the same terms and conditions, paying out
$65,000 for 1999 if the conditions set for awarding the bonus are achieved.
I will be shortly reviewing the appropriateness of your current Stock Option
situation with the Compensation Committee and will notify you of its findings in
due course.
Your move to the U.S., being sponsored by the Company, will be eligible for
financial support under the terms of the Company, a Retention policy, which has
been approved by the Compensation Committee. Other than as noted above all
other aspects of your employment are continuous and the terms and conditions
under which you are employed by the company are unaltered.
While the company is sponsoring your Visa application, clearly much of the
practical work needed to make this transfer will be largely down to yourself to
manage, as the Company does not as yet have the resources to provide specialist
support. However, do not hesitate to ask me for whatever practical or official
support I may need to provide.
Jamie, the rest of the Board and myself wish you every success in this new role
and if you are happy to accept the position on the terms stated above please
sign below as indicated and return to me.
Sincerely,
/s/ Peter Boni
Peter Boni
(Chief Executive Officer, Prime Response Group Inc.)
Accepted:
Jamie Gunn /s/ Jamie Gunn
-----------------
<PAGE>
Exhibit 21.1
Prime Response, Inc.
Subsidiaries
Prime Response U.S., Inc.
Prime Response Limited (U.K.)
Prime Response Limited (Ireland)
Prime Response Pty. Ltd.
Prime Response SARL
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated December 9, 1999 relating to the financial statements of Prime
Response, 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 2,470 530
<SECURITIES> 0 0
<RECEIVABLES> 6,573 4,815
<ALLOWANCES> 79 43
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,968 6,508
<PP&E> 2,544 2,111
<DEPRECIATION> 2,865 2,156
<TOTAL-ASSETS> 14,084 10,152
<CURRENT-LIABILITIES> 14,512 6,446
<BONDS> 0 0
39,904 31,267
0 0
<COMMON> 76 70
<OTHER-SE> 42,001 28,521
<TOTAL-LIABILITY-AND-EQUITY> 14,084 10,152
<SALES> 13,067 16,536
<TOTAL-REVENUES> 13,067 16,536
<CGS> 5,335 9,106
<TOTAL-COSTS> 26,005 30,976
<OTHER-EXPENSES> 49 88
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,587 294
<INCOME-PRETAX> (15,512) (14,603)
<INCOME-TAX> 9 0
<INCOME-CONTINUING> (15,521) (14,603)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (15,521) (14,603)
<EPS-BASIC> (2.72) (2.36)
<EPS-DILUTED> (2.72) (2.72)
</TABLE>
<PAGE>
Exhibit 99.1
CONSENT
I hereby consent to the use of my name as a nominee for director of Prime
Response, Inc. (the "Company") in the Company's Registration Statement on Form
S-1 to be filed with the United States Securities and Exchange Commission.
Date: November 30, 1999 /s/ Marc McMorris
-----------------------------------------
Marc McMorris
