<PAGE>
As filed with the Securities and Exchange Commission on January 12, 2000
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BLAZE SOFTWARE, INC.
(Exact name of Registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
California (before
reincorporation)
Delaware (after reincorporation) 7372 77-0081248
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
Blaze Software, Inc.
1310 Villa Street
Mountain View, CA 94041-1182
(650) 528-3450
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-------------------
THOMAS KELLY
Chief Executive Officer
Blaze Software, Inc.
1310 Villa Street
Mountain View, CA 94041-1182
(650) 528-3450
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
<TABLE>
<S> <C>
LARRY W. SONSINI CHRISTOPHER L. KAUFMAN
ISSAC J. VAUGHN ROBERT A. KOENIG
YOICHIRO TAKU Latham & Watkins
JASON ALTIERI 135 Commonwealth Drive
BRIAN McDANIEL Menlo Park, CA 94025
Wilson Sonsini Goodrich & Rosati (650) 328-4600
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Title of Each Class of Proposed Maximum Amount of
Securities Aggregate Offering Registration
to be Registered Price(1)(2) Fee
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<S> <C> <C>
Common stock, $0.0001
par value............. $44,850,000 $11,841
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</TABLE>
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(1) Includes shares which the underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
-------------------
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.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 12, 2000
[LOGO OF BLAZE SOFTWARE]
Shares
Common Stock
Blaze Software, 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 of our common stock on the Nasdaq
National Market under the symbol "BLZE." We anticipate that the initial public
offering price will be between $ and $ per share.
--------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price.......................................... $ $
Underwriting Discounts and Commissions......................... $ $
Proceeds to Blaze Software, 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.
Blaze Software, Inc. has granted the underwriters a 30-day option to purchase
up to an additional shares of common stock to cover over-allotments.
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
--------------
Robertson Stephens
Chase H&Q
Dain Rauscher Wessels
The date of this Prospectus is , 2000
<PAGE>
In front of a dark background, two glowing computer monitors face each
other. Above the left monitor appear the words "This is a personalized Web
site," and in front of the screen,"Welcome, Tom." Above the right monitor
appear the words "This is a Blazed Web site," and in front of the screen, "Good
morning, Tom. Since your last visit on Tuesday, two of the items you order most
often have gone on sale, and the new upgrade for your diagnostic system is now
available. Would you like to know more?" The Blaze Software logo and Web
address appear at the bottom of the page.
<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 the common stock. In this prospectus, references
to "Blaze Software," "we," "us" and "our" refer to Blaze Software, Inc. and its
subsidiaries.
Until , 2000, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
You Should Not Rely on Forward-Looking Statements Because They Are
Inherently Uncertain................................................... 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations ......................................................... 24
Business................................................................. 36
Management............................................................... 47
Certain Transactions..................................................... 58
Principal Stockholders................................................... 62
Description of Capital Stock............................................. 64
Shares Eligible for Future Sale.......................................... 67
Underwriting............................................................. 69
Legal Matters............................................................ 71
Experts.................................................................. 71
Change in Independent Accountants........................................ 71
Where You Can Find Additional Information................................ 71
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------------
Blaze Software, Blaze Advisor, Blaze Advisor Builder, Blaze Advisor Rule
Engine, Blaze Advisor Rule Server, Blaze Advisor Innovator, Blaze Expert, Blaze
Presenter, Beyond Personalization, Open Interface and the Blaze logo are
trademarks of Blaze Software, Inc. Other service marks, trademarks and trade
names referred to in this prospectus are the property of their respective
owners.
3
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and our consolidated financial statements and notes thereto appearing elsewhere
in this prospectus. Unless otherwise indicated, this prospectus assumes that
the underwriters have not exercised their option to purchase additional shares,
all shares of preferred stock have been automatically converted into shares of
common stock and we have completed our reincorporation in Delaware.
Blaze Software
We are a leading provider of infrastructure software that enables companies
to provide their customers, employees, partners and suppliers with adaptable
and personalized interactions that are consistent across all company
communication channels, or touchpoints. Our Blaze Advisor Solutions Suite
allows companies to implement their policies, practices and procedures, or
business rules, in e-business applications, enabling them to provide
individualized interactions across multiple touchpoints, including the
Internet, automated telephone response systems, call centers, electronic kiosks
and others. These individualized interactions are designed to promote greater
customer conversion and retention, decreased costs and increased sales. By
using a company's own business rules as its foundation, Blaze Advisor also
enables a company to express its corporate personality and style consistently
through each interaction and across all of a company's touchpoints. Blaze
Advisor allows business persons to modify business rules quickly and easily.
This ease of modification allows companies to respond quickly to dynamic market
conditions, business practices and user preferences. We also provide consulting
and professional services to help customers plan, develop and implement e-
business personalization solutions.
Many organizations are implementing Internet-based and electronic business
initiatives in order to extend and automate traditional business processes and
compete more effectively. These initiatives, commonly referred to as e-
business, allow companies to transact sales, manage customer service, and
interact and communicate with customers, employees, partners and suppliers
using both traditional and e-business touchpoints, including the Internet and
other electronic means. Companies increasingly need software solutions to help
them capitalize on these interactions, maintain their corporate personality and
style and distinguish themselves from their competitors while conducting an
increasing number of transactions over a wide variety of touchpoints. The rapid
growth of the Internet has made e-business an important and fast-growing
business channel for many companies, who have begun to invest significantly in
infrastructure software to support their growing e-business initiatives.
International Data Corporation estimates that worldwide license revenues from
Internet commerce application software, which includes software for both
business-to-business and business-to-consumer applications, will grow from $1.7
billion in 1999 to $13.2 billion in 2003.
Our objective is to become the leading provider of infrastructure software
for personalized e-business interactions. Key elements of our strategy include:
. expand our market presence;
. extend our technology and product leadership;
. target leading customers and independent software vendors;
. increase our professional services capabilities; and
. expand strategic alliances with key business partners.
We maintain operations worldwide to sell and support our products through a
direct sales force and third-party system integrators. We have sold our
products to customers in the technology, financial, insurance,
4
<PAGE>
manufacturing, telecommunications, and healthcare industries and our software
is embedded in many leading e-business software applications. Our customers
include American International Group, Fidelity Investments, Ford Motor Company,
GEICO, PlanetRx.com, Prudential Insurance, and Sun Microsystems. Software
vendors that embed Blaze Advisor in their e-business applications include
Active Software, Blue Martini Software, Chordiant Software and IMA.
Corporate Information
We were incorporated in California as Neuron Data, Inc. in 1985. In August
1999, we changed our name to Blaze Software, Inc. We intend to reincorporate in
Delaware prior to the completion of this offering. Our headquarters are
currently located at 1310 Villa Street, Mountain View, California 94041 and our
telephone number at that location is (650) 528-3450. Our Web site is
www.blazesoft.com. Our Web site is not part of this prospectus.
The Offering
<TABLE>
<C> <S>
Common stock offered by Blaze Software............. shares
Common stock to be outstanding after the offering.. shares
Use of proceeds.................................... For general corporate
purposes, including
working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............. BLZE
</TABLE>
The number of shares of common stock to be outstanding after the offering
is based on the number of shares outstanding as of December 31, 1999. This
number excludes:
. 8,477,057 shares issuable upon the exercise of outstanding common stock
options at a weighted average exercise price of $0.32 per share;
. 12,009 shares issuable upon the exercise of outstanding common stock
warrants at a weighted average exercise price of $2.80 per share; and
. 2,295,380 shares available for future issuance under our 1996 stock
plan and 500,000 shares available for future issuance under our 2000
stock plan.
5
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
The as adjusted consolidated balance sheet data summarized below reflects
the conversion of all our preferred stock into shares of common stock upon the
completion of this offering and the application of the net proceeds from the
sale of the shares of common stock offered by Blaze Software at an
assumed initial public offering price of $ per share after deducting the
estimated underwriting discounts and commissions and offering expenses. See
note 2 of the notes to our consolidated financial statements for an explanation
of the determination of the number of shares used in computing per share data.
<TABLE>
<CAPTION>
Six Months
Ended
Year ended March 31, September 30,
----------------------- --------------
1997 1998 1999 1998 1999
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(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues:
Product licenses.................... $3,296 $ 3,559 $3,722 $1,595 $3,103
Services and maintenance............ 327 803 5,332 2,334 4,017
Total revenues........................ 3,623 4,362 9,054 3,929 7,120
Gross profit.......................... 2,980 3,776 6,122 2,693 4,421
Operating loss........................ (1,689) (2,970) (5,512) (3,355) (9,673)
Net loss from continuing operations... (2,723) (3,631) (5,848) (3,408) (9,899)
Basic and diluted net loss per common
share from continuing operations
attributable to common
stockholders........................ $(1.78) $(14.74) $(9.16) $(5.87) $(1.23)
Number of shares used in calculation
of basic and diluted net loss per
share............................... 1,840 317 776 699 8,435
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
---------------------
Actual As Adjusted
-------- -----------
(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................. $ 3,339
Working capital (deficit)................................. (1,733)
Total assets.............................................. 8,621
Capital lease obligations, net of current portion......... 206
Accumulated deficit....................................... (31,230)
Total stockholders' equity (deficit)...................... (828)
</TABLE>
6
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RISK FACTORS
Any investment in shares of our common stock involves a high degree of
risk. You should consider carefully the following information about these
risks, together with the other information contained in this prospectus, before
you decide to buy our common stock. If we are adversely affected by any of the
following risks, our business, results of operations and financial condition
would likely suffer. In these circumstances, the market price of our common
stock could decline, and you may lose all or part of the money you paid to buy
our common stock.
We have a history of losses, we expect losses in the future and we may never
become profitable.
We incurred net losses of $8.6 million in the six months ended September
30, 1999, $5.6 million in fiscal 1999 and $5.8 million in fiscal 1998. We had
an accumulated deficit of $31.2 million as of September 30, 1999. We expect to
continue to incur losses in the foreseeable future. These losses may be
substantial, and we may never become profitable. In addition, in December 1999,
we issued 3,905,464 shares of Series BB preferred stock at $3.57 per share.
This will result in a beneficial conversion feature, which will be immediately
charged to accumulated deficit, of approximately $8.2 million. We also expect
to significantly increase our expenses, especially in sales and marketing and
research and development. As a result, our operating results will be harmed if
our revenues do not keep pace with the expected increase in our expenses or are
not sufficient for us to achieve profitability. If we do achieve profitability
in any period, we cannot be certain that we will sustain or increase
profitability on a quarterly or annual basis.
Variations in quarterly operating results due to such factors as changes in
demand for our products and services and changes in our mix of revenues may
cause our stock price to decline.
Our quarterly revenues, expenses and operating results have varied in the
past and may vary significantly from quarter-to-quarter in the future. We
therefore believe that quarter-to-quarter comparisons of our operating results
may not be a good indication of our future performance, and you should not rely
on them to predict our future performance or the future performance of our
stock price. Our short-term expense levels are relatively fixed and are based
on our expectations of future revenues. As a result, a reduction in revenues in
a quarter may harm our operating results for that quarter. If our operating
results in future quarters fall below the expectations of market analysts and
investors, the price of our common stock will fall. Factors that may cause our
operating results to fluctuate on a quarterly basis include:
. varying size, timing and contractual terms of orders for our products;
. our ability to complete our implementation and service obligations
related to product sales in a timely manner;
. changes in the mix of revenues attributable to higher-margin product
license revenues as opposed to substantially lower-margin consulting
services revenues;
. customers' decisions to defer orders or implementations, particularly
large orders or implementations, from one quarter to the next;
. changes in demand for our Blaze Advisor Solutions Suite software or
for personalization software solutions generally;
. loss of significant customers;
. announcements or introductions of new products by our competitors;
. software defects and other product quality problems; and
. seasonal trends in sales of business software.
Our products have a long sales cycle that makes it difficult to plan our
expenses and forecast our results.
It typically takes us between two and six months to complete the majority
of our sales, but it can take us up to one year or longer. It is therefore
difficult to predict the quarter in which a particular sale will occur and
7
<PAGE>
to plan our expenditures accordingly. The period between our initial contact
with a potential customer and their purchase of our products and services is
relatively long due to several factors, including:
. the complex nature of our products;
. our need to educate potential customers about the uses and benefits of
our products;
. the purchase of our products requires a significant investment of
resources by a customer;
. our customers have budget cycles which affect the timing of purchases;
. many of our customers require competitive evaluation and internal
approval before purchasing our products;
. potential customers may delay purchases due to announcements or
planned introductions of new products by us or our competitors; and
. many of our customers are large organizations that may require a long
time to make decisions.
The delay or failure to complete sales in a particular quarter could reduce
our revenues in that quarter, as well as subsequent quarters over which
revenues for the sale would likely be recognized. If our sales cycle
unexpectedly lengthens in general or for one or more large orders, it would
adversely affect the timing of our revenues. If we were to experience a delay
of several weeks on a large order, it could harm our ability to meet our
forecasts for a given quarter.
We depend significantly on sales of the Blaze Advisor Solutions Suite, and a
decrease in sales would harm our business.
We currently derive all of our revenues from licenses of the Blaze Advisor
Solutions Suite and Blaze Expert and related consulting and maintenance
revenues. We anticipate that revenues related to the Blaze Advisor Solutions
Suite will continue to comprise a substantial portion of our revenues for the
foreseeable future. In addition, our dependence on revenues from the Blaze
Advisor Solutions Suite will increase because we are decreasing our emphasis on
selling Blaze Expert and have discontinued operations associated with Blaze
Presenter. Consequently, a decline in the price of the Blaze Advisor Solutions
Suite, or its failure to achieve broad market acceptance, would harm our
business.
If we fail to expand our direct sales capabilities, we may not be able to
increase revenues.
In order to grow our business, we need to increase market awareness and
sales of our products and services. To achieve this goal, we need to increase
our direct sales capabilities. If we fail to do so, this failure could harm our
ability to increase revenues. We currently receive substantially all of our
revenues from direct sales. Our products and services require a sophisticated
sales effort targeted at senior management and information technology managers
of our prospective customers. We have recently expanded our direct sales force
and plan to hire additional sales personnel, including salespersons, sales
engineers and sales management personnel. As of December 31, 1999, our direct
sales organization in North America consisted of 22 employees. Competition for
qualified sales personnel is intense, and we may not be able to hire the kind
and number of sales personnel we are targeting. New hires may require extensive
training and typically take several months to achieve productivity. We cannot
be certain that our recent hires will be as productive as necessary.
New product introductions and pricing strategies by our competitors could
adversely affect our ability to sell our products and could reduce our market
share or result in pressure to price our products in a manner that reduces our
margins.
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. Competition could seriously harm our
ability to sell additional software, maintenance renewals, and services on
terms favorable to
8
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us. Competitive pressures could reduce our market share or require us to reduce
the price of products and services, any of which could harm our business.
Competitors could offer new products with features or functionality that are
equal to or better than our products. We may not have sufficient engineering
staff, competitive awareness, management initiative, equipment, or time to
modify our products to match our competitors. In this case, we could lose
existing customers or new customers to competitors.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing, or other resources, or greater name
recognition than we do. As a result, our competitors may be able to respond
more quickly to new or emerging opportunities, technologies and changes in
customer requirements or devote greater resources to the development, promotion
and sale of their products than we can. Current and potential competitors may
have more extensive customer bases that could be leveraged, thereby gaining
market share to our detriment. Such competitors may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies, and
offer more attractive terms to purchasers than the Company. Moreover, certain
of our indirect and potential competitors, such as BroadVision, IBM, Oracle and
SAP, may bundle their products in a manner that may discourage users from
purchasing products offered by us. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to enhance their products. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.
Customers may prefer more specific solutions to narrowly-bounded business
needs. If application needs are initially small or well-defined, a competitor
may offer a product that addresses those needs in a more efficient or time-
effective manner than we can provide. The cross-industry breadth of our
customer base may cause product enhancements to be added in many different
areas that fail to achieve solution dominance for any one industry or market
segment.
Some businesses may have already made a substantial investment in other
third party or internally developed software designed to personalize customer
interactions. These companies may be reluctant to abandon these investments in
favor of our software. In addition, information technology departments of
potential customers may resist purchasing our software solutions for a variety
of other reasons, particularly the potential displacement of their historical
role in creating and running software for their enterprises.
We are dependent on and plan to increase the size of our professional services
organization and if we are unsuccessful, our business would be harmed.
Customers that license our software typically engage our professional
services organization to assist with support, training, consulting and
implementation. We believe that growth in sales of the Blaze Advisor Solutions
Suite depends on our ability to provide our clients with these services. If our
internal professional services organization does not effectively implement and
support our products or if we are unable to expand our internal professional
services organization as needed to meet our customers' needs, our ability to
sell software will be harmed, affecting our revenues. We rely on customer
satisfaction for customer referrals and additional sales to customers, which
depends in part on the quality and timeliness of services provided by our
professional services organization. We plan to add more customer support
personnel in order to address current customer support needs. If we are not
successful in hiring such personnel, our business would be harmed. As of
December 31, 1999, our professional services organization in North America
consisted of 22 employees. We are in a new and evolving market and there are a
limited number of people who have the skills needed to provide the services
that our customers demand. Competition for qualified service personnel is
intense. We cannot be certain that we can attract or retain a sufficient number
of qualified service personnel for our business needs.
9
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If the market in which we sell our products and services does not grow as we
anticipate, our revenues will be reduced.
If the market for personalization software does not grow as quickly or
become as large as we anticipate, our revenues will be reduced. Our market is
still emerging, and our success depends on its growth. Our potential customers
may:
. not understand or see the benefits of using these products;
. not achieve favorable results using these products;
. experience technical difficulty in implementing or using these
products; or
. use alternative methods to solve the same business problems.
In addition, because our products can be used in connection with Internet
commerce and we are currently developing additional Internet commerce
solutions, if the Internet commerce market does not grow as quickly as we
anticipate, we may experience sales that are lower than our expectations.
If we fail to develop new products or improve our existing products to meet or
adapt to the changing needs and standards of our industry, sales of our
products may decline.
Our future success depends on our ability to address the rapidly changing
needs of our customers and potential customers. We must maintain and improve
our Blaze Advisor Solutions Suite and develop new products that include new
technological developments, keep pace with products of our competitors and
satisfy the changing requirements of our customers. If more end users access
the Internet or other electronic contact channels, our software may not provide
adequate response to meet our customers' transaction load requirements. Our
ability to deliver performance improvements could be adversely affected by
insufficient engineering resources, insufficient understanding of technology
platforms, lack of performance by required underlying technologies such as Java
or middleware, or other commitments taking priority. If we are unsuccessful in
improving our products and developing new products, we may not achieve market
acceptance and we may be unable to attract new customers. We may also lose
existing customers, to whom we seek to sell additional software solutions and
professional services.
We may commit to improvements and enhancements in products based on
requests and requirements from significant customers. These could consume
engineering staff, resources, and management and planning that would otherwise
be devoted to more generally marketable product work. This could reduce
satisfaction and renewals from existing customers and could reduce market
opportunities for new product sales.
To achieve increased market acceptance of our products, we must, among
other things:
. improve and introduce new software solutions for e-business
personalization;
. introduce our Blaze Advisor Innovator product in a timely manner;
. introduce additional product features to our Blaze Advisor Solutions
Suite;
. enhance our software's ease of use;
. improve our software's performance; and
. adapt to rapidly changing computer operating system and database
standards and Internet technology.
We may not be successful in developing and marketing these or other new or
improved products. If we are not successful, we may lose sales to competitors.
10
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We have grown very quickly and if we fail to manage our growth, our ability to
generate new revenues and achieve profitability would be harmed.
We have grown significantly since our inception and need to grow quickly in
the future. This growth has placed and will continue to place a strain on our
management, administrative, operational and financial infrastructure. Any
failure to manage this growth could impede our ability to increase revenues and
achieve profitability. The number of our employees has increased from 94 at
June 30, 1999 to 128 at December 31, 1999. Future expansion could be expensive
and strain our management and other resources. In order to manage our growth
effectively, we must:
. hire, train and integrate new personnel;
. augment our financial and accounting systems; and
. manage our sales operations, which are in several locations.
We expect to relocate our corporate headquarters in February 2000. Our
employees may be distracted by this relocation and productivity may suffer
during this transition. Some employees may be less productive or quit due to
longer commutes. If we are unable to manage growth effectively, our business
may be harmed.
The loss of key personnel or any inability to attract and retain additional
personnel could affect our ability to successfully grow our business.
Our future success will depend in large part on our ability to hire and
retain a sufficient number of qualified personnel, particularly in sales,
customer services, marketing, research and development, and support. If we are
unable to do so, this inability could affect our ability to grow our business.
Competition for qualified personnel in high technology is intense, particularly
in the Silicon Valley region of Northern California where our principal offices
are located. Our future success also depends upon the continued service of our
executive officers and other key sales, engineering and technical staff. The
loss of the services of our executive officers and other key personnel would
harm our operations. We do not maintain key person insurance on any of our
employees. We would also be harmed if one or more of our executive officers or
key employees decided to join a competitor or otherwise compete with us.
If our products contain defects or our services are not perceived as high
quality, we could lose potential customers or be subject to damages.
Our products are complex and may contain errors, defects or failures,
particularly since new releases are regularly introduced. In the past we have
discovered software errors in some of our products after introduction. We may
not be able to detect and correct errors before releasing our products
commercially. Computer viruses could cause our products to act erratically or
fail. If our commercial products contain errors, we may be required to:
. expend significant resources to locate and correct the error;
. delay introduction of new products or commercial shipment of products;
or
. experience reduced sales and harm to our reputation from dissatisfied
customers.
Our customers also may encounter system configuration problems that require us
to spend additional consulting or support resources to resolve these problems.
Our software is installed on operating systems and runtime software
platforms such as Java that must operate correctly in order for us to deliver
proper results. Bugs in Java, an operating system, or a third party software
package used by one of our customers could result in improper operation of our
products. In such cases, the customer perception could be that our software is
at fault. We could also find it difficult or
11
<PAGE>
impossible to track down the root cause of an error because of insufficient
access to or familiarity with the underlying software at fault. Even if the
error is properly identified as the fault and responsibility of a third party,
it could impact our customer's satisfaction with us or could influence them to
choose a different implementation strategy, resulting in lost revenues and
decreased customer goodwill.
Because our software products are used for customer interaction processes
by our customers, product defects may also give rise to product liability
claims. Customers may rely on our rule execution engine to process transactions
driving the response of their developed applications. Because customers are
free to write any combination of rules they wish, we cannot foresee or test all
possible rule execution scenarios. If our rule engine incorrectly executes
customer rules, incorrect output or application behavior may result. As Blaze
Advisor is used in more customer applications and with larger rule applications
from existing customers, the potential for a material error increases.
Customers could potentially seek restitution or damages from us in such cases.
Although our license agreements with customers typically contain provisions
designed to limit our exposure, some courts may not enforce all or part of
these limitations. Although we have not experienced any product liability
claims to date, we may encounter these claims in the future. Product liability
claims, whether or not successful, could:
. divert the attention of our management and key personnel from our
business;
. be expensive to defend; and
. result in large damage awards.
Our product liability insurance may not be adequate to cover all of the
expenses resulting from a claim. In addition, if our customers do not find our
services to be of high quality, they may elect to use other training,
consulting and product integration firms rather than contract for our services.
If customers are dissatisfied with our services, we may lose revenues.
Our international operations and our international sales efforts expose us to
risks.
Sales to customers outside the United States accounted for 14.2% of total
revenues in the six months ended September 30, 1999 and 23.4% of total revenues
in fiscal 1999. We have limited experience in marketing, selling and supporting
our products and services abroad. Furthermore, our management team has had
limited experience managing our international operations. We intend to expand
our international sales efforts in the future, but we may face difficulties
managing international operations. If we are unable to grow our international
operations successfully and in a timely manner, our business and operating
results could be seriously harmed. In addition, doing business internationally
involves greater expense and many additional risks, particularly:
. longer sales cycles and collection of accounts receivable;
. agreements with customers with terms and conditions that differ from
agreements that we enter into with customers in the United States;
. unexpected changes in regulatory requirements, taxes, trade laws and
tariffs;
. reduced protection for intellectual property rights in some countries;
. differing labor regulations;
. compliance with a wide variety of complex regulatory requirements;
. changes in a specific country's or region's political or economic
conditions;
. greater difficulty in staffing and managing foreign operations;
. increased financial accounting and reporting burdens and complexities;
and
. fluctuating exchange rates.
12
<PAGE>
Our international operations will require a significant amount of attention
from our management and substantial financial resources. We cannot be certain
that our investments in establishing facilities in other countries will produce
desired levels of revenues or profitability.
Our revenues depend on a small number of large orders from our top customers
and if we fail to complete one or more large orders, our revenues will be
reduced.
To date, we have received a significant portion of our total revenues from
a small number of large orders from our top customers. For example, Unisys
Corporation alone accounted for 28.2% of total revenues for the six months
ending September 30, 1999. Our operating results may be harmed if we are not
able to complete one or more substantial product sales in any future period or
attract new customers.
If we fail to establish, maintain or expand our strategic relationships with
third parties, our ability to grow revenues could be harmed.
In order to grow our business, we must generate, retain and strengthen
strategic relationships with third parties. To date, we have established
relationships with several companies, including consulting organizations and
system integrators that implement our software. If the third parties with which
we have strategic relationships do not provide sufficient, high-quality service
or integrate and support our software correctly, or if we are unable to enter
into successful new strategic relationships, our revenues may be harmed. In
addition, the third parties with which we have strategic relationships may
offer products of other companies, including products that compete with our
products. We typically enter into contracts with third parties that generally
set out the nature of our strategic relationships. However, our contracts do
not require these third parties to devote resources to promoting, selling and
supporting our products. Therefore we have little control over these third
parties. We cannot assure you that we can generate and maintain strategic
relationships that offset the significant time and effort that are necessary to
develop these relationships.
If Sun Java loses popularity, demand for our products will be reduced.
Our software is written in the Java computer programming language developed
by Sun Microsystems. While a number of companies have introduced Web and
server-side applications based on Java, Java could fall out of favor and fail
to be supported by Sun Microsystems or other companies. In particular,
Microsoft may offer substitute products or technologies. If support for Java
decreased or we could not continue to use Java or related Java technologies, we
could have to rewrite the source code for the Blaze Advisor Solutions Suite to
enable our products to run on other computer platforms. Also, changes to Java
could require us to change our products. If we were unable to develop or
implement appropriate modifications to our products on a timely basis, we could
lose revenue opportunities and our business could be harmed. If open-source
versions of Java become popular or if cross-platform standardization is lost,
we could be forced to write different versions of our products for different
hardware and software platforms, leading to increased expenses and time to
release products.
If others claim that we are infringing their intellectual property, we could
incur significant expenses or be prevented from selling our products.
We cannot assure you that others will not claim that we are infringing
their intellectual property rights or that we do not in fact infringe those
intellectual property rights. We have not conducted a search for existing
intellectual property registrations and we may be unaware of intellectual
property rights of others that may cover some of our technology.
Any litigation regarding intellectual property could be costly and time-
consuming and divert the attention of our management and key personnel from our
business operations. The complexity of the technology
13
<PAGE>
involved and the uncertainty of intellectual property litigation increase these
risks. Claims of intellectual property infringement might also require us to
enter into costly royalty or license agreements. However, we may not be able to
obtain royalty or licenses agreements on terms acceptable to us, or at all. We
also may be subject to significant damages or an injunction against use of our
products. A successful claim of patent or other intellectual property
infringement against us would have an immediate material adverse effect on our
business and financial condition.
If we are unable to protect our intellectual property rights, this inability
could weaken our competitive position, reduce our revenues and increase our
costs.
Our success depends in large part on our proprietary technology. We rely on
a combination of copyrights, trademarks, trade secrets, patents,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. We may be required to spend significant resources to
monitor and police our intellectual property rights. If we fail to successfully
enforce our intellectual property rights, our competitive position may be
harmed.
Our software uses license keys and we require contractual commitments from
end-users to prevent unauthorized use or copying of the products. In addition,
product pricing is typically based upon machine size used by the customer in
their application deployment. As applications become more complex or as more
users access the applications, our customers may need larger deployment
machines, resulting in additional license revenue opportunities. If our license
protection or contractual compliance is insufficient to prevent them from
copying our software or upgrading without payment, we could lose substantial
revenues. In addition, our software could be copied and resold without our
knowledge and the licensing algorithms could be deciphered or bypassed,
allowing copying, distribution, and use of our software without our knowledge
and without revenues to us.
Our patent, trademark or pending trademark registration applications may
not be allowed or competitors may successfully challenge the validity or scope
of these registrations. Other software providers could copy or otherwise obtain
and use our products or technology without authorization. They also could
develop similar technology independently which may infringe our proprietary
rights. We may not be able to detect infringement and may lose a competitive
position in the market before we do so. In addition, competitors may design
around our technology or develop competing technologies. The laws of some
foreign countries do not protect proprietary rights to the same extent as do
the laws of the United States.
Our products are not tightly integrated with currently popular software
programs and we may lose sales opportunities to competitors.
Our Blaze Advisor Solutions Suite must work with commercially available
software programs that are currently popular. Various information and data may
be stored in a variety of our customers' existing software systems, including
leading systems from Oracle, PeopleSoft, Siebel Systems and SAP, running on a
variety of computer operating systems. If we do not update our software to be
compatible with these programs, we may lose sales opportunities to competitors.
If we fail to obtain access to development versions of these software products,
we may be unable to build and enhance our products on schedule. If we fail to
enhance our software to interact with these products, we may lose potential
customers. If we lose customers, our revenues and profitability may be harmed.
If we need additional financing to maintain and expand our business, financing
may not be available on favorable terms, if at all.
We expect to incur net losses for the foreseeable future. Although we
currently anticipate that our available cash resources combined with the net
proceeds from this offering will be sufficient to meet our anticipated working
capital and capital expenditure requirements for at least the next 18 months,
we may need additional funds to expand or meet all of our operating needs. If
we need additional financing, we cannot be
14
<PAGE>
certain that it will be available on favorable terms, if at all. Further, if we
issue common stock after this offering, stockholders will experience additional
dilution. If we need funds and cannot raise them on acceptable terms, we may
not be able to develop or enhance our products, take advantage of future
opportunities, or respond to customers and competition.
If we acquire any companies or technologies in the future, they could prove
difficult to integrate, disrupt our business, dilute stockholder value and
adversely affect our operating results.
We may acquire or make investments in complementary companies, services and
technologies in the future. We have made one acquisition to date. Therefore,
our ability as an organization to conduct acquisitions or investments is
unproven. If we fail to properly evaluate and execute acquisitions and
investments and integrate new opportunities, our business and prospects may be
harmed. To successfully complete an acquisition, we must:
. properly evaluate the technology;
. accurately forecast the financial impact of the transaction, including
accounting charges and transactions expenses;
. integrate and retain personnel;
. combine potentially different corporate cultures; and
. effectively integrate products and research and development, sales,
marketing and support operations.
If we fail to do any of these, we may suffer losses or our management may
be distracted from our day-to-day operations. In addition, if we conduct
acquisitions using convertible debt or equity securities, existing stockholders
may be diluted which could affect the market price of our stock.
Because a small number of existing stockholders will together own % of our
stock, the voting power of other stockholders, including purchasers in this
offering, may be limited.
After this offering, it is anticipated that our officers, directors and
five percent or greater stockholders will beneficially own or control, directly
or indirectly, 27,912,788 shares of common stock, which in the aggregate will
represent approximately % of the outstanding shares of common stock. As a
result, if some of these 11 persons or entities act together, they will have
the ability to control all matters submitted to our stockholders for approval,
including the election and removal of directors and the approval of any
business combination. This may delay or prevent an acquisition or cause the
market price of our stock to decline. Some of these persons or entities may
have interests different than yours. For example, they may be more interested
in selling Blaze Software to an acquiror than other investors or may want us to
pursue strategies that are different from the wishes of other investors.
Future sales of our common stock, including those purchased in this offering,
may depress our stock price.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Shares issued upon the exercise of outstanding options may also be
sold in the public market. In addition, such sales could create the perception
to the public of difficulties or problems with our products and services. As a
result, these sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.
Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options after December 31,
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<PAGE>
1999. Of these shares, shares will be freely tradable upon the closing of
this offering, including the shares sold in this offering. The remaining
shares will become eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of
Date of Availability for Sale Shares
----------------------------- ---------
<S> <C>
181 days after the date of this prospectus......................
At September 28, 2000........................................... 562,752
At December 31, 2000............................................ 3,905,464
---------
Total.............................................................
=========
</TABLE>
The above table includes the effect of lock-up arrangements with the
underwriters and us which prevent our directors, officers and certain other
existing stockholders from selling or otherwise disposing of their shares of
common stock prior to 181 days after this offering. The underwriters may remove
these lock-up restrictions prior to 181 days after this offering without prior
notice. In addition, as of December 31, 1999, we have granted outstanding
options to purchase 8,477,057 shares with a weighted average exercise price of
$0.32 per share. Of these options, 4,804,962 are vested and 8,477,057 are
exercisable, subject to repurchase rights in favor of us with respect to
unvested shares, as of December 31, 1999 and will be resellable 181 days after
the offering. As of December 31, 1999, there are also outstanding warrants to
purchase 12,009 shares of our common stock with a weighted average exercise
price of $2.80 per share.
We have broad discretion to use the offering proceeds and how we invest these
proceeds may not yield a favorable, or any, return for us and you may lose the
entire amount of your investment.
The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Thus, our management has
broad discretion over how these proceeds are used and could spend the proceeds
in ways with which you may not agree. We cannot assure you that the proceeds
will be invested in a way that yields a favorable, or any, return for us.
Because this is our initial public offering our securities have no prior market
and we cannot assure you that our stock price will not decline after the
offering.
Before this initial public offering of our stock, there has not been a
public market for our common stock and an active public market for our common
stock may not develop or be sustained after this offering. Further, the price
of our common stock may decline below our initial public offering price. The
initial public offering price was determined by negotiations between the
representatives of the underwriters and us. This price may not directly relate
to our book value, assets, past operating results, financial condition or other
established criteria of value.
As a new investor you will experience immediate and substantial dilution.
If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution of $ per share in pro forma
net tangible book value based on our book value as of December 31, 1999. If the
holders of outstanding options or warrants exercise their options or warrants,
you will experience further dilution of $ per share.
Provisions in our charter documents and Delaware law may delay or prevent an
acquisition of our company.
Our certificate of incorporation and bylaws that will be effective upon the
closing of this offering contain provisions that could make it harder for a
third party to acquire us without the consent of our board of directors. For
example, if a potential acquiror were to make a hostile bid for us, the
acquiror would not be able to call a
16
<PAGE>
special meeting of stockholders to remove our board of directors or act by
written consent without a meeting. In addition, our board of directors has
staggered terms, which makes it difficult to remove them all at once. The
acquiror would also be required to provide advance notice of its proposal to
remove directors at an annual meeting. The acquiror also will not be able to
cumulate votes at a meeting, which will require the acquiror to hold more
shares to gain representation on the board of directors than if cumulative
voting were permitted.
Our board of directors also has the ability to issue preferred stock that
would significantly dilute the ownership of a hostile acquiror. In addition,
Section 203 of the Delaware General Corporation Law limits business combination
transactions with 15% stockholders that have not been approved by the board of
directors. These provisions and other similar provisions make it more difficult
for a third party to acquire us without negotiation. These provisions may apply
even if the offer may be considered beneficial by some stockholders.
Our board of directors could choose not to negotiate with an acquiror that
it did not feel was in the strategic interests of Blaze Software. If the
acquiror was discouraged from offering to acquire us or prevented from
successfully completing a hostile acquisition by the antitakeover measures, you
could lose the opportunity to sell your shares at a favorable price.
We may encounter computer problems or a natural disaster at our headquarters,
which could cause us to lose revenues and customers.
Viruses or bugs introduced into our research and development, quality
assurance, production and shipping, customer support or financial and
administrative software systems could cause us to lose data, expose us to time
and expense in identifying and resolving the problem or delay product
shipments. Furthermore, our headquarters are located in a single location in
Mountain View, California. We could be particularly vulnerable in a natural
disaster, such as an earthquake. Any of these events could cause us to lose
customers or goodwill, which would decrease our revenues.
If customers delay installations or purchases of our products to avoid having
to perform additional tests on their existing systems related to year 2000
compliance, our revenues will be reduced in the near term.
Many currently installed computer systems and software applications were
written to accept and process only two digits to represent the year when
storing dates. Beginning with the year 2000, these systems need to accept four
digit entries to distinguish 21st century dates from 20th century dates. As a
result, computer systems and/or software products used by many companies may
need to be upgraded to solve this problem to avoid incorrect or lost data. In
1999, a significant number of companies, including some of our current
customers, devoted a substantial amount of their information technology
resources to testing systems for year 2000 compliance and fixing existing year
2000 problems. Some companies may delay installation of new systems to avoid
having to perform additional year 2000 tests on their existing systems. If
these customers also defer purchases of our products until their year 2000
problems have been tested or resolved, it will reduce our sales in the near
term.
Potential year 2000 problems with our internal systems, our software products
or the products with which our software integrates could adversely affect our
business.
Although we have not experienced any year 2000 problems and have not been
informed of any material year 2000 problems by our customers and vendors, we
cannot assure you that we will not experience unanticipated negative
consequences relating to problems of computer systems in processing dates after
January 1, 2000. These negative consequences include costs associated with:
. problems with our products;
. problems of the interaction of our products with other software; and
. loss of data in our internal systems.
17
<PAGE>
If tests of our products and inquiries of our customers and vendors did not
uncover all year 2000 problems, we could be exposed to damages resulting from
year 2000 failures and claims resulting from damages caused by any incorrect
data produced by our software, whether through a claim of breach of warranty,
product defect or otherwise.
If our professional services organization does not adequately address
existing year 2000 issues of our customers, or there are preexisting errors in
our customer databases, the usefulness of our software may be impaired.
Although we cannot control the year 2000 compliance of our customers and their
third-party vendors, we may still be subject to claims and liability based on
the fact that our products provided incorrect data. These claims could divert
significant management, financial and other resources and we may not have
adequate commercial insurance to cover these claims.
We may not be able to resolve year 2000 problems that we discover before we
suffer losses. We cannot assure you that our products and systems will be year
2000 compliant or that we will not incur material expenses or liability
relating to the year 2000 problem.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS
BECAUSE THEY ARE INHERENTLY UNCERTAIN
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described above and elsewhere in this prospectus.
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<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock we are
offering are estimated to be $ million ($ million if the underwriters'
over-allotment option is exercised in full) assuming a public offering price of
$ per share and after deducting the estimated underwriting discount and
commissions and offering expenses.
We intend to use the proceeds for general corporate purposes, including
working capital, expansion in our sales and marketing, professional services,
and research and development organizations. We may also use some of the
proceeds to acquire other companies, technology or products that complement our
business, although we are not currently planning any of these transactions.
Pending these uses, the net proceeds of this offering will be invested in
short-term, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. Covenants in our credit facility prohibit
the payment of cash dividends.
19
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1999:
.our actual capitalization;
. our pro forma capitalization to reflect the conversion of all
outstanding shares of preferred stock into 16,832,412 shares of common
stock; and
. our pro forma, as adjusted capitalization to reflect the proceeds from
the sale of shares of our common stock offered hereby at an
assumed public offering price of $ per share and after deducting
the estimated underwriting discounts and commissions and offering
expenses.
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except per
share data)
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, $0.0001 par value;
Authorized: 10,000 shares
Issued and outstanding: 16,832 actual,
none pro forma and pro forma, as
adjusted................................ $ 2 --
Common stock, $0.0001 par value;
Authorized: 200,000 shares
Issued and outstanding(1): 12,414
shares, actual, 29,246 shares pro forma
and shares pro forma, as adjusted... 1 3
Additional paid-in capital................ 44,944 44,944
Cumulative translation adjustment......... 465 465
Unearned stock-based compensation......... (15,010) (15,010)
Accumulated deficit....................... (31,230) (31,230)
-------- -------- ----
Total stockholders' equity
(deficit).......................... $ (828) $ (828)
======== ======== ====
Total capitalization................. $ (828) $ (828)
======== ======== ====
</TABLE>
- --------
(1) The number of shares of common stock outstanding at September 30, 1999
excludes:
. 8,969,656 shares issuable upon the exercise of outstanding options at
a weighted average exercise price of $0.12;
. 226,295 shares issuable upon the exercise of outstanding common stock
warrants at a weighted average exercise price of $2.80, 214,286 of
which expired on December 31, 1999; and
. 282,103 shares available for future issuance under our 1996 stock plan
and 500,000 shares available for future issuance under the 2000 stock
plan.
20
<PAGE>
DILUTION
Our pro forma net tangible book deficit as of September 30, 1999 was
approximately $3.3 million, or approximately $(0.11) per share of common stock.
Pro forma net tangible book value per share represents the amount of tangible
assets less total liabilities, divided by 29,246,288 shares of common stock
outstanding after giving effect to the conversion of all of our outstanding
preferred stock into common stock.
After giving effect to our sale of shares of common stock in
this offering at an assumed initial public offering price of $ per
share and after deduction of the estimated underwriting discounts and
commissions and offering expenses, our pro forma, as adjusted, net tangible
book value as of September 30, 1999 would have been approximately $
million, or $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders
and an immediate dilution of $ per share to purchasers of common
stock in this offering.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $
Pro forma net tangible book value per share before
offering............................................ $(0.11)
Increase in pro forma net tangible book value per
share attributable to new investors................. $
------
Pro forma, as adjusted net tangible book value per share
after offering........................................
---
Pro forma net tangible book value dilution per share to
new investors......................................... $
---
</TABLE>
The following table sets forth, on a pro forma basis as of September 30,
1999, the total consideration paid and the average price per share paid by the
existing stockholders and by new investors, before deducting estimated
underwriting discounts and commissions and offering expenses payable by us at
an assumed public offering price of $ per share.
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration Average
------------------ -------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 34,638,396 % $ % $
New investors...................
---------- ----- ---- -----
Total......................... 100.0% $ 100.0%
========== ===== ==== =====
</TABLE>
The foregoing computations exclude 925,759 shares of common stock reserved
for issuance under the 1996 stock plan as of September 30, 1999, of which
8,969,656 shares were subject to outstanding options and 226,295 shares
issuable upon the exercise of outstanding common stock warrants, 214,286 of
which expired on December 31, 1999. To the extent that any of those options or
warrants are exercised, our investors will suffer immediate dilution.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement
of operations data for the years ended March 31, 1997, 1998 and 1999 and the
balance sheet data as of March 31, 1998 and 1999 are derived from our
consolidated financial statements that are included elsewhere in this
prospectus. The statement of operations data for the years ended March 31, 1995
and 1996 and the balance sheet data as of March 31, 1995, 1996 and 1997 are
derived from our consolidated financial statements that are not included in
this prospectus. The consolidated statement of operations data for the six
month periods ended September 30, 1998 and 1999 and the consolidated balance
data as of September 30, 1999 are derived from our unaudited consolidated
financial statements that include, in the opinion of our management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. Historical results are
not necessarily indicative of results to be expected in any future period.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended March 31, September 30,
------------------------------------------- ----------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data
Net revenues:
Product licenses...... $ -- $ -- $ 3,296 $ 3,559 $ 3,722 $ 1,595 $ 3,103
Services and
maintenance......... -- -- 327 803 5,332 2,334 4,017
------- ------- ------- ------- ------- ------- -------
Total revenues..... -- -- 3,623 4,362 9,054 3,929 7,120
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Product licenses...... -- -- 180 74 40 36 46
Services and
maintenance......... -- -- 463 512 2,892 1,200 2,653
------- ------- ------- ------- ------- ------- -------
Total cost of
revenues......... -- -- 643 586 2,932 1,236 2,699
------- ------- ------- ------- ------- ------- -------
Gross profit............ -- -- 2,980 3,776 6,122 2,693 4,421
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development......... 906 1,138 1,370 1,938 3,843 2,072 2,343
Selling, general, and
administrative...... 4,279 3,538 3,299 4,808 7,791 3,976 5,312
Stock-based
compensation........ -- -- -- -- -- -- 6,439
------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 5,185 4,676 4,669 6,746 11,634 6,048 14,094
------- ------- ------- ------- ------- ------- -------
Operating loss.......... (5,185) (4,676) (1,689) (2,970) (5,512) (3,355) (9,673)
Interest expense, net... (197) (317) (434) (593) (249) (34) (152)
------- ------- ------- ------- ------- ------- -------
Net loss from continuing
operations before
income taxes.......... (5,382) (4,993) (2,123) (3,563) (5,761) (3,389) (9,825)
Provision for income
taxes................. (146) (755) (600) (68) (87) (19) (74)
------- ------- ------- ------- ------- ------- -------
Net loss from continuing
operations............ (5,528) (5,748) (2,723) (3,631) (5,848) (3,408) (9,899)
Income (loss) from
operations of
discontinued GUI
business, net of
income taxes.......... 5,864 2,316 (5,479) (2,174) 248 (68) 1,320
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... 336 (3,432) (8,202) (5,805) (5,600) (3,476) (8,579)
Accretion of mandatorily
redeemable preferred
stock to redemption
value................. -- -- (554) (1,040) (1,258) (693) (442)
------- ------- ------- ------- ------- ------- -------
Gain (loss) attributable
to common
stockholders.......... 336 (3,432) (8,756) (6,845) (6,858) (4,169) (9,021)
Other comprehensive
(loss) income, net of
tax:
Translation
adjustments......... 4 62 64 (20) 180 70 175
------- ------- ------- ------- ------- ------- -------
Comprehensive income
(loss)................ $ 340 $(3,370) $(8,692) $(6,865) $(6,678) $(4,099) $(8,846)
======= ======= ======= ======= ======= ======= =======
Basic loss per share
from continuing
operations............ $ (1.33) $ (1.28) $ (1.78) $(14.74) $ (9.16) $ (5.87) $ (1.23)
======= ======= ======= ======= ======= ======= =======
Diluted loss per share
from continuing
operations............ $ (1.27) $ (1.28) $ (1.78) $(14.74) $ (9.16) $ (5.87) $ (1.23)
======= ======= ======= ======= ======= ======= =======
Number of shares used in
calculation of basic
loss per share........ 4,156 4,493 1,840 317 776 699 8,435
======= ======= ======= ======= ======= ======= =======
Number of shares used in
calculation of diluted
loss per share........ 4,337 4,493 1,840 317 776 699 8,435
======= ======= ======= ======= ======= ======= =======
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
March 31,
--------------------------------------------- September 30,
1995 1996 1997 1998 1999 1999
------- ------- -------- -------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents........... $ 1,586 $ 1,117 $ 2,258 $ 6,591 $ 2,129 $ 3,339
Working capital
(deficit)............. 1,436 (1,519) (3,742) 628 (4,316) (1,733)
Total assets............ 13,673 12,642 10,615 13,854 7,765 8,621
Capital lease
obligations, net of
current portion....... 446 646 236 91 19 206
Accumulated deficit..... 388 (3,044) (11,800) (17,051) (22,651) (31,230)
Mandatory redeemable
preferred stock....... 3,275 3,275 9,684 19,624 20,882 --
Total stockholders'
equity (deficit)...... 3,939 692 (1,529) (17,563) (24,203) (828)
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the related notes included elsewhere in
this prospectus.
Overview
We are a leading provider of infrastructure software that enables companies
to provide customers, employees, partners and suppliers with adaptable and
personalized interactions that are consistent across all company communication
channels, or touchpoints. Our Blaze Advisor Solutions Suite allows companies to
implement their policies, practices and procedures, or business rules, in e-
business applications, enabling them to provide individualized interactions
across multiple touchpoints, including the Internet, automated telephone
response systems, call centers, electronic kiosks and others. We also provide
consulting and professional services to help customers plan, develop and
implement e-business personalization solutions.
We were incorporated in California as Neuron Data, Inc. in 1985. We
introduced our first software product in December 1986, a rules-based expert
system development and execution tool known as Nexpert. We introduced Open
Interface in 1991 in response to customer requests for better user interfaces.
Almost all of our product license revenues until fiscal 1997 consisted of sales
of these two C-language products, which are now called Blaze Expert and Blaze
Presenter. In June 1997, we released a new Java-based product for the
development and execution of business rules, known as Blaze Advisor, which has
become the core of the Blaze Advisor Solutions Suite. Customer demand for C/C++
cross-platform user interface development software has substantially diminished
over the past two years as the use of Java and HTML has increased. Therefore,
we significantly decreased research and development activities related to our
graphical user interface, or GUI, line of business in 1998. In December 1999,
our board of directors decided to discontinue our entire GUI line of business,
which included Blaze Presenter. Operating results related to the GUI business
have been segregated from our continuing operations and reported separately as
discontinued operations. We expect that we will sell the GUI line of business
within the next 12 months. We have focused our engineering and marketing
efforts on the Blaze Advisor Solutions Suite, first released in October 1999,
which consists of Blaze Advisor Builder, Blaze Advisor Rule Engine, and Blaze
Advisor Rule Server. We are currently developing Blaze Advisor Innovator, which
we expect to release in the first half of 2000. We changed our company name to
Blaze Software, Inc. in August 1999.
We derive all of our revenues from the Blaze Advisor Solutions Suite and
Blaze Expert. We sell products to corporate customers and to system integrators
and distributors that install and provide support for our products. We also
license our products to independent software vendors that incorporate our
technology into their offerings. We sell products that comprise the Blaze
Advisor Solutions Suite in various configurations. Pricing of our products is
based on development and deployment rights. Blaze Advisor Builder is licensed
per developer. Blaze Advisor Rule Engine is priced by deployment based on the
total number of processors used to support the deployed application. Blaze
Advisor Rule Server is priced as a percentage of the negotiated deployment fee
for Blaze Advisor Rule Engine. Pricing for independent software vendors is
usually offered at a base price for use of our products plus a negotiated
royalty fee based on sales of the developed application.
Software licenses revenues consist of license fees and royalty payments. We
recognize software license revenues upon shipment of a product if collection of
the resulting receivable is probable, an executed agreement or purchase order
has been received, the fee is fixed or determinable and objective evidence of
fair value exists to allocate revenue to any undelivered elements of the
arrangement. If an acceptance period is provided, we recognize revenue upon the
earlier of customer acceptance or the expiration of that period. For sales made
through distributors, we recognize revenue upon shipment only when the
distributor has identified to us that a valid end-user for the product exists.
In those instances where a distributor has not identified a valid end-user for
the product, the revenue is deferred. Distributors have no right of return.
24
<PAGE>
Service and maintenance revenues consist primarily of professional
services, maintenance, support and training fees for the associated products.
We generally recognize revenues from maintenance contracts ratably over the
term of the contract. We recognize consulting and services revenues as the
training, implementation or consulting services are performed. If professional
or maintenance services are included in an arrangement that involves a license
agreement, amounts related to support or professional services are allocated
based upon objective evidence of fair value which is based on the price when
such elements are sold separately, or when not sold separately, the price
established by management having the relevant authority to do so.
We market our software and services primarily through our direct sales
organizations in the United States, Canada, France, Germany, Japan and the
United Kingdom, and to a lesser extent through distributors, system integrators
and independent software vendors. Our future success will depend, in part, on
the successful development of international markets for our products. In order
to increase sales, we need to expand our direct sales force by hiring
additional salespersons, sales engineers and sales management personnel and
establish and maintain relationships with distributors, system integrators,
independent software vendors and other third parties.
Our future success also depends on our continued investment in research and
development and the continued expansion of our sales, marketing and
professional services organization in order to build an infrastructure to
support our long-term growth strategy. As a result of this investment in our
infrastructure, we have incurred significant net losses in each fiscal year
since fiscal 1996. We incurred net losses of $9.9 million in the six months
ended September 30, 1999, $5.8 million in fiscal 1999 and $3.6 million in
fiscal 1998. We had an accumulated deficit of $31.2 million as of September 30,
1999. We expect to experience significant growth in our operating expenses for
the foreseeable future in order to grow our business. As a result, we
anticipate that operating expenses will constitute a significant use of our
cash resources and that we will continue to generate net losses for the
foreseeable future.
In the quarter ended September 30, 1999, we recorded a stock-based
compensation charge of $21.4 million in connection with the grant of stock
options to employees. We also expect to record an additional stock-based
compensation charge of $4.7 million in the quarter ended December 31, 1999 in
connection with options granted in the quarter. These charges are being
amortized over the vesting period of the options, which is generally four
years.
Of the total stock-based compensation, $6.4 million was amortized in the
quarter ended September 30, 1999. Based on options granted during the six month
period ending December 31, 1999, an additional approximately $2.9 million will
be amortized in the quarter ending December 31, 1999 and approximately $2.9
will be amortized in the quarter ending March 31, 1999. Approximately $8.8
million will be amortized in fiscal 2001 and approximately $3.6 million will be
amortized in fiscal 2002 relating to these options.
In December 1999, we raised $13.9 million in gross proceeds from the sale
of Series BB preferred stock. In the quarter ended December 31, 1999, we expect
to incur a one-time charge to accumulated deficit of approximately $8.2 million
as a result of the beneficial conversion feature of the preferred stock.
25
<PAGE>
Results of Operations
The following table presents certain financial data as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
Six Months
Year Ended March Ended Sept.
31, 30,
----------------------- --------------
1997 1998 1999 1998 1999
------ ------ ----- ----- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net Revenues:
Product licenses................. 91.0 % 81.6 % 41.1 % 40.6 % 43.6 %
Services and maintenance......... 9.0 18.4 58.9 59.4 56.4
------ ------ ----- ----- ------
Total revenues................ 100.0 100.0 100.0 100.0 100.0
------ ------ ----- ----- ------
Cost of revenues:
Product licenses................. 5.0 1.7 0.4 0.9 0.6
Services and maintenance......... 12.8 11.7 31.9 30.5 37.3
------ ------ ----- ----- ------
Total cost of revenues........ 17.8 13.4 32.3 31.4 37.9
------ ------ ----- ----- ------
Gross profit....................... 82.2 86.6 67.7 68.6 62.1
Operating expenses:
Research and development......... 37.8 44.4 42.4 52.7 32.9
Selling, general and
administrative................. 91.0 110.2 86.1 101.3 74.6
Stock-based compensation......... -- -- -- -- 90.5
------ ------ ----- ----- ------
Total operating expenses...... 128.8 154.6 128.5 154.0 198.0
------ ------ ----- ----- ------
Operating loss..................... (46.6) (68.0) (60.8) (85.4) (135.9)
Interest expense, net.............. (12.0) (13.6) (2.8) (0.9) (2.1)
------ ------ ----- ----- ------
Net loss from continuing operations
before income taxes.............. (58.6) (81.6) (63.6) (86.3) (138.0)
Provision for income taxes......... (16.6) (1.6) (1.0) (0.5) (1.0)
------ ------ ----- ----- ------
Net loss from continuing
operations....................... (75.2) (83.2) (64.6) (86.8) (139.0)
------ ------ ----- ----- ------
Income (loss) from discontinued GUI
business......................... (151.2) (49.8) 2.7 (1.7) 18.5
------ ------ ----- ----- ------
Net loss........................... (226.4)% (133.0)% (61.9)% (88.5)% (120.5)%
====== ====== ===== ===== ======
</TABLE>
Six Months Ended September 30, 1998 and 1999
Total Revenues
Total revenues increased $3.2 million, or 81.2%, to $7.1 million for the
six months ended September 30, 1999, from $3.9 million for the six months ended
September 30, 1998. This increase was primarily due to increased emphasis on
product development, sales and marketing efforts on the Blaze Advisor Solutions
Suite. Total revenues from sales to customers outside the United States were
$1.0 million, or 14.2% of total revenues for the six months ended September 30,
1999 and $911,000, or 23.2% of total revenues for the six months ended
September 30, 1998. Unisys Corporation accounted for 28.2% of total revenues
for the six months ended September 30, 1999 and 12.3% for the six months ended
September 30, 1998.
Product Licenses. Product licenses revenues increased $1.5 million, or
94.5%, to $3.1 million for the six months ended September 30, 1999, from $1.6
million for the six months ended September 30, 1998.
Services and Maintenance. Services and maintenance revenues increased $1.7
million, or 72.1%, to $4.0 million for the six months ended September 30, 1999,
from $2.3 million for the six months ended September 30, 1998.
26
<PAGE>
Cost of Revenues
Product Licenses. Cost of product licenses primarily consists of packaging,
documentation and associated shipping costs. Cost of product licenses increased
$10,000, or 27.8%, to $46,000 for the six months ended September 30, 1999, from
$36,000 for the six months ended September 30, 1998. As a percentage of product
licenses revenues, cost of product licenses were 1.5% for the six months ended
September 30, 1999, and 2.3% for the six months ended September 30, 1998.
Services and Maintenance. Cost of services and maintenance primarily
consists of personnel and other costs related to professional services,
training and technical support. Cost of services and maintenance increased $1.5
million, or 121.1%, to $2.7 million for the six months ended September 30, 1999
from $1.2 million for the six months ended September 30, 1998. As a percentage
of services and maintenance revenues, cost of services and maintenance were
66.0% for the six months ended September 30, 1999 and 51.4% for the six months
ended September 30, 1998. This increase in dollars and as a percentage of
services and maintenance revenues was primarily due to a shift in personnel
supporting the GUI business to our professional services organization in order
to meet customer requirements. Cost of services and maintenance as a percentage
of services and maintenance revenues may vary between periods due to our use of
third-party professional services, and varying gross margins on customer
engagements.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of salaries and benefits for software developers, project managers,
and quality assurance personnel, payments to outside software developers, and
general corporate overhead allocations for facilities and equipment used in the
research and development process. Research and development expenses increased
$271,000 or 13.1%, to $2.3 million for the six months ended September 30, 1999
from $2.1 million for the six months ended September 30, 1998. This increase
was primarily due to an increase in research and development for the Blaze
Advisor Solutions Suite and a shift in personnel from supporting the GUI
business to supporting Blaze Advisor. Research and development expenses
represented 32.9% of total revenues for the six months ended September 30, 1999
and 52.7% of total revenues for the six months ended September 30, 1998. We
believe that a significant increase in our research and development expenses
will be necessary to expand our market presence and to expand our technology
and product leadership. Therefore, we expect that research and development
expenses will increase in the future.
Selling, General and Administrative. Selling, general and administrative
expenses consist primarily of salaries, commissions and bonuses earned by
sales, marketing, finance, administrative, and general management personnel,
travel and entertainment expenses, marketing and promotion expenses, and
general corporate overhead expenses. Selling, general and administrative
expenses increased $1.3 million, or 33.6%, to $5.3 million for the six months
ended September 30, 1999 from $4.0 million for the six months ended
September 30, 1998. This increase was primarily due to increased sales and
marketing efforts for Blaze Advisor Solutions Suite and a shift in personnel
from supporting the GUI business to supporting Blaze Advisor and Blaze Expert.
Selling, general and administrative expenses represented 74.6% of total
revenues for the six months ended September 30, 1999 and 101.3% of total
revenues for the six months ended September 30, 1998. We believe that a
significant increase in our sales and marketing expenses will be necessary to
expand our market presence. We intend to expand our direct sales force by
hiring additional salespersons, sales engineers and sales management personnel.
Therefore, we expect that sales and marketing expenses will increase
significantly in the future. We believe that our general and administrative
expenses will continue to increase as a result of expenses associated with
being a public company, including annual and other public reporting costs,
increased directors and officers liability insurance, investor relations
programs and accounting and legal fees. Additionally, we will be relocating our
corporate headquarters in February 2000 and will be incurring additional rent
and related expenses.
27
<PAGE>
Net Interest Expense
Net interest expense consists primarily of interest expense incurred on our
line of credit, bridge loans and capital leases, offset by interest income
earned on our cash and cash equivalent balances. Net interest expense increased
$118,000, or 347.1%, to $152,000 for the six months ended September 30, 1999
from $34,000 for the six months ended September 30, 1998.
Provision for Income Taxes
Provision for income taxes consists primarily of foreign and de minimis
domestic taxes paid. Provision for income taxes increased $55,000, or 289.5%,
to $74,000 for the six months ended September 30, 1999, from $19,000 for the
six months ended September 30, 1998. No provision for federal and state income
taxes has been recorded because we have experienced significant net losses,
which have resulted in deferred tax assets. In light of our recent history of
operating losses, we have provided a full valuation allowance for all deferred
tax assets as we are presently unable to conclude that it is more likely than
not that the deferred tax asset will be realized.
Income (Loss) from Discontinued Operations, Net of Income Taxes
Loss from discontinued operations, net of income taxes decreased $1.4
million to income of $1.3 million for the six months ended September 30, 1999
from a loss of $68,000 for the six months ended September 30, 1998. This
decrease was primarily due to a significant decrease in costs associated with
the GUI business, partially offset by a decrease in revenues associated with
the GUI business.
Years Ended March 31, 1998 and 1999
Total Revenues
Total revenues increased $4.7 million, or 107.6%, to $9.1 million in fiscal
1999 from $4.4 million in fiscal 1998. This increase was primarily due to
increased requirements by a single customer for on-site professional services
and training and maintenance related to Blaze Expert. Total revenues from sales
to customers outside the United States were $2.1 million, or 23.4% of total net
revenues in fiscal 1999 and $871,000, or 20.0% of total revenues in fiscal
1998. Unisys Corporation accounted for 19.4% of total revenues for fiscal 1999.
No customer accounted for more than 10% of total revenues in fiscal 1998.
Product Licenses. Product licenses revenues increased $163,000, or 4.6%, to
$3.7 million in fiscal 1999 from $3.6 million in fiscal 1998.
Services and Maintenance. Services and maintenance revenues increased $4.5
million, or 564.0%, to $5.3 million in fiscal 1999 from $803,000 million in
fiscal 1998.
Cost of Revenues
Product Licenses. Cost of product licenses decreased $34,000, or 45.9%, to
$40,000 in fiscal 1999 from $74,000 in fiscal 1998. As a percentage of product
licenses revenues, cost of product licenses was 1.1% in fiscal 1999 and 2.1% in
fiscal 1998.
Services and Maintenance. Cost of services and maintenance increased $2.4
million, or 464.8%, to $2.9 million in fiscal 1999 from $512,000 in fiscal
1998. As a percentage of services and maintenance revenues, cost of services
and maintenance was 54.2% in fiscal 1999 and 63.8% in fiscal 1998. This
increase in cost of services and maintenance is consistent with the increase in
services and maintenance revenues. Cost of services and maintenance revenues as
a percentage of service and maintenance revenues may vary between periods due
to our use of third-party professional services, and varying gross margins on
customer engagements.
28
<PAGE>
Operating Expenses
Research and Development. Research and development expenses increased $1.9
million, or 98.3%, to $3.8 million in fiscal 1999 from $1.9 million in fiscal
1998. This increase was primarily due to research and development efforts for
the Blaze Advisor Solutions Suite and a shift of personnel from supporting the
GUI business to supporting Blaze Advisor. Research and development expenses
represented 42.4% of total net revenues in fiscal 1999 and 44.4% of total net
revenues in fiscal 1998.
Selling, General and Administrative. Selling, general and administrative
expenses increased $3.0 million, or 62.0%, to $7.8 million in fiscal 1999 from
$4.8 million in fiscal 1998. This increase was primarily due to sales and
marketing efforts for the Blaze Advisor Solutions Suite. Selling, general and
administrative expenses represented 86.1% of total net revenues in fiscal 1999
and 110.2% in fiscal 1998.
Net Interest Expense
Net interest expense decreased $344,000, or 58.0%, to $249,000 in fiscal
1999 from $593,000 in fiscal 1998.
Provision for Income Taxes
Provision for income taxes increased $19,000, or 27.9%, to $87,000 for
fiscal 1999 from $68,000 for fiscal 1998. No provision for federal and state
income taxes has been recorded because we have experienced significant net
losses, which have resulted in deferred tax assets. In light of our recent
history of operating losses, we have provided a full valuation allowance for
all deferred tax assets as we are presently unable to conclude that it is more
likely than not that the deferred tax asset will be realized.
Income (Loss) from Discontinued Operations, Net of Income Taxes
Loss from discontinued operations, net of income taxes decreased $2.4
million to income of $248,000 in fiscal 1999 from loss of $2.2 million in
fiscal 1998. This decrease was primarily due to a significant decrease in costs
associated with the GUI business, partially offset by a decrease in revenues
associated with the GUI business.
Years Ended March 31, 1997 and 1998
Total Revenues
Total revenues increased $739,000, or 20.4%, to $4.4 million in fiscal 1998
from $3.6 million in fiscal 1997. Total revenues from sales to customers
outside the United States were $871,000, or 20.0% of total revenues in fiscal
1998 and $1.4 million, or 39.5% of total revenues in fiscal 1997. No customer
accounted for more than 10% of total revenues in fiscal 1997 or fiscal 1998.
Product Licenses. Product licenses revenues increased $263,000, or 8.0%, to
$3.6 million in fiscal 1998 from $3.3 million in fiscal 1997.
Services and Maintenance. Services and maintenance revenues increased
$476,000, or 145.6%, to $803,000 in fiscal 1998 from $327,000 in fiscal 1997.
This increase was primarily due to increased sales of Blaze Expert.
Cost of Revenues
Product Licenses. Cost of product licenses decreased $106,000, or 58.9%, to
$74,000 in fiscal 1998 from $180,000 in fiscal 1997. As a percentage of product
licenses revenues, cost of product licenses were 2.1% in fiscal 1998 and 5.5%
in fiscal 1997. This decrease was primarily due to a decrease in personnel in
the production department.
29
<PAGE>
Services and Maintenance. Cost of services and maintenance increased
$49,000, or 10.6%, to $512,000 in fiscal 1998 from $463,000 in fiscal 1997. As
a percentage of services and maintenance revenues, cost of services and
maintenance was 63.8% in fiscal 1998 and 141.6% in fiscal 1997. This decrease
as a percentage of services and maintenance revenues was primarily due to
decreased reliance on third-party service providers and improved terms and
conditions on consulting and maintenance contracts.
Operating Expenses
Research and Development. Research and development expenses increased
$568,000, or 41.5%, to $1.9 million in fiscal 1998 from $1.4 million in fiscal
1997. Research and development expenses represented 44.4% of total revenues in
fiscal 1998 and 37.8% in fiscal 1997.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.5 million, or 45.7%, to $4.8 million in fiscal 1998 from
$3.3 million in fiscal 1997. Selling, general and administrative expenses
represented 110.2% of total revenues in fiscal 1998 and 91.0% in fiscal 1997.
This increase was primarily due to increased sales and marketing efforts for
Blaze Expert and Blaze Advisor.
Net Interest Expense
Net interest expense increased $159,000, or 36.6%, to $593,000 in fiscal
1998 from $434,000 in fiscal 1997.
Provision for Income Taxes
Provision for income taxes decreased $532,000, or 88.7%, to $68,000 in
fiscal 1998 from $600,000 in fiscal 1997. No provision for federal and state
income taxes has been recorded because we have experienced significant net
losses, which have resulted in deferred tax assets. In light of our recent
history of operating losses, we have provided a full valuation allowance for
all deferred tax assets as we are presently unable to conclude that it is more
likely than not that the deferred tax asset will be realized.
Income (Loss) from Discontinued Operations, Net of Income Taxes
Loss from discontinued operations, net of income taxes decreased $3.3
million, or 60.3%, to $2.2 million in fiscal 1998 from $5.5 million from fiscal
1997. This decrease was primarily due to a decrease in costs associated with
the GUI business, partially offset by a decrease in revenues associated with
the GUI business.
30
<PAGE>
Quarterly Results of Operations
The following table presents our unaudited quarterly results of operations
for each of the six quarters ended September 30, 1999. You should read the
following table in conjunction with our consolidated financial statements and
the notes related thereto. We have prepared this unaudited information on a
basis consistent with the audited consolidated financial statements. This table
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from our quarterly results of operations.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1998 1998 1998 1999 1999 1999
-------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues:
Product licenses...... $ 790 $ 805 $ 961 $ 1,166 $ 1,394 $ 1,709
Services and
maintenance......... 1,054 1,280 1,152 1,846 1,926 2,091
------- ------- ------- ------- ------- -------
Total revenues..... 1,844 2,085 2,113 3,012 3,320 3,800
------- ------- ------- ------- ------- -------
Cost of revenues:
Product licenses...... 26 10 3 1 10 36
Services and
maintenance......... 617 583 658 1,034 1,187 1,466
------- ------- ------- ------- ------- -------
Total cost of
revenues......... 643 593 661 1,035 1,197 1,502
------- ------- ------- ------- ------- -------
Gross profit............ 1,201 1,492 1,452 1,977 2,123 2,298
Operating expenses:
Research and
development......... 1,015 1,057 836 935 1,260 1,083
Selling, general and
administrative...... 2,176 1,800 1,853 1,962 2,532 2,780
Stock-based
compensation........ -- -- -- -- -- 6,439
------- ------- ------- ------- ------- -------
Total operating
expenses......... 3,191 2,857 2,689 2,897 3,792 10,302
------- ------- ------- ------- ------- -------
Operating loss.......... (1,990) (1,365) (1,237) (920) (1,669) (8,004)
Interest expense, net... (19) (15) (90) (125) (102) (50)
------- ------- ------- ------- ------- -------
Net loss from continuing
operations before
income taxes.......... (2,009) (1,380) (1,327) (1,045) (1,771) (8,054)
Provision for income
taxes................. (9) (10) (21) (47) (12) (62)
------- ------- ------- ------- ------- -------
Net loss from continuing
operations............ $(2,018) $(1,390) $(1,348) $(1,092) $(1,783) $(8,116)
======= ======= ======= ======= ======= =======
</TABLE>
31
<PAGE>
The following table sets forth unaudited quarterly results of operations as
a percentage of total revenues for each of the six quarters ended September 30,
1999.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1998 1998 1998 1999 1999 1999
-------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues:
Product licenses...... 42.8% 38.6% 45.5% 38.7% 42.0% 45.0%
Services and
maintenance......... 57.2 61.4 54.5 61.3 58.0 55.0
------ ----- ----- ----- ----- ------
Total revenues..... 100.0 100.0 100.0 100.0 100.0 100.0
------ ----- ----- ----- ----- ------
Cost of revenues:
Product licenses...... 1.4 0.5 0.1 0.1 0.3 1.0
Services and
maintenance......... 33.5 27.9 31.1 34.3 35.8 38.6
------ ----- ----- ----- ----- ------
Total cost of
revenues......... 34.9 28.4 31.2 34.4 36.1 39.5
------ ----- ----- ----- ----- ------
Gross profit............ 65.1 71.6 68.8 65.6 63.9 60.5
Operating expenses:
Research and
development......... 55.0 50.7 39.6 31.0 38.0 28.5
Selling, general and
administrative...... 118.0 86.3 87.7 65.2 76.2 73.2
Stock-based
compensation........ 0.0 0.0 0.0 0.0 0.0 169.4
------ ----- ----- ----- ----- ------
Total operating
expenses......... 173.0 137.0 127.3 96.2 114.2 271.1
------ ----- ----- ----- ----- ------
Operating loss.......... (107.9) (65.4) (58.5) (30.6) (50.3) (210.6)
Interest expense, net... (1.0) (0.7) (4.3) (4.1) (3.0) (1.3)
------ ----- ----- ----- ----- ------
Net loss from continuing
operations before
income taxes.......... (108.9) (66.1) (62.8) (34.7) (53.3) (211.9)
Provision for income
taxes................. 0.5 0.5 1.0 1.6 0.4 1.6
------ ----- ----- ----- ----- ------
Net loss from continuing
operations............ (109.4)% (66.6)% (63.8)% (36.3)% (53.7)% (213.5)%
====== ===== ===== ===== ===== ======
</TABLE>
Product revenues have increased each quarter since the quarter ended June
30, 1998. Since July 1998, we have focused our sales, marketing and research
and development resources on our rules products, especially the Blaze Advisor
Solutions Suite. Services and maintenance revenues have generally increased
each quarter since the quarter ended June 30, 1998, except for the quarter
ended December 31, 1998. Cost of services and maintenance have generally
increased each quarter since the quarter ended September 30, 1998. Cost of
services and maintenance as a percentage of service and maintenance revenues
may vary between periods due to our use of third-party professional services
and varying gross margins on customer engagements.
Research and development expenses decreased in the quarter ended December
31, 1998 from the previous quarter. This decrease was primarily due to a
decrease in research and development personnel in the quarter. Research and
development expenses also decreased in the quarter ended September 30, 1999
from the previous quarter. This decrease was primarily due to the completion of
a project involving third-party engineers and a decrease in research and
development personnel.
Selling, general and administrative decreased in the quarter ended
September 30, 1999 from the previous quarter. This decrease was primarily due
to cost-reduction measures initiated by the new management team.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of preferred stock, internally generated funds, and the use of our
receivables based line of credit with Coast Business Credit, a
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division of Southern Pacific Bank. As of September 30, 1999, we had $3.3
million of cash and cash equivalents. As of September 30, 1999, we had borrowed
$2.3 million under our credit facility with Coast Business Credit. Borrowings
under this facility bear interest at the prime rate plus 3% (11.25% as of
September 30, 1999).
Net cash used in operating activities was $2.3 million for the six months
ended September 30, 1999, $4.3 million in fiscal 1999, $5.0 million in fiscal
1998 and $3.9 million in fiscal 1997. Net cash used for operating activities
was primarily due to substantial net losses and changes in working capital
accounts.
Net cash used for investing activities was $40,000 for the six months ended
September 30, 1999, $779,000 in fiscal 1999, $140,000 in fiscal 1998 and
$451,000 in fiscal 1997. Cash used in investing activities included investments
in property and equipment, except fiscal 1997. In fiscal 1997, cash used in
investing activities included investments in property and equipment and the
acquisition of Microline Software, Inc.
Net cash provided by financing activities was $3.4 million for the six
months ended September 30, 1999, $448,000 in fiscal 1999, $9.6 million in
fiscal 1998 and $5.5 million in fiscal 1997. Cash provided by financing
activities during these periods was primarily due to proceeds from the issuance
of preferred and common stock, bridge loans with our existing investors and
borrowings under our line of credit facility.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the next 18
months. If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may need to raise additional funds to finance more
rapid expansion, to develop new or enhance existing services or products, to
respond to competitive pressures or to acquire complementary products,
businesses or technologies. If additional funds are raised through the issuance
of equity or convertible debt securities, the percentage ownership of our
stockholders will be reduced and such securities may have rights, preferences
or privileges senior to those of our stockholders. We cannot assure you that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our expansion, take advantage of unanticipated opportunities,
develop or enhance services or products or otherwise respond to competitive
pressures would be significantly limited. Our business, results of operations
and financial condition could be materially adversely affected by such
limitation.
Year 2000 Compliance
We have tested our Blaze Advisor Solutions Suite and our prior products and
believe that they are year 2000 compliant. We have also inquired of significant
vendors of our internal accounting, management and product development systems
as to their year 2000 readiness, and we have also tested our material internal
systems. We believe that, based on these tests and assurances of our vendors,
we will not incur material costs to resolve year 2000 issues for our products
and internal systems. Furthermore, we have not experienced any year 2000
problems and we have not been informed of any material year 2000 problems by
our customers and vendors.
We believe that we have identified all of the major information systems
used in connection with our internal operations and substantially completed all
modification, upgrades or replacements to minimize the possibility of material
disruption of our business from year 2000 problems. If it comes to our
attention that there are any year 2000 problems with our products or that some
of our third-party hardware and software used in our internal systems or our
products are not year 2000 compliant, then we will endeavor to make
modifications to our products and internal systems, or purchase new internal
systems, to quickly respond to the problem. Although we do not believe that the
cost of these modifications and replacements, if any, will materially affect
our operating results, we have no other contingency plan to address effects of
year 2000 problems with our products and internal systems. The cost already
incurred by us and our future cost related to year 2000 compliance is not
material.
33
<PAGE>
Qualitative and Quantitative Disclosures About Market Risk
Interest Rate Risk
Our exposure to interest rate risk is limited to the exposure related to
our cash and cash equivalents and credit facility, which is tied to market
interest rates. As of September 30, 1999, we had cash and cash equivalents of
$3.3 million, which consisted of cash and highly liquid short-term investments,
both domestically and internationally. We ensure the safety and preservation of
our invested principal funds by investing in high credit quality securities.
Our short-term investments will decline in value by an immaterial amount if
interest rates increase, and therefore would not have a material effect on our
financial condition or results of operations. As of September 30, 1999, we had
borrowed $2.3 million under our credit facility with Coast Business Credit.
Borrowings under this facility bear interest at the prime rate plus 3% (11.25%
as of September 30, 1999). An increase or decrease in the prime rate would
accordingly result in increased or decreased interest expense.
Foreign Currency Risk
We develop products in the United States and sell them in North America,
Asia and Europe. As a result, our financial results could be adversely affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. Since our sales in Europe and Asia are currently
denominated in foreign currencies and generally translated on a monthly basis
to U.S. dollars, we could be adversely affected by fluctuations in foreign
currency exchange rates.
European Monetary Union
Within Europe, the European Economic and Monetary Union introduced a new
currency, the euro, on January 1, 1999. The new currency is in response to the
European Union's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services.
On January 1, 1999, the participating countries adopted the euro as their
local currency, initially available for currency trading on currency exchanges
and non-cash transactions such as banking. The existing local currencies, or
legacy currencies, will remain legal tender through January 1, 2002. Beginning
on January 1, 2002, euro-denominated bills and coins will be issued for cash
transactions. For a period of up to six months from this date, both legacy
currencies and the euro will be legal tender. On or before July 1, 2002, the
participating countries will withdraw all legacy currencies and exclusively use
the euro.
Our transactions are recorded in both U.S. dollars and foreign currencies.
Future transactions may be recorded in the euro. We have not incurred and do
not expect to incur any significant costs from continued implementation of the
euro. However, the currency risk of the euro could harm our business.
Recently Issued Accounting Standards
For fiscal 1998 and prior years, we recognized revenues in accordance with
the American Institute of Certified Public Accountants Statement of Position
91-1. Commencing in fiscal 1999, we began recognizing revenues in accordance
with the American Institute of Certified Public Accountants Statement of
Position 97-2, Software Revenue Recognition, or SOP 97-2, as amended by
Statements of Position 98-4 and 98-9. Our adoption of these new standards has
not to date had any material effect on our revenue recognition. Further
implementation guidelines relating to these standards may result in
unanticipated changes in our revenue recognition practices, and these changes
could affect our future revenues and earnings.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, or SOP 98-1, which requires
companies to capitalize qualifying computer software costs, which are incurred
during the application
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<PAGE>
development stage, and amortize them over the software's estimated useful life.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998. We do
not expect that the adoption of SOP 98-1 will have a material impact on our
financial statements and related disclosures.
In December 1998, AcSec released Statement of Position 98-9, Modification
of SOP 97-2, "Software Revenue Recognition," with respect to Certain
Transactions, or SOP 98-9. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence, or VSOE, of the
fair values of all the undelivered elements that are not accounted for by means
of long-term contract accounting, (2) VSOE of fair value does not exist for one
or more of the delivered elements, and (3) all revenue recognition criteria of
SOP 97-2 (other than the requirements for VSOE of the fair value of each
delivered element) are satisfied. The provisions of SOP 98-9 that extend the
deferral of certain paragraphs of SOP 97-2 became effective December 15,1998.
These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15, 1999.
Retroactive application is prohibited. We do not expect that the adoption of
SOP 98-9 will have a material impact on our financial statements and related
disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities, or SOP 98-5, which requires companies to expense the costs of
start-up activities and organization costs as incurred. In general SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. We believe the
adoption of SOP 98-5 will not have a material impact on our results of
operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities, or SFAS
133, which establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives be
recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. SFAS 133 will be effective for fiscal years beginning
after June 15, 2000. We do not expect that the adoption of SFAS 133 will have a
material impact on our financial statements and related disclosures.
35
<PAGE>
BUSINESS
Overview
We are a leading provider of infrastructure software that enables companies
to provide their customers, employees, partners and suppliers with adaptable
and personalized interactions that are consistent across all company
communication channels, or touchpoints. Our Blaze Advisor Solutions Suite
allows companies to implement their policies, practices and procedures, or
business rules, in e-business applications that can be modified quickly and
easily by business persons. Our software enables companies to respond quickly
to dynamic market conditions, business practices, and user preferences. Blaze
Advisor allows e-business applications to provide individualized interactions
across multiple touchpoints, including the Internet, automated telephone
response systems, call centers, electronic kiosks and others. Blaze Advisor
enables e-business companies to consistently express their corporate
personality and style over multiple touchpoints and transactions. We also
provide consulting and professional services to help customers plan, develop
and implement e-business personalization solutions.
We maintain operations worldwide to sell and support our products through a
direct sales force and third-party system integrators. We have sold our
products to customers in the technology, financial, insurance, manufacturing,
telecommunications, and healthcare industries and our software is embedded in
many leading e-business software applications. Our customers include American
International Group, Fidelity Investments, Ford Motor Company, GEICO,
PlanetRx.com, Prudential Insurance and Sun Microsystems. Software vendors that
embed Blaze Advisor in their e-business applications include Active Software,
Blue Martini Software, Chordiant Software and IMA.
Industry Background
The Internet has emerged as a new and highly efficient medium for companies
to conduct commercial transactions. International Data Corporation estimates
that worldwide sales of goods and services over the Internet, known as "e-
commerce," will grow from $111 billion in 1999 to $1.3 trillion by 2003. Given
the current size and continued growth of e-commerce, many organizations are
implementing Internet-based and electronic business initiatives in order to
extend and automate traditional business processes and compete more
effectively. These initiatives, commonly referred to as "e-business," allow
companies to transact sales, manage customer service, and interact and
communicate with customers, employees, partners and suppliers using the
Internet and other electronic means. The rapid growth of the Internet has made
e-business an important and fast-growing business channel for many companies.
Companies have therefore begun to invest significantly in infrastructure
software to support their growing e-business initiatives. International Data
Corporation estimates that worldwide license revenues from Internet commerce
application software, which includes software for both business-to-business and
business-to-consumer applications, will grow from $1.7 billion in 1999 to $13.2
billion in 2003.
E-commerce is dramatically changing how companies conduct business. The
rapid growth of e-commerce has intensified competition among companies as
business customers and consumers now have access to more vendors as well as the
ability to change vendors easily. To remain competitive, companies are
implementing e-business initiatives to enable them to interact with their
customers, employees, partners and suppliers using both traditional and e-
business touchpoints, including the Internet.
The unique personality and style of every company are embodied in the
company's policies, practices and procedures, or business rules. These business
rules govern a company's interactions with its customers, employees, partners
and suppliers and ensure that these interactions are consistent across the
enterprise. Furthermore, the company's business rules embody the company's best
marketing practices and collective knowledge of customer characteristics and
preferences gained from customer interactions. By consistently applying these
business rules across all touchpoints and interactions, companies can use every
customer interaction as an opportunity to cross-sell complementary products; to
up-sell higher-end products; and to
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<PAGE>
increase revenues, customer satisfaction and loyalty. Companies that leverage
their understanding of their customers can satisfy and retain the most
profitable accounts by customizing products and services based on individual
preferences and characteristics. Companies can also use customer preference
information to better anticipate demands and optimize the processes for
fulfilling orders.
Many companies have established means of incorporating their business rules
into traditional operations and communications. Because interactions with
customers, employees, partners and suppliers using electronic touchpoints and
the Internet enable a large number of transactions to be completed
automatically and without human interaction, companies have found that the
traditional means of applying their business rules across the company are not
effective. Companies need a means of ensuring that their business rules are
consistently communicated and applied regardless of the contact point with the
customer, employee, partner or supplier in order to present a unified corporate
image, differentiate themselves from their competitors and maximize their
return from every customer interaction. Companies must also formalize their
business rules to ensure that they provide the same level of personal service
online as its customers receive in person. Finally, companies must be able to
provide this consistent level of service 24 hours a day, 7 days a week to
satisfy customers who are increasingly demanding automated services.
As the number of e-business interactions increases, companies seek methods
to convert more Web site visitors into customers, to improve customer retention
and to effectively take customers through complex selling processes using
automated channels. Furthermore, as companies interact with customers,
employees, partners and suppliers through multiple touchpoints, they will gain
valuable experiences and information from these interactions. Companies need a
means of ensuring that such institutional knowledge gained from interactions
across all touchpoints, including the Internet, will be absorbed and
communicated company-wide so that the entire enterprise can apply such
knowledge to future interactions. Finally, as companies modify their business
rules in response to changing market conditions, they must be able to rapidly
incorporate these changes and ensure that they are applied across all
touchpoints.
While companies have recognized the need to accomplish these objectives,
the solutions available have had various limitations. The most basic attempts
to personalize customer experiences consist of storing a user's name and
profile between visits to a Web site. Another attempt, known as collaborative
filtering, systematically treats customers as members of broad, pre-defined
categories without providing individualized customer experiences. Packaged e-
commerce applications require extensive computer programming to evolve beyond
simple templates and cannot be adjusted easily in response to changing market
conditions. Moreover, approaches to personalization that are exclusively Web-
based are limited because they cannot be applied over all of a company's
various touchpoints, such as automated telephone response systems, call centers
and electronic kiosks.
Companies increasingly need software solutions to help them capitalize on
their interactions with customers, employees, partners and suppliers, maintain
their corporate personality and style and distinguish themselves from their
competitors while conducting an increasing number of transactions over a wide
variety of touchpoints.
The Blaze Solution
We are a leading provider of infrastructure software that enables companies
to provide their customers, employees, partners and suppliers with adaptable
and personalized interactions that are consistent across all company
touchpoints. Our Blaze Advisor Solutions Suite allows companies to implement
their policies, practices and procedures, or business rules, in e-business
applications, enabling them to provide individualized interactions that are
designed to promote greater customer conversion and retention, decreased costs
and increased sales. By using a company's own business rules as its foundation,
Blaze Advisor also enables a company to express its corporate personality and
style consistently through each interaction and across all of a company's
touchpoints, including the Internet and other e-business channels. Finally,
Blaze Advisor allows business persons to modify business rules quickly and
easily. This ease of modification allows companies to
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<PAGE>
respond quickly to dynamic market conditions, business practices and user
preferences. We also provide consulting and professional services to help
customers plan, develop and implement e-business personalization solutions.
Key benefits of our solution include:
. True One-to-One Interaction. Blaze Advisor allows companies to provide
the individualized responses necessary to maximize benefits from
customer interactions and to better attract and retain customers. One-
to-one interaction is accomplished through rich interactive dialogues,
individually targeted recommendations, responses designed to meet
customer goals and needs and preference- driven cross-selling and up-
selling.
. Adaptability. Blaze Advisor allows companies to quickly change
business rules while an e-business application is running, enabling
companies to respond to market conditions while providing continuous
service. Business persons without complex computer programming skills
can modify an e-business application's underlying business rules
without involvement by information technology professionals or
alterations to the application.
. Company Differentiation. Blaze Advisor's flexibility allows companies
to express their corporate styles, practices, and personalities by
incorporating their business rules in e-business applications. In this
way, a company's identity can be communicated to customers through Web
sites, automated telephone response systems, call centers, electronic
kiosks, and other communication channels, allowing companies to
differentiate themselves from their competitors.
. Enterprise Consistency. Blaze Advisor allows companies to consistently
present their corporate personality and style and apply their business
rules from transaction to transaction. A single set of business rules
can be accessed through Web sites, call centers, voice-response
systems, sales persons, and other customer contact points to provide
consistent customer interaction across an organization.
. High Performance and Scalability. Blaze Advisor is designed to
efficiently process increasingly complex and numerous business rules
in support of expanding e-business applications. Blaze Advisor can be
deployed on sophisticated computer architectures to provide high
throughput with heavy transaction volumes.
. Faster Time to Market. Blaze Advisor allows companies to implement
rules-based personalization systems quickly. We also enable software
vendors to incorporate our personalization technology in their e-
commerce application software without investing significant time and
expense developing their own solutions.
Blaze Strategy
Our objective is to become the leading provider of infrastructure software
that enables companies to provide their customers, employees, partners and
suppliers with adaptable and personalized interactions that are consistent
across all company touchpoints. Key elements of our strategy include:
Expand Our Market Presence. We plan to significantly expand our market
presence in order to promote awareness of our products and exploit the market
opportunity for e-business personalization solutions. We intend to increase our
sales by hiring additional direct sales personnel targeted at major
geographical markets to sell directly to corporate customers as well as to
independent software vendors that incorporate our products into their
offerings. We intend to expand our relationships with third-party system
integrators to supplement our direct sales efforts. We may also establish
additional foreign sales offices to penetrate new international markets. In
addition, we intend to substantially expand our marketing activities, including
advertising, trade shows, seminars, industry events and direct marketing, to
promote our Blaze Software brand.
Extend Our Technology and Product Leadership. We intend to maintain and
extend our leadership in rules-based personalization solutions by continuing to
develop our core Java-based technology. We believe that
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we are a technology leader in rules-based personalization systems because of
the ease of deployment, scalability, flexibility and open architecture of our
products. We intend to continue to invest in technology development to extend
the capabilities and performance of our Blaze Advisor Solutions Suite, such as
Blaze Innovator. In addition, we may acquire complementary technologies or
businesses. Our goal is to expand our product offerings to include application
templates for specific industries that enable customers to deploy high
performance e-business applications more quickly and easily.
Target Leading Customers and Independent Software Vendors. We believe a
significant opportunity exists for us to sell our products to leading companies
worldwide as these companies expand their e-business initiatives. We have sold
our products to leading companies in a number of industries, including
financial services, telecommunications and manufacturing. We intend to target
leading Internet retailers as well as other Global 2000 companies using the
Internet to conduct commerce. In addition, we have licensed our technology to
leading independent e-business application software vendors that incorporate
our products into their offerings. We have developed licensing relationships
with software vendors such as Active Software, Blue Martini Software, Chordiant
Software and IMA. Our goal is to deepen our relationships with these vendors
and to establish relationships with additional e-business software vendors.
Increase Our Professional Services Capabilities. We intend to maximize the
value of our solutions to our customers by offering professional services to
help them leverage our personalization capabilities in their e-business
systems. We currently provide our customers with a complete range of services,
including consulting, training, implementation, and customer support. Because
most of our customers use our professional services, our services are important
in expanding our customer relationships and understanding our customers'
evolving needs. We have recently expanded our direct sales force and plan to
hire additional sales personnel, including salespersons, sales engineers and
sales management personnel.
Expand Strategic Alliances with Key Business Partners. To accelerate the
acceptance of our products and services and to target a broader customer base,
we intend to develop strategic relationships with leading system integrators
and independent software vendors. We intend to develop relationships with
third-party system integrators that provide consulting and implementation
services so that we can increase our license revenues through co-selling
efforts. We also intend to enhance our brand recognition through co-marketing
arrangements with system integrators and independent software vendors both
domestically and internationally.
Blaze Products
Blaze Advisor Solutions Suite. The Blaze Advisor Solutions Suite uses an
intuitive business rule language and a graphical development environment to
allow companies to build e-business personalization solutions. The Blaze
Advisor Solutions Suite is designed to increase speed and ease of development
in enterprise-scale e-business applications. Deployment of business rules is
facilitated by a robust and scalable rule engine and a rule server to manage
rule changes without application downtime. Blaze Advisor stores business rules
as an independent component so companies can apply them to multiple business
applications and touchpoints. Blaze Advisor can be deployed at our customers'
locations or hosted by third parties, such as application service providers.
The Blaze Advisor Solutions Suite consists of four products.
. Blaze Advisor Builder is a visual development environment for
defining, editing and testing business rules. Blaze Advisor Builder
allows business persons to write and modify rules in an intuitive
business rule language and to make use of graphical design and review
tools to clearly model business processes and components. Fill-in-the-
blank templates and choice lists are designed to simplify and speed
the creation of standard business rule elements. Blaze Advisor Builder
is offered in English, Chinese, French, German, Italian, Japanese,
Korean, Portuguese, and Spanish versions to facilitate application
creation in worldwide markets.
. Blaze Advisor Rule Engine is the runtime environment for monitoring,
executing and optimizing the performance of personalization and
business rules created with Blaze Advisor Builder. Blaze
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Advisor Rule Engine allows deployment flexibility, with rule
processing performed on a client workstation or on a server. Blaze
Advisor Rule Engine is designed to intelligently determine rules that
need to be examined under any set of circumstances and to execute them
in an efficient manner. Programming interfaces allow integration of
Blaze Advisor Rule Engine with custom-built architectures or with
third-party products.
. Blaze Advisor Rule Server provides scalable, multi-client, application
server-ready deployment for personalized e-business applications
powered by Blaze Advisor Builder and processed by the Blaze Advisor
Rule Engine. Blaze Advisor Rule Server incorporates a ready-to-use
infrastructure that addresses the complex deployment issues involved
in supporting multi-user, high availability e-business applications.
It provides full multi-threaded support for simultaneous operations
with monitoring facilities available for optimizing system
performance.
. Blaze Advisor Innovator, which is expected to be released in the first
half of 2000, is being designed to further simplify the creation and
modification of business rules by non-technical business persons.
Blaze Advisor Innovator will allow business managers to bypass the
Blaze Advisor Builder development environment by accessing company-
defined forms through any common Web browser. Business rules may be
presented in a customizable format, allowing users to inspect, change,
add or delete criteria that affect the interactive customer
experience.
Blaze Expert. Blaze Expert is the predecessor to Blaze Advisor. It offers
business rules definition, modification and processing in C and C++
applications running on Windows or Unix platforms.
Professional Services
Our professional services organization plays an integral role in
implementing our software for our customers as well as supporting and training
our customers. Our worldwide professional services organization is focused on
ensuring the successful implementation and support of each customer. We have
invested significantly in the deployment strategy, services and support
required to implement our technology. As of December 31, 1999, our
professional services organization in North America consisted of 22 employees.
Our professional services offerings include:
Training. Blaze Software courses, developed and taught by our education
services personnel, offer hands-on, role-based training. We provide courses
specifically designed for business analysts, beginning and advanced
developers, business rule writers and system architects. The primary goal of
these courses is to accelerate a customer's learning process, so they can
become proficient as quickly as possible. We offer courses at our offices as
well as customer locations. We are also able to customize training courses for
customers with unique educational requirements.
Service and Support. Our customers have direct access to us for technical
support. We provide direct-to-the-engineer telephone support to ensure rapid
response. Our support organization delivers the responsive service required by
business managers, information technology professionals, system integration
partners and independent software vendors to support mission-critical systems.
We offer problem resolution services via telephone, email, fax and the
Internet. Our technical support Web site, the Blaze Online Support System,
offers information on specific technical issues, interactive searches for
relevant cases, status updates on open technical support inquiries, product
documentation and release notes, tutorials and product use examples, and other
materials of use to our customers.
Consulting Services. Our professional services include system architecture
and design, business rule design, business rule writing, software integration
and project planning and management. Our professional services are focused on
providing our customers and partners with the skills and experience necessary
to take a project from planning and development to implementation and support.
Our professional services group has developed substantial experience in the
development and integration of business rule technology. Customers benefit
from the practical development and implementation skills that we have derived
from working on a wide
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range of applications across many industry segments. Working closely with
customers, our product specialists analyze business problems and user
requirements and transform business policies into executable business rules in
Blaze Advisor or Blaze Expert rule syntax. We generally charge for our
professional services on a time and materials basis and provide them worldwide
through our offices in the United States, Europe and Japan. Consulting
engagements vary in length according to customer requirements.
Customers
Our customers are primarily Global 2000 corporations and independent
software vendors. We also sell products to system integrators. We have sold our
products to customers in the technology, financial, insurance, manufacturing,
telecommunications, and healthcare industries and our software is embedded in
many leading e-business software applications. Customers in North America that
use Blaze Advisor and have spent more than $100,000 for licenses, professional
services, maintenance and training during the 18 month period ended September
30, 1999 include:
<TABLE>
<CAPTION>
End-users Software Vendors
- --------- ----------------
<S> <C>
American International Group Inc. Active Software, Inc.
Bernard C. Harris Publishing Company Inc. BCE Emergis, Inc.
California Franchise Tax Board Blue Martini Software
Fidelity Investments Institutional Services
Company, Inc. Buzzeo, Inc.
Ford Motor Company IMA, Inc.
GEICO Direct John H. Harland Company
Los Angeles County Employees Retirement
Association
New York Life Insurance Company
PlanetRx.com Inc.
The Prudential Insurance Company of America
Sun Microsystems, Inc.
Western Asset Management Company
</TABLE>
Selected Customer Examples
The selected customer examples below are intended to provide brief
descriptions of how our customers are using or plan to use our Blaze Advisor
Solutions Suite to provide e-business personalization solutions.
GEICO Direct. GEICO Direct is the second-largest direct marketer of auto
insurance in the United States. Each week, more than 10,000 drivers switch to
GEICO Direct. GEICO was an early adopter of Internet technology to sell auto
insurance policies directly to consumers across the United States without
requiring visits to field offices or agents. GEICO used Internet Information
Services (IIS), a systems integration partner of Blaze Software, to build a
Web-based self-service rate quote application using Blaze Advisor. Advisor
encapsulated GEICO's business rules and used them to dynamically determine the
most appropriate information to request from and display to the applicant.
Consumers in different states, with different driving histories and
insurance requirements, are now able to get the policy information that
directly match their needs, while answering only those questions applicable to
their situation. By using Blaze Advisor to personalize the process to each
individual, GEICO has improved their policy application efficiency and sped
their ability to implement business changes in their online systems. Since
implementation of the new system using Blaze Advisor, more users have completed
the GEICO application process and become customers.
Blue Martini Software. Blue Martini Software provides customer interaction
software for retailers and manufacturers selling direct-to-consumer on the
Internet. The Blue Martini Customer Interaction System
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delivers enhanced capabilities for dynamic e-merchandising, e-marketing and e-
service to leading consumer goods manufacturers such as Levi Strauss & Co.,
retailers such as Gymboree Corp., and Internet retailers such as Gloss.com.
Blaze Advisor provides the underlying business rules used to drive the
personalized shopping experience for each customer. The rules specify targeted
assortments, cross-sells, and promotions based on customer needs and profiles.
The Blaze Advisor Rule Engine allows Blue Martini to offer true individualized
attention and interaction for each site customer. Rich customer dialogue,
driven by Blaze Advisor business rules, allows Blue Martini customers to offer
consumers recommendations based on the companies' best business and customer-
service practices.
The Prudential Insurance Company of America. The Prudential Insurance
Company of America is one of the largest diversified financial services
institutions in the world and, based on total assets, the largest insurance
company in North America. They offer a full range of insurance, investment, and
real estate products and services to individuals and institutions worldwide.
Prudential has integrated Blaze Advisor into its FORMS system, an intranet
application used by Prudential's agents for individualized support of
Prudential customers. With Blaze Advisor, the FORMS application enables
Prudential's agents to quickly identify, select and tailor annuity and pension
life annuity product application requests for new business applicants. Before
implementing the Blaze-enabled FORMS application, insurance agents needed to
consult an internal call center representative to determine the application
appropriate for a particular customer's request. With the new solution in
place, an agent can spend a few minutes at his browser screen and have all the
applicable forms and preparatory information presented in a clear and
consistent manner, ready to use in providing service to the customer.
Prudential is able to update regulatory and compliance guidelines as often as
necessary and have the new guidelines instantly available to all employees. Use
of the rules-based system reduces the number of specialists, systems, and
manuals an insurance agent needs to refer to, resulting in faster, more
accurate information delivered to the customer.
PlanetRx.com, Inc. is a leading Internet healthcare destination for
commerce, content and community. PlanetRx.com delivers a convenient,
personalized and informed health and beauty shopping experience to the
consumer. With products and services ranging from prescriptions to personal
care items to the latest medical information, PlanetRx.com gives consumers the
ability to manage their own healthcare in a convenient and secure environment.
PlanetRx.com has selected and is currently implementing Blaze Advisor to offer
customers individualized product recommendations and remedies for specific
health topics. The new Web site feature will be designed to help customers
conveniently and quickly make intelligent product selections that best fit
their individualized healthcare needs. Blaze Advisor will offer PlanetRx.com
the ability to deliver quick and convenient online customer product
recommendations determined by interactive dialog and analysis of the customer's
health concerns and brand preferences. Blaze Advisor will allow PlanetRx.com to
reflect its personality online, adapt quickly to its customers' needs and
provide interactive recommendations.
Blaze Technology and Architecture
The product components included in the Blaze Advisor Solutions Suite
incorporate business rules technology developed by us over several years. Core
business rules authoring and processing technologies are based on research and
development conducted for our Blaze Expert product. These technological
solutions are the foundation of Blaze Advisor. Key technological and
architectural attributes of Blaze Advisor are:
Business Rule Design. Users can express business rules in a proprietary
structured rule language that makes use of common English words. Our customers
can use a wide range of business condition expressions, such as relative
comparison, set membership, set counts, dates, or currency calculations.
Attributes of these business objects can be expressed in English such as "the
level of Inventory" or in shorthand "Inventory.level" notation. A drag-and-drop
visual design tool is used to create and modify basic business logic flows
during the rule project design phase. One business rule can apply to input from
Web forms, database, or remote legacy systems.
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Integration With Existing Systems. Blaze Advisor business rules operate
with existing data and objects in the customer's business environment. These
objects may come from database rows, Java objects, Messaging systems, COM, or
Component Object Model, CORBA, or Common Object Request Broker Architecture,
XML, or Extensible Markup Language, or other custom model definitions. Blaze
Advisor Builder includes object import wizards to retrieve and establish
linkages to external business objects and databases. The Blaze Advisor Rule
Server includes published and documented Application Programming Interface
functions that allow operations to be controlled from Java applications or as
part of common application server platform operations including EJB, or
Enterprise Java Beans, Java, COM, CORBA, Messaging, Servlets and Java Server
Pages, and C++ through JNI, or Java Native Interface.
The Blaze Advisor Rule Engine and Rule Server operate in pure Java, giving
them the ability to be run on any hardware and operating system incorporating a
Sun-compatible Java Virtual Machine. Operating systems such as Microsoft
Windows NT, Sun Solaris, IBM AIX, IBM OS/390, IBM OS/400, Compaq Tru64, Compaq
NonStop-UX, Data General DG-UX, and Hewlett-Packard HP-UX are examples of
typical environments on which our customers are developing and deploying
server-based applications.
Performance. Blaze Advisor indexes business rules into an optimized network
to determine which rules apply to given objects. This gives the rule engine the
ability to manage large numbers of complex rule conditions, noting when objects
are changed and adding or removing rules from the execution list without
explicit programming by the rule developer. Conditions appearing in multiple
rules are unified and tested once, rather than multiple times. Objects and
object combinations satisfying rule conditions are held in memory to reduce the
number of tests performed when objects change. We have implemented a
proprietary algorithm to provide additional performance gains. The Blaze
Advisor Rule Engine is equally efficient with forward-chaining and backward-
chaining scenarios. Blaze Advisor also uses rulesets to logically group rules
associated with a particular business service. The Blaze Advisor Rule Engine
does not examine rules and objects not pertaining to the ruleset being
executed, leading to high performance efficiency.
Scalability. Customers can achieve application scalability by deploying
multiple Blaze Advisor Rule Servers on one or more computers. The application
server platform is used to assign work to the appropriate Rule Server. This
allows for customer-configurable load balancing, failover exception handling,
and workload monitoring and assignment. Blaze Advisor Rule Server can service
multiple clients simultaneously. The Blaze Advisor Rule Server can manage
multiple business services, each with its own rule project. This allows static
or dynamic load leveling between different aspects of the business.
Uninterrupted Operation. Blaze Advisor Rule Server is used to deploy rule
changes made in Blaze Advisor with no interruption to ongoing service. The Rule
Server handles internal monitoring of Blaze Advisor activity and ensures that
it continues unimpeded to its conclusion. The Rule Server manages client
sessions currently underway and oversees those waiting for execution. Rules
replacement is made automatically and users in process with a transaction are
unaffected; the next person to interact with the system receives the benefit of
the new rules.
Sales and Marketing
We sell our products primarily through our direct sales force to corporate
customers as well as to independent software vendors that incorporate our
products into their offerings. We typically approach both business persons and
information technology professionals with an integrated team from our sales and
professional services organizations. Our sales cycles typically include a
demonstration and physical evaluation of our product capabilities followed by
one or more detailed technical reviews.
As of December 31, 1999, our sales and marketing organization in North
America consisted of 28 employees. Our sales offices are located in Mountain
View, California; Denver, Colorado; New York, New York; Charlotte, North
Carolina; Dallas, Texas; Bracknell, England; Paris, France; Frankfurt, Germany;
Tokyo, Japan; and Toronto, Canada. We intend to expand the number of sales and
service teams in major geographic markets in the United States.
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We use a variety of marketing programs to build market awareness of our
company, our brand name and our products, as well as to attract potential
customers. These programs include advertising, product and strategy updates
with industry analysts, public relations activities, direct mail programs,
seminars, trade shows, Web seminars and Web site marketing. We are currently
developing co-marketing arrangements with independent software vendors and
system integrators to expand market awareness and generate sales leads. We
expect to conduct telemarketing and telesales in the future. Our marketing
organization also supports sales to prospective customers by producing
marketing materials such as brochures, data sheets, white papers, presentations
and demonstrations.
Research and Development
Our research and development organization is responsible for developing new
software products, product architectures, core technologies, product testing,
quality assurance and ensuring the compatibility of our products with hardware
platforms, and software platforms. In addition, this organization supports pre-
sale and customer support activities. Our research and development organization
incorporates the input of our professional services, technical support, and
sales and marketing organizations to extend and enhance product features and
functionality. Our future success will depend in part on our ability to enhance
the Blaze Advisor suite of products, develop new products and capitalize on our
technology leadership to support a global customer base.
As of December 31, 1999, our research and development organization in North
America consisted of 31 employees, including software engineers, quality
assurance engineers, and technical writers. Our total expenses for research and
development were $2.3 million for the six months ended September 30, 1999 and
$3.8 million for fiscal 1999.
Competition
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants.
We compete primarily with:
. in-house development efforts by potential customers or partners;
. Web content developers engaged to develop custom software or to
integrate other application software into custom solutions; and
. vendors of application software directed at interactive commerce,
interactive financial services and enterprise business-logic
automation, such as Art Technology Group Inc., Computer Associates
International, Inc., ILOG, Inc., Net Perceptions, Inc., Trilogy
Systems Inc. and Versata Inc.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing, or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly to
new or emerging opportunities, technologies and changes in customer
requirements. Current and potential competitors may have more extensive
customer bases that could be leveraged, thereby gaining market share to our
detriment. Such competitors may be able to undertake more extensive promotional
activities, adopt more aggressive pricing policies, and offer more attractive
terms to purchasers. Moreover, certain of our indirect and potential
competitors, such as BroadVision, IBM, Oracle and SAP may bundle their products
in a manner that may discourage users from purchasing products offered by us.
In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
enhance their products. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Increased competition could seriously harm our ability to sell
additional software, maintenance renewals, and services on terms favorable to
us. Competitive pressures could reduce our market share or require us to reduce
the price of our products and services, any of which could harm our business.
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We compete on the basis of certain factors, including:
. quality, depth and breadth of functionality offered;
. ease of application development;
. time required for application development;
. adherence to industry standards;
. reliability, scalability, maintainability, personalization and other
features;
. quality of services and customer support; and
. price.
We believe that we presently compete favorably with respect to each of
these factors. However, the market for our products is still rapidly evolving
and we may not be able to compete successfully against current and potential
competitors.
Intellectual Property and Other Proprietary Rights
Our future success depends in part on legal protection of our technology.
To protect our technology, we rely on a combination of the following methods,
among others:
. technologies that limit installation and use of the software to
authorized companies and individuals;
. license agreements;
. employee and third-party nondisclosure agreements and confidentiality
procedures;
. copyright laws;
. trade secret laws;
. patent laws; and
. trademark laws.
Our end-user licenses are designed to prohibit unauthorized use, copying
and disclosure of our software and technology. However, these provisions may be
unenforceable under the laws of some jurisdictions and foreign countries. In
addition, some of our licensed users may allow unauthorized users to install
our software, and if we do not detect such use we could lose potential license
fees. Unauthorized third parties may be able to copy some portions of our
products or reverse engineer or obtain and use information and technology that
we regard as proprietary. Third parties could also independently develop
competing technology or design around our technology. If we are unable to
successfully detect infringement and enforce our rights in our technology, we
may lose competitive position in the market. We cannot assure you that our
means of protecting our proprietary rights in the United States or abroad will
be adequate or that competing companies will not independently develop similar
technology.
From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We believe that our products do not infringe
the intellectual property rights of third parties. However, we cannot assure
you that we will prevail in all intellectual property disputes. We have not
conducted a search for existing patents and other intellectual property
registrations, and we cannot assure you that our products do not infringe upon
issued patents. In addition, because patent applications in the United States
are not publicly disclosed until the patent is issued, applications may have
been filed which would relate to our products.
We indemnify some of our customers against claims that our products
infringe upon the intellectual property rights of others. We could incur
substantial costs in defending ourselves and our customers against infringement
claims. In the event of a claim of infringement, we or our customers may be
required to obtain
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one or more licenses from third parties. We cannot assure you that such
licenses could be obtained from third parties at a reasonable cost, or at all.
Defense of any lawsuit or failure to obtain any such required license would
have a material adverse effect on our business.
We have received one patent and several trademark registrations and applied
for additional trademarks. Our pending trademark applications may not be
allowed. Our patents and trademarks may not provide us a competitive advantage.
Competitors may successfully challenge the validity and scope of our patents
and trademarks.
Employees
As of December 31, 1999, we employed 128 people. 26 employees work outside
of North America. Of the full-time employees in North America, 21 are in
general and administrative functions, 28 in sales and marketing, 22 in
professional services, and 31 in research and development. From time to time we
also employ independent contractors to support our professional services,
product development, sales, marketing and business development organizations.
None of our employees are represented by a labor union and we have never
experienced an employee-related work stoppage. Management considers its
employee relations to be good.
Facilities
Our headquarters are located in Mountain View, California in a leased
building of 36,000 square feet. We also lease office space in Denver, Colorado;
New York, New York; Charlotte, North Carolina; Dallas, Texas; Bracknell,
England; Paris, France; Frankfurt, Germany; Tokyo, Japan; and Toronto, Canada.
We expect to relocate our headquarters to a 27,000 square feet facility located
in San Jose, California in February 2000.
Legal Proceedings
From time to time, we may become involved in litigation relating to claims
arising from our ordinary course of business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would have a material adverse effect on us.
Potential Claims
On January 6, 2000, Patrick Perez, a founder and director of Blaze
Software, notified us of claims that he may assert against us. Mr. Perez
contends that his personal equity ownership of Blaze Software was diluted
improperly in connection with our Series AA preferred stock financing. In
particular, Mr. Perez contends that he was wrongfully denied the opportunity to
purchase shares at a price of $0.27 per share in connection with the financing.
If Mr. Perez had participated in the financing, he would have been able to
purchase up to 3,421,897 shares. We believe that Mr. Perez's assertions are
without merit and intend to vigorously defend any claims that Mr. Perez may
bring against us. However, should any litigation be decided adversely to us, we
may be required to pay substantial damages or issue additional shares to Mr.
Perez. If we are required to issue additional shares to him, then-existing
stockholders would experience dilution of their ownership and we would need to
record an accounting charge in our statement of operations equal to the fair
market value of the shares at the time of issuance.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to the
executive officers and directors of Blaze Software as of January 12, 2000.
<TABLE>
<CAPTION>
Name Age Position
---------------------------------------- --- ----------------------------------------
<C> <C> <S>
Thomas F. Kelly......................... 47 President, Chief Executive Officer and
Chairman of the Board of Directors
Gary Shroyer............................ 47 Senior Vice President, Finance and
Administration and Chief Financial
Officer
Eric Kintzer............................ 45 Vice President and Chief Technology
Officer
Joseph Masarich......................... 40 Vice President, Sales
William Seawick......................... 44 Vice President, Marketing and New
Business Development
Mark Fishwick........................... 42 Vice President of Professional Services
Charles M. Boesenberg(1)................ 51 Director
Mark J. DeNino(2)....................... 46 Director
Ken Goldman(1).......................... 50 Director
William J. Harding(2)................... 52 Director
L. George Klaus......................... 59 Director
Patrick Perez........................... 41 Director
</TABLE>
- --------
(1)Member of the Audit Committee
(2)Member of the Compensation Committee
Thomas F. Kelly has been President, Chief Executive Officer and a director
of Blaze Software since July 1998. From March 1996 to March 1998, Mr. Kelly
held executive positions at Cirrus Logic, Inc., a semiconductor company, most
recently as Chief Operating Officer. From September 1993 to December 1995, Mr.
Kelly was Executive Vice President and Chief Financial Officer of Frame
Technology, a computer company. From January 1992 to July 1993, Mr. Kelly was
Senior Vice President and Chief Financial Officer of Cadence Design Systems,
Inc., a software company. Mr. Kelly received a B.S. in Economics from Santa
Clara University.
Gary Shroyer has been Senior Vice President, Finance and Administration and
Chief Financial Officer of Blaze Software since July 1998. From April 1996 to
June 1998, Mr. Shroyer was Vice President of Finance and Operations and Chief
Financial Officer at Accugraph Corp., a telecommunications software company.
From February 1993 to March 1996, Mr. Shroyer held various positions at Maxtor
Corporation, a computer hardware company, including director of finance, vice
president of finance and corporate controller. Mr. Shroyer received an M.B.A.
from the University of Colorado and a B.S. in Accounting from Ball State
University.
Eric Kintzer has been Vice President and Chief Technical Officer of Blaze
Software since March 1998. From January 1995 to February 1998, Mr. Kintzer was
Vice President of Technical Architect of American Management Systems, a
software company. From April 1984 to September 1994, Mr. Kintzer was Vice
President and General Manager of Software Development of Syntelligence Systems,
a software company. Mr. Kintzer received an M.B.A. in Statistics and Management
Science and a B.S.E. in Industrial and Operations Engineering from the
University of Michigan.
Joseph Masarich has been Vice President of Sales of Blaze Software since
July 1999. From December 1997 to February 1999, Mr. Masarich was Senior Vice
President of Marketing and Sales at Summit Design, an enterprise EDA software
company. From December 1996 to May 1997, Mr. Masarich was Vice President of
Worldwide Sales at Technology Modeling Associates, a software company. From
August 1986 to December 1996, Mr. Masarich held various senior sales management
positions at Cadence Design Systems, Inc. Mr. Masarich received an M.S. in
Management from Stanford University and a B.S. in Mechanical Engineering from
the Pratt Institute.
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William Seawick has been Vice President, Marketing and New Business
Development of Blaze Software since May 1999. From May 1997 to April 1998, Mr.
Seawick was Vice President of Marketing at Kanisa, Inc., a consulting company.
From May 1996 to May 1997, Mr. Seawick was Senior Director of Marketing at
Oracle Corporation, a database software company. From June 1990 to May 1996,
Mr. Seawick was Group Manager of Business and Market Development at Sun
Microsystems, Inc., a computer company. Mr. Seawick received an M.B.A. from
Cornell University Graduate School of Business and a B.A. in European Economic
History from the University of Rochester.
Mark Fishwick has been Vice President, Professional Services of Blaze
Software since October 1999. From October 1997 to October 1999, Mr. Fishwick
was Senior Vice President of Customer Services at Chordiant Software, a
software company. From August 1993 to October 1997, Mr. Fishwick was Executive
Director of International Support at Informix Software, a database software
company. From January 1990 to July 1993, Mr. Fishwick was Customer Services
Director of Europe, Middle East and Africa at Informix Software, a database
software company. Mr. Fishwick received a M.A. in Geography from Pembroke
College, University of Oxford, England.
Charles M. Boesenberg has served as director of Blaze Software since
January 2000. Mr. Boesenberg joined Integrated Systems, Inc. in December 1998
as President, Chief Executive Officer and a director. From December 1997 to
December 1998, Mr. Boesenberg was President and Chief Executive Officer of
Magellan Corporation, a satellite-access products company. From January 1995
until it merged with Magellan Corporation in December 1997, Mr. Boesenberg was
President and Chief Executive Officer of Ashtech, Inc., a business-to-business
GPS company. Previously, he was President, Chief Executive Officer and Chairman
of Central Point Software, Inc., President of MIPS Computer Systems, Inc., and
Senior Vice President of Apple Computer, Inc. Mr. Boesenberg serves as a
director of Symantec Corporation. Mr. Boesenberg received an M.S. in Business
Administration from Boston University and a B.S. in Mechanical Engineering from
Rose Hulman Institute of Technology.
Mark J. DeNino has served as a director of Blaze Software since 1997. Mr.
DeNino has served as managing director of TL Ventures since 1994. From 1990 to
1994, Mr. DeNino was President of Crossroads Capital, Inc., an investment bank.
From 1986 to 1990, Mr. DeNino held various positions including head of
investment banking at Fidelity Bank and was President of its venture capital
Small Business Investment Company Group. Mr. DeNino also serves as a director
of Vuent, Inc., Coastal Security Systems, Inc., Cruise411.com, Inc.,
IPNetwork.com, Inc., Pac-West Telecom, Inc., Participate.com, Inc., and
Traffic.com, Inc. Mr. DeNino received his B.A. in Finance and Accounting from
Boston College and his M.B.A. from the Harvard Graduate School of Business
Administration.
Ken Goldman has served as a director of Blaze Software since December 1999.
Mr. Goldman has been Senior Vice President and Chief Financial Officer of
Excite@Home since he joined @Home Corporation, the predecessor to Excite@Home,
in July 1996. From July 1992 to July 1996, he was Senior Vice President and
Chief Financial Officer of Sybase, Inc., a database software and services
company. From 1989 to July 1992, Mr. Goldman was Vice President of Finance and
Administration and Chief Financial Officer at Cypress Semiconductor
Corporation, a semiconductor manufacturer. From 1983 to 1989, he was Vice
President and Chief Financial Officer of VLSI Technology Inc. Mr. Goldman
serves on the board of directors of One World Systems, several private
companies, and the American Electronic Association. Mr. Goldman is also a
member of the FASB Advisory Council. Mr. Goldman holds an M.B.A. from the
Harvard University Graduate School of Business and a B.S. in Electrical
Engineering from Cornell University.
William Harding has served as a director of Blaze Software since June 1996
and served as Chairman of the Board from June 1996 to July 1998. Dr. Harding
has been a Managing Member of Morgan Stanley Dean Witter Venture Partners, a
venture capital firm, since 1994. From 1985 to 1994, Dr. Harding was a General
Partner of J.H. Whitney & Co., an investment management company. Dr. Harding
currently serves on the board of directors of Commerce One, Inc., InterNAP
Network Services Corporation, Persistence Software, Inc and several private
companies. Dr. Harding received a Ph.D. in Engineering from Arizona State
University, and an M.S. in Systems Engineering from the University of Arizona
and a B.S. in Engineering Mathematics.
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L. George Klaus has served as a director of Blaze Software since December
1999. Mr. Klaus has served as a director of Epicor Software and has served as
its President and Chief Executive Officer since February 1996 and Chairman of
the Board since September 1996. From July 1993 to November 1995, Mr. Klaus
served as President, Chief Executive Officer and Chairman of the Board of Frame
Technology, Inc., a software company. From September 1992 to July 1993, Mr.
Klaus was Chairman of the Board and President at Integral Development
Corporation, a software company. From December 1991 to May 1992, Mr. Klaus was
Chief Operating Officer at Cadence Design Systems, Inc., a software company. In
addition, Mr. Klaus was President and Chief Operating Officer at Valid Logic
Systems, Inc., a supplier of electronic design automation software tools from
October 1989 to December 1991. Mr. Klaus currently serves on the board of
FileNet Corporation. Mr. Klaus received a B.S. in Mathematics from California
State University at Northridge.
Patrick Perez has served as a director of Blaze Software since 1985.
Committees of the Board of Directors
Our audit committee consists of Mr. Goldman and Mr. Boesenberg. The audit
committee makes recommendations to the board of directors regarding the
selection of our independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors and reviews and
evaluates our control functions.
Our compensation committee consists of Mr. DeNino and Mr. Harding. The
compensation committee makes recommendations regarding our various incentive
compensation and benefit plans and determines salaries for our executive
officers and incentive compensation for our employees and consultants.
Board Composition
Our bylaws currently authorize eight directors. Our certificate of
incorporation and bylaws that become effective upon the completion of this
offering provide that our Board will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. The
Class I directors, Messrs. DeNino and Mr. Harding, will stand for re-election
at the 2001 annual meeting of stockholders. The Class II directors, Messrs.
Boesenberg and Goldman, will stand for reelection at the 2002 annual meeting of
stockholders. The Class III directors, Messrs. Kelly and Klaus, will stand for
reelection at the 2003 annual meeting of stockholders. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This staggered classification of
the board of directors may have the effect of delaying or preventing changes in
control or management. There are no family relationships among any of our
directors, officers or key employees.
Voting Agreement
On February 25, 1998, Blaze Software and certain holders of preferred
stock, which was subsequently reconstituted into common stock, entered into an
amended and restated voting agreement. Under the terms of the voting agreement:
Morgan Stanley Venture Capital and its affiliated entities are entitled to have
two nominees elected to our board; Alta Partners and its affiliated entities
are entitled to have one nominee elected to our board; the holders of the then-
outstanding shares of Series A preferred stock and Series C preferred stock are
entitled to have one nominee elected to our board; the holders of the then-
outstanding shares of Series B preferred stock are entitled to have one nominee
elected to our board; the Chief Executive Officer will be nominated and elected
to our board; and TL Ventures is entitled to have two nominees elected to our
board. In addition, unless sooner terminated, until the earlier of June 28,
2000 or an initial public offering of our common stock at a per share price of
at least $8.625 (as adjusted for stock dividends, stock splits and
recapitalizations) and for a total offering of more than $7,500,000, and to the
extent that either Patrick Perez or Alain Rappaport are not already on the
board, they are entitled to receive all notices and other materials for and
have the right to attend, in a non-voting capacity, all meetings of the board
of directors. Moreover, we are
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obligated to pay the expenses, up to $1,000.00 each, for Mr. Perez and Mr.
Rappaport to attend any board meetings in this capacity. Unless sooner
terminated, the voting agreement terminates upon the consummation of our
initial public offering, on a firm commitment basis, at a per share price of
not less than $8.625 (as adjusted for stock dividends, stock splits and
recapitalizations) and with aggregate proceeds in excess of $7,500,000.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee was, at any time since
our formation, an officer or employee of Blaze Software. None of our executive
officers serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
our board of directors or compensation committee, except for Mr. Kelly, who
serves as a director of Epicor Software, of which Mr. Klaus is President, Chief
Executive Officer and a director. See "Certain Transactions" for a description
of transactions between Blaze Software and entities affiliated with members of
our compensation committee.
Director Compensation
We do not currently pay any cash compensation to our directors for their
services as members of the board of directors, although we reimburse them for
certain expenses in connection with attending our board and committee meetings.
We do not provide compensation for committee participation or special
assignments of the board of directors. From time to time, we have granted our
outside directors options to purchase shares of our common stock under the 1996
Stock Plan.
Advisory Board
We have established an advisory board to provide us with guidance on
strategy and insights Individual members are consulted as needed and meetings
of the full Advisory Board will be held periodically. The members of the
Advisory Board are as follows:
Michael A. Braun, the Chairman of our Advisory Board, was President and
Chief Executive Officer of Blaze Software from June 1996 to July 1998, and
Chairman of the Board from July 1998 until December 1999. Since August 1998,
Mr. Braun has been General Manager of the Consumer Division and Global Small
Business Unit at IBM Corporation, a computer company. From 1993 to 1996, he was
President and CEO of Kaleida Labs, a multimedia software joint venture between
IBM and Apple Computer. Prior to this, Mr. Braun held numerous executive
positions at IBM. Mr. Braun received an M.B.A. from the Simon School at the
University of Rochester and a B.A. in psychology from the University of
Rochester.
Debra Chrapaty is the Chief Media Officer for E*TRADE Group, Inc. Prior to
joining E*TRADE in July 1997, Ms. Chrapaty served as chief information officer
and chief technology officer of the National Basketball Association from 1994
to 1997. Ms. Chrapaty has also served as director, internal systems consulting,
at Bertelsmann C.I.S. from 1992 to 1994, and with EMI Records Group from 1990
to 1992. Her prior experience with financial organizations includes the Federal
Reserve Bank of New York and Chase Econometric/IDC. Ms. Chrapaty received an
M.B.A. in information systems at New York University and a B.A. in economics at
Temple University.
Ed Kozel is a managing partner of Open Range Ventures. From 1989 to
recently, he worked at Cisco Systems, Inc. where he founded the Business
Development group responsible for Cisco's technology investment and corporate
acquisition activities, and was chief technology officer between 1994 and 1998.
He is a director of Cisco Systems and TIBCO Software, and several private
companies. Mr. Kozel has a B.S. in Electrical Engineering from the University
of California, and has participated in Internet technology and applications
since 1980.
Phillip E. White was Chief Executive Officer and a director of Informix
Corporation from January 1989 to July 1997. He held the additional office of
President from August 1990 and of Chairman from December 1992 to July 1997. Mr.
White also serves as a director of Adaptec, Inc., Legato Systems Inc., TIBCO
Software, Inc. and several private companies.
50
<PAGE>
Executive Compensation
The following table sets forth the compensation paid by us during the year
ended March 31, 1999, to our Chief Executive Officer and to our four other most
highly compensated executive officers who earned more than $100,000 during our
last fiscal year. This prospectus refers to these executives as the Named
Executive Officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
---------------- ------------
Securities
Underlying
Name and Principal Position(1) Salary Bonus Options
- ------------------------------ -------- ------- ------------
<S> <C> <C> <C>
Thomas F. Kelly(2) .............................. $177,083 $45,000 800,000
Chief Executive Officer and President
Gary Shroyer(3).................................. 119,872 -- 200,000
Senior Vice President, Finance and
Administration and Chief Financial Officer
Eric Kintzer..................................... 150,000 18,000
Vice President, Engineering and Chief Technology
Officer
Michael Braun(4)................................. 92,783 17,250 --
Chief Executive Officer and President
Charles Page(5).................................. 127,281 64,068 1,000
Vice President, North American Field Operations
Christina Jette(6)............................... 160,000 17,850 --
Vice President, Engineering
</TABLE>
- --------
(1) William Seawick, Vice President, Marketing, joined us in May 1999. Joseph
Masarich, Vice President, Sales, joined us in July 1999. Mark Fishwick,
Vice President, Customer Services, joined us in October 1999.
(2) Mr. Kelly joined us in July 1998.
(3) Mr. Shroyer joined us in July 1998.
(4) Mr. Braun resigned as an officer in August 1998 and is currently a member
of our advisory board.
(5) Mr. Page resigned in February 1999.
(6) Ms. Jette resigned in July 1999.
51
<PAGE>
Option Grants in Last Fiscal Year
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended March 31, 1999.
All such options were awarded under our 1996 stock plan. In accordance with the
rules of the SEC, the following table sets forth the potential realizable value
over the term of the options based on assumed rates of stock appreciation of 5%
and 10% compounded annually. The term of the options are the period from the
grant date to the expiration date, or 10 years. These amounts do not represent
our estimate of future stock price performance. Actual realizable values, if
any, of stock options will depend on the future performance of the common
stock.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
-------------------------------------------- Value at Assumed
Number of Percent of Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted for Options Term
Options in Fiscal Exercise Expiration -------------------------
Granted(1) 1999(2) Price(3) Date 5% 10%
Name ---------- ------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Kelly(4)...... 800,000 64.1% $0.40 2008 $ 201,600 $ 508,800
Gary Shroyer(5)......... 200,000 16.0 0.40 2008 50,400 127,200
Eric Kintzer(6)......... -- -- -- -- -- --
Michael Braun(7)........ -- -- -- -- -- --
Charles Page(8)......... 1,000 0.1 0.40 2008 200 500
Christina Jette(9)...... -- -- -- -- -- --
</TABLE>
- --------
(1) Options were granted under our 1996 stock plan and generally vest over four
years from the date of grant.
(2) Based on an aggregate of 1,248,500 options granted by Blaze Software in the
year ended March 31, 1999 to our employees and directors, including the
Named Executive Officers.
(3) Options were granted at an exercise price equal to the fair market value
per share of common stock on the grant date, as determined by our board of
directors.
(4) Mr. Kelly also received options to purchase 2,136,751 shares of common
stock in fiscal 2000.
(5) Mr. Shroyer also received options to purchase 470,844 shares of common
stock in fiscal 2000.
(6) Mr. Kintzer also received options to purchase 719,278 shares of common
stock in fiscal 2000.
(7) Mr. Braun resigned as an officer in August 1998 and is currently a member
of our advisory board. Mr. Braun received options to purchase 75,000 shares
of common stock in fiscal 2000.
(8) Mr. Page resigned in February 1999. These options terminated pursuant to
their terms.
(9) Ms. Jette resigned in July 1999.
52
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information for each of the Named Executive
Officers concerning option exercises for the fiscal year ended March 31, 1999,
and vested and unvested options held at March 31, 1999. The Named Executive
Officers did not exercise any options during the fiscal year ended March 31,
1999.
The "Value of Unexercised In-the-Money Options at March 31, 1999" is based
on a value of $ per share of our common stock, which is the initial public
offering price, less the per share exercise price, multiplied by the number of
shares issued upon exercise of the option. All options were granted under our
1996 stock plan and are immediately exercisable.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at March 31, 1999 March 31, 1999
-------------------------- --------------------------
Vested Unvested Vested Unvested
Name ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Thomas F. Kelly.......... $ -- $ 800,000 $ -- $ --
Gary Shroyer............. 25,000 175,000 -- --
Eric Kintzer............. 37,500 112,500 -- --
Michael Braun............ -- -- -- --
Charles Page............. 39,542 -- -- --
Christina Jette.......... 78,376 43,957 -- --
</TABLE>
Stock Plans
2000 Stock Plan. Our 2000 stock plan was adopted by the board of directors
in December 1999. As of December 31, 1999, no options were outstanding. A total
of 500,000 shares of common stock is currently reserved for issuance pursuant
to the 2000 stock plan, plus any shares which have been reserved but unissued
under the 1996 stock plan, any shares returned to the 1996 stock plan, and an
annual increases equal to the lesser of: (1) 100,000 shares, (2) 4% of the
outstanding shares or (3) a lesser amount determined by the board of directors.
The 2000 stock plan provides for the grant of incentive stock options (as
defined in Section 422 of the Internal Revenue Code) to employees and
nonstatutory stock options, stock purchase rights and stock bonus rights to
employees, directors and consultants. The 2000 stock plan may be administered
by different committees with respect to different groups of service providers.
Options granted as performance-based compensation within the meaning of Section
162(m) of the Internal Revenue Code are administered by a committee of two or
more outside directors. Option administration committees may make final and
binding determinations regarding the terms and conditions of the awards
granted, including the exercise price, the number of shares subject to the
award and the exercisability thereof, forms of agreement for use under the plan
and interpretation of plan terms.
The exercise price of incentive stock options granted under the 2000 stock
plan must be at least equal to the fair market value of our common stock on the
date of grant. However, for any employee holding more than 10% of the voting
power of all classes of our stock, the exercise price will be no less than 110%
of the fair market value. The exercise price of nonstatutory stock options is
set by the administrator of the 2000 stock plan. However, in the case of
nonstatutory stock options which is intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, the exercise price will be no less than 100% of the fair market value.
The maximum term of options granted under the 2000 stock plan is ten years.
An optionee whose relationship with Blaze Software or any related
corporation ceases for any reason, other than death or total and permanent
disability, may exercise options in the three-month period following such
cessation, or such other period of time as determined by the administrator,
unless such options terminate
53
<PAGE>
or expire sooner, or for nonstatutory stock options, later, by their terms. The
three-month period is extended to twelve months for terminations due to death
or total and permanent disability. In the event of a merger of Blaze Software
with or into another corporation, or the sale of substantially all of the
assets of Blaze Software, outstanding options would either be assumed by the
successor company or an equivalent option would be substituted by the successor
company. If any such options are not assumed or substituted, such options would
fully vest in and have the right to exercise the option as to all of the common
stock subject to the option.
None of our employees may be granted, in any fiscal year, options to
purchase more than 1,000,000 shares, and up to an additional 1,000,000 shares
in connection with an employee's initial employment with Blaze Software. The
2000 stock plan will terminate in December 2009, unless terminated earlier by
the board of directors.
Stock purchase rights may be granted to employees and consultants under the
2000 stock plan. Such grants are made pursuant to a restricted stock purchase
agreement, and the price to be paid for the shares granted thereunder is
determined by the administrator. Once the stock purchase right has been
exercised, the purchaser shall have the rights equivalent to those of a
stockholder. In addition, unless the adminstrator determines otherwise, Blaze
Software is generally granted a repurchase option exercisable in the event of
voluntary or involuntary termination of the purchaser's employment with Blaze
Software for any reason, including death or disability. The repurchase price
shall be the original purchase price paid by the purchaser. The repurchase
option shall lapse at a rate determined by the administrator.
1996 Stock Plan. Our 1996 stock plan was adopted by the Board of Directors
in July 1996. The 1996 stock plan, as amended and restated, provides for the
grant of incentive stock options to our employees and for the grant of
nonstatutory stock options to our employees, including officers and directors,
non-employee directors and consultants.
We have reserved for issuance under the 1996 stock plan a total of
11,506,857 shares of common stock. The total number of the shares issuable
under this plan will be subject to adjustment from time to time in order to
prevent the dilution or enlargement of benefits thereunder. As of December 31,
1999, options to purchase 8,477,057 shares of common stock were outstanding
under this plan; 1,094,005 shares had been issued upon exercise of options, net
of repurchases, and 2,295,380 shares were available for future grants. Unless
terminated sooner, the 1996 stock plan will terminate automatically in 2006.
The 1996 stock plan is administered by the board of directors who determine
the terms of the options granted, including exercise price, the number of
shares subject to each option, and the vesting schedule. In addition, the board
of directors has complete and full power and authority to amend, suspend or
terminate the plan, provided that no such action may affect any optionees'
rights and obligations under their outstanding options. Unless delegated to a
committee of two or more board members, the board of directors has the
exclusive authority to interpret and apply the provisions of the 1996 stock
plan.
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 the laws of descent and distribution following the optionee's death. Unless
the terms of optionee's option agreement provide for an earlier termination,
options granted under the 1996 stock plan must generally be exercised within
three months of the end of optionee's status as our employee or consultant, or
within twelve months after his or her termination by death or disability, but
in no event later than the expiration of the option's ten year term.
The exercise price of the incentive options granted under the 1996 stock
plan must be at least equal to the fair market value of our common stock on the
date of grant and exercise price of the non-statutory options granted under the
1996 stock plan shall not be less than 85% of the fair market value of our
common stock on the date of grant. With respect to any participants of the plan
possessing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of the option must equal at least 110% of the
fair market value on the date of grant and the term of such option must not
exceed five years.
54
<PAGE>
The board of directors has the discretion to determine the vesting schedule
of the options, although the board of directors may not impose a vesting
schedule upon any option grant or any shares of the common stock which is more
restrictive than 20% per year vesting, with the initial vesting to occur not
later that one year after the date of grant. However, this minimum vesting
requirement shall not be applicable with respect to any option granted to an
officer, director or consultant.
2000 Employee Stock Purchase Plan. Our 2000 employee stock purchase plan
provides employees of Blaze Software with an opportunity to purchase our common
stock through accumulated payroll deductions. A total of shares of common
stock have been reserved for issuance under the purchase plan, plus annual
increases equal to the lesser of: (1) shares, (2) 4% of the outstanding
shares, or (3) a lesser amount determined by the board of directors. No shares
have been issued under the purchase plan. The purchase plan will be
administered by our board of directors or by a committee of members of the
board appointed by the board. The purchase plan permits eligible employees to
purchase common stock through payroll deductions of up to 15% of an employee's
compensation, up to a maximum of $25,000 for all purchases ending within the
same calendar year. Employees are eligible to participate if they are
customarily employed by Blaze Software for at least 20 hours per week and more
than five months in any calendar year. Unless the board of directors or its
committee determines otherwise, each offering period will run for six months.
The first offering period will commence on the date of this prospectus and will
terminate on September 30, 2000. Thereafter, new six month offering periods
will begin on April 1 and October 1 of each year. In the event of an
acquisition of Blaze Software, offering periods then in progress will be
shortened and all rights automatically exercised. The price at which common
stock will be purchased under the purchase plan is equal to 85% of the fair
market value of the common stock on the first day of the offering period or the
last day of the offering period, whichever is lower. Employees may end their
participation in the offering period at any time, and participation
automatically ends on termination of employment. The board may amend, modify or
terminate the purchase plan at any time as long as such amendment, modification
or termination does not impair vesting rights of plan participants. The
purchase plan will terminate in January 2010, unless terminated earlier in
accordance with its provisions.
401(k) Plan
In July 1992, we adopted a 401(k) plan covering our full-time employees
located in the United States. The 401(k) plan is intended to qualify under
Section 401(k) of the Internal Revenue Code, so that contributions to the
401(k) plan by employees or by us, and the investment earnings thereon, are not
taxable to employees until withdrawn from the 401(k) plan, and so that we can
deduct our contributions, if any, when made. Pursuant to the 401(k) plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($10,000 in 1999) and to have the amount of
such reduction contributed to the 401(k) plan. The 401(k) plan permits, but
does not require, that we provide additional matching contributions to the
40l(k) plan on behalf of all participants in the 401(k) plan. To date, we have
not made any contributions to the 401(k) plan.
Employment Agreements and Change of Control Arrangements
Thomas F. Kelly. In July 1998, Mr. Kelly entered into an employment
agreement to serve as our President and Chief Executive Officer. Under the
agreement, we agreed to pay Mr. Kelly an annual salary of $250,000 and a
guaranteed bonus of $15,000 for each of the fiscal quarters ending September
1998, December 1998 and March 1999. We also gave Mr. Kelly the opportunity to
earn an incentive bonus consisting of options to purchase up to 30,000 fully
vested shares of common stock in fiscal 1999 based upon personal and corporate
goals set by the board of directors. In conjunction with this employment
agreement, we granted Mr. Kelly an option to purchase 600,000 shares of common
stock at an exercise price of $0.40 per share. Of those shares, 25% vested on
the first anniversary of his commencement date, and the remaining shares vest
monthly thereafter through the fourth anniversary of the grant. In the event we
experience a change of control, 50% of the unvested portion of the option vests
on the closing date of the transaction, subject to a minimum aggregate vesting
of two-thirds of the shares. Under this employment agreement, we also granted
Mr. Kelly an additional
55
<PAGE>
option to purchase up to 200,000 shares of common stock at an exercise price of
$0.40 per share. All of the shares subject to the additional option will vest
on the seventh anniversary of the grant. Of the 200,000 shares subject to the
additional option, 100,000 shares will vest immediately if, for a period of 30
consecutive trading days, the closing selling price per share of our common
stock on any national securities exchange or Nasdaq National Market reaches a
level of $6.00 or more, or upon a change of control and 100,000 more shares
will vest immediately if, for a period of 30 consecutive trading days, the
closing selling price per share of our common stock on any national securities
exchange or Nasdaq National Market reaches a level of $12.00 or more, or upon a
change of control. The employment agreement also provides that Mr. Kelly is
employed "at-will" and the employment relationship may be terminated for any
reason at any time. If we terminate Mr. Kelly's employment without cause, we
must pay Mr. Kelly a severance payment in nine monthly installments of one
month's salary each payable at the rate of the annual base salary in effect at
the time of such termination plus the amount of the bonus prorated for such
nine month period at the target rate in effect on the effective date of such
termination.
Gary Shroyer. In June 1998, Mr. Shroyer entered into an employment
agreement to serve as our Senior Vice President and Chief Financial Officer and
commenced employment in July 1998. Under the agreement, we agreed to pay an
annual salary of $170,000 and we also gave Mr. Shroyer an opportunity to earn
an annual incentive bonus consisting of options to purchase up to 20,000 fully-
vested shares of common stock at an exercise price of $0.40 per share, of which
we actually issued 3,750 shares. In conjunction with this employment agreement,
we granted Mr. Shroyer an option to purchase 150,000 shares of common stock at
an exercise price of $0.40 per share. Of these shares, 25% vested on July 20,
1999 and one thirty-sixth of the remaining shares vest monthly thereafter. In
the event we experience a change of control, 50% of the unvested portion of the
option vests on the closing date of the transaction, subject to a minimum
aggregate vesting of two-thirds of the option. Under the employment agreement,
we also granted Mr. Shroyer the additional option to purchase up to 50,000
shares of common stock at an exercise price of $0.40 per share. All of the
shares subject to the additional option will vest on the seventh anniversary of
the grant. The shares subject to the additional option will immediately vest
if, for a period of 30 consecutive trading days, the closing selling price per
share of our common stock on any national securities exchange or Nasdaq
National Market reaches a level of $6.00 or more for a period of 30 consecutive
trading days, or upon a change of control. The employment agreement provides
that Mr. Shroyer is employed "at-will" and the employment relationship may be
terminate for any reason at any time. If we terminate Mr. Shroyer's employment
without cause, we must pay Mr. Shroyer a severance payment in six monthly
installments of one month's salary, each payable at the rate of the annual base
salary in effect at the time of such termination plus the amount of the bonus
prorated for such six month period at the target rate in effect on the
effective date of such termination.
Eric Kintzer. In February 1998, Mr. Kintzer entered into an employment
agreement to serve as our Vice President and Chief Technology Officer and
commenced his employment in March 1998. Under the agreement, we agreed to pay
an annual salary of $150,000 and Mr. Kintzer is entitled to receive an annual
incentive bonus of 25% of his salary. In conjunction with this employment
agreement, we granted Mr. Kintzer an option to purchase 150,000 shares of
common stock at an exercise price of $0.40 per share. Of those options, 25%
vested on the first anniversary of his commencement date, and the remaining
shares vest monthly thereafter through the fourth anniversary of the grant. In
the event we experience a change of control, 50% of the unvested portion of the
option vests on the closing date of the transaction, subject to a minimum
aggregate vesting of two-thirds of the option. The employment agreement
provides that Mr. Kintzer is employed "at-will" and the employment relationship
may be terminated for any reason at any time.
Limitations of Liability and Indemnification Matters
Our certificate of incorporation that will be in effect at the time of this
offering limits the liability of directors to the maximum extent permitted by
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for any of the following:
. any breach of their duty of loyalty to the corporation or its
stockholders;
56
<PAGE>
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our other officers and employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, indemnify our directors and executive officers
for certain expenses, including attorneys' fees, judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
including any action by us arising out of such person's services as our
director or executive officer, any of our subsidiaries or any other company or
enterprise to which the person provides services at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
57
<PAGE>
CERTAIN TRANSACTIONS
Private Placements of Securities
In June 1996, we sold 2,142,857 shares of our Series D preferred stock at a
price of $2.80 per share and granted options to purchase Series E preferred
stock at either $2.80 per share or $3.45 per share, depending upon whether we
achieved certain performance goals, to several investors, including the
following entities beneficially owning more than 5% of our outstanding stock or
entities affiliated with directors at that time:
<TABLE>
<CAPTION>
Numbers of Shares of
Number of Shares of Series E Preferred Stock
Investor Series D Preferred Subject to Option
----------------------------- ------------------- ------------------------
<S> <C> <C>
Morgan Stanley Dean Witter
Venture Partners(1)........ 1,785,714 541,125
Alta Partners(2)............. 357,143 173,161
</TABLE>
- --------
(1) Includes 1,183,631 shares held by Morgan Stanley Venture Capital Fund II,
L.P., 294,887 shares held by Morgan Stanley Venture Capital Fund II, C.V.
and 307,196 shares held by Morgan Stanley Venture Investors, L.P.
(2) Includes 346,842 shares held by Alta California Partners, L.P., and 10,301
shares held by Alta Embarcadero Partners, LLC.
In June 1996, two of our co-founders, Alain Rappaport and Patrick Perez,
sold an aggregate of 107,143 shares of Series B preferred stock at a price of
$2.80 per share to Alta California Partners, L.P. and Alta Embarcadero
Partners, LLC.
In September 1996, we made a loan to Michael Braun in the amount of $70,000
at an interest rate of 6.55% per annum to purchase 250,000 shares of our common
stock at $3.57 per share. Mr. Braun served as one of our directors and our
chief executive officer at time of the loan. Mr. Braun currently serves on our
advisory board. The loan has been repaid in full in connection with the
redemption of shares of common stock in 1998.
In April 1997, we borrowed money with an interest rate of 10% per annum
from the following persons who were officers of Blaze Software at the time and
Michael Braun who has served as a director and chief executive officer of Blaze
Software. Mr. Braun currently serves on our advisory board:
<TABLE>
<CAPTION>
Investor Amount of Loan
-------------------------------------------------------------- --------------
<S> <C>
Michael A. Braun.............................................. $84,333
Jack A. Bradley............................................... 24,750
Christina Jette............................................... 23,333
</TABLE>
These amounts were repaid in full in January 1998.
In September 1997, we granted those investors stock options under the 1996
plan to purchase up to the following amounts of common stock:
<TABLE>
<CAPTION>
Investor Number of Options
----------------------------------------------------------- -----------------
<S> <C>
Michael A. Braun........................................... 8,433
Jack A. Bradley............................................ 2,475
Christina Jette............................................ 2,333
</TABLE>
58
<PAGE>
In July 1997, we borrowed money with an interest rate of 25% per annum from
the following entities beneficially owning more than 5% of our outstanding
stock or entities affiliated with directors at that time:
<TABLE>
<CAPTION>
Investor Amount of Loan
-------------------------------------------------------------- --------------
<S> <C>
Morgan Stanley Dean Witter Venture Partners(1)................ $696,454
Alta Partners(2).............................................. 222,716
Burr, Egan, Deleage & Company(3).............................. 330,830
C.V. Sofinnova Ventures....................................... 250,000
</TABLE>
- --------
(1) Includes $461,749 loaned by Morgan Stanley Venture Capital Fund II, L.P.,
$114,915 loaned by Morgan Stanley Venture Capital Fund II, C.V. and
$119,790 loaned by Morgan Stanley Venture Investors, L.P.
(2) Includes $217,741 loaned by Alta California Partners, L.P. and $4,975
loaned by Alta Embarcadero Partners, LLC.
(3) Includes $279,783 loaned by Alta IV Limited Partnership and $51,047 loaned
by C.V. Sofinnova Partners Five.
These amounts were repaid in full in December 1997 in connection with our sale
of Series F preferred stock.
In November 1997, we borrowed money with an interest rate of 25% per annum
from the following entities beneficially owning more than 5% of our outstanding
stock or entities affiliated with directors at that time:
<TABLE>
<CAPTION>
Investor Amount of Loan
-------------------------------------------------------------- --------------
<S> <C>
Morgan Stanley Dean Witter Venture Partners(1)................ $352,086
Burr, Egan, Deleage & Company(2).............................. 167,994
Alta Partners(3).............................................. 154,918
C.V. Sofinnova Ventures....................................... 75,000
</TABLE>
- --------
(1) Includes $233,375 loaned by Morgan Stanley Venture Capital Fund II, L.P.,
$58,142 loaned by Morgan Stanley Venture Capital Fund II, C.V. and $60,569
loaned by Morgan Stanley Venture Investors, L.P.
(2) Includes $142,073 loaned by Alta IV Limited Partnership and $25,921 loaned
by C.V. Sofinnova Partners Five.
(3) Includes $151,458 loaned by Alta California Partners, L.P., and $3,460
loaned by Alta Embarcadero Partners, LLC.
These amounts were repaid in full in December 1997 in connection with our sale
of Series F preferred stock.
In December 1997, we sold 2,331,606 shares of our Series F preferred stock
at a price of $3.86 per share to several investors, including the following
entities beneficially owning more than 5% of our outstanding stock or entities
affiliated with directors at that time:
<TABLE>
<CAPTION>
Number of Shares of
Investor Series F Preferred
--------------------------------------------------------- -------------------
<S> <C>
TL Ventures(1)........................................... 1,943,005
Morgan Stanley Dean Witter Venture Partners(2)........... 180,427
Burr, Egan, Deleage & Company(3)......................... 85,706
Alta Partners(4)......................................... 57,697
C.V. Sofinnova Ventures.................................. 64,766
</TABLE>
- --------
(1) Includes 1,564,447 shares held by TL Ventures III L.P., 327,475 shares held
by TL Ventures III Offshore L.P. and 51,083 shares held by TL Ventures III
Interfund L.P.
(2) Includes 119,624 shares held by Morgan Stanley Venture Capital Fund II,
L.P., 29,770 shares held by Morgan Stanley Venture Capital Fund II, C.V.
and 31,033 shares held by Morgan Stanley Venture Investors, L.P.
59
<PAGE>
(3) Includes 72,482 shares held by Alta IV Limited Partnership and 13,224
shares held by C.V. Sofinnova Partners Five.
(4) Includes 56,409 shares held by Alta California Partners, L.P. and 1,288
shares held by Alta Embarcadero Partners, LLC.
In November 1998, we borrowed money with an interest rate of 25% per annum
from the following entities beneficially owning more than 5% of our outstanding
stock or entities affiliated with directors at that time:
<TABLE>
<CAPTION>
Investor Amount of Loan
-------------------------------------------------------------- --------------
<S> <C>
Morgan Stanley Dean Witter Venture Partners(1)................ $319,149
Alta Partners(2).............................................. 102,122
TL Ventures(3)................................................ 315,394
Burr, Egan, Deleage & Company(4).............................. 70,833
C.V. Sofinnova Ventures....................................... 42,500
</TABLE>
- --------
(1) Includes $211,543 loaned by Morgan Stanley Venture Capital Fund II, L.P.,
$54,903 loaned by Morgan Stanley Venture Capital Fund II, C.V. and $52,703
loaned by Morgan Stanley Venture Investors, L.P.
(2) Includes $99,841 loaned by Alta California Partners, L.P. and $2,281 loaned
by Alta Embarcadero Partners, LLC.
(3) Includes $253,946 loaned by TL Ventures III L.P., $53,157 loaned by TL
Ventures III Offshore L.P. and $8,291.89 loaned by TL Ventures III
Interfund L.P.
(4) Includes $59,903 loaned by Alta IV Limited Partnership and $10,930 loaned
by C.V. Sofinnova Partners Five.
These amounts were repaid in full in June 1999 in connection with our sale of
Series AA preferred stock.
In March 1999, we borrowed money with an interest rate of 25% per annum
from the following entities beneficially owning more than 5% of our outstanding
stock or entities affiliated with directors at that time:
<TABLE>
<CAPTION>
Amount
Investor of Loans
-------------------------------------------------------------------- --------
<S> <C>
Morgan Stanley Dean Witter Venture Partners(1)...................... $244,056
TL Ventures(2)...................................................... 241,184
Alta Partners(3).................................................... 78,093
Burr, Egan, Deleage & Company(4).................................... 54,166
C.V. Sofinnova Ventures............................................. 32,500
</TABLE>
- --------
(1) Includes $161,768 loaned by Morgan Stanley Venture Capital Fund II, L.P.
$40,303 loaned by Morgan Stanley Venture Capital Fund II, C.V. and $41,985
loaned by Morgan Stanley Venture Investors L.P.
(2) Includes $194,194 loaned by TL Ventures III L.P., $40,649 loaned by TL
Ventures III Offshore L.P. and $6,341.
(3) Includes $76,349 loaned by Alta California Partners L.P. and $1,744 loaned
by Alta Embarcadero Partners L.L.C.
(4) Includes $45,808 loaned by Alta IV Limited Partnership and $8,358 loaned by
C.V. Sofinnova Partners Five.
These amounts were repaid in full in June 1999 in connection with our sale of
Series AA preferred stock.
In June 1999, we sold 16,832,412 shares of our Series AA preferred stock at
a price of $0.27 per share to several investors. In connection with this
financing, all shares of Series A, B, D and F preferred stock converted to
common stock at a ratio of 1:1. Series C preferred stock also converted to
common stock at a ratio
60
<PAGE>
of 1:1.04. Purchasers beneficially owning more than 5% of our outstanding stock
or entities affiliated with directors at that time included:
<TABLE>
<CAPTION>
Number of Shares of
Investor Series AA Preferred
--------------------------------------------------------- -------------------
<S> <C>
Alta Partners(1)......................................... 2,259,562
C.V. Sofinnova Ventures.................................. 584,621
Morgan Stanley Dean Witter Venture Partners(2)........... 4,395,064
TL Ventures(3)........................................... 7,626,113
Burr, Egan, Deleage & Company(4)......................... 1,404,059
</TABLE>
- --------
(1) Includes 2,208,175 shares held by Alta California Partners, L.P., 51,387
shares held by Alta Embarcadero Partners, LLC.
(2) Includes 2,913,197 shares held by Morgan Stanley Venture Capital Fund II,
L.P., 725,785 shares held by Morgan Stanley Venture Capital Fund II, C.V.
and 756,082 shares held by Morgan Stanley Venture Investors, L.P.
(3) Includes 6,140,312 shares held by TL Ventures III L.P., 1,285,307 shares
held by TL Ventures III Offshore L.P. and 200,494 shares held by TL
Ventures III Interfund L.P.
(4) Includes 1,187,188 shares held by Alta IV Limited Partnership and 216,871
shares held by C.V. Sofinnova Partners Five.
In December 1999, we sold 3,905,464 shares of our Series BB preferred stock
at a price of $3.57 per share to several investors, including the following
entities beneficially owning more than 5% of our outstanding stock, directors
and entities affiliated with directors:
<TABLE>
<CAPTION>
Number of Shares of
Investor Series BB Preferred Stock
-------------------------------------------------- -------------------------
<S> <C>
Sofinnova Ventures(1)............................. 1,120,448
L. George Klaus(2)................................ 56,021
Charles M. Boesenberg............................. 28,011
Ken Goldman....................................... 14,006
</TABLE>
- --------
(1) Includes 560,224 shares held by Sofinnova Capital III FCPR, 544,818 shares
held by Sofinnova Venture Partners IV, L.P., and 15,406 shares held by
Sofinnova Venture Affiliates IV, L.P.
(2) Includes 42,016 shares held by the L. George Klaus Trust and 14,005 shares
held by Julie Tafel Klaus, Mr. Klaus' spouse.
Holders of our preferred stock are entitled to registration rights with
respect to the shares of common stock that they will hold following this
offering. See "Description of Capital Stock--Registration Rights of Certain
Holders."
Other Transactions
From time to time, we have granted stock options to our executive officers
and directors.
We have entered into indemnification agreements with each of our directors
and executive officers that are described in this prospectus under the caption
"Management--Limitations of Liability and Indemnification Matters."
61
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999, by the following
individuals or groups:
. each person, or group of affiliated persons, whom we know beneficially
owns more than 5% of our outstanding stock;
. each of our Named Executive Officers;
. each of our directors; and
. all of our directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder on this table
is c/o Blaze Software, Inc., 1310 Villa Street, Mountain View, California
94041. Except as otherwise noted, and subject to applicable community property
laws, to the best of our knowledge, the persons named in this table have sole
voting and investing power with respect to all of the shares of common stock
held by them.
This table lists applicable percentage ownership based on 34,638,396 shares
of common stock outstanding as of December 31, 1999, as adjusted to reflect the
conversion of all outstanding shares of preferred stock into 34,638,396 shares
of common stock upon the closing of this offering, and also lists applicable
percentage ownership based on shares of common stock outstanding after
completion of this offering. Options and warrants to purchase shares of our
common stock that are exercisable within 60 days of December 31, 1999 are
deemed to be beneficially owned by the persons holding these options or
warrants for the purpose of computing percentage ownership of that person, but
are not treated as outstanding for the purpose of computing any other person's
ownership percentage.
<TABLE>
<CAPTION>
Shares Beneficially Owned
----------------------------
Percent Percent
Before After
Number Offering Offering
Beneficial Owner ---------- -------- --------
<S> <C> <C> <C>
Mark J. DeNino(1).............................. 9,569,118 27.6
Funds Affiliated with TL Ventures
435 Devon Park Drive
Building 700
Wayne, PA 19087
William Harding(2)............................. 6,902,330 19.9
Funds Affiliated with Morgan Stanley Dean
Witter Venture Partners
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Funds Affiliated with Alta Partners(3)......... 3,061,849 8.8% %
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Funds Affiliated with Sofinnova Ventures(4).... 2,840,402 6.9
140 Geary Blvd., 10th Floor
San Francisco, CA 94108
Funds Managed by or Affiliated with Burr, Egan,
Deleage & Company(5).......................... 2,337,719 6.7
One Post Office Suite
Suite 3800
Boston, MA 02109
Thomas F. Kelly(6)............................. 1,083,297 3.0
Gary Shroyer(7)................................ 208,433 *
Eric Kintzer(8)................................ 356,634 1.0
Michael Braun(9)............................... 25,000 *
Christina Jette................................ 25,000 *
Charles Page................................... 39,542 *
Charles M. Boesenberg(10)...................... 28,011 *
L. George Klaus(11)............................ 52,023 *
Ken Goldman(12)................................ 14,006 *
Patrick Perez(13).............................. 1,454,957 4.2
All directors and executive officers as a group
(9 persons)(14)............................... 19,758,351 36.3% %
</TABLE>
62
<PAGE>
- --------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 251,577 shares held by TL Ventures III Interfund L.P., 7,704,759
shares held by TL Ventures III L.P. and 1,612,782 shares held by TL
Ventures III Offshore L.P. Mr. DeNino, one of our directors, is the
general partner of TL Ventures. Mr. DeNino disclaims beneficial ownership
of the shares held by these funds except to the extent of his pecuniary
interest therein.
(2) Includes 1,139,801 shares held by Morgan Stanley Venture Fund II, C.V.,
4,575,128 shares held by Morgan Stanley Venture Capital Fund II, LP, and
1,187,401 shares held by Morgan Stanley Venture Investors LP. Dr.
Harding, one of our directors, is a general partner of these funds. Dr.
Harding disclaims beneficial ownership of the shares held by these funds
except to the extent of his pecuniary interest therein.
(3) Includes 2,987,698 shares held by Alta California Partners L.P., 74,151
shares held by Alta Embarcadero Partners LLC.
(4) Includes 1,000,000 shares held by C.V. Sofinnova, 709,954 shares by C.V.
Sofinnova Ventures, 560,224 shares held by Sofinnova Capital III FCPR,
544,818 shares held by Sofinnova Venture Partners IV, L.P. and 15,406
shares held by Sofinnova Venture Affiliates IV. Also includes 10,000
shares held by Mr. Alain Azan, one of our former directors and the
general partner of Sofinnova Ventures. Mr. Azan disclaims beneficial
ownership of the shares held by these funds except to the extent of his
pecuniary interest therein.
(5) Includes 1,976,789 shares held by Alta IV L.P. ("Alta") 360,930 shares
held by C.V. Sofinnova Partners Five ("Sofinnova" and together with Alta,
the "BEDFunds"). Burr, Egan, Deleage & Co. directly or indirectly
provides investment advisory services to Alta IV Limited Partnership and
C.V. Sofinnova Partners Five. The respective general partners of these
funds exercise sole voting and investment power in respect to the shares
owned by such funds. The principals of Burr, Egan, Deleage & Co. are
general partners of Alta IV Management Partners, L.P. (which is a general
partner of Alta IV Limited Partnership). As general partners of the fund,
they may be deemed to share voting and investment powers for the shares
held by the fund. Burr, Egan, Deleage & Co. serves as an advisor to C.V.
Sofinnova Partners Five. The principals of Burr, Egan, Deleage & Co.
disclaim beneficial ownership of the shares held by these funds except to
the extent of their pecuniary interest therein.
(6) As of December 31, 1999, Mr. Kelly had exercised options to purchase
600,000 shares of common stock, which shares are subject to a repurchase
option held by us. Mr. Kelly holds exercisable options to purchase
2,336,751 shares of common stock. Of the shares represented by these
options and the shares issued to Mr. Kelly upon the exercise of his
options, 1,083,297 shares are fully vested as of February 29, 2000.
(7) As of December 31, 1999, Mr. Shroyer had exercised options to purchase
250,000 shares of common stock, which shares are subject to a repurchase
option held by us. Mr. Shroyer holds exercisable options to purchase
420,844 shares of common stock. Of the shares represented by these
options and the shares issued to Mr. Shroyer upon the exercise of his
options, 208,433 shares are fully vested as of February 29, 2000.
(8) As of December 31, 1999, Mr. Kintzer had exercised options to purchase
79,000 shares of common stock, which shares are subject to a repurchase
option held by us. Mr. Kintzer holds exercisable options to purchase
790,278 shares of common stock. Of the shares represented by these
options and the shares issued to Mr. Kintzer upon the exercise of his
options, 356,634 shares are fully vested as of February 29, 2000.
(9) Mr. Braun holds exercisable options to purchase 75,000 shares of common
stock, of which 25,000 shares are fully vested as of February 29, 2000.
(10) Mr. Boesenberg also holds exercisable options to purchase 50,000 shares
of common stock, of which no shares are vested as of February 29, 2000.
(11) Includes 42,017 shares held by the L. George Klaus Trust and 14,006
shares held by Julie Tafel Klaus, Mr. Klaus' spouse. Mr. Klaus also holds
exercisable options to purchase 50,000 shares of common stock, of which
no shares are vested as of February 29, 2000.
(12) Mr. Goldman also holds exercisable options to purchase 50,000 shares of
common stock, of which no shares are vested as of February 29, 2000.
(13) Includes 127,375 shares held by Guenolla Jonville, Mr. Perez's spouse.
(14) Includes 1,648,364 shares issuable upon exercise of fully vested options.
63
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our certificate of incorporation that becomes effective upon the closing of
this offering authorizes the issuance of up to 200,000,000 shares of common
stock, $0.0001 par value, and authorizes the issuance of 10,000,000 shares of
undesignated preferred stock, $0.0001 par value. From time to time, our board
of directors may establish the rights and preferences of the preferred stock.
As of December 31, 1999, 13,900,520 shares of common stock were issued and
outstanding and held by 151 stockholders, and 20,737,876 shares of preferred
stock were issued and outstanding and held by 49 stockholders. Upon the closing
of this offering, all outstanding shares of preferred stock will convert into
an aggregate of 20,737,876 shares of common stock. The following description of
our capital stock is, by necessity, not complete. We encourage you to refer to
our amended and restated certificate of incorporation and bylaws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and applicable provisions of Delaware law for a more complete
description.
Common Stock
Each holder of common stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any
subsequently outstanding shares of preferred stock, holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of Blaze Software, the holders of common stock are entitled to share
in our assets remaining after the payment of liabilities and the satisfaction
of any liquidation preferences granted to the holders of any outstanding shares
of preferred stock. Holders of common stock have no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable. The rights, preferences and privileges
of the holders of common stock are subject to, and may be adversely affected by
the rights of the holders of shares of any series of preferred stock which we
may designate in the future.
Preferred Stock
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may
be greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; or
. delaying or preventing a change in control of Blaze Software without
further action by the stockholders.
Upon the closing of this offering, no shares of preferred stock will be
outstanding, and Blaze Software has no present plans to issue any shares of
preferred stock.
Warrants and Other Obligations to Issue Capital Stock
As of December 31, 1999, we had outstanding warrants to purchase an
aggregate of 12,009 shares of common stock at an exercise price $2.80 per
share. These warrants are currently exercisable in full. Warrants to purchase
10,000 shares of common stock will expire on October 20, 2006 and warrants to
purchase 2,009 shares of common stock will expire on August 14, 2007.
64
<PAGE>
Registration Rights of Certain Holders
After this offering, holders of 31,681,218 shares of common stock (the
"registrable securities") or their transferees are entitled to certain rights
with respect to the registration of such shares under the Securities Act. These
rights are provided under the terms of an agreement between Blaze Software and
the holders of the registrable securities. Beginning 180 days following the
date of this prospectus, holders of at least 40% of the registrable securities
may require on three occasions that we use our best efforts to register the
registrable securities for public resale. Blaze Software is obligated to
register these shares only if the outstanding registrable securities have an
anticipated aggregate public offering price of at least $5,000,000.
Furthermore, in the event Blaze Software elects to register any of its shares
of common stock for purposes of effecting any public offering, the holders of
registrable securities are entitled to include their shares of common stock in
the registration, but Blaze Software may reduce the number of shares proposed
to be registered in view of market conditions. These registration rights have
been waived with respect to this offering. Blaze Software will bear all
expenses in connection with any registration, other than underwriting discounts
and commissions. All registration rights will terminate ten years following the
consummation of this offering, or with respect to each holder of registrable
securities, at such time as the holder is entitled to sell all of its shares in
any 90-day period under Rule 144 of the Securities Act.
Certain Charter and Bylaw Provisions and Delaware Law
Certain provisions of Delaware law and Blaze Software's certificate of
incorporation and bylaws that become effective upon the closing of this
offering could make the following more difficult:
. the acquisition of Blaze Software by means of a tender offer;
. acquisition of Blaze Software by means of a proxy contest or
otherwise; or
. the removal of Blaze Software's incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
Blaze Software to first negotiate with Blaze Software's board. Blaze Software
believes that the benefits of increased protection of its potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure Blaze Software outweigh the disadvantages of
discouraging such proposals because negotiation of such proposals could result
in an improvement of their terms.
Election And Removal Of Directors.
Our board of directors is divided into three classes. The directors in each
class will serve for a three-year term, with Blaze Software's stockholders
electing one class each year. See "Management--Board Composition." This system
of electing and removing directors may discourage a third party from making a
tender offer or otherwise attempting to obtain control of Blaze Software
because it generally makes it more difficult for stockholders to replace a
majority of the directors.
Stockholder Meetings.
Under our bylaws, only the board of directors, the chairman of the board
and the president may call special meetings of stockholders.
Requirements For Advance Notification Of Stockholder Nominations And
Proposals.
Our bylaws establish advance notice procedures for stockholder proposals
and the nomination of candidates for election as directors, other than
nominations made by or at the direction of the board of directors.
65
<PAGE>
Delaware Anti-takeover Law.
Blaze Software is subject to Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder"
is a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held
by stockholders.
Elimination Of Stockholder Action By Written Consent.
Our certificate of incorporation and bylaws that become effective upon the
closing of this offering eliminate the right of stockholders to act by written
consent without a meeting.
No Cumulative Voting.
Our certificate of incorporation and bylaws that become effective upon the
closing of this offering do not provide for cumulative voting in the election
of directors.
Undesignated Preferred Stock.
The authorization of undesignated preferred stock makes it possible for the
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to effect a change in
control of Blaze Software. These and other provisions may have the effect of
deterring hostile takeovers or delaying changes in control or management of
Blaze Software.
Amendment Of Charter Provisions.
The amendment of any of the following provisions would require approval by
holders of at least 66 2/3% of the outstanding common stock:
. indemnification of our officers or directors;
. classification of directors;
. location of stockholder meetings;
. ability of stockholders to act by written consent;
. advance notice provisions for stockholder actions or nominations; and
. super-majority provision of our certificate of incorporation.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Norwest Bank
Minnesota, N.A.
66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market following this offering could
adversely affect market prices prevailing from time to time and could impair
our ability to raise capital through sale of our equity securities. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have shares of
common stock outstanding based upon shares outstanding as of December 31, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants that do not expire prior to completion of
this offering. Of these shares, the shares sold in this offering
and shares held by existing shareholders will be freely tradable without
restriction under the Securities Act, except for any shares held by our
"affiliates" as Rule 144 under the Securities Act defines that term. The
remaining shares of common stock held by existing stockholders are
"Restricted Shares" as Rule 144 defines that term. of such
Restricted Shares are subject to lock-up agreements providing that, with
certain limited exceptions, the stockholder will not offer, sell, contract to
sell or otherwise dispose of any common stock or any securities that are
convertible into common stock for a period of 180 days after the date of this
prospectus without the prior written consent of FleetBoston Robertson Stephens
or Blaze Software. As a result of these lock-up agreements, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, none of these shares will be resellable until 181 days after the date
of this prospectus. Beginning 181 days after the date of this prospectus,
approximately Restricted Shares will be eligible for sale in the
public market (subject in some cases to volume restrictions under Rule 144 or
repurchase rights in favor of Blaze Software). On September 28, 2000,
approximately 562,752 Restricted Shares will be eligible for sale in the public
market, all of which are subject to volume limitations under Rule 144. On
December 31, 2000, approximately 3,905,464 Restricted Shares will be eligible
for sale in the public market, all of which are subject to volume limitations
under Rule 144. In addition, as of December 31, 1999, there were outstanding
options to purchase 8,477,057 shares of common stock. All such options are
subject to lock-up agreements. In addition, as of December 31, 1999, there were
outstanding warrants to purchase 12,009 shares of common stock that are subject
to lock-up agreements. FleetBoston Robertson Stephens may, in their sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned Restricted
Shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which
will equal approximately shares immediately after this
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Blaze Software. Under Rule 144(k), a person who is not deemed to have
been an affiliate of Blaze Software at any time during the three months
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years including the holding period of any prior owner except
an affiliate, is entitled to sell such shares without complying with the manner
of sale, public information, volume limitation or notice provisions of Rule
144.
67
<PAGE>
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of
or consultant to Blaze Software who purchased shares pursuant to a written
compensatory plan or contact may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares. However, most Rule 701 shares are
subject to lock-up agreements and will only become eligible for sale at the
earlier of the expiration of the 180-day lock-up agreements or no sooner than
90 days after the offering upon obtaining the prior written consent of
FleetBoston Robertson Stephens.
After this offering, we intend to file a registration statement on Form S-8
registering shares of common stock subject to outstanding options or reserved
for future issuance under our stock plans. As of December 31, 1999, options to
purchase a total of 8,477,057 shares were outstanding and shares
were reserved for future issuance under our stock plans. Common stock issued
upon exercise of outstanding vested options or issued pursuant to our employee
stock purchase plan, other than common stock issued to our affiliates is
available for immediate resale in the open market.
Also beginning six months after the date of this offering, holders of
31,681,218 Restricted Shares will be entitled to certain rights with respect to
registration of such shares for sale in the public market. See "Description of
Capital Stock--Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act, except for shares purchased by
affiliates, immediately upon the effectiveness of such registration.
68
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Hambrecht & Quist LLC and Dain Rauscher
Incorporated, have entered into an underwriting agreement with us to purchase
the number of shares of common stock listed opposite their names below. The
underwriters are obligated to purchase and pay for all the shares listed below
if any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc................................
Hambrecht & Quist LLC.............................................
Dain Rauscher Incorporated........................................
----
Total...........................................................
====
</TABLE>
The 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 that
price less a concession of not more than $ 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 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. The
underwriters 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 receive for the shares that the underwriters have agreed
to purchase. If the underwriters exercise their over-allotment option to
purchase any of the additional shares of common stock, the underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage of these additional shares as the number of shares of
common stock to be purchased by each of them shown in the above table bears to
the total number of shares of common stock offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered hereby are being sold. We will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters to the extent the over-allotment option is exercised. The
underwriters may exercise the over-allotment option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered in this offering.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
----------------------------------
Without With Over-
Per Share Over-allotment Allotment
--------- -------------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions
payable by us............................ $ $ $
</TABLE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $1,400,000.
Indemnification. The underwriting agreement contains covenants of indemnity
among the underwriters and us against specified civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each of our officers, directors and substantially all
of our security holders have agreed, during the period of 180 days after the
effective date of this prospectus, subject to specified exceptions,
69
<PAGE>
not 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 shares of common stock or any securities convertible into,
or exchangeable for, shares of common stock, owned as of the date of this
prospectus or thereafter acquired directly by those holders or with respect to
which they have the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens or us. FleetBoston Robertson Stephens may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements. All of the shares of common
stock subject to the lock-up agreements will be eligible for sale in the public
market upon the expiration of the lock-up agreements, subject to holding period
requirements, volume limitations and other conditions of Rule 144.
Future Sales. In addition, we have agreed that, during the period of 180
days after the effective date of this prospectus, we will not, without the
prior written consent of FleetBoston Robertson Stephens, subject to certain
exceptions, issue, sell, contract to sell or otherwise dispose of any shares of
common stock, any options or warrants 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, our grant of options to
purchase shares of common stock under existing stock option or stock purchase
plans, and issuances of stock in connection with acquisitions.
No Prior Public Market. Prior to this offering, there was no public market
for our common stock. Consequently, the initial public offering price for the
common stock in this offering was determined through negotiations among us and
the representatives of the underwriters. The factors considered in these
negotiations included prevailing market conditions, our financial information,
the market valuation of other companies that we and the representatives believe
to be comparable to us, estimates of our business potential and the business
potential of the industry in which we compete, and assessment of our
management, our past and present operation and the prospects for our future
revenues.
Stabilization. The representatives have advised us that, based on
Regulation M under the Exchange Act, some persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, which 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 that is intended to fix or maintain the price of the common stock.
A "syndicate covering transaction" is the bid for or the purchase of common
stock on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with the offering. A "penalty bid" is an arrangement
that permits the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with the offering
if the common stock originally sold by the underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction, and has
therefore not been effectively placed by this underwriter or syndicate member.
The representatives have advised us that these transactions may be effected on
the Nasdaq National Market and, if commenced, may be discontinued at any time.
Directed Shares. At our request, the underwriters have reserved up to five
percent of the common stock to be issued by us in this offering for sale, at
the initial public offering price, to directors, officers, employees, business
associates and related persons of Blaze Software. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase the reserved shares. The underwriters will offer any reserved
shares not so purchased to the general public on the same basis as other shares
in this offering described above.
Participation in Previous Preferred Stock Financing. In December 1999, we
completed our Series BB preferred stock financing. Bayview 99 I, LP and Bayview
99 II, LP, affiliates of FleetBoston Robertson Stephens Inc., purchased an
aggregate of 56,022 shares. Hambrecht & Quist California, H&Q Employee Venture
Fund 2000, L.P., and Access Technology Partners Brokers Fund, L.P., affiliates
of Hambrecht & Quist
70
<PAGE>
LLC, purchased an aggregate of 51,541 shares. Dain Rauscher Wessels Investors
L.L.C., an affiliate of Dain Rauscher Incorporated, purchased 56,023 shares.
All of these shares will convert into common stock upon completion of this
offering.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Blaze Software by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Certain legal matters in connection with this offering
will be passed upon for the underwriters by Latham & Watkins, Menlo Park,
California. Attorneys of Wilson Sonsini Goodrich & Rosati beneficially own an
aggregate of 53,925 shares of common stock.
EXPERTS
The financial statements of Blaze Software, Inc. at March 31, 1998 and
1999, and for each of the three years in the period ended March 31, 1999
appearing in this prospectus have so been included in reliance on the report of
PricewaterhouseCoopers, LLP, independent accountants, given upon the authority
of said firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective April 1999, PricewaterhouseCoopers LLP was engaged as our
independent accountants and replaced KPMG LLP, who were dismissed as our
independent accountants. The decision to change accountants was approved by our
board of directors. The audit reports of KPMG LLP for the years ended March 31,
1998 and 1997 contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principle, except that the audit report issued by KPMG LLP for the year ended
March 31, 1997 included an explanatory paragraph citing factors that raised
substantial doubt surrounding our ability to continue as a going concern. In
connection with its audits through March 31, 1998 and through the date of their
replacement, there were no disagreements with KPMG LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to their satisfaction
would have caused them to make reference in connection with their opinion to
the subject matter of the disagreement. KPMG LLP has not audited or reported on
any of the consolidated financial statements or information included in this
prospectus. For purposes of this filing, the consolidated financial statements
for the years ended March 31, 1998 and 1997 as well as the consolidated
financial statements for the year ended March 31, 1999 have been audited by
PricewaterhouseCoopers LLP. Prior to retaining PricewaterhouseCoopers LLP, we
had not consulted with PricewaterhouseCoopers LLP on items that involved our
accounting principles or the form of audit opinion to be issued on our
consolidated financial statements included in this prospectus.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Blaze Software has filed with the SEC a registration statement on Form S-1
under the Securities Act with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. For further
information with respect to Blaze Software and our common stock, reference is
made to the registration statement and the exhibits and schedules filed as a
part thereof. Statements contained in this prospectus as to the contents of any
contract or any other document referred to are not necessarily complete. In
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the registration statement, and each such statement is
qualified in all respects by such reference. Copies of the registration
statement, including exhibits and schedules thereto, may be inspected without
charge at the SEC's principal office in Washington, D.C., or obtained at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
71
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Deficit........................... F-5
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Blaze Software, Inc.
The reincorporation described in Note 12 of the notes to the consolidated
financial statements is not effective at January 11, 2000. When it is
effective, we will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets
and the related statements of operations, of stockholders'
deficit, and of cash flows present fairly, in all material
respects, the financial position of Blaze Software, Inc. and its
subsidiaries as of March 31, 1998 and 1999, and the results of
their operations and their cash flows for each of the three
years ended March 31, 1997, 1998 and 1999, in conformity with
accounting principles generally accepted in the United States.
These consolidated financial statements are the responsibility
of Blaze Software, Inc.'s management; our responsibility is to
express an opinion on these consolidated financial statements
based on our audits. We conducted our audits of these
consolidated financial 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 consolidated financial statements
are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
San Jose, California
January 5, 2000
F-2
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, Pro Forma
------------------ September 30, September 30,
1998 1999 1999 1999
-------- -------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 6,591 $ 2,129 $ 3,339 $ 3,339
Accounts receivable, net of
allowance for doubtful
accounts of $608, $443 and
$586 (unaudited),
respectively............... 5,282 3,658 3,280 3,280
Prepaid expenses and other
current assets............. 430 964 891 891
Income taxes refundable...... 27 -- -- --
-------- -------- -------- --------
Total current assets.... 12,330 6,751 7,510 7,510
Property and equipment, net.... 1,035 786 888 888
Deposits and other assets...... 489 228 223 223
-------- -------- -------- --------
Total assets................... $ 13,854 $ 7,765 $ 8,621 $ 8,621
======== ======== ======== ========
LIABILITIES, MANDATORILY
REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Bank borrowings.............. $ 2,678 $ 1,631 $ 2,319 $ 2,319
Bridge loan from related
parties.................... -- 1,596 -- --
Current portion of capital
lease obligations.......... 179 81 152 152
Note payable................. -- 129 42 42
Accounts payable............. 1,889 1,526 1,217 1,217
Accrued expenses............. 3,631 2,873 3,145 3,145
Deferred revenue............. 3,325 3,231 2,368 2,368
-------- -------- -------- --------
Total current
liabilities........... 11,702 11,067 9,243 9,243
Long-term liabilities:
Capital lease obligations,
net of current portion..... 91 19 206 206
-------- -------- -------- --------
Total liabilities....... 11,793 11,086 9,449 9,449
-------- -------- -------- --------
Mandatorily Redeemable
Preferred Stock: par value
$0.0001
Authorized: none (unaudited)
at September 30, 1999,
actual and
pro forma; Issued and
outstanding: 6,358 at
March 31, 1998 and 1999
and none (unaudited) at
September 30, 1999, actual
and pro forma
(Aggregate liquidation
preference: $38,340 at
March 31, 1999)............ 19,624 20,882 -- --
-------- -------- -------- --------
Commitments and contingencies
(Note 9)
Stockholders' deficit:
Series B Convertible
Preferred Stock: par value
$0.0001
Authorized: 34,000
(unaudited) at September
30, 1999, actual and
pro forma; Issued and
outstanding: 4,545 at
March 31, 1998 and 1999,
and none (unaudited) at
September 30, 1999,
actual and pro forma
(Aggregate liquidation
value: $13,350 at March
31, 1999)............... -- -- -- --
Series AA convertible
Preferred Stock: par value
$0.0001
Authorized: 34,000
(unaudited) at September
30, 1999, actual and
none (unaudited) on
September 30, 1999;
pro forma; Issued and
outstanding: none at
March 31, 1998 and 1999,
16,832 (unaudited) at
September 30, 1999,
actual and none
(unaudited) at September
30, 1999, pro forma..... -- -- 2 --
Common Stock, $0.0001 par
value
Authorized: 54,000 shares
(unaudited) at September
30, 1999, actual and
200,000 shares
(unaudited) at September
30, 1999, pro forma;
Issued and outstanding:
806 at March 31, 1998,
687 at March 31, 1999
and 12,414 (unaudited),
at September 30, 1999,
29,246 (unaudited) at
September 30, 1999, pro
forma................... -- -- 1 3
Additional paid-in capital... (552) (1,842) 44,944 44,944
Notes receivable from
stockholders............... (70) -- -- --
Cumulative translation
adjustment................. 110 290 465 465
Unearned compensation........ -- -- (15,010) (15,010)
Accumulated deficit.......... (17,051) (22,651) (31,230) (31,230)
-------- -------- -------- --------
Total stockholders'
deficit............... (17,563) (24,203) (828) (828)
-------- -------- -------- --------
Total liabilities,
Mandatorily Redeemable
Preferred Stock and
stockholders'
deficit............... $ 13,854 $ 7,765 $ 8,621 $ 8,621
======== ======== ======== ========
</TABLE>
The accompanuying notes are an integral part of these financial statements.
F-3
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended March 31, September 30,
------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues:
Product licenses............. $ 3,296 $ 3,559 $ 3,722 $ 1,595 $ 3,103
Services and maintenance..... 327 803 5,332 2,334 4,017
------- ------- ------- -------- --------
Total revenues............. 3,623 4,362 9,054 3,929 7,120
------- ------- ------- -------- --------
Cost of revenues:
Product licenses............. 180 74 40 36 46
Services and maintenance..... 463 512 2,892 1,200 2,653
------- ------- ------- -------- --------
Total cost of revenues..... 643 586 2,932 1,236 2,699
------- ------- ------- -------- --------
Gross profit:.................. 2,980 3,776 6,122 2,693 4,421
------- ------- ------- -------- --------
Operating expenses:
Research and development..... 1,370 1,938 3,843 2,072 2,343
Selling, general and
administrative.............. 3,299 4,808 7,791 3,976 5,312
Stock-based compensation..... -- -- -- -- 6,439
------- ------- ------- -------- --------
Total operating expenses... 4,669 6,746 11,634 6,048 14,094
------- ------- ------- -------- --------
Operating loss................. (1,689) (2,970) (5,512) (3,355) (9,673)
Interest expense, net.......... (434) (593) (249) (34) (152)
------- ------- ------- -------- --------
Net loss from continuing
operations before income
taxes......................... (2,123) (3,563) (5,761) (3,389) (9,825)
Provision for income taxes..... (600) (68) (87) (19) (74)
------- ------- ------- -------- --------
Net loss from continuing
operations.................... (2,723) (3,631) (5,848) (3,408) (9,899)
Discontinued operations (Note
3):
Income (loss) from operations
of discontinued GUI business
(net of income taxes)....... (5,479) (2,174) 248 (68) 1,320
------- ------- ------- -------- --------
Net loss....................... (8,202) (5,805) (5,600) (3,476) (8,579)
Accretion of mandatorily
redeemable preferred stock to
redemption value.............. (554) (1,040) (1,258) (693) (442)
------- ------- ------- -------- --------
Net loss attributable to common
stockholders.................. (8,756) (6,845) (6,858) (4,169) (9,021)
Other comprehensive (loss)
income, net of tax:
Translation adjustments...... 64 (20) 180 70 175
------- ------- ------- -------- --------
Comprehensive (loss)........... $(8,692) $(6,865) $(6,678) $ (4,099) $ (8,846)
======= ======= ======= ======== ========
Basic and diluted net earnings
(loss) per common share
attributable to common
stockholders:
Earnings/(loss) from
continuing operations....... $ (1.78) $(14.74) $ (9.16) $ (5.87) $ (1.23)
Earnings/(loss) from
discontinued operations..... (2.98) (6.85) 0.32 (0.09) 0.16
------- ------- ------- -------- --------
Basic and diluted net (loss)
per common share attributable
to common stockholders........ $ (4.76) $(21.59) $ (8.84) $ (5.96) $ (1.07)
======= ======= ======= ======== ========
Number of shares used in
calculation of basic and
diluted net loss per share.... 1,840 317 776 699 8,435
======= ======= ======= ======== ========
Basic and diluted pro forma net
loss per share................ $ (0.48) $ (0.71)
======= ========
Shares used in computing pro
forma basic and diluted net
loss per share................ 11,719 12,103
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Mandatorily
Redeemable Series B Series AA
Preferred Preferred Preferred Notes Cumulative
Stock Stock Stock Common Stock Additional Receivable Currency
-------------- ------------- ------------- -------------- Paid-In from Translation Unearned
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stockholder Adjustment Compensation
------ ------- ------ ------ ------ ------ ------ ------ ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at April
1, 1996.......... 1,884 $ 3,275 -- $-- -- $ -- 4,507 $-- $ 395 $ -- $ 66 $ --
Issuance of
Common Stock
pursuant to
exercise of
options........ -- -- -- -- -- -- 296 -- 102 (70) -- --
Issuance of
Series D
Preferred Stock
at $2.80, net
of Series E
option and
issuance costs
of $144........ 2,143 4,791 -- -- -- -- -- -- -- -- -- --
Issuance of
Series E Stock
options........ -- 1,064 -- -- -- -- -- -- -- -- -- --
Conversion of
Common Stock to
Series B
Preferred
Stock.......... -- -- 4,535 -- -- -- (4,539) -- -- -- -- --
Issuance of
Series B
Preferred Stock
pursuant to
exercise of
options........ -- -- 8 -- -- -- -- -- 7 -- -- --
Issuance of
Common Stock
warrants....... -- -- -- -- -- -- -- -- 385 -- -- --
Issuance of
Common Stock
related to
acquisition.... -- -- -- -- -- -- 200 -- 56 -- -- --
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- 554 -- -- -- -- -- -- (554) -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
foreign
currency
translation
adjustment..... -- -- -- -- -- -- -- -- -- -- 64 --
----- ------- ----- --- --- ---- ------ --- ------ ---- ---- ----
Balances at March
31, 1997......... 4,027 $ 9,684 4,543 $-- -- $ -- 464 $-- $ 391 $(70) $130 $ --
Issuance of
Common Stock
pursuant to
exercise of
options........ -- -- -- -- -- -- 344 -- 97 -- -- --
Repurchase of
Common Stock... -- -- -- -- -- -- (2) -- (1) -- -- --
Issuance of
Series F
Preferred Stock
at $3.86, net
of issuance
costs of $100.. 1,943 7,400 -- -- -- -- -- -- -- -- -- --
Conversion of
bridge loan to
Series F
Preferred
Stock.......... 388 1,500 -- -- -- -- -- -- -- -- -- --
Issuance of
Series B
Preferred Stock
pursuant to
exercise of
options........ -- 2 -- -- -- -- -- 1 -- -- --
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- 1,040 -- -- -- -- -- -- (1,040) -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
foreign
currency
translation
adjustment..... -- -- -- -- -- -- -- -- -- -- (20) --
----- ------- ----- --- --- ---- ------ --- ------ ---- ---- ----
Balances at March
31, 1998......... 6,358 $19,624 4,545 $-- -- $ -- 806 $-- $ (552) $(70) $110 $ --
===== ======= ===== === === ==== ====== === ====== ==== ==== ====
<CAPTION>
Total
Accumulated Stockholders'
Deficit Deficit
----------- -------------
<S> <C> <C>
Balances at April
1, 1996.......... $ (3,044) $ (2,583)
Issuance of
Common Stock
pursuant to
exercise of
options........ -- 32
Issuance of
Series D
Preferred Stock
at $2.80, net
of Series E
option and
issuance costs
of $144........ -- --
Issuance of
Series E Stock
options........ -- --
Conversion of
Common Stock to
Series B
Preferred
Stock.......... -- --
Issuance of
Series B
Preferred Stock
pursuant to
exercise of
options........ -- 7
Issuance of
Common Stock
warrants....... -- 385
Issuance of
Common Stock
related to
acquisition.... -- 56
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- (554)
Net loss........ (8,202) (8,202)
Cumulative
foreign
currency
translation
adjustment..... -- 64
----------- -------------
Balances at March
31, 1997......... $(11,246) $(10,795)
Issuance of
Common Stock
pursuant to
exercise of
options........ -- 97
Repurchase of
Common Stock... -- (1)
Issuance of
Series F
Preferred Stock
at $3.86, net
of issuance
costs of $100.. -- --
Conversion of
bridge loan to
Series F
Preferred
Stock.......... -- --
Issuance of
Series B
Preferred Stock
pursuant to
exercise of
options........ -- 1
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... (1,040)
Net loss........ (5,805) (5,805)
Cumulative
foreign
currency
translation
adjustment..... -- (20)
----------- -------------
Balances at March
31, 1998......... $(17,051) $(17,563)
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT--(Continued)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Mandatorily
Redeemable Series B Series AA
Preferred Preferred Preferred Notes Cumulative
Stock Stock Stock Common Stock Additional Receivable Currency
--------------- -------------- ------------- -------------- Paid-In from Translation Unearned
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stockholder Adjustment Compensation
------ ------- ------ ------ ------ ------ ------ ------ ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at March
31, 1998......... 6,358 $19,624 4,545 $ -- -- $ -- 806 $ -- $ (552) $ (70) $ 110 $ --
Issuance of
Common Stock
pursuant to
exercise of
options........ -- -- -- -- -- -- 195 -- 56 -- -- --
Issuance of
Common Stock... -- -- -- -- -- -- 1 -- -- -- -- --
Repurchase of
Common Stock... -- -- -- -- -- -- (315) -- (88) 70 -- --
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- 1,258 -- -- -- -- -- -- (1,258) -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
foreign
currency
translation
adjustment..... -- -- -- -- -- -- -- -- -- -- 180 --
------ ------- ------ ---- ------ ---- ------ ---- ------- ----- ----- --------
Balances at March
31, 1999......... 6,358 20,882 4,545 $ -- -- $ -- 687 $ -- $(1,842) $ -- $ 290 $ --
Issuance of
Common Stock
pursuant to
exercise of
options........ -- -- -- -- -- -- 784 -- 55 -- -- --
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- 442 -- -- -- -- -- -- (442) -- -- --
Adjustment of
Mandatorily
Redeemable
Preferred Stock
Series C per
anti-dilution
provision...... 40 -- -- -- -- -- -- -- -- -- -- --
Conversion of
Mandatorily
Redeemable
Preferred Stock
to Common
Stock.......... (6,398) (21,324) -- -- -- -- 6,398 1 21,323 -- -- --
Conversion of
Series B Stock
to Common
Stock.......... -- -- (4,545) -- -- -- 4,545 -- -- -- -- --
Issuance of
Series AA
Preferred Stock
at $0.27 per
share, net of
issuance costs
of $141........ -- -- -- -- 16,832 2 -- -- 4,402 -- -- --
Unearned
compensation... -- -- -- -- -- -- -- -- 21,448 -- -- (21,448)
Amortization of
unearned
compensation... -- -- -- -- -- -- -- -- -- -- -- 6,438
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
foreign
currency
translation
adjustment..... -- -- -- -- -- -- -- -- -- -- 175 --
------ ------- ------ ---- ------ ---- ------ ---- ------- ----- ----- --------
Balances at
September 30,
1999,
(unaudited)...... -- $ -- -- $ -- 16,832 $ 2 12,414 $ 1 $44,944 $ -- $ 465 $(15,010)
====== ======= ====== ==== ====== ==== ====== ==== ======= ===== ===== ========
<CAPTION>
Total
Accumulated Stockholders'
Deficit Deficit
----------- -------------
<S> <C> <C>
Balances at March
31, 1998......... $(17,051) $(17,563)
Issuance of
Common Stock
pursuant to
exercise of
options........ -- 56
Issuance of
Common Stock... -- --
Repurchase of
Common Stock... -- (18)
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- (1,258)
Net loss........ (5,600) (5,600)
Cumulative
foreign
currency
translation
adjustment..... -- 180
----------- -------------
Balances at March
31, 1999......... $(22,651) $(24,203)
Issuance of
Common Stock
pursuant to
exercise of
options........ -- 55
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- (442)
Adjustment of
Mandatorily
Redeemable
Preferred Stock
Series C per
anti-dilution
provision...... -- --
Conversion of
Mandatorily
Redeemable
Preferred Stock
to Common
Stock.......... -- 21,324
Conversion of
Series B Stock
to Common
Stock.......... -- --
Issuance of
Series AA
Preferred Stock
at $0.27 per
share, net of
issuance costs
of $141........ -- 4,404
Unearned
compensation... -- --
Amortization of
unearned
compensation... -- 6,438
Net loss........ (8,579) (8,579)
Cumulative
foreign
currency
translation
adjustment..... -- 175
----------- -------------
Balances at
September 30,
1999,
(unaudited)...... $(31,230) $ (828)
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended March 31, September 30,
------------------------- -----------------
1997 1998 1999 1998 1999
------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................ $(8,202) $(5,805) $(5,600) $(3,476) $ (8,579)
Add (deduct) loss (income) from
discontinued operations....... 5,479 2,174 (248) 68 (1,320)
------- ------- ------- ------- --------
Loss from continuing
operations.................... (2,723) (3,631) (5,848) (3,408) (9,899)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Bridge loan interest
converted to equity......... -- -- 96 -- --
Depreciation and
amortization................ 1,075 868 899 394 272
Amortization of stock-based
compensation................ -- -- -- -- 6,438
Amortization of debt
discount.................... 77 -- -- -- --
Write-off of in process
research and development.... 259 -- -- -- --
Loss on write-off of
equipment................... -- -- 129 -- --
Changes in assets and
liabilities:
Accounts receivable........ (467) (1,579) (557) 501 259
Income taxes refund
receivable............... (259) (4) 27 27 --
Prepaid expenses and
other.................... (2) 417 (533) (111) 72
Accounts payable........... (96) (31) 7 (837) (314)
Other accrued expenses..... 583 (255) (757) (221) 272
Deferred revenue........... (356) (569) (95) (959) (863)
Deferred income taxes...... 265 -- -- -- --
Deposits and other assets.. -- 260 274 6
Other long-term
liabilities.............. -- -- -- 16 --
Net cash used in continuing
operations.................... (1,644) (4,784) (6,372) (4,324) (3,757)
Net cash (used in) provided by
discontinuing operations...... (2,310) (294) 2,061 578 1,444
------- ------- ------- ------- --------
Net cash used in
operating activities... (3,954) (5,078) (4,311) (3,746) (2,313)
------- ------- ------- ------- --------
Cash flows from investing
activities:
Capital expenditures............ (321) (140) (779) (148) (40)
Acquisition..................... (130) -- -- -- --
------- ------- ------- ------- --------
Net cash used in
investing activities... (451) (140) (779) (148) (40)
------- ------- ------- ------- --------
Cash flows from financing
activities:
Proceeds from note payable...... -- -- 129 -- --
Repayment of note payable....... -- -- -- -- (86)
Payments of principal under
capital lease financing....... (685) (442) (172) (153) (130)
Bank borrowings, net............ 273 1,327 (1,047) (692) 688
Repayment of note payable to
stockholder................... -- (310) -- -- --
Proceeds from issuance of Common
Stock......................... 32 96 56 28 20
Repurchase of Common Stock...... -- (1) (18) -- --
Proceeds from issuance of
Preferred Stock, Series B (net
of issuance costs)............ -- 1 -- -- --
Proceeds from issuance of
Preferred Stock, Series D and
Series E option
(net of issuance costs)....... 5,862 -- -- -- 36
Proceeds from issuance of
Preferred Stock, Series F (net
of issuance costs)............ -- 7,400 -- -- --
Proceeds from issuance of
Preferred Stock, Series AA
(net of issuance costs)....... -- -- -- -- 2,860
Proceeds from bridge loan....... -- 1,500 1,500 -- --
------- ------- ------- ------- --------
Net cash provided by used
in financing
activities............. 5,482 9,571 448 (817) 3,388
------- ------- ------- ------- --------
Effect of exchange rate changes
in cash....................... 64 (20) 180 42 175
Net increase (decrease) in cash
and cash equivalents.......... 1,141 4,333 (4,462) (4,669) 1,210
Cash and cash equivalents at
beginning of period........... 1,117 2,258 6,591 6,591 2,129
------- ------- ------- ------- --------
Cash and cash equivalents at end
of period..................... $ 2,258 $ 6,591 $ 2,129 $ 1,922 $ 3,339
======= ======= ======= ======= ========
Supplemental disclosures of cash
flow information:
Cash paid during the year:
Interest...................... $ 435 $ 692 $ 202 $ 86 $ 101
Notes receivable from
(cancellation of) stockholder
note in exchange for Common
Stock......................... $ 70 $ -- $ (70) $ -- $ --
Assets acquired under capital
lease obligations............. $ 205 $ -- $ -- $ 258 $ 333
Issuance of Common Stock
warrants in connection with
debt.......................... $ 385 $ -- $ -- $ -- $ --
Issuance of Common Stock related
to acquisition................ $ 56 $ -- $ -- $ -- $ --
Conversion of Common Stock to
Series B Preferred Stock...... $ 423 $ -- $ -- $ -- $ --
Accretion of cumulative
dividends on Preferred Stock.. $ 554 $ 1,040 $ 1,258 $ 629 $ 442
Unearned compensation related to
stock option grants........... $ -- $ -- $ -- $ -- $(21,448)
Conversion of bridge loan to
Preferred Stock............... $ -- $ 1,500 $ -- $ -- $ --
Conversion of Mandatorily
Redeemable Preferred Stock to
Common Stock.................. $ -- $ -- $ -- $ -- $ 20,882
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information Relating to the Six Months Ended
September 30, 1998 and 1999 is Unaudited)
NOTE 1--FORMATION AND BUSINESS OF THE COMPANY:
Blaze Software, Inc. ("Blaze Software") was incorporated in California on
June 4, 1985 as Neuron Data, Inc. Its principal activities include the
development and licensing of infrastructure software that enables adaptable and
personalized interactions that are consistent across all company communication
channels, or touch points. This software enables companies to implement their
policies, practices and procedures, or business rules in e-business
applications across multiple touch points. Blaze Software also provides related
maintenance and consulting services. Blaze Software markets its products to a
wide range of customers mainly in North America, Europe, and Japan primarily
through a direct sales force.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principals of consolidation
The consolidated financial statements include the accounts of Blaze
Software, Inc. and its wholly owned subsidiaries, Blaze Software GmbH, Blaze
Software S.A.R.L., Blaze Software (UK) Ltd and Blaze Software Japan, Inc.
(together, "Blaze Software"). All material intercompany balances and
transactions have been eliminated.
Interim consolidated financial statements (unaudited)
The consolidated financial statements as of September 30, 1999 and for the
six months ended September 30, 1999 and September 30, 1998 together with the
related notes are unaudited but have been prepared in accordance with generally
accepted accounting principles for interim consolidated financial statements
and the rules of the Securities and Exchange Commission and do not include all
disclosures required by generally accepted accounting principles for
consolidated annual financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation have been included. The results of operations of any interim
period are not necessarily indicative of the results of operations for the full
year.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign currency translation
The functional currency of Blaze Software's subsidiaries is the local
currency. Accordingly, Blaze Software applies the current rate method to
translate the subsidiaries' financial statements into U.S. dollars. Translation
adjustments are included as a separate component of comprehensive income within
stockholders' deficit in the accompanying consolidated financial statements.
Cash and cash equivalents
Blaze Software considers all highly liquid investments with an original or
remaining maturity of three months or less at the time of purchase to be cash
equivalents.
F-8
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Business risk and concentration of credit risk
Blaze Software currently operates in a single business segment and revenue
from continuing operations is principally attributable to the sale of software
products and related maintenance, consulting and training services which are
characterized by rapid technological advances, changes in customer requirements
and industry standards. Any failure by Blaze Software to anticipate or to
respond adequately to technological changes in its industry, changes in
customer requirements or changes in industry standards, could have a material
adverse effect on Blaze Software's business and operating results.
Financial instruments which potentially subject Blaze Software to
concentrations of credit risk consist primarily of temporary cash investments,
including money market accounts. Blaze Software places its temporary cash
investments with two major financial institutions. Deposits at any point in
time may exceed the federally insured limits. Blaze Software performs ongoing
credit evaluations of its customers' financial condition and does not require
collateral. Blaze Software maintains allowances for potential credit losses and
such losses have been within management's expectations.
As of March 31, 1998, 1999 and September 30, 1999 (unaudited), there was
one customer that accounted for 13%, 12% and 17% of the aggregate accounts
receivable balance, respectively. No customer accounted for 10% or more of
aggregate revenues in fiscal years 1997 and 1998. For the fiscal year 1999 and
the six months ended September 30, 1999 (unaudited), one customer accounted for
19% and 28% of the aggregate revenues, respectively.
Fair value of financial instruments
Carrying amounts of certain Blaze Software's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and other liabilities approximate fair value due to their
short maturities. Based upon borrowing rates currently available to Blaze
Software for loans with similar terms, the carrying value of capital lease
obligations approximate fair value.
Property and equipment
Property and equipment are stated at cost and depreciated on a straight-
line basis over the estimated useful lives of the related assets, generally
three to five years. Leased assets are amortized on a straight-line basis over
the lesser of the estimated useful life or the lease term.
Maintenance and repairs are charged to expense as incurred. When assets are
sold or retired, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is included in operations.
Impairment of long-lived assets
Blaze Software evaluates the recoverability of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of ("SFAS No. 121"). SFAS No. 121 requires recognition of impairment
of long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets.
Revenue recognition
Blaze Software's revenues are derived from two sources, product license
revenues and service revenues. Product license revenues are derived from
product sales to end users and independent software vendors as well
F-9
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as royalties from independent software vendors. Service revenues are derived
from providing consulting and training, maintenance and support services to end
users.
Blaze Software recognizes revenues in accordance with the American
Institute of Certified Public Accountants Statement of Position No. 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-4,
Deferral of the Effective Date of Certain Provisions of SOP 97-2, effective
July 1, 1998. License revenues from sales to end users are recognized upon
shipment of the product, if an executed agreement or purchase order has been
received, the fee is fixed and determinable and collection is deemed probable.
If an acceptance period is provided, revenue is recognized upon the earlier of
customer acceptance or the expiration of that period. For enterprise
application vendors, Blaze Software receives quarterly reports from these
vendors on sell-through of Blaze Software products to end users. Blaze Software
recognizes royalty revenues upon receipt of the quarterly reports from vendors.
For contracts with multiple obligations (e.g., product licenses,
maintenance and other services), Blaze Software allocates revenue to each
component of the contract based on objective evidence of its fair value, which
is specific to Blaze Software. Blaze Software recognizes revenue allocated to
undelivered products when the criteria for product revenue set forth above are
met.
Service revenues from consulting, installation and training are recognized
as the related services are performed. Revenues from maintenance and support
agreements, which includes product updates, are deferred and recognized on a
straight-line basis over the term of the related agreement. Payments of
maintenance fees are generally made in advance and are nonrefundable.
Prior to the adoption of SOP 97-2, Blaze Software recognized revenue from
the sale of products upon shipment if remaining obligations were insignificant,
collection of resulting accounts receivable was probable and product returns
reasonably estimable.
Advertising
Blaze Software expenses advertising costs as they are incurred. Advertising
expense for the years ended March 1997, 1998 and 1999 was $679,000, $1,071,000
and $431,000, respectively, and for the six months ended September 30, 1999
(unaudited) was $167,000.
Income taxes
Blaze Software accounts for income taxes in accordance with Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. This statement prescribes the use of the
liability method whereby deferred tax assets and liabilities are determined
based on the differences between financial reporting and tax bases of assets
and liabilities and measured at tax rates that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets where it is more likely than not the
deferred tax asset will not be realized.
Stock-based compensation
Blaze Software has elected to adopt the disclosure provisions of Statement
of Financial Accounting Standards No. 123, Accounting for Stock-based
Compensation ("SFAS No. 123"). Blaze Software accounts for stock-based
compensation using Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, ("APB No. 25") and, accordingly, pro forma
disclosures required under SFAS No. 123 have been presented (See Note 6). Under
APB No. 25, compensation expense is based on the difference, if any, on the
F-10
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
date of the grant, between the deemed fair value of Blaze Software's common
stock and the exercise price. Additionally, pursuant to SFAS No. 123, common
stock issued to non-employees is accounted for at the fair value of the equity
instruments issued, or at the fair value of the consideration received,
whichever is more reliably measurable.
Research and development expenditures
Costs related to research, design and development of products are charged
to research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. To date, attaining technological feasibility of Blaze Software's
products and general release have substantially coincided. As a result, Blaze
Software has not capitalized any software development costs.
Net loss per share
Blaze Software computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share, ("SFAS No. 128").
Under the provisions of SFAS No. 128, basic net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Options, warrants, mandatorily redeemable preferred stock
and convertible preferred stock were not included in the computation of diluted
net loss per share because the effect would be antidilutive.
A reconciliation of shares used in the calculation of basic and diluted net
loss per share follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Six Months
Ended September
Years Ended March 31, 30,
------------------------- ----------------
1997 1998 1999 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Basic and diluted net loss per
share:
Numerator:
Net loss from continuing
operations...................... $(2,723) $(3,631) $(5,848) $(3,408) $(9,899)
Accretion of mandatorily
redeemable preferred stock to
redemption value................ (554) (1,040) (1,258) (693) (442)
------- ------- ------- ------- -------
Net loss from continuing
operations attributable to
common stockholders............. (3,277) (4,671) (7,106) (4,101) (10,341)
Income (loss) from operations of
discontinued GUI business....... (5,479) (2,174) 248 (68) 1,320
------- ------- ------- ------- -------
Loss attributable to common
stockholders.................... $(8,756) $(6,845) $(6,858) $(4,169) $(9,021)
======= ======= ======= ======= =======
Denominator:
Weighted average common shares
outstanding..................... 1,986 566 916 821 8,435
Weighted average unvested common
shares subject to repurchase.... (146) (249) (140) (122) --
------- ------- ------- ------- -------
Denominator for basic and diluted
calculation..................... 1,840 317 776 699 8,435
======= ======= ======= ======= =======
Basic and diluted net loss per
share attributable to common
stockholders.................... $ (4.76) $(21.59) $ (8.84) $ (5.96) $ (1.07)
======= ======= ======= ======= =======
Antidilutive securities including
options, warrants and preferred
stock not included in net loss
per share calculations.......... 12,519 15,004 14,783 14,477 26,310
======= ======= ======= ======= =======
</TABLE>
F-11
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended March 31, 1999 and the six
months ended September 30, 1999, is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the conversion
of mandatory redeemable convertible preferred stock and preferred stock into
common stock on an as-if-converted basis. Pro forma diluted net loss per share
is computed using the pro forma weighted average number of common and common
equivalent shares outstanding. Common equivalent shares, composed of common
shares issuable upon the exercise of stock options and warrants, are not
included in pro forma diluted net loss per share as such shares are
antidilutive.
The following table sets forth the computation of pro forma basic and
diluted net loss per share (unaudited) (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
March 31, September 30,
1999 1999
---------- -------------
<S> <C> <C>
Numerator:
Net loss......................................... $(5,600) $(8,579)
======= =======
Denominator:
Shares used in computing basic and diluted net
loss per share................................. 776 8,435
Adjustment to reflect assumed conversion of all
preferred Stock from date of issuance.......... 10,943 3,668
------- -------
Shares used in computing pro forma basic and
diluted net loss per share....................... 11,719 12,103
======= =======
Basic and diluted pro forma net loss per share..... $ (0.48) $ (0.71)
======= =======
Antidilutive securities including options and
warrants not included in pro forma net loss per
share calculation................................ 3,332 9,196
======= =======
</TABLE>
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, ("SOP 98-1"), which requires
companies to capitalize qualifying computer software costs, which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. Blaze Software does not expect that the adoption of SOP 98-1
will have a material impact on its financial statements and related
disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities ("SOP 98-5"), which requires companies to expense the costs of
start-up activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. Blaze Software
believes the adoption of SOP 98-5 will not have a material impact on its
results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"), which establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be
F-12
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that
exists. SFAS 133 is effective for fiscal years beginning after June 15, 2000.
Blaze Software is assessing the potential impact of this pronouncement on the
financial statements; however, they do not expect any significant impact.
In December 1998, AcSEC released Statement of Position 98-9, Modification
of SOP 97-2, Software Revenue Recognition ("SOP 98-9"), with Respect to Certain
Transactions. SOP 98-9 amends SOP 97-2 to require that an entity recognize
revenue for multiple element arrangements by means of the "residual method"
when (1) there is vendor-specific objective evidence ("VSOE") of the fair
values of all the undelivered elements that are not accounted for by means of
long-term contract accounting, (2) VSOE of fair value does not exist for one or
more of the delivered elements, and (3) all revenue recognition criteria of SOP
97-2 (other than the requirement for VSOE of the fair value of each delivered
element) are satisfied. The provisions of SOP 98-9 that extend the deferral of
certain paragraphs of SOP 97-2 became effective December 15, 1998. These
paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions that are
entered into in fiscal years beginning after March 15, 1999. Retroactive
application is prohibited. Blaze Software does not expect that the adoption of
SOP 98-9 will have a material impact on its financial statements.
NOTE 3--DISCONTINUED OPERATIONS:
In December 1999, the Company's Board of Directors resolved to discontinue
Blaze Software's entire graphical user interface ("GUI") line of business. The
Company expects that it will sell the GUI business within twelve months. The
accompanying financial statements have been prepared to reflect the historical
results of operations and cash flows of the GUI business as discontinued
operations for all periods presented.
Balance sheet data (in thousands)
<TABLE>
<CAPTION>
As of March
31,
-------------- September 30,
1998 1999 1999
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
Current assets................................. $3,609 $1,183 $1,104
Current liabilities............................ (441) (70) (76)
------ ------ ------
Net assets of discontinued operations.......... $3,168 $1,113 $1,028
====== ====== ======
</TABLE>
Income statement data (in thousands)
<TABLE>
<CAPTION>
Six Months
Ended September
As of March 31, 30,
--------------------------- ----------------
1997 1998 1999 1998 1999
-------- -------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 21,896 $ 18,313 $ 9,094 $ 4,314 $ 2,555
Costs and expenses.......... (27,375) (20,487) (8,846) (4,382) (1,235)
-------- -------- ------- ------- -------
(Loss) income from
discontinued operations... $ (5,479) $ (2,174) $ 248 $ (68) $ 1,320
======== ======== ======= ======= =======
</TABLE>
F-13
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash flow data
<TABLE>
<CAPTION>
Six Months
Ended
September
As of March 31, 30,
---------------------- -----------
1997 1998 1999 1998 1999
------- ----- ------ ---- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash provided by discontinued
operations........................... $(2,310) $(294) $2,061 $578 $1,444
======= ===== ====== ==== ======
</TABLE>
NOTE 4--PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
As of March 31,
---------------- September 30,
1998 1999 1999
------- ------- -------------
(unaudited)
<S> <C> <C> <C>
Computer equipment......................... $ 3,969 $ 1,626 $ 1,790
Furniture and fixtures..................... 882 337 327
Leasehold improvements..................... 377 412 368
------- ------- -------
5,228 2,375 2,485
Less: accumulated depreciation and
amortization............................. (4,193) (1,589) (1,597)
------- ------- -------
$ 1,035 $ 786 $ 888
======= ======= =======
</TABLE>
Depreciation expense for the year ended March 31, 1997, 1998 and 1999 was
$1,075,000, $868,000 and $899,000, respectively and $272,000 (unaudited) for
the six months ended September 30, 1999.
Property and equipment under capital leases consist of the following (in
thousands):
<TABLE>
<CAPTION>
As of March
31,
-------------- September 30,
1998 1999 1999
------- ----- -------------
(unaudited)
<S> <C> <C> <C>
Computer equipment........................... $ 1,968 $ 268 $ 567
Less: accumulated depreciation and
amortization............................... (1,751) (206) (225)
------- ----- -----
$ 217 $ 62 $ 342
======= ===== =====
</TABLE>
NOTE 5--BANK BORROWINGS:
Blaze Software has a line of credit facility with Coast Business Credit, a
division of Southern Pacific Bank, whereby Blaze Software may borrow up to 80%
of eligible United States and United Kingdom accounts receivable with a maximum
borrowing of $5,000,000. Borrowings under the facility bear interest at the
prime rate plus 3% (10.75% as of March 31, 1999) and are collateralized by
certain assets of Blaze Software. The facility expires on March 1, 2000. As of
March 31, 1998 and 1999, Blaze Software had borrowed $2,678,000 and $1,631,000,
respectively, under this facility.
On November 10, 1998, Blaze Software entered into a bridge loan agreement
with several of its existing investors totaling $1.5 million. The loan bore
interest at the rate of 25%, was subordinated to the agreement between Blaze
Software and Coast Business Credit, and was collateralized by certain assets of
Blaze Software. The bridge loan was repaid on June 1, 1999.
F-14
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In June 1999, Blaze Software issued 16,832 shares of Series AA preferred
stock and converted all of its outstanding mandatorily redeemable preferred
stock into common stock at the applicable conversion rates. See Note 12,
Subsequent Events, for details of conversion.
Mandatorily redeemable convertible preferred stock and warrants to purchase
mandatorily redeemable convertible preferred stock, as of March 31, 1999, was
comprised of the following (in thousands):
<TABLE>
<CAPTION>
Change in
Carrying Value
for the
Year-Ended
March 31,
Shares Issued and Carrying Liquidation --------------
Series Authorized Outstanding Value Value 1999 1998
----------------- ---------- ----------- -------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
A................ 1,000 1,000 $ 294 $ 3,092 $ 18 $ 26
C................ 884 884 3,563 6,030 218 320
D................ 2,143 2,143 6,124 12,994 399 797
E (Warrants)..... 714 -- 1,064 -- -- --
F................ 2,332 2,331 9,837 16,224 623 9,215
----- ----- ------- ------- ------ -------
Total.......... 7,073 6,358 $20,882 $38,340 $1,258 $10,358
===== ===== ======= ======= ====== =======
</TABLE>
Warrants
All preferred stock had certain registration rights and antidilution
protection. A warrant to purchase up to $2,000,000 of Series E preferred stock
at an exercise price of $3.45 per share, or at $2.80 if specified operating
results were not met, was issued as part of the Series D preferred stock
financing and was valued at $1,064,000, its estimated fair market value at the
date of issuance using the Black-Scholes option pricing model. The assumptions
used for the Black-Scholes option pricing model were a three year life, a 75%
volatility, a 6.5% risk-free interest rate and a zero dividend yield. These
warrants for preferred stock converted into warrants for common stock as part
of the Series AA preferred stock financing (see Note 12 for further details)
and were subsequently exercised.
Conversion
Each share of Series A, C, D, E, and F preferred stock was convertible into
common stock on a one-for-one basis, subject to certain antidilution
provisions. Conversion was at the option of the stockholder or automatic upon
the closing of an initial public offering of Blaze Software's common stock at a
price equal to or exceeding $8.625 per share and aggregate proceeds of at least
$7,500,000 or by written consent or agreement of the holders of at least two-
thirds of the outstanding shares of Series D, E, and F preferred stock voting
together. In addition, each share of Series A, C, D, E, and F preferred stock
was convertible, at the option of the holder, into Series B preferred stock on
a one-for-one basis.
Dividends
The holders of the Series A, C, D, E, and F mandatorily redeemable
convertible preferred stock were entitled to receive cumulative dividends in
preference to any declaration or payment of dividend on Series B convertible
preferred stock or common stock, at the rate of $0.015, $0.207, $0.168, $0.168,
and $0.2316 per share per annum, respectively, before June 26, 2001, and at the
rate of $0.03, $0.414, $0.336, $0.336, and $0.4632 per share per annum,
respectively, on or after June 26, 2001. Such dividends accrued from June 26,
F-15
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1996, or from the date of issuance in the case of Series E and F, and were
payable when and if declared by Blaze Software's Board of Directors. Any
accumulation of dividends did not bear interest. No dividends were declared or
paid in fiscal 1998 or 1999.
Voting rights
The holder of each share of Series A, Series C, Series D, Series E and
Series F mandatorily redeemable convertible preferred stock had the right to
one vote for each share of common stock into which such Series A, Series C,
Series D, Series E and Series F preferred stock could then be converted, and
with respect to such vote, such stockholder had full voting rights and powers
equal to the voting rights and powers of the holders of common stock, and were
entitled to notice of any stockholders' meeting in accordance with the bylaws
of the corporation, and were entitled to vote, together with holders of common
stock, with respect to any question upon which holders of common stock have the
right to vote.
Liquidation
Upon the occurrence of a liquidation event, such as a dissolution of Blaze
Software or by merger or sale of assets, the available assets of Blaze Software
would be distributed first to the holders of Series C, D, E and F mandatorily
redeemable convertible preferred stock until they receive the amount per share
for which each such series was originally purchased plus any accrued dividends.
Holders of Series A mandatorily redeemable convertible preferred stock were
then entitled to receive the amount per share for which each such series was
originally purchased plus any accrued dividends. The remaining assets were to
be split equally among the holders of Series A, B, C, D, E and F preferred
stock until holders of each share of Series B preferred stock had received an
amount per share equal to $2.80.
The aggregate liquidation preferences for the mandatorily redeemable
convertible preferred stock as described in the preceding paragraph totaled
$38,339,753 as of March 31, 1999. If assets of Blaze Software remained
available for distribution after such preferences have been satisfied, such
remaining assets would have been distributed among the holders of Series A, B,
C, D, E and F preferred stock and common stock pro rata based on the "as if
converted" number of common stock shares.
Redemption
Blaze Software was required to redeem the Series A, C, D, E, and F
mandatorily redeemable convertible preferred stock in three annual installments
beginning on December 16, 2002, and continuing thereafter on December 16, 2003
and 2004. Blaze Software was to make payments equal to $0.25, $3.45, $2.80,
$2.80 and $3.86 per share plus all accrued but unpaid dividends on the Series
A, C, D, E, and F mandatorily redeemable convertible preferred stock,
respectively. Blaze Software may have been redeemed at any time, in whole or in
part, the Series A, C, D, E, and F mandatorily redeemable convertible preferred
stock at $0.25, $3.45, $2.80, $2.80, and $3.86 per share, respectively. The
Series A, C, D, E and F mandatorily redeemable convertible stock was being
accreted to redemption value using the interest method to calculate the charge
to accumulated deficit.
F-16
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the redemption obligations related to the
mandatorily redeemable preferred stock as at March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
A C D E F Total
---- ------ ------ ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
December 16, 2002................... $123 $1,502 $2,954 $ -- $ 4,166 $ 8,745
December 16, 2003................... 133 1,623 3,194 -- 4,526 9,476
December 16, 2004................... 143 1,746 3,435 -- 4,886 10,210
---- ------ ------ ---- ------- -------
Total............................. $399 $4,871 $9,583 $ -- $13,578 $28,431
==== ====== ====== ==== ======= =======
</TABLE>
NOTE 7--STOCKHOLDERS EQUITY:
Series B Preferred Stock
In June 1999, Blaze Software converted all of its outstanding preferred
stock. See Note 11, Subsequent Events, for further details.
Conversion
Each share of preferred stock was convertible into common stock on a one-
for-one basis, without antidilution protection.
Liquidation
The aggregate liquidation preference of Series B convertible preferred
stock totaled $13,350,000 as of March 31, 1999. If assets of Blaze Software
remained available for distribution after such preferences had been satisfied,
such remaining assets would have been distributed among the holders of Series
A, B, C, D, E and F preferred stock and common stock pro rata based on the "as
if converted" number of common stock shares.
Voting rights
The holder of each share of Series B convertible preferred stock had the
right to one vote for each share of common stock into which such preferred
stock could then have been converted, and with respect to such vote, such
shareholder had full voting rights and powers equal to the voting rights and
powers of the holders of common stock, and were entitled to notice of any
stockholders' meeting in accordance with the bylaws of the corporation, and
were entitled to vote, together with holders of common stock, with respect to
any question upon which holders of common stock have the right to vote.
Preferred Stock Warrants
In December 1996, warrants to purchase 214,286 shares of the Company's
Series B preferred stock were issued at a price per share of $2.80. These
warrants were still outstanding as of March 31, 1999. The fair value of these
warrants is not material to the financial statements.
Common Stock
Blaze Software is authorized to issue 54,000,000 shares of common stock. As
of March 31, 1999, 687,000 shares of common stock were issued and outstanding.
F-17
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common Stock Warrants
The following table summarizes the activity on common stock warrants:
<TABLE>
<CAPTION>
Common Stock Warrants
Exercise
Shares Price Amount
------ -------- -------
<S> <C> <C> <C>
Balance, April 1, 1996.............................. -- $ --
Warrants granted.................................... 10,000 $2.80 28,000
------ -------
Balance, March 31, 1997............................. 10,000 28,000
Warrants granted.................................... 2,009 $2.80 5,625
------ -------
Balance, March 31, 1998 and 1999.................... 12,009 $33,625
------ -------
</TABLE>
The fair value of these common stock warrants is not material to these
financial statements.
Common Stock Subject To Repurchase
In 1997, 200,000 shares of common stock were issued pursuant to an
acquisition, 150,000 of which was subject to repurchase. Shares vested on a
quarterly basis over a two and a half year period. At March 31, 1998,
approximately 75,000 shares were subject to repurchase at the original purchase
price of $2.80. At March 31, 1999 no shares were subject to repurchase. In
April 1998, 65,333 shares were repurchased at the original purchase price.
Blaze Software has reserved shares of common stock for future issuance as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1999 1999
--------- -------------
(unaudited)
<S> <C> <C>
Options outstanding.................................. 2,392 8,970
Options available for future grants.................. 242 282
Mandatorily redeemable preferred stock............... 6,358 --
Preferred stock...................................... 4,545 16,832
Outstanding warrants for preferred stock............. 928 214
Outstanding warrants for common stock................ 12 12
------ ------
14,477 26,310
====== ======
</TABLE>
Stock Option Plan
In 1986, Blaze Software adopted the 1986 Stock Option Plan (the "1986
Plan") and had 2,509,000 shares of Common Stock reserved for issuance
thereunder. In 1996, the 1986 Plan was discontinued and replaced with the 1996
Stock Option Plan (the "1996 Plan").
Under the 1996 Plan, Blaze Software has reserved 9,806,857 shares of common
stock for issuance. Options granted may be incentive stock options or
nonqualified stock options and shall be granted at a price not less than 100%
or 85% of fair market value, respectively, or at a price not less than 110% of
fair market value under certain circumstances. Fair market value (as defined in
the 1996 Plan) and the vesting, of these options shall be determined by Blaze
Software's Board of Directors. The options expire no later than 10 years from
the date of grant. Unvested options on termination of employment are canceled
and returned to the 1996 Plan. Options can be exercised from the date of
issuance, even though they have not fully vested. Such shares are subject to
repurchase
F-18
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
on a pro rata basis over a four-year period from the date of issuance. As of
March 31, 1998 and 1999, there were approximately 108,000 and 147,000 shares,
respectively, subject to repurchase, at a weighted average price of $0.28 per
share. During 1998 and 1999, approximately 3,000 and 315,000 shares,
respectively, were repurchased.
Shares acquired under the 1996 Plan are subject to Stock Purchase
Agreements, which provide Blaze Software with a right of first refusal and
grant Blaze Software repurchase rights for unvested shares, at their original
cost.
Vesting requirements
Options granted under the plan have a term of ten years measured from the
grant date and are initially unvested. Participants vest in the option shares
granted over a four-year period with (i) twenty-five percent of the option
shares vesting upon the completion of one year of service, and (ii) the balance
of the option shares in thirty-six successive equal monthly installments upon
the participants completion of each additional month of service.
A summary of the status of Blaze Software's stock option plans as of March
31, 1997, 1998, 1999, and September 30, 1999 (unaudited) and changes during the
years ended on these dates is presented below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Weighted
Average
Exercise
Shares Number Exercise Price Aggregate
Available of Price per per Exercise
for Grant Shares Share Share Price
--------- ------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Options outstanding at
April 1, 1996.............. 2,559 712 $0.25-$1.65 $1.22 $ 867
Granted...................... (2,943) 2,943 $0.28-$1.50 $0.29 853
Exercised.................... -- (305) $0.28-$1.50 $0.36 (109)
Canceled..................... 889 (889) $0.28-$1.65 $1.03 (917)
------ ------ ----------- ----- ------
Options outstanding at March
31, 1997................... 505 2,461 $0.25-$1.50 $0.28 694
Granted...................... (1,346) 1,346 $0.28-$0.40 $0.31 420
Exercised.................... -- (346) $0.28-$0.50 $0.28 (97)
Canceled..................... 849 (849) $0.28-$1.50 $0.28 (241)
------ ------ ----------- ----- ------
Options outstanding at March
31, 1998................... 8 2,612 $0.25-$1.50 $0.30 776
Additional shares reserved... 209 -- -- -- --
Granted...................... (1,249) 1,249 $0.40-$0.40 $0.40 499
Exercised.................... -- (195) $0.28-$0.40 $0.29 (56)
Canceled..................... 1,274 (1,274) $0.28-$0.40 $0.30 (379)
------ ------ ----------- ----- ------
Options outstanding at March
31, 1999................... 242 2,392 $0.25-$1.50 $0.35 840
Additional shares reserved... 6,688 -- -- -- --
Granted...................... (6,866) 6,866 $0.05-$0.28 $0.05 344
Exercised.................... -- (70) $0.05-$0.40 $0.28 (20)
Canceled..................... 218 (218) $0.05-$1.50 $0.30 (65)
------ ------ ----------- ----- ------
Options outstanding at
September 30, 1999
(unaudited)................ 282 8,970 $0.05-$0.40 $0.12 $1,099
====== ====== =========== ===== ======
</TABLE>
F-19
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted-average fair value of options granted in fiscal 1997, 1998 and
1999 was $0.07, $0.07 and $0.09, respectively.
The following table summarizes information concerning outstanding and
exercisable options under the plans as of March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- ---------------------
Weighted-
Average
Remaining Weighted- Weighted-
Contractual Average Number of Average
Range of Number of Life Exercise Shares Exercise
Exercise Price Shares (Years) Price Exercisable Price
-------------- ---------- ----------- --------- ----------- ---------
(in (in
thousands) thousands)
<S> <C> <C> <C> <C> <C>
$0.25 4 1.16 $0.25 4 $0.25
$0.28 968 7.77 $0.28 968 $0.28
$0.40 1,416 9.32 $0.40 1,416 $0.40
$0.50 4 4.38 $0.50 4 $0.50
$1.50 -- 6.00 $1.50 -- $1.50
----- -----
2,392 8.67 $0.35 2,392 $0.35
===== =====
</TABLE>
Stock-based compensation
In connection with certain stock option grants during the six months ended
September 30, 1999 (unaudited), Blaze Software recorded stock-based
compensation totaling $21.4 million, which is being amortized in accordance
with FASB Interpretation No. 28 over the vesting periods of the related
options, which is generally four years. Stock-based compensation amortization
recognized during the six months ended September 30, 1999 totaled $6.4 million.
If the stock-based compensation for the six months ended September 30, 1999 had
been allocated across the relevant functional expense categories within
operating expenses, it would be allocated as follows:
<TABLE>
<CAPTION>
Six Months
Ended
September 30,
1999
-------------
(unaudited)
<S> <C>
Research and development..................................... $1,301
Selling, general and administrative.......................... 5,137
------
$6,438
======
</TABLE>
Fair value disclosure
The following information concerning Blaze Software's stock option plans is
provided in accordance with SFAS No. 123. Blaze Software accounts for such
plans in accordance with APB No. 25.
F-20
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes options-pricing model with the following weighted
average assumptions for grants:
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... 6.2% 5.3% 4.7%
Expected life..................................... 5 years 5 years 5 years
Dividend yield.................................... -- -- --
Expected volatility............................... 0% 0% 0%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options are amortized over the option's vesting period. Blaze Software pro
forma information follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net loss attributable to common stockholders.... $(8,756) $(6,845) $(6,858)
======= ======= =======
Net loss--FAS 123 adjusted...................... $(8,809) $(6,896) $(6,896)
======= ======= =======
Net loss per share--as reported
Basic and diluted............................. $ (4.76) $(21.59) $ (8.84)
======= ======= =======
Net loss per share--FAS 123 adjusted
Basic and diluted............................. $ (4.79) $(21.75) $ (8.89)
======= ======= =======
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure may not
be indicative of future amounts. Additional awards in future periods are
anticipated.
NOTE 8--COMPREHENSIVE INCOME:
Under Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") Blaze Software displays all items required
to be recognized under accounting standards as components of its comprehensive
income.
Comprehensive income comprises foreign currency translation adjustments
which does not have a tax expense as a benefit.
NOTE 9--COMMITMENTS AND CONTINGENCIES:
Blaze Software leases administrative, engineering, and sales facilities in
the United States, the United Kingdom, France, Germany, and Japan under
noncancelable operating leases that expire at various dates through 2005. Blaze
Software is generally responsible for insurance and property taxes. Blaze
Software's primary lease in Mountain View, California, is subject to annual
payment increases based on the consumer price index. Blaze Software also leases
computer equipment under leases classified as capital leases.
F-21
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of March 31, 1999, the aggregate future minimum lease payments under all
noncancelable leases are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Year Ended March 31,
2000....................................................... $ 86 $ 759
2001....................................................... 19 383
2002....................................................... 1 165
2003....................................................... -- 120
2004....................................................... -- 90
2005....................................................... -- 60
---- ------
Total minimum lease payments............................... 106 1,577
======
Less: amount representing interest......................... (6)
----
Present value of capital lease obligations................. 100
Current portion............................................ (81)
----
Long-term portion.......................................... $ 19
====
</TABLE>
Rent expense in fiscal years 1997, 1998 and 1999 aggregated $1,369,000,
$871,00 and $1,002,000, respectively.
Employment agreements
Blaze Software has entered into employment agreements with certain officers
of the Company. Some employment agreements also provide for severance in the
event the individual is terminated without cause.
Litigation
From time to time, Blaze Software may be involved in litigation relating to
claims arising out of its ordinary course of business. Management believes that
there are no claims or actions pending or threatened against Blaze Software,
the ultimate disposition of which would have a material impact on Blaze
Software's financial position or results of operations.
F-22
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 10--INCOME TAXES:
The components of income tax expense consisted of the following (in
thousands):
<TABLE>
<CAPTION>
As of March
31,
--------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.................................................... $ -- $ -- $ --
Foreign.................................................... 335 68 82
State...................................................... -- -- 5
Deferred--federal and state.................................. 265 -- --
---- ---- ----
Income tax expense...................................... $600 $ 68 $ 87
==== ==== ====
</TABLE>
The components of net deferred tax assets were as follows (in thousands):
<TABLE>
<CAPTION>
As of March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Accrued liabilities.............................. $ 905 $ 707 $ 576
Deferred revenue................................. 59 -- 12
Net operating loss carryforwards................. 2,774 5,082 6,702
Credit carryforwards and other................... 1,393 1,311 1,428
------- ------- -------
5,131 7,100 8,718
Valuation allowance.............................. (5,131) (7,100) (8,718)
------- ------- -------
Net deferred tax assets........................ $ -- $ -- $ --
======= ======= =======
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax
asset in future tax returns, Blaze Software has placed a valuation allowance
against its net deferred tax assets. The valuation allowance increased by
$3,209,000, $1,969,000 and $1,618,000 during 1997, 1998 and 1999, respectively.
Blaze Software's expected US Federal statutory income tax rate (34%)
differs from the effective tax rate as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
"Expected" income
benefit................. (34.0)% (34.0)% (34.0)%
Net operating loss not
benefited............... 34.0 34.0 34.0
Foreign income and
withholding taxes....... 4.5 1.4 1.6
Changes in valuation
allowance and other..... 3.6 -- --
----- ----- -----
Effective tax rate...... 8.1 % 1.4 % 1.6 %
===== ===== =====
</TABLE>
At March 31, 1999, Blaze Software had available net operating loss
carryforwards of approximately $18,900,000 and $6,100,000 to offset future
federal and state taxable income, respectively. At March 31, 1999, Blaze
Software also had available research and development credit carryforwards and
other credit carryforwards of approximately $835,000 and $271,000 to offset
future federal and state taxable income, respectively, and foreign tax credits
of approximately $322,000 available to offset future federal taxable income.
These carryforwards expire from 2000 to 2019.
For federal and state tax purposes, a portion of Blaze Software's net
operating loss carryforwards may be subject to certain limitation on annual
utilization in case of a change in ownership, as defined by federal and state
tax law.
F-23
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--SEGMENTAL INFORMATION:
Blaze Software, which operates in a single business segment, develops and
licenses component-based development software for building business-critical
applications and also provides related maintenance and consulting services.
Operations of Blaze Software's overseas subsidiaries consist of product license
revenues and service revenues.
Intercompany transfers between geographic areas are accounted for at prices
that approximate arm's length transactions.
Information regarding geographic areas at March 31, 1997, 1998 and 1999,
and for each of the years then ended, is as follows (in thousands):
<TABLE>
<CAPTION>
Geographic Area Americas Europe Asia Eliminations Total
- ----------------------------------- -------- ------ ----- ------------ ------
<S> <C> <C> <C> <C> <C>
March 31, 1997 and for the year
then ended:
Sales to unaffiliated
customers...................... 2,191 1,263 169 -- 3,623
------ ------ ----- ------
Operating Income................. (3,780) 449 1,642 -- (1,689)
------ ------ ----- ------
Liabilities--continued
operations..................... 13,022 4,747 2,740 (8,783) 11,726
Liabilities--discontinued
operations..................... -- -- -- -- --
------ ------ ----- ------- ------
Total Liabilities............. 13,022 4,747 2,740 (8,783) 11,726
------ ------ ----- ------- ------
Identifiable assets--continued
operations..................... 9,314 2,676 1,050 (7,685) 5,355
Identifiable assets--
discontinued operation......... 2,901 1,301 1,058 5,260
------ ------ ----- ------- ------
Total Identifiable assets..... 12,215 3,977 2,108 (7,685) 10,615
------ ------ ----- ------- ------
March 31, 1998 and for the year
then ended:
Sales to unaffiliated customers 3,492 808 62 -- 4,362
------ ------ ----- ------
Operating Income................. (1,452) (1,713) 195 -- (2,970)
------ ------ ----- ------
Liabilities--continued
operations..................... 15,041 4,502 3,307 (11,498) 11,352
Liabilities--discontinued
operations..................... 441 -- -- -- 441
------ ------ ----- ------- ------
Total Liabilities............. 15,482 4,502 3,307 (11,498) 11,793
------ ------ ----- ------- ------
Identifiable assets--continued
operations..................... 16,472 4,034 1,453 (11,714) 10,245
Identifiable assets--
discontinued operation 1,643 927 1,039 -- 3,609
------ ------ ----- ------- ------
Total Identifiable assets..... 18,115 4,961 2,492 (11,714) 13,854
------ ------ ----- ------- ------
March 31, 1999 and for the year
then ended:
Sales to unaffiliated
customers...................... 6,933 1,563 558 -- 9,054
------ ------ ----- ------
Operating Income................. (4,944) (603) 35 -- (5,512)
------ ------ ----- ------
Liabilities--continued
operations..................... 13,718 5,764 3,838 (12,164) 11,156
Liabilities--discontinued
operations..................... (70) -- -- -- (70)
------ ------ ----- ------- ------
Total Liabilities............. 13,648 5,764 3,838 (12,164) 11,086
------ ------ ----- ------- ------
Identifiable assets--continued
operations..................... 11,233 5,408 2,320 (12,379) 6,582
Identifiable assets--
discontinued operation......... 417 416 350 -- 1,183
------ ------ ----- ------- ------
Total Identifiable assets..... 11,650 5,824 2,670 (12,379) 7,765
------ ------ ----- ------- ------
</TABLE>
F-24
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 12--SUBSEQUENT EVENTS:
Issuance of Series AA convertible preferred stock
In June 1999 and September 1999, Blaze Software issued 16,832,000 shares of
Series AA convertible preferred stock at a price of $0.27 per share. Net
proceeds to Blaze Software were cash of $2.8 million and the cancellation of
indebtedness of $1.6 million. Prior to the issuance of Series AA convertible
preferred stock, Blaze Software converted all of its outstanding shares of
Series A, Series B, Series C Series D, and Series F convertible preferred stock
into common stock and all of its warrants for Series E preferred stock into
warrants for common stock at the applicable conversion rates in effect for each
series.
Reincorporation
In January 2000, Blaze Software's Board of Directors approved the
reincorporation of the Company from California to Delaware and approved the
change in the authorized share capital to 210 million, consisting of 200
million shares of common stock, $0.0001 par value and 10 million shares of
preferred stock, $0.0001 par value. All share data information has been
restated to reflect the reincorporation.
Series BB preferred stock
On December 31, 1999 3,905,404 shares of Series BB preferred stock were
issued for gross proceeds of approximately $13.9 million. The issuance will
result in a beneficial conversion feature of approximately $8.2 million,
calculated in accordance with Emerging Issues Task Force No. 98-5, which will
result in an immediate charge to accumulated deficit.
2000 Stock Plan
In December 1999 the Board of Directors adopted the 2000 Stock Plan and
reserved 500,000 shares of common stock for future issuance under this plan.
F-25
<PAGE>
The text at the top of the page reads "Introducing the next wave of
competitive advantage: The Blazed Enterprise." In a circle located in the
center of the page, in which there are four pictures, representing an ATM
machine, a call center (picture of woman on phone), a sales representative and
a Web site.
Lines from each picture lead to captions relating to the pictures.
The caption relating to the ATM machine reads "This is a Blazed ATM: "Your
checking balance has been above $15,000 for 2 months. To earn interest on
unused funds, press YES." The caption relating to the call center reads"This is
a Blazed call center: "Your son is going to college. We can extend your
insurance to cover him with all costs offset by your lower homeowner's
insurance rates. They will go down due to increased police protection in your
neighborhood." The caption relating to the sales representative reads "This is
a Blazed sales rep: "I'm here for the appointment you scheduled on our Web
site, and I've prepared your personal report based on the questions you
answered for our phone representative." The caption relating to the Web site
reads: "This is a Blazed Web site: "Since your last visit, two of the items you
order most often have gone on sale. And the upgrade for your system is
available. To learn more, click here."
The Blaze Software logo and the Blaze Software Web address appear at the
bottom of the page.
<PAGE>
[LOGO OF BLAZE SOFTWARE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all fees and expenses payable by Blaze
Software in connection with the registration of the common stock hereunder. All
of the amounts shown are estimates except for the SEC registration fee, NASD
filing fee and the Nasdaq National Market listing fees.
<TABLE>
<CAPTION>
Amount
To Be Paid
----------
<S> <C>
SEC Registration Fee............................................. $ 11,841
NASD Filing Fee.................................................. 4,985
Nasdaq National Market Listing Fee............................... 1,000
Printing and Engraving Expenses.................................. 175,000
Legal Fees and Expenses.......................................... 400,000
Accounting Fees and Expenses..................................... 450,000
Transfer Agent and Registrar Fees and Expenses................... 15,000
Miscellaneous Expenses........................................... 142,174
----------
Total.......................................................... $1,200,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our certificate of incorporation and our bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General
Corporation Law. We have also entered into agreements with our directors and
executive officers that require Blaze Software among other things to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors and executive officers to the fullest extent permitted by
Delaware law. We have also purchased directors and officers liability
insurance, which provides coverage against certain liabilities including
liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
(a) Since January 1, 1997, we have issued and sold the following
unregistered securities:
(1) In December 1997, we issued and sold 2,331,601 shares of Series F
Preferred Stock to eleven investors for aggregate consideration of
$8,999,979.86.
(2) In June and September 1999, we issued and sold 16,832,412 shares
of Series AA Preferred Stock. At the first closing in June 1999, we sold
16,269,660 shares to twelve investors for aggregate consideration of
$4,392,808.65, of which $1,659,696.21 was cancellation of indebtedness. At
the second closing in September 1999, we sold 562,752 shares to seventeen
investors for aggregate consideration of $151,943.43.
(3) In December 1999, we issued and sold 3,905,464 shares of Series BB
Preferred Stock to 17 investors for aggregate consideration of
$13,942,506.48.
(4) Since January 1, 1997, we have granted options to purchase
11,018,761 shares of common stock to employees, directors and consultants
under our 1996 stock plan at exercise prices ranging from $0.05 to $3.00
per share. Of the shares granted, 8,512,087 remain outstanding, 1,965,713
shares of common stock have been purchased pursuant to exercises of stock
options and 2,649,686 shares have been canceled and returned to the 1996
stock plan.
II-1
<PAGE>
The sales and issuances of securities in the transactions described
above were deemed to be exempt from registration under the Securities Act
in reliance upon Section 4(2) of the Securities Act, Regulation D
promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the
Securities Act, as transactions by an issuer not involving any public
offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under Rule 701. The
recipients of securities in each transaction represented their intentions
to acquire the securities for investment only and not with a view to or
for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in such transactions. All
recipients had adequate access, through their relationship with Blaze
Software, to information about us.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1(a) Amended and Restated Articles of Incorporation, as in effect upon
filing of the registration statement
3.1(b) Amended and Restated Certificate of Incorporation to be filed upon
completion of the offering
4.1(a) Bylaws of the registrant, as in effect upon filing of the registration
statement
4.1(b) Bylaws of the registrant, as in effect upon completion of the offering
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1 Amended and Restated Investors' Rights Agreement dated December 31,
1999
10.2 1996 Stock Plan and forms of agreements thereunder
10.3 2000 Stock Plan and forms of agreements thereunder
10.4* 2000 Employee Stock Purchase Plan
10.5 Form of Indemnification Agreement with executive officers and
directors
10.6* Amended and Restated Voting Agreement dated February 25, 1998
10.7 Offer letter for Thomas Kelly dated July 15, 1998
10.8 Offer letter for Gary Shroyer dated June 9, 1998
10.9 Offer letter for Eric Kintzer dated February 13, 1998
10.10 Loan Agreement dated March 11, 1994 between the registrant and Coast
Business Credit
10.11* Lease between the registrant and dated for
office space located at
16.1* Letter from KPMG Peat Marwick LLP
21.1 Subsidiaries of the registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2* Consent of Counsel (included in exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment
(b) Financial Statement Schedules.
II-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Blaze Software, Inc.
The reincorporation described in Note 12 of the notes to the consolidated
financial statements is not effective at January 11, 2000. When it is
effective, we will be in a position to furnish the following report:
"In connection with our audits of the consolidated financial statements of
Blaze Software, Inc. as of March 31, 1998 and 1999, and for each of the
three years in the period ended March 31, 1999, which consolidated
financial statements are included in the Prospectus, we have also audited
the financial statement schedule listed in Item 16(b) herein. In our
opinion, this financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein."
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 5, 2000
II-3
<PAGE>
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Additions End
of Year (Deductions) Write-offs of Year
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1997...... 769 1,192 (1,317) 644
Year ended March 31, 1998...... 644 753 (789) 608
Year ended March 31, 1999...... 608 366 (531) 443
Valuation allowance for deferred
tax assets:
Year ended March 31, 1997...... 1,922 3,209 -- 5,131
Year ended March 31, 1998...... 5,131 1,969 -- 7,100
Year ended March 31, 1999...... 7,100 1,618 -- 8,718
</TABLE>
Item 17. Undertakings
Insofar as indemnification by Blaze Software for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of Blaze Software, we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by Blaze Software of expenses incurred or paid by a director,
officer or controlling person of Blaze Software in the successful defense of
any action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by Blaze Software is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
We hereby undertake that:
(a) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by Blaze Software pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Blaze Software has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Mountain View, State of California, on the 12th day of January, 2000.
BLAZE SOFTWARE, INC.
/s/ Thomas F. Kelly
By: _________________________________
Thomas F. Kelly
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Thomas Kelly and Gary Shroyer and each
of them, his attorneys-in-fact, each with the power of substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same Offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-
effective amendments thereto, and to file the same, with all exhibits thereto
in all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every Act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas F. Kelly Chief Executive Officer, January 12, 2000
____________________________________ President and Chairman of
Thomas F. Kelly the Board of Directors
(Principal Executive
Officer)
/s/ Gary Shroyer Chief Financial Officer January 12, 2000
____________________________________ (Principal Financial and
Gary Shroyer Accounting Officer)
/s/ Charles M. Boesenberg Director January 12, 2000
____________________________________
Charles M. Boesenberg
/s/ Mark J. DeNino Director January 12, 2000
____________________________________
Mark J. DeNino
/s/ William J. Harding Director January 12, 2000
____________________________________
William J. Harding
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ L. George Klaus Director January 12, 2000
____________________________________
L. George Klaus
/s/ Ken Goldman Director January 12, 2000
____________________________________
Ken Goldman
Director January 12, 2000
____________________________________
Patrick Perez
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
3.1(a) Amended and Restated Articles of Incorporation, as in effect upon filing of the registration
statement
3.1(b) Amended and Restated Certificate of Incorporation to be filed upon completion of the offering
4.1(a) Bylaws of the registrant, as in effect upon filing of the registration statement
4.1(b) Bylaws of the registrant, as in effect upon completion of the offering
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1 Amended and Restated Investors Rights Agreement dated December 31, 1999
10.2 1996 Stock Plan and forms of agreements thereunder
10.3 2000 Stock Plan and forms of agreements thereunder
10.4* 2000 Employee Stock Purchase Plan
10.5 Form of Indemnification Agreement with executive officers and directors
10.7 Offer letter for Thomas Kelly dated July 15, 1998
10.8 Offer letter for Gary Shroyer dated June 9, 1998
10.9 Offer letter for Eric Kintzer dated February 13, 1998
10.10 Loan Agreement dated March 11, 1994 between the registrant and CoastFed Business Credit
10.11* Lease between the registrant and dated for office space located at
10.12* Amended and Restated Voting Agreement dated February 25, 1998
16.1* Letter from KPMG Peat Marwick LLP
21.1 Subsidiaries of the registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2* Consent of Counsel (included in exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment
<PAGE>
EXHIBIT 1.1
BancBoston Robertson Stephens Inc.
FORM UNDERWRITING AGREEMENT
Form updated April 20, 1999
[Draft of [Date]
[Execution Copy]
[Conformed Copy]
Underwriting Agreement
Date
BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
[As Representative of the several Underwriters]
or
BancBoston Robertson Stephens Inc.
[Name of other Co-Manager]
[As Representatives of the several Underwriters]
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
Introductory. [___], a [___] corporation (the "Company), proposes to issue
and sell to the several underwriters named in Schedule A (the "Underwriters") an
----------
aggregate of [___] shares (the "Firm Shares") of its Common Stock, par value
$[___] per share (the "Common Shares"). In addition, the Company has granted to
the Underwriters an option to purchase up to an additional [___] Common Shares
(the "Option Shares") as provided in Section 2. The Firm Shares and, if and to
the extent such option is exercised, the Option Shares are collectively called
the "Shares". [BancBoston Robertson Stephens Inc. has] [BancBoston Robertson
Stephens Inc. and [___] have] agreed to act as representative[s] of the several
Underwriters (in such capacity, the "Representative[s]") in connection with the
offering and sale of the Shares.
Replace the introductory paragraph with the following text if
Selling Stockholders are offering the Firm Shares:
<PAGE>
Introductory/1/. The stockholders of [___], a [___] corporation (the
"Company), named in Schedule B (collectively, the "Selling Stockholders")
-----------
severally propose to sell to the underwriters named in Schedule A (the
----------
"Underwriters") an aggregate of [___] shares (the "Firm Shares") of Common
Stock, par value $[___] per share (the "Common Shares"), of the Company. [In
addition, the Selling Stockholders have severally granted to the Underwriters an
option to purchase up to an additional [___] Common Shares (the "Option Shares")
as provided in Section 2, each Selling Stockholder selling up to the amount set
forth opposite such Selling Stockholder's name in Schedule B] [In addition,
----------
[___], one of the Selling Stockholders, has granted to the Underwriters an
option to purchase up to an additional [___] Common Shares (the "Option
Shares"), as provided in Section 2 .] The Firm Shares and, if and to the extent
such option is exercised, the Option Shares are collectively called the
"Shares". [BancBoston Robertson Stephens Inc. has] [BancBoston Robertson
Stephens Inc. and [___] have] agreed to act as representative[s] of the several
Underwriters (in such capacity, the "Representative[s]") in connection with the
offering and sale of the Shares.
Replace the introductory paragraph with the following text if
the Company and Selling Stockholders are offering the Firm Shares and/or the
---
Option Shares:
Introductory/1/. [___], a [___] corporation (the "Company"), proposes to
issue and sell to the several underwriters named in Schedule A (the
----------
"Underwriters") an aggregate of [___] shares of its Common Stock, par value
$[___] per share (the "Common Shares"); and the stockholders of the Company
named in Schedule B (collectively, the "Selling Stockholders") severally propose
----------
to sell to the Underwriters an aggregate of [___] Common Shares. The [___]
Common Shares to be sold by the Company and the [___] shares of Common Shares to
be sold by the Selling Stockholders are collectively called the "Firm Shares".
[In addition, the Company has granted to the Underwriters an option to purchase
up to an additional [___] Common Shares (the "Option Shares"), as provided in
Section 2.] [In addition, the Selling Stockholders have severally granted to the
Underwriters an option to purchase up to an additional [___] Common Shares (the
"Option Shares"), as provided in Section 2, each Selling Stockholder selling up
to the amount set forth opposite such Selling Stockholder's name in Schedule B.]
----------
[In addition, the Company has granted to the Underwriters an option to purchase
up to an additional [___] Common Shares and the Selling Stockholders have
severally granted to the Underwriters an option to purchase up to an additional
[___] Common Shares, each Selling Stockholder selling up to the amount set forth
opposite such Selling Stockholder's name in Schedule B, all as provided in
----------
Section 2. The additional [___] Common Shares to be sold by the Company and the
additional [___] Common Shares to be sold by the Selling Stockholders pursuant
to such option are collectively called the "Option Shares".] The Firm Shares
- -------------------
/1/ If any of the Selling Stockholders are "executive officers" of the Company
as defined in Rule 3b-7 of the Exchange Act or otherwise have significant
information about the operations of the Company (i.e., an active founder or
director), this Section should be revised to define such Selling Stockholders as
"Principal Selling Stockholders" and the other Selling Stockholders as the
"Other Selling Stockholders" with a collective definition for all Selling
Stockholders of "Selling Stockholders." Appropriate revisions will need to be
made throughout the Agreement.
2
<PAGE>
and, if and to the extent such option is exercised, the Option Shares are
collectively called the "Shares". [BancBoston Robertson Stephens Inc. has]
[BancBoston Robertson Stephens Inc. and [___] have] agreed to act as
representative[s] of the several Underwriters (in such capacity, the
"Representative[s]") in connection with the offering and sale of the Common
Shares./2/
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1/3/ (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however, if
the Company has, with the consent of BancBoston Robertson Stephens Inc., elected
to rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated [___]/4/ (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to (i) the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company [and each of the Selling Stockholders] hereby confirm[s] its
[their respective] agreements with the Underwriters as follows:
Section 1. Representations and Warranties [of the Company].
- --------------------
/2/ The remainder of this Agreement, with some exceptions, is written assuming
BancBoston Robertson Stephens Inc. is the sole Representative for the offering.
A global replacement from "Representative" to "Representatives" (and
accompanying verb conjugation changes) is necessary if the offering is co-
managed.
/3/ To accommodate use of Form S-3, some riders are attached at the end of this
Agreement as Attachment 1 and other changes can be found in the body of this
Agreement.
/4/ Complete with the date of the Company's most recent preliminary prospectus
that was circulated to prospective offerees.
3
<PAGE>
[A. Representations and Warranties of the Company [And the Principal
Selling Stockholders]. The Company hereby represents, warrants and covenants to
each Underwriter as follows:/5/ /6/
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representative expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
- ------------------
/5/ If any of the Selling Stockholders are determined to be "Principal Selling
Stockholders," the heading and lead in should be revised as follows:
A. Representations and Warranties of the Company and the Principal Selling
Stockholder[s]. The Company and the Principal Selling Stockholders hereby
represent and warrant to each Underwriter as follows:
/6/ Where the Company is a majority owned subsidiary of a parent, or is
otherwise under the control of another entity, as in a primary spin-off, such
other entity should be added as a party to this agreement in order to provide
(i) certain or all of the representations, warranties and covenants made by the
Company and (ii) indemnification and contribution with respect to the
Underwriters.
4
<PAGE>
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representative one/7/ complete conformed copy of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representative has
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Shares [To Be Sold by the Company]. The Shares
to be purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement, will be validly issued, fully paid
and nonassessable.
[(f) Authorization of the Shares To Be Sold by the Selling Stockholders].
The Common Shares to be purchased by the Underwriters from the Selling
Stockholders, when issued, were validly issued, fully paid and nonassessable.]
(g) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement [, other than the Selling
Stockholders with respect to the Shares included in the Registration Statement],
except for such rights as have been duly waived.
(h) No Material Adverse Change. Subsequent to the respective dates as
of which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or
- --------------------
/7/ Increase this number to provide that each Representative receives a
complete conformed copy.
5
<PAGE>
distribution of any kind declared, paid or made by the Company or, except for
dividends paid to the Company or other subsidiaries, any of its subsidiaries on
any class of capital stock or repurchase or redemption by the Company or any of
its subsidiaries of any class of capital stock.
(i) Independent Accountants. [___] /8/, who have expressed their opinion
with respect to the financial statements (which term as used in this Agreement
includes the related notes thereto) [and supporting schedules] filed with the
Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants as required
by the Securities Act/9/.
(j) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. [The supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein.] Such financial statements [and supporting
schedules] have been prepared in conformity with generally accepted accounting
principles [as applied in the United States /10/] applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules
are required to be included in the Registration Statement./11/ The financial
data set forth in the Prospectus under the captions "Prospectus Summary--Summary
Selected Financial Data", "Selected Financial Data" and "Capitalization" fairly
present the information set forth therein on a basis consistent with that of the
audited financial statements contained in the Registration Statement./12/ /13/
- -----------------
/8/ Insert the names of each accounting firm whose reports appear or are
incorporated by reference in the Registration Statement.
/9/ Here insert the phrase "and the Exchange Act" for those issuers filing on
either Form S-1 or S-3 that are publicly reporting companies. Define that term
here if it has not been previously defined.
/10/ Insert this language if the Company has operations outside of the United
States.
/11/ If financial information for any company other than the Company is
contained in the Registration Statement or Prospectus, the representations in
this paragraph should be repeated (i) by such company, which would become a
signatory to this Agreement, or (ii) by the Company but qualified with "To best
of the Company's knowledge, ...". Note also that certain changes may be
appropriate for the paragraph "Independent Accountants" above and the paragraphs
"Accountants Comfort Letter" and "Bring-Down Comfort Letter" in Section 4.
/12/ Continue this paragraph by including the following additional text if pro
forma financial information is included in the Prospectus:
The pro forma [consolidated][condensed] financial statements of the Company
and its subsidiaries and the related notes thereto included under the caption
"Prospectus Summary--Summary Pro Forma [Consolidated] Selected Financial
Data", "Pro Forma [Consolidated] Selected Financial Data" and elsewhere in
the Prospectus and in the Registration Statement present fairly the
information contained therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly presented on the bases described therein,
and the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are
6
<PAGE>
(k) Company's Accounting System. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles [as applied in the United States] and
to maintain accountability for assets; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(l) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21 to the [Registration Statement] [Company's
Annual Report on Form 10-K for the fiscal year ended [___]]. /14/
(m) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly organized and is validly
existing as a corporation or limited liability company, as the case may be, in
good standing under the laws of the jurisdiction in which it is organized with
full corporate power and authority to own its properties and conduct its
business as described in the prospectus, and is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.
(n) Capitalization of the Subsidiaries. All the outstanding shares of
capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, all
- --------------------------------------------------------------------------------
appropriate to give effect to the transactions and circumstances referred to
therein. No other pro forma financial information is required to be included
in the Registration Statement pursuant to Regulation S-X
/13/ Continue this paragraph by including the following additional text if the
Company has outstanding preferred stock or if debt securities are being issued
in the offering:
The Company's ratios of earnings to fixed charges [and preferred stock
dividends] set forth in the Prospectus under the captions "Prospectus
Summary--Summary Selected Financial Data", "Prospectus Summary--Summary Pro
Forma [Consolidated] Selected Financial Data", "Selected Financial Data" and
"Pro Forma [Consolidated] Selected Financial Data" (etc.) and in Exhibit 12
to the Registration Statement have been calculated in compliance with Item
503(d) of Regulation S-K under the Securities Act.
/14/ If the Company has no subsidiaries, insert "The Company has no
subsidiaries." in the place of this last sentence and revise the remainder of
this paragraph and the next paragraph accordingly. Also globally search this
Agreement for the words "subsidiary", "subsidiaries", "each of", "consolidated",
"considered as one entity", etc. to revise the text accordingly. Then delete
subsections, [n] and [o]. If the Company's subsidiaries are not material in the
aggregate and the Company does not wish to make representations and warranties
regarding all non-material subsidiaries, insert "The subsidiaries considered in
the aggregate as a single subsidiary, would not constitute a "significant
subsidiary," as defined in Rule 1-02(v) of Regulation S-X under the Securities
Act."
7
<PAGE>
outstanding shares of capital stock of the subsidiaries are owned by the Company
either directly or through wholly owned subsidiaries free and clear of any
security interests, claims, liens or encumbrances.
(o) No Prohibition on Subsidiaries from Paying Dividends or Making Other
Distributions. No subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus.
(p) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options [or warrants] described in
the Prospectus). The Common Shares (including the Shares) conform in all
material respects to the description thereof contained in the Prospectus. All
of the issued and outstanding Common Shares have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with federal and state securities laws. None of the outstanding
Common Shares were issued in violation of any preemptive rights, rights of first
refusal or other similar rights to subscribe for or purchase securities of the
Company. There are no authorized or outstanding options, warrants, preemptive
rights, rights of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any capital
stock of the Company or any of its subsidiaries other than those accurately
described in the Prospectus. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(q) Stock Exchange Listing. The Shares have been approved for inclusion
listing on the [Nasdaq National Market][New York Stock Exchange], subject only
to official notice of issuance./15/
(r) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein,
- --------------------
/15/ If the offering contemplated by this Agreement is not an IPO, replace this
sentence with the following.
The Shares are registered pursuant to [Section 12(b) or 12(g)] of the
Securities Exchange Act of 1934 (the "Exchange Act") and are listed on the
[Nasdaq National Market][New York Stock Exchange (the "NYSE")], and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Shares under the Exchange Act or
delisting the Common Shares from the [Nasdaq National ][NYSE], nor has the
Company received any notification that the Commission or the [National
Association of Securities Dealers, LLC (the "NASD")][NYSE] is contemplating
terminating such registration or listing.
8
<PAGE>
except such as have been obtained or made under the Securities Act and such as
may be required (i) under the blue sky laws of any jurisdiction in connection
with the purchase and distribution of the Shares by the Underwriters in the
manner contemplated here and in the Prospectus, (ii) by the National Association
of Securities Dealers, LLC and (iii) by the federal and provincial laws of
Canada.
(s) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of
its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its or their
properties.
(t) No Defaults or Violations. Neither the Company nor any subsidiary
is in violation or default of (i) any provision of its charter or by-laws, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or such subsidiary or any
of its properties, as applicable, except any such violation or default which
would not, singly or in the aggregate, result in a Material Adverse Change
except as otherwise disclosed in the Prospectus.
(u) No Actions, Suits or Proceedings. [Except as otherwise disclosed in
the Prospectus,] No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries or its or their property is pending or, to the best
knowledge of the Company, threatened that (i) could reasonably be expected to
have a Material Adverse Effect on the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or (ii) could
reasonably be expected to result in a Material Adverse Effect.
(v) All Necessary Permits, Etc. [Except as otherwise disclosed in the
Prospectus,] The Company and each subsidiary possess such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company nor any subsidiary has received any notice
of proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse Change.
9
<PAGE>
(w) Title to Properties. Except as otherwise disclosed in the
Prospectus,] The Company and each of its subsidiaries has good and marketable
title to all the properties and assets reflected as owned in the financial
statements referred to in Section 1(A) (i) above [(or elsewhere in the
Prospectus)], in each case free and clear of any security interests, mortgages,
liens, encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company or such subsidiary. The real property, improvements, equipment and
personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
such subsidiary.
(x) Tax Law Compliance. The Company and its [consolidated] subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns [or have properly requested extensions thereof] and have paid all taxes
required to be paid by any of them and, if due and payable, any related or
similar assessment, fine or penalty levied against any of them [except as may be
being contested in good faith and by appropriate proceedings]. The Company has
made adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1 (A) (i) above in respect of all federal,
state and foreign income and franchise taxes for all periods as to which the tax
liability of the Company or any of its [consolidated] subsidiaries has not been
finally determined. The Company is not aware of any tax deficiency that has
been or might be asserted or threatened against the Company that could result in
a Material Adverse Change.
(y) Intellectual Property Rights. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent rights
or licenses, inventions, collaborative research agreements, trade secrets, know-
how, trademarks, service marks, trade names and copyrights which are necessary
to conduct its businesses as described in the Registration Statement and
Prospectus [and any Incorporated Document]; the expiration of any patents,
patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not result in a Material Adverse Change that is not otherwise
disclosed in the Prospectus; the Company has not received any notice of, and has
no knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a Material
Adverse Change. There is no claim being made against the Company regarding
patents, patent rights or licenses, inventions, collaborative research, trade
secrets, know-how, trademarks, service marks, trade names or copyrights. The
Company and its subsidiaries do not in the conduct of their business as now or
proposed to be conducted as described in the Prospectus infringe or conflict
with any right or patent of any third party, or any discovery, invention,
product or process which is the subject of a patent application filed by any
third party,
10
<PAGE>
known to the Company or any of its subsidiaries, which such infringement or
conflict is reasonably likely to result in a Material Adverse Change.
(z) Year 2000 Preparedness. There are no issues related to the
Company's, or any of its subsidiaries', preparedness for the Year 2000 that (i)
are of a character required to be described or referred to in the Registration
Statement or Prospectus [or any Incorporated Document] by the Securities Act [or
by the Exchange Act or the rules and regulations of the Commission thereunder]
which have not been accurately described in the Registration Statement or
Prospectus [or any Incorporated Document] or (ii) might reasonably be expected
to result in any Material Adverse Change or that might materially affect their
properties, assets or rights. All internal computer systems and each
Constituent Component (as defined below) of those systems and all computer-
related products and each Constituent Component (as defined below) of those
products of the Company and each of its subsidiaries fully comply with Year 2000
Qualification Requirements. "Year 2000 Qualifications Requirements" means that
the internal computer systems and each Constituent Component (as defined below)
of those systems and all computer-related products and each Constituent
Component (as defined below) of those products of the Company and each of its
Subsidiaries (i) have been reviewed to confirm that they store, process
(including sorting and performing mathematical operations, calculations and
computations), input and output data containing date and information correctly
regardless of whether the date contains dates and times before, on or after
January 1, 2000, (ii) have been designated to ensure date and time entry
recognition and calculations, and date data interface values that reflect the
century, (iii) accurately manage and manipulate data involving dates and times,
including single century formulas and multi-century formulas, and will not cause
an abnormal ending scenario within the application or generate incorrect values
or invalid results involving such dates, (iv) accurately process any date
rollover, and (v) accept and respond to two-digit year date input in a manner
that resolves any ambiguities as to the century. "Constituent Component" means
all software (including operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals provided as part of
the configuration. The Company has inquired of material vendors as to their
preparedness for the Year 2000 and has disclosed in the Registration Statement
or Prospectus any issues that might reasonably be expected to result in any
Material Adverse Change.
(aa) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(bb) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(cc) Insurance. [Except as otherwise disclosed in the Prospectus,] Each
of the Company and its subsidiaries are insured by recognized, financially sound
and
11
<PAGE>
reputable institutions with policies in such amounts and with such deductibles
and covering such risks as are generally deemed adequate and customary for their
businesses including, but not limited to, policies covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and earthquakes, general liability and
Directors and Officers liability. The Company has no reason to believe that it
or any subsidiary will not be able (i) to renew its existing insurance coverage
as and when such policies expire or (ii) to obtain comparable coverage from
similar institutions as may be necessary or appropriate to conduct its business
as now conducted and at a cost that would not result in a Material Adverse
Change. Neither of the Company nor any subsidiary has been denied any insurance
coverage which it has sought or for which it has applied.
(dd) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, [subassemblers,
value added resellers, subcontractors, original equipment manufacturers,
authorized dealers or international distributors] that might be expected to
result in a Material Adverse Change.
(ee) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(ff) Lock-Up Agreements. Each officer and director of the company[,
each Selling Stockholder] and each beneficial owner of one or more percent of
the outstanding issued share capital of the Company/16/ has agreed to sign an
agreement substantially in the form attached hereto as Exhibit A (the "Lock-up
---------
Agreements"). The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
Lock-up Agreements presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of BancBoston Robertson
Stephens Inc.
(gg) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.
Any certificate signed by an officer of the Company and delivered to
the Representative or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
- ------------------
/16/ The "1% or more" relating to the outstanding issued share capital of the
Company shall be calculated in the same manner as the "Shares Beneficially Owned
Prior to the Offering" column from the "Principal and Selling Shareholders"
table of the Prospectus.
12
<PAGE>
Set forth below are additional representations, some or all of which
may be appropriate to include:
(aaa) No Unlawful Contributions or Other Payments. [Except as otherwise
disclosed in the Prospectus,] Neither the Company nor any of its subsidiaries
nor, to the best of the Company's knowledge, any employee or agent of the
Company or any subsidiary, has made any contribution or other payment to any
official of, or candidate for, any federal, state or foreign office in violation
of any law or of the character required to be disclosed in the Prospectus.
(bbb) Environmental Laws. [Except as otherwise disclosed in the
Prospectus,] (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, except where the failure to comply would
not result in a Material Adverse Change, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus [and any Incorporated Document], (iii) the Company
will not be required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. (S) 9601, et seq.), or otherwise designated as a contaminated site under
-- ---
applicable state or local law.
(ccc) Periodic Review of Costs of Environmental Compliance. In the
ordinary course of its business, the Company conducts a periodic review of the
effect of Environmental Laws on the business, operations and properties of the
Company and its subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review and the amount of its established
reserves, the Company has reasonably concluded that such associated costs and
liabilities would not, individually or in the aggregate, result in a Material
Adverse Change.
(ddd) ERISA Compliance. [Except as otherwise disclosed in the
Prospectus,] The Company and its subsidiaries and any "employee benefit plan"
(as defined under the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, its
subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in
all material respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or a subsidiary, any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended,
and the regulations and published interpretations thereunder (the "Code") of
which the Company or such subsidiary is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the Company,
its subsidiaries or any of their ERISA Affiliates. No "employee benefit plan"
established or maintained by
13
<PAGE>
the Company, its subsidiaries or any of their ERISA Affiliates, if such
"employee benefit plan" were terminated, would have any "amount of unfounded
benefit liabilities" (as defined under ERISA). Neither the Company, its
subsidiaries nor any of their ERISA Affiliates has incurred or reasonably
expects to incur any liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "employee benefit plan" or (ii) Sections
412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan" established
or maintained by the Company, its subsidiaries or any of their ERISA Affiliates
that is intended to be qualified under Section 401(a) of the Code is so
qualified and nothing has occurred, whether by action or failure to act, which
would cause the loss of such qualification.
(eee) Financial Projections. The statements, (including the assumptions
described therein) included in the Registration Statement and the Prospectus
under the headings "Summary of Significant Projections and Assumptions" and
"Financial Projections" (i) are within the coverage of Rule 175(b) under the Act
to the extent such data constitute forward looking statements as defined in Rule
175(c) and (ii) were made by the Company with a reasonable basis and reflect the
Company's good faith estimate of the matters described therein.
B. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder represents, warrants and covenants to each Underwriter as
follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling Stockholder
and is a valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Stockholder and [___], as custodian
(the "Custodian"), relating to the deposit of the Shares to be sold by such
Selling Stockholder (the "Custody Agreement") and (ii) Power of Attorney
appointing certain individuals named therein as such Selling Stockholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth therein
relating to the transactions contemplated hereby and by the Prospectus (the
"Power of Attorney"), of such Selling Stockholder has been duly authorized,
executed and delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification thereunder may be limited by applicable law
and except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles. Each
Selling Stockholder agrees that the Shares to be sold by such Selling
Stockholder on deposit with the Custodian is subject to the interests of the
Underwriters, that the arrangements made for such custody are to that extent
irrevocable, and that the obligations of such Selling Stockholder hereunder
shall not be terminated, except as provided in this Agreement or in the Custody
Agreement, by any act of the Selling Stockholder, by operation of law, by death
or incapacity of such Selling Stockholder or by the occurrence of any other
event. If such Selling Stockholder should die or become incapacitated, or in
any other event
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<PAGE>
should occur, before the delivery of the Shares to be sold by such Selling
Stockholder hereunder, the documents evidencing the Shares to be sold by such
Selling Stockholder then on deposit with the Custodian shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether or
not the Custodian shall have received notice thereof.
(c) Title to Shares to be Sold. Such Selling Stockholder is the lawful
owner of the Shares to be sold by such Selling Stockholder hereunder and upon
sale and delivery of, and payment for, such Shares, as provided herein, such
Selling Stockholder will convey good and marketable title to such Shares, free
and clear of all liens, encumbrances, equities and claims whatsoever.
(d) All Authorizations Obtained. Such Selling Stockholder has, and on
the First Closing Date and the Second Closing Date (as defined below) will have,
good and valid title to all of the Company Shares which may be sold by such
Selling Stockholder pursuant to this Agreement on such date and the legal right
and power, and all authorizations and approvals required by law [and under its
charter or by-laws,] [partnership agreement,] [trust agreement] [or other
organizational documents] to enter into this Agreement and its Custody Agreement
and Power of Attorney, to sell, transfer and deliver all of the Shares which may
be sold by such Selling Stockholder pursuant to this Agreement and to comply
with its other obligations hereunder and thereunder.
(e) No Further Consents, Authorization or Approvals. No consent,
approval, authorization or order of any court or governmental agency or body is
required for the consummation by such Selling Stockholder of the transactions
contemplated herein, except such as may have been obtained under the Securities
Act and such as may be required under the federal and provincial securities laws
of Canada or the blue sky laws or any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters and such other
approvals as have been obtained.
(f) Non-Contravention. Neither the sale of the Securities being sold by
such Selling Stockholder nor the consummation of any other of the transactions
herein contemplated by such Selling Stockholder or the fulfillment of the terms
hereof by such Selling Stockholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the terms of any
indenture or other agreement or instrument to which such Selling Stockholder is
party or bound, any judgment, order or decree applicable to such Selling
Stockholder or any court or regulatory body, administrative agency, governmental
body or arbitrator having jurisdiction over such Selling Stockholder.
(g) No Registration or Other Similar Rights. Such Selling Stockholder
does not have any registration or other similar rights to have any equity or
debt securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement, except for
such rights as are described in the Prospectus under "Shares Eligible for Future
Sale".
(h) No Preemptive, Co-sale or other Rights. Such Selling Stockholder
does not have, or has waived prior to the date hereof, any preemptive right, co-
sale right or right of first refusal or other similar right to purchase any of
the Shares that are to be
15
<PAGE>
sold by the Company or any of the other Selling Stockholders to the Underwriters
pursuant to this Agreement; and such Selling Stockholder does not own any
warrants, options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, right, warrants, options or other
securities from the Company, other than those described in the Registration
Statement and the Prospectus.
(i) Disclosure Made by Such Selling Stockholder in the Prospectus. All
information furnished by or on behalf of such Selling Stockholder in writing
expressly for use in the Registration Statement and Prospectus is, and on the
First Closing Date and the Second Closing Date (as defined below) will be, true,
correct, and complete in all material respects, and does not, and on the First
Closing Date and the Second Closing Date will not, contain any untrue statement
of a material fact or omit to state any material fact necessary to make such
information not misleading. Such Selling Stockholder confirms as accurate the
number of shares of Company Shares set forth opposite such Selling Stockholder's
name in the Prospectus under the caption "Principal and Selling Stockholders"
(both prior to and after giving effect to the sale of the Shares).
(j) No Price Stabilization or Manipulation. Such Selling Stockholder
has not taken and will not take, directly or indirectly, any action designed to
or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
(k) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the sale by the Selling Stockholders
of the Shares.
(l) Distribution of Offering Materials by the Selling Stockholders. The
Selling Stockholders have not distributed and will not distribute, prior to the
later of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Shares, any offering material in connection
with the offering and sale of the Shares by such Selling Stockholder other than
a preliminary prospectus, the Prospectus or the Registration Statement.
(m) Confirmation of Company Representations and Warranties. Such
Selling Stockholder has no reason to believe that the representations and
warranties of the Company contained in Section 1(A) hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and has
no knowledge of any material fact, condition or information not disclosed in the
Registration Statement or the Prospectus which has had or may result in a
Material Adverse Change on the condition, financial or otherwise, or on the
earnings, business, operation or prospects, whether or not arising from
transactions in the ordinary course of business of the Company and its
subsidiaries, considered as one entity, and is not prompted to sell the Shares
to be sold by such Selling Stockholder by any information concerning the Company
which is not set forth in the Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Representative or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
16
<PAGE>
Section 2. Purchase, Sale and Delivery of the Shares.
(a) The Firm Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Shares upon the terms herein set forth. On the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase from the Company the respective
number of Firm Shares set forth opposite their names on Schedule A. The
----------
purchase price per Firm Share to be paid by the several Underwriters to the
Company shall be $[___] per share.
Replace the initial paragraph with the following text if
Selling Stockholders are offering the Firm Shares:
(a) The Firm Shares. The Selling Stockholders agree to sell to the several
Underwriters the Firm Shares upon the terms set forth herein, each Selling
Stockholder selling the number of Firm Shares set forth opposite such Selling
Stockholder's name on Schedule B. On the basis of the representations,
----------
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Selling Stockholders the respective number of Firm
Shares set forth opposite their names on Schedule B. The purchase price per Firm
----------
Share to be paid by the several Underwriters to the Selling Stockholders shall
be $[___] per share.
Replace the initial paragraph with the following text if
the Company and Selling Stockholders are offering the Firm Shares:
---
(a) The Firm Shares. Upon the terms herein set forth, (i) the Company
agrees to issue and sell to the several Underwriters an aggregate of [___] Firm
Shares and (ii) the Selling Stockholders agree to sell to the several
Underwriters an aggregate of [___] Firm Shares, each Selling Stockholder selling
the number of Firm Shares set forth opposite such Selling Stockholder's name on
Schedule B. On the basis of the representations, warranties and agreements
- ----------
herein contained, and upon the terms but subject to the conditions herein set
forth, the Underwriters agree, severally and not jointly, to purchase from the
Company and the Selling Stockholders the respective number of Firm Shares set
forth opposite their names on Schedule A. The purchase price per Firm Share to
----------
be paid by the several Underwriters to the Company and the Selling Stockholders
shall be $[___] per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased by
the Underwriters and payment therefor shall be made by the Company and the
Representative at 6:00 a.m. San Francisco time, at the offices of [NAME AND
ADDRESS OF COMPANY COUNSEL] (or at such other place as may be agreed upon among
the Representatives and the Company), (i) on the third (3rd) full business day
following the first day that Shares are traded, (ii) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that Shares are traded as the
Representative and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
17
<PAGE>
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the Representative may, in its sole discretion, postpone the
Closing Date until no later that two (2) full business days following delivery
of copies of the Prospectus to the Representative.
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, [the Company] [[___], one
of the Selling Stockholders] the Selling Stockholders the Company and the
Selling Stockholders hereby grant[s] an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of [___] Option Shares
from [the Company][such Selling Stockholder] the Selling Stockholders the
Company and the Selling Stockholders at the purchase price per share to be paid
by the Underwriters for the Firm Shares. The option granted hereunder is for
use by the Underwriters solely in covering any over-allotments in connection
with the sale and distribution of the Firm Shares. The option granted hereunder
may be exercised at any time upon notice by the Representative to [the
Company][such Selling Stockholder (with a copy to the Company)], the Selling
Stockholders (with a copy to the Company) the Company and the Selling
Stockholders, which notice may be given at any time within 30 days from the
date of this Agreement. The time and date of delivery of the Option Shares, if
subsequent to the First Closing Date, is called the "Second Closing Date" and
shall be determined by the Representative and shall not be earlier than three
nor later than five full business days after delivery of such notice of
exercise. If any Option Shares are to be purchased, [(i)] each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representative may determine) that bears the same proportion to the total number
of Option Shares to be purchased as the number of Firm Shares set forth on
Schedule A opposite the name of such Underwriter bears to the total number of
- ----------
Firm Shares and (ii) each Selling Stockholderthe Company and each Selling
Stockholder agrees, severally and not jointly, to sell the number of Option
Shares (subject to such adjustments to eliminate fractional shares as the
Representative may determine) that bears the same proportion to the total number
of Option Shares to be sold as the number of Option Shares set forth in Schedule
--------
B opposite the name of such Selling Stockholder (or, in the case of the Company,
- -
as the number of Option Shares to be sold by the Company as set forth in the
paragraph "Introductory" of this Agreement) bears to the total number of Option
Shares]. The Representative may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to [the Company] [such
Selling Stockholder (with a copy to the Company) the Selling Stockholders (with
a copy to the Company) the Company and the Selling Stockholders.
(d) Public Offering of the Shares. The Representative hereby advises the
Company [and the Selling Stockholders] that the Underwriters intend to offer for
sale to the public, as described in the Prospectus, their respective portions of
the Shares as soon after this Agreement has been executed and the Registration
Statement has been declared effective as the Representative, in its sole
judgment, has determined is advisable and practicable.
18
<PAGE>
Insert the following Payment and Delivery provisions if
all Shares are being sold by the Company
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representative has been authorized, for its
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Shares and
any Option Shares the Underwriters have agreed to purchase. BancBoston Robertson
Stephens Inc., individually and not as the Representative of the Underwriters,
may (but shall not be obligated to) make payment for any Shares to be purchased
by any Underwriter whose funds shall not have been received by the
Representative by the First Closing Date or the Second Closing Date, as the case
may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representative for the
accounts of the Representative and the several Underwriters at the First Closing
Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company
shall also deliver, or cause to be delivered a credit representing the Option
Shares the Underwriters have agreed to purchase at the First Closing Date (or
the Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representative and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
Insert the following Payment and Delivery provisions if
Shares are being sold by the Company and by Selling Stockholders
---
(or edited appropriately if Firm Shares or Option Shares
are being sold only by Selling Stockholders)
(e) Payment for the Shares. Payment for the Shares to be sold by the
Company shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Shares to be sold by the Selling
Stockholders shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Custodian.
It is understood that the Representative has been authorized, for its
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Shares and
any Option Shares the Underwriters have agreed to purchase. BancBoston Robertson
Stephens Inc., individually and not as the Representative of the Underwriters,
may (but shall not be obligated to) make payment for any Shares to be purchased
by any Underwriter
19
<PAGE>
whose funds shall not have been received by the Representative by the First
Closing Date or the Second Closing Date, as the case may be, for the account of
such Underwriter, but any such payment shall not relieve such Underwriter from
any of its obligations under this Agreement.
Each Selling Stockholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Shares to be sold by such Selling Stockholder to the
several Underwriters, or otherwise in connection with the performance of such
Selling Stockholder's obligations hereunder and (ii) the Custodian is authorized
to deduct for such payment any such amounts from the proceeds to such Selling
Stockholder hereunder and to hold such amounts for the account of such Selling
Stockholder with the Custodian under the Custody Agreement.
(f) Delivery of the Shares. The Company [and the Selling Stockholders]
shall deliver, or cause to be delivered a credit representing the Firm Shares to
an account or accounts at The Depository Trust Company as designated by the
Representative for the accounts of the Representative and the several
Underwriters at the First Closing Date, against the irrevocable release of a
wire transfer of immediately available funds for the amount of the purchase
price therefor. The Company [and the Selling Stockholders] shall also deliver,
or cause to be delivered a credit representing the Option Shares to an account
or accounts at The Depository Trust Company as designated by the Representative
for the accounts of the Representative and the several Underwriters, at the
First Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon
on the second business day following the date the Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Representative shall request.
Section 3. Covenants of the Company [and the Selling Stockholders].
[A. Covenants of the Company.] The Company further covenants and agrees
with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representative
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representative shall not previously have been advised
and furnished with a copy or to
20
<PAGE>
which the Representative shall have reasonably objected in writing or which is
not in compliance with the Securities Act. If the Company elects to rely on Rule
462(b) under the Securities Act, the Company shall file a Rule 462(b)
Registration Statement with the Commission in compliance with Rule 462(b) under
the Securities Act prior to the time confirmations are sent or given, as
specified by Rule 462(b)(2) under the Securities Act, and shall pay the
applicable fees in accordance with Rule 111 under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representative promptly (i) when the Registration Statement or any post-
effective amendment thereto shall have become effective, (ii) of receipt of any
comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such stop
order preventing or suspending the use of the Prospectus and to obtain as soon
as possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representative may reasonably have designated in writing and
will make such applications, file such documents, and furnish such information
as may be reasonably required for that purpose, provided the Company shall not
be required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time, prepare
and file such statements, reports and other documents, as are or may be required
to continue such qualifications in effect for so long a period as the
Representative may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representative or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representative, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such
21
<PAGE>
date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto [(including any documents
incorporated or deemed incorporated by reference therein)] as the Representative
may request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representative an
earnings statement (which need not be audited) covering the twelve-month period
ending [___]/17/ that satisfies the provisions of Section 11(a) of the
Securities Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
[Nasdaq National Market] New York Stock Exchange all reports and documents
required to be filed under the Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company)
- -----------------------
/17/ Insert the date of the end of the Company's first quarter ending after one
year following the "effective date of the Registration Statement" (as defined in
Rule 158(c) under the Securities Act).
22
<PAGE>
directly or indirectly, or announce the offering of, any other Common Shares or
any securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
on during the period of 180 days from the date that the Registration Statement
is declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Shares and (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at the
date of the Prospectus and described in the Prospectus.
(m) Future Reports to the Representative. During the period of five
years hereafter the Company will furnish to the Representative (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
[(n) Exchange Act Compliance. During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act.]
B. Covenants of the Selling Stockholders. Each Selling Stockholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Stockholder will not, during the Lock-Up Period, make a disposition of
Securities (as defined in Exhibit A hereto) now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to partners or shareholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, (iii) with respect to dispositions of Common Shares
acquired on the open market or (iv) with the prior written consent of BancBoston
Robertson Stephens Inc. The foregoing restriction has been expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a disposition of Securities during the Lock-Up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or
23
<PAGE>
derives any significant part of its value from Securities. Furthermore, such
person has also agreed and consented to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Securities held by
such person except in compliance with this restriction.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representative
prior to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Stockholder is a non-United States
person) or Form W-9 (if the Selling Stockholder is a United States Person).
(c) Notification of Untrue Statements, etc. If, at any time prior to the
date on which the distribution of the Common Shares as contemplated herein and
in the Prospectus has been completed, as determined by the Representative, such
Selling Stockholder has knowledge of the occurrence of any event as a result of
which the Prospectus or the Registration Statement, in each case as then amended
or supplemented, would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, such Selling
Stockholder will promptly notify the Company and the Representative.
Section 4. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company [and the Selling
Stockholders] set forth in Section 1 [Sections 1(A) and 1(B)] hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Option Shares, as of the Second Closing Date as though then made,
to the timely performance by the Company [and the Selling Stockholders] of its
[their respective] covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the National Association of Securities Dealers, LLC The Registration
Statement shall have become effective prior to the execution of this Agreement,
or at such later date as shall be consented to in writing by you; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company[, any Selling Shareholder] or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus [or any Incorporated
Document] or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel; and the National Association of Securities Dealers, LLC
shall have raised no objection to the fairness and reasonableness of the
underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been
24
<PAGE>
furnished with such papers and information as they may reasonably have requested
to enable them to pass upon the matters referred to in this Section.
(c) No Material Adverse Change [or Ratings Agency Change]. Subsequent to
the execution and delivery of this Agreement and prior to the First Closing
Date, or the Second Closing Date, as the case may be,
(i) there shall not have been any Material Adverse Change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise
from that set forth in the Registration Statement or Prospectus, which, in
your sole judgment, is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus; and
(ii) there shall not have occurred any downgrading, nor shall any notice
have been given of any intended or potential downgrading or of any review
for a possible change that does not indicate the direction of the possible
change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Act./18/
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of [NAME OF COMPANY COUNSEL] counsel for the Company substantially in the form
of Exhibit B attached hereto, dated the First Closing Date, or the Second
---------
Closing Date, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as to
---------
questions of law not involving the laws of the United States or the State of
[COMPANY COUNSEL'S STATE] and [STATE OF COMPANY'S INCORPORATION] upon opinions
of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, the Selling Stockholders or officers of
the Selling Stockholders (when the Selling Stockholder is not a natural person),
and of government officials, in which case their opinion is to state that they
are so relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to you,
as Representatives of the Underwriters, and to Underwriters' Counsel.
[(e) Opinion of Patent Counsel for the Company]. You shall have received
on the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of [NAME OF PATENT COUNSEL], patent counsel for the Company
substantially in the form of Exhibit C attached hereto./19/
---------
- -------------------
/18/ Omit if the Company does not have securities rated by a national rating
organization.
/19/ To the extent the Company has separate intellectual property counsel or
is materially dependent on patents, the opinions in Exhibit C should be given.
---------
25
<PAGE>
(f) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of [NAME OF UNDERWRITERS' COUNSEL], substantially in the form of Exhibit
-------
D hereto. The Company shall have furnished to such counsel such documents as
- -
they may have requested for the purpose of enabling them to pass upon such
matters.
(g) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
[NAME OF ACCOUNTANTS] addressed to the Underwriters, dated the First Closing
Date or the Second Closing Date, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations and based
upon the procedures described in such letter delivered to you concurrently with
the execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than four (4) business days prior to the First
Closing Date or the Second Closing Date, as the case may be, (i) confirming, to
the extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the First Closing Date or the Second Closing Date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus. The Original Letter from [NAME
OF ACCOUNTANTS] shall be addressed to or for the use of the Underwriters in form
and substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations, (ii) set forth their opinion with respect to their examination
of the consolidated balance sheet of the Company as of [December 31], ____ and
related consolidated statements of operations, shareholders' equity, and cash
flows for the twelve (12) months ended [December 31], ____, [(iii) state that
[NAME OF ACCOUNTANTS] has performed the procedures set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of [NAME OF ACCOUNTANTS] as described in
SAS 71 on the financial statements for each of the quarters in the ____-quarter
period ended ________________, ___ (the "Quarterly Financial Statements"), (iv)
state that in the course of such review, nothing came to their attention that
leads them to believe that any material modifications need to be made to any of
the Quarterly Financial Statements in order for them to be in compliance with
generally accepted accounting principles consistently applied across the periods
presented,] and address other matters agreed upon by [NAME OF ACCOUNTANTS] and
you. In addition, you shall have received from [NAME OF ACCOUNTANTS] a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of [December 31], ____, did not disclose any weaknesses in internal controls
that they considered to be material weaknesses.
26
<PAGE>
(h) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or the
Second Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the First Closing Date or the Second
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto [and
the Incorporated Documents, when such Incorporated Documents became
effective or were filed with the Commission,], contained all material
information required to be included therein by the Securities Act [or the
Exchange Act and the applicable rules and regulations of the Commission
thereunder, as the case may be,] and in all material respects conformed to
the requirements of the Securities Act [or the Exchange Act and the
applicable rules and regulations of the Commission thereunder, as the case
may be], the Registration Statement and the Prospectus, and any amendments
or supplements thereto, did not and does not include any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and,
since the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented Prospectus
which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (a) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (b) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding indebtedness of
the Company or any of its subsidiaries that is material to the Company and
its subsidiaries considered as one enterprise, (e) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (f) any loss or damage (whether or
not insured) to the property of the Company or any of its subsidiaries which
has been sustained or will have been sustained which has a material adverse
effect on the condition (financial or
27
<PAGE>
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise.
(i) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
---------
Company, [each Selling Shareholder] and each beneficial owner of one or more
percent of the outstanding issued share capital of the Company.
[(j) Opinion of Counsel for the Selling Stockholders]. You shall have
received on the First Closing Date and the Second Closing Date, as the case may
be, the following opinion of [NAME OF SELLING STOCKHOLDERS' COUNSEL], counsel
for the Selling Stockholders substantially in the form of Exhibit E attached
---------
hereto, dated as of such Closing Date, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters.
In rendering such opinion, such counsel may rely as to questions of law not
involving the laws of the United States or State of [SELLING STOCKHOLDER'S
STATE] and [STATE OF COMPANY'S INCORPORATION] upon opinions of local counsel and
as to questions of fact upon representations or certificates of the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of governmental officials, in which
case their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy of any material
misstatement or inaccuracy in any such opinion, representation or certificate so
relied upon shall be delivered to you, as Representatives of the Underwriters,
and to Underwriters' Counsel.]
[(k) Selling Stockholders' Certificate]. On each of the First Closing
Date and the Second Closing Date, as the case may be, the Representative shall
received a written certificate executed by the Attorney-in-Fact of each Selling
Stockholder, dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such Selling
Stockholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by such
Selling Stockholder on and as of such Closing Date; and
(ii) such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
[(l) Selling Stockholders' Documents]. At least three business days
prior to the date hereof, the Company and the Selling Stockholders shall have
furnished for review by the Representative copies of the Powers of Attorney and
Custody Agreements executed by each of the Selling Stockholders and such further
information, certificates and documents as the Representative may reasonably
request.]
(m) Stock Exchange Listing. The Shares shall have been approved for
[inclusion] [listing] on the [Nasdaq National Market] [New York Stock Exchange],
subject only to official notice of issuance.
28
<PAGE>
(n) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(o) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representative and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the Representative
by notice to the Company [and the Selling Stockholders] at any time on or prior
to the First Closing Date and, with respect to the Option Shares, at any time
prior to the Second Closing Date, which termination shall be without liability
on the part of any party to any other party, except that Section 5 (Payment of
Expenses), Section 6 (Reimbursement of Underwriters' Expenses), Section 7
(Indemnification and Contribution) and Section 10 (Representations and
Indemnities to Survive Delivery) shall at all times be effective and shall
survive such termination.
Section 5. Payment of Expenses. The Company agrees to pay [the Company and
the Selling Stockholders, jointly and severally, agree to pay in such
proportions as they may agree upon among themselves] all costs, fees and
expenses incurred in connection with the performance of its [their] obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representative,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares,/20/ (viii) the fees and expenses associated
with
- -----------------
/20/ Underwriter's counsel should bill its fees and expenses relating to
obtaining National Association of Securities Dealers, LLC approval directly to
the issuer, along with its Blue Sky related fees and expenses.
29
<PAGE>
[listing] [including] the Common Shares [Common Stock] on the [Nasdaq National
Market] [New York Stock Exchange], (ix) all costs and expenses incident to the
preparation and undertaking of "road show" preparations to be made to
prospective investors, and (x) all other fees, costs and expenses referred to in
[Item 13] [Item 14] of Part II of the Registration Statement. Except as provided
in this Section 5, Section 6, and Section 7 hereof, the Underwriters shall pay
their own expenses, including the fees and disbursements of their counsel.
[The Selling Stockholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Stockholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Stockholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).]
[This Section 5 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Stockholders, on the other hand.]
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by the Representative pursuant to Section 4, Section 7, Section 8,
Section 9 [or Section 15], or if the sale to the Underwriters of the Shares on
the First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company [or the Selling Stockholders] to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse the Representative and the other Underwriters (or such Underwriters as
have terminated this Agreement with respect to themselves), severally, upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by the Representative and the Underwriters in connection with the proposed
purchase and the offering and sale of the Shares, including but not limited to
fees and disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
Section 7. Indemnification and Contribution.
(a) Indemnification of the Underwriters.
(1) [Each of] The Company [and each of the Principal Selling
Stockholders, jointly and severally,] agree[s] to indemnify and hold harmless
each Underwriter, its officers and employees, and each person, if any, who
controls any Underwriter within the meaning of the Securities Act and the
Exchange Act against any loss, claim, damage, liability or expense, as incurred,
to which such Underwriter or such controlling person may become subject, under
the Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written
- --------------------------------------------------------------------------------
30
<PAGE>
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; or (iii)
in whole or in part upon any inaccuracy in the representations and warranties of
the Company [or the Principal Selling Stockholders] contained herein; or (iv) in
whole or in part upon any failure of the Company [or the Principal Selling
Stockholders] to perform its [their respective] obligations hereunder or under
law; or (v) any act or failure to act or any alleged act or failure to act by
any Underwriter in connection with, or relating in any manner to, the Shares or
the offering contemplated hereby, and which is included as part of or referred
to in any loss, claim, damage, liability or action arising out of or based upon
any matter covered by clause (i), (ii), (iii) or (iv) above, provided that the
Company [and the Principal Selling Stockholder[s]] shall not be liable under
this clause (v) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its bad faith or willful
misconduct; and to reimburse each Underwriter and each such controlling person
for any and all expenses (including the fees and disbursements of counsel chosen
by BancBoston Robertson Stephens Inc.) as such expenses are reasonably incurred
by such Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company [and the Principal Selling Stockholders] by the Representative expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further, that
with respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person asserting
any loss, claim, damage, liability or expense purchased Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely delivered
to the Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Company [and the Principal Selling Stockholders] may otherwise have.
31
<PAGE>
(2) Each of the Other Selling Stockholders, jointly and severally,
agrees to indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter within the
meaning of the Securities Act and the Exchange Act against any loss, claim,
damage, liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company, which consent shall not be
unreasonably withheld), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (i) and (ii) of this Section
7(a)(2) to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company or such
Underwriter by such Other Selling Stockholder, directly or through such Other
Selling Stockholder's representatives, specifically for use in the preparation
thereof; or (iii) in whole or in part upon any inaccuracy in the representations
and warranties of the Other Selling Stockholders contained herein; or (iv) in
whole or in part upon any failure of the Other Selling Stockholders to perform
their respective obligations hereunder or under law; or (v) any act or failure
to act or any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Shares or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon any matter covered by
clause (i), (ii), (iii) or (iv) above, provided that the Other Selling
Stockholders shall not be liable under this clause (v) to the extent that a
court of competent jurisdiction shall have determined by a final judgment that
such loss, claim, damage, liability or action resulted directly from any such
acts or failures to act undertaken or omitted to be taken by such Underwriter
through its bad faith or willful misconduct; and to reimburse each Underwriter
and each such controlling person for any and all expenses (including the fees
and disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Other Selling Stockholders by the
Representative expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
provided, further, that with respect to any preliminary prospectus, the
foregoing indemnity agreement shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim,
32
<PAGE>
damage, liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Other Selling Stockholders may otherwise have./21/
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement [, the Selling Stockholders] and each person, if any, who
controls the Company [or any Selling Stockholder] within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage, liability
or expense, as incurred, to which the Company, or any such director, officer [,
Selling Stockholder] or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based upon
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or arises out of or is based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written information
furnished to the Company [and the Selling Stockholders] by the Representative
expressly for use therein; and to reimburse the Company, or any such director,
officer [, Selling Stockholder] or controlling person for any legal and other
expense reasonably incurred by the Company, or any such director, officer [,
Selling Stockholder] or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. The indemnity
- --------------------
/21/ In certain instances it may not be reasonable to ask each Selling
Stockholder to jointly and severally indemnify the Underwriters. In those
instances, set forth below are two variations of acceptable limitations of
Selling Stockholders' liability to include at the end of this sentence:
; and provided, further, that the liability of each Selling Stockholder
under the foregoing indemnity agreement shall be limited to an amount
equal to the initial public offering price of the Shares sold by such
Selling Stockholder, less the underwriting discount, as set forth on the
front cover page of the Prospectus.
or
; and provided, further, that the Company and the Selling Stockholders may
agree, as among themselves and without limiting the rights of the Underwriters
under this Agreement, as to the respective amounts of such liability for which
they each shall be responsible.
33
<PAGE>
agreement set forth in this Section 7(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. [Each of] The Company [and
each of the Principal Selling Stockholders,] [and each of the Selling
Stockholders,] hereby acknowledges that the only information that the
Underwriters have furnished to the Company [and the Selling Stockholders]
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the statements set
forth in the table in the first paragraph and the second paragraph [second and
[_]/22/ paragraphs] under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (BancBoston Robertson Stephens Inc. in the case of Section
7(b) and Section 8), representing the indemnified parties who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified
- ----------------------------
/22/ Reference here, if applicable, the paragraph where the Representative
advises the Company that no sales or sales of not more than five percent of the
Common Shares will be made to discretionary accounts.
34
<PAGE>
party within a reasonable time after notice of commencement of the action, or
(iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the
35
<PAGE>
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 7(f) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 7(f) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (f), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 7(f) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(g) Survival. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(h) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
[(i) Indemnification of a Qualified Independent Underwriter./23/]
- --------------------
/23/ Insert the following paragraph in the event a QIU is employed:
36
<PAGE>
Section 8. Default of One or More of the Several Underwriters. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated,
severally, in the proportions that the number of Firm Common Shares set forth
opposite their respective names on Schedule A bears to the aggregate number of
----------
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representative with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representative and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the provisions of Section 4, and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representative or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to include
any person substituted for a defaulting Underwriter under this Section 8. Any
action taken under this Section 8 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
Section 9. Termination of this Agreement. Prior to the First Closing Date,
this Agreement may be terminated by the Representative by notice given to the
Company
- --------------------------------------------------------------------------------
(i) Indemnification of a Qualified Independent Underwriter. Without
limitation and in addition to its obligations under the other subsections of
this Section 7, the Company agrees to indemnify and hold harmless [name of
investment bank acting as QIU] and each person, if any, who controls [QIU]
within the meaning of the Securities Act or the Exchange Act from and against
any loss, claim, damage, liabilities or expense, as incurred, arising out of or
based upon [QIU's] acting as a "qualified independent underwriter" (within the
meaning of Rule 2720 to the NASD's Conduct Rules) in connection with the
offering contemplated by this Agreement, and agrees to reimburse each such
indemnified person for any legal or other expense reasonably incurred by them
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or expense results from the gross
negligence or willful misconduct of [QIU].
37
<PAGE>
[and the Selling Stockholders] if at any time (i) trading or quotation in any of
the Company's securities shall have been suspended or limited by the Commission
or by the [Nasdaq Stock Market] [New York Stock Exchange, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the National Association of Securities Dealers, LLC; (ii) a
general banking moratorium shall have been declared by any of federal, New York
[, Delaware] or California authorities; (iii) there shall have occurred any
outbreak or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective change in
United States' or international political, financial or economic conditions, as
in the judgment of the Representative is material and adverse and makes it
impracticable or inadvisable to market the Common Shares in the manner and on
the terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representative there shall have occurred
any Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Representative may interfere materially with the conduct
of the business and operations of the Company regardless of whether or not such
loss shall have been insured. Any termination pursuant to this Section 9 shall
be without liability on the part of (a) the Company [or the Selling
Stockholders] to any Underwriter, except that the Company [and the Selling
Stockholders] shall be obligated to reimburse the expenses of the Representative
and the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to
the Company [or the Selling Stockholders], or (c) of any party hereto to any
other party except that the provisions of Section 7 shall at all times be
effective and shall survive such termination.
Section 10. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers [, of the Selling Stockholders] and
of the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, [or the Selling Stockholders,]
as the case may be, and will survive delivery of and payment for the Shares sold
hereunder and any termination of this Agreement.
Section 11. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representative:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
38
<PAGE>
If to the Company [or the Principal Subsidiary]:
[Company]
[address]
Facsimile: [___]
Attention: [___]
If to the Selling Stockholders:
[Custodian]/24/
[address]
Facsimile: [___]
Attention: [___]
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 9 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, [and personal representatives], and no other person will have any
right or obligation hereunder. The term "successors" shall not include any
purchaser of the Shares as such from any of the Underwriters merely by reason of
such purchase.
Section 13. Partial Unenforceability. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
Section 14. Governing Law Provisions.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified
- -------------------
/24/ Additionally, certain Selling Stockholders may want copies of notices
delivered to their individual addresses.
39
<PAGE>
Courts"), and each party irrevocably submits to the exclusive jurisdiction
(except for proceedings instituted in regard to the enforcement of a judgment of
any such court (a "Related Judgment"), as to which such jurisdiction is non-
exclusive) of such courts in any such suit, action or proceeding. Service of any
process, summons, notice or document by mail to such party's address set forth
above shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit, action
or other proceeding in the Specified Courts and irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such suit,
action or other proceeding brought in any such court has been brought in an
inconvenient forum. Each party not located in the United States irrevocably
appoints CT Corporation System, which currently maintains a San Francisco office
at 49 Stevenson Street, San Francisco, California 94105, United States of
America, as its agent to receive service of process or other legal summons for
purposes of any such suit, action or proceeding that may be instituted in any
state or federal court in the City and County of San Francisco.
(c) Waiver of Immunity. With respect to any Related Proceeding, each party
irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.]
[Section 15. Failure of One or More of the Selling Stockholders to Sell and
Deliver Common Shares]. If one or more of the Selling Stockholders shall fail
to sell and deliver to the Underwriters the Shares to be sold and delivered by
such Selling Stockholders at the First Closing Date pursuant to this Agreement,
then the Underwriters may at their option, by written notice from the
Representative to the Company and the Selling Stockholders, either (i) terminate
this Agreement without any liability on the part of any Underwriter or, except
as provided in Sections 5, 6, and 7 hereof, the Company or the Selling
Stockholders, or (ii) purchase the shares which the Company and other Selling
Stockholders have agreed to sell and deliver in accordance with the terms
hereof. /25/ If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Shares to be sold and delivered by such Selling
Stockholders pursuant to this Agreement at the First Closing Date or the Second
- --------------------
/25/ If this provision becomes a major issue, then BancBoston Robertson
Stephens legal department may consent to the insertion of the following language
as a compromise:
the Company and the non-defaulting selling stockholders shall have the
right, within 24 hours thereafter, to make arrangements for one or more of
the Company and the non-defaulting selling stockholders to sell upon the
terms set forth in this Agreement all but not less than all, of such
defaulted shares in such amounts as may be agreed upon and to which the
Underwriters do not reasonably object, if however, such arrangements have
not been completed within such 24-hour period
40
<PAGE>
Closing Date, then the Underwriters shall have the right, by written notice from
the Representative to the Company and the Selling Stockholders, to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.]
Section 16. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
[The remainder of this page has been intentionally left blank.]
41
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company [and the Custodian] the enclosed copies
hereof, whereupon this instrument, along with all counterparts hereof, shall
become a binding agreement in accordance with its terms.
Very truly yours,
[COMPANY]
By:__________________________
[Title]
[SELLING SHAREHOLDERS]
By:__________________________
Attorney-in-fact for the Selling Stockholders
named in Schedule B hereto
----------
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
Representative[s] as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
[NAME OF CO-MANAGER[S]
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
- ----------
[By BANCBOSTON ROBERTSON STEPHENS INC.]
By:_________________________________
Authorized Signatory
42
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Common Shares
Underwriters To be Purchased
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC./26/.......... [___]
[Co-Manager].................................... [___]
[___]........................................... [___]
[___]........................................... [___]
[___] .......................................... [___]
Total........................................ [___]
</TABLE>
- -------------------
/26/ Add BancBoston Robertson Stephens International Limited as follows in any
transaction where there will be a European road show and/or where a European
Prospectus will be prepared and disseminated in Europe:
"BANCBOSTON ROBERTSON STEPHENS INC. AND BANCBOSTON ROBERTSON STEPHENS
INTERNATIONAL LIMITED"
S-A
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Maximum Number of
Selling Stockholder Firm Shares Option Shares to
to be Sold be Sold
<S> <C> <C>
Selling Stockholder #1
[address]
Attention: [___]........................................ [___] [___]
Selling Stockholder #2
[address]
Attention: [___]........................................ [___] [___]
Total:............................................... [___] [___]
=========== =============
</TABLE>
S-B
<PAGE>
Exhibit A
Lock-Up Agreement
BancBoston Robertson Stephens Inc.
[ Co-Managers]
[As Representatives of the Several Underwriters]
[c/o BancBoston Robertson Stephens Inc.]
555 California Street, Suite 2600
San Francisco, California 94104
RE: ____________________ (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representative[s] (the "Representative[s]") of the underwriters. The
undersigned recognizes that the Offering will be of benefit to the undersigned
and will benefit the Company by, among other things, raising additional capital
for its operations. The undersigned acknowledges that you and the other
underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with respect to dispositions of Common
Shares acquired on the open market or (iv) with the prior written consent of
BancBoston Robertson Stephens Inc., for a period commencing on the date hereof
and continuing to a date 180 days after the Registration Statement is declared
effective by the Securities and Exchange Commission (the "Lock-up Period")./27/
The foregoing restriction has been expressly agreed to preclude the holder of
the Securities from engaging in any hedging
- ------------------------
/27/ If appropriate, the Lock-up Period may be extended to a date subsequent to
the release by the Company of its quarterly earnings.
A-1
<PAGE>
or other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that included, relates to or derives any significant
part of its value from Securities. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock or Securities held by
the undersigned except in compliance with the foregoing restrictions. BancBoston
Robertson Stephens Inc., acting alone and in its sole discretion, may waive any
provisions of this Lock-Up Agreement without notice to any third party.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned. In the event that the Registration Statement shall not have been
declared effective on or before , this Lock-Up Agreement
shall be of no further force or effect.
Dated:
-----------------------------
-----------------------------------
Printed Name of Holder
By:
--------------------------------
Signature
-----------------------------------
Printed Name of Person Signing
(and indicate capacity of person
signing if signing as custodian,
trustee, or on behalf of an
entity)
A-2
<PAGE>
Exhibit B
Matters to be Covered in the Opinion of Company Counsel
(i) The Company and each Significant Subsidiary/28/ (as that term is
defined in Regulation S-X of the Act) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company and each Significant Subsidiary has the corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company and each Significant Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its properties or
the conduct of its business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a Material
Adverse Effect. To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or other
entity other than [list subsidiaries];
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" as of the
dates stated therein, the issued and outstanding shares of capital stock of
the Company [(including the Selling Stockholder Shares)] have been duly and
validly issued and are fully paid and nonassessable, and, to such counsel's
knowledge, will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal
or other similar right;
(v) All issued and outstanding shares of capital stock of each Significant
Subsidiary of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, and, to such counsel's knowledge, have not
been issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar right and
are owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to be issued
by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully
paid and nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right.
- --------------------
/24/ Legal opinion shall be limited to subsidiaries that are significant within
the meaning of Item 3-01 of Regulation S-X, unless a subsidiary is
otherwise of particular importance to the Company (e.g. limited revenues or
assets but holds proprietary information valuable to the Company).
B-1
<PAGE>
(vii) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to
be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered
by the Company and, assuming due authorization, [execution and delivery by
you, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may
be limited by applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or affecting creditors' rights generally or by general equitable
principles];
(ix) The Registration Statement has become effective under the Act and, to
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Securities Act;
(x) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares
or the Option Shares have been validly registered under the Securities Act
and the Rules and Regulations of the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(xi) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which such
counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and Regulations; [and
each of the Incorporated Documents (other than the financial statements
(including supporting schedules) and the financial data derived therefrom as
to which such counsel need express no opinion) complied when filed pursuant
to the Exchange Act as to form in all material respects with the
requirements of the Act and the Rules and Regulations of the Exchange Act
and the applicable rules and regulations of the Commission thereunder;]
(xii) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with [STATE
OF COMPANY'S INCORPORATION] law;
(xiii) The description in the Registration Statement and the Prospectus of
the charter and bylaws of the Company and of statutes are accurate and
fairly present the information required to be presented by the Securities
Act;
B-2
<PAGE>
(xiv) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character required
to be described or referred to in the Registration Statement or Prospectus
[or any Incorporated Document] or to be filed as an exhibit to the
Registration Statement [or any Incorporated Document] which are not
described or referred to therein or filed as required;
(xv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default
under, any bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to which the
Company is a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries, or over any of their properties or operations;
(xvi) No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of
their properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated, except
(i) such as have been obtained under the Securities Act, (ii) such as may be
required under state or other securities or Blue Sky laws in connection with
the purchase and the distribution of the Shares by the Underwriters, (iii)
such as may be required by the National Association of Securities Dealers,
LLC and (iv) such as may be required under the federal or provincial laws of
Canada;
(xvii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its
subsidiaries of a character required to be disclosed in the Registration
Statement or the Prospectus [or any Incorporated Document] by the Securities
Act [or by the Exchange Act or the applicable rules and regulations of the
Commission thereunder], other than those described therein;
(xviii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries is presently (a) in material violation of its respective
charter or bylaws, or (b) in material breach of any applicable statute, rule
or regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of
their properties or operations; and
(xix) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus [and any Incorporated Document], no holders of
Company Shares or other securities of the Company have registration rights
with
B-3
<PAGE>
respect to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of the
Company having rights known to such counsel to registration of such shares
of Company Shares or other securities, because of the filing of the
Registration Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent to
file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full satisfaction
of such rights.
(xx) The Company is not and, after giving effect to the offering and the
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(xxi) To such counsel's knowledge, the Company owns or possesses
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
business as now conducted; and the expected expiration of any such
Intellectual Property Rights would not result in a Material Adverse Effect.
The Company has not received any notice of infringement or conflict with
asserted Intellectual Property Rights of others, which infringement or
conflict, if the subject of an unfavorable decision, would result in a
Material Adverse Effect. To such counsel's knowledge, the Company's
discoveries, inventions, products, or processes referred to in the
Registration Statement or Prospectus do not infringe or conflict with any
right or patent which is the subject of a patent application known to the
Company./29/
[(xxii) Each document filed pursuant to the Exchange Act (other than the
financial statements and supporting schedules included therein, as to which
no opinion need be rendered) and incorporated or deemed to be incorporated
by reference in the Prospectus complied when so filed as to form in all
material respects with the Exchange Act./30/]
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the
- -------------------
/29/ To the extent the Company has separate intellectual property counsel or is
materially dependent on patents, the opinions in Exhibit C should replace this
---------
opinion.
/30/ In certain instances, it may be appropriate to request a disclosure
opinion with respect to Exchange Act filings, by adding the following to the end
of this sentence: "; and such counsel has no reason to believe that any of such
documents, when they were so filed, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such documents were filed, not misleading."
B-4
<PAGE>
Prospectus, nothing has come to the attention of such counsel which leads them
to believe that, at the time the Registration Statement became effective and at
all times subsequent thereto up to and on the First Closing Date or Second
Closing Date, as the case may be, the Registration Statement and any amendment
or supplement thereto [and any Incorporated Document, when such documents became
effective or were filed with the Commission] (other than the financial
statements including supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or at the First Closing Date or the Second Closing Date, as the
case may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto [and any Incorporated Document] (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. [Such counsel shall also state that
the conditions for the use of Form S-3 set forth in the General Instructions
thereto have been satisfied.]
B-5
<PAGE>
Exhibit C
Matters to be Covered in the Opinion of
Patent Counsel for the Company
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) The Company is listed in the records of the United States Patent and
Trademark Office as the holder of record of the patents listed on a
schedule to such opinion (the "Patents") and each of the applications
listed on a schedule to such opinion (the "Applications"). To the
knowledge of such counsel, there are no claims of third parties to any
ownership interest or lien with respect to any of the Patents or
Applications. Such counsel is not aware of any material defect in form in
the preparation or filing of the Applications on behalf of the Company. To
the knowledge of such counsel, the Applications are being pursued by the
Company. To the knowledge of such counsel, the Company owns as its sole
property the Patents and pending Applications;
(ii) The Company is listed in the records of the appropriate foreign
offices as the sole holder of record of the foreign patents listed on a
schedule to such opinion (the "Foreign Patents") and each of the
applications listed on a schedule to such opinion (the "Foreign
Applications"). Such counsel knows of no claims of third parties to any
ownership interest or lien with respect to the Foreign Patents or Foreign
Applications. Such counsel is not aware of any material defect of form in
the preparation or filing of the Foreign Applications on behalf of the
Company. To the knowledge of such counsel, the Foreign Applications are
being pursued by the Company. To the knowledge of such counsel, the
Company owns as its sole property the Foreign Patents and pending Foreign
Applications;
(iii) Such counsel knows of no reason why the Patents or Foreign Patents
are not valid as issued. Such counsel has no knowledge of any reason why
any patent to be issued as a result of any Application or Foreign
Application would not be valid or would not afford the Company useful
patent protection with respect thereto;
(iv) As to the statements under the captions "Risk Factors -- Dependence
on Patents and Proprietary Rights" and "Business -- Patents and Proprietary
Rights," nothing has come to the attention of such counsel which caused
them to believe that the above-mentioned sections of the Registration
Statement, at the time the Registration Statement became effective and at
all times subsequent thereto up to and on the Closing Date and on any later
date on which Option Stock are to be purchased the Registration Statement
and any amendment or supplement thereto made available and reviewed by such
counsel contained any
C-1
<PAGE>
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, or at the Closing Date or any later date on which the
Option Stock are to be purchased, as the case may be, the above-mentioned
sections of the Registration Statement, Prospectus and any amendment or
supplement thereto made available and reviewed by such counsel contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
and
(v) Such counsel knows of no material action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark
rights, copyrights, collaborative research, licenses or royalty
arrangements or agreements or trade secrets, know-how or proprietary
techniques, including processes and substances, owned by or affecting the
business or operations of the Company which are pending or threatened
against the Company or any of its officers or directors.
C-2
<PAGE>
Exhibit D
Matters to be Covered in the Opinion of Underwriters' Counsel
(i) The [Firm Shares] [Shares to be issued by the Company] [Option Shares]
have been duly authorized and, upon issuance and delivery and payment
therefor in accordance with the terms of the Underwriting Agreement, will be
validly issued, fully paid and non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement has
become effective under the Act and, to such counsel's knowledge, no stop
order proceedings with respect thereto have been instituted or threatened or
are pending under the Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares
or the Option Shares have been validly registered under the Securities Act
and the Rules and Regulations of the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
(v) The Underwriting Agreement has been duly authorized, executed and
delivered by the Selling [Stockholders] [Shareholders].]
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from [list each set of counsel that has
provided an opinion], each dated the date hereof, and furnished to you in
accordance with the provisions of the Underwriting Agreement. Such opinions
appear on their face to be appropriately responsive to the requirements of the
Underwriting Agreement.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto [and any
Incorporated Document, when such documents became effective or were filed with
the Commission] (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom, as
to which such counsel need express no comment) contained any untrue statement of
a material fact or omitted to state
D-1
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto [and any Incorporated Document] (except as
aforesaid) contained any untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. [Such counsel shall
also state that the conditions for the use of Form S-3 set forth in the General
Instructions thereto have been satisfied.]
C-2
<PAGE>
Exhibit E
Matters to be Covered in the Opinion of Selling Stockholder Counsel
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, such
Selling Stockholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ii) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, the
Underwriting Agreement and its Custody Agreement and its Power of Attorney
will not contravene or conflict with, result in a breach of, or constitute
a default under, the charter or by-laws, partnership agreement, trust
agreement or other organization documents, as the case may be, of such
Selling Stockholder, or, to the best of such counsel's knowledge, violate,
result in a breach of or constitute a default under the terms of any other
agreement or instrument to which such Selling Stockholder is a party or by
which it is bound, or any judgement, order or decree applicable to such
Selling Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder.
(iii) Such Selling Stockholder has good and valid title to all of the
Common Shares which may be sold by such Selling Stockholder under the
Underwriting Agreement and has the legal right and power, and all
authorization and approvals required [under its charter and by-laws,]
[partnership agreement,] [trust agreement] [or other organizational
documents, as the case may be,] to enter into the Underwriting Agreement
and its Custody Agreement and its Power of Attorney, to sell, transfer and
deliver all of the Common Shares which may be sold by such Selling
Stockholder under the Underwriting Agreement and to comply with its other
obligations under the Underwriting Agreement, its Custody Agreement and its
Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such Selling
Stockholder has been duly authorized, executed and delivered by such
Selling Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as [rights to
indemnification thereunder may be limited by applicable law and except as]
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(v) Assuming that the Underwriters purchase the Shares which are sold by
such Selling Stockholder pursuant to the Underwriting Agreement for value,
in good faith and without notice of any adverse claims, the delivery of
such Shares
E-1
<PAGE>
pursuant to the Underwriting Agreement will pass good and valid title to
such Shares, free and clear of any security interest, mortgage, pledge,
lieu encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court
or governmental authority or agency, is required for the consummation by
such Selling Stockholder of the transactions contemplated in the
Underwriting Agreement, except as required under the Securities Act,
applicable state securities or blue sky laws, and from the National
Association of Securities Dealers, LLC.
E-2
<PAGE>
ATTACHMENT 1
MODIFICATIONS TO ACCOMMODATE ISSUERS ELIGIBLE TO USE FORM S-3
-------------------------------------------------------------
Paragraph immediately following Introductory paragraph. In the first
sentence, change the reference from S-1 to S-3. In the second sentence, after
the phrase, "(collectively, the "Securities Act"), including" insert the phrase
"all documents incorporated or deemed to be incorporated by reference therein";
and after the phrase "Rule 434 under the Securities Act" insert the phrase, "or
the Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (collectively, the "Exchange Act"). At the end of the paragraph, add
the following sentence:
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be;
and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include the
filing of any document under the Exchange Act which is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be.
Section 1(A). At the end of the Section, insert the following
paragraphs:
(__) Exchange Act Compliance. The documents incorporated or
deemed to be incorporated by reference in the Prospectus, at the time
they were or hereafter are filed with the Commission, complied and will
comply in all material respects with the requirements of the Exchange
Act, and, when read together with the other information in the
Prospectus, at the time the Registration Statement and any amendments
thereto become effective and at the First Closing Date and the Second
Closing Date, as the case may be, will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(__) Exchange Act Reports Filed. The Company has filed all
reports required to be filed pursuant to the Securities Act and the
Exchange Act.
(__) Conditions for Use of Form S-3. The Company has
satisfied the conditions for the use of Form S-3, as set forth in the
general instructions thereto, with respect to the Registration Statement.
<PAGE>
EXHIBIT 3.1(a)
SEVENTH AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF BLAZE SOFTWARE, INC.
a California Corporation
ARTICLE I
The name of this corporation is Blaze Software, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. Classes of Stock. This corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is 74,950,059 shares. 54,000,000 shares shall be Common Stock and 20,950,059
shares shall be Preferred Stock.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by these Restated Articles of Incorporation may be
issued from time to time in one or more series. There shall be designated a
Series AA Preferred Stock consisting of 16,832,412 shares and a Series BB
Preferred Stock consisting of 4,117,647 shares. The rights, preferences,
privileges and restrictions granted to and imposed on the Preferred Stock are as
set forth below in this Article III(B). The Board of Directors is hereby
authorized to fix or alter the rights, preferences, privileges and restrictions
granted to or imposed upon additional series of Preferred Stock, and the number
of shares constituting any such series and the designation thereof, or of any of
them. Subject to compliance with applicable protective voting rights which have
been or may be granted to the Preferred Stock or series thereof in Certificates
of Determination or the corporation's Articles of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or any
series thereof, the rights, privileges, preferences and restrictions of any such
additional series may be subordinated to, pari passu with (including, without
----------
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or series of Preferred
or Common Stock.
<PAGE>
Subject to compliance with applicable Protective Provisions, the Board of
Directors is also authorized to increase or decrease the number of shares of any
series, prior or subsequent to the issue of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
1. Dividend Provisions.
-------------------
(a) Subject to the rights of series of Preferred Stock which may from
time to time come into existence, the holders of shares of Series BB Preferred
Stock shall be entitled to receive dividends, when, as and if declared, out of
any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Series AA Preferred Stock or the Common Stock of this
corporation, at the rate of $.285 per share per annum for each share of Series
BB Preferred Stock then held; or, if greater (as determined on a per annum basis
and an as converted basis for the Series BB), an amount equal to that paid on
any other outstanding shares of this corporation, payable when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative. In
the event dividends are paid on any share of Common Stock, an additional
dividend shall be paid with respect to the outstanding shares of Series BB
Preferred Stock in an amount equal per share (on an as if converted to Common
Stock basis) to the amount paid or set aside for each share of Common Stock. Any
amounts for which assets are not legally available shall be paid promptly as
assets become legally available therefor; any partial payment will be made pro
rata among the holders of such shares; provided, however, that in the event of
an automatic conversion in connection with the initial public offering of the
Common Stock, any accrued dividends shall, in the complete discretion of the
holder of such share, be paid either (i) in cash or (ii) in shares of Common
Stock at a price equal to the initial public offering price of the Common Stock.
(b) Subject to the rights of series of Preferred Stock which may from
time to time come into existence, the holders of shares of Series AA Preferred
Stock shall be entitled to receive dividends, when, as and if declared, out of
any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Common Stock of this corporation, at the rate of $.016 per
share per annum for each share of Series AA Preferred Stock then held; or, if
greater (as determined on a per annum basis and an as converted basis for the
Series AA), an amount equal to that paid on any other outstanding shares of this
corporation, payable when, as and if declared by the Board of Directors. Such
dividends shall not be cumulative. In the event dividends are paid on any share
of Common Stock, an additional dividend shall be paid with respect to the
outstanding shares of Series AA Preferred Stock in an amount equal per share (on
an as if converted to Common Stock basis) to the amount paid or set aside for
each share of Common Stock. Any amounts for which assets are not legally
available shall be paid promptly as assets become legally available therefor;
any partial payment will be made pro rata among the holders of such shares;
provided, however, that in the event of an automatic conversion in connection
with the initial public offering of the Common Stock, any
<PAGE>
accrued dividends shall, in the complete discretion of the holder of such share,
be paid either (i) in cash or (ii) in shares of Common Stock at a price equal to
the initial public offering price of the Common Stock.
2. Liquidation Preference.
-----------------------
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, subject to the rights of series of
Preferred Stock that may from time to time come into existence, the holders of
Series BB Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of this corporation to the holders of
Series AA Preferred Stock or Common Stock by reason of their ownership thereof,
an amount per share equal to the sum of (a) $4.64 for each outstanding share of
Series BB Preferred Stock plus (b) an amount equal to declared but unpaid
dividends on each such share. If upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series BB Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, subject to the rights of series of
Preferred Stock that may from time to time come into existence, the entire
assets and funds of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series BB Preferred Stock in
proportion to the amount of such stock owned by each such holder.
(b) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, subject to the rights of series of
Preferred Stock that may from time to time come into existence, the holders of
Series AA Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of this corporation to the holders of
Common Stock by reason of their ownership thereof, an amount per share equal to
the sum of (a) $1.35 for each outstanding share of Series AA Preferred Stock
plus (b) an amount equal to declared but unpaid dividends on each such share. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series AA Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of Preferred Stock that may from time to time
come into existence, the entire assets and funds of the corporation legally
available for distribution shall be distributed ratably among the holders of the
Series AA Preferred Stock in proportion to the amount of such stock owned by
each such holder.
(c) Upon the completion of the distribution required by subsections
(a) and (b) of this Section 2, and any other distribution that may be required
with respect to series of Preferred Stock that may from time to time come into
existence, if assets remain in the corporation, such remaining assets shall be
distributed among the holders of Series AA Preferred Stock and Common Stock pro
rata based on the number of shares of Common Stock held by each (assuming full
conversion of all such Series AA Preferred Stock).
(d) (i) For purposes of this Section 2, a liquidation, dissolution or
winding up of this corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation) or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's
------
<PAGE>
shareholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for the corporation's acquisition or sale or otherwise)
hold at least 50% of the voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or through Nasdaq
National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day
period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty-day period ending three (3)
days prior to the closing; and
(3) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power
of all then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this subsection 2(d) are not
complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series AA Preferred Stock and
the holders of the Series BB Preferred Stock shall revert to and be the same as
such rights, preferences and privileges existing immediately prior to the date
of the first notice referred to in subsection 2(d)(iv) hereof.
(iv) The corporation shall give each holder of record of Series AA
Preferred Stock and Series BB Preferred Stock written notice of such impending
transaction not
<PAGE>
later than twenty (20) days prior to the shareholders' meeting called to approve
such transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of such Preferred Stock.
3. Conversion. The holders of the Series AA Preferred Stock and
----------
Series BB Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert to Common Stock. Each share of Series AA
--------------------------------
Preferred Stock and Series BB Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, at the office of this corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $0.27 (the "Original Series AA Issue Price") or $3.57
(the "Original Series BB Issue Price" ); respectively, by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The Initial Conversion Price
per share for shares of Series AA Preferred Stock shall be the Original Series
AA Issue Price; provided, however, that the Conversion Price for the Series AA
Preferred Stock shall be subject to adjustment as set forth in subsection 3(d).
The initial Conversion Price per share for shares of Series BB Preferred Stock
shall be the Original Series BB Issue Price; provided, however, that the
Conversion Price for the Series BB Preferred Stock shall be subject to
adjustment as set forth in subsection 3(d).
(b) Automatic Conversion. Each share of Series AA Preferred Stock and
--------------------
Series BB Preferred Stock shall automatically be converted into shares of Common
Stock at the Conversion Price at the time in effect for such share immediately
upon the earlier of (a) except as provided below in subsection 3(c), the
corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which is not less than $4.64 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $15,000,000 in the aggregate or (ii) the date specified by
written consent or agreement of the holders of a majority of the then
outstanding shares of Series AA Preferred Stock and Series BB Preferred Stock,
voting together as a single class.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock he or she
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of this corporation or of any transfer agent for the Series AA Preferred
Stock or the Series BB Preferred Stock, and shall give written notice to this
corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver
<PAGE>
at such office to such holder of Series AA Preferred Stock or Series BB
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Series AA Common Stock or Series BB
Preferred Stock or to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series AA Preferred
Stock or Series BB Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, the conversion may, at the option of any holder tendering Series AA
Preferred Stock or Series BB Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock upon
conversion of the Series AA Preferred Stock or the Series BB Preferred Stock
shall not be deemed to have converted such Series AA Preferred Stock or Series
BB Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
- -------------------------------------------
AA Preferred Stock and the Series BB Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) If the corporation shall issue, after the date upon which any
shares of Series AA Preferred Stock or Series BB Preferred Stock were first
issued (the "Purchase Date" with respect to each such series), any Additional
Stock (as defined below) without consideration or for a consideration per share
less than the Conversion Price for such series in effect immediately prior to
the issuance of such Additional Stock, the Conversion Price for such series in
effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock that the aggregate
consideration received by the corporation for such issuance would purchase at
such Conversion Price; and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the Series AA
Preferred Stock or the Series BB Preferred Stock shall be made in an amount less
than one cent per share, provided that any adjustments which are not required to
be made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three (3) years
from the date of the event giving rise to the adjustment being carded forward,
or shall be made at the end of three (3) years from the date of the event giving
rise to the adjustment being carded forward. Except to the limited extent
provided for in subsections (E)(3) and (E)(4), no adjustment of such Conversion
Price pursuant to this subsection 3(d)(i) shall have the effect of increasing
the Conversion Price above the Conversion Price in effect immediately prior to
such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any
<PAGE>
reasonable discounts, commissions or other expenses allowed, paid or incurred by
this corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after
the applicable Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 3(d)(i) and subsection 3(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the
passage of time, but without taking into account potential
antidilution adjustments) of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal
to the consideration (determined in the manner provided in subsections
3(d)(i)(C) and (d)(i)(D)), if any, received by the corporation upon
the issuance of such options or rights plus the minimum exercise price
provided in such options or rights (without taking into account
potential antidilution adjustments) for the Common Stock covered
thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking
into account potential antidilution adjustments) for any such
convertible or exchangeable securities or upon the exercise of options
to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof
shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration
equal to the consideration, if any, received by the corporation for
any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus
the minimum additional consideration, if any, to be received by the
corporation (without taking into account potential antidilution
adjustments) upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each
case to be determined in the manner provided in subsections 3(d)(i)(C)
and (d)(i)(D)).
(3) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion
of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a
<PAGE>
change resulting from the antidilution provisions thereof, the
Conversion Price of the Series AA Preferred Stock and the Conversion
Price of the Series BB Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities,
shall be recomputed to reflect such change, but no further adjustment
shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights
or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series AA
Preferred Stock and the Conversion Price of the Series BB Preferred
Stock, to the extent in any way affected by or computed using such
options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable
securities which remain in effect) actually issued upon the exercise
of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to
such securities.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections
3(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 3(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 3(d)(i)(E)) by this
corporation after the Purchase Date other than
(A) Common Stock issued pursuant to a transaction described
in subsection 3(d)(iii) hereof,
(B) shares of Common Stock issuable or issued to employees,
consultants, directors or vendors (if in transactions with primarily non-
financing purposes) of this corporation directly or pursuant to a stock option
plan or restricted stock plan approved by the Board of Directors of this
corporation, provided that the total number of such shares of Common Stock
issued or issuable (and not including shares that are no longer issuable) under
such stock option plans does not exceed 18,000,000 shares,
(C) shares of capital stock issuable or issued pursuant to
equipment lease financing transactions approved by the Board of Directors of
this corporation,
(D) shares of Common Stock issued or issuable in a public
offering before or in connection with which all outstanding shares of Preferred
Stock will be converted to Common Stock, or
<PAGE>
(E) the issuance of shares of Common Stock upon conversion
of Preferred Stock.
For the purposes of the calculation contained in Section 3(d)(i) above, shares
excluded from the definition of Additional Stock in subsections (A) through (E)
above shall be deemed to be outstanding Common Stock.
(iii) In the event the corporation should at any time or from time
to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series AA Preferred Stock and the Conversion Price of the Series BB
Preferred Stock shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series AA Preferred Stock and the Conversion Price of
the Series BB Preferred Stock shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of such
series shall be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall declare a
-------------------
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 3(d)(iii), then, in each such
case for the purpose of this subsection 3(e), the holders of the Series AA
Preferred Stock and the holder of the Series BB Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the corporation into
which their shares of Series AA Preferred Stock or Series BB Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall
-----------------
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section 3
or Section 2) provision shall be made so that the holders of the Series AA
Preferred Stock and the holder of the Series BB Preferred Stock shall thereafter
be entitled to receive upon conversion of the Series AA Preferred Stock or
Series BB Preferred Stock the number of shares of stock or other securities or
property
<PAGE>
of the Company or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Series AA
Preferred Stock and the holder of the Series BB Preferred Stock after the
recapitalization to the end that the provisions of this Section 3 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series AA Preferred Stock or Series BB
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series AA Preferred Stock or the Series BB Preferred Stock
against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Series AA Preferred Stock or the Series BB Preferred
Stock, and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series AA Preferred Stock or the total number of shares of Series BB Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series AA Preferred Stock or Series BB Preferred Stock
pursuant to this Section 3, this corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series AA Preferred Stock or Series BB
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
This corporation shall, upon the written request at any time of any holder of
Series AA Preferred Stock or Series BB Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price for such series of Preferred Stock at
the time in effect, and (C) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of a share of Series AA Preferred Stock or Series BB Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of
<PAGE>
Series AA Preferred Stock or Series BB Preferred Stock, at least twenty (20)
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series AA Preferred Stock and the shares of the Series BB
Preferred Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of the
Series AA Preferred Stock and the shares of the Series BB Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series AA Preferred Stock and the shares of the Series BB Preferred
Stock, in addition to such other remedies as shall be available to the holder of
such Preferred Stock, this corporation will take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in best efforts to
obtain the requisite shareholder approval of any necessary amendment to these
articles.
(k) Notices. Any notice required by the provisions of this Section 3
-------
to be given to the holders of shares of Series AA Preferred Stock or Series BB
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address appearing
on the books of this corporation.
4. Voting Rights. The holder of each share of Series AA Preferred
-------------
Stock and the holder of each share of Series BB Preferred Stock shall have the
right to one vote for each share of Common Stock into which such Series AA
Preferred Stock or Series BB Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any shareholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. The holders of Series
AA Preferred Stock and the holders of Series BB Preferred Stock shall vote
together with the holders of Common Stock as a single class. Fractional votes
shall not, however, be permitted and any fractional voting rights available on
an as-converted basis (after aggregating all shares into which shares of Series
AA Preferred Stock or Series BB Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
5. Protective Provisions. Subject to the rights of series of
---------------------
Preferred Stock which may from time to time come into existence, so long as
shares of Preferred Stock are outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least two-thirds of the then outstanding shares of Preferred
Stock:
<PAGE>
(a) alter or change the rights, preferences or privileges of the
shares of Preferred Stock so as to affect adversely the shares; provided,
however, that any amendment that adversely affects shares of a series of
Preferred Stock (the "Affected Series") in a manner different than the other
series of Preferred Stock must also be approved by the holders of a majority of
the shares of the Affected Series;
(b) either increase or decrease, other than by redemption or
conversion, the total number of authorized shares of Common Stock, Preferred
Stock or any series of Preferred Stock;
(c) create, by reclassification or otherwise, any new class or series
of any security having rights superior to or on parity with the Series AA
Preferred Stock or the Series BB Preferred Stock;
(d) perform any action that would result in taxation of the holders of
Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended;
(e) causes the redemption or repurchase of any capital stock of this
corporation except repurchases from employees in pursuant to termination
arrangements approved by the Board of Directors;
(f) causes the sale of securities of a subsidiary of this corporation
to any third party;
(g) perform any action that would result in the declaration or payment
of any dividend on any of the outstanding shares of equity securities of this
corporation other than as provided for in these Seventh Amended and Restated
Articles of Incorporation; or
(h) perform any action that would result in any merger, other
corporate reorganization, sale of control, or any transaction in which all or
substantially all of the assets of the Company are sold.
6. Status of Converted Stock. In the event any shares of Series AA
-------------------------
Preferred or Series BB Preferred Stock shall be converted pursuant to Section 4
hereof, the shares so converted shall be cancelled and shall not be issuable by
the corporation. The Articles of Incorporation of this corporation shall be
appropriately amended to effect the corresponding reduction in the corporation's
authorized capital stock.
7. Repurchase of Shares. In connection with repurchases by this
--------------------
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof which have been approved by the Board of Directors, Sections 502
and 503 of the California General Corporation Law shall not apply in whole or in
part with respect to such repurchases.
C. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any
<PAGE>
assets of the corporation legally available therefor, such dividends as may be
declared from time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article III hereof.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall have
-------------
the right to one vote, and shall vote together with Series AA Preferred Stock
and Series BB Preferred Stock as a single class, and shall be entitled to notice
of any shareholders' meeting in accordance with the bylaws of this corporation,
and shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE IV
Section 1. The liability of the directors of this corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
Section 2. This corporation is authorized to provide indemnification
of agents (as defined in Section 317 of the California Corporations Code)
through bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject only to
applicable limits set forth in Section 204 of the California Corporations Code
with respect to actions for breach of duty to the corporation and its
shareholders.
<PAGE>
Exhibit 3.1(b)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BLAZE SOFTWARE, INC.
FIRST: The name of this corporation is Blaze Software, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of stock to be
designated respectively Common Stock and Preferred Stock. The
total number of shares of all classes of stock which the
Corporation has authority to issue is Two Hundred Ten Million
(210,000,000), consisting of Two Hundred Million (200,000,000)
shares of Common Stock, $0.0001 par value (the "Common Stock"),
and Ten Million (10,000,000) shares of Preferred Stock, $0.0001
par value (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized subject
to limitations prescribed by law, to fix by resolution or
resolutions the designations, powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, of each
such series of Preferred Stock, including without limitation
authority to fix by resolution or resolutions, the dividend
rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption (including sinking fund provisions),
redemption price or prices, and liquidation
<PAGE>
preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the
designation thereof, or any of the foregoing.
The Board of Directors is further authorized to increase (but not
above the total number of authorized shares of the class) or
decrease (but not below the number of shares of any such series
then outstanding) the number of shares of any series, the number
of which was fixed by it, subsequent to the issue of shares of
such series then outstanding, subject to the powers, preferences
and rights, and the qualifications, limitations and restrictions
thereof stated in the resolution of the Board of Directors
originally fixing the number of shares of such series. If the
number of shares of any series is so decreased, then the shares
constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the
number of shares of such series.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The election of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
SEVENTH: The number of directors which constitute the whole Board of
Directors of the Corporation shall be designated in the Bylaws of
the Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is
expressly authorized to adopt, alter, amend or repeal the Bylaws
of the Corporation.
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended,
no director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
The Corporation may indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or
intestate is or was a director, officer or employee of the
Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer or employee
at the request of the Corporation or any predecessor to the
Corporation.
Neither any amendment nor repeal of this Article, nor the
adoption of any provision of this Amended and Restated
Certificate of Incorporation inconsistent with this Article,
shall eliminate or reduce the effect of this Article in respect
of any matter occurring, or any cause of action, suit or claim
-2-
<PAGE>
that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
TENTH: At the election of directors of the Corporation, each holder of
stock of any class or series shall be entitled to one vote for
each share held. No stockholder will be permitted to cumulate
votes at any election of directors.
The number of directors which constitute the whole Board of
Directors of the Corporation shall be fixed exclusively by one or
more resolution adopted from time to time by the Board of
Directors. The Board of Directors shall be divided into three
classes designated as Class I, Class II, and Class III,
respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders
following the date hereof, the term of office of the Class I
directors shall expire and Class I directors shall be elected for
a full term of three years. At the second annual meeting of
stockholders following the date hereof, the term of office of the
Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual
meeting of stockholders following the date hereof, the term of
office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At
each succeeding annual meeting of stockholders, directors shall
be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, may be filled by
the vote of a majority, although less than a quorum, of the
directors then in office, or by a sole remaining director.
ELEVENTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in
the laws of the State of Delaware) outside of the State of
Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the Bylaws of the
Corporation.
The stockholders of the Corporation may not take any action by
written consent in lieu of a meeting, and must take any actions
at a duly called annual or special meeting of stockholders and
the power of stockholders to consent in writing without a meeting
is specifically denied.
TWELFTH: Advance notice of new business and stockholder nominations for
the election of directors shall be given in the manner and to the
extent provided in the Bylaws of the Corporation.
-3-
<PAGE>
THIRTEENTH: Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of the capital stock required by
law or this Amended and Restated Certificate of Incorporation,
the affirmative vote of the holders of at least two-thirds (2/3)
of the combined voting power of all of the then-outstanding
shares of the Corporation entitled to vote shall be required to
alter, amend or repeal Articles NINTH, TENTH, ELEVENTH or TWELFTH
hereof, or this Article THIRTEENTH, or any provision thereof or
hereof, unless such amendment shall be approved by a majority of
the directors of the Corporation.
FOURTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights
conferred herein are granted subject to this reservation.
-4-
<PAGE>
EXHIBIT 4.1(a)
BYLAWS
OF
NEURON DATA, INC.
(as amended on July 29, 1998)
ARTICLE I- OFFICES
------------------
Section 1. The principal executive office of Neuron Data, Inc. (the
"Corporation") shall be located at any place within or outside the State of
California as fixed by resolution of the Board of Directors. If the principal
executive office is located outside this state and the Corporation has one or
more business offices in this state, the Board of Directors shall fix and
designate a principal business office in the State of California.
Section 2. The Corporation may also have offices at such other places
as the Board of Directors may from time to time designate, or as the business of
the Corporation may require.
ARTICLE II - SHAREHOLDERS' MEETINGS
-----------------------------------
Section 1. Annual Meetings. The annual meeting of the shareholders of
---------------
the Corporation for the election of directors to succeed those whose terms
expire and for the transaction of such other business as may properly come
before the meeting shall be held each year on the third Tuesday in May at 10:00
a.m. at the principal executive office of the Corporation, or at such other
place as may be determined by the Board of Directors, if not a legal holiday,
and if a legal holiday, then on the next succeeding business day at the same
hour and place. If the annual meeting of the shareholders be not held as herein
prescribed, the election of directors may be held at any meeting thereafter
called pursuant to these ByLaws.
Section 2. Special Meetings. Special meetings of the shareholders,
----------------
for any purpose whatsoever, unless otherwise prescribed by statute, may be
called at any time by the President, by the Board of Directors, or by one or
more shareholders holding not less than ten percent (10%) of the voting power of
the Corporation.
Section 3. Place. All meetings of the shareholders shall be at any
-----
place within or without the State of California designated by the Board of
Directors or by written consent of all the persons entitled to vote thereat,
given either before or after the meeting. In the absence of any such
designation, shareholders' meetings shall be held at the principal executive
office of the Corporation.
Section 4. Notice. Notice of meetings of the shareholders of the
------
Corporation shall be given in writing to each shareholder entitled to vote,
either personally or by first-class mail or other means of written
communication, charges prepaid, addressed to the shareholder at
<PAGE>
his address appearing on the books of the Corporation or given by the
shareholder to the Corporation for the purpose of notice. Notice of any such
meeting of shareholders shall be sent to each shareholder entitled thereto not
less than ten (10) nor more than sixty (60) days before the meeting. Said notice
shall state the place, date and hour of the meeting and, (1) in the case of
special meetings, the general nature of the business to be transacted, and no
other business may be transacted, or (2) in the case of annual meetings, those
matters which the Board of Directors, at the time of the mailing of the notice,
intends to present for action by the shareholders, and (3) in the case of any
meeting at which directors are to be elected, the names of the nominees intended
at the time of the mailing of the notice to be presented by management for
election.
Section 5. Adjourned Meetings. Any shareholders' meeting may be
------------------
adjourned from time to time by the vote of the holders of a majority of the
voting shares present at the meeting either in person or by proxy. Notice of any
adjourned meeting need not be given unless a meeting is adjourned for forty-five
(45) days or more from the date set for the original meeting.
Section 6. Quorum. The presence in person or by proxy of the persons
------
entitled to vote a majority of the shares entitled to vote at any meeting
constitutes a quorum for the transaction of business. The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares, the holders
of which are either present in person or represented by proxy thereat, but no
other business may be transacted, except as provided above.
Section 7. Consent to Shareholder Action. Any action which may be
-----------------------------
taken at any meeting of shareholders may be taken without a meeting and without
prior notice, if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted;
provided, however, that (1) unless the consents of all shareholders entitled to
vote have been solicited in writing, notice of any shareholder approval without
a meeting by less than unanimous written consent shall be given as required by
the California Corporations Code, and (2) directors may not be elected by
written consent except by unanimous written consent of all shares entitled to
vote for the election of directors.
Any written consent may be revoked by a writing received by the
Secretary of the Corporation prior to the time that written consents of the
number of shares required to authorize the proposed action have been filed with
the Secretary.
Section 8. Waiver of Notice. The transactions of any meeting of
----------------
shareholders,
2
<PAGE>
however called and noticed, and whenever held, shall be as valid as though had
at a meeting duly held after regular call and notice, if a quorum be present
either in person or by proxy, and if, either before or after the meeting, each
of the persons entitled to vote, not present in person or by proxy, signs a
written waiver of notice, or a consent to the holding of the meeting, or an
approval of the minutes thereof. All such waivers, consents, or approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Section 9. Voting. The voting at all meetings of shareholders need
------
not be by ballot, but any qualified shareholder before the voting begins may
demand a stock vote whereupon such stock vote shall be taken by ballot, each of
which shall state the name of the shareholder voting and the number of shares
voted by such shareholder, and if such ballot be cast by a proxy, it shall also
state the name of such proxy.
At any meeting of the shareholders, every shareholder having the right
to vote shall be entitled to vote in person, or by proxy appointed in a writing
subscribed by such shareholder and bearing a date not more than eleven (11)
months prior to said meeting, unless the writing states that it is irrevocable
and is held by a person specified in Section 705(e) of the California
Corporations Code, in which event it is irrevocable for the period specified in
said writing.
Section 10. Record Dates. In the event the Board of Directors fixes a
------------
day for the determination of shareholders of record entitled to vote as provided
in Section 1 of Article V of these ByLaws, then, subject to the provisions of
the General Corporation Law of the State of California, only persons in whose
name shares entitled to vote stand on the stock records of the Corporation at
the close of business on such day shall be entitled to vote.
If no record date is fixed:
The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day notice is given or, if notice is waived, at
the close of business on the business day next preceding the day on which the
meeting is held;
The record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is given; and
The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto, or the sixtieth (60th) day prior to the
date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of
3
<PAGE>
Directors fixes a new record date for the adjourned meeting, but the Board of
Directors shall fix a new record date if the meeting is adjourned for more than
forty-five (45) days.
Section 11. Cumulative Voting for Election of Directors. Provided the
-------------------------------------------
candidate's name has been placed in nomination prior to the voting and one or
more shareholders has given notice at the meeting prior to the voting of the
shareholder's intent to cumulate the shareholder's votes, every shareholder
entitled to vote at any election for directors shall have the right to cumulate
such shareholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which the
shareholder's shares are normally entitled, or distribute the shareholder's
votes on the same principle among as many candidates as the shareholder shall
think fit. The candidates receiving the highest number of votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares are elected.
ARTICLE III - BOARD OF DIRECTORS
--------------------------------
Section 1. Powers. Subject to any limitations in the Articles of
------
Incorporation or these ByLaws and to any provision of the California
Corporations Code requiring shareholder authorization or approval for a
particular action, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by, or under the direction of, the
Board of Directors. The Board of Directors may delegate the management of the
day-to-day operation of the business of the Corporation to a management company
or other person provided that the business and affairs of the Corporation shall
be managed and all corporate powers shall be exercised, under the ultimate
direction of the Board of Directors.
Section 2. Number, Tenure and Qualifications. The authorized number
---------------------------------
of directors of the Board of Directors shall be nine (9).
Directors shall hold office until the next annual meeting of
shareholders and until their respective successors are elected. If any such
annual meeting is not held, or the directors are not elected thereat, the
directors may be elected at any special meeting of shareholders held for that
purpose. Directors need not be shareholders.
Section 3. Regular Meetings. A regular annual meeting of the Board of
----------------
Directors shall be held without other notice than this ByLaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide for other regular meetings from time to time by
resolution.
Section 4. Special Meetings. Special meetings of the Board of
----------------
Directors may be called at any time by the President, or any Vice President, or
the Secretary or any two (2) directors. Written notice of the time and place of
all special meetings of the Board of Directors shall be delivered personally or
by telephone or telegraph to each director at least forty-eight (48) hours
before the meeting, or sent to each director by first-class mail, postage
prepaid, at least four
4
<PAGE>
(4) days before the meeting. Such notice need not specify the purpose of the
meeting. Notice of any meeting of the Board of Directors need not be given to
any director who signs a waiver of notice, whether before or after the meeting,
or who attends the meeting without protesting prior thereto or at its
commencement, the lack of notice to such director.
Section 5. Place of Meetings. Meetings of the Board of Directors may
-----------------
be held at any place within or without the State of California, which has been
designated in the notice, or if not stated in the notice or there is no notice,
the principal executive office of the Corporation or as designated by the
resolution duly adopted by the Board of Directors.
Section 6. Participation by Telephone. Members of the Board of
--------------------------
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.
Section 7. Quorum. A quorum at all meetings of the Board of Directors
------
shall be a majority of the authorized number of directors. In the absence of a
quorum a majority of the directors present may adjourn any meeting to another
time and place. If a meeting is adjourned for more than twenty-four (24) hours,
notice of any adjournment to another time or place shall be given prior to the
time of the adjourned meeting to the directors who were not present at the time
of adjournment.
Section 8. Action at Meeting. Every act or decision done or made by a
-----------------
majority of the directors present at a meeting duly held at which a quorum is
present is the act of the Board of Directors. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 9. Waiver of Notice. The transactions of any meeting of the
----------------
Board of Directors, however called and noticed or wherever held, are as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 10. Action Without Meeting. Any action required or permitted
----------------------
to be taken by the Board of Directors may be taken without a meeting, if all
members of the Board individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.
Section 11. Removal. The Board of Directors may declare vacant the
-------
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony.
5
<PAGE>
The entire Board of Directors or any individual director may be
removed from office without cause by a vote of shareholders holding a majority
of the outstanding shares entitled to vote at an election of directors;
provided, however, that unless the entire Board is removed, no individual
director may be removed when the votes cast against removal, or not consenting
in writing to such removal, would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes cast were
cast (or, if such action is taken by written consent, all shares entitled to
vote were voted) and the entire number of directors authorized at the time of
the director's most recent election were then being elected.
In the event an office of a director is so declared vacant or in case
the Board or any one or more directors be so removed, new directors may be
elected at the same meeting.
Section 12. Resignations. Any director may resign effective upon
------------
giving written notice to the President, the Secretary or the Board of Directors
of the Corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
Section 13. Vacancies. Except for a vacancy created by the removal of
---------
a director, all vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until his successor is elected at an
annual, regular or special meeting of the shareholders. Vacancies created by the
removal of a director may be filled only by approval of the shareholders. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors. Any such election by written consent requires the consent of a
majority of the outstanding shares entitled to vote.
Section 14. Compensation. No stated salary shall be paid directors,
------------
as such, for their services, but, by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of such Board; provided that nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 15. Committees. The Board of Directors may, by resolution
----------
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized number
of directors. Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have all the authority of the Board of Directors
in the management of the
6
<PAGE>
business and affairs of the Corporation, except with respect to (a) the approval
of any action requiring shareholders' approval or approval of the outstanding
shares, (b) the filling of vacancies on the Board or any committee, (c) the
fixing of compensation of directors for serving on the Board or a committee, (d)
the adoption, amendment or repeal of Bylaws, (e) the amendment or repeal of any
resolution of the Board which by its express terms is not so amendable or
repealable, (f) a distribution to shareholders, except at a rate or in a
periodic amount or within a price range determined by the Board, and (g) the
appointment of other committees of the Board or the members thereof.
ARTICLE IV- OFFICERS
--------------------
Section 1. Number and Term. The officers of the Corporation shall be
---------------
a President, one or more Vice Presidents, a Secretary and a Chief Financial
Officer, all of which shall be chosen by the Board of Directors. In addition,
the Board of Directors may appoint such other officers as may be deemed
expedient for the proper conduct of the business of the Corporation, each of
whom shall have such authority and perform such duties as the Board of Directors
may from time to time determine. The officers to be appointed by the Board of
Directors shall be chosen annually at the regular meeting of the Board of
Directors held after the annual meeting of shareholders and shall serve at the
pleasure of the Board of Directors. If officers are not chosen at such meeting
of the Board of Directors, they shall be chosen as soon thereafter as shall be
convenient. Each officer shall hold office until his successor shall have been
duly chosen or until his removal or resignation.
Section 2. Inability to Act. In the case of absence or inability to
----------------
act of any officer of the Corporation and of any person herein authorized to act
in his place, the Board of Directors may from time to time delegate the powers
or duties of such officer to any other officer, or any director or other person
whom it may select.
Section 3. Removal and Resignation. Any officer chosen by the Board
-----------------------
of Directors may be removed at any time, with or without cause, by the
affirmative vote of a majority of all the members of the Board of Directors.
Any officer chosen by the Board of Directors may resign at any time by
giving written notice of said resignation to the Corporation. Unless a different
time is specified therein, such resignation shall be effective upon its receipt
by the President, the Secretary or the Board of Directors.
Section 4. Vacancies. A vacancy in any office because of any cause
---------
may be filled by the Board of Directors for the unexpired portion of the term.
Section 5. President. The President shall be the general manager and
---------
chief executive officer of the Corporation, subject to the control of the Board
of Directors, and as such shall preside at all meetings of the Board and the
shareholders, shall have general supervision of
7
<PAGE>
the affairs of the Corporation, shall sign or countersign or authorize another
officer to sign all certificates, contracts, and other instruments of the
Corporation as authorized by the Board of Directors, shall make reports to the
Board of Directors and shareholders, and shall perform all such other duties as
are incident to such office or are properly required by the Board of Directors.
Section 6. Vice President. In the absence of the President, or in the
--------------
event of such officer's death, disability or refusal to act, the Vice President,
or in the event there be more than one Vice President, the Vice Presidents in
the order designated at the time of their selection, or in the absence of any
such designation, then in the order of their selection, shall perform the duties
of President, and when so acting, shall have all the powers and be subject to
all restrictions upon the President. Each Vice President shall have such powers
and discharge such duties as may be assigned from time to time by the President
or by the Board of Directors.
Section 7. Secretary. The Secretary shall see that notices for all
---------
meetings are given in accordance with the provisions of these ByLaws and as
required by law, shall keep minutes of all meetings, shall have charge of the
seal and the corporate books, and shall make such reports and perform such other
duties as are incident to such office, or as are properly required by the
President or by the Board of Directors.
The Assistant Secretary or the Assistant Secretaries, in the order of
their seniority, shall, in the absence or disability of the Secretary, or in the
event of such officer's refusal to act, perform the duties and exercise the
powers and discharge such duties as may be assigned from time to time by the
President or by the Board of Directors.
Section 8. Chief Financial Officer. The Chief Financial Officer may
-----------------------
also be designated by the alternate title of "Treasurer." The Chief Financial
officer shall have custody of all moneys and securities of the Corporation and
shall keep regular books of account. Such officer shall disburse the funds of
the Corporation in payment of the just demands against the Corporation, or as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors from time to time as
may be required of such officer, an account of all transactions as Chief
Financial Officer and of the financial condition of the Corporation. Such
officer shall perform all duties incident to such office or which are properly
required by the President or by the Board of Directors.
The Assistant Chief Financial officer or the Assistant Chief Financial
Officers, in the order of their seniority, shall, in the absence or disability
of the Chief Financial Officer, or in the event of such officer's refusal to
act, perform the duties and exercise the powers of the Chief Financial Officer,
and shall have such powers and discharge such duties as may be assigned from
time to time by the President or by the Board of Directors.
Section 9. Salaries. The salaries of the officers shall be fixed from
--------
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a director
of the Corporation.
8
<PAGE>
Section 10. Officers Holding More Than One Office. Any two or more
-------------------------------------
offices may be held by the same person, but no person shall execute, acknowledge
or verify any instrument in more than one capacity.
ARTICLE V- MISCELLANEOUS
------------------------
Section 1. Record Date and Closing of Stock Books. The Board of
--------------------------------------
Directors may fix a time in the future as a record date for the determination of
the shareholders entitled to notice of and to vote at any meeting of
shareholders or entitled to receive payment of any dividend or distribution, or
any allotment of rights, or to exercise rights in respect to any other lawful
action. The record date so fixed shall not be more than sixty (60) nor less than
ten (10) days prior to the date of the meeting or event for the purposes of
which it is fixed. When a record date is so fixed, only shareholders of record
at the close of business on that date are entitled to notice of and to vote at
the meeting or to receive the dividend, distribution, or allotment of rights, or
to exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after the record date.
The Board of Directors may close the books of the Corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders' meeting, the date when the
right to any dividend, distribution, or allotment of rights vests, or the
effective date of any change, conversion or exchange of shares.
Section 2. Certificates. Certificates of stock shall be issued in
------------
numerical order and each shareholder shall be entitled to a certificate signed
in the name of the Corporation by the President or a Vice President, and the
Chief Financial Officer, the Secretary or an Assistant Secretary, certifying to
the number of shares owned by such shareholder. Any or all of the signatures on
the certificate may be facsimile. Prior to the due presentment for registration
of transfer in the stock transfer book of the Corporation, the registered owner
shall be treated as the person exclusively entitled to vote, to receive
notifications and otherwise to exercise all the rights and powers of an owner,
except as expressly provided otherwise by the laws of the State of California.
Section 3. Representation of Shares in Other Corporations. Shares of
----------------------------------------------
other corporations standing in the name of this Corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
Corporation by the President or any Vice President and the Chief Financial
Officer or the Secretary or an Assistant Secretary.
Section 4. Fiscal Year. The fiscal year of the Corporation shall end
-----------
on the 31st day of March.
Section 5. Annual Reports. The Annual Report to shareholders,
--------------
described in the California Corporations Code, is expressly waived and dispensed
with.
9
<PAGE>
Section 6. Amendments. ByLaws may be adopted, amended, or repealed by
----------
the vote or the written consent of shareholders entitled to exercise a majority
of the voting power of the Corporation. Subject to the right of shareholders to
adopt, amend, or repeal ByLaws, ByLaws may be adopted, amended, or repealed by
the Board of Directors, except that a ByLaw amendment thereof changing the
authorized number of directors may be adopted by the Board of Directors only if
these ByLaws permit an indefinite number of directors and the ByLaw or amendment
thereof adopted by the Board of Directors changes the authorized number of
directors within the limits specified in these ByLaws.
Section 7. Indemnification of Corporate Agents. The Corporation shall
-----------------------------------
indemnify each of its agents against expenses, judgments; fines, settlements and
other amounts, actually and reasonably incurred by such person by reason of such
person's having been made or having threatened to be made a party to a
proceeding to the fullest extent permissible by the provisions of Section 317 of
the California Corporations Code and the Corporation shall advance the expenses
reasonably expected to be incurred by such agent in defending any such
proceeding upon receipt of the undertaking required by subdivision (f) of such
Section. The terms "agent," "proceeding" and "expenses" made in this Section 7
shall have the same meaning as such terms in said Section 317.
10
<PAGE>
EXHIBIT 4.1(b)
AMENDED AND RESTATED
BYLAWS
OF
BLAZE SOFTWARE, INC.
(a Delaware corporation)
<PAGE>
AMENDED AND RESTATED
BYLAWS OF
BLAZE SOFTWARE, INC.
(a Delaware corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES............................................... 1
-----------------
1.1 REGISTERED OFFICE............................................. 1
-----------------
1.2 OTHER OFFICES................................................. 1
-------------
ARTICLE II MEETINGS OF STOCKHOLDERS....................................... 1
------------------------
2.1 PLACE OF MEETINGS............................................. 1
-----------------
2.2 ANNUAL MEETING................................................ 1
--------------
2.3 SPECIAL MEETING............................................... 2
---------------
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.............................. 3
--------------------------------
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................. 3
--------------------------------------------
2.6 QUORUM........................................................ 4
------
2.7 ADJOURNED MEETING; NOTICE..................................... 4
-------------------------
2.8 VOTING........................................................ 4
------
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING....... 5
-------------------------------------------------------
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.................... 5
------------------------------------------
2.11 PROXIES....................................................... 5
-------
2.12 ORGANIZATION.................................................. 5
------------
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE......................... 6
-------------------------------------
ARTICLE III DIRECTORS..................................................... 6
---------
3.1 POWERS........................................................ 6
------
3.2 NUMBER OF DIRECTORS........................................... 6
-------------------
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS...................... 6
----------------------------------------
3.4 RESIGNATION AND VACANCIES..................................... 7
-------------------------
3.5 REMOVAL OF DIRECTORS.......................................... 8
--------------------
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE...................... 8
----------------------------------------
3.7 REGULAR MEETINGS.............................................. 8
----------------
3.8 SPECIAL MEETINGS; NOTICE...................................... 8
------------------------
3.9 QUORUM........................................................ 9
------
3.10 WAIVER OF NOTICE.............................................. 9
----------------
3.11 ADJOURNMENT................................................... 9
-----------
3.12 NOTICE OF ADJOURNMENT......................................... 9
---------------------
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............. 9
-------------------------------------------------
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
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3.14 FEES AND COMPENSATION OF DIRECTORS............................ 10
----------------------------------
3.15 APPROVAL OF LOANS TO OFFICERS................................. 10
-----------------------------
3.16 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION........ 10
------------------------------------------------------
ARTICLE IV COMMITTEES..................................................... 10
----------
4.1 COMMITTEES OF DIRECTORS....................................... 10
-----------------------
4.2 MEETINGS AND ACTION OF COMMITTEES............................. 11
---------------------------------
4.3 COMMITTEE MINUTES............................................. 11
-----------------
ARTICLE V OFFICERS........................................................ 12
5.1 OFFICERS...................................................... 12
--------
5.2 ELECTION OF OFFICERS.......................................... 12
--------------------
5.3 SUBORDINATE OFFICERS.......................................... 12
--------------------
5.4 REMOVAL AND RESIGNATION OF OFFICERS........................... 12
-----------------------------------
5.5 VACANCIES IN OFFICES.......................................... 13
--------------------
5.6 CHAIRMAN OF THE BOARD......................................... 13
---------------------
5.7 PRESIDENT..................................................... 13
---------
5.8 VICE PRESIDENTS............................................... 13
---------------
5.9 SECRETARY..................................................... 14
---------
5.10 CHIEF FINANCIAL OFFICER....................................... 14
-----------------------
5.11 ASSISTANT SECRETARY........................................... 14
-------------------
5.12 ADMINISTRATIVE OFFICERS....................................... 15
-----------------------
5.13 AUTHORITY AND DUTIES OF OFFICERS.............................. 15
--------------------------------
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
-----------------------------------------------------------
AGENTS............................................................... 15
------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..................... 15
-----------------------------------------
6.2 INDEMNIFICATION OF OTHERS..................................... 16
-------------------------
6.3 INSURANCE..................................................... 17
---------
ARTICLE VII RECORDS AND REPORTS........................................... 17
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS......................... 17
-------------------------------------
7.2 INSPECTION BY DIRECTORS....................................... 17
-----------------------
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.............................. 18
--------------------------------
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................ 18
----------------------------------------------
7.5 CERTIFICATION AND INSPECTION OF BYLAWS........................ 18
--------------------------------------
ARTICLE VIII GENERAL MATTERS.............................................. 18
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING......... 18
-----------------------------------------------------
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS..................... 19
-----------------------------------------
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED............. 19
-------------------------------------------------
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8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES.............. 19
------------------------------------------------
8.5 SPECIAL DESIGNATION ON CERTIFICATES........................... 20
-----------------------------------
8.6 LOST CERTIFICATES............................................. 20
-----------------
8.7 TRANSFER AGENTS AND REGISTRARS................................ 20
------------------------------
8.8 CONSTRUCTION; DEFINITIONS..................................... 21
-------------------------
ARTICLE IX AMENDMENTS..................................................... 21
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<PAGE>
BYLAWS
------
OF
--
BLAZE SOFTWARE, INC.
--------------------
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be fixed in the certificate
of incorporation of the corporation.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of the stockholders of this corporation shall be held
each year on a date and at a time designated by the board of directors. At the
meeting, directors shall be elected and any other proper business may be
transacted. Nominations of persons for election to the board of directors of
the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders only (a) pursuant
to the corporation's notice of meeting, (b) by or at the direction of the board
of directors or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in these Bylaws, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Bylaw.
<PAGE>
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of the preceding sentence, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation and such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice shall be delivered to
the secretary at the principal executive offices of the corporation at a time
when such stockholder is a stockholder of record of the corporation and shall be
so delivered not less than one hundred twenty (120) calendar days prior to the
first anniversary of the date on which the corporation first mailed its proxy
materials for the preceding year's annual meeting of stockholders; provided,
however, that if the date of the annual meeting is advanced more than 30 days
prior to or delayed by more than 30 days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not later than the close of business on the later of one hundred
twenty (120) calendar days in advance of such annual meeting or ten (10)
calendar days following the date on which the notice of meeting was mailed. In
no event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (or any successor thereto) (the "Exchange Act")
and Rule 14a-11 thereunder (or any successor thereto) (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, and (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder and
such beneficial owner. Notwithstanding any provision herein to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2.2.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board or by the president.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing to the secretary of the
corporation, and shall set forth (a) as to each person whom such person or
persons propose to nominate for election or reelection as a director at such
meeting all information relating to such proposed nominee that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Exchange Act (or any successor thereto) and
-2-
<PAGE>
Rule 14a-11 thereunder (or any successor thereto) (including such proposed
nominee's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business to be taken
at the meeting, a brief description of such business, the reasons for conducting
such business and any material interest in such business of the person or
persons calling such meeting and the beneficial owners, if any, on whose behalf
such meeting is called; and (c) as to the person or persons calling such meeting
and the beneficial owners, if any, on whose behalf the meeting is called (i) the
name and address of such persons, as they appear on the corporation's books, and
of such beneficial owners, and (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such persons and such
beneficial owners. No business may be transacted at such special meeting
otherwise than specified in such notice or by or at the direction of the
corporation's board of directors. The corporation's secretary shall cause notice
to be promptly given to the stockholders entitled to vote, in accordance with
the provisions of Sections 2.4 and 2.5, that a meeting will be held at the time
reasonably requested by the person or persons who called the meeting, not less
than 60 nor more than 90 days after the receipt of the request. If the notice is
not given within 20 days after the receipt of a valid request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph 2.3 shall be construed as limiting, fixing or affecting the time when
a meeting of stockholders called by action of the board of directors may be
held.
Only such business shall be conducted at a special meeting of stockholders
called by action of the board of directors as shall have been brought before the
meeting pursuant to the corporation's notice of meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Sections 2.2 and 2.3 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
-3-
<PAGE>
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.10 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
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<PAGE>
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
The stockholders may not take any action by written consent in lieu of a
meeting, and must take any actions at a duly called annual or special meeting of
stockholders and the power of stockholders to consent in writing is specifically
denied.
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
------------------------------------------
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
2.11 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
2.12 ORGANIZATION
------------
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a chairman
for such meeting. The chairman of any meeting of stockholders shall determine
the order
-5-
<PAGE>
of business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and the conduct of business. The secretary of
the corporation shall act as secretary of all meetings of the stockholders, but
in the absence of the secretary at any meeting of the stockholders, the chairman
of the meeting may appoint any person to act as secretary of the meeting.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The board of directors shall consist of eight (8) members. The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Except as provided in Section 3.4 of these bylaws or Article Tenth of the
certificate of incorporation of the corporation, directors shall be elected at
each annual meeting of stockholders to hold office until the next annual
meeting. Each director, including a director elected or appointed to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
-6-
<PAGE>
Election of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Unless otherwise provided in the certificate
of incorporation or these bylaws, each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or
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<PAGE>
newly created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the provisions
of Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, only with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding full business day.
3.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least forty-
eight (48) hours before the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated either to the director or
to a person at the office of the director who
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<PAGE>
the person giving the notice has reason to believe will promptly communicate it
to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.9 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.11
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the quorum for that meeting.
3.10 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.11 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting of the board to another time and place.
3.12 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting of the board
need not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.8 of these
bylaws, to the directors who were not present at the time of the adjournment.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of
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<PAGE>
the board of directors. Such written consent and any counterparts thereof shall
be filed with the minutes of the proceedings of the board of directors.
3.14 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.14 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.15 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.16 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
------------------------------------------------------
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no
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<PAGE>
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation),
(ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the following provisions of Article III of these bylaws:
Section 3.6 (place of meetings; meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings; notice), Section 3.9 (quorum), Section
3.10 (waiver of notice), Section 3.11 (adjournment), Section 3.12 (notice of
adjournment) and Section 3.13 (board action by written consent without meeting),
with such changes in the context of those bylaws as are necessary to substitute
the committee and its members for the board of directors and its members;
provided, however, that the time of regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee, that special meetings of committees may also be called by
resolution of the board of directors, and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.
4.3 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
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<PAGE>
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The Corporate Officers of the corporation shall be a president, a secretary
and a chief financial officer. The corporation may also have, at the discretion
of the board of directors, a chairman of the board, one or more vice presidents
(however denominated), one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held by
the same person.
In addition to the Corporate Officers of the Company described above, there
may also be such Administrative Officers of the corporation as may be designated
and appointed from time to time by the president of the corporation in
accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
--------------------
The Corporate Officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12 of
these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of a Corporate Officer under any contract of
employment, any Corporate Officer may be removed, either with or without cause,
by the board of directors at any regular or special meeting of the board or,
except in case of a Corporate Officer chosen by the board of directors, by any
Corporate Officer upon whom such power of removal may be conferred by the board
of directors.
-12-
<PAGE>
Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may be
removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If there is
no president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He
or she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, and if there is no chairman
of the board, the vice presidents, if any, in order of their rank as fixed by
the board of directors or, if not ranked, a vice president designated by the
board of directors, shall perform all the duties of the president and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the board of directors, these bylaws, the president or the
chairman of the board.
-13-
<PAGE>
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of directors,
committees of directors and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director for a purpose reasonably related to
his position as a director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to
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<PAGE>
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
-----------------------
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing powers, authority and duties, all officers of
the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
-------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware as the same now exists or may hereafter
be amended, indemnify any person against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit,
or proceeding in which such person was or is a party or is threatened to be made
a party by reason of the fact that such person is or was a director or officer
of the corporation. For purposes of this Section 6.1, a "director" or "officer"
of the corporation shall mean any person (i) who is or was a director or officer
of the corporation, (ii) who is or was serving at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
-15-
<PAGE>
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
If a claim for indemnification or payment of expenses under this Article is
not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the corporation's Certificate of Incorporation, these
bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. The corporation's obligation, if any, to indemnify any person
who was or is serving at its request as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, enterprise or non-
profit entity shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
enterprise or non-profit enterprise. For purposes of this Section 6.2, an
"employee" or "agent" of the corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee
-16-
<PAGE>
or agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
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<PAGE>
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
--------------------------------------
The original or a copy of these bylaws, as amended or otherwise altered to
date, certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
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<PAGE>
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize and empower any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
------------------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and, upon
request, every holder of uncertificated shares, shall be entitled to have a
certificate signed by, or in the name of the corporation by, the chairman or
vice-chairman of the board of directors, or the president or vice-president, and
by the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
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<PAGE>
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
------------------------------
The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be an incorporated bank
or trust company -- either domestic or
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<PAGE>
foreign, who shall be appointed at such times and places as the requirements of
the corporation may necessitate and the board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, as used in these bylaws, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both an entity and a natural person.
ARTICLE IX
AMENDMENTS
----------
Any of these Bylaws may be altered, amended or repealed by the affirmative
vote of a majority of the members of the board of directors or, with respect to
Bylaw amendments, excluding amendments relating to Sections 2.2, 2.3, 2.9, 3.3,
3.5 or Article VI, placed before the stockholders for approval and except as
otherwise provided herein or required by law, by the affirmative vote of the
holders of a majority of the shares of the corporation's stock entitled to vote,
voting as one class, and with respect to Bylaw amendments relating to Sections
2.2, 2.3, 2.9, 3.3, 3.5 or Article VI placed before the stockholders for
approval and except as otherwise provided herein or required by law, by the
affirmative vote of the holders of at least two-thirds of the shares of the
corporation's stock entitled to vote, voting as one class.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
BLAZE SOFTWARE, INC.
Certificate by Secretary of Adoption by Board of Directors
----------------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Blaze Software, Inc. and that the foregoing Bylaws,
comprising twenty-one (21) pages, were approved by the directors of the
corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this ____ day of ____________ 2000.
______________________________________
Secretary
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EXHIBIT 10.1
BLAZE SOFTWARE, INC.
THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
___________
December 31, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. Registration Rights.................................................................................. 1
1.1 Definitions................................................................................. 1
1.2 Request for Registration.................................................................... 3
1.3 Company Registration........................................................................ 4
1.4 Obligations of the Company.................................................................. 5
1.5 Furnish Information......................................................................... 6
1.6 Expenses of Demand Registration............................................................. 7
1.7 Expenses of Company Registration............................................................ 7
1.8 Underwriting Requirements................................................................... 7
1.9 Delay of Registration....................................................................... 8
1.10 Indemnification............................................................................. 8
1.11 Reports Under Securities Exchange Act of 1934............................................... 10
1.12 Form S-3 Registration....................................................................... 10
1.13 Assignment of Registration Rights........................................................... 11
1.14 Limitations on Subsequent Registration Rights............................................... 12
1.15 "Market Stand-Off" Agreement................................................................ 12
1.16 Termination of Registration Rights.......................................................... 12
2. Covenants of the Company............................................................................. 13
2.1 Delivery of Financial Statements............................................................ 13
2.2 Inspection.................................................................................. 14
2.3 Termination of Information and Inspection Covenants......................................... 14
2.4 Right of First Offer........................................................................ 14
2.5 Indemnification and Advancement............................................................. 15
3. Miscellaneous........................................................................................ 16
3.1 Successors and Assigns...................................................................... 16
3.2 Governing Law............................................................................... 16
3.3 Counterparts................................................................................ 16
3.4 Titles and Subtitles........................................................................ 17
3.5 Notices..................................................................................... 17
3.6 Expenses.................................................................................... 17
3.7 Amendments and Waivers...................................................................... 17
3.8 Severability................................................................................ 17
3.9 Aggregation of Stock........................................................................ 17
3.10 Entire Agreement............................................................................ 17
</TABLE>
Schedule A Schedule of Investors
i
<PAGE>
THIRD AMENDED AND RESTATED
--------------------------
INVESTORS' RIGHTS AGREEMENT
---------------------------
THIS THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is made as of the 31st day of December, 1999, by and among Blaze
Software, Inc., a California corporation (the "Company"), the Founders (as
defined herein), and the investors listed on Schedule A hereto (each of which is
referred to herein as an "Investor" or collectively, as the "Investors").
RECITALS
--------
WHEREAS, in connection with the Series D Preferred Stock Purchase
Agreement and Series E Preferred Stock Option Agreement, dated June 28, 1996, by
and among the Company and the parties listed on Schedule A thereto (the "Series
D Investors"), the parties previously entered into an Investors' Rights
Agreement, dated June 28, 1996;
WHEREAS, in connection with the Series F Preferred Stock Purchase
Agreement, dated December 16, 1997, by and among the Company and the parties
listed on Schedule A thereto (the "Series F Investors"), the parties previously
entered into an Amended and Restated Investors' Rights Agreement, dated December
16, 1997;
WHEREAS, in connection with the Series AA Preferred Stock Purchase
Agreement (the "Series AA Investors", and together with the Series D Investors
and the Series F Investors, the "Existing Investors"), dated June 1, 1999 by and
among the Company and the parties listed on Schedule A thereto, the parties
previously entered into an Amended and Restated Investors' Rights Agreement,
dated June 1, 1999.
WHEREAS, certain Investors (the "Series BB Investors") are parties to
the Series BB Preferred Stock Purchase Agreement, dated as of even date
herewith, by and among the Company and the Series BB Investors (the "Series BB
Agreement"), certain of the Company's and such Investors' obligations under
which are conditioned upon the execution and delivery of this Agreement by the
Series BB Investors, the Existing Investors and the Company;
WHEREAS, in order to induce the Company to enter into the Series BB
Agreement and to induce the Series BB Investors to invest funds in the Company
pursuant to the Series BB Agreement, the Series BB Investors, the Existing
Investors and the Company desire that this Agreement shall govern the rights of
the Founders, the Series BB Investors and the Existing Investors to cause the
Company to register shares of Common Stock issued or issuable to the Founders,
the Investors or Existing Investors, and certain other matters as set forth
herein, and shall supersede and replace all other prior agreements.
NOW, THEREFORE, in consideration of the mutual premises set forth in
this Agreement and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties intending to be legally bound hereby
agree as follows:
1. Registration Rights.
-------------------
1.1 Definitions. For purposes of this Section 1:
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<PAGE>
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) "Common Stock Equivalents" means the Common Stock of the Company
plus the numbers of shares of Common Stock of the Company into which the
Registrable Securities may be converted.
(c) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the SEC which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(d) The term "Founders" shall mean Patrick Perez and Alain Rappaport.
Individually they are each a "Founder".
(e) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(f) The term "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(g) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(h) The term "Registrable Securities" means (i) the Common Stock
issued upon conversion of the Series A Preferred Stock (ii) the Common Stock
issued upon conversion of the Series C Preferred Stock, (iii) the Common Stock
issued upon conversion of the Series D Preferred Stock, (iv) the Common Stock
issued or issuable upon conversion of the Series E Preferred Stock issued or
issuable upon exercise of those certain options to purchase Series E Preferred
Stock of the Company granted to the Series D Investors pursuant to the Series D
Agreement (the "Series E Options"), (v) the Common Stock issued upon conversion
of the Series F Preferred Stock, (vi) the Common Stock issuable or issued upon
conversion of the Series AA Preferred Stock, (vii) the Common Stock issuable or
issued upon conversion of the Series BB Preferred Stock, (viii) the Common Stock
issued upon conversion of the Preferred Stock purchased by Alta California
Partners, L.P. and Alta Embarcadero Partners, LLC pursuant to the Founders Stock
Transfer Agreement, and (ix) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of the shares referenced in (i), (ii), (iii),
(iv), (v), (vi), (vii), and (viii) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(i) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(j) The term "SEC" shall mean the Securities and Exchange Commission.
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1.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier of
December 31, 1999 or six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction), a written request from the Holders of at
least forty percent (40%) of the Registrable Securities then outstanding that
the Company file a registration statement under the Act covering the
registration of shares of Registrable Securities with an anticipated aggregate
offering price, net of underwriting discounts and commissions, of at least
$5,000,000, then the Company shall use its best efforts to:
(i) within ten (10) business days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) effect as soon as practicable, the registration under the
Act of all Registrable Securities which the Holders request to be registered,
subject to the limitations of subsection 1.2(b), within twenty (20) days of the
mailing of such notice by the Company in accordance with Section 3.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company's Board of Directors and
shall be reasonably acceptable to a majority in interest of the Initiating
Holders. In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 1.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Initiating Holders shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company requested by each Holder to be included in
the registration statement; provided, however, that the number of shares of
Registrable Securities to be included in such underwriting shall not be reduced
unless all other securities are first entirely excluded from the underwriting.
In no event shall the number of Registrable Securities underwritten in an
offering be limited unless and until all shares held by persons other than the
Holders and the Founders are completely excluded from such offering. If any
Holder or Founder disapprove of the terms of any such underwriting, such Holder
or Founder may elect to withdraw therefrom by written notice to the Company and
the managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
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(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders. Provided however, that the
Company may defer such action no more than one time in any 12 month period.
(d) In addition, the Company shall not be obligated to effect, or
to take any action to effect, any registration pursuant to this Section 1.2:
(i) after the Company has effected three (3) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) during the period starting with the date ninety (90) days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
employing in good faith reasonable efforts to cause such registration statement
to become effective; or
(iii) if the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.12 below.
1.3 Company Registration. If (but without any obligation to do
--------------------
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration that is the
Company's first registered public offering of securities of the Company, a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or a Rule 145 transaction on Form S-14 or Form S-15 or any other registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder and each Founder written notice of such registration. Upon the written
request of any Holder or Founder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the Act
all of the Registrable Securities that any such Holder has requested to be
registered, and any shares such Founder has requested to be registered;
provided, however, the Company, upon the request of its underwriters, may reduce
to an amount not less than twenty-five percent (25%) of the total offering the
number of shares proposed to be registered by such Holders and Founders if
marketing factors require a limitation of the number of shares underwritten. In
such event, the Company shall promptly advise all Holders and Founders
participating in the underwriting and provide such Holders and Founders a
reasonable opportunity to withdraw from their participation in the underwriting
furthermore, in the event of such limitation, the number of shares that may
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<PAGE>
be included by the Holders and Founders shall be allocated among all Holders and
Founders participating in the underwriting in proportion (as nearly as
practicable) to the amount of Registrable Securities of the Company owned by
each such Holder or Founder who requests to participate in such registration.
Each Founder electing to register shares under this Section 1.3, and only for
purposes of registering shares pursuant to this Section 1.3, shall have the
rights and obligations of a Holder under Sections 1.4, 1.5, 1.7, 1.8, 1.9, 1.10,
1.15 and 1.16 of this Agreement; provided, however, that in interpreting those
Sections 1.4, 1.5, 1.7, 1.8, 1.9, 1.10 and 1.16 with respect to any Founder, the
term "Registrable Securities" shall be replaced with "shares sought to be
registered by such Founder".
1.4 Obligations of the Company. Whenever required under this Section
--------------------------
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a post-
effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Act or (II) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in
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<PAGE>
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the anticipated aggregate offering price of the
Registrable Securities to be included in the registration does not equal or
exceed the anticipated aggregate offering price required to
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originally trigger the Company's obligation to initiate such registration as
specified in subsection 1.2(a) or subsection 1.12(b)(2), whichever is
applicable.
1.6 Expenses of Demand Registration. The Company shall bear and pay
-------------------------------
all expenses other than underwriting discounts and commissions incurred in
connection with registrations, filings or qualifications pursuant to Section
1.2, including (without limitation) all registration, filing and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company, including reasonable fees and disbursements of one counsel for the
selling Holders selected by them hereunder. Nothing in this Section 1.6 shall
require that the Company pay for any expenses of any registration proceeding
begun pursuant to Section 1.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case all participating holders shall bear
such expenses), unless the Holders of a majority of the Registrable Securities
agree to forfeit their right to one demand registration pursuant to Section 1.2;
provided further, however, that if at the time of such withdrawal, the Holders
have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Holders at the time of their
request and have withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 1.2. The Company shall be required to pay for the expenses
of only one demand registration during any six-month period under Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses other than underwriting discounts and commissions incurred in
connection with any registration, filing or qualification of Registrable
Securities with respect to the registrations pursuant to Section 1.3 for each
Holder (which right may be assigned as provided in Section 1.13), including
(without limitation) all registration, filing, and qualification fees, printers
and accounting fees relating or apportionable thereto and the reasonable fees
and disbursements of one counsel for the selling Holders selected by them
hereunder, but excluding underwriting discounts and commissions relating to
Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not,
jeopardize the success of the offering by the Company, subject to the provisions
of Section 1.3 hereof as they may be applicable, but in no event shall (i) the
amount of securities of the selling Holders included in the offering be reduced
below twenty-five percent (25%) of the total amount of securities included in
such offering, unless such offering is the initial public offering of the
Company's securities in which case the selling shareholders may be excluded if
the underwriters make the determination described above and no other
shareholder's securities are included or (ii) notwithstanding (i) above, any
shares being sold by a shareholder exercising a demand registration right
similar to that granted in Section 1.2 be excluded from such offering. If the
total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to
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include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders). For purposes of the preceding parenthetical
concerning apportionment, for any selling shareholder which is a holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners and shareholders of such holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling
shareholder", and any pro-rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain
----------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under the Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, each of its officers and directors, any underwriter
(as defined in the Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Act or the 1934 Act,
against any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; and the Company will pay to each such Holder,
underwriter or controlling person any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the
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Act, any underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other Holder,
against any losses, claims, damages or liabilities (joint or several) to which
any of the foregoing persons may become subject, under the Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the net
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in
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connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the date that the Company first becomes subject to the reporting
requirements of the 1934 Act;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from any
---------------------
Holder or Holders who hold in excess of one percent (1%) of the Company's Common
Stock Equivalents a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to shares of the Registrable Securities owned by such Holder or Holders
with an anticipated aggregate offering price, net of discounts and commissions,
of more than $1,000,000, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are
10
<PAGE>
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within 15 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 1.12: (1) if Form S-3 is not available for such
offering by the Holders; (2) if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not more
than 120 days after receipt of the request of the Holder or Holders under this
Section 1.12; provided, however, that the Company shall not utilize this right
more than once in any twelve month period; or (3) in any particular jurisdiction
in which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses other than underwriting discounts and commissions
incurred in connection with registrations, filings or qualifications pursuant to
Section 1.12 including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of one counsel
for the selling Holders selected by them shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 1.12 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case al
participating Holders shall bear such expenses); provided further, however, that
if at the time of such withdrawal, the Holders have learned of a material
adverse change in the condition, business, or prospects of the Company from that
known to the Holders at the time of their request and have withdrawn the request
with reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses pursuant to Section 1.12. Registrations effected pursuant to this
Section 1.12 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder or a Founder to a
transferee or assignee of such securities who is either a partner (limited or
general), shareholder, or an affiliate of such Holder or Founder, or who, after
such assignment or transfer, holds at least 100,000 shares of Registrable
Securities (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (a) the Company is, within
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1.15 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act.
11
<PAGE>
1.14 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least two-thirds of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 1.2(a) or within
one hundred eighty (180) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that,
---------------------------
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except common stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) such market stand-off shall not apply to any securities of the
Company acquired in the Company's initial public offering or any securities of
the Company acquired in an open market transaction; and
(c) such market stand-off time period shall not exceed 180 days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-14 or Form S-15 or similar forms which may be promulgated
in the future.
The Company shall use commercially reasonable efforts to cause its
officers and directors to enter into market stand-off agreements on
substantially the same terms as outlined above.
1.16 Termination of Registration Rights. No Holder or Founder shall be
----------------------------------
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) ten (10) years
12
<PAGE>
following the consummation of the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public or (ii)
at and after such time as all Registrable Securities held or entitled to be held
upon conversion by such Holder may immediately be sold under Rule 144 during any
90-day period.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Founder and to each Investor which, together with its affiliates, holds
at least 500,000 shares of the Registrable Securities of the Company:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent public accountants
of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited income statement, statement of cash flows for such
fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter;
(c) within thirty (30) days of the end of each month, an unaudited
income statement and a schedule as to the sources and applications of funds and
balance sheet for and as of the end of such month, in reasonable detail;
(d) with respect to the financial statements called for in subsection
(c) of this Section 2.1, an instrument executed by the Chief Financial Officer
of the Company and certifying that such financials were prepared in accordance
with GAAP consistently applied with prior practice for earlier periods (with the
exception of footnotes that may be required by GAAP) and fairly present the
financial condition of the Company and its results of operation for the period
specified, subject to year-end audit adjustment;
(e) as soon as practicable, but in any event within thirty (30) days
prior to the beginning of each fiscal year of the Company, an annual operating
plan of the Company for the such fiscal year;
(f) as soon as practicable, copies of all material-press releases;
and
(g) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company, including any and all
press releases of the Company, as the Investor or any assignee of the Investor
may from time to time request, provided, however, that the Company shall not be
obligated under this subsection (f) or any other subsection of Section 2.1 to
provide information which it deems in good faith to be a trade secret or similar
confidential information.
13
<PAGE>
2.2 Inspection. The Company shall permit each Founder and each
----------
Investor which, together with its affiliates, holds at least 500,000 shares of
the Company's Registrable Securities, at such Investor's expense, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by the Investor or the Founder;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which it reasonably considers
to be confidential information.
2.3 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in subsections 2.1(b), (d) and (e) and Section 2.2 shall
terminate as to the Founders and as to the Investors and be of no further force
or effect when the sale of securities pursuant to a registration statement filed
by the Company under the Act in connection with the firm commitment underwritten
offering of its securities to the general public is consummated or when the
Company first becomes subject to the periodic reporting requirements of Sections
12(g) or 15(d) of the 1934 Act, whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this paragraph 2.4, the Company hereby grants to each Major
Investor (as hereinafter defined) a right of first offer with respect to future
sales by the Company of its Shares (as hereinafter defined). For purposes of
this Section 2.4, a Major Investor shall mean any Investor who holds 500,000
shares of Registrable Securities.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice ("Notice") to the Major
Investors stating (i) its bona fide intention to offer such Shares, (ii) the
number of such Shares to be offered, and (iii) the price and terms, if any, upon
which it proposes to offer such Shares.
(b) By written notification received by the Company, within twenty
(20) calendar days after giving of the Notice, the Major Investor may elect to
purchase or obtain, at the price and on the terms specified in the Notice, up to
that portion of such Shares which equals the proportion that the number of
shares of common stock issued and held, or issuable upon conversion of the
Preferred Stock then held, or issuable upon exercise of options to purchase
shares of common stock granted to the holders of Series E Options in exchange
for their Series E Options bears to the total number of shares of common stock
of the Company then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). The Company shall promptly, in writing,
inform each Major Investor which purchases all the shares available to it
("Fully-Exercising Investor") of any other Major Investor's failure to do
likewise. During the ten-day period commencing after such information is given,
each Fully-Exercising Investor shall be entitled to obtain that portion of the
Shares for which Major Investors were entitled to subscribe but which were not
subscribed for by the Major Investors which is equal to the proportion that the
number of shares of common stock issued and held, or issuable upon conversion of
Preferred Stock then held, or issuable upon exercise of options to purchase
shares of common stock granted to holders of Series E Options in exchange for
their Series E Options by such Fully-Exercising Investor bears to the total
number of shares of common stock issued and held, or issuable upon conversion of
the Preferred Stock then held, or issuable upon exercise
14
<PAGE>
of options to purchase shares of common stock granted to holders of Series E
Options in exchange for their Series E Options by all Fully-Exercising Investors
who wish to purchase some of the unsubscribed shares.
(c) If all Shares which Major Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the 30-day period following
the expiration of the applicable period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within thirty (30) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of common stock (or options therefor) to
service providers to the Company, including but not limited to employees,
consultants and directors, approved by the Board of Directors of the Company for
the primary purpose of soliciting or retaining their service or (ii) to or after
consummation of a bona fide, firmly underwritten public offering of shares of
common stock at a public offering price (prior to underwriter commission and
expense) of not less than $8.625 per share (adjusted to reflect subsequent stock
dividends, stock splits or recapitalization) and $7,500,000 in the aggregate
registered under the Act pursuant to a registration statement on Form S-1, (iii)
the issuance of securities pursuant to the conversion or exercise of convertible
or exercisable securities, (iv) the issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise, (v) the
issuance of stock, warrants or other securities or rights to persons or entities
with which the Company has business relationships, including but not limited to
lending and leasing institutions and customers, provided such issuances are for
other than primarily equity financing purposes and are approved by the Board of
Directors of the Company, or (vi) the issuance of options to purchase shares of
the Company's common stock granted to the holders of Series E Options in
exchange for their Series E Options.
(e) The right of first offer set forth in this Section 2.4 may not be
assigned or transferred, except that (i) such right is assignable by each Holder
to any wholly owned subsidiary or parent of, or to any corporation or entity
that is, within the meaning of the Act, controlling, controlled by or under
common control with, any such Holder and all partners and affiliates of such
Holder, and (ii) such right is assignable between and among any of the Holders.
2.5 Indemnification and Advancement
-------------------------------
(a) The Company hereby agrees to hold harmless and indemnify the
Investors, the Investors' direct and indirect subsidiaries, affiliated entities
and corporations, and each of their partners, officers, directors, employees,
stockholders, agents, and representatives (collectively, referred to as the
"Investor Indemnitees") against any and all expenses (including attorneys'
fees), damages, judgments, fines, amounts paid in settlements, or any other
amounts that a Investor Indemnitee incurs as a result of any claim or claims
made against it in connection with any threatened, pending or completed action,
suit, arbitration, investigation or other
15
<PAGE>
proceeding arising out of, or relating to the Investors' actions in connection
with any transaction undertaken in connection with this Agreement; provided,
however, that no Investor Indemnitee shall be entitled to be held harmless or
indemnified by the Company for acts, conduct or omissions as to which there has
been a final adjudication that such Investor Indemnitee engaged in intentional
misconduct or in knowing and culpable violation of the law.
(b) The Company shall reimburse, promptly following request therefor,
all reasonable expenses incurred by a Investor Indemnitee in connection with any
threatened, pending or completed action, suit, arbitration, investigation or
other proceeding arising out of, or relating to, the Investors' actions in
connection with any transaction undertaken in connection with this Agreement,
provided, however, that no Investor Indemnitee shall be entitled to
reimbursement in connection with acts, conduct or omissions as to which there
has been a final adjudication that such Investor Indemnitee engaged in
intentional misconduct, in knowing and culpable violation of the law.
(c) The Company's indemnity obligations set forth above are subject
to the Investors providing prompt written notice of a claim. The Company shall
control the defense of any such action and, at its discretion, may enter into a
stipulation of discontinuance or settlement thereof; provided that the Company
may not discontinue any action or settle any claim in a manner that does not
unconditionally release the Investors without the Investors' prior written
approval. The Investors shall, at the Company's expense and reasonable request,
cooperate with the Company in any such defense and shall make available to the
Company at the Company's expense all those persons, documents (excluding
attorney/client or attorney work product materials) reasonably required by the
Company in the defense of any such action. The Investors may, at their expense,
assist in such defense.
(d) The Company's liability to any Investor Indemnitee under this
section shall be limited to the amount received by the Company from such
Investor Indemnitee, and the Company's aggregate cumulative liability under this
Section shall be limited to the amount received by the Company pursuant to the
transaction contemplated by this Agreement.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16
<PAGE>
3.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given, or received, upon personal delivery to the party to be
notified 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 in writing, provided that such other address
is effectively received at least ten (10) days prior to the giving of any notice
required or permitted under this Agreement.
3.6 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding, provided that any amendment to Section
1.15 hereof shall not be effective as to any "investment company" (as defined in
the Investment Company Act of 1940, as amended) without the consent of such
investment company. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
3.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement,
provided, that for the purposes of this Agreement, if any investment company,
together with any other investment company advised by the same investment
advisor, owns more than 500,000 shares of Registrable Securities, each such
investment company shall have the rights contemplated by this Agreement.
3.10 Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
[Remainder of Page Intentionally Left Blank]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Investors' Rights Agreement as of the date first above written.
BLAZE SOFTWARE, INC.
By: ______________________________________
Thomas Kelly
President and Chief Executive Officer
Address: 1310 Villa Street
Mountain View, CA 94041
SIGNATURE PAGE TO THE
THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
<PAGE>
FOUNDERS:
ALAIN RAPPAPORT
By: ______________________________________
Alain Rappaport
PATRICK PEREZ
By: ______________________________________
Patrick Perez
SIGNATURE PAGE TO THE
THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTOR:
Print Name: _______________________
_______________________
___________________________________
Signature of Investor
SIGNATURE PAGE TO THE
THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
<PAGE>
SCHEDULE A
----------
Series A Investor:
- -----------------
C.V. Sofinnova Ventures
Series C Investors:
- ------------------
Alta IV Limited Partnership
C.V. Sofinnova Partners
C.V. Sofinnova Ventures
Series D and E Investors:
- ------------------------
Alta Embarcadero Partners, LLC
Alta California Partners, L.P.
Morgan Stanley Venture Capital Fund II, L.P.
Morgan Stanley Venture Capital Fund II, C.V.
Morgan Stanley Venture Investors, L.P.
Series F Investors:
- ------------------
TL Ventures III L.P.
TL Ventures III Offshore L.P.
TL Ventures III Interfund L.P.
Series AA Investors:
- -------------------
TL Ventures III L.P.
TL Ventures III Offshore L.P.
TL Ventures III Interfund L.P.
Morgan Stanley Venture Capital Fund II, L.P.
Morgan Stanley Venture Capital Fund II, C.V.
Morgan Stanley Venture Investors, L.P.
Alta California Partners, L.P.
Alta Embarcadero Partners, LLC
Alta IV Limited Partnership
C.V. Sofinnova Partners Five
C.V. Sofinnova Ventures
Stephen A. Yount
Alain Azan
Michael Benson
John E. Beggs
Jack Bradley
Federico Bumbaca
Audie Chang
Jean-Marie Chauvet
Pany Christoforou
Laurent Delamare
Randy Dieterle
Bernard Duchesne
Mark Finkel
Steven Friedman
George Gallegos
Robert Goodrich
Albert Gouyet
Kevin Q. Gu
Jesus Michael Hernandez
Ted C. Ho
Michael Humphries
Tetsuo Ikegawa
Toru Ishihara
Donna Jeker
Guenolla Jonville
Bruno Jouhier
Elizabeth Keene
Davorin Kuchan
Ralph Love
David Micek
Emmanuel Mignot
David Mowbrey
Manfred K. Muehter
John V. O'Brien
James Owen
Charles F. Page
Kevin Patterson
Peter Pelt
Patrick Perez
John Price
Hoshi Printer
Alain Rappaport
Geetha Redy Trust TID 25-6500179
Raj Redy
Shyamala Redy Trust TID 25-6500177
Scott R. Smith
Patrick Suel
Eric Swildens
Johan Swildens
Darrell Trimble
Robert Tykulsker
Michael Wilson
David Wiser
Series BB Investors:
- -------------------
Seligman Communications and Information Fund, Inc.
Seligman New Technologies Fund, Inc.
Seligman Investment Opportunities (Master) Fund - NTV Portfolio
Sofinnova Venture Partners IV, L.P,.
Sofinnova Venture Affiliates IV, L.P.
Sofinnova Capital III FCPR
Lagun-Aro, E.P.S.V.
Damac Investors Incorporated
Damac Technology Partners L.P.
WS Investments 99B
Bayview 99 I, LP
Bayview 99 II, LP
Hambrecht & Quist California
H&Q Employee Venture Fund 2000, L.P.
Dain Rauscher Wessels Investors L.L.C.
Access Technology Partners, L.P.
Access Technologies Partners Brokers Fund, L.P.
L. George Klaus Trust
Julie Tafel Klaus
Charles M. Bosenberg
Ken Goldman
<PAGE>
SCHEDULE A
----------
Series A Investor:
- -----------------
C.V. Sofinnova Ventures
Series C Investors:
- ------------------
Alta IV Limited Partnership
C.V. Sofinnova Partners
C.V. Sofinnova Ventures
Series D and E Investors:
- ------------------------
Alta Embarcadero Partners, LLC
Alta California Partners, L.P.
Morgan Stanley Venture Capital Fund II, L.P.
Morgan Stanley Venture Capital Fund II, C.V.
Morgan Stanley Venture Investors, L.P.
Series F Investors:
- ------------------
TL Ventures III L.P.
TL Ventures III Offshore L.P.
TL Ventures III Interfund L.P.
Series AA Investors:
- -------------------
TL Ventures III L.P.
TL Ventures III Offshore L.P.
TL Ventures III Interfund L.P.
Morgan Stanley Venture Capital Fund II, L.P.
Morgan Stanley Venture Capital Fund II, C.V.
Morgan Stanley Venture Investors, L.P.
Alta California Partners, L.P.
Alta Embarcadero Partners, LLC
Alta IV Limited Partnership
C.V. Sofinnova Partners Five
C.V. Sofinnova Ventures
Stephen A. Yount
Alain Azan
Michael Benson
John E. Beggs
Jack Bradley
Federico Bumbaca
Audie Chang
Jean-Marie Chauvet
Pany Christoforou
Laurent Delamare
Randy Dieterle
Bernard Duchesne
Mark Finkel
Steven Friedman
George Gallegos
Robert Goodrich
Albert Gouyet
Kevin Q. Gu
Jesus Michael Hernandez
Ted C. Ho
Michael Humphries
Tetsuo Ikegawa
Toru Ishihara
Donna Jeker
Guenolla Jonville
Bruno Jouhier
Elizabeth Keene
Davorin Kuchan
Ralph Love
David Micek
Emmanuel Mignot
David Mowbrey
Manfred K. Muehter
John V. O'Brien
James Owen
Charles F. Page
Kevin Patterson
Peter Pelt
Patrick Perez
John Price
Hoshi Printer
Alain Rappaport
Geetha Redy Trust TID 25-6500179
Raj Redy
Shyamala Redy Trust TID 25-6500177
Scott R. Smith
Patrick Suel
Eric Swildens
Johan Swildens
Darrell Trimble
Robert Tykulsker
Michael Wilson
David Wiser
<PAGE>
Series BB Investors:
- -------------------
Seligman Communications and Information Fund, Inc.
Seligman New Technologies Fund, Inc.
Seligman Investment Opportunities (Master) Fund - NTV Portfolio
Sofinnova Venture Partners IV, L.P,.
Sofinnova Venture Affiliates IV, L.P.
Sofinnova Capital III FCPR
Lagun-Aro, E.P.S.V.
Damac Investors Incorporated
Damac Technology Partners L.P.
WS Investments 99B
Bayview 99 I, LP
Bayview 99 II, LP
Hambrecht & Quist California
Hambrecht & Quist California
H&Q Employee Venture Fund 2000, L.P.
Dain Rauscher Wessels Investors L.L.C.
Access Technology Partners, L.P.
Access Technologies Partners Brokers Fund, L.P.
L. George Klaus Trust
Julie Tafel Klaus
Charles M. Bosenberg
Ken Goldman
<PAGE>
EXHIBIT 10.2
NEURON DATA, INC
1996 STOCK OPTION PLAN
----------------------
(As Amended and Restated Effective August 27, 1996,
September 25, 1996, October 28, 1997 and April 23, 1999)
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
A. This 1996 Stock Option Plan is intended to promote the interests
of Neuron Data, Inc., a California corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
B. Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. 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 roles and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or Shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under 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
<PAGE>
(iii) consultants who provide services to the Corporation
(or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants under the Plan, the time or
times when such option 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 at which 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.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 9,806,857.
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 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 under the Plan.
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.
2
<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%
Shareholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Three
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(g) 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
3
<PAGE>
(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 written instructions
(a) to a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares
plus all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of such
exercise and (b) to the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in order to
complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
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. The following provisions shall
--------------------------------
govern the exercise of any options held by the Optionee at the time of cessation
of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than Disability or death, then the Optionee shall have a
period of three (3) months following the date of such cessation of
Service during which to exercise each outstanding option held by such
Optionee.
(ii) Should such 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.
(iii) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent
and distribution shall have a period of twelve (12) months following the
date of the Optionee's death during which to exercise each such option.
(iv) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's
4
<PAGE>
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.
D. Shareholder Rights. The holder of an option shall have no
------------------
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record 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 under
the Plan. 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, all or (at the discretion of the Corporation and with the consent of
the Optionee) any 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 any shares of Common Stock subject to the 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, this minimum vesting requirement shall not be applicable with respect
to any option granted to an officer, director or consultant of the Corporation
(or any Parent or Subsidiary).
F. First Refusal Rights. Until such time as the Common Stock is first
--------------------
registered under Section 12(g) 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.
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
5
<PAGE>
Incentive Options. Options which are specifically designated as Non-Statutory
Options shall not be subject to the terms specified in this Section II.
---
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Exercise Price. The exercise price per share shall not be less
--------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares
-----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Shareholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. The 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, in connection with the Corporate Transaction, either
to be assumed by the successor corporation (or parent thereof) or to be replaced
with a comparable option to purchase shares of the capital stock of the
successor corporation (or parent thereof), (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. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.
6
<PAGE>
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 to be 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.
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 automatic termination, in whole or in
part, of one or more outstanding repurchase rights, with the immediate vesting
of the shares of Common Stock subject to those terminated rights) upon the
occurrence of a Corporate Transaction, whether or not those options are to be
assumed or replaced (or those repurchase rights are to be assigned) in the
Corporate Transaction.
F. The Plan Administrator shall have full power and authority to
structure option grants so that the shares subject to those grants will
automatically vest in full in the event the Optionee's Service subsequently
terminates 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 options are assumed or replaced and the
vesting of the underlying option shares does not otherwise accelerate. Such
options shall remain exercisable for fully-vested shares until the earlier of
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(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 structure one or more of the Corporation's
outstanding repurchase rights so that those rights shall immediately terminate
upon an Involuntary Termination of the Optionee's Service 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 and the
vesting of the shares subject to those rights does not otherwise accelerate. The
shares subject to the terminated repurchase rights shall accordingly vest in
full upon such Involuntary Termination.
7
<PAGE>
G. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
8
<PAGE>
ARTICLE THREE
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a 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. Promissory notes may be authorized with or without security
or collateral. However, any promissory notes delivered by a consultant must be
secured by property other than the purchased shares of Common Stock. In all
events, the maximum credit available to each Optionee may not exceed the sum of
---
(i) the aggregate option exercise price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee in connection with the option exercise.
II. ADDITIONAL AUTHORITY
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 the Optionee's cessation of Service from
the 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.
III. EFFECTIVE DATE AND TERM OF THE PLAN
9
<PAGE>
A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised until the Plan is approved by the
Corporation's shareholders. If such shareholder approval is not obtained within
twelve (12) months after the date of the Board's adoption of the Plan, then all
options previously granted under the Plan shall terminate and cease to be
outstanding, and no further options shall be granted. Subject to such
limitation, the Plan Administrator may grant options 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 was amended and restated by the Board on August 27, 1996
in order to increase the maximum number of shares of Common Stock authorized for
issuance over the term of the Plan by an additional 561,594 shares from
2,448,400 to 3,009,994 shares. The Plan was amended and restated by the Board
again on September 25, 1996 in order to further increase the maximum number of
shares of Common Stock authorized for issuance over the term of the Plan by an
additional 109,640 shares from 3,009,994 to 3,119,634 shares. Both of these 1996
share increases were subsequently approved by the shareholders. The Board again
amended and restated the Plan on October 27, 1997 to increase the maximum number
of shares of Common Stock authorized for issuance over the term of the Plan by
an additional 600,000 shares from 3,119,634 to 3,719,634 shares. This 600,000
share increase was approved by the shareholders on December 12, 1997.
C. The Plan shall terminate upon the earliest of (i) the expiration
--------
of the ten (10)-year period measured from the Plan Effective Date, (ii) the date
on which all shares available for issuance under the Plan shall have been issued
or (iii) the termination of all outstanding options in connection with a
Corporate Transaction. Upon any such Plan termination, all options and unvested
stock issuances outstanding under the Plan shall continue to have full force and
effect in accordance with the provisions of the documents evidencing those
options or issuances.
IV. 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, without the consent of the Optionees, adversely affect their
rights and obligations under their outstanding options. In addition, the Board
shall not, without the approval of the Corporation's shareholders, (i) increase
the maximum number of shares issuable under the Plan, except for permissible
adjustments in the event of certain changes in the Corporation's capitalization
or, (ii) materially modify the eligibility requirements for Plan participation.
B. Options may be granted under the Plan to purchase shares of Common
Stock in excess of the number of shares then available for issuance under the
Plan, provided any such options actually granted may not be exercised until
there is obtained shareholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such shareholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.
10
<PAGE>
V. 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.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option hereunder
and the issuance of any shares of Common Stock upon the exercise of any option
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 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 the Optionee, which rights are
hereby expressly reserved by each, to terminate the Optionee'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.
11
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
-----
B. Code shall mean the Internal Revenue Code of 1986, as amended.
----
C. Committee shall mean a committee of two (2) or more Board members
---------
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following
---------------------
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than filly 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 Neuron Data, Inc., a California
-----------
corporation.
G. Disability shall mean the inability of an individual to engage in
----------
any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan Administrator
on the basis of such medical evidence as the Plan Administrator deems warranted
under the circumstances.
H. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
12
<PAGE>
J. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. 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.
K. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
L. Involuntary Termination shall mean the termination of the
-----------------------
Optionee's Service by reason of:
(i) the Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) the Optionee's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in the
Optionee's level of compensation (including base salary, fringe
benefits and participation in corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of the 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 the Optionee's consent.
M. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential
13
<PAGE>
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 or other
person in the Service of the Corporation (or any Parent or Subsidiary).
N. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
O. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
P. Optionee shall mean any person to whom an option is granted under
--------
the Plan.
Q. Parent shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. Plan shall mean the Corporation's 1996 Stock Option Plan, as set
----
forth in this document.
S. Plan Administrator shall mean either the Board or the Committee
------------------
acting in its administrative capacity under the Plan.
T. Plan Effective Date shall mean the date the Plan is adopted by the
-------------------
Board.
U. Service shall mean the provision of services to the Corporation
-------
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant, except to the extent
otherwise specifically provided in the documents evidencing the option grant.
V. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
W. 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.
X. 10% Shareholder shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
14
<PAGE>
EXHIBIT 10.3
BLAZE SOFTWARE, INC.
2000 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 2000 Stock Option Plan
--------------------
are:
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Blaze Software, Inc., a California corporation.
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<PAGE>
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
-2-
<PAGE>
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 2000 Stock Option Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
-3-
<PAGE>
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is (a) 500,000 Shares, plus (b) any Shares which have been
reserved but unissued under the Company's 1996 Stock Option Plan (the "1996
Plan") as of the date of stockholder approval of this Plan, and (c) any Shares
returned to the 1996 Plan after the date of stockholder approval of this Plan as
a result of the termination of options under the 1996 Plan, plus (d) an annual
increase to be added on each anniversary date of the adoption of the Plan equal
to the lesser of (i) 100,000 Shares, (ii) 4% of the outstanding Shares on such
date, or (iii) a lesser amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
-4-
<PAGE>
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
-5-
<PAGE>
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 1,000,000 Shares.
-6-
<PAGE>
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended
-7-
<PAGE>
to qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code, the per Share exercise price shall be no less than 100% of
the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such
-8-
<PAGE>
conditions as determined by the Administrator and set forth in the Option
Agreement. Unless the Administrator provides otherwise, vesting of Options
granted hereunder shall be tolled during any unpaid leave of absence. An Option
may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
-9-
<PAGE>
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
-10-
<PAGE>
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an
-11-
<PAGE>
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for period
of fifteen (15) days from the date of such notice, and the Option or Stock
Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
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<PAGE>
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-13-
<PAGE>
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this 16th day of July, 1998
by, and between Neuron Data Inc., a California corporation (the "Corporation),
and ("Indemnitee") and is to be effective as of the time Indemnitee
first provided service to the Corporation as an officer, director, employee or
agent of the Corporation or the earliest time permissible under the California
General Corporation Law, as amended (the "Code").
RECITALS:
A. Indemnitee, an agent, officer and/or director of the Corporation,
performs a valuable service in such capacity for the Corporation; and
B. The Amended and Restated Articles of Incorporation and Bylaws of
the Corporation authorize and permit contracts between the Corporation and its
agents, officers and directors with respect to indemnification of such agents,
officers and directors; and
C. In accordance with the authorization as provided by Code, the
Corporation may purchase and maintain a policy or policies of Directors and
Officers Liability Insurance (D & O Insurance"), coveting certain liabilities
which may be incurred by its directors and officers in their performance as
directors or officers of the Corporation; and
D. As a result of developments affecting the terms, scope and
availability of D & O Insurance, there exists general uncertainty as to the
extent of protection afforded members of the Board of Directors and officers by
such D & O Insurance and by statutory and Bylaw indemnification provisions; and
E. In order to induce Indemnitee to continue to serve as a director
and/or an officer of the Corporation, the Corporation has determined and agreed
to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer and/or director after the date hereof, the parties hereto agree as
follows:
1. Indemnity of Indemnitee. The Corporation shall hold harmless and
indemnify Indemnitee to the fullest extent authorized by the provisions of the
Code, as it may be amended from time to time.
2. Additional Indemnity. Subject only to the limitations set forth in
Section 3 hereof and specific limitations on indemnity in the Code, the
Corporation hereby further agrees to hold harmless and indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of the Corporation) to
which Indemnitee is, was or at any time becomes a party, or is threatened to
1
<PAGE>
be made a party, by reason of the fact that Indemnitee is, was or at any time
becomes a director, officer, employee or agent of the Corporation, or is or was
serving or at any time serves 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; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Corporation under the Amended and Restated Articles of
Incorporation and Bylaws of the Corporation and the Code.
3. Limitations on Additional Indemnity.
(a) No indemnity pursuant to Section 2 hereof shall be paid by
the Corporation for any of the following:
(i) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which the Indemnitee
is indemnified pursuant to Section 1 hereof or pursuant to any D & O Insurance
purchased and maintained by the Corporation;
(ii) in respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iii) on account of any suit in which judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Corporation pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(iv) on account of Indemnitee's acts or omissions that
involve intentional misconduct or a knowing and culpable violation of law;
(v) on account of any action, claim or proceeding
(other than a proceeding referred to in Section 8(b) hereof) initiated by the
Indemnitee unless such action, claim or proceeding was authorized in the
specific case by action of the Board of Directors;
(vi) on account of Indemnitee's conduct which is the
subject of an action, suit or proceeding described in Section 7(c)(ii) hereof;
or
(vii) if a final decision by a Court having jurisdiction
in the matter shall determine that such indemnification is not lawful (and, in
this respect, both the Corporation and Indemnitee have been advised that the
Securities and Exchange Commission believes that indemnification for liabilities
arising under the federal securities laws is against public policy and is,
therefore, unenforceable and that claims for indemnification should be submitted
to appropriate courts for adjudication).
-2-
<PAGE>
(b) In addition to those limitations set forth above in
paragraph (a) of this Section 3, no indemnity pursuant to Section 2 hereof in an
action by or in the right of the Corporation shall be paid by the Corporation
for any of the following:
(i) on account of acts or omissions that Indemnitee
believes to be contrary to the best interests of the Corporation or its
shareholders or that involve the absence in good faith on the part of
Indemnitee;
(ii) with respect to any transaction from which
Indemnitee derived an improper personal benefit;
(iii) on account of acts or omissions that show a
reckless disregard for Indemnitee's duty to the Corporation or its shareholders
in circumstances in which Indemnitee was aware, or should have been aware, in
the ordinary course of performing a director's or an officer's duties, of a risk
of serious injury to the Corporation or its shareholders;
(iv) on account of acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of Indemnitee's
duty to the Corporation or its shareholders;
(v) to the extent prohibited by the Code, including but
not limited to Section 310 of the California Corporations Code, "Contracts In
Which Director Has Material Financial Interest" and Section 316 of the
California Corporations Code, "Corporate Actions Subjecting Directors To Joint
And Several Liability" (for prohibited distributions, loans and guarantees);
(vi) in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Corporation in the
performance of Indemnitee's duty to the Corporation and its shareholders, unless
and only to the extent that the court in which such proceeding is or was pending
shall determine upon application that, in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and
then only to the extent that the court shall determine;
(vii) of amounts paid in settling or otherwise disposing
of a pending action without court approval; or
(viii) of expenses incurred in defending a pending action
which is settled or otherwise disposed of without court approval.
4. Contribution. If the indemnification provided in Sections 1 and 2
hereof is unavailable by reason of a Court decision described in subsection
3(a)(vii) hereof based on grounds other than any of those set forth in
subsections 3(a)(ii) through (vi)hereof or in subsections 3(b)(i) through (v)
hereof, then in respect of any threatened, pending or completed action, suit or
proceeding in which the Corporation is jointly liable with Indemnitee (or would
be if joined in such action, suit or proceeding), the Corporation shall
contribute to the amount of expenses (including attorneys' fees"), judgments,
fines and amounts paid in settlement actually and reasonably incurred and paid
or payable by Indemnitee in such proportion as is appropriate to reflect (i) the
relative benefits received by the Corporation on the one hand and Indemnitee on
-3-
<PAGE>
the other hand from the transaction from which such action, suit or proceeding
arose, and (ii) the relative fault of the Corporation on the one hand and of
Indemnitee on the other in connection with the events which resulted in such
expenses, judgments, fines or settlement mounts, as well as any other relevant
equitable considerations. The relative fault of the Corporation on the one hand
and of Indemnitee on the other shall be determined by reference to, among other
things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, frees or settlement amounts. The Corporation agrees that it would not
be just and equitable if contribution pursuant to this Section 4 were determined
by pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
5. Continuation of Obligations. All agreements and obligations of the
Corporation contained herein shall be deemed binding upon the Corporation from
the time Indemnitee first provided service to the Corporation as a director,
officer, employee or agent of the Corporation, shall continue during the period
Indemnitee is 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) and shall continue thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative,
by reason of the fact that Indemnitee was a director or an officer of the
Corporation or serving in any other capacity referred to herein.
6. Notification and Defense of Claim. Not later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any action, suit or
proceeding, Indemnitee will, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Corporation of the commencement thereof:
(a) The Corporation will be entitled to participate therein at
its own expense;
(b) Except as otherwise provided below, to the extent that it
may wish, the Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After notice from the Corporation to Indemnitee of
its election so as to assume the defense thereof, the Corporation will not be
liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof other
than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ its own, separate counsel in such
action, suit or proceeding, but the fees and expenses of such counsel incurred
after notice from the Corporation of its assumption of the defense thereof shall
be at the expense of Indemnitee unless: (i) the employment of counsel by
Indemnitee has been authorized by the Corporation, (ii) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Corporation and Indemnitee in the conduct of the defense of such action and
shall have notified the Corporation of the same or (iii) the Corporation shall
not in fact have employed counsel to assume the defense of such action, in
-4-
<PAGE>
each of which cases the fees and expenses of Indemnitee's separate counsel shall
be at the expense of the Corporation. The Corporation shall not be entitled to
assume the defense of any action, suit or proceeding brought by or on behalf of
the Corporation or as to which Indemnitee shall have made the conclusion
provided for in (ii) above; and
(c) The Corporation shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Corporation shall be permitted to
settle any action except that it shall not settle any action or claim in any
manner which would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Neither the Corporation nor Indemnitee will
unreasonably withhold its consent to any proposed settlement.
7. Advancement and Repayment of Expenses.
(a) In the event that Indemnitee employs his own counsel
pursuant to Section 6(b)(i) through (iii) above, the Corporation shall advance
to Indemnitee, prior to any final disposition of any threatened or pending
action, suit or proceeding, whether civil, criminal, administrative or
investigative, any and all reasonable expenses (including legal fees and
expenses) incurred in investigating or defending any such action, suit or
proceeding within ten (10) days after receiving copies of invoices presented to
Indemnitee for such expenses; and
(b) Indemnitee agrees that Indemnitee will reimburse the
Corporation for all reasonable expenses paid by the Corporation in defending any
civil or criminal action, suit or proceeding against Indemnitee in the event and
only to the extent it shall be ultimately determined by a final judicial
decision (from which there is no right of appeal) that Indemnitee is not
entitled, under applicable law, the Bylaws, this Agreement or otherwise, to be
indemnified by the Corporation for such expenses.
(c) Notwithstanding the foregoing, the Corporation shall not be
required to advance such expenses to Indemnitee if Indemnitee (i) commences any
action, suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors or (ii) is a party to an
action, suit or proceeding brought by the Corporation and approved by a majority
of the Board which alleges willful misappropriation of corporate assets by
Indemnitee, disclosure of confidential information in violation of Indemnitee's
fiduciary or contractual obligations to the Corporation, or any other willful
and deliberate breach in bad faith of Indemnitee's duty to the Corporation or
its shareholders.
8. Enforcement.
(a) The Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Corporation hereby in order to induce Indemnitee to continue as a director
and/or an officer of the Corporation, and acknowledges that Indemnitee is
relying upon this Agreement in continuing in such capacity.
(b) In the event Indemnitee is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all of
Indemnitee's reasonable fees and expenses in bringing and pursuing such action.
-5-
<PAGE>
9. Subrogation. In the event of payment under this agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
10. Non-Exclusivity of Rights. The rights conferred on Indemnitee by
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of the Corporation's
Articles of Incorporation or Bylaws, agreement, vote of shareholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.
11. Survival of Rights. The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Corporation and shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
12. Separability. In the event that any of the provisions of this
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be illegal, invalid or unenforceable, such provisions shall be limited or
eliminated to the minimum extent necessary so that this Agreement shall
otherwise remain in full force and effect.
13. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California.
14. Binding Effect. This Agreement shall be binding upon Indemnitee
and upon the Corporation, its successors and assigns, and shall inure to the
benefit of Indemnitee, his heirs, personal representatives and assigns and to
the benefit of the Corporation, its successors and assigns.
15. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement on and as of the day and year first above written.
NEURON DATA,
By:
---------------------------------------
Name:
Title:
INDEMNITEE
By:
---------------------------------------
-7-
<PAGE>
[NEURON DATA INC. LETTERHEAD]
EXHIBIT 10.7
July 15, 1998
Mr. Thomas F. Kelly
57 Stevenson Lane
Atherton, CA 94027
Dear Tom:
Neuron Data, Inc. (the "Company") is very pleased to extend this offer of
employment to you to serve as the Company's President and Chief Executive
Officer. We believe that you will be a tremendous addition to the Neuron Data
team and we are all very excited about the prospect of your joining us. The
terms and conditions of your employment, should you decide to accept our offer,
are as follows:
1. Position. You will serve in a full-time capacity as President and Chief
--------
Executive Officer. You will also be elected to the Board of Directors of the
Company.
2. Compensation. Your annual rate of base salary will be $250,000, payable
------------
in accordance with the Company's standard payroll practices for salaried
employees. This salary will be subject to adjustment at the discretion of the
Board in each subsequent year as part of the Board's review of your
compensation. You will have the opportunity to earn an incentive bonus of up to
30,000 shares of options on the company's common stock (fully vested upon grant)
for the fiscal year 1999 based upon personal and corporate goals set by the
Company's Board of Directors. For furore fiscal years, you will have the
opportunity to earn an incentive bonus based on the Company's bonus plan as
established by the Company's Board of Directors. For each of fiscal quarters
ending September 1998, December 1998 and March 1999, so long as you are in the
employ of the company, will be paid a guaranteed payment of $15,000.
3. Equity Compensation. Following the commencement of your employment, you
-------------------
will be granted under the Company's employee stock option plan an "incentive
stock option" to purchase up to 600,000 shares of the Company's common stock at
an exercise price per share equal to the fair market value of the Company's
common stock on the date the option is granted. This option will vest as to 25%
of the shares subject to the option on the first anniversary of the grant and
the remaining shares will vest monthly thereafter through the fourth anniversary
of the grant In the event of a change of control of the company, vesting will
accelerate to the extent of 50% of the unvested portion of the option on the
closing date of the change of control, subject to a minimum aggregate vesting of
two-thirds of the option.
<PAGE>
You will also be granted an additional option to purchase up to
100,000 shares of the Company's common stock at an exercise price per share
equal to the fair market value of the Company's common stock on the date the
option is granted. All of the shares subject to the option will vest on the
seventh anniversary of the grant; however, such vesting will accelerate in full
in the event of either (i) a public valuation of the Company's common stock
equal to or greater than $6 per share for a period of 30 consecutive trading
days or (ii) an acquisition of substantially all of the assets or securities of
the Company for cash or public securities at a fully diluted value per share of
common stock equivalents equal to or greater than $6 without regard to any
liquidation preference.
You will also be granted an additional option to purchase up to
100,000 shares of the Company's common stock at an exercise price per share
equal to the fair market value of the Company's common stock on the date the
option is granted. All of the shares subject to the option will vest on the
seventh anniversary of the grant; however, such vesting will accelerate in full
in the event of either (i) a public valuation of the Company's common stock
equal to or greater than $12 per share for a period of 30 consecutive trading
days or (ii) an acquisition of substantially all of the assets or securities of
the Company for cash or public securities at a fully diluted value per share of
common stock equivalents equal to or greater than $12 without regard to any
liquidation preference.
4. Fringe Benefits. The Company will also provide you with the benefits of
---------------
each group life insurance, group medical plan and any other employee benefit
plan which the Company may now or hereafter maintain for its officers and for
which you individually qualify.
5. Vacation. You will accrue 20 days of vacation for each twelve-month
--------
period of continued employment with the Company. You agree, however, to use all
accrued vacation during the twelve-month period in which it is earned.
6. Proprietary Information and Inventions Agreement. You will be required,
------------------------------------------------
as a condition to your employment with the Company, to enter into the Company's
standard Proprietary Information and Inventions Agreement.
7. Period of Employment. Your employment with the Company will be "at
--------------------
will", meaning that either you or the Company will be entitled to terminate your
employment with the Company, with or without cause, at any time.
8. Severance. Should your employment with the Company be terminated
---------
involuntarily for other than cause including involuntary termination for other
than cause subsequent to a change of control, the Company will pay you severance
in nine monthly installments, the total amount equal to (i) nine months salary
payable at the rate of the annual base salary in effect for you at the time of
such termination plus (ii) the amount of the bonus pro-rated for such nine month
period at the target rate in effect on the effective date of such termination,
subject to agreements of non-compete and hiring restrictions. In addition, the
Company will provide benefits continuation if needed for the nine month period.
Such payments will be made monthly for a period of nine months or until you take
a position with another company, whichever is sooner.
<PAGE>
We hope that you find the foregoing terms acceptable, and we look forward
to your response to this letter by July 15, 1998. You may indicate your
acceptance of employment by signing and dating the enclosed duplicate original
of this letter and returning it to me by the above date. We believe that in your
role as the Company's President and CEO, you will make a significant
contribution to the Company's future success, and we look forward to the start
of your new career with the Company.
Very truly yours,
NEURON DATA, INC.
/s/ William J. Harding
By: William J. Harding
Title: Chairman
AGREED TO AND ACCEPTED BY:
/s/ Thomas F. Kelly
- -------------------------
Date: July 15, 1998
-------------------
<PAGE>
[NEURON DATA INC. LETTERHEAD]
EXHIBIT 10.8
June 9, 1998
Mr. Gary Shroyer
19981 Lanark Lane
Saratoga, CA 95070
Dear Gary:
Neuron Data, Inc. (the "Company") is very pleased to extend this offer of
employment to you to serve as the Company's Senior Vice President and Chief
Financial Officer, with a start date of July 20, 1998. We believe that you will
be a tremendous addition to the Neuron Data team and we are all very excited
about the prospect of you joining us. The terms and conditions of your
employment, should you decide to accept our offer, are as follows:
. Compensation: Your monthly rate of base salary will be $14,166.66 (annualized
------------
at $170,000), payable in accordance with the Company's standard payroll
practice for salaried employees.
. Bonus: You will be eligible to receive an annual incentive bonus. For FY'99
-----
(ending March 31, 1999) this will be up to 20,000 fully vested shares in
accordance with the Company's Management Bonus Program.
. Stock Options: Following the commencement of your employment, we will
-------------
recommend to the Board of Directors that you receive an "incentive stock
option" of 150,000 shares of the Company's common stock at an exercise price
per share equal to the fair market value of the Company's common stock on the
date the option is granted, and in accordance with the Company's Stock Option
Plan and Stock Option Agreement. In the event of a change of control of the
company, vesting will accelerate to the extent of 50% of the unvested portion
of the option on the closing date of the change of control, subject to a
minimum aggregate vesting of two-thirds of the option.
You will also be granted an additional option to purchase up to 50,000 shares
of the Company's common stock at an exercise price per share equal to the
fair market value of the Company's common stock on the date the option is
granted. All of the shares subject to this option will vest on the seventh
anniversary of the grant; however, such vesting will accelerate in full in
the event of either (i) a public valuation of the Company's common stock
equal to or greater than $6 per share for a period of 30 consecutive trading
days or (ii) an acquisition of substantially all of the assets or securities
of the Company for cash or public securities at a fully diluted value per
share of common stock equivalents equal to or greater than $6 without regard
to any liquidation preference.
1
<PAGE>
Mr. Gary Shroyer
June 9, 1998
Page Two
. Benefits: During your employment, Neuron Data will provide you and your
--------
eligible dependents with health benefits in accordance with the Company's
health plan (summary attached). You will be entitled to time off in the
amount of ten vacation days, increasing after three years per the Company
policy, three personal days, and designated national holidays.
. Severance. Should your employment with the Company be terminated
---------
involuntarily for other than cause, the Company will pay you severance in six
monthly installments, the total amount equal to six months salary. Additional
terms of this severance agreement will be identical to CEO's and provided to
you under separate cover.
. Proprietary Information and Inventions Agreement: You will be required, as a
------------------------------------------------
condition to your employment with the Company, to enter into the Company's
standard Employee Proprietary Information Agreement. Please have this
completed by your first day of employment.
. Period of Employment: All employment with the Company is "at will", meaning
--------------------
that either you or the Company will be entitled to terminate your employment
with the Company, with or without cause, at any time. You understand and
agree that only the Company President can enter into an agreement on any
other terms and he or she can only do so in writing signed by him or her and
you.
. Arbitration: Except with respect to matters for which injunctive relief is
-----------
sought pending arbitration under California law, all questions, disputes,
and/or controversies that may arise out of or in connection with this
agreement, arbitration shall be conducted in Mountain View, California, in
accordance with the roles of the American Arbitration Association. Each party
hereto shall select one arbitrator and the two arbitrators shall jointly
select a third arbitrator. Each party agrees that the arbitrators may not
award punitive damages for or against either party. The decision of a
majority of the arbitrators shall be final and binding upon both parties, who
hereby agree to comply therewith.
. In addition to the matters set forth above, the Company has personnel
policies relating to the other terms and conditions of employment at the
Company, and that though the Company may change these policies from time to
time at its sole discretion, the voluntary "at will" nature of your
employment will not be changed.
2
<PAGE>
Mr. Gary Shroyer
June 9, 1998
Page Three
We hope that you fund the foregoing terms acceptable, and we look forward to
your response to this offer by Friday, June 12. You may indicate your acceptance
of employment by signing and dating the enclosed duplicate original of this
letter and returning it to me by the above date. We believe that in your role as
the Company's Senior Vice President and Chief Financial Officer you will make a
significant contribution to the Company's future success, and we look forward to
welcoming you to the Neuron Data Team.
Very truly yours
/s/ Michael A. Braun
Michael A. Braun
President & CEO
AGREED TO AND ACCEPTED BY:
/s/ Gary Shroyer 7/20/98
- ------------------------- ------------
Name Date
3
<PAGE>
Addendum to Offer Letter
Gary Shroyer's offer letter dated June 9, 1998, references Mike Braun's
severance agreement. The following paragraph is taken from Mr. Braun's offer
letter and is being attached as this addendum to Mr. Shroyer's offer letter.
Severance: Should your employment with the Company be terminated involuntarily
for other than cause, the Company will pay you severance in nine monthly
installments, the total mount equal to (i) nine months salary payable at the
rate of the annual base salary in effect for you at the time of such termination
plus (ii) the amount of the bonus prorated for such nine month period at the
target rate in effect on the effective date of such termination, subject to
agreements of non-complete and hiring restrictions. In addition, the Company
will provide benefits continuation if needed for the nine month period. Such
payments will be made monthly for a period of nine months of until you take a
position with another company, whichever is sooner.
/s/ Robyn Brand
4/1/99
4
<PAGE>
Elements
From Neuron Data
Amendment to the Terms & Conditions within
Offer of Employment by Neuron Data to Gary Shroyer
Vacation: Gary Shroyer is entitled to fifteen (15) days of vacation per year
- --------
(change from ten (10) days per year).
AGREED TO AND ACCEPTED BY:
/s/ Gary Shroyer 7-20-98
- ---------------- -------
Gary Shroyer Date
/s/ Michael A. Braun 7-20-98
- -------------------- -------
Michael A. Braun Date
President & CEO
5
<PAGE>
EXHIBIT 10.9
[ELEMENTS
FROM NEURON DATA LOGO]
February 13, 1998
Mr. Eric L. Kintzer
112 Yale Road
Menlo Park, CA 94025
Dear Eric:
Neuron Data, Inc. (the "Company") is very pleased to extend this offer of
employment to you to serve as the Company's Vice President & CTO. We believe
that you will be a tremendous addition to the Neuron Data team and we are all
very excited about the prospect of you joining us. The terms and conditions of
your employment, should you decide to accept our offer, are as follows:
. Compensation: Your monthly rate of base salary will be $12,500.00 (an annual
------------
rate of $150,000) payable in accordance with the Company's standard payroll
practice for salaried employees.
. Bonus: You will be eligible to receive an annual incentive bonus targeted at
-----
twenty-five percent (25%) of your base salary under the Company's Management
Bonus Program, which is attached. Under the plan, your Individual Performance
Targets will be set upon commencement of your employment. See Amendment.
. Stock Options: Following the commencement of your employment, we will
-------------
recommend to the Board of Directors that you receive an "incentive stock
option" of 150,000 shares of the Company's common stock at an exercise price
per share equal to the fair market value of the Company's common stock on the
date the option is granted, and in accordance with the Company's Stock Option
Plan and Stock Option Agreement. This option will vest as to 25% of the
shares subject to the option on the first anniversary of the grant and the
remaining shares will vest monthly thereafter through the fourth anniversary
of the grant. In the event of a change of control of the Company, vesting
will accelerate to the extent of 50% of the unvested portion of the option on
the closing date of the change of control, subject to a minimum aggregate
vesting of two-thirds of the option.
. Benefits: During your employment, Neuron Data will provide you and your
--------
eligible dependents with health benefits in accordance with the Company's
health plan (summary attached). You will be entitled to time off in the
amount of ten vacation days, increasing after three years per the Company
Policy, three personal days, and designated national holidays. See Amendment.
. Proprietary Information and Inventions Agreement: You will be required, as a
------------------------------------------------
condition to your employment with the Company, to enter into the Company's
standard Employee Proprietary Information Agreement (enclosed). Please have
this completed by your first day of employment.
<PAGE>
Mr. Eric L Kintzer
February 13, 1998
Page Two
. Start Date: Your employment with Neuron Data will begin March 25, 1998.
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. Period of Employment: All employment with the Company is "at will", meaning
--------------------
that either you or the Company will be entitled to terminate your employment
with the Company, with or without cause, at any time. You understand and
agree that only the Company President can enter into an agreement on any
other terms and he or she can only do so in writing signed by him or her and
you.
. Arbitration: Except with respect to matters for which injunctive relief is
-----------
sought pending arbitration under California law, all questions, disputes,
and/or controversies that may arise out of or in connection with this
agreement, arbitration shall be conducted in Mountain View, California, in
accordance with the rules of the American Arbitration Association. Each party
hereto shall select one arbitrator and the two arbitrators shall jointly
select a third arbitrator. Each party agrees that the arbitrators may not
award punitive damages for or against either party. The decision of a
majority of the arbitrators shall be final and binding upon both parties, who
hereby agree to comply therewith.
. In addition to the matters set forth above, the Company has personnel
policies relating to the other terms and conditions of employment at the
Company, and that though the Company may change these policies from time to
time at its sole discretion, the voluntary "at will" nature of your
employment will not be changed.
Eric, I hope that you find the foregoing terms acceptable, and look forward to
your response to this offer by Friday, February 20, 1998. You may indicate your
acceptance of employment by signing and dating the enclosed duplicate original
of this letter and returning it to me by the above date. We believe that in your
role as the Company's Vice President & CTO you will make a significant
contribution to the Company's future success, and we look forward to welcoming
you to the Neuron Data Team.
Very truly yours,
/s/ Michael A. Braun
Michael A. Braun
President & CEO
AGREED TO AND ACCEPTED BY:
/s/ Eric L. Kintzer 22 February 1998
- ---------------------------- -----------------------------
Eric L. Kintzer Date
<PAGE>
Amendment to the "Terms and Conditions" within the "Offer of Employment by
Neuron Data, Inc. to Eric Kintzer".
Bonus: A portion of the first year's bonus is advanced to Eric Kintzer in the
- -----
amount of $1,500 per month. The bonus advanced shall be deducted from any bonus
earned and disbursed in FY1999 through the normal terms of the Neuron Data
Management Bonus Program, dated April 1998. The last advance amount
($1,500/month) is paid in the March 1999 payroll or on termination of
employment, whichever is earlier.
Benefits Summary: Personal Days: Eric Kintzer is entitled to 5 personal days per
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year. (Change from 3 days per year)
Benefits Summary: Life Insurance/AD&D: Eric Kintzer is entitled to twice base
- -------------------------------------
salary (2X) life insurance. (Change from $100,000). Eric Kintzer is entitled to
Accidental Death and Dismemberment Insurance in an amount equal to the life
insurance benefit.
AGREED TO AND ACCEPTED BY:
/s/ Eric L. Kintzer 22 Feb 98
- ---------------------------- -----------------------------
Eric L. Kintzer Date
/s/ Michael A. Braun 22 Feb 98
- ---------------------------- -----------------------------
Michael A. Braun Date
President & CEO
<PAGE>
EXHIBIT 10.10
Coast
Loan and Security Agreement
Borrower: NEURON DATA, INC.
a California corporation
Address: 156 University Avenue
Palo Alto, California 94301
Date: March 11, 1994
THIS LOAN AND SECURITY AGREEMENT ("Loan Agreement"), dated the above date, is
entered into at Los Angeles, California, between COASTFED BUSINESS CREDIT
CORPORATION ("CoastFed"), a California corporation, with offices at 12121
Wilshire Boulevard, Suite 1111, Los Angeles, California 90025, and the borrower
named above ("Borrower"), whose chief executive office is located at the above
address ("Borrower's Address").
1. LOANS.
1.1 Loans, Collateral Agreements. Borrower has requested and may hereafter
request that CoastFed advance funds or otherwise extend credit to or for the
benefit of Borrower ("Loan(s)") in accordance with the terms and provisions of
this Loan Agreement and other written agreements ("Collateral Agreement(s)"),
including, but not limited to, any one or more of the following described
security agreements now or hereafter entered into between Borrower and CoastFed:
(a) Accounts Collateral Security Agreement; (b) Inventory Collateral Security
Agreement; (c) Equipment Collateral Security Agreement; and (d) any promissory
notes or guarantees. The amount and terms of payment of my Loans by CoastFed to
Borrower shall be determined in accordance with the terms and provisions of this
Loan Agreement and of any executed Collateral Agreements. Notwithstanding
anything herein or in any Collateral Agreement to the contrary, in no event
shall the Borrower permit the total balance of all Loans and all other
Obligations outstanding at any one time to exceed $2,000,000.00; and, if for any
reason they do, Borrower shall immediately pay the amount of such excess to
CoastFed in immediately available funds.
1.2 Interest. Unless specifically provided to the contrary in any Collateral
Agreement, all Loans shall bear interest at a rate equal to the "Prime Rate" (as
hereinafter defined), plus 3% per annum, calculated on the basis of a 360-day
year for the actual number of days elapsed. The interest rate applicable to all
Loans shall be adjusted monthly as of the first day of each month, and the
interest to be charged for that month shall be based on the highest "Prime Rate"
in effect during said month, but in no event shall the rate of interest charged
on any Loans in any month be less than 8 % per annum. "Prime Rate" is defined as
the actual "Reference Rate" or the substitute therefor of the Bank of America NT
& SA ("B of A") whether or not that rate is the lowest interest rate charged by
B of A. If the Prime Rate, as defined, is unavailable, "Prime Rate" shall mean
the highest of the prime rates published in the Wall Street Journal on the first
business day of the month, as the base rate on corporate loans at large U.S.
money center commercial banks.
1.2 Fees. Borrower shall pay to CoastFed a loan origination fee in the amount
of $20,000.00 at the time of the initial funding hereunder, and an annual loan
fee of $-0- on each anniversary of the date hereof during the term of this Loan
Agreement. Said fees are in addition to all other sums payable to CoastFed, are
not refundable for any reason, and shall bear interest from the date due to the
date paid at the highest interest rate applicable to any of the Obligations.
2. DEFINITIONS OF OBLIGATIONS AND COLLATERAL; GRANT OF SECURITY INTEREST
2.1 Obligations. The term "Obligations" as used in this Loan Agreement, and
any and all Collateral Agreements, shall mean and include each and all of the
following: the obligation to pay all Loans and all interest thereon when due and
to pay and perform when clue all other indebtedness, liabilities, obligations,
guarantees, covenants, agreements, warranties and representations of Borrower to
CoastFed, whether heretofore, now or hereafter existing, owing or arising;
whether primary,
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secondary, direct, acquired from a third party, absolute, contingent, fixed,
secured or unsecured; joint or several. written or oral, monetary, or non-
monetary; and whether created pursuant to, or caused by Borrower's breach of
this Lease Agreement, a Collateral Agreement or any other present or future
agreement or instrument, or created by operation of law or otherwise.
2.2 Collateral. As security and collateral for all Obligations, Borrower
hereby grants to CoastFed a continuing security interest in, and assigns to
CoastFed, all of Borrower's interest in the types of property described below,
whether now owned or hereafter acquired and wherever located, together with all
proceeds (including insurance proceeds), substitutions, accessions and products
thereof (collectively referred to as "Collateral"):
(a) Accounts. All accounts, contract rights (to the extent assignable without
breach thereof), chattel paper, and instruments, and all other obligations now
or hereafter owing to Borrower (hereinafter sometimes collectively referred to
as "Accounts"), including, but not limited to, those described in any Accounts
Collateral Security Agreement executed by Borrower in, and all right, title and
interest of Borrower in, and all of Borrower's rights and remedies with respect
to, all goods, the sale or other disposition of which gives rise to any Account,
including, without limitation, all returned, reclaimed and repossessed goods and
all rights of stoppage in transit, replevin, reclamation, and all rights as an
unpaid vendor; and
2.2(b) Inventory. All inventory, goods, merchandise, materials, raw
materials, work in process, finished goods, advertising, packaging and shipping
materials, supplies, and all other tangible personal property which is held for
sale or lease or furnished under contracts of service or consumed in Borrower's
business, including, without limitation, any and all of the foregoing which are
returned, repossessed, reclaimed or stopped in transit, and including, but not
limited to, those described in any Inventory Collateral Security Agreement
executed by Borrower, and all warehouse receipts and other documents or
instruments now or hereafter issued with respect to any of the foregoing; and
2.2(c) Equipment. All equipment, goods (other than inventory), machinery,
fixtures, trade fixtures, vehicles, furnishings, furniture, supplies, materials,
tools, machine tools, office equipment, appliances, apparatus, parts, dies,
jigs, and chattels, including, but not limited to, those described in any
Equipment Collateral Security Agreement executed by Borrower; and
2.2(d) Intangibles. All deposit accounts and general intangibles (including,
but not limited to, tax refunds, goodwill, name, drawings, trademarks,
blueprints, trade names, trade secrets, customer lists, patents, patent
applications, copyrights, security deposits, loan commitment fees, royalties,
licenses, processes, and all other rights, privileges and franchises); and
All personal property of Borrower which comes into CoastFed's possession,
custody or control; and all tangible and intangible personal property in which
CoastFed now has or hereafter acquires a security interest to secure any or
all of the Obligations; and all substitutions, additions and accessions to any
or all of the foregoing items of Collateral; and all guaranties of and
security for any and all of the foregoing; and all books and records relating
to any and all of the foregoing and the equipment containing said books and
records. 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 CoastFed and Borrower 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.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR
To induce CoastFed to enter into this Loan Agreement and now and hereafter to
enter into any Collateral Agreement, Borrower represents and warrants that each
of the following representations and warranties now is and hereafter will
continue to be true and correct in all respects and Borrower has and will timely
perform each of the following covenants:
3.1 Corporate Existence and Power. Borrower, if a corporation, is and will
continue to be, duly authorized, 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 the
nature of the business transacted by it, or the ownership or leasing of its
property, makes such Qualification or licensing necessary, and Borrower has and
will continue to have all requisite power and authority to carry on its business
as it is flow, or may hereafter be, conducted.
3.2 Authority. Borrower 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 Loan Agreement, any Collateral Agreement and all
other instruments and transactions contemplated herein. The execution, delivery
and performance by Borrower of this Loan Agreement, any Collateral Agreement and
all other instruments and transactions contemplated herein have been validly
authorized, are enforceable against the Borrower in accordance with their terms,
and do not violate any law or any provision of, and are not grounds for
acceleration under, any agreement, indenture, note or instrument which is
binding upon Borrower, or any of its property,
2
<PAGE>
including/, /without limitation, Borrower's Articles of Incorporation, By-Laws
and any Shareholder Agreements.
3.3 Name; Trade Names and Styles. Borrower has set forth above its correct
name. Listed on the Schedule hereto are all prior names of Borrower and each
fictitious name, trade name and trade style by which Borrower has been, or is
now, known. Borrower shall provide CoastFed with fifteen (15) days' advance
written notice prior to doing business under any other name, fictitious name,
trade name or trade style. Borrower has complied, and will hereafter comply,
with all laws relating to the conduct of business under, the ownership of
property in, and the renewal or continuation of the right to use, a corporate,
fictitious or trade name or trade style.
3.4 Place of Business; Location of Collateral. Borrower's sole place of
business; or, if Borrower has more than one place of business, Borrower's chief
executive office; or, if Borrower is an individual and does not have a separate
place of business, Borrower's residence is, and will continue to be, located at
Borrower's Address and all of Borrower's books and records including, but not
limited to, the books and records relating to Borrower's Accounts, are and will
be maintained at Borrower's Address unless and until CoastFed shall otherwise
consent in writing. In addition to Borrower's Address, Borrower has places of
business and Collateral is located only at the locations shown on the Schedule
hereto. Borrower will provide CoastFed with at least five (5) days advance
written notice if Borrower moves any of the Collateral (other than (i) in
connection with sales or other dispositions of inventory and other products,
transactions with subsidiaries, and the license, sublicense and grant of
distribution and similar rights, in the ordinary course of business, (ii)
disposal in the ordinary course of business of items of Collateral which have
become worn out or obsolete or which are promptly being replaced, (iii) disposal
of Collateral outside the ordinary course of business not exceeding in the
aggregate $50,000.00 in any fiscal year, and (iv) movement of Collateral of the
type described in Section 2.2(c) above ("Equipment") within any of the states
specified in the Schedule or within any other jurisdiction notified to CoastFed
hereunder in which CoastFed has taken all necessary action in order to protect
and perfect its security interest therein, and (v) any and all mobile goods
which are of a type normally used in more than one jurisdiction), or obtains any
additional sites for the conduct of Borrower's business or the location of any
Collateral.
3.5 Title to Collateral; Liens. Borrower is now, and will at all times
hereafter be, the lawful and sole owner of all the Collateral. With the
exception of the security interest granted CoastFed, the Collateral now is and
will remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims ("Liens"), other than Permitted Liens. As used
herein, "Permitted Liens" means (i) any Liens existing as of the date hereof and
disclosed in the Schedule; (ii) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided the same does not have priority over
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any of CoastFed's security interests and do not interfere With Borrower's rights
in the Collateral and its use and possession thereof; (iii) Liens of
materialmen, mechanics, warehousemen, carriers, or employees or other like Liens
arising in the ordinary course of business and securing obligations either not
delinquent or being contested in good faith by appropriate proceedings; (iv) 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 thirty (30) days of
the entry thereof; (v) easements, rights of way, servitudes or zoning or
building restrictions and other minor encumbrances on real property and
irregularities in the title to such property which do not in the aggregate
materially impair the use or value of such property or risk the loss or
forfeiture of title thereto; (vi) Liens (A) upon or in any property acquired or
held by the Borrower or any of its subsidiaries to secure the purchase price of
such property or indebtedness incurred solely for the purpose of financing the
acquisition of such property, or (B) existing on such property at the time of
its acquisition, provided that the Liens referred to in (A) and (B) above are
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confined solely to the property so acquired and improvements thereon; (vii)
Liens on assets of corporations which become subsidiaries of the Borrower after
the date hereof, provided that such Liens existed at the time the respective
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corporations became subsidiaries of the Borrower and were not created in
anticipation thereof; (viii) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (i), (vi) and (vii) above, provided that any extension,
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renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase. Without limiting any of CoastFed's
other rights and remedies, if Borrower grants any third party a lien or
encumbrance on or security interest in any of the Collateral (other than a
Permitted Lien), CoastFed, in its sole discretion, shall have the right to treat
such action as a notice of termination by Borrower to CoastFed under Paragraph
8(d) hereof, as of any date subsequent to such grant selected by CoastFed, in
its sole discretion, and to charge Borrower the termination fee therein
provided. CoastFed now has, and will have, a perfected and enforceable first
priority security interest in all of the Collateral subject only to Permitted
Liens, and Borrower will at all times defend CoastFed and the Collateral against
all claims of others. None of the Collateral now is or will be affixed to any
real property, in such a manner, or with such intent, as to constitute a
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<PAGE>
fixture thereto, unless such Collateral is covered by a fixture filing duly
executed and delivered by the Borrower in favor of CoastFed. 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 except to the extent
provided under leases existing as of the date hereof and disclosed in the
Schedule hereto. Whenever any Collateral is located upon premises in which any
third party has an interest, including, but not limited to, the leased premises
disclosed in the Schedule referred to in the preceding sentence, (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise),
Borrower shall, whenever requested by CoastFed, use its best efforts to cause
such third party to execute and deliver to CoastFed, in form acceptable to
CoastFed, whatever waivers and subordinations that CoastFed specifies, so as to
ensure that CoastFed'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.
3.6 Maintenance of Collateral. Borrower has maintained and will maintain the
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Collateral and all of its assets in good working condition, at Borrower's
expense. Borrower will not use the Collateral or any of its other properties for
any unlawful purpose and will not secrete or abandon the Collateral. Borrower
will immediately advise CoastFed in writing of any material loss or significant
decline in value of the Collateral.
3.7 Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records comprising an
accounting system in accordance with generally accepted accounting principles.
Borrower has not and will not in the future enter into any agreement with any
accounting firm, service bureau or third party to prepare or store Borrower's
books and records at any location other than Borrower's Address, without first
obtaining CoastFed's written consent, which may be conditioned upon such
accounting firm, service bureau or other third party agreeing to give CoastFed
the same rights with respect to access to books and records and related rights
as CoastFed has under Paragraph 4.3 of this Loan Agreement.
3.8 Financial Condition and Statements. All financial statements now or
hereafter delivered to CoastFed have been, and will be, prepared in conformity
with generally accepted accounting principles and now and hereafter will
completely and accurately reflect the financial condition of Borrower, at the
times and for the periods therein stated. Since the last date covered by any
such statement, there has been no material adverse change in the financial
condition, operations or any other status of the Borrower. Borrower will deliver
to CoastFed a copy of all financial statements prepared with respect to Borrower
no later than five (5) days after the preparation or receipt thereof by
Borrower. Borrower will cause to be prepared, and will provide CoastFed (i)
within forty-five (45) days following the end of each fiscal quarter, quarterly
financial statements accompanied by a statement of the chief financial officer
or other senior finance officer of the Borrower stating that such financial
statements fairly present the financial condition of the Borrower and its
subsidiaries as at such date and the results of operations of the Borrower and
its subsidiaries for the period ended on such date and have been prepared in
accordance with generally accepted accounting principles consistently applied,
except for the absence of footnote disclosure and subject to changes resulting
from normal, year-end audit adjustments; and (ii) within one hundred twenty
(120) days following the end of Borrower's fiscal year, complete annual
financial statements, certified by independent certified public accountants
acceptable to CoastFed.
3.9 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state or local law. Borrower has timely paid, and will timely pay, all
foreign, federal, state and local taxes, assessments, deposits and contributions
now or hereafter owed by Borrower. Borrower may defer payment of any contested
taxes provided that Borrower (i) in good faith contests Borrower's obligation to
pay such taxes by appropriate proceedings promptly and diligently instituted and
conducted, (ii) notifies CoastFed 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 or other properties of Borrower. Borrower
shall at all times utilize the services of an outside payroll service providing
for the automatic deposit of all payroll taxes payable by Borrower. 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 material liability of Borrower, including, without limitation, any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency. When requested, Borrower will furnish CoastFed with
proof satisfactory to CoastFed of Borrower's making the payment or deposit of
all such taxes and contributions, such proof to be delivered within
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<PAGE>
five (5) days after the due date established by law for each such payment or
deposit. If Borrower fails or is unable to pay or deposit such taxes or
contributions, CoastFed may, but is not obligated to, pay the same and treat all
such advances as additional Obligations of Borrower. Such advances shall bear
interest at the highest interest rate applicable to any of the Obligations.
3.10 Compliance with Law. Borrower has complied, and will comply, in all
material respects with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or persona property, conduct and
licensing of Borrower's business and employment of Borrower's personnel.
3.11 Litigation. Except as set forth in the Schedule hereto there is no
claim, suit, litigation, proceeding or investigation pending or threatened by or
against or affecting Borrower in any court or before any regulatory commission,
board or other governmental agency (or any basis therefor known to Borrower)
which is reasonably likely to result, either separately or in the aggregate, in
any material adverse change in the business or condition of Borrower, or in any
impairment in the ability of Borrower to carry on its business in substantially
the same manner as it is now being conducted. Borrower will immediately inform
CoastFed in writing of any claim, proceeding, litigation or investigation
hereafter threatened or instituted by or against Borrower involving in excess of
$50,000.00.
3.12 Use of Proceeds. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to
purchased or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock." All proceeds of all Loans
shall be used solely for lawful business purposes.
3.13 Continuing Effect. All representations, warranties and covenants of
Borrower contained in this Loan Agreement and any Collateral Agreement and any
other agreement with CoastFed 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 Borrower acknowledges that CoastFed is
and will be expressly relying on such representations, warranties and covenants
in making Loans to Borrower.
4 ADDITIONAL DUTIES OF DEBTOR
4.1 Insurance. Borrower shall, at all times, at Borrower's expense, insure
all of the Collateral other than Accounts and carry such other business
insurance with insurers acceptable to CoastFed, covering such property and risks
as is customarily carried by companies engaged in similar businesses and owning
similar properties in the localities where the Borrower operates, and in such
form and amounts as CoastFed may reasonably require. All such insurance policies
shall name CoastFed an additional loss payee, shall provide that proceeds
payable thereunder be payable directly to CoastFed unless written authority to
the contrary is obtained, and shall also provide that no act or default of
Borrower or any other person shall affect the right of CoastFed to recover
thereunder and shall contain a lenders loss payee endorsement in form acceptable
to CoastFed. Upon receipt of the proceeds of any such insurance, CoastFed shall
apply such proceeds in reduction of the Obligations as CoastFed shall determine
in its sole and absolute discretion. If Borrower fails to provide or pay for any
such insurance, CoastFed may, but is not obligated to, procure the same at
Borrower's expense. Borrower agrees to deliver to CoastFed, promptly as
rendered, copies of all reports made to all insurance companies involving a
claim in excess of $50,000.00.
4.2 Reports. At its expense, Borrower shall report, in form satisfactory to
CoastFed, such information as CoastFed may from time to time reasonably specify
regarding Borrower or the Collateral; such reports shall be rendered with such
frequency as CoastFed may reasonably specify. All reports furnished CoastFed
shall be complete and accurate in all material respects.
4.3 Access to Collateral, Books and Records. At any time CoastFed, or its
agents, shall have immediate access to the Collateral and any other property of
Borrower, wherever located. CoastFed shall have the right to audit and copy
Borrower's books and records and accounts including accountants' reports
wherever located but excluding communications to or by Borrower's attorneys
(hereinafter collectively the "Records"). Borrower hereby irrevocably authorizes
and directs any of the officers, agents, accountants and attorneys having
possession or control of any. of the Records (including computer records) to
physically deliver or make same available to CoastFed upon CoastFed's request.
Borrower waives the benefit of any accountant-client privilege or other
evidentiary privilege precluding or limiting the disclosure, divulgence or
delivery of any of the Records. Upon the occurrence and continuation of an Event
of Default CoastFed shall have the right to possession of, or to move to the
premises of CoastFed or any agent of CoastFed, for so long as CoastFed may
desire, all or any part of the Records.
4.4 Prohibited Transactions. Borrower shall not without CoastFed's prior
written consent which shall be a matter of CoastFed's good faith business
judgment: merge, consolidate, dissolve, acquire any other corporation (provided
that Borrower may merge into another
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<PAGE>
corporation for purposes of effecting a reincorporation into another state after
CoastFed has indicated to Borrower that all steps necessary to protect the
validity and perfection of CoastFed's first-priority security interest in the
Collateral, subject to Permitted Liens have been taken); 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 Borrower or which are transmitted or turned over to
CoastFed on account of the Obligations, obligations pursuant to the Borrower's
bylaws or in indemnification agreements, to indemnify officers, directors and
employees of the Borrower, and guarantees of the obligations of the Borrower's
subsidiaries; pay or declare any dividends (other than stock dividends) upon
Borrower's stock; redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock (other than repurchases pursuant to employee
benefit plans not to exceed $150,000 per year); make any change in Borrower's
name, identity, corporate or capital structure without notifying CoastFed in
writing at least fifteen (15) days prior thereto; sell or transfer any
Collateral, except for the sale of inventory and other products, transactions
with subsidiaries, and the license, sublicense and grant of distribution and
similar rights, in the ordinary course of Borrower's business, sales or other
dispositions of assets in the ordinary course of business which have become worn
out or obsolete or which are promptly being replaced, and sales or dispositions
of assets outside the ordinary course of business not exceeding in the aggregate
$50,000.00 in any fiscal year; lend or distribute any of Borrower's property or
assets, or incur any indebtedness for borrowed money in excess of $50,000.00 in
any fiscal year (other than the indebtedness specified in Schedule 1), outside
of the ordinary course of Borrower's business, except for transactions in the
ordinary course of its business with subsidiaries.
4.5 Notification of Changes. Borrower will promptly notify CoastFed in
writing of any change of its executive officers, directors, any purchase of
assets or property with an aggregate value exceeding $50,000.00 in any fiscal
year out of the regular course of Borrower's business and any material adverse
change in the business or financial affairs of Borrower.
4.6 Charges. Borrower shall pay all charges assessed by CoastFed, in
accordance with CoastFed's schedule of charges in effect from time to time, and
such charges shall be part of the Obligations and shall be payable on demand.
4.7 Litigation Cooperation. Should any suit or proceeding be instituted by or
against CoastFed with respect to any Collateral or for the collection or
enforcement of any Account, or in any manner relating to Borrower, Borrower
shall, without expense to CoastFed, and wherever and whenever designated by
CoastFed, make available Borrower and its officers, employees and agents, and
Borrower's Records to the extent that CoastFed may deem reasonably necessary in
order to prosecute or defend any such suit or proceeding.
4.8 Remittance of Proceeds. All proceeds arising from the disposition of the
Collateral shall be delivered, in kind, by Borrower to CoastFed in the original
form in which received by Borrower not later than the following business day
after receipt by Borrower. Borrower agrees that it will not commingle proceeds
of Collateral with any of Borrower's other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for CoastFed. CoastFed may from time to time verify directly with the
respective account debtors the validity, amount and any other matters relating
to the Accounts by means of mail, telephone or otherwise, either in the name of
Borrower or CoastFed or such other name as CoastFed may choose.
4.9 Execute Additional Documentation. Borrower agrees, at its expense, on
demand by CoastFed, to execute all documents in form satisfactory to CoastFed,
as CoastFed, in its sole discretion, may deem reasonably necessary or useful in
order to perfect and maintain CoastFed's perfected first-priority or any other
security interest in the Collateral, and in order to fully consummate all of the
transactions contemplated under this Loan Agreement and under any Collateral
Agreement.
5. APPLICATION OF PAYMENTS.
All forms of payments delivered to CoastFed on account of the Obligations
constitute conditional payment only until such items are actually paid in cash
to CoastFed; solely for the purpose of computing interest earned by CoastFed,
credit therefor and for bank wire transfers shall be given as of the third
business day after receipt by CoastFed in order to allow for clearance,
bookkeeping and computer entries. All payments made by Borrower may be applied,
and in CoastFed's sole discretion reversed and re-applied, in whole or in part
to any of the Obligations, in such order and manner as CoastFed shall determine
in its sole discretion.
6. EVENTS OF DEFAULT AND REMEDIES
6.1 Events of Default. If any of the following events shall occur, such an
occurrence shall constitute an "Event of Default" and Borrower shall provide
CoastFed with immediate written notice thereof: (a) Any warranty,
representation, statement, report or certificate made or delivered to CoastFed
by Borrower or any of Borrower's officers, employees or agents now or hereafter
shall be incorrect, false, untrue or misleading in any material respect; or (b)
Borrower shall fail to repay when due part
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or all of any Loan or to pay any interest thereon when due; or (c) Borrower
shall fail to perform when due any term or condition contained in this Loan
Agreement or in any Collateral Agreement, or any other agreement between
CoastFed and Borrower and such failure shall continue for 30 days; or (d)
Borrower shall fail to pay or perform any other Obligation when due and such
failure shall continue for 30 days; or (e) Any loss, theft, or substantial
damage to, or destruction of, any material portion of or all of the Collateral
(unless within five (5) days after the occurrence of any such event, Borrower
furnishes CoastFed with evidence satisfactory to CoastFed that the amount of any
such loss, theft, damage to or destruction of the Collateral is fully insured
under policies designating CoastFed as an additional named insured); or (f) A
material impairment of the value of the Collateral or any material impairment in
the priority of CoastFed's security interest; or (g) Any event shall arise which
permits the acceleration of or actually results in the acceleration of the
maturity of the indebtedness of Borrower to others under any loan or other
agreement or undertaking for borrowed money; or (h) Any levy assessment
attachment, seizure, lien or encumbrance for any cause or reason whatsoever,
upon all or any part of the Collateral or any other asset of Borrower other than
a Permitted Lien (unless discharged by payment, release or fully bonded against
not more than thirty (30) days after such event has occurred); or (i)
Dissolution, termination of existence, insolvency or business failure of
Borrower; 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 or against, Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or hereafter in effect,
provided that the filing of an involuntary bankruptcy petition against the
- --------
Borrower shall not be deemed to be an Event of Default hereunder if it is cured
by being dismissed within 30 days after the date instituted (although CoastFed
shall have no obligation to make Loans during such 30-day cure period); or entry
of a court or governmental order which enjoins, restrains or in any way prevents
Borrower from conducting all or any part of its business; or failure to pay any
foreign, federal, state or local tax or other debt of Borrower unless, with
respect to any such tax, Borrower complies with the provisions of Paragraphs 3.9
(i), (ii), and (iii); or (j) A notice of lien, levy or assessment is filed of
record with respect to any of Borrower's assets by the United States or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, or if any taxes or debts now or
hereafter owing to any one or more of them becomes a lien upon all or any of the
Collateral or any other assets of Borrower (other than a lien for real property
taxes which are not yet due and payable) or any other Permitted Lien; or (k)
Death, insolvency or incompetency of any guarantor of the Obligations;
appointment of a conservator or guardian or the person of any such guarantor;
appointment of a conservator, guardian, trustee, custodian or receiver of all or
any part of the assets, property or estate of, any such guarantor; revocation or
termination of, or limitation of liability upon, any guaranty of the
Obligations; or commencement of proceedings by or against any guarantor or
surety for Borrower under any bankruptcy or insolvency law; or (1) Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations other than in compliance with the subordination
agreement with respect hereto or if any person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or (m) Borrower shall generally not pay its debts as they become due
or shall enter into any agreement (whether written or oral), or offer to enter
into any such agreement, with all or a significant number of its creditors
regarding any moratorium or other indulgence with respect to its debts or the
participation of such creditors or their representatives in the supervision,
management or control of the business of Borrower; or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law, or shall make any transfer of its property to or for the benefit of any
creditor at a time when other creditors similarly situated have not been paid.
6.2 Remedies. Upon the occurrence of any Event of Default, and at any time
thereafter, CoastFed, at its option, upon notice to Borrower, may do any one or
more of the following (a) Cease advancing money or extending credit to or for
the benefit of Borrower under this Loan Agreement, any Collateral Agreement, and
may 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 authorizing
CoastFed without judicial process to enter onto any of the Borrower'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 CoastFed
deems necessary in order to complete the enforcement of its rights under this
Loan Agreement or any Collateral Agreement, or any other agreement; provided,
however, that should CoastFed seek to take possession of any or all 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
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requirement that CoastFed retain possession of and not dispose of any such
Collateral until after trial or final judgement (d) Require Borrower to assemble
any or all of the Collateral and make it available to CoastFed at a place or
places to be designated by CoastFed which are reasonably convenient to CoastFed
and Borrower, and to remove the Collateral to such locations as CoastFed may
deem advisable; (e) 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, CoastFed shall have the right to use Borrower's
premises, vehicles, hoists, lifts, cranes, equipment and all other property
without charge. Without limiting any security interest granted CoastFed in other
provisions of this Loan Agreement or in any Collateral Agreement or other
agreement, for the purpose of completing manufacturing, processing or repair of
Collateral and the disposition thereof, CoastFed is hereby granted a security
interest in, and CoastFed and any purchaser from CoastFed may use without
charge, all of the Borrower'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 Borrower's rights under any license or franchise
agreement; (f) Sell, ship, reclaim, lease or otherwise dispose of all or any
portion of the Collateral in its condition at the time CoastFed 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. CoastFed shall have the right to conduct such disposition on
Borrower's premises without charge for such time or times as CoastFed deems fit,
or on CoastFed's premises, or elsewhere and the Collateral need not be located
at the place of disposition. CoastFed 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 Accounts
and general intangibles comprising part or all of the Collateral and, in
connection therewith, Borrower irrevocably authorizes CoastFed 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 CoastFed's sole discretion, to grant extensions of time to pay,
compromise claims and settle Accounts and the like for less than face value; (h)
Demand and receive possession of any of Borrower's federal and state income tax
returns and the Records utilized in the preparation thereof or referring
thereto. All attorneys' fees, expenses, costs, liabilities and obligations
incurred by CoastFed 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.
6.3 Standards for Determining Commercial Reasonableness. Borrower and
CoastFed agree that the following conduct by CoastFed with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by CoastFed, including, but not limited to, CoastFed's use in
its sole discretion of other or different times, places and manners of noticing
and conducting any disposition of Collateral shall not be deemed unreasonable):
Any public or private disposition as to which on no later than the fifth
calendar day prior thereto written notice thereof is mailed or personally
delivered to Borrower and, with respect to any public disposition, on no later
than the first calendar day prior thereto notice thereof describing in general
non-specific terms, the Collateral to be disposed of is published once in a
newspaper of general circulation in the county where the sale is to be
conducted, at any place designated by CoastFed, with or without the Collateral
being present, and which commences at any time between 8:00 a.m. and 5:00 p.m.
Without limiting the generality of the foregoing, Borrower expressly agrees
that, with respect to any disposition of Accounts, instruments and general
intangibles (collectively "Receivables"), it shall be commercially reasonable
for CoastFed to direct any prospective acquirer thereof to ascertain directly
from Borrower any and all information (and CoastFed shall not be required to
maintain records of, or answer any inquiries) concerning the Receivables offered
for disposition, including, but not limited to, the terms of payment, aging and
delinquency, if any, of the Receivables, the financial condition of any
obligation or account debtor thereon or guarantor thereof, any collateral
therefor and the condition and location of the goods, if any, that are the
subject of any of the Receivables.
6.4 Application of Proceeds. All proceeds realized as the result of any
disposition of the Collateral shall be applied by CoastFed first to the costs,
expenses, liabilities, obligations and attorneys' fees incurred by CoastFed in
the exercise of its rights under this Loan Agreement and any Collateral
Agreement, second to the interest due upon any of the Obligations and third to
the principal of the Obligations in any order determined by CoastFed in its sole
discretion. The surplus, if any, shall be paid to Borrower; if any deficiency
shall arise, Borrower shall remain liable to CoastFed therefor. If, as a result
of the disposition of any of the Collateral, CoastFed directly or indirectly
enters into a credit transaction with any third party, CoastFed shall have the
option, exercisable at any
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time, in its sole discretion, of either reducing the Obligations by the
principal amount of such credit transaction or deferring the reduction thereof
until the actual receipt by CoastFed of cash therefor from such third party.
6.5 Remedies Cumulative. In addition to the rights and remedies set forth in
this Loan Agreement and any Collateral Agreement, CoastFed shall have all the
other rights and remedies accorded a secured party under the California Uniform
Commercial Code and under any and all other applicable laws and in any other
instrument or hereafter entered into between CoastFed and Borrower and all such
rights and remedies are cumulative and none is exclusive. Exercise or partial
exercise by CoastFed of one or more of its rights or remedies shall not be
deemed an election, nor bar CoastFed from subsequent exercise or partial
exercise of any other rights or remedies. The failure or delay of CoastFed 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.
7. POWER OF ATTORNEY
Borrower grants to CoastFed an irrevocable power of attorney coupled with an
interest, authorizing and permitting CoastFed (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,
after the occurrence of an Event of Default, do any or all of the following, in
Borrower's name or otherwise: (a) Execute on behalf of Borrower any documents
that CoastFed may, in its sole and absolute discretion, deem advisable in order
to perfect, maintain or improve CoastFed's security interest in the Collateral
or other real or personal property intended to constitute Collateral, or in
order to exercise a right of Borrower or CoastFed, or in order to fully
consummate all the transactions contemplated under this Loan Agreement, any
Collateral Agreement and all other present and future agreements; (b) At any
time after the occurrence of an Event of Default, to 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 CoastFed's Collateral or in which
CoastFed has an interest; (c) Execute on behalf of Borrower, any invoices
relating to any Account, 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 CoastFed's possession; (e) Upon the occurrence of any Event
of Default, to receive and open all mail addressed to Borrower; and to notify
the Post Office authorities to change the address for the delivery of mail
addressed to Borrower to such other address as CoastFed may designate,
including, but not limited to, CoastFed's own address; CoastFed shall turn over
to Borrower all of such mail not relating to the Collateral; (f) Endorse all
checks and other forms of remittances received by CoastFed "Pay to the Order of
CoastFed Business Credit Corporation," or in such other manner as CoastFed may
designate; (g) 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; (h)
Grant extensions of time to pay, compromise claims and settle Accounts and the
like for less than face value and execute all releases and other documents in
connection therewith; (i) Pay any sums required on account of Borrower's taxes
or to secure the release of any liens therefor, or both; (j) Settle and adjust,
and give releases of, any insurance claim that relates to any of the Collateral
and obtain payment therefor; (k) Instruct any third party having custody or
control of any books or records belonging to, or relating to, Borrower to give
CoastFed the same rights of access and other rights with respect thereto as
CoastFed has under Paragraph 4.3 of this Loan Agreement; and (l) Take any action
or pay any sum required of Borrower pursuant to this Loan Agreement, any
Collateral Agreement and any other present or future agreements. Any and all
sums paid and any and all costs, expenses, liabilities, obligations and
attorneys' fees incurred by CoastFed 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 CoastFed's rights under the foregoing
power of attorney or any of CoastFed's other rights under this Loan Agreement or
any Collateral Agreement be deemed to indicate that CoastFed is in control of
the business, management or properties of Borrower.
8 TERMINATION.
This Loan Agreement and all Collateral Agreement(s) shall continue in effect
until March 1, 1995 (the "initial renewal date") and shall thereafter
automatically and continuously renew for successive additional terms of one
year(s) each unless terminated as to future transactions as hereinafter
provided. (The initial renewal date and each subsequent date on which the terms
of this Loan Agreement and the Collateral Agreement(s) automatically renew are
hereinafter referred to as "renewal dates.") This Loan Agreement and any
Collateral Agreement may be terminated, as to future transactions only, as
follows: (a) By written notice from either CoastFed or Borrower to the other,
not less than sixty (60) days prior to the next
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renewal date, in which event termination shall be effective on the next renewal
date; or (b) By CoastFed at any time after the occurrence of an Event of
Default, without notice, in which event termination shall be effective
immediately; or (c) By sixty (60) days' prior written notice from Borrower to
CoastFed, in which event, termination shall be effective on the sixtieth day
after such notice is given; or (d) By the grant by Borrower to any third party
of a lien or encumbrance on, or security interest in, any of the Collateral
other than a Permitted Lien, as provided in Paragraph 3.5, in which event
termination shall be effective on the date selected by CoastFed pursuant to
Paragraph 3.5. On the 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. If Borrower attempts to terminate this Loan Agreement
under subparagraph (a) or (c) above, but does not pay and perform all
Obligations in full on the effective date of termination, then this Loan
Agreement and all Collateral Agreement(s) shall not be terminated and shall
continue in full force and effect until the next renewal date and shall
automatically renew thereafter as provided above. If termination occurs under
subparagraph (b), (c) or (d) above, Borrower shall pay to CoastFed a termination
fee in an amount equal to $4,000.00 for each month (or portion thereof) from
the effective date of termination to the date which would have been the next
renewal date had this Loan Agreement not been terminated. Said termination fee
shall be included in the Obligations, shall be payable on the effective date of
termination, and shall bear interest at a rate equal to the highest interest
rate applicable to any of the Obligations. Notwithstanding any termination of
this Loan Agreement or any Collateral Agreement, all of CoastFed's security
interest in all of the Collateral and all of the terms and provisions of this
Loan Agreement and all Collateral Agreement(s) shall continue in full force and
effect until all Obligations have been paid and performed in full, and no
termination shall in any way affect or impair any right or remedy of CoastFed,
nor shall any such termination relieve Borrower of any Obligation to CoastFed
until all of the Obligations have been paid and performed in full. Without
limiting the fact that all Loans are discretionary on the part of CoastFed,
CoastFed may, in its sole discretion, refuse to make any further Loans after
termination. Upon payment and performance in full of all the Obligations,
CoastFed shall promptly deliver to Borrower termination statements, request for
reconveyance and such other documents as may be required to fully terminate any
of CoastFed's security interests.
9. NOTICES.
All notices to be given hereunder shall be in writing and shall be served
either personally or by depositing the same in the United States mail, postage
prepaid, by regular first class mail, or by certified mail, return receipt
requested, addressed to CoastFed or Borrower at the addresses shown above, or at
any other address as shall be designated by one party, in a written notice to
the other party. Any such notice shall be deemed to have been given upon
delivery in the case of notices personally delivered to Borrower or to an
officer of CoastFed, or at the expiration of two (2) business days following the
deposit thereof in the United States mail, with postage prepaid (except that any
notice of disposition referred to in Paragraph 6.3 hereof that is mailed shall
be deemed given at the time of deposit thereof in the United States mail, with
postage prepaid). If there is more than one Borrower, notice to any Borrower
shall constitute notice to all; if Borrower is a corporation, the service upon
any member of the Board of Directors, officer, employee or agent shall
constitute service upon the corporation.
10. GENERAL WAIVER
The failure of CoastFed at any time or times hereafter to require Borrower to
strictly comply with any of the provisions of this Loan Agreement or any
Collateral Agreement or any other present or future agreement between Borrower
and CoastFed shall not waive or diminish any right of CoastFed 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 Loan Agreement or any Collateral Agreement or other
agreement now or hereafter executed by Borrower and delivered to CoastFed shall
be deemed to have been waived by any act or knowledge of CoastFed or its agents
or employees, but only by a specific written waiver signed by an officer of
CoastFed and delivered to Borrower. Borrower waives the benefit of all
statute(s) of limitations in any action or proceeding based upon or arising out
of this Loan Agreement or any Collateral Agreement or any other present or
future instrument or agreement between CoastFed and Borrower. Borrower waives
any and all notices or demands which Borrower might be entitled to receive with
respect to this Loan Agreement, any Collateral Agreement, or any other agreement
by virtue of any applicable law. Borrower 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, Account, general intangible, document or guaranty at any time held
by CoastFed on which Borrower is or may in any way be liable, and notice of any
action taken by CoastFed unless expressly required by this Loan Agreement or any
Collateral Agreement. Borrower hereby ratifies and confirms whatever CoastFed
may do pursuant to this Loan Agreement and any Collateral Agreement and agrees
that CoastFed shall not be liable for (a) the safekeeping of the Collateral or
any loss or damage thereto, or diminution in value thereof, from any cause
whatsoever (except that CoastFed shall exercise reasonable care to
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assure the safe custody of Collateral in its possession), or (b) any act or
omission of any carrier, warehouseman, bailee, forwarding agent or other person,
or (c) any act of commission or any omission by CoastFed or its officers,
employees, agents or attorneys, or any of its or their errors of judgment or
mistakes of fact or law.
11. ATTACHMENT WAIVERS.
To the extent that CoastFed, in its sole and absolute discretion, determines,
prior to the disposition of all of the Collateral, that the amount to be
realized by CoastFed 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, Borrower waives the benefit of Section 483.010 (b) of
the California Code of Civil Procedure and of any and all other statutes
requiring CoastFed to first resort to and exhaust all of the Collateral before
seeking or obtaining any attachment remedy against Borrower, and Borrower
expressly agrees that, to the extent of such anticipated deficiency, CoastFed
shall have all of the rights of an unsecured creditor, including, but not
limited to, the right of CoastFed, prior to the disposition of all of the
Collateral, to obtain a temporary protective order and writ of attachment or
other available remedy. CoastFed shall have no liability to Borrower if the
actual deficiency realized by CoastFed is less than the anticipated deficiency
on the basis of which CoastFed obtained a temporary protective order or writ of
attachment. In the event CoastFed should seek a temporary protective order, or
writ of attachment, or both, Borrower 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.
12. ATTORNEYS' FEES AND COSTS
Borrower shall forthwith pay to CoastFed the amount of all attorneys' fees and
all filing, recording, publication, search and other costs incurred by CoastFed
pursuant to this Loan Agreement, any Collateral Agreement or any other present
or future agreement or in connection with any transaction contemplated hereby,
or with respect to the Collateral or the defense or enforcement of its interests
(whether or not CoastFed files a lawsuit against Borrower). Without limiting the
generality of the foregoing, Borrower shall, with respect to each and all of the
foregoing, pay all attorneys' fees and costs CoastFed incurs in order to: obtain
legal advice; enforce, or seek to enforce, any of its rights; prosecute
actions against, or defend actions by, Account debtors; commence, intervene
in, respond to, or defend any action or proceeding; initiate any complaint to
be relieved of the effect of the automatic stay in bankruptcy in order to
commence or continue any foreclosure or other disposition of the Collateral or
to commence, defend or continue any action or other proceeding in or out of
bankruptcy against Borrower or relating to the Collateral; file or prosecute a
claim or right in any action or proceeding, including, but not limited to, any
probate claim, bankruptcy claim, third-party claim, secured creditor claim or
reclamation complaint; examine, audit count, test, copy, or otherwise inspect
any of the Collateral or any of Borrower's books and records; or protect,
obtain possession of, lease, dispose of, or otherwise enforce any security
interest in or lien on, the Collateral or represent CoastFed in any litigation
with respect to Borrower's affairs. Without limiting the generality of the
foregoing, Borrower shall reimburse CoastFed for its out of pocket costs in
connection with CoastFed's regular quarterly audits of Borrower and Borrower
shall pay CoastFed an audit fee of $1,250.00 for each such quarterly audit. If
either CoastFed or Borrower files any lawsuit against the other predicated on
a breach of this Loan Agreement or any Collateral Agreement, the prevailing
party in such action shall be entitled to recover its costs and attorneys'
fees, including, but not limited to, 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 CoastFed 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.
13. DESTRUCTION OF DEBTOR'S DOCUMENTS; LIMITATION OF ACTIONS.
Any documents, schedules, invoices or other papers delivered to CoastFed may
be destroyed or otherwise disposed of by CoastFed six (6) months after they are
delivered to CoastFed unless Borrower makes written request therefor and pays
all expenses attendant to their return, in which event, CoastFed shall return
same when CoastFed's actual or anticipated need therefore has terminated.
Borrower agrees that any claim or cause of action by Borrower against CoastFed,
its directors, officers, employees, agents, accountants or attorneys, based
upon, arising from, or relating to this Loan Agreement, or any Collateral
Agreement, or any other present or furore 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 CoastFed, its directors, officers, employees, agents, accountants or
attorneys, relating in any way to Borrower, shall be barred unless asserted by
Borrower by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within six (6) months after Borrower
learns of, or in the exercise of reasonable diligence should have learned of,
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 CoastFed, or on any other person authorized to accept
11
<PAGE>
service on behalf of CoastFed, within thirty (30) days thereafter. Borrower
agrees that such six-month period of dyne is a reasonable and sufficient time
for Borrower to investigate and act upon any such claim or cause of action. The
six month period provided herein shall not be waived, tolled, or extended except
by the written consent of CoastFed in its sole and absolute discretion. This
provision shall survive any termination, however arising, of this Loan
Agreement, any Collateral Agreement, and any other present or future agreement.
14. GENERAL PROVISIONS
14.1 Severability. Should any provision, clause or condition of this Loan
Agreement or any Collateral Agreement be held by any court of competent
jurisdiction to be void or unenforceable, such defect shall not affect the
remainder of this Loan Agreement or any Collateral Agreement.
14.2 Integration. This Loan Agreement and any Collateral Agreements and
such other agreements, documents and instruments as may be executed in
connection herewith shall be construed as the entire and complete agreement
between Borrower and CoastFed and shall supersede all prior negotiations, all of
which are merged and integrated herein.
14.3 Amendment. The terms and provisions of this Loan Agreement and any
Collateral Agreement may not be waived or amended except in a writing executed
by Borrower and a duly authorized officer of CoastFed.
14.4 Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Loan Agreement and any Collateral
Agreement.
14.5 Mutual Waiver of Jury Trial. Borrower and CoastFed 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 Loan Agreement or any Collateral Agreement
or any other present or future instrument or agreement between CoastFed and
Borrower, or any conduct, acts or omissions of CoastFed or Borrower any of their
directors, officers, employees, agents, attorneys or any other persons
affiliated with CoastFed or Borrower.
14.6 Benefit of Agreement. The provisions of this Loan Agreement and any
Collateral 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 Borrower may not assign or transfer any
of its rights under this Loan Agreement or any Collateral Agreement without the
prior written consent of CoastFed, and any prohibited assignment shall be void.
No consent by CoastFed to any assignment shall relieve Borrower or any guarantor
from its liability for the Obligations
14.7 Joint and Several Liability. The liability of each Borrower 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.
14.8 Paragraph Headings; Construction. Paragraph headings are used herein
for convenience only. Borrower 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 Loan Agreement and the Collateral Agreements have been
fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Loan Agreement or any Collateral
Agreement shall be construed strictly against CoastFed or Borrower under any
rule of construction or otherwise.
14.9 Governing Law; Jurisdiction; Venue. This Loan Agreement and any
Collateral Agreement and all acts and transactions hereunder and all rights and
obligations of CoastFed and Borrower shall be governed by and in accordance with
the laws of the State of California. Any undefined term used in this Loan
Agreement or in any Collateral Agreement that is defined in the California
Uniform Commercial Code shall have the meaning therein assigned to that term. As
a material part of the consideration to CoastFed to enter into this Agreement,
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly hereto shall, at CoastFed'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 arid 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.
14.10 Execution by CoastFed. This Loan Agreement and any Collateral Agreement
which has been executed and delivered by Borrower to CoastFed shall not become
effective unless and until executed by a duly authorized officer of CoastFed.
14.11 Confidentiality. CoastFed covenants and agrees, on a continuing basis,
to use reasonable efforts to maintain the confidentiality of and not to disclose
to any person other than its officers, directors, attorneys and accountants and
affiliates, and such other persons to whom CoastFed shall at any time be
required to make such disclosure in accordance with applicable law (including,
but not limited to, laws relating to the perfection of CoastFed's
12
<PAGE>
security, interests in the Collateral), any and all proprietary, trade secret or
confidential information provided to or received by CoastFed from or on account
of Borrower or any affiliate of Borrower, including business plans and
forecasts, non-public financial information, confidential or secret processes,
formulae, devices or contractual information, customer lists, employee relation
matters, and any other information the disclosure of which could reasonably be
expected to have a material adverse impact on the business, finances or
operations of Borrower or its affiliates, provided, however, the foregoing
-------- -------
provisions shall not be effective regarding the disposition of Collateral after
an Event of Default.
Borrower:
NEURON DATA, INC.
a California corporation
By /s/ Signature illegible
-----------------------
Title Chief Financial Officer
-----------------------
By /s/
-----------------------
Title
---------------------
CoastFed:
COASTFED BUSINESS CREDIT
CORPORATION
By /s/ Signature illegible
-----------------------
Title Sr. V. Pres.
------------
13
<PAGE>
SCHEDULE 1 TO LOAN AND SECURITY AGREEMENT
-----------------------------------------
NEURON DATA, INC.
----------------
Section 3.4. Collateral is located at the locations listed in Exhibit
----------- -------
A hereto.
- -
Section 3.5
-----------
(1) Attached as Exhibit B hereto is a listing of UCC filings with the
---------
California Secretary of state as of January 27, 1994.
(2) The Borrower leases premises at the locations specified in
Exhibit C hereto.
- ---------
14
<PAGE>
EXHIBIT A
[ND LOGO]
NEURON DATA
SALES OFFICES
================================================================================
<TABLE>
<CAPTION>
<S> <C>
HEADQUARTERS ND D.C. (VIRGINIA)
- ------------ ------------------
156 University Avenue 1420 Spring Hill Road, Suite 600
Palo Alto, CA 94301 McLean, VA 22102
Ph: 415/321-4488 Ph: 703/821-8800
Fax: 415/321-3728 Fax: 703/442-0846
Pat O'Connor, Consultant, Acting N.A. Sales Paul Pelt, District Manager
h: 415/885-4108 h/o: 404/998-5477
h: 404/993-5186
Donna Jeker, VP, Bus. Devel.
h: 510/527-0731 ND NEW YORK
-----------
ND ATLANTA 747 Third Ave. 8th Floor
- ---------- New York, NY 10017
Five Concourse Parkway, Suite 3100 Ph: 212/832-8900 (Geri Owens)
Atlanta, GA 30328 Fax: 212/832-9477
Ph: 404/804-5828
Fax: 404/804-5819 Robert Rossi, Sr. Technical Rep.
h: 212/355-1264
Paul Pelt, District Manager
h/o: 404/998-5477 ND LOS ANGELES
h: 404/993-5186 --------------
550 North Brand Blvd., Suite 700
Cindy Wilson Glendale, CA 91203
[???] Systems Floor Ph: 818/545-4725
h: 404/303-7069 Fax: 818/548-8035 or 818/247-1414
m: 404/210-6221
Bob McGlashan, District Manager
ND CHICAGO h: 818/952-1821
- ---------- m: 818/384-0075
2443 Warrenville Road, Suite 600
Lisle, IL 60532 John Roy, Sr. Tech Support Rep.
Ph: 708/955-3688 2537 Tequestra
Fax: 708/955-3682 Tustin, CA 92680
h: 714/573-8362
Ken Berbert, Central Regional Mgr. Fax: 714/832-6337
h: 708/961-1475 (working out of his home)
m: 708/204-0428
Paul Jonusaitus, Sr. Technical Rep.
h: 708/469-1648
ND PENNSYLVANIA
- ---------------
1 Tower Bridge, Suite 800
West Conshocken, PA 19428
Ph: 215/941-2981
Fax: 215/828-7810
Steve Friedman, Northeast Regional Mgr.
h: 215/293-1573
Telesales
Chris Bastertier x-509 h: 415/965-9669 Greg Johnsen x-532 h: 510/658-7714
Katey Bogust x-513 h: 415/371-7608 Frank Peel x-520 h: 408/244-7407
Fred Barth x-515 h: 415/389-6528 Rachel Wood x-510 h: 415/497-0742
Jenny [???] x-514 h: 415/387-7788
</TABLE>
================================================================================
Tech Hotline: 415/321-8152
Toll Free Sales: 800/876-4900
15
<PAGE>
<TABLE>
<C> <S>
ND NEW YORK ND JAPAN
- ----------- --------
747 Third Ave. 8th Floor 3F Kyuroko Bldg.
New York, NY 10017 2-3-8 MINAMI-AOYAMA
Ph: 212/832-8900 Minato-Ku, Tokyo 107
Fax: 212/832-9477 Japan
Geri Owens Ph: (813)3746-4371 *Dial 011 first
Fax: (813)3746-4374
ND PARIS
- -------- Hidetoshi Sakoh
23 Rue Vernet Kimiko Honda - Admin. Asst.
75008, Paris France Mr. Ito - Sales
Ph: 33/1-4070-0421 *Dial 011 first Mr. Kudo
Fax: 33/1-4723-7143 (sales/mkt/admin) Hiroshi Okuda - tech support
Fax: 33/1-4070-09-67 (tech)
ND LOS ANGELES
Jean-Marie Chauvet --------------
David Chu (sales manager) 4000 MacArthur Boulevard
Nicolas Bonnet Suite 3000
Jean Paul Durrieu Newport Beach, CA 92660
Bruno Johier
Isabelle Ferreira (telesales, office mgt) Ph: 714-851-4621
Vincent Delacour Fax: 714-851-6460
Caroline Ferreira
Michele Latournerie John Roy (Snr. Tech Support Rep.)
Pierre Feillet
550 N. Brand Boulevard, Suite 700
ND LONDON Glendale, CA 91203
- ---------
34 S. Molton Ph: (818) 545-4725
London W1Y2BP, England Direct Fax: (818) 548-8035
Ph: 44/71-344-9711 *Dial 011 first General Off Fax: (818) 247-1414
Fax: 44/71-495-6157
Direct Line (to be used after 6:00pm local time): Bob McGlashan
44/71-409-7305
ND CHICAGO
Pany Christofereu (U.K. Country Mgr.) ----------
Melissa Greek - Marketing Asst. 2443 Warrenville Rd.
Paul Vincent - Pre/Post Sales Support Suite 600
Debbie Marsden - Pre/Post Sales Support Lisle, IL 60532
Bob Moore - Post Sales Support/Training
Steve Kelly - New Business Sales Executive Ph: (708) 955-3688
Fax: (708) 955-3682
ND HOUSTON car phone (708) 825-2070
- ---------- home phone (708) 961-1475
1331 Lamar St., Ste. 1459
Houston, TX 77010 Ken Berbert
Ph: 713/739-9020
Fax: 713/739-8055 ND PENNSYLVANIA
---------------
Robert Rossi 1 Tower Bridge
Suite 800
ND D.C. (VIRGINIA) West Conshocken, PA 19428
- ------------------ Ph: (215) 941-2981
1420 Spring Hill Road, Suite 600 Fax: (215) 828-7810
McLean, VA 22102
Steve Friedman
Ph: 703/821-8800
Fax: 703/442-0848 ND ATLANTA
----------
Paul Pelt
</TABLE>
16
<PAGE>
EXHIBIT B
THIS DATA IS FOR INFORMATION PURPOSES ONLY. CERTIFICATION CAN ONLY BE OBTAINED
THROUGH THE OFFICE OF THE CALIFORNIA SECRETARY OF STATE. PHO HAS NOT RECEIVED
ALL UCC FILINGS FOR 11/30/93, 12/1/93, AND 12/2/93 FROM THE CALIFORNIA SECRETARY
OF STATE. WE ARE WORKING WITH THE STATE TO RESOLVE THIS PROBLEM.
Summary of Uniform Commercial Code (Name) Data for California
For: NEURON DATA Thru Date: 01/27/9
1 16 NEURON DATA
End of list
Enter request:
17
<PAGE>
THIS DATA IS FOR INFORMATION PURPOSES ONLY. CERTIFICATION CAN ONLY BE OBTAINED
THROUGH THE OFFICE OF THE CALIFORNIA SECRETARY OF STATE. PHO HAS NOT RECEIVED
ALL UCC FILINGS FOR 11/30/93, 12/1/93, AND 12/2/93 FROM THE CALIFORNIA SECRETARY
OF STATE. WE ARE WORKING WITH THE STATE TO RESOLVE THIS PROBLEM.
Detail Display of Uniform Commercial Code (Name) Data for California
For: NEURON DATA Thru Date: 01/27/94
1 ORIG CA 88016443 01/25/88
D: NEURON DATA, 77-0081248, 444 HIGH ST, PALO ALTO, CA
S: ATTIS, 224 AIRPORT PKWY STE 300, SAN JOSE, CA
2 ORIG CA 88113772 05/12/88
D: NEURON DATA, 77-0081248, 444 HIGH ST, PALO ALTO, CA
S: LEASAMETRIC INC, 1164 TRITON DR, FOSTER CITY, CA
3 ORIG CA 89320282 12/18/89
D: NEURON DATA, 444 HIGH ST, PALO ALTO, CA
S: IBM CREDIT CORP, 290 HARBOR DR, STAMFORD, CT
4 ORIG CA 90024107 01/30/90
D: NEURON DATA, 444 HIGH ST, PALO ALTO, CA
S: IBM CREDIT CORP, 290 HARBOR DR, STAMFORD, CT
PAGE 1 - press ENTER for next page, Q to quit:
18
<PAGE>
THIS DATA IS FOR INFORMATION PURPOSES ONLY. CERTIFICATION CAN ONLY BE OBTAINED
THROUGH THE OFFICE OF THE CALIFORNIA SECRETARY OF STATE. PHO HAS NOT RECEIVED
ALL UCC FILINGS FOR 11/30/93, 12/1/93, AND 12/2/93 FROM THE CALIFORNIA
SECRETARY OF STATE. WE ARE WORKING WITH THE STATE TO RESOLVE THIS PROBLEM.
Detail Display of Uniform Commercial Code (Name) Data for California
For: NEURON DATA Thru Date: 1/27/9
5 ORIG CA 90220917 09/04/90
D: NEURON DATA INC, 444 HIGH ST, PALO ALTO, CA
S: AMERICAN LEASING, P O BOX 682, SANTA CLARA, CA
6 ASGN CA 90220917 09/04/90 90220917 09/04/90
XA: DENRICH LEASING, 8325 N/W 53RD ST, MIAMI, FL
7 ORIG CA 90224036 09/07/90
D: NEURON DATA, 444 HIGH ST, PALO ALTO, CA
S: AT & T CREDIT CORP, 44 WHIPPANY RD, MORRISTOWN, NJ
8 ORIG CA 90300952 12/11/90
D: NEURON DATA INC, 444 HIGH ST STE 220, PALO ALTO, CA
S: LEASEPARTNERS CORP, 111 ANZA BLVD STE 200, BURLINGAME, CA
9 ASGN CA 90300952 12/11/90 90300952 12/11/90
XA: HELLER FINANCIAL INC, 200 N LA SALLE ST, CHICAGO, IL
PAGE 2 - press ENTER for next page, P for prior, Q to quit:
19
<PAGE>
THIS DATA IS FOR INFORMATION PURPOSES ONLY. CERTIFICATION CAN ONLY BE OBTAINED
THROUGH THE OFFICE OF THE CALIFORNIA SECRETARY OF STATE. PHO HAS NOT RECEIVED
ALL UCC FILINGS FOR 11/30/93, 12/1/93, AND 12/2/93 FROM THE CALIFORNIA
SECRETARY OF STATE. WE ARE WORKING WITH THE STATE TO RESOLVE THIS PROBLEM.
Detail Display of Uniform Commercial Code (Name) Data for California
For: NEURON DATA Thru Date: 01/27/9
10 ASGN CA 90300952 12/11/90 90300952 09/21/92
XA: LB CREDIT CORP, 101 CALIFORNIA ST STE 2800, SAN FRANCISCO, CA
11 ORIG CA 90300958 12/11/90
D: NEURON DATA INC, 444 HIGH ST STE 220, PALO ALTO, CA
S: LEASEPARTNERS CORP, 111 ANZA BLVD STE 200, BURLINGAME, CA
12 ASGN CA 90300958 12/11/90 90300958 12/11/90
XA: HELLER FINANCIAL INC, 200 N LA SALLE ST, CHICAGO, IL
13 ORIG CA 90305004 12/17/90
D: NEURON DATA INC, 444 HIGH ST STE 220, PALO ALTO, CA
S: LEASEPARTNERS CORP, 111 ANZA BLVD STE 200, BURLINGAME, CA
14 ASGN CA 90305004 12/17/90 90305004 12/17/90
XA: PHILADELPHIA NATL BK, BROAD & CHESTNUTS STS, PHILADELPHIA, PA
PAGE 3 - press ENTER for next page, P for prior, Q to quit:
20
<PAGE>
THIS DATA IS FOR INFORMATION PURPOSES ONLY. CERTIFICATION CAN ONLY BE OBTAINED
THROUGH THE OFFICE OF THE CALIFORNIA SECRETARY OF STATE. PHO HAS NOT RECEIVED
ALL UCC FILINGS FOR 11/30/93, 12/1/93, AND 12/2/93 FROM THE CALIFORNIA
SECRETARY OF STATE. WE ARE WORKING WITH THE STATE TO RESOLVE THIS PROBLEM.
Detail Display of Uniform Commercial Code (Name) Data for California
For: NEURON DATA Thru Date: 01/27/94
15 ORIG CA 90305005 12/17/90
D: NEURON DATA INC, 444 HIGH ST STE 220, PALO ALTO, CA
S: LEASEPARTNERS CORP, 111 ANZA BLVD STE 200, BURLINGAME, CA
16 ASGN CA 90305005 12/17/90 90305005 12/17/90
XA: PHILADELPHIA NATL BK, BROAD & CHESTNUTS STS, PHILADELPHIA, PA
17 ORIG CA 91068990 04/01/91
D: NEURON DATA INC, 156 UNIVERSITY AVE, PALO ALTO, CA
S: EATON FINANCIAL CORP, 4464 B WILLOW RD, PLEASANTON, CA
18 ORIG CA 91080947 04/12/91
D: NEURON DATA INC, 444 HIGH ST, PALO ALTO, CA
S: LEASEPARTNERS CORP, 111 ANZA BLVD STE 200, BURLINGAME, CA
19 ASGN CA 91080947 04/12/91 91080947 04/12/91
XA: SANWA BUSINESS CREDIT CORP, ONE S WACKER DR, CHICAGO, IL
PAGE 4 - press ENTER for next page, P for prior, Q to quit:
21
<PAGE>
THIS DATA IS FOR INFORMATION PURPOSES ONLY. CERTIFICATION CAN ONLY BE OBTAINED
THROUGH THE OFFICE OF THE CALIFORNIA SECRETARY OF STATE. PHO HAS NOT RECEIVED
ALL UCC FILINGS FOR 11/30/93, 12/1/93, AND 12/2/93 FROM THE CALIFORNIA
SECRETARY OF STATE. WE ARE WORKING WITH THE STATE TO RESOLVE THIS PROBLEM.
Detail Display of Uniform Commercial Code (Name) Data for California
For: NEURON DATA Thru Date: 01/27/9
20 ASGN CA 91080947 04/12/91 91080947 02/13/92
XA: LB CREDIT CORP, 101 CALIFORNIA ST STE 2800, SAN FRANCISCO, CA
21 ASGN CA 91080947 04/12/91 91080947 11/23/92
XA: LEASE PARTNERS CORP, 111 ANZA BLVD #200, BURLINGAME, CA
22 ORIG CA 91080949 04/12/91
D: NEURON DATA INC, 444 HIGH ST, PALO ALTO, CA
S: LEASEPARTNERS CORP, 111 ANZA BLVD STE 200, BURLINGAME, CA
23 ASGN CA 91080949 04/12/91 91080949 04/12/91
XA: SANWA BUSINESS CREDIT CORP, ONE S WACKER DR, CHICAGO, IL
24 ASGN CA 91080949 04/12/91 91080949 02/13/92
XA: LB CREDIT CORP, 101 CALIFORNIA ST STE 2800, SAN FRANCISCO, CA
25 ORIG CA 91095160 04/30/91
D: NEURON DATA, 156 UNIVERSITY AVE, PALO ALTO, CA
S: EATON FINANCIAL CORP, 4464 B WILLOW RD, PLEASANTON, CA
PAGE 5 - press ENTER for next page, P for prior, Q to quit:
22
<PAGE>
THIS DATA IS FOR INFORMATION PURPOSES ONLY. CERTIFICATION CAN ONLY BE OBTAINED
THROUGH THE OFFICE OF THE CALIFORNIA SECRETARY OF STATE. PHO HAS NOT RECEIVED
ALL UCC FILINGS FOR 11/30/93, 12/1/93, AND 12/2/93 FROM THE CALIFORNIA
SECRETARY OF STATE. WE ARE WORKING WITH THE STATE TO RESOLVE THIS PROBLEM.
Detail Display of Uniform Commercial Code (Name) Data for California
For: NEURON DATA Thru Date: 01/27/94
26 ORIG CA 92200798 09/16/92
D: NEURON DATA, 444 HIGH ST, PALO ALTO, CA
S: LEASE PARTNERS CORP, 111 ANZA BLVD STE 200, BURLINGAME, CA
27 ASGN CA 92200798 09/16/92 92200798 09/16/92
XA: NATL WESTMINSTER BK U S A, 175 WATER ST, NEW YORK, NY
28 ORIG CA 93025842 02/05/93
D: NEURON DATA, 156 UNIVERSITY AVE, PALO ALTO, CA
S: LEASE PARTNERS CORP, 111 ANZA BLVD STE 200, BURLINGAME, CA
PAGE 6 - LAST PAGE.. enter P for prior page, or press ENTER to end detail:
23
<PAGE>
EXHIBIT C
FACIL LEASES
<TABLE>
<CAPTION>
FACILITY LEASES
LESSOR ADDRESS
<S> <C> <C>
101 UNIVERSITY 444 HIGH ST. PALO ALTO, CA Palo Alto warehouse & production facil.
THOITS BROS., INC. 156 UNIVERSITY, PALO ALTO, CA Palo AIto Headquarters
SAGE REALTY CORP 747 THIRD AVE, N.Y., NY ND New York (Sales & Support) office
ARBOR OFFICE SUITES ONE TOWER BRIDGE, W. CONSHOHOCKEN, PA ND Pennsylvania" "
HQ-CHICAGO, INC. 2443 WARRENVILLE RD., LISLE, IL ND Chicago " "
SOURCE OFC SUITES OF TYSON 1420 SPRING HILL RD., MCLEAN, VA ND D.C." "
CES OFFICE CENTERS 5 CONCOURSE PKWY, ATLANTA, GA ND Atlanta" "
EXEC. MGT. SERVICES 550 N. BRAND BLVD, GLENDALE, CA ND Los Angeles" "
LAHAINA, INC. 1331 LAMAR, HOUSTON, TX ND Houston" "
PACIFIC OFFICE CENTER 4000 MACARTHUR BLVD, NEWPORT BEACH, CA ND Los Angeles" "
</TABLE>
24
<PAGE>
[LETTERHEAD OF COAST BUSINESS CREDIT]
June 12, 1997
Mr. Jack Bradley
Chief Financial Officer
Neuron Data, Inc.
1310 Villa Street
Mountain View, California 94041
Dear Jack:
Enclosed please find three sets of the Third Amendment to Loan and Security
dated March 24, 1997. These were originally titled Second Amendment in error.
Please initial both copies of the Amendment and sign below in the space provided
on the cover letter and return one Amendment and the cover letter to my
attention at your earliest convenience.
Sincerely,
COAST BUSINESS CREDIT
/s/ John D. Watkins
- -------------------
John D. Watkins
Assistant Vice President
Enclosure ACCEPTED & AGREED TO:
NEURON DATA, INC.
/s/ Jack Bradley
----------------
Jack Bradley, CFO
<PAGE>
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of March 24,
1997 (this "Amendment"), amends that certain Loan and Security Agreement, dated
as of March 11, 1994; as amended by that certain First Amendment to Loan and
Security Agreement, dated as of March 31, 1995 (as amended from time to time,
the "Loan Agreement"), by and between NEURON DATA, INC., a California
corporation ("Borrower"), on the one hand, and COAST BUSINESS CREDIT, a division
of Southern Pacific Thrift & Loan Association, a California corporation,
formerly known as CoastFed Business Credit Corporation ("Coast"), on the other
hand. All initially capitalized terms used in this Amendment shall have the
meanings ascribed thereto in the Loan Agreement unless specifically defined
herein.
RECITALS
WHEREAS, Borrower and Coast wish to amend the Loan Agreement pursuant to
the terms and provisions set forth in this Amendment; and
NOW, THEREFORE, the parties hereto agree as follows:
AMENDMENT
Section 1.3 Amendment to Section 1.1 of the Loan Agreement. Section 1.1 of
the Loan Agreement is hereby amended by deleting the last sentence of such
Section in its entirety and replacing it with the following:
"Notwithstanding anything herein or in. any Collateral Agreement to
the contrary, in no event shall the Borrower permit the total balance
of all Loans and all other Obligations outstanding at any one time to
exceed Five Million Dollars ($5,000,000); and, if for any reason they
do, Borrower shall immediately pay the amount of such excess to
CoastFed in immediately available funds."
Section 2. Extended Tern. The parties acknowledge and confirm to each other
that pursuant to the terms of Section 8 of the Loan Agreement, as amended, the
Loan Agreement and all Collateral Agreement(s) have automatically renewed and
shall continue in effect until March 1, 1999, subject to all terms and
provisions of such Section 8, the Loan Agreement, and the Collateral
Document(s).
Section 3. Conditions Precedent. The effectiveness of this Amendment is
expressly conditioned upon:
3.1 Receipt by Coast of an executed copy of this Amendment; and
1
<PAGE>
3.2 Receipt by Coast of and executed Amendment Number One to
Security Agreement in Copyrighted Works, and the recording thereof with the
United States Copyright Office, in form and substance satisfactory to Coast in
its sole and absolute discretion.
Section 4. Further Assurances. Borrower agrees, at its expense, on request
by Coast, to execute all other documents and take all other actions, as Coast
and Coast's counsel located in the United Kingdom, may deem reasonably necessary
or useful in order to perfect and maintain Coast's perfected security interest
in the Collateral, including, but not limited to, book debt of Borrower's
subsidiary Neuron Data Limited, and in order to fully consummate the
transactions contemplated by the Loan Agreement and this Amendment.
Section 5. Entire Agreement. The Loan Agreement, as amended hereby,
embodies the entire agreement and understanding between the parties hereto and
supersedes all prior agreements and understandings relating to the subject
matter hereof. Borrower represents, warrants and agrees that in entering into
the Loan Agreement and consenting to this Amendment, it has not relied on any
representation, promise, understanding or agreement, oral or written, of, by or
with, Coast or any of its agents, employees, or counsel, except the
representations, promises, understandings and agreements specifically contained
in or referred to in the Loan Agreement, as amended hereby.
Section 6. Conflicting Terms. In the event of a conflict between the terms
and provisions of this Amendment and the terms and provisions of the Loan
Agreement, the terms of this Amendment shall govern. In all other respects, the
Loan Agreement, as amended and supplemented hereby, shall remain in full force
and effect.
Section 7. Miscellaneous. This Amendment shall be governed by and construed
in accordance with the laws of the State of California. This Amendment may be
executed in any number of counterparts, all of which taken together shall
constitute one agreement, and any party hereto may execute this Amendment by
signing such counterpart.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER:
NEURON DATA, INC.,
a California corporation
By /s/ Signature illegible
-----------------------
President or Vice President
By
-----------------------
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Thrift & Loan
Association
By /s/ Signature illegible
-----------------------
Title Senior V.P.
-----------
3
<PAGE>
REAFFIRMATION OF GUARANTEE AND INDEMNITY
The undersigned has executed that certain Guarantee and Indemnity (the
"Guarantee"), dated as of March 31, 1995, in favor of Coast Business Credit, a
division of Southern Pacific Thrift & Loan Association, a California
corporation, formerly known as CoastFed Business Credit Corporation ("Coast")
respecting the obligations of Neuron Data, Inc., a California corporation
("Borrower") owing to Coast. The undersigned acknowledges the terms of that
certain Second Amendment to Loan and Security Agreement, dated as of even date
herewith, and reaffirms and agrees that (a) the Guarantee shall remain in full
force and effect, (b) nothing in such Guarantee obligates Coast to notify the
undersigned of any changes in the financial accommodations made available to
Borrower or to seek reaffirmations of the Guarantee, and (c) no requirement to
so notify the undersigned or to seek reaffirmations in the future shall be
implied by the execution of the reaffirmation.
NEURON DATA LIMITED,
A company incorporated
under the laws of England
By /s/ Signature illegible
-----------------------
President or Vice President
By -----------------------
Secretary or Ass't Secretary
4
<PAGE>
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of February
, 1996 (this "Amendment"), amends that certain Loan and Security Agreement,
dated as of March 11, 1994, between NEURON DATA, INC., a California corporation
("Borrower") and COAST BUSINESS CREDIT, a Division of Southern Pacific Thrift &
Loan Association ("Coast"), a California corporation, the successor in interest
to COASTFED BUSINESS CREDIT CORPORATION, as amended from time to time (the "Loan
Agreement"). All initially capitalized terms used in this Amendment shall have
the meanings ascribed thereto in the Loan Agreement unless specifically defined
herein.
WHEREAS, pursuant to the Loan Agreement, Coast and Borrower have
agreed to extend the renewal date from March 1, 1996 to March 1, 1997;
WHEREAS, to facilitate the extension of the renewal date, the parties
hereto wish to make certain amendments to the Loan Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendments.
----------
1.1 All references to COASTFED BUSINESS CREDIT CORPORATION
("CoastFed") in the Loan Agreement shall be deleted and replaced with the
following: COAST BUSINESS CREDIT, a Division of Southern Pacific Thrift & Loan
Association ("Coast"), a California corporation, the successor in interest to
COASTFED BUSINESS CREDIT CORPORATION.
1.2 Section 8 of the Loan Agreement is amended by deleting the first
sentence of such section in its entirety and replacing it with the following:
"This Loan Agreement and all Collateral Agreement(s) shall continue in
effect until March 1, 1997 (the "initial renewal date") and shall
thereafter automatically and continuously renew for successive
additional terms of one year(s) each unless terminated as to future
transactions as hereinafter provided."
Section 2. Entire Agreement. The Loan Agreement, as amended hereby,
----------------
embodies the entire agreement and understanding between the parties hereto and
supersedes all prior agreements and understandings relating to the subject
matter hereof. Borrower represents, warrants and agrees that in entering into
the Loan Agreement and consenting to this Amendment, it has not relied on any
representation, promise, understanding or agreement, oral or written, of, by or
with, Coast or any of its agents, employees, or counsel, except the
representations, promises, understandings and agreements specifically contained
in or referred to in the Loan Agreement, as amended hereby.
Section 3. Conflicting Terms. In the event of a conflict between the
-----------------
terms and provisions of this Amendment and the terms and provisions of the Loan
Agreement, the terms of this Amendment shall govern. In all other respects, the
Loan Agreement, as amended and supplemented hereby, shall remain in full force
and effect.
Section 4. Miscellaneous. This Amendment shall be governed by and
-------------
construed in accordance With the laws of the State of California. This Amendment
may be executed in any number of
1
<PAGE>
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Amendment by signing such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective officers thereunto duly authorized as of
the date first above written.
Borrower:
NEURON DATA, INC.
a California corporation
By /s/ Signature illegible
-----------------------
Title Chief Financial Officer V.P. Finance
------------------------------------
Coast:
COAST BUSINESS CREDIT
a Division of Southern Pacific Thrift & Loan
Association
By /s/ Signature illegible
-----------------------
Title Vice President
--------------
2
<PAGE>
FIRST AMENDMENT TO LOAN SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of March
31, 1995 (this "Amendment"), amends that certain Loan and Security Agreement,
dated as of March 11, 1994 (the "Loan Agreement"), between NEURON DATA, INC.,
California corporation ("Borrower") and COASTFED BUSINESS CREDIT CORPORATION
("CoastFed"). All initially capitalized terms used in this Amendment shall have
the meanings ascribed thereto in the Loan Agreement unless specifically defined
herein.
WHEREAS, pursuant to the Loan Agreement, CoastFed has agreed to
advance funds or otherwise extend credit to Borrower in a maximum principal
amount of up to $2,000,000;
WHEREAS, Borrower has requested and CoastFed has agreed to increase
the maximum principal amount CoastFed can advance from up to $2,000,000 to up to
$3,000,000 pursuant to the Loan Agreement;
WHEREAS, to facilitate the increase in line limit, the parties hereto
wish to make certain amendments to the Loan Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
Section I. Amendments.
----------
1.1 Section 1.1 of the Loan Agreement is amended by deleting such
Section in its entirety and replacing it with the following:
"1.l Loans, Collateral Agreements. Borrower has requested and may
hereafter request that CoastFed advance funds or otherwise extend
credit to or for the benefit of Borrower ("Loan(s)") in accordance
with the terms and provisions of this Loan Agreement and other written
agreements ("Collateral Agreement(s)"), including, but not limited to,
any one or more of the following described security agreements now or
hereafter entered into between Borrower and CoastFed: (a) Accounts
Collateral Security Agreement; (b) Inventory Collateral Security
Agreement; (c) Equipment Collateral Security Agreement; and (d) any
promissory notes or guaranties. The amount and terms of payment of any
Loans by CoastFed to Borrower shall be determined in accordance with
the terms and provisions of this Loan Agreement and of any executed
Collateral Agreements. Notwithstanding anything herein or in any
Collateral Agreement to the contrary, in no event shall the Borrower
permit the total balance of all Loans and all other Obligations
outstanding at any one time to exceed $3,000,000.00; and, if for any
reason they do, Borrower shall immediately pay the amount of such
excess to CoastFed in immediately available funds.
1.2 Section 1.2 of the Loan Agreement is amended by deleting the
first sentence of such Section in its entirety and replacing it with the
following:
"1.2 Fees. Borrower shall pay to CoastFed a loan origination fee in
the amount of $20,000.00 at the time of the initial funding hereunder,
a line increase fee in the amount of $10,000.00 concurrent with the
execution
1
<PAGE>
of this First Amendment to the Loan Agreement, and an annual loan fee
of $-0- on each anniversary of the date hereof during the term of this
Loan Agreement.
Section 2. Extended Term. The parties acknowledge and confirm to each
-------------
other that pursuant to the terms of Section 8 of the Loan Agreement and all
Collateral Agreement(s), as amended have automatically renewed and shall
continue in effect until March 1, 1996 subject to all the terms and provisions
of such section and the Loan Agreement.
Section 3. Entire Agreement. The Loan Agreement, as amended hereby,
----------------
embodies the entire agreement and understanding between the parties hereto and
supersedes all prior agreements and understandings relating to the subject
matter hereof. Borrower represents, warrants and agrees that in entering into
the Loan Agreement and consenting to this Amendment, it has not relied on any
representation, promise, understanding or agreement, oral or written, of, by or
with, CoastFed or any of its agents, employees, or counsel, except the
representations, promises, understandings and agreements specifically contained
in or referred to in the Loan Agreement, as amended hereby.
Section 4. Conflicting Terms. In the event of a conflict between the
-----------------
terms and provisions of this Amendment and the terms and provisions of the Loan
Agreement, the terms of this Amendment shall govern. In all other respects, the
Loan Agreement, as amended and supplemented hereby, shall remain in full force
and effect.
Section 5. Miscellaneous. This Amendment shall be governed by and
-------------
construed in accordance with the laws of the State of California. This Amendment
may be executed in any number of counterparts, all of which taken together shall
constitute one agreement, and any party hereto may execute this Amendment by
signing such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective officers thereunto duly authorized as of
the date first above written.
Borrower:
NEURON DATA, INC.
a California corporation
By /s/ Signature illegible
-----------------------
Title Chief Financial Officer
-----------------------
CoastFed:
COASTFED BUSINESS CREDIT CORPORATION
By /s/ Signature illegible
-----------------------
Title V.P.
----
2
<PAGE>
EXHIBIT 21.1
BLAZE SOFTWARE SUBSIDIARY LIST
Blaze Software (UK) Ltd., a United Kingdom corporation
Blaze Software SARL, a French corporation
Blaze Software GmbH, a German corporation
Blaze Software Japan, Inc., a Japanese corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated January 5, 2000 relating to the financial statements and
financial statement schedule of Blaze Software, 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.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 11, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> MAR-31-1999 SEP-30-1999
<CASH> 2,129 3,339
<SECURITIES> 0 0
<RECEIVABLES> 4,101 3,866
<ALLOWANCES> 443 586
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,751 7,510
<PP&E> 2,375 2,485
<DEPRECIATION> 1,589 1,597
<TOTAL-ASSETS> 7,765 8,621
<CURRENT-LIABILITIES> 11,067 9,243
<BONDS> 0 0
20,882 0
0 2
<COMMON> 0 1
<OTHER-SE> (24,203) (831)
<TOTAL-LIABILITY-AND-EQUITY> 7,765 8,621
<SALES> 9,054 7,120
<TOTAL-REVENUES> 9,054 7,120
<CGS> 2,932 2,699
<TOTAL-COSTS> 11,634 14,094
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 362 173
<INTEREST-EXPENSE> 249 152
<INCOME-PRETAX> (5,761) (9,825)
<INCOME-TAX> 87 74
<INCOME-CONTINUING> (5,848) (9,899)
<DISCONTINUED> 248 1,320
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,600) (8,579)
<EPS-BASIC> (8.84) (1.07)
<EPS-DILUTED> (8.84) (1.07)
</TABLE>
