<PAGE>
As filed with the Securities and Exchange Commission on February 22, 2000
Registration No. 333-95813
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
INVENTA TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<CAPTION>
Delaware 7371 77-0217480
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
255 Shoreline Drive, Suite 200
Redwood Shores, CA 94065
(650) 413-1100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
David A. Lavanty
President and Chief Executive Officer
Inventa Technologies, Inc. 255 Shoreline Drive, Suite 200 Redwood Shores, CA
94065 (650) 413-1100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<CAPTION>
Michael J. O'Donnell Richard Capelouto
<S> <C>
Richard L. Picheny Daniel Clivner
Wilson Sonsini Goodrich & Rosati Simpson Thacher & Bartlett
Professional Corporation 3373 Hillview Avenue, Suite 250
650 Page Mill Road Palo Alto, CA 94304
Palo Alto, CA 94304 (650) 251-5000
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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, check the following box. [_]
---------------
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 that 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 it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated February 22, 2000
PROSPECTUS
Shares
[Inventa Logo]
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are offering
shares. No public market currently exists for our shares.
We have applied to list the shares on the Nasdaq National Market under the
symbol "INVA."
Investing in our shares involves risks. Risk Factors begin on page 5.
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Public Offering Price........................................ $ $
Underwriting Discount........................................ $ $
Proceeds to Inventa.......................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
At our request, the underwriters have reserved up to 12% of the common stock
offered in this prospectus for sale at the initial public offering price to our
directors, prior investors and other persons associated with Inventa.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares
on or about , 2000.
- --------------------------------------------------------------------------------
Lehman Brothers
First Union Securities, Inc.
Friedman Billings Ramsey
, 2000
<PAGE>
ARTWORK AND DIAGRAMS
[TO BE FILED BY AMENDMENT]
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 27
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 37
Certain Relationships and Related Transactions............................. 45
Principal Stockholders..................................................... 46
Description of Capital Stock............................................... 48
Shares Eligible for Future Sale............................................ 52
Underwriting............................................................... 54
Legal Matters.............................................................. 57
Experts.................................................................... 57
Additional Information..................................................... 57
Index to Financial Statements.............................................. F-1
</TABLE>
ABOUT THIS PROSPECTUS
Investors should rely only on the information contained in this prospectus.
Inventa and the underwriters have not authorized anyone to provide any
different or additional information. This prospectus is not an offer to sell
or a solicitation of an offer to buy our common stock in any jurisdiction
where it is unlawful. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of our common stock. This preliminary
prospectus is subject to completion prior to this offering.
The Inventa name is a registered trademark of Inventa Technologies, Inc. In
addition, Inventa has filed for trademark registration of the Inventa logo,
"LightSpeed," "i2K," "eSales" and "eCare." This prospectus also includes
trademarks and tradenames of other parties.
Until , 2000, all dealers selling shares of our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes appearing elsewhere in this
prospectus. Except as otherwise indicated, the information in this prospectus
assumes that the over-allotment option granted to the underwriters is not
exercised and that all shares of our outstanding preferred stock are converted
into our common stock.
Inventa Technologies, Inc.
Our Business
We are a leading Internet professional services firm providing business-to-
business, or B2B, e-Commerce solutions to Global 2000 companies and emerging
digital businesses. We architect, engineer, integrate and support complex B2B
digital exchanges and digital customer relationship management solutions.
Digital exchanges are electronic marketplaces that enable businesses to
dynamically collaborate with trading partners, conduct e-Commerce, manage
distribution relationships and enhance business partnerships. Digital customer
relationship management, or DCRM, is an Internet-based approach to coordinating
a company's customer relationships across communications channels, business
functions and trading partners.
We focus exclusively on engineering B2B e-Commerce solutions for our
clients. We believe our early vision, B2B experience and methodologies are
unique in the Internet professional services sector and enable us to rapidly
and efficiently architect and implement advanced Internet solutions for our
clients. In 1999, our clients included Automatic Data Processing, Inc., Cadence
Design Systems, Inc., ePolicy.com, Fujitsu PC Corporation, Pure Markets
Corporation, Siemens Corporation and Trade Pacific Investments Limited, or
tradepac.com.
Examples of the solutions we have engineered for our clients include:
. Citigroup, Inc.--a DCRM solution for the bank's private client group that
supports the provision of investment services and enables personalized
account management and associated financial transactions
. GoTo.com, Inc.--a DCRM solution that supports comprehensive customer case
management and customer self-service and allows frequently asked
questions to be accessed in real time
. Pure Markets--a financial services digital exchange focused on commercial
leasing that provides for online bid management, leasing transactions and
business process automation
. tradepac.com--a digital exchange for inventory liquidation used to
auction goods and match buyers worldwide with sellers from the Asia-
Pacific region
Our Solution
We deliver our services through multi-disciplinary teams of talented
professionals with extensive experience in business process analysis, project
management and software engineering. Our professionals create scalable,
reliable and integrated business solutions using our proprietary LightSpeed
delivery model and i2K architectural framework. Our solutions optimize the
engineering of B2B e-Commerce systems by utilizing an iterative design process
focused on integrating legacy applications with emerging digital technologies.
Our B2B e-Commerce systems are engineered to facilitate:
. integration of complex Internet and legacy technologies with multiple
business processes within a company and with its trading partners'
systems
. integration of multiple databases to allow the multi-directional flow of
information
1
<PAGE>
. improved performance and response time to support real-time access by
trading partners from a variety of technology platforms
. flexibility in accommodating the variety of contractual relationships,
processes and payment methods that exist between businesses
We have also productized our services into two offerings, eCare and eSales.
eCare is our Internet-based customer care offering developed to enable our
clients to provide high-quality customer interaction and improve customer
retention. eSales is our Internet-based sales offering developed to help
clients generate revenue through Internet-based channels and to streamline the
purchasing process. We believe our productized services allow us to leverage
our extensive experience in providing B2B solutions, reduce our project risk
and speed time-to-market for our clients.
Our Market Opportunity
Businesses are increasingly using B2B e-Commerce to enhance their
competitive positions by improving operating efficiencies, strengthening their
trading partner relationships and identifying and capitalizing on emerging
digital business opportunities. Developing and supporting B2B e-Commerce
systems requires substantial expertise in the design of new business processes
and systems that integrate with existing operations, selection of the
appropriate Internet technologies and management of the implementation process
to meet the time-to-market needs characteristic of today's competitive business
environment. Many businesses lack this expertise. As a result, an increasing
number of businesses, from start-ups to Global 2000 companies, engage third-
party Internet professional services firms to help them design and implement
B2B e-Commerce solutions. International Data Corporation, or IDC, estimates
that the market for Internet professional services will grow from $7.8 billion
in 1998 to $78.6 billion in 2003, representing a 59% compound annual growth
rate. We believe the B2B e-Commerce segment of the Internet professional
services market is underserved and is large and growing faster than the overall
market.
Our Strategy
Our strategy is to enhance our position and reputation as a leading provider
of B2B e-Commerce solutions to Global 2000 companies and emerging digital
businesses. The key elements of our growth strategy are to:
. maintain our exclusive B2B e-Commerce focus
. maintain our technology leadership by pursuing highly complex engagements
. continue to productize our services by introducing new offerings that
target other business processes
. hire, train and retain professionals and maintain a culture that fosters
innovation
. leverage our reputation for client satisfaction and innovation to attract
new engagements from both new and existing clients
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Inventa.. shares
Common stock outstanding after
this offering................... shares
Use of proceeds.................. General corporate purposes, including
reducing outstanding debt of approximately
$4.0 million; increasing our recruiting
capabilities; expanding our sales and
marketing capabilities; increasing our brand
awareness; investing in our internal systems
and processes; opening new offices; and
pursuing selected strategic investments or
acquisitions.
Proposed Nasdaq National Market
symbol.......................... "INVA"
</TABLE>
Common stock outstanding after this offering:
. is based on the number of shares outstanding as of , 2000
. assumes the conversion of all outstanding shares of series A, B, C and D
preferred stock into an aggregate of shares of common stock, which
will automatically occur at the closing of this offering
. includes shares of common stock to be issued to holders of Series D
preferred stock in a private placement to be made contemporaneously with
this offering at the initial offering price less the underwriting
discount
. excludes shares of common stock issuable upon the exercise of stock
options outstanding at , 2000, at a weighted average exercise price
of $ per share
. excludes shares of common stock reserved for future grant under our
stock option plans
. excludes shares of common stock issuable upon the exercise of
warrants outstanding at , 2000, at an exercise price of $ per
share
Additional Information
We were incorporated in California in 1988 as Inventa Corporation. We
reincorporated in Delaware in , 2000, as Inventa Technologies, Inc. Our
principal executive offices are located at 255 Shoreline Drive, Suite 200,
Redwood Shores, CA 94065 and our telephone number is (650) 413-1100. We
maintain a site on the World Wide Web at www.inventa.com. The reference to our
web address does not constitute incorporation by reference of the information
contained at that site. The information found on our site is not part of this
prospectus and should not be relied upon when making a decision to invest in
our common stock.
3
<PAGE>
Summary Consolidated Financial Data
The following table summarizes the consolidated statement of operations and
consolidated balance sheet data for our business. For a more detailed
explanation of this financial data, see "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements located elsewhere in this
prospectus.
The unaudited pro forma consolidated balance sheet data reflects the
following assumptions:
. issuance of 1,350,000 shares of our common stock with a fair value of
$12.2 million in connection with the acquisition of XTEND-Tech, Inc.,
which was consummated on January 26, 2000
. acquisition of assets and liabilities of XTEND-Tech, Inc. See details in
financial statements located elsewhere in this prospectus.
. receipt of approximately $22.2 million from the issuance of 3,000,000
shares of series D mandatorily redeemable convertible preferred stock on
January 19, 2000, at $7.41 per share
. conversion of 1,000,000 shares of our series A convertible preferred
stock and 13,615,511 shares of series B, C, and D mandatorily redeemable
convertible preferred stock into 14,615,511 shares of our common stock
upon the completion of this offering
The unaudited pro forma, as adjusted, consolidated balance sheet data gives
effect to the sale of the shares offered by us at an assumed initial public
offering price of $ per share and the application of the net proceeds as
described in "Use of Proceeds," after deducting the estimated underwriting
discount and estimated offering expenses.
For an explanation of the number of shares used to compute net loss per
share, see Note 1 of notes to financial statements.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
(in thousands, except
per share data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues........................................... $ 5,196 $ 8,016 $ 13,520
Loss from operations............................... (2,795) (1,692) (10,871)
Net loss........................................... (2,964) (1,658) (15,019)
Net loss per share:
Basic and diluted................................ $ (0.65) $ (0.36) $ (3.20)
======= ======= ========
Weighted average shares.......................... 4,557 4,659 4,698
Pro forma net loss per share (unaudited):
Basic and diluted................................ -- -- $ (0.75)
========
Weighted average shares.......................... -- -- 14,447
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents..................... $ 3,244 $25,617 $
Working capital............................... (1,935) 20,345
Total assets.................................. 9,222 39,331
Longterm borrowings and capital lease
obligations, net of current portion.......... 454 562
Mandatorily redeemable convertible preferred
stock........................................ 17,398 --
Total stockholders' equity (deficit).......... (17,497) 29,283
</TABLE>
4
<PAGE>
RISK FACTORS
Investing in shares of our common stock involves risk. You should carefully
consider the risks described below and other information in this prospectus
before making an investment decision. If any of the following risks actually
occur, our business, financial condition, results of operations and reputation
could be harmed. As a result, the trading price of our common stock may decline
and you may lose all or part of your investment.
Risks Related to Our Business
If we are unable to manage our growth or the quality of our services, our
ability to retain clients and key personnel, our reputation and our business
could be harmed
Our growth has placed significant demands on our management and other
resources. Our revenues for the year ended December 31, 1999, increased
approximately 69% from the revenues for the year ended December 31, 1998. Our
staff increased from 57 full-time employees at December 31, 1998, to 207 at
January 27, 2000. Our future success will depend on our ability to manage our
growth effectively, including:
. continuing to train, motivate, manage and retain our existing employees
and to attract and assimilate new employees
. maintaining project quality
. maintaining high rates of employee utilization
. accurately estimating time and resources required to complete engagements
. developing and improving our operational, financial, accounting and other
internal systems and controls
. improving our business development capabilities
. continuing the productization of our services
. maintaining and improving our knowledge management capabilities
If we are unable to manage our growth or the quality of our services, our
ability to retain clients and key personnel, our reputation and results of
operations could be harmed.
We expect to report operating losses in 2000 and 2001
We have reported an operating loss for the year ended December 31, 1999, and
we anticipate incurring losses in 2000 and 2001 as well. As we strive to grow
our business, we expect to spend significant funds for general corporate
purposes, including working capital, marketing, recruiting and hiring
additional personnel, upgrading our infrastructure and expanding into new
geographic markets. Although our revenues have increased in recent periods, we
cannot assure you that we will sustain these growth rates. To the extent that
our revenues do not increase at a rate commensurate with these costs and
expenditures, our results of operations and our stock's performance could be
harmed. In particular, we expect that our plan for increases in expenses and
capital expenditures over the next year will result in higher operating losses.
If we achieve profitability in the future, it may or may not be sustainable.
The loss of our professionals, or our inability to recruit additional
professionals, would make it difficult for us to complete existing projects and
bid for new projects, which could cause our business to suffer
Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining experienced, knowledgeable professionals. If a
significant number of our current professionals leave, we may be unable to
complete or retain existing engagements or bid for new projects. In addition,
former employees may compete with us in the future.
5
<PAGE>
Even if we retain our current employees, we must continually recruit and
train talented professionals in order for our business to grow. There is
currently a shortage of qualified professionals in the Internet professional
services field, and this shortage is likely to continue. Furthermore, there is
significant competition for employees with the skills required to perform the
services we offer. We cannot give any assurances that we will be able to
attract a sufficient number of qualified employees in the future, or that we
will be successful in motivating and retaining the employees we are able to
attract. If we cannot attract, motivate and retain qualified professionals, our
business, financial condition and results of operations will suffer.
We depend on our key management personnel, and the loss of any key executive or
manager may harm our ability to obtain and retain client engagements, maintain
a cohesive culture and compete effectively
We believe that our success will depend on the continued employment of our
key management personnel. This dependence is particularly important to our
business because we believe personal relationships are critical to obtaining
and maintaining client engagements and maintaining a cohesive culture. If one
or more members of our key management personnel were unable or unwilling to
continue in their present positions, such persons would be very difficult to
replace and our business could be seriously harmed. In addition, if any of
these key employees joins a competitor or forms a competing company, some of
our clients might choose to use the services of that competitor or new company
instead of our own. Furthermore, clients or other companies seeking to develop
in-house information technology services capabilities may hire away some of our
key employees. This would not only result in the loss of key employees but
could also result in the loss of a client relationship or a new business
opportunity. Any of the foregoing could seriously harm our business.
Our management team has limited experience working together
We have employed our president and chief executive officer only since
January 1999. Four of our officers have joined us within the past 12 months.
Therefore, there has been little or no opportunity to evaluate the
effectiveness of our executive management team. The failure of our executive
management to function effectively as a team in this industry may hurt our
ability to manage our business and growth, obtain and execute client
engagements, maintain a cohesive culture and compete effectively, which could
seriously harm our business.
We depend heavily on our principal clients. The loss of a principal client or a
reduction in the work we perform for any particular client could harm our
financial condition and reputation
We derive a significant portion of our revenue from a limited number of
clients. In 1999, our five largest clients accounted for approximately 75% of
our revenues, with ADP and ePolicy.com each accounting for over 10% of our
revenues. The volume of work performed for our principal clients may not be
sustained from year to year, and there is a risk that once we complete an
engagement, these principal clients may not retain us for additional work in
the future. Any cancellation, deferral or reduction in work performed for one
of these principal clients or a number of smaller clients could harm our
financial condition, results of operations and reputation.
Our business may be harmed by cost overruns and penalties associated with
fixed-price, fixed-time contracts if we fail to accurately estimate the time
and resources necessary for the performance of our services
For the year ended December 31, 1999, approximately 88% of our revenues was
derived from fixed-price, fixed-time contracts. We expect that most of our
future revenues will continue to be derived from fixed-price, fixed-time
contracts. Our contracts may provide for financial penalties if we do not meet
specified deadlines. To mitigate losses from fixed-price, fixed-time contracts,
we must, among other things:
. accurately estimate the resources required to perform these contracts
. complete our clients' projects on a timely basis
6
<PAGE>
. effectively manage our clients' expectations
. complete projects within budget and to our clients' satisfaction
If we do not successfully manage these project risks, we could be exposed
to cost overruns and penalties. We have occasionally had to commit
unanticipated additional resources to complete projects, and we may have to
take similar actions in the future. If this occurs in connection with a large
project or a sufficient number of projects, we may suffer lower gross margins
and delays in recognizing revenues, and our financial condition, results of
operations and reputation could be harmed.
Our clients may delay or terminate projects before completion, which could
harm our revenues and earnings
In general, our clients may terminate project engagements without notice
and without penalty. This may make our results of operations difficult to
predict. If a client reduces the scope of, delays the start of or terminates a
project, this could result in lower revenues and underutilized employees and,
as a result, could harm our earnings.
Quarterly fluctuations in our revenues and earnings could affect the market
price of our common stock
Our revenues and earnings may vary from quarter to quarter as a result of a
number of factors, including:
. the number, size and scope of client engagements commenced or completed
during a quarter
. professional staff utilization rates
. unanticipated project terminations, delays or deferrals
. the accuracy of our estimates of resources required to complete ongoing
projects
. the contractual terms and degree of completion of projects in which we
are engaged
A large percentage of our expenses, particularly employee compensation and
rent, are fixed in advance of any particular quarter. In addition, we may
incur unanticipated expenses relating to increased utilization of
subcontractors. Any decline in revenues or earnings, unanticipated project
termination or delay, or greater than expected costs for any quarter could
harm our results of operations and result in a decline in the market price of
our common stock, even if not reflective of any long-term problems with our
business.
Expansion of our service offerings may not be successful and we may lose
opportunities to expand our business
In addition to growing our business within the disciplines in which we
currently focus, an element of our strategy is to expand our service
offerings, including the applications management and support offerings added
as a result of our recent acquisition of XTEND-Tech. Successful expansion of
our service offerings will require:
. attracting, training, assimilating and retaining talented personnel
. marketing and delivering expanded services
. establishing relationships with vendors and technology providers
We cannot assure you that this expansion of our service offerings will be
successful. Failure to develop additional solutions and service offerings on a
timely basis could cause us to lose opportunities for business with both
existing and potential clients.
7
<PAGE>
We face significant competition from bigger, more established competitors who
have greater financial and technical resources and from new entrants in markets
that are new and rapidly changing
The business areas in which we compete are intensely competitive and subject
to rapid technological change. We expect competition to continue and intensify.
Our competitors fall into six major categories:
. Internet professional services firms
. information technology consulting and systems integration firms
. services divisions of computer hardware and software vendors
. web design firms
. information technology strategy consulting firms
. in-house information technology departments of our current and potential
clients
Many of our competitors have longer operating histories and client
relationships, greater resources, larger client bases and greater brand or name
recognition than we have. Our competitors may be able to respond more quickly
to technological developments and changes in clients' needs.
Further, there are low barriers to entry into our industry segment. We do
not own any technologies that preclude or inhibit potential competitors from
entering our industry. Since the potential market opportunity is large, while
costs to develop and provide Internet professional services are relatively low,
we expect to continue to face additional competition from new entrants into our
industry.
If we do not keep pace with technological changes, industry standards and
client preferences, our competitive position will suffer
Our success will depend in part on our ability to develop information
technology solutions that keep pace with continuing changes in Internet
technology, evolving industry standards and changing client preferences. We
cannot give any assurances that we will be successful in addressing these
developments on a timely basis, or at all. Our failure to respond quickly and
cost-effectively to new developments could cause us to lose current and
potential business opportunities and harm our business and results of
operations.
In particular, we have derived a significant portion of our revenues from
projects based primarily on:
. open systems technologies
. multi-tier software architectures
. Internet-based architectures
These areas are continuing to develop and are subject to rapid change. Any
factors impeding the acceptance of information technology systems using
Internet-based architectures could harm our business, especially if we are
unable to develop skills and replacement technologies for these types of
information technology systems.
We may face intellectual property claims that may be costly to resolve or limit
our ability to use intellectual property in the future
We cannot give any assurances that our services do not infringe on the
intellectual property rights of others or that an infringement claim filed
against us will be successfully defended. A successful infringement claim
against us could harm us in the following ways:
. we may be liable for damages and litigation costs, including attorneys'
fees
. we may be enjoined from further use of the intellectual property in
dispute
8
<PAGE>
. we may have to license the intellectual property, incurring licensing
fees
. we may have to develop a non-infringing alternative, which could be
costly and delay projects
. we may have to indemnify clients with respect to losses incurred as a
result of our infringement of the intellectual property
Regardless of the outcome, an infringement claim could result in
substantial costs, diversion of resources and management attention, clients'
termination of project engagements and harm to our financial condition and
reputation.
We may not have the right to resell or reuse intellectual property developed
for specific clients
Our LightSpeed delivery model and i2K architectural model, as well as our
knowledge management system, known as Inside Inventa, depend on using
information and techniques learned and developed during prior engagements.
Moreover, a portion of our business involves the development of software
applications for specific client engagements. Our clients generally retain
ownership of client-specific software, although we retain rights to some of
the applications, processes and other intellectual property developed in
connection with client engagements. Some clients have prohibited us from
marketing the applications developed for them, or similar applications, for
specified periods or to specified types of potential clients. We cannot give
assurances that clients will not demand similar or other restrictions in the
future. We cannot give any assurances that disputes will not arise that affect
our ability to resell or reuse such applications, processes and other
intellectual property, damage our relationships with our clients, divert our
management's attention or harm our business, financial condition and results
of operations.
If we are unable to achieve anticipated benefits from the XTEND-Tech
acquisition or future acquisitions, joint ventures and strategic investments,
our business may suffer
On January 26, 2000, we completed our acquisition of XTEND-Tech. We may
seek to expand our solutions and service offerings and gain access to new
technologies and clients through future acquisitions, joint ventures and
strategic investments. Some of the risks that we may encounter in connection
with the XTEND-Tech acquisition and any future acquisitions, joint ventures
and strategic investments include:
. expenses, delays and difficulties of integrating the acquired company
into our existing organization and our culture
. loss of employees from the acquired company following the acquisition
. expenses and difficulties in identifying future acquisitions and
investment opportunities and the costs associated with acquisitions and
investments that are abandoned before completion
. diversion of management's attention during the target selection,
negotiation and integration processes
. impact on our financial condition due to the timing of the acquisition or
investment
. expense of amortizing an acquired company's intangible assets, which
could be significant in light of the high valuations of many companies in
the information technology industry
. any undisclosed or potential liabilities of the acquired company,
including employment, intellectual property, and warranty and product
liability related problems
Any of these factors could harm our business, financial condition,
reputation and results of operations.
If we are unable to maintain our reputation and expand our name recognition,
we may have difficulty in attracting new clients, partners and professionals
and our business may suffer
We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and expanding our client base and
professional staff. We also believe that the importance of
9
<PAGE>
reputation and name recognition will increase due to the growing number of
Internet professional services firms. If our reputation is damaged or if
potential clients are not familiar with us or the services we provide, we may
become less competitive or lose our market position. Promotion and enhancement
of our name will depend largely on our success in continuing to provide large,
complex, integrated Internet technology solutions. If clients do not perceive
our solutions to be effective or of high quality, our brand name and reputation
will suffer. In addition, if solutions we provide have defects, critical
business functions of our clients may fail, and we would likely suffer adverse
publicity as well as economic liability.
If we fail to secure written contracts, our ability to collect fees, protect
our intellectual property and protect ourselves from liability to others could
be impaired
We attempt to protect ourselves by entering into written contracts with our
clients covering the terms and contingencies of a project engagement. In some
cases we perform work for clients on the basis of a limited statement of work
or verbal agreements before a detailed written contract can be finalized. To
the extent that we fail to have detailed written contracts in place, our
ability to collect fees, recognize revenues, protect our intellectual property
and protect ourselves from liability to others may be impaired.
If we are not successful in opening and growing new offices, our financial
results may suffer
A key component of our strategy is to open offices in new geographic
locations. Once we select a new location, we typically devote substantial
financial and management resources to launch and grow that office. We cannot
assure you that we will select appropriate markets to enter, open new offices
efficiently or manage new offices profitably. Our failure to accurately assess
these issues could harm our business.
We may need additional capital in the future, which may not be available to us.
The raising of any additional capital may dilute your ownership in us
We may need to raise additional funds through public or private debt or
equity financings in order to:
. take advantage of opportunities, including rapid expansion of our
business or acquisitions of complementary businesses or technologies
. develop new services
. respond to competitive pressures
. fund operating losses
Any additional capital raised through borrowings or the sale of our equity
securities may dilute your ownership percentage in our company, or the debt or
securities issued may be entitled to priority of payment, including priority in
any bankruptcy or liquidation. Furthermore, we cannot assure you that any
additional financing we may need will be available on terms favorable to us, or
at all. In such case, our business results would suffer.
10
<PAGE>
Risks Related to Our Industry
Our business may suffer if growth in the use of the Internet declines
Because Internet technologies are central to many of our solutions, our
business depends upon continued growth in the use of the Internet by our
clients, prospective clients and their suppliers and other trading partners.
Capacity constraints caused by growth in Internet usage may, unless resolved,
impede further growth in Internet use. Factors that may affect Internet usage
or e-Commerce adoption include:
. actual or perceived lack of security of information
. lack of easy access and ease of use
. congestion of Internet traffic or other usage delays
. inconsistent quality of service
. increases in costs of accessing the Internet
. adverse government regulation
. uncertainty regarding intellectual property ownership
. reluctance of companies to adopt new business methods
. costs associated with the obsolescence of existing infrastructure
. lack of economic viability of the e-Commerce model
If the number of business users on the Internet does not increase and
commerce over the Internet does not become more accepted and widespread, demand
for our services may decrease and our business and results of operations could
suffer.
Market acceptance of our industry is uncertain
Widespread market acceptance of the outsourcing of the design, development
and maintenance of Internet-based applications to Internet professional
services firms is uncertain. Many of our potential clients may ultimately
decide to perform these services in-house. In-house personnel may have better
access to both key client decision-makers and the information required to
prepare proposals for such solutions. If independent providers of Internet
professional services prove to be unreliable, ineffective or too expensive, or
if software companies develop tools that are sufficiently user-friendly and
cost-effective, companies may instead choose to design, develop or maintain
their Internet-based applications internally. We will be harmed if the market
for our services does not continue to develop or develops more slowly than we
expect, or if the market does not accept our services.
Government regulation and legal uncertainties relating to the Internet could
decrease demand for our services, increase our operating costs or otherwise
harm our business
Increased regulation of the Internet or taxation of e-Commerce might slow
the growth in use of the Internet, which could decrease demand for our
services, increase our cost of doing business or otherwise harm our business.
Congress, federal regulatory agencies and the states have recently passed
legislation or taken other actions regulating certain aspects of the Internet,
including:
. online content . liability for third-party activities
. interaction with children . transmission of sexually explicit
materials
. copyright infringement . defamation
. user privacy . consumer protection
. taxation . jurisdiction
. access charges
11
<PAGE>
In addition, federal, state and local governmental organizations as well as
foreign governments are considering other legislative and regulatory proposals
that would regulate these and other aspects of the Internet. We do not know how
courts will interpret laws governing the Internet or the extent to which they
will apply existing laws to the Internet. Therefore, we are not certain how
existing or future laws governing the Internet or applied to the Internet will
affect our business.
Risks Related to our Common Stock
Our common stock has not been traded publicly. The initial public offering
price may not be indicative of the market price of our common stock after this
offering, and the market price of our common stock, like the market prices of
the stocks of other technology companies, may fluctuate widely and rapidly
There is currently no public market for our common stock, and we cannot
assure you that an active trading market will develop or be sustained after
this offering. The initial public offering price will be determined through
negotiation between us and representatives of the underwriters and may not be
indicative of the market price for our common stock after this offering.
The market price of our common stock could fluctuate significantly as a
result of:
. our susceptibility to quarterly variations in our operating results,
which may cause us to fail to meet analysts' or investors' expectations
. changes in financial estimates by the analysts following our stock
. earnings and other announcements by, and changes in investors'
evaluations of, Internet professional services firms
. economic and stock market conditions specific to Internet professional
services firms
. changes in business or regulatory conditions affecting information
technology services
. announcements or implementation by us or our competitors of technological
innovations or new products or services
. trading volume of our common stock
The securities of many companies have experienced significant price and
volume fluctuations in recent years, often unrelated to the companies'
operating performance. Specifically, market prices for securities of Internet-
related and technology companies have frequently reached elevated levels, often
following their initial public offerings. These levels, if attained in the
future, may not be sustainable and may not bear any relationship to these
companies' operating performances. If the market price of our common stock
reaches an elevated level following this offering, it may significantly and
rapidly decline. In the past, following periods of volatility in the market
price of a company's securities, stockholders have often instituted securities
class action litigation against the company. If we were to become involved in a
class action suit, it could divert the attention of senior management, and, if
adversely determined, our business and financial condition could suffer.
The sale or availability for sale of substantial amounts of our common stock
could cause a decline in the market price of our common stock
Sales of substantial amounts of our common stock in the public market after
the completion of this offering, or the perception that these sales could
occur, could cause a decline in the market price of our common stock and could
impair our future ability to raise capital through offerings of our common
stock. There will be shares of common stock outstanding immediately
after this offering, or shares if the underwriters exercise their
over-allotment option in full. The shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless held
12
<PAGE>
by our "affiliates" as that term is defined in Rule 144 under the Securities
Act. The 20,724,913 shares of common stock outstanding prior to this offering
are "restricted securities" as defined in Rule 144 and may not be sold in
absence of registration other than in accordance with Rule 144, Rule 144(k) or
Rule 701 under the Securities Act or another exemption from registration.
In connection with this offering, we, our executive officers and directors
and a number of our stockholders have agreed, except in limited circumstances,
not to sell any shares of common stock for 180 days after completion of this
offering without the consent of Lehman Brothers Inc. These shares, however, may
be released from these restrictions by Lehman Brothers Inc. at any time. We
cannot predict what effect, if any, market sales of shares held by principal
stockholders or any other stockholder or the availability of these shares for
future sale will have on the market price of our common stock.
A number of our stockholders are parties to an agreement with us that
provides these stockholders with the right to require us to register the sale
of shares owned by them. These rights cover approximately 15,965,511 shares,
representing % of our common stock outstanding after this offering and will
also cover any shares obtained by these stockholders from time to time.
Registration of these shares of our common stock would permit the sale of these
shares without regard to the restrictions of Rule 144 and Rule 144(k).
Concentration of ownership of our common stock may limit your ability to
influence corporate matters
Immediately following this offering, our executive officers and directors,
or entities controlled by them, will own approximately % of the outstanding
shares of our common stock.
If our significant stockholders choose to act or vote together on corporate
matters, they will have the power to control the approval of any action
requiring the approval of our stockholders, including any mergers,
acquisitions, sales of all of our assets or amendments to our certificate of
incorporation. In addition, without the consent of these stockholders, we could
be prevented from entering into transactions that could be beneficial to us.
Also, third parties could be discouraged from making a tender offer or bid to
acquire our company at a price per share that is above the then-prevailing
market price.
The net proceeds of this offering may be allocated in ways with which you and
other stockholders may not agree
Our management will have significant flexibility in applying the proceeds we
receive in this offering. Because the proceeds are not required to be allocated
to any specific purpose, investment or transaction, you cannot determine at
this time the value or propriety of our management's application of the
proceeds on our behalf and you and other stockholders may not agree with our
management's decisions.
Investors in this offering will experience immediate and substantial dilution
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$ per share, representing the difference between our net tangible book
value per share as of December 31, 1999, after giving effect to this offering
and the initial public offering price of $ per share. In addition, you may
experience further dilution to the extent that shares of our common stock are
issued upon the exercise of stock options or under our employee stock purchase
plan. All of the shares issuable upon the exercise of currently outstanding
stock options will be issued at a purchase price less than the public offering
price per share in this offering.
13
<PAGE>
Antitakeover provisions of Delaware's General Corporation Law and our
certificate of incorporation could delay or deter a change in control
Amendments to our certificate of incorporation and our bylaws, as well as
various provisions of the Delaware General Corporation Law, may make it more
difficult to effect a change in control of our company. The existence of these
provisions may adversely affect the price of our common stock, discourage third
parties from making a bid for us or reduce any premiums paid to our
stockholders for their common stock. For example, our certificate of
incorporation authorizes our board of directors to issue up to 14,779,511
shares of blank check preferred stock and to attach special rights and
preferences to this preferred stock. The issuance of this preferred stock may
make it more difficult for a third party to acquire control of us. Our
certificate of incorporation also provides for the division of our board of
directors into three classes as nearly equal in size as possible with staggered
three-year terms. This classification of the board of directors could have the
effect of making it more difficult for a third party to acquire our company, or
of discouraging a third party from acquiring control of us.
Forward-looking statements contained in this prospectus may not be realized
This prospectus contains forward-looking statements that involve risk and
uncertainties. These forward-looking statements relate to, among other things,
our competition, strength of business model, strategy, plans and timing of the
introduction of new services, plans for entering into strategic relationships
and making acquisitions, and other expectations, intentions and plans contained
in this prospectus that are not historical facts.
When used in this prospectus, the words "expects," "anticipates," "intends,"
"plans," "may," "believes," "seeks," "estimates" and similar expressions
generally identify forward-looking statements. These statements reflect our
current expectations. They are subject to a number of risks and uncertainties,
including but not limited to, changes in technology and changes in the Internet
professional services market. In light of the many risks and uncertainties
surrounding the Internet professional services market, we cannot assure you
that the forward-looking statements contained in this prospectus will be
realized.
14
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the offering will be
approximately $ at an assumed initial public offering price of
$ per share (the mid-point of the range) and approximately
$ if the underwriters exercise the over-allotment option in full, in
each case, after deducting the estimated underwriting discount and estimated
offering expenses payable by us.
We intend to use the net proceeds of the offering primarily for general
corporate purposes, including:
. reducing outstanding debt of approximately $4.0 million, which is due
November 30, 2000, and bears interest at the prime rate plus 2.00%
(currently 10.75%)
. increasing our recruiting capabilities
. expanding our sales and marketing capabilities
. increasing our brand awareness
. investing in our internal systems and processes
. opening new offices
In addition, we may use the proceeds to make selected strategic investments
or acquisitions. We cannot specify with certainty all or particular allocations
of the use of proceeds from this offering.
DIVIDEND POLICY
We have never declared or paid any cash dividends and we do not anticipate
paying cash dividends in the foreseeable future. We currently intend to retain
future earnings, if any, to finance operations and the expansion of our
business. Any future determination to pay dividends will be at the sole
discretion of the board of directors and will depend upon our financial
condition, operating results, capital requirements and other factors our board
of directors deems relevant. In addition, our current line of credit facilities
restrict our ability to declare and pay any dividends without the prior consent
of our lenders.
15
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization and our unaudited
pro forma and unaudited pro forma, as adjusted, capitalization as of December
31, 1999. You should read this information in conjunction with our consolidated
financial statements and related notes to those consolidated financial
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term borrowings and capital lease
obligations, current portion.................. $ 192 $ 241 $
======== ======== ====
Long-term borrowings and capital lease
obligations, net of current portion........... 454 562
-------- -------- ----
Mandatorily redeemable convertible preferred
stock:
Series B, $0.001 par value; 2,560,000 shares
authorized; 2,560,000 shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma and pro forma, as
adjusted.................................... 4,195 -- --
Series C, $0.001 par value; 8,219,511 shares
authorized; 8,055,511 shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma and pro forma, as
adjusted.................................... 13,203 -- --
Series D, $0.001 par value; 3,000,000 shares
authorized; no shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma and pro forma, as
adjusted.................................... -- -- --
-------- -------- ----
17,398 -- --
-------- -------- ----
Series A convertible preferred stock, $0.001
par value; 1,000,000 shares authorized;
1,000,000 shares issued and outstanding,
actual; no shares issued and outstanding,
pro forma and pro forma, as adjusted........ 1 --
Common stock, $0.001 par value; 25,000,000
shares authorized; 4,759,402 shares issued
and outstanding, actual; 19,373,475 shares
issued and outstanding, pro forma and pro
forma, as adjusted.......................... 5 20
Additional paid-in capital................... 2,238 58,772
Deferred stock-based compensation............ (4,340) (9,308)
Accumulated comprehensive loss............... (93) (93)
Accumulated deficit.......................... (15,308) (20,108)
-------- -------- ----
Total stockholders' equity (deficit)....... (17,497) 29,283
-------- -------- ----
Total capitalization..................... $ 547 $ 30,086 $
======== ======== ====
</TABLE>
The foregoing table excludes the following shares at December 31, 1999:
. 3,492,000 shares of common stock issuable upon exercise of outstanding
options with a weighted average exercise price of $0.42 per share
. 5,355,000 shares of common stock available for future grant as of
December 31, 1999
For a description of the assumptions underlying the unaudited pro forma and
unaudited pro forma, as adjusted, data, see "Summary Consolidated Financial
Data."
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<PAGE>
DILUTION
On a pro forma basis after giving effect to the conversion of all
outstanding shares of preferred stock into shares of common stock in connection
with this offering, our pro forma net tangible book value as of December 31,
1999, was $ or $ per share of common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities and divided by the total number of shares
of common stock outstanding (reflecting the conversion of all outstanding
shares of preferred stock into shares of common stock upon the closing of this
offering). Without taking into account any other change in our pro forma net
tangible book value after December 31, 1999, other than to give effect to the
sale of shares of common stock offered by this prospectus at an
assumed initial public offering price of $ per share and receipt of the
estimated net proceeds therefrom, our pro forma net tangible book value as of
December 31, 1999, would have been approximately $ or $ per
share. This represents an immediate increase in such net tangible book value of
$ per share to existing stockholders and an immediate dilution of
$ per share to the new investors. If the initial public offering price
is higher or lower, the dilution to new investors will be, respectively,
greater or less. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $
-----
Pro forma net tangible book value per share as of December 31,
1999.......................................................... $
Increase per share attributable to new investors............... $
-----
Pro forma net tangible book value per share after this
offering...................................................... $
-----
Net tangible book value dilution per share to new investors.... $
=====
</TABLE>
The following table sets forth as of December 31, 1999, the difference
between the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by the existing
stockholders and by the new investors at an assumed initial public offering
price of $ per share for shares purchased in this offering, before
deducting the estimated underwriting discounts and estimated offering expenses:
<TABLE>
<CAPTION>
Shares
Purchased Total Consideration Average
-------------- --------------------- Price Per
Number Percent Amount Percent Share
------ ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... % $ % $
New investors............... $
--- ----- --------- ----------
Total..................... 100.0% $ 100.0%
=== ===== ========= ==========
</TABLE>
This table assumes that the underwriters do not exercise their over-
allotment option. If the underwriters' over-allotment option is exercised in
full, the pro forma, as adjusted net tangible book value per share after giving
effect to this offering would be $ per share. After deducting underwriting
discounts and commissions and estimated transaction expenses, the increase in
the net tangible book value per share to existing stockholders would be $
and the dilution to new public investors would be $ per share.
This table also assumes that no options or warrants have been or are
exercised after December 31, 1999. As of December 31, 1999, there were
outstanding options to purchase an aggregate of shares of common stock
at a weighted average exercise price of $ per share (excluding warrants to
purchase shares of Series C Preferred Stock at $ per share). If all
such options and warrants had been exercised on December 31, 1999, our net
tangible book value on such date would have been $ or $ per
share, the increase in net tangible book value attributable to new investors
would have been $ per share and the dilution in net tangible book value to
new investors would have been $ per share.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1997, 1998 and 1999, and the consolidated balance
sheet data at December 31, 1997, 1998 and 1999, are derived from the audited
consolidated financial statements included elsewhere in this prospectus. The
selected consolidated statement of operations data for the year ended
December 31, 1996, and the consolidated balance sheet data at December 31,
1996, are derived from our audited consolidated financial statements not
included in this prospectus. The selected consolidated statement of operations
data for the year ended December 31, 1995 and the consolidated balance sheet
data at December 31, 1995 are derived from our unaudited consolidated financial
statements that include, in our opinion, all adjustments, consisting of only
normal recurring adjustments, necessary for fair presentation of the financial
condition at that date and results of operations for such period. The
historical results presented below are not necessarily indicative of the
results to be expected for any future period. The selected consolidated
financial data should be read in conjunction with our consolidated financial
statements and the notes to those consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" located elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------- ------- --------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues................... $2,416 $5,032 $ 5,196 $ 8,016 $ 13,520
Operating expenses:
Project personnel......... 1,185 2,635 2,677 2,799 8,610
Sales and marketing....... 72 135 1,671 1,838 4,230
General and
administrative........... 951 2,123 3,456 4,520 9,434
Depreciation.............. 149 131 187 251 562
Amortization of deferred
stock-based
compensation............. -- -- -- 50 1,555
Non-recurring expenses on
closing of foreign
operations............... -- -- -- 250 --
------ ------ ------- ------- --------
Total operating
expenses................ 2,357 5,024 7,991 9,708 24,391
------ ------ ------- ------- --------
Income (loss) from
operations................ 59 8 (2,795) (1,692) (10,871)
Other income (expense),
net....................... (16) (51) (79) 36 (5)
------ ------ ------- ------- --------
Income (loss) before income
taxes..................... 43 (43) (2,874) (1,656) (10,876)
Income tax benefit
(expense)................. (16) 14 (90) (2) (15)
------ ------ ------- ------- --------
Net income (loss).......... 27 (29) (2,964) (1,658) (10,891)
Accretion of mandatorily
redeemable convertible
preferred stock to
redemption value.......... -- -- -- -- (4,128)
------ ------ ------- ------- --------
Net income (loss)
attributable to common
stockholders.............. $ 27 $ (29) $(2,964) $(1,658) $(15,019)
====== ====== ======= ======= ========
Net income (loss) per
share:
Basic and diluted......... $ 0.01 $(0.01) $ (0.65) $ (0.36) $ (3.20)
====== ====== ======= ======= ========
Weighted average shares... 4,529 4,541 4,557 4,659 4,698
Pro forma net loss per
share (unaudited):
Basic and diluted......... -- -- -- -- $ (0.75)
========
Weighted average shares... -- -- -- -- 14,447
========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------- ------- --------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....... $ 68 $ 48 $ 671 $ 4,783 $ 3,244
Working capital................. 387 317 429 3,802 (1,935)
Total assets.................... 954 1,878 1,822 6,295 9,222
Long-term borrowings and capital
lease obligations, net of
current portion................ 37 70 192 373 454
Mandatorily redeemable
convertible preferred stock.... -- -- 3,200 8,270 17,398
Total stockholders' equity
(deficit)...................... 627 600 (2,496) (4,125) (17,497)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected
Consolidated Financial Data," our consolidated financial statements and the
notes to those financial statements located elsewhere in this prospectus. In
addition to historical information, this discussion contains forward-looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by such forward-looking information
due to competitive factors, risks associated with our expansion plans and other
factors discussed under "Risk Factors" and elsewhere in this prospectus.
Overview
Revenues. Our revenues are substantially derived from fixed-price, fixed-
time contracts. Revenues earned under fixed-price, fixed-time projects are
recognized on the percentage-of-completion method based on the ratio of actual
costs incurred to total estimated costs. We recognize revenues on our other
projects on a time and materials basis. Revenues exclude reimbursable expenses
charged to clients.
Approximately 88% of our revenues for the year ended December 31, 1999, was
derived from fixed-price, fixed-time arrangements. We expect the percentage of
our revenues that is derived from fixed-price, fixed-time projects may decrease
in the future.
Due to our use of fixed-price contracts, our operating results may be harmed
by inaccurate estimates of costs and time required to complete projects.
Therefore, we closely monitor project progress through a series of processes
designed to help estimate cost and time to completion, including a detailed
review at the end of each project stage to determine project percentage of
completion. We typically receive an advance payment from our clients upon
contract signing, with additional payments upon our attainment of project
milestones. Deferred revenues consist primarily of payments received in advance
of services rendered. We recognize those payments as revenues upon performance
of services.
Cost Structure. Project personnel expenses consist primarily of payroll,
associated taxes, employee benefits, any third-party fees and net travel costs
incurred in the delivery of our services. Sales and marketing expenses consist
primarily of personnel costs and commissions as well as the costs associated
with the development and maintenance of our marketing materials and programs.
General and administrative expenses consist primarily of the costs associated
with operations management, finance, human resources, information systems,
facilities and other administrative support for project personnel.
We regularly review the fees we charge for our services, our employee
compensation and our overhead costs in an effort to remain competitive within
our industry. In addition, we monitor the progress of our projects with our
clients' senior management. Monitoring the costs and progress associated with
each project is aided by our intranet-based project management systems. We
manage the activities of our service delivery personnel by closely monitoring
project schedules and staffing requirements for new projects. Most of our
client projects can, and may in the future, be terminated by our clients
without penalty. However, our contracts generally provide that we will be
compensated based on the percentage of work completed relative to the fixed
price of the engagement. Termination of a client project could require us to
maintain underutilized employees, resulting in a higher than expected number of
inactive professionals. We maintain a sufficient number of senior professionals
to oversee existing and anticipated client projects and participate in our
sales efforts to engage new client projects.
Variability of Operating Results. Our operating results have fluctuated from
quarter to quarter and may continue to fluctuate in the future. These
fluctuations may be significant. We may not always forecast accurately the
frequency and duration of our projects. We incur expenses, which are mainly
fixed expenses, based on our expectations concerning the costs of our future
projects. We may not be able to reduce our spending in a timely manner to
compensate for any shortfall in our projected revenues. In the event of such a
20
<PAGE>
shortfall, our expenses as a percentage of our revenues would increase. Our
quarterly operating results may not meet the expectations of analysts or
investors. This may cause a decline in the market price of our common stock.
Recent Net Losses. Our net loss was $10.9 million for the year ended
December 31, 1999, compared to $1.7 million for the year ended December 31,
1998. We primarily attribute our increased net losses to higher project
personnel expenses, sales and marketing expenses and general and administrative
expenses. The overall increase in expenses was primarily attributable to costs
incurred to expand or increase the number of project personnel as well as
significant investment in office facilities and related infrastructure
management and administrative personnel and sales and marketing.
Recent Events. In January 2000, we acquired the business of XTEND-Tech, a
30-employee information technology consulting organization serving Global 1000
companies. We issued 1,350,000 shares of our common stock in connection with
this acquisition with an estimated fair value of approximately $12.2 million.
This consideration consisted of a combination of the purchase price paid for
the outstanding common stock of XTEND-Tech and consideration to certain
employee shareholders of XTEND-Tech for continued employment with us. The
acquisition was accounted for using the purchase method of accounting. The
total amount of the consideration treated as purchase price for this
acquisition was approximately $7.2 million and was allocated to the tangible
and intangible assets acquired and liabilities assumed based upon their
respective fair values at the acquisition date. The amortization of the
intangible assets will occur over the estimated periods to be benefited. In
connection with this acquisition we signed restricted stock agreements with
certain employee shareholders of XTEND-Tech as consideration for continued
employment. The fair value of the unvested shares, which relate to these
restricted stock agreements, amounting to $5.0 million, has been recorded as
deferred stock-based compensation, which will be amortized over the three-year
vesting period of the restricted stock.
Results of Operations
The following table sets forth, as a percentage of revenues, our
consolidated statement of operations for the years ended December 31, 1997,
1998, and 1999.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues.................. 100% 100% 100%
Operating expenses:
Project personnel........ 51 35 63
Sales and marketing...... 32 23 31
General and
administrative.......... 67 56 70
Depreciation............. 3 3 4
Amortization of deferred
stock-based
compensation............ -- 1 12
Non-recurring expenses on
closing of foreign
operations.............. -- 3 --
--- --- ---
Total operating
expenses............... 153 121 180
--- --- ---
Income (loss) from
operations............... (53) (21) (80)
Other income (expense),
net...................... (2) -- --
--- --- ---
Income (loss) before
income taxes............. (55) (21) (80)
Income tax benefit
(expense)................ (2) -- --
--- --- ---
Net income (loss)......... (57)% (21)% (80)%
=== === ===
</TABLE>
21
<PAGE>
1999 Compared to 1998
Revenues. Our revenues were $13.5 million for the year ended December 31,
1999, compared to $8.0 million for the year ended December 31, 1998. We
attribute our revenue growth to an increase in the volume of services delivered
to new clients, additional projects for existing clients and larger average
project sizes and increased billing rates.
Project Personnel Expenses. Project personnel expenses increased $5.8
million, or 208%, to $8.6 million for the year ended December 31, 1999, from
$2.8 million for the year ended December 31, 1998. The increase was primarily
attributable to the hiring of additional project personnel associated with the
increased demand for our services. Headcount for project personnel as of
December 31, 1999, was 112 compared to 36 as of December 31, 1998. As a
percentage of revenues, project personnel expenses were 63% for the year ended
December 31, 1999, and 35% for the year ended December 31, 1998.
Sales and Marketing Expenses. Sales and marketing expenses increased $2.4
million, or 130%, to $4.2 million for the year ended December 31, 1999, from
$1.8 million for the year ended December 31, 1998. The increase was due to our
investment in our sales and marketing programs. Headcount for sales and
marketing personnel increased to 15 at December 31, 1999, from 8 at December
31, 1998. As a percentage of revenues, sales and marketing expenses were 31%
for the year ended December 31, 1999, and 23% for the year ended December 31,
1998.
General and Administrative Expenses. General and administrative expenses
increased $4.9 million, or 108%, to $9.4 million for the year ended December
31, 1999, from $4.5 million for the year ended December 31, 1998. Office rent
expenses increased to $828,000 for the year ended December 31, 1999, from
$214,000 for the year ended December 31, 1998. Headcount for managerial and
administrative personnel increased to 39 as of December 31, 1999, from 13 as of
December 31, 1998. The increases in office rent expenses accounted for 12% of
the overall increase. In addition, personnel expenses accounted for 68% of this
increase. As a percentage of revenues, general and administrative expenses were
70% for the year ended December 31, 1999, and 56% for the year ended December
31, 1998.
Depreciation. Depreciation expense increased $311,000, or 124% to $562,000
for the year ended December 31, 1999, from $251,000 for the year ended December
31, 1998. The increase was attributable to capital expenditures for new
equipment and leasehold improvements.
Amortization of Deferred Stock-based Compensation. We recorded $1.6 million
in amortization of deferred stock-based compensation expense for the year ended
December 31, 1999. This expense represented the amortization of the difference
between the deemed fair value of the underlying options at the time of grant
and their exercise price.
Other Income (Expense), Net. Other expense was $5,000 for the year ended
December 31, 1999, compared to income of $36,000 for the year ended December
31, 1998. The variance was primarily due to an increase in interest expense.
The average aggregate balance outstanding on our line of credit and term loan
was $1.2 million during the year ended December 31, 1999, as compared to
$172,000 during the year ended December 31, 1998. Interest expense under these
facilities was $106,000 for the year ended December 31, 1999, and $56,000 for
the year ended December 31, 1998.
Income Tax Expense. We incurred income tax expense of $15,000 for the year
ended December 31, 1999, and $2,000 for the year ended December 31, 1999. As of
December 31, 1999, we had approximately $13.0 million of federal net operating
loss carryforwards and approximately $11.0 million of state net operating loss
carryforwards available to offset future taxable income. The federal net
operating loss carryforwards will expire between 2011 and 2019 and the state
net operating loss carryforwards will expire between 2004 and 2006, if not
utilized.
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances including, but not limited to, a cumulative stock ownership
change of more than 50% over a three-year period, as defined. Any unused annual
limitation may be carried forward to future years for the balance of the net
operating loss carryforward period.
22
<PAGE>
1998 Compared to 1997
Revenues. Our revenues were $8.0 million for the year ended December 31,
1998, compared to $5.2 million for the year ended December 31, 1997. We
attribute our revenue growth to an increase in the volume of services delivered
to new clients and additional projects for existing clients.
Project Personnel Expenses. Project personnel expenses increased by
$122,000, or 5%, to $2.8 million for the year ended December 31, 1998, from
$2.7 million for the year ended December 31, 1997. The increase was
attributable to the hiring of additional project personnel. As a percentage of
revenues, project personnel expenses were 35% for the year ended December 31,
1998, and 51% for the year ended December 31, 1997.
Sales and Marketing Expenses. Sales and marketing expenses increased by
$167,000, or 10%, to $1.8 million for the year ended December 31, 1998, from
$1.7 million for the year ended December 31, 1997. The increase in these
expenses was primarily attributable to the hiring of business development and
marketing personnel, increased public relations activities and the
implementation of new and continuation of our existing marketing programs.
Headcount for sales and marketing personnel increased to eight at December 31,
1998, from five at December 31, 1997. As a percentage of revenues, sales and
marketing expenses were 23% for the year ended December 31, 1998, and 32% for
the year ended December 31, 1997.
General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 31%, to $4.5 million for the year ended December 31,
1998, from $3.5 million for the year ended December 31, 1997. The increase was
primarily attributable to expenses incurred to accommodate our current and
anticipated growth, including the expansion of our office facilities and the
increased cost of management and administrative personnel and other general
operating expenses in the areas of accounting, human resources and general
operations. Office rent expenses increased to $214,000 for the year ended
December 31, 1998, from $157,000 for the year ended December 31, 1997.
Headcount for management and administrative personnel increased to 12 at
December 31, 1998, from six at December 31, 1997. As a percentage of revenues,
general and administrative expenses were 56% for the year ended December 31,
1998, and 67% for the year ended December 31, 1997.
Depreciation. Depreciation increased by $64,000 to $251,000 for the year
ended December 31, 1998, from $187,000 for the year ended December 31, 1997.
The increase was related to increased investments in furniture and equipment.
Amortization of Deferred Stock-based Compensation. We recorded $50,000 in
amortization of deferred stock-based compensation expense for the year ended
December 31, 1998. This expense represented the amortization of the difference
between the deemed fair value of the underlying options at the date of grant
and their exercise price.
Non-Recurring Expenses on Closing of Foreign Operations. In November 1998,
we announced our intention to close our operations in Malaysia. In conjunction
with this announcement, we recorded a reserve of $250,000 for anticipated
liquidation costs of our Malaysian subsidiary.
Other Income (Expense), Net. Other income increased by $115,000 to $36,000
for the year ended December 31, 1998, from an expense of $79,000 for the year
ended December 31, 1997. The increase was primarily attributable to increased
interest income and a decrease in interest expense related to borrowings under
our revolving line of credit and capital lease obligations. Interest expense
was $56,000 for the year ended December 31, 1998, and $83,000 for the year
ended December 31, 1997.
Income Tax Expense. We incurred a $2,000 income tax expense for the year
ended December 31, 1998, as compared with $90,000 for the year ended December
31, 1997. As of December 31, 1998 we had approximately $3.0 million of federal
net operating loss carryforwards and $2.0 million of state net operating loss
carryforwards available to offset future taxable income.
23
<PAGE>
Quarterly Operating Results
The following table sets forth a summary of our unaudited quarterly
consolidated operating results for each of our eight most recently ended fiscal
quarters. We have derived this information from our audited consolidated
financial statements, which in our opinion, have been prepared on a basis
consistent with our consolidated financial statements contained elsewhere in
this prospectus and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation in accordance with
generally accepted accounting principles when read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
prospectus. Our quarterly consolidated operating results are not necessarily
indicative of future results of operations.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------
Dec.
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- -------
(in thousands, unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $1,681 $2,040 $2,280 $2,015 $ 1,818 $ 1,907 $ 4,199 $ 5,596
Operating expenses:
Project personnel...... 611 655 739 794 1,168 1,561 2,531 3,350
Sales and marketing.... 425 575 518 320 798 706 1,056 1,670
General and
administrative........ 1,134 1,212 1,266 908 1,380 2,001 2,346 3,707
Depreciation........... 52 59 63 77 84 118 164 196
Amortization of
deferred stock-based
compensation.......... -- -- -- 50 179 225 432 719
Non-recurring expense
on closing of foreign
operations............ -- -- -- 250 -- -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Total operating
expenses............ 2,222 2,501 2,586 2,399 3,609 4,611 6,529 9,642
------ ------ ------ ------ ------- ------- ------- -------
Loss from operations.... (541) (461) (306) (384) (1,791) (2,704) (2,330) (4,046)
Other income (expense),
net.................... (15) 4 21 26 17 (7) 4 (19)
------ ------ ------ ------ ------- ------- ------- -------
Loss before income
taxes.................. (556) (457) (285) (358) (1,774) (2,711) (2,326) (4,065)
Income tax expense...... -- -- -- (2) (5) (5) (5) --
------ ------ ------ ------ ------- ------- ------- -------
Net loss................ $ (556) $ (457) $ (285) $ (360) $(1,779) $(2,716) $(2,331) $(4,065)
====== ====== ====== ====== ======= ======= ======= =======
As a Percentage of
Revenue:
Revenues................ 100% 100% 100% 100% 100% 100% 100% 100%
Operating expenses:
Project personnel...... 36 32 32 40 64 82 60 60
Sales and marketing.... 25 28 23 16 44 37 25 30
General and
administrative........ 68 59 56 45 76 105 56 66
Depreciation........... 3 3 3 4 5 6 4 3
Amortization of
deferred stock-based
compensation.......... -- -- -- 2 10 12 10 13
Non-recurring expense
on closing of foreign
operations............ -- -- -- 12 -- -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Total operating
expenses............ 132 122 114 119 199 242 155 172
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) from
operations............. (32) (22) (14) (19) (99) (142) (55) (72)
Other income (expense),
net.................... (1) -- 1 1 1 -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before
income taxes .......... (33) (22) (13) (18) (98) (142) (55) (72)
Income tax benefit
(expense).............. -- -- -- -- -- -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)....... (33)% (22)% (13)% (18)% (98)% (142)% (55)% (72)%
====== ====== ====== ====== ======= ======= ======= =======
</TABLE>
24
<PAGE>
Liquidity and Capital Resources
Since 1997, we have financed our operations primarily from sales of
preferred stock and borrowings under a line of credit and a term loan from a
commercial bank. As of December 31, 1999, we have raised approximately $17.7
million, net of offering expenses, $13.7 million through the sale of our
preferred stock and $4.0 million from a term loan. At December 31, 1999, we had
approximately $3.2 million in cash and cash equivalents.
Net cash used in operating activities was $2.2 million for the year ended
December 31, 1997, $340,000 for the year ended December 31, 1998, and $8.7
million for the year ended December 31, 1999. Cash used in operating activities
in each of these periods was primarily the result of net losses, adjusted for
non-cash items primarily related to depreciation, increases in accounts
receivable and fees and unbilled revenues, partially offset by increases in
accounts payable and accrued expenses.
Net cash used in investing activities was $50,000 for the year ended
December 31, 1997, $460,000 for the year ended December 31, 1998, and $1.3
million for the year ended December 31, 1999. Cash used in investing activities
in each period consisted primarily of purchases of furniture and equipment.
Net cash provided by financing activities was $2.9 million for the year
ended December 31, 1997, $4.9 million for the year ended December 31, 1998, and
$8.4 million for the year ended December 31, 1999. In 1997 and 1998, the cash
provided by our financing activities was primarily from the sale of our
preferred stock. For the year ended December 31, 1999, the cash provided from
our financing activities was primarily from the sale of our preferred stock and
borrowings under a term loan and equipment leases.
As of December 31, 1999, our principal commitments consisted of obligations
under equipment leases that funded our purchases of furniture and equipment and
proceeds from a term loan. The equipment leasing arrangements consist primarily
of us paying rental fees to third-party leasing providers at interest rates
between 11.0% and 13.0%. Borrowings under the term loan bear interest at the
prime rate plus 2.00% (10.75% currently), with accrued interest paid monthly,
and is due at November 30, 2000. As of December 31, 1999, we borrowed $4.0
million, the entire amount available under the term loan. Although we have no
material commitments for capital expenditures, we anticipate an increase in our
capital expenditures consistent with anticipated growth in our operations,
infrastructure and personnel.
Subsequent to December 31, 1999, we issued 3,000,000 shares of Series D
preferred stock in a private placement for gross proceeds of approximately
$22.2 million.
We believe that the net proceeds from this offering, combined with the
proceeds of the Series D private placement, the proceeds of the private
placement to be closed contemporaneously with this offering, current cash
balances and borrowing capacity under our credit facilities, will be sufficient
to fund our requirements for working capital and capital expenditures for at
least the next 12 months. Thereafter, we may sell additional equity or debt
securities or seek additional credit facilities. Sales of additional equity or
convertible debt securities would result in additional dilution to our
stockholders. We may need to raise additional funds sooner in order to support
expansion, develop new or enhanced services, respond to competitive pressures,
acquire complementary businesses or technologies or take advantage of
unanticipated opportunities. Our future liquidity and capital requirements will
depend upon numerous factors, including the success of our existing and new
service offerings and competing technological and market developments.
Additional financing, if any, may not be available on satisfactory terms.
Disclosure About Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
available funds for investment and on the increase or decrease in the amount of
interest expense we must pay with respect to our various outstanding debt
instruments. The risk
25
<PAGE>
associated with fluctuating interest expense is limited, however, to the
exposure related to those debt instruments and credit facilities that are tied
to variable market rates. We do not plan to use derivative financial
instruments in our investment portfolio. We plan to ensure the safety and
preservation of our invested principal funds by limiting default risks, market
risk and reinvestment risk. We plan to mitigate default risk by investing in
high-credit quality securities.
All of our revenues are realized currently in U.S. dollars and are from
customers primarily in the United States. Therefore, we do not believe that we
currently have any significant direct foreign currency exchange rate risk.
26
<PAGE>
BUSINESS
Overview
We are a leading Internet professional services firm providing B2B e-
Commerce solutions to Global 2000 companies and emerging digital businesses. We
architect, engineer, integrate and support complex B2B digital exchanges and
digital customer relationship management, or DCRM, solutions. Digital exchanges
are electronic marketplaces that enable businesses to dynamically collaborate
with trading partners, conduct e-Commerce, manage distribution relationships
and enhance business partnerships. DCRM is an Internet-based approach to
coordinating a company's customer relationships across communications channels,
business functions and trading partners.
We believe our capabilities are uniquely suited to developing the extremely
complex, highly integrated systems required for effective B2B e-Commerce
solutions. Our professionals create scalable, reliable and integrated business
solutions using our proprietary LightSpeed delivery model and i2K architectural
framework. We provide these solutions through our 149 professionals, who have
an average of ten years experience in business process analysis, technology
architecture, project management and software engineering.
Industry Background
The Internet enables millions of businesses and consumers to share
information and conduct commerce electronically. Businesses initially used
their Internet sites primarily for advertising and promotional purposes. As
Internet usage increased, businesses realized the Internet could also be used
as an effective medium for directly targeting consumers, improving
communications with customers and generating business-to-consumer, or B2C, e-
Commerce transactions. Forrester Research, Inc. estimates that the total value
of goods exchanged in the United States B2C e-Commerce market will exceed $100
billion by 2003. Driven by the scale and scope of this rapidly emerging
business opportunity, businesses began to develop increasingly complex, higher
transaction volume consumer-oriented websites.
While B2C e-Commerce was evolving, companies also began to use Internet
technology to streamline their internal operations and electronically integrate
select internal processes with other businesses, including their suppliers,
distributors and key business customers. Today, businesses are using Internet
technologies to improve their competitive positions by increasing operating
efficiencies, strengthening their trading partner relationships, and
identifying and capitalizing on emerging digital business opportunities by
developing various Internet-based business models. Forrester estimates that the
total value of goods exchanged in the United States B2B e-Commerce market will
increase from $43.1 billion in 1998 to $1.3 trillion in 2003, representing a
99% five-year compound annual growth rate.
An important emerging Internet-based business model is the digital exchange.
Digital exchanges provide Internet-based trading hubs where multiple buyers and
sellers communicate and conduct commerce. The creation of these exchanges
enables innovative methods for dynamic trading between business partners,
including auctions, reverse auctions, aggregation, inventory liquidation and
on-line negotiation. These electronic marketplaces provide unprecedented global
opportunities for businesses to exchange information and execute transactions
with the efficiency, cost effectiveness and global reach provided by Internet
technologies, while supporting individual contractual relationships between
trading partners. Examples of these exchanges include autoExchange.com,
ePolicy.com, Pure Markets, tradepac.com and VerticalNet.
Businesses are rapidly developing digital exchanges and other B2B e-Commerce
systems in order to fully realize the B2B market opportunity. B2B e-Commerce
systems are engineered to facilitate:
. significant increases in the value and complexity of data and
transactions processed
. improved performance and response times to support real-time access by
trading partners from a variety of technology platforms
27
<PAGE>
. improved reliability, accuracy and security for transactions
. high degrees of integration between legacy applications, networks and
technology platforms within a company as well as across diverse
businesses
. the execution of a broad variety of processes and payment methods that
exist between trading partners
These B2B systems are highly complex and often involve a greater number of
steps per transaction and more processes than B2C systems, creating a longer,
more intricate commerce chain and resulting in a more complex delivery
infrastructure. B2B e-Commerce introduces powerful benefits to both buyers and
sellers. Some of the typical differences between B2C e-Commerce and B2B e-
Commerce are highlighted below:
<TABLE>
<CAPTION>
Characteristic B2C B2B
-------------- ---------------------------- --------------------------------
<S> <C> <C>
Users and
Participants .One-to-many .Many-to-many
.Individuals .Fragmented buyers, suppliers,
partners and distributors
- --------------------------------------------------------------------------------
Products and
Services .Standardized, mass market .Higher degrees of customization
.Convenient .Complex configuration
.Price points: $100s-$1000s .Price points: $1000s-millions
.Mission critical
.Highly time-sensitive
- --------------------------------------------------------------------------------
Delivery and
Fulfillment .Credit card payment .Credit/financing key issues
.Straightforward fulfillment .Intricate synchronization
.Multi-stage shipping
.Customs, tariffs, inspections
- --------------------------------------------------------------------------------
Infrastructure .Supplier-side systems only .Real-time, customized front-end
.Tight back-office integration
.Security, bandwidth for heavy
volumes
- --------------------------------------------------------------------------------
Outcome
Objective .Building brand .Linking the value chain
</TABLE>
Developing and supporting B2B e-Commerce systems requires substantial
expertise in designing new business processes that integrate with existing
operations, selecting and implementing the appropriate Internet technologies
and managing the implementation process to meet the time-to-market needs
characteristic of today's competitive business environment. There is a limited
supply of high-quality, experienced Internet services professionals and demand
for these professionals is increasing rapidly. This makes it increasingly
difficult for companies seeking to internally implement B2B e-Commerce
solutions to hire, develop and retain these professionals. As a result, an
increasing number of businesses, from start-ups to Global 2000 companies,
engage third-party professional services firms to help them design and
implement B2B e-Commerce solutions.
The demand for these and related Internet and e-Commerce services is
projected to grow dramatically. IDC estimates that this market will grow from
approximately $7.8 billion in 1998 to $78.6 billion in 2003, representing a 59%
compound annual growth rate. Within the Internet professional services market,
however, we believe the B2B e-Commerce segment is underserved and is large and
growing faster than the overall market.
We believe there are only a few Internet professional services firms with an
exclusive focus on B2B e-Commerce. Additionally, we believe that in order to be
successful in this market, professional services firms
28
<PAGE>
must possess an integrated model of B2B-oriented process analysis, substantial
software engineering expertise, strong technology architecture and integration
skills, and effective client and project management capabilities.
Our Solution
We are a leading Internet professional services firm providing B2B e-
Commerce solutions to Global 2000 companies and emerging digital businesses. We
architect, engineer, integrate and support complex B2B digital exchanges and
DCRM solutions.
The key elements of our solution are:
Early and Exclusive B2B e-Commerce Focus. We have delivered B2B software
applications for our clients since 1995. We provide our services through multi-
disciplinary teams of professionals with extensive experience in business
process analysis, project management and software engineering. We believe our
early vision and B2B experience is unique in the Internet professional services
sector, and enables us to rapidly and efficiently architect and implement
Internet solutions.
Proprietary LightSpeed Delivery Model. LightSpeed, our proprietary
collection of operating principles, methods and frameworks, is an Internet-
based model for governing the way we deliver solutions to our clients,
including how we define, price, staff and manage our projects. We believe the
successful application of LightSpeed in our engagements enables us to more
accurately forecast project schedules and costs. LightSpeed also allows us to
better manage project risk, and to identify, capture and reuse valuable
Internet frameworks, designs, processes and techniques that we develop while
creating B2B e-Commerce solutions for our clients.
Proprietary i2K Architectural Model. i2K is a collection of architectural
principles, methods and frameworks we have developed for B2B e-Commerce
systems. It provides a schematic for developing solutions that are scalable,
adaptable, integrated with our clients' legacy systems and extendable outside
their enterprises to their trading partners' systems. We believe each of our
clients' competitive advantage is directly related to how quickly and how well
they leverage and integrate information within their Internet-based and legacy
systems and those of their trading partners. Accessing and combining this
information in meaningful ways is essential to leveraging the potential of the
Internet. We believe the successful design and implementation of solutions
based on our i2K model results in secure, reliable systems and a highly
extendable architectural platform.
Productization of Services. Based on our extensive experience in B2B digital
exchanges and digital customer relationship management solutions, we have
developed modular solutions tailored for discrete business processes. Our
productized service offerings are comprised of three major elements: pre-
defined business functions, proven business practices and pre-defined
technology architecture. Our current offerings, eSales and eCare, address
Internet-based sales and Internet-based customer care. We believe productizing
any of our services reduces our project risk, increases our operating margins,
improves our sales force's productivity, speeds time-to-market for our clients
and differentiates us from our competition.
Integrated End-to-End Implementation Capabilities. We believe we provide the
complete range of capabilities required to deliver comprehensive B2B e-Commerce
solutions. Our core competencies include:
. business process analysis
. technology architecture
. custom Internet application development
. e-Commerce software implementation
. applications management, maintenance, support and enhancement
We believe our competencies enable us to engineer and deliver B2B digital
exchanges and DCRM solutions seamlessly, for a fixed price and within fixed
timeframes.
29
<PAGE>
Knowledge Management and Transfer. We collect, store and organize
information we acquire from interaction with our clients in order to enhance
our existing base of technology and business process expertise. Inside Inventa,
our corporate intranet, is a secure integrated knowledge management repository
that facilitates the dissemination of this intellectual capital across our
organization. We believe this expanding base of readily accessible knowledge
enables us to meet our clients' ever-increasing expectations for our
performance.
In addition, eTrack, our internal Internet-based project management system,
enables us to capture, monitor and manage information for:
. project scheduling
. project status review
. document and deliverable distribution to our professionals and our
clients
. detailed information on the resources required to achieve specific tasks
on a project
eTrack improves our ability to forecast the estimated time and resources
required to complete our solutions and, together with Inside Inventa, increases
the reusability of our intellectual capital, thereby reducing risks to us and
our clients.
Our Strategy
Our objective is to enhance our position and reputation as a leading
provider of B2B e-Commerce solutions to Global 2000 companies and emerging
digital businesses. The key elements of our growth strategy are to:
Maintain Our Exclusive B2B e-Commerce Focus. We intend to maintain our
exclusive focus on B2B e-Commerce solutions. We believe this segment of the
information technology professional services market is the most strategic to
our clients, is the fastest growing and is best aligned with our core
competencies. Currently, we target two major B2B e-Commerce practice areas:
. digital exchanges, where we engineer and support B2B marketplaces that
facilitate the timely exchange of information and goods between trading
partners
. digital customer relationship management, where we deliver solutions for
a broad range of B2B customer interaction processes, including sales,
marketing and customer support
We also intend to expand our service offerings by developing additional
practices to cover the full range of B2B e-Commerce processes and relationships
in which our clients and prospective clients are likely to engage, including
digital partner relationship management and digital supply chain management.
Maintain Our Technology Leadership. We believe that our clients choose to
work with us because of our reputation for technology leadership and for
successfully solving the most challenging B2B e-Commerce problems with leading-
edge Internet technologies. We believe working on the industry's most complex
assignments will make us more attractive to high-quality professionals, who
enlarge our technology skill set and knowledge base. We intend to maintain our
technology leadership by:
. pursuing complex engagements that allow us to refine and advance our B2B
e-Commerce capabilities
. researching emerging technologies for their relevance and applicability
to our clients' business strategies
. refining and enhancing our proprietary i2K architectural model to take
advantage of advances in Internet technology
. deepening our current partner relationships and establishing new
partnerships to maintain our status as an early adopter of emerging
technologies and skill sets
30
<PAGE>
. enhancing our knowledge management infrastructure to improve the breadth,
depth and quality of access to technology-related information by our
professionals
Continue to Productize Our Services. We intend to continue to productize our
services. We believe productization:
. permits faster and more predictable project implementations resulting in
higher operating margins
. facilitates marketing our services and solutions to prospective clients
. demonstrates our thought leadership and competencies
. improves training for our professional staff and increases sales force
productivity
. differentiates us from our competitors
We intend to expand our productized service offerings beyond eSales and
eCare by leveraging knowledge and experience from our engagements, continuing
to refine and enhance our LightSpeed delivery model, and identifying and
establishing the partner relationships relevant to effective productization.
Recruit and Retain Highly-Skilled Professionals. We intend to continue to
hire, train and retain individuals who are highly skilled in the engineering of
complex Internet solutions. To provide an environment conducive to recruitment
and retention, we have created a corporate culture that emphasizes balance
between one's professional and personal life, challenging work assignments,
broad equity ownership, promotion from within, opportunities for advanced
training and direct involvement in growing our business.
Further, we have designed our LightSpeed delivery model to be a key employee
recruiting and retention tool by:
. encouraging direct client contact at all levels of our project teams
. basing our teams at our facilities to reduce professionals' travel time
. conducting our engagements using small, highly-specialized project teams
We will continue to expand our in-house recruiting staff and to invest in
initiatives focused on direct and Internet-based recruitment, employee referral
programs and on-campus recruiting. In addition, we intend to expand the
geographic reach of our recruitment efforts, and to advertise and promote our
brand to generate awareness of our company among potential employees in
relevant markets.
Expand Existing and Establish New Client Relationships. We believe our track
record of successful engagements has resulted in strong relationships with our
clients. As a result, our clients often request that we expand the scope and
complexity of our engagements. This reinforces our growing reputation as an
innovative provider of B2B e-Commerce solutions. We intend to leverage our
reputation for client satisfaction and innovation to attract new engagements
with our existing clients and to capture new clients through referral-driven
sales.
In addition, we intend to engage new clients by continuing to:
. expand our direct sales force in our current geographic markets
. invest in promotional activities designed to improve brand awareness and
provide sales leads
. establish new strategic business and technology alliances
. expand geographically, both within the United States and internationally
31
<PAGE>
Our Services
We have developed a broad range of capabilities in designing and
implementing B2B e-Commerce solutions for our clients, from integrating demand-
side Internet applications with front- and back-office systems to supply-side
Internet applications for servicing trading partners. Our capabilities include:
. competitive assessment of our clients' Internet strategies and
capabilities
. business process analysis
. application portfolio definition and functionality prioritization
. requirements definition and concept prototyping
. technology architecture design and engineering
. custom Internet application development
. e-Commerce software implementation
. systems integration
. enterprise application integration (within and between businesses)
. applications management and enhancement
. service productization
We leverage these skill sets and our substantial expertise in two major B2B
e-Commerce practice areas, digital exchanges and digital customer relationship
management as described below:
Digital Exchanges. We engineer and support B2B marketplaces that are highly
scalable and extendable to accommodate the rapid growth that well-designed and
well-marketed B2B systems are likely to experience.
Digital Customer Relationship Management. We deliver solutions for a broad
range of B2B customer interaction processes, including sales, marketing,
customer support, distribution and fulfillment. These service offerings are
comprehensive, scalable, extendable and secure thereby helping our clients
ensure the quality and integrity of their relationships with their business
customers and other trading partners.
Although each of our solutions is uniquely engineered and customized to meet
the expectations of each of our clients, we architect them using standard
Internet technologies and commercial off-the-shelf software to accelerate
project delivery and ease system maintenance.
We deliver our solutions using the following service models:
LightSpeed Delivery Model. LightSpeed is our proprietary Internet-based
model for governing the way we deliver solutions to our clients.
32
<PAGE>
LightSpeed is composed of four distinct stages:
<TABLE>
<C> <S>
Innovate Our professionals work closely with our clients' senior
executives to conduct a strategic assessment of their
competitive positioning in the Internet marketplace and
create a business and technology roadmap for the development
of a B2B solution. We then arrive at a shared vision of our
clients' B2B initiative and explore potential software
applications, identify architectural issues, and highlight
potential obstacles to success. Finally, we deliver an
agreed-upon B2B e-Commerce roadmap for the development of a
solution.
- -------------------------------------------------------------------------------
Blueprint We work with our clients to define and prioritize the scope,
functionality and business processes for their projects.
Using intensive workshops, storyboarding and prototyping
techniques, we deliver functional requirements, an
application prototype, architecture and technology
recommendations and a detailed plan for the LightSpeed
Create and Launch stage.
- -------------------------------------------------------------------------------
Create and Launch We develop a detailed engineering design, and create a
comprehensive quality assurance plan. We then implement our
solution in a series of progressively more functional
releases. With this approach, we deliver a production-
quality release with meaningful, business-relevant
functionality usually within ten weeks. The entire Create
and Launch stage typically takes between 16 and 24 weeks,
and may include two or three releases.
- -------------------------------------------------------------------------------
Enhance We help our clients evaluate an individual project's success
before embarking on the next project or major phase. We
refine our most recent implementation and enhance the
application in response to changes in user requirements. We
also offer our clients opportunities to expand their
implementations with application enhancement and database
consulting services.
</TABLE>
i2K Architectural Model. i2K is our proprietary collection of architectural
principles, methods and frameworks for B2B e-Commerce solutions. It provides
our clients a schematic for developing solutions that are scalable, adaptable,
integrated with their legacy systems and extendable outside their enterprise to
their trading partners systems.
Productization Model. We have combined our LightSpeed delivery model, our
i2K architectural model, commercially available off-the-shelf software and the
collective knowledge of our professionals into productized service offerings
for specific business processes. We have targeted two critical business
processes with these Internet offerings, sales and customer care. With eSales
and eCare, we can quickly assess and analyze our clients' business and
recommend a portfolio of applications, develop an implementation strategy,
define system requirements, design the technology architecture, and then
prototype, engineer and enhance the solutions. Using eSales and eCare we can
rapidly deliver what we have determined to be the most common functionality for
B2B customer relationship management processes.
Upon implementation of eSales or eCare, our clients' and their trading
partners' sales or customer service representatives have access to a broad
variety of capabilities to facilitate interaction with, and satisfy the needs
of, their business customers. Some of the more common functionalities include:
. customer profiling
. sales or customer service workflow or process management
. sales or customer service case management
. custom database-driven views of customers, products, suppliers and orders
. e-mail messaging
33
<PAGE>
. sales and customer care management reporting
. integration with call center operations
eSales enables our clients to generate revenue through Internet-based sales
channels; satisfy and retain customers through online order and sales
management; and streamline the purchasing process for their business
customers.
eCare enables our clients to integrate service channels to ensure
consistent, high-quality customer interaction; retain customers through
personalized and responsive service; reduce overhead and call center volume;
and capture customer data.
Clients
The following is a list of our clients that generated more than $100,000 in
services revenue during 1999:
ADP GoTo.com
Amkor Technology, Inc. Pure Markets
Cadence Design Systems Shaman Botanicals.com
Citigroup Siemens
Crane Co. SMART Modular Technologies, Inc.
ePolicy.com Sun Microsystems, Inc.
Fujitsu tradepac.com
In 1999, our five largest clients represented 75% of our revenues,
including ADP and ePolicy.com, each of which represented more than 10% of our
revenues.
In addition, we began engagements for the following additional clients in
the fourth quarter of 1999:
Charles Schwab & Co., Inc.
Portera Systems
Grainger.com (a subsidiary of W.W. Grainger, Inc.)
Utility.com, Inc.
Moai Technologies, Inc.
Employees
As of January 27, 2000, we had 207 employees. Of these employees, 149 were
consulting and services delivery professionals, and 58 were personnel
performing marketing, sales, human resources, finance, accounting, legal,
internal information systems and administrative functions, including ten
executives and 20 sales and marketing personnel. None of our employees is
represented by a labor union, and we consider our employee relations to be
excellent.
34
<PAGE>
Competition
The market for Internet professional services is intensely competitive and
subject to rapid technological change. We believe the principal competitive
factors in our industry are reputation and client satisfaction; the experience
and skill levels of professionals; advanced technical architecture and project
management expertise; ability to predict project cost and manage resource
scheduling; and ability to recruit and retain professionals. Our competition
falls into the following categories:
. Internet professional services firms (such as Lante, Proxicom, Sapient,
Scient, US Interactive and Viant)
. information technology consulting and systems integration firms (such as
Andersen Consulting, Cambridge Technology Partners and EDS)
. services divisions of computer hardware and software vendors (such as IBM
and Oracle)
. web design firms (such as Modem Media. Poppe Tyson and Razorfish)
. information technology strategy consulting firms (such as @McKinsey,
Diamond Technology Partners and Mainspring)
. in-house information technology departments of our current and potential
clients
Future competitors may offer services that provide significant performance,
price, creative or other advantages over those offered by us. Therefore, we
expect to face additional competition from new entrants into our industry.
Alliances
We leverage our marketing and sales efforts through alliances with a number
of vendors of Internet technology. Our partners include Active Software, Art
Technology Group, BroadVision, Exodus Communications, Extricity Software,
Hewlett-Packard, Microsoft, Moai Technologies, Oracle, Selectica, Silknet
Software and Vitria. These partners may recommend our services to their
clients, provide us sales leads, deliver training for our professionals and
enable us to obtain advance access to their technologies.
Sales and Marketing
Our sales efforts are targeted at corporate clients who are investing
significant resources in their B2B e-Commerce strategies. Our sales force
generates leads through a combination of direct mail, targeted events with
industry thought leaders and cooperative marketing with our alliance partners.
We have sales offices in the metropolitan areas of San Francisco, New York,
Chicago and Washington, D.C.
To augment our sales effort we also have a separate marketing department
focused on two key objectives:
. building brand recognition at a national level to drive business growth
and support our recruiting efforts
. developing and cultivating leads for our sales force
To achieve these objectives, we engage in market research, public relations
and advertising, participate in trade shows and conduct seminars. In addition,
we employ a communication strategy based on standards for our logo, corporate
identity, website and marketing materials.
Intellectual Property Rights
Our proprietary knowledge base and the other intellectual property rights
that we develop for our clients are an integral part of our business. Our
clients generally retain ownership of custom work product and we retain a
royalty-free license to use some or all of the applications, processes and
intellectual property developed in connection with customer projects. This
information is accessible on our knowledge base only to our employees via our
secure corporate intranet.
35
<PAGE>
Facilities
Our principal executive offices are located in approximately 21,000 square
feet of leased office space in Redwood Shores, California. The lease for this
office space is for a term of two years and expires on March 31, 2001. We also
have offices in the metropolitan areas of New York, New York, Washington, D.C.
and Chicago, Illinois. We lease all of our facilities and consider these
facilities to be adequate for our needs for the foreseeable future.
Legal Proceedings
We are not a party to any material legal proceedings.
36
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers, directors and other key employees are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
------------------------------------ --- -----------------------------------
<C> <C> <S>
Ashok Santhanam..................... 46 Chairman of the Board of Directors
and Founder
David A. Lavanty.................... 39 President, Chief Executive Officer
and Director
Michael B. Shahbazian............... 52 Senior Vice President and Chief
Financial Officer
Richard M. Cerwonka................. 48 Senior Vice President
Carol C. Halliday................... 53 Senior Vice President
Anthony H. Moretto.................. 51 Senior Vice President
Elizabeth Campbell.................. 39 Vice President of Human Resources
Michael Makishima................... 38 Vice President of Finance
Tobias Younis....................... 50 Vice President of Marketing
Robert J. Kudis..................... 34 Vice President and General Manager,
Central Region
Edward F. Leppert................... 39 Vice President and General Manager,
Northeast Region
Srikantan Moorthy................... 37 General Manager, Southeast Region
Michael Bealmear.................... 51 Director
Todd Dagres......................... 39 Director
Robert Ducommun..................... 48 Director
Frank Pinto......................... 46 Director
Jake Reynolds....................... 32 Director
</TABLE>
Ashok Santhanam is our founder and has served as the Chairman of our Board
of Directors since January 1999. From our inception to January 1999, Mr.
Santhanam was our President and Chief Executive Officer. Prior to founding
Inventa, Mr. Santhanam was the founder and President of Ventura Data Systems
Pvt. Ltd., an information technology services firm based in Bangalore, India.
Before establishing Ventura, Mr. Santhanam held various technical and
management positions at Gould Inc., a publicly held technology company,
including Director of Operations in the Recording Systems Division from 1983 to
1986. Mr. Santhanam holds a Bachelor of Technology degree from the Indian
Institute of Technology in Madras, India and an MBA from Harvard Business
School.
David A. Lavanty has served as our President and Chief Executive Officer
since January 1999. From June 1998 to December 1998, he served as Senior Vice
President, Worldwide Consulting for Siebel Systems, Inc., an enterprise
relationship management application software company. From March 1995 to April
1998, Mr. Lavanty held several positions at Sybase, Inc., a software company,
including Vice President and General Manager, Professional Services for the
Americas and Vice President, Southeast and Federal Professional Services. Prior
to Sybase, Mr. Lavanty held positions as Vice President of Consulting Services
at Oracle Corporation, a software company, and Senior Vice President at PRC
Realty Systems, a systems integration company. Mr. Lavanty received a BS from
the University of Akron and an MBA from Marymount University.
Michael B. Shahbazian has served as our Senior Vice President and Chief
Financial Officer since February 2000. From April 1999 to January 2000, he was
Senior Vice President and Chief Financial Officer of Walker Interactive
Systems, Inc., a software applications and services company. From June 1979 to
April 1999, Mr. Shahbazian held a variety of positions with Amdahl Corporation,
a computer hardware and services company, including Vice President and
Treasurer, Director of Business Information Systems, European Director of
Finance and Director of Financial Planning and Analysis. Mr. Shahbazian holds a
BS degree from California State University at Fresno and an MBA from the
University of Southern California.
Richard M. Cerwonka has served as a Senior Vice President since January
2000. From May 1999 to January 2000, he was President and Chief Executive
Officer of XTEND-Tech. From November 1998 to May 1999, Mr. Cerwonka was Area
Vice President, Southeast for the Enterprise Solutions Division of Sybase. From
April 1998 to November 1998, he served as the Area Vice President, Southeast
Professional Services for
37
<PAGE>
Sybase. From July 1995 to April 1998, Mr. Cerwonka was a Practice Director,
Professional Services for Sybase. From January 1980 to July 1995, he held a
variety of positions at Sea-Land Service, Inc., a global transportation
company, including Director of Equipment Engineering, Director of Information
Technology and Director of Terminal Operations.
Carol C. Halliday has served as a Senior Vice President since January 2000.
From April 1999 to January 2000, she was our Vice President and General Manager
of the Western Region. From October 1991 to April 1999, Ms. Halliday held a
variety of positions at Sybase, including Area Vice President, West
Professional Services, Vice President, Strategic Solutions Division and
Practice Director, Rocky Mountain Professional Services. Prior to Sybase, she
served as Director of Distributed Application Development for Fidelity
Investments, a financial services company.
Anthony H. Moretto has served as a Senior Vice President since April 1999.
From April 1993 to April 1999, Mr. Moretto held a variety of positions at
Sybase, including Vice President and General Manager, Professional Services,
Area Vice President, Southeast Professional Services and Practice Manager,
Professional Services. Prior to Sybase, he served as a Senior Managing
Consultant for Oracle, Branch Manager for Cap Gemini America, a systems
integration company, and Director, Commercial Systems Integration for Martin
Marietta Data Systems, a systems integration company. Mr. Moretto holds a BBA
from the Wharton School at the University of Pennsylvania.
Elizabeth Campbell has served as Vice President of Human Resources since
September 1999. She was our Director of Human Resources from August 1998 to
September 1999. From December 1996 to July 1998, Ms. Campbell was President of
Search Worldwide, a technology human resources consulting company she founded.
From May 1993 to November 1996, Ms. Campbell was Director of Corporate Human
Resources for Informix Software, a relational database software company.
Michael Makishima has served as Vice President of Finance since December
1999. He was our Controller from July 1997 to December 1999. From March 1989 to
December 1996, Mr. Makishima held several positions at Liant Software
Corporation, a software company, including General Manager of Liant Software
Services, Director of Manufacturing, Director of Corporate Finance and Vice
President of Finance and Administration of Ryan McFarland Corporation, a
subsidiary of Liant.
Tobias Younis has served as Vice President of Marketing since November 1999.
From August 1997 to November 1999, Mr. Younis served as Vice President for META
Group, an information technology research company. From June 1994 to August
1997, Mr. Younis was a Director of Enterprise Systems Consulting for Sybase.
From January 1992 to June 1994, Mr. Younis was founder and President for
Marcomm Associates, a marketing consulting company. Prior to Marcomm, Mr.
Younis served as Vice President of Special Marketing Operations at Oracle
Corporation.
Robert J. Kudis has served as Vice President and General Manager of the
Central Region since May 1999. From January 1997 to May 1999, Mr. Kudis served
as Vice President of Consulting, U.S. Central Region, for the Baan Company, an
enterprise resource software company. From May 1987 to January 1997, Mr. Kudis
was a consultant for Ernst & Young, a public accounting firm. Mr. Kudis holds a
BBA in Information Systems from the University of Wisconsin.
Edward F. Leppert has served as Vice President and General Manager of the
Northeast Region since October 1999. He served as our Vice President and
Managing Director of the Eastern Region from January 1999 to September 1999,
and as our Managing Director of the Eastern Region from November 1997 to
January 1999. From March 1996 to November 1997, Mr. Leppert served as Director
of Operations and General Manager for Cambridge Technology Partners, a systems
integration company. From September 1991 to March 1996, Mr. Leppert served as
Associate Director, Information Management for Bristol-Myers Squibb Company, a
consumer products manufacturing company. Prior to Bristol-Myers Squibb, Mr.
Leppert served as a Senior Manager for Andersen Consulting, a consulting firm.
Mr. Leppert holds a BS degree in systems planning and management from the
Stevens Institute of Technology.
38
<PAGE>
Srikantan Moorthy has served as General Manager of the Southeast Region
since November 1999. Mr. Moorthy served as our Director of Operations from May
1996 to November 1999, as a Practice Director from January 1996 to April 1996,
as a Consulting Practice Manager from August 1994 to January 1996, and as
Technical Staff Manager from August 1993 to August 1994. Mr. Moorthy joined us
as a Principal Software Engineer in January 1993. Mr. Moorthy has a Bachelor of
Engineering degree from Bangalore University, India.
Michael Bealmear has served as a Director since September 1998. Mr. Bealmear
is President and Chief Executive Officer of Spear Technologies, Inc., a
privately held software company. Prior to Spear, he was Executive Vice
President at Cadence and Senior Vice President of Worldwide Services at Sybase.
Mr. Bealmear also is a director of several privately owned companies. Mr.
Bealmear has a BS in Electrical Engineering from the University of Texas and an
MS in Mathematics and Computer Science from Rice University.
Todd Dagres has served as a Director since February 1997. Mr. Dagres is a
General Partner with Battery Ventures, a venture capital firm. Mr. Dagres is a
director of Akamai Technologies, an Internet content distribution firm; Qtera
Technologies, a telecommunications equipment provider; Edgix, an internet
content delivery firm; Predictive Networks, a developer of Internet profiling
and content delivery systems; Convergent Networks, a data and voice equipment
company; Equipe Communications, a network equipment firm; River Delta Networks,
a networking solutions company; and InformationView Solutions, a provider of
network cost management solutions. Mr. Dagres is also an Adjunct Professor at
the Sloan School of Management of the Massachusetts Institute of Technology. He
has an MS in Economics from Trinity College and an MBA from Boston University.
Robert Ducommun has served as a Director since June 1994. Mr. Ducommun is a
director of Ducommun Incorporated, a publicly held company that provides
products and services to the aerospace industry, and a director of several
private companies. He has been a private investor in and advisor to emerging
companies since 1992. He was Executive Vice President and Chief Financial
Officer of Aviva Sports, a sports toy marketing company, and chief financial
officer of Microsource, Inc., a manufacturer of microwave components. Mr.
Ducommun has a BA degree from Stanford University and an MBA from Harvard
Business School.
Frank Pinto has served as a Director since May 1998. Mr. Pinto is a Partner
with Boston Millennia Partners, a venture capital firm. He manages Boston
Millennia Partners' investments in Knowledge Impact, a customer relationship
management training firm, InfoLibria, an Internet infrastructure solutions
firm, and is a director of Quality Packaging Systems, a pharmaceutical services
company. Mr. Pinto holds a BA degree in Economics and Environmental Studies
from Middlebury College and an MBA from the Amos Tuck School at Dartmouth
College.
Jake Reynolds has served as a Director since October 1998. He is a General
Partner of Technology Crossover Ventures, a venture capital firm. He also
serves as a director of several private companies. Mr. Reynolds received an AB
degree in Geography from Dartmouth College and an MBA from Columbia Business
School.
Board of Directors
Our board of directors is currently comprised of seven directors. Our
amended and restated bylaws authorize not less than five directors and not more
than seven directors.
Board Committees
Our board of directors has a compensation committee and an audit committee.
The Compensation Committee is comprised of Jake Reynolds, its chairman, Todd
Dagres and Frank Pinto. The Compensation Committee is responsible for the
administration of all salary and incentive compensation plans for our officers,
including bonuses and options granted under our option plans.
39
<PAGE>
The Audit Committee is comprised of Robert Ducommun, its chairman, Michael
Bealmear and Frank Pinto. The Audit Committee is responsible for assuring the
integrity of our financial control, audit and reporting functions. It reviews
with our management and our independent accountants the effectiveness of our
financial controls, accounting and reporting practices and procedures. In
addition, the Audit Committee reviews the qualifications of our independent
accountants, makes recommendations to the board of directors regarding the
selection of our auditors, reviews the scope, fees and results of activities
related to audit and non-audit services.
Compensation Committee Interlocks and Insider Participation
Our board of directors did not have a compensation committee until May 1998.
From May 1998 to December 1999, the Compensation Committee was comprised of
Ashok Santhanam, Todd Dagres and Frank Pinto. In December 1999, Jake Reynolds
replaced Ashok Santhanam on this committee. During the fiscal year 1999, the
Compensation Committee met four times. Prior to May 1998, determinations
regarding the compensation of our officers were made by our board of directors.
Director Compensation
We do not pay fees to directors for serving on our board of directors.
Directors who are not employees are reimbursed for all reasonable expenses
incurred by them in attending board and committee meetings. Employee and non-
employee directors are also eligible to receive options under our 1993 Stock
Option Plan.
Executive Compensation
The following table summarizes the compensation paid to or earned by our
Chief Executive Officer and our four other mostly highly compensated executive
officers for the year ended December 31, 1999. We use the term "Named Executive
Officers" to refer to these people in this prospectus.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Securities
Underlying
Name and Principal Position(s) Salary Bonus Options
- ----------------------------------------------- -------- -------- ------------
<S> <C> <C> <C>
Ashok Santhanam, Chairman of the Board and
Founder....................................... $175,000 $ 30,000 --
David A. Lavanty, President and Chief Executive
Officer....................................... 250,000 100,000 100,000
Anthony H. Moretto, Senior Vice President...... 147,051 62,500 240,000
Carol C. Halliday, Senior Vice President....... 126,923 30,093 175,000
Michael Makishima, Vice President of Finance... 124,583 36,300 55,000
</TABLE>
The following table sets forth information with respect to stock options
granted during the year ended December 31, 1999, to each of the Named Executive
Officers:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(2)
--------------------------------------------- ---------------------
Number of Percent of Weighted
Shares Total Options Average
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(1) Fiscal Year per share Date 5% 10%
- ------------------------ ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ashok Santhanam......... -- -- -- -- -- --
David A. Lavanty........ 100,000 4.0%(3) $ 0.45 8/01/09 $1,505,565 $2,323,791
Anthony H. Moretto...... 240,000 10.0%(4) 0.20 8/01/09 3,695,847 5,686,684
Carol C. Halliday....... 175,000 7.0%(5) 0.20 8/01/09 2,694,544 4,146,084
Michael Makishima....... 55,000 2.0%(6) 0.73 11/23/09 803,607 1,240,644
</TABLE>
- --------
(1) All options were granted under our 1993 Plan. Options granted under the
Plan vest over a four-year period with 25% vesting at the first anniversary
date of the grant date and the remaining shares vesting in equal
40
<PAGE>
monthly installments over the next 36 months. The board retains sole
discretion to modify the terms, including the price, of outstanding options.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date of offer to their expiration date based
upon an initial public offering price of $10.00 per share. These
assumptions are not intended to forecast future appreciation of our stock
price. The potential realizable value computation does not take into
account federal or state income tax consequences of option exercises or
sales of appreciated stock.
(3) Excludes options to purchase 865,000 shares of common stock at an exercise
price of $0.15 per share granted to Mr. Lavanty on December 31, 1998, and
effective on the date of this offering a grant of options to purchase an
additional 290,000 shares of common stock at an exercise price equal to the
then existing share price.
(4) Of the 240,000 options to purchase our common stock granted to Mr. Moretto,
200,000 options granted on June 30, 1999, have an exercise price of $0.15
per share and the other 40,000 options granted on August 1, 1999, have an
exercise price of $0.45 per share.
(5) Of the 175,000 options to purchase our common stock granted to Ms.
Halliday, 145,000 options granted on June 30, 1999, have an exercise price
of $0.15 per share and the other 30,000 options granted on August 1, 1999,
have an exercise price of $0.45 per share.
(6) Excludes options to purchase 30,000 shares of our common stock at an
exercise price of $0.15 granted to Mr. Makishima on August 20, 1997. Of the
total grant of 55,000 options to Mr. Makishima, 15,000 options granted on
January 31, 1999, have an exercise price of $0.15 per share, 15,000 options
granted on August 1, 1999, have an exercise price of $0.45 per share, and
25,000 options granted on November 23, 1999, have an exercise price of
$1.25 per share.
The following table sets forth certain information regarding exercised stock
options during the year ended December 31, 1999, and unexercised options held
as of December 31, 1999, by each of the Named Executive Officers:
Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired December 31, 1999 December 31, 1999(1)
On Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ashok Santhanam......... -- -- -- -- -- --
David A. Lavanty........ -- -- 216,250 748,750 $1,373,187 $4,724,562
Anthony H. Moretto...... -- -- 50,000 190,000 317,500 1,194,500
Carol C. Halliday....... -- -- -- 175,000 -- --
Michael Makishima....... -- -- 18,749 66,251 119,056 388,693
</TABLE>
- --------
(1) Calculated on the basis of the fair market value of the underlying
securities of $6.50 per share as of December 31, 1999, minus the per share
exercise price, multiplied by the number of shares underlying the option.
Employment Agreements
Ashok Santhanam. We entered into an employment agreement dated May 11, 1998,
with Ashok Santhanam, our founder and Chairman of the Board of Directors. The
term of the agreement shall continue unless we or Mr. Santhanam elect to
terminate the agreement. The employment agreement provides for an annual base
salary of $160,000, to be reviewed annually, and an annual maximum bonus of
$90,000, subject to annual review, payable at the discretion of our board of
directors. Effective January 1, 1999, our Board of
41
<PAGE>
Directors increased Mr. Santhanam's annual base salary to $175,000. The
employment agreement also provides that, in the event of his termination
without cause, we will pay Mr. Santhanam his accrued compensation to the date
of termination and continue his car lease payments, maintain his health,
welfare and retirement benefits, and provide severance compensation equal to
his base salary and bonus for 12 months after his termination date. In
addition, any options granted to Mr. Santhanam would continue to vest during
the 12 months following his termination date. The agreement also provides that
Mr. Santhanam will not engage in a competitive business activity for one year
following termination in the event of his termination without cause, and for
two years following termination if he resigns or is terminated for cause. The
agreement further provides that Mr. Santhanam will not solicit our employees,
nor our clients with respect to a competitive business activity, for two years
following his termination for any reason.
David A. Lavanty. We entered into an employment agreement dated December 31,
1998, with Mr. Lavanty, our President and Chief Executive Officer. The initial
term of three years will automatically be renewed for successive one-year terms
unless we or Mr. Lavanty elect to terminate the agreement at least 30 days
before the end of a term. The employment agreement provides for an annual base
salary of $250,000 and an annual bonus payable at the discretion of our board
of directors. The employment agreement also provides that in the event of his
termination without cause, we will pay Mr. Lavanty severance compensation equal
to his base compensation, and maintain his health and retirement benefits, for
12 months after his termination date. In addition, any options granted to Mr.
Lavanty will continue to vest during the 12 months following his termination
date, and shall vest in full upon a change of control. The agreement also
provides that Mr. Lavanty will not engage in a competitive business activity
for one year following termination in the event of his termination for any
reason. The agreement further provides that Mr. Lavanty will not solicit our
employees nor our clients with respect to a competitive business activity for
one year following his termination for any reason. The agreement provided for
the grant of options to Mr. Lavanty to purchase up to 865,000 shares of common
stock subject to vesting over a four-year period, 25% of which vested on
signing and the balance of which will vest in 36 equal monthly installments
beginning on the first anniversary date of the signing of the Agreement.
Finally, the agreement provides for the grant to Mr. Lavanty of options to
purchase up to 290,000 shares of common stock upon effectiveness of this
prospectus at the initial public offering price.
Michael B. Shahbazian. We entered into an employment agreement dated
February 2, 2000, with Mr. Shahbazian, our Senior Vice President and Chief
Financial Officer, which provides for an annual base salary of $190,000 and a
quarterly performance bonus. The employment agreement also provides that if we
terminate Mr. Shahbazian without cause, or within six months following a change
of control, we will (i) continue to pay Mr. Shahbazian his base compensation
and benefits for six months, and (ii) permit Mr. Shahbazian's unvested options
to continue to vest for six months. The agreement provided for the grant of
options to Mr. Shahbazian to acquire 225,000 shares of common stock, subject to
vesting over four years.
Anthony H. Moretto. We entered into an employment agreement dated March 17,
1999, with Mr. Moretto, a Senior Vice President, which provides for an annual
base salary of $200,000 and a quarterly performance bonus. The employment
agreement also provides that we will pay Mr. Moretto an amount equal to his
base compensation for six months if we terminate Mr. Moretto without cause. In
addition, the employment agreement provides that upon termination without
cause, or within six months following a change of control, we will (i) continue
to pay Mr. Moretto his base compensation for 12 months, and (ii) permit
Mr. Morretto's unvested options to continue to vest for 12 months. The
agreement provided for the grant of options to Mr. Moretto to purchase 200,000
shares of common stock, subject to vesting over a four-year period, 25% of
which vested immediately upon the execution of the agreement and the balance of
which will vest in 36 equal installments beginning on the first anniversary of
his employment. Fifty-percent of Mr. Moretto's unvested options will vest upon
the occurrence of a change of control within his first two years of employment
with us. Finally, we paid a one-time signing bonus to Mr. Moretto of $25,000.
Tobias Younis. We entered into an employment agreement dated October 29,
1999, with Mr. Younis, our Vice President of Marketing, which provides for an
annual base salary of $185,000 and a quarterly performance
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<PAGE>
bonus. The employment agreement also provides that if we terminate Mr. Younis
without cause, or within six months following a change of control, we will (i)
continue to pay Mr. Younis his base compensation for six months, and (ii)
permit Mr. Younis' unvested options to continue to vest for six months. The
agreement provided for the grant of options to Mr. Younis to acquire 200,000
shares of common stock, subject to vesting over four years.
Carol C. Halliday. We entered into an employment agreement dated March 12,
1999, with Ms. Halliday, a Senior Vice President, which provides for an annual
base salary of $180,000 and a quarterly performance bonus. The employment
agreement also provides that if we terminate Ms. Halliday without cause, we
will continue to pay Ms. Halliday her base compensation for three months. The
agreement provided for the grant of options to Ms. Halliday to acquire 145,000
shares of common stock, subject to vesting over four years.
Robert J. Kudis. We entered into an employment agreement dated March 30,
1999, with Mr. Kudis, our Vice President and General Manager of Central Region
Operations, which provides for an annual base salary of $175,000 and a
quarterly performance bonus. The employment agreement also provides that if we
terminate Mr. Kudis without cause, we will continue to pay Mr. Kudis his base
compensation for three months. In addition, the agreement provides that if we
terminate Mr. Kudis without cause within six months following a change of
control, we will (i) continue to pay Mr. Kudis his base compensation for six
months, and (ii) permit Mr. Kudis' unvested options to continue to vest for six
months. The agreement provided for the grant of options to Mr. Kudis to acquire
90,000 shares of common stock, subject to vesting over four years. Fifty-
percent of Mr. Kudis' unvested options will vest upon the occurrence of a
change of control within his first two years of employment.
Other employment agreements. We entered into employment agreements with
Edward F. Leppert, Michael Makishima, Elizabeth Campbell and Srikantan Moorthy,
which provide for severance payments equal to six months' salary, and options
that will continue to vest for six months following termination upon (i) a
change of control and termination without cause or (ii) a change of control and
a relocation of the employee beyond a 30-mile radius from their office
locations.
Employee Benefit Plans
1993 Stock Option Plan. Our 1993 Stock Option Plan provides for the issuance
to employees, directors and consultants of incentive stock options and non-
qualified stock options to purchase up to a total of 5,355,000 shares of our
common stock. Our board of directors or a committee designated by our board of
directors may serve as administrator of the 1993 Plan. As of January 27, 2000,
options issued under the 1993 Plan to purchase a total of 4,136,790 shares of
common stock at a weighted average exercise price of $0.42 were outstanding, of
which options to purchase 827,250 shares at a weighted average exercise price
of $0.42 were fully vested. As of January 27, 2000, we had 958,808 shares of
common stock available for future grant under this plan.
The terms of options granted under the 1993 Plan are as determined by the
administrator, subject to the following:
. the option price per share for any incentive stock option or non-
qualified stock option may not be less than the fair value and 85% of the
fair value, respectively, of the common stock on the date of the grant
. if an incentive stock option or non-qualified stock option is granted to
a person who owns more than 10% of the total combined voting power of all
our classes of stock, the exercise price shall be not less than 110% of
the fair value of the common stock on the date of the grant
. the term of each stock option may not exceed ten years, and in the case
of a person who owns more than 10% of the total combined voting power of
all our classes of stock, the term of each stock option may not exceed
five years
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. payment for the exercise of an option may be in cash, in shares of common
stock already owned by the option holder for more than six months and
which have a fair value equal to the exercise price of the option, by
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to us the amount required to
pay the exercise price, or by delivery of an irrevocable subscription
agreement that irrevocably obligates the option holder to pay the
aggregate exercise price not more than 12 months after the date of
delivery of the subscription agreement
The administrator has the power to determine the terms of the options
granted, including the exercise price. The board of directors may amend,
suspend or discontinue the 1993 Plan at any time, provided that such action may
not affect any rights with respect to options previously granted under the
1993 Plan.
Options granted under the 1993 Plan are not transferable other than by will
or by the laws of descent or distribution, and each option may be exercised,
during the lifetime of the optionee, only by the optionee. Options granted
under the 1993 Plan must generally be exercised within three months of the
optionee's separation of service from us, but in no event later than the
expiration of the term of the option.
The 1993 Plan provides that in the event of our merger with or into another
corporation, each option shall be assumed or an equivalent option shall be
substituted by the successor corporation. If the successor corporation does not
agree to assume the options or substitute an equivalent option, then our board
of directors shall notify the optionees that the option will be exercisable for
15 days from the date of the notice and that the option will terminate
thereafter. The 1993 Plan also provides that in the event of our proposed
dissolution or liquidation, our board of directors will notify optionees at
least 15 days prior to the proposed action and that the options will terminate
immediately prior to the completion of the proposed action.
Employee Stock Purchase Plan. [To be provided by Amendment.]
401(k) Plan. We have a 401(k) plan that provides a tax-qualified employee
savings plan for our eligible employees. An employee may elect to reduce his or
her current annual compensation on a pre-tax basis and to have the amount of
the reduction contributed to the 401(k) savings plan. Subject to the
restrictions imposed by the Internal Revenue Code on highly compensated
employees, an employee may generally defer up to 25% of his or her pre-tax
earnings or the statutorily prescribed limit, which was $10,000 in calendar
year 1999. Our 401(k) plan is intended to qualify under Section 401(k) of the
Internal Revenue Code so that contributions by our employees to our 401(k) plan
and income earned on plan contributions are not taxable to employees until
withdrawn from the 401(k) plan. The 401(k) savings plan permits, but does not
require, additional matching contributions by us on behalf of all participants
in the 401(k) savings plan.
Life Insurance Program. We maintain a $2 million key man life insurance
policy on Ashok Santhanam, our Chairman of the Board of Directors, payable to
us in the event of Mr. Santhanam's death. We also maintain a $1 million key man
life insurance policy on David A. Lavanty, our President and Chief Executive
Officer, payable to us in the event of Mr. Lavanty's death.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 8, 1994, we sold an aggregate of 400,000 shares of Series A
Preferred Stock at a price of $1.00 per share. We issued 400,000 shares of our
Series A Preferred Stock pursuant to a two-for-one stock split declared in
January 1997. All share numbers reflect the stock split. On February 14, 1997,
we sold an aggregate of 2,560,000 shares of Series B Preferred Stock at a price
of $1.25 per share. On May 11, 1998, and May 28, 1999, we sold an aggregate of
8,055,511 shares of Series C Preferred Stock at a price of $1.25 per share. On
January 19, 2000, we sold an aggregate of 3,000,000 shares of Series D
Preferred Stock at a price of $7.41 per share. Listed below are the directors,
executive officers, stockholders and their affiliates that beneficially own 5%
or more of our securities.
<TABLE>
<CAPTION>
Shares of Shares of Shares of Shares of
Shares of Series A Series B Series C Series D
Common Preferred Preferred Preferred Preferred
Investor Stock Stock Stock Stock Stock
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
5% Stockholder entity
affiliated with us
Ashok Santhanam(1)......... 4,500,000 -- -- -- --
Other 5% stockholders
Boston Millennia Partners
Limited Partnership(2).... -- -- -- 3,152,000 425,371
Technology Crossover
Ventures II, L.P.(3)...... -- -- -- 3,152,000 425,371
Battery Ventures(4)........ -- -- 2,286,363 1,576,000 62,672
</TABLE>
- --------
(1) Ashok Santhanam, the Chairman of our Board of Directors, and his wife
Revathi Santhanam are trustees of the Santhanam Family Trust, which holds
3,500,000 shares of common stock. Two irrevocable trusts each hold 500,000
shares of common stock for the benefit of their children. Mr. Santhanam and
Mrs. Santhanam each disclaim any beneficial interest in the shares held by
these irrevocable trusts.
(2) Frank Pinto, a director of our Company, is a principal of Boston Millennia
Partners Limited Partnership. Mr. Pinto disclaims beneficial ownership of
the securities held by this entity except for his proportional interest in
the entity.
(3) The Technology Crossover Ventures II, L.P. shares include shares purchased
by TCV II (Q), L.P., Technology Crossover Ventures II, C.V., TCV II
Strategic Partners, L.P., and TCV II, V.O.F. Mr. Reynolds, a director of
our Company, and a General Partner of Technology Crossover Ventures,
disclaims beneficial ownership of the securities held by this entity except
for his proportional interest in the entity.
(4) Mr. Dagres, a director of our Company, is a General Partner of Battery
Ventures. Mr. Dagres disclaims beneficial ownership of the securities held
by this entity except for his proportional interest in the entity.
Mr. Santhanam is a director and a 50% shareholder of Challenger Systems,
Inc., an entity to which we paid $590,000 in 1997 and $485,000 in 1998 for
software programming services.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of January 27, 2000, as adjusted to reflect
the sale of common stock in this offering, by:
. each person known to us to own beneficially more than 5% of our common
stock
. each of the Named Executive Officers
. each of our directors
. all of our executive officers and directors as a group
Except as otherwise noted, the address of each person listed in the table is
c/o Inventa Technologies, Inc., 255 Shoreline Drive, Suite 200, Redwood Shores,
California 94065. The table includes all shares of common stock issuable within
60 days of January 27, 2000, upon the exercise of options and warrants
beneficially owned by the indicated stockholders on that date based on options
and warrants outstanding as of January 27, 2000. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares. To
our knowledge, except under applicable community property laws or as otherwise
indicated, the persons named in the table have sole voting and sole investment
control with respect to all shares beneficially owned. The applicable
percentage of ownership for each stockholder is based on 20,724,913 shares of
common stock outstanding as of January 27, 2000, in each case together with
applicable options and warrants for that stockholder. Shares of common stock
issuable upon the exercise of options and warrants beneficially owned are
deemed outstanding for the purpose of computing the percentage of ownership of
the person holding those options and warrants, but are not deemed outstanding
for computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Shares Shares to be
Beneficially Owned Beneficially Owned
Prior to Offering After Offering
------------------ ---------------------
Beneficial Owner Number Percent Number Percent
- --------------------------------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C>
Boston Millennia Partners Limited
Partnership(1).................. 3,577,371 17.2%
Technology Crossover Ventures II,
L.P.(2)......................... 3,577,371 17.2
Battery Ventures III, L.P.(3).... 3,925,035 18.9
Ashok Santhanam(4)............... 4,500,000 21.7
David A. Lavanty(5).............. 270,311 1.2
Anthony H. Moretto(6)............ 50,000 *
Michael Makishima(7)............. 24,373 *
Robert Ducommun(8)............... 560,200 *
Michael Bealmear................. 40,000 *
Frank Pinto...................... 4,000 *
All executive officers and
directors as a group............ 16,524,661 78.4
</TABLE>
- --------
* Represents less than one percent of the total.
(1) Principal address is 30 Rowes Wharf, Suite 330, Boston, Massachusetts
02110. Includes shares held by Boston Millennia Associates I Partnership
and various individuals. Mr. Pinto, a director of our company, is a partner
with Boston Millennia Partners Limited Partnership. Mr. Pinto disclaims
beneficial ownership of the shares held by this entity except to the extent
of his proportional interest in the entity.
(2) Principal address is 575 High Street, Palo Alto, California 94301. Includes
1,711,320 shares held by Technology Crossover Ventures II, L.P., 1,315,687
shares held by TCV II (Q), L.P., 261,284 shares held by Technology
Crossover Ventures II, C.V., 233,488 shares held by TCV II, Strategic
Partners, L.P., and 55,592 shares held by TCV II, V.O.F. Mr. Reynolds, a
director of our company, is a General Partner of Technology Crossover
Ventures. Mr. Reynolds disclaims beneficial ownership of the shares held by
this entity except to the extent of his proportional interest in the
entity.
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<PAGE>
(3) Principal address is 20 William Street, Wellesley, Massachusetts 01282. Mr.
Dagres, a director of our company, is a General Partner of Battery
Ventures. Mr. Dagres disclaims beneficial ownership of the shares held by
this entity except to the extent of his proportional interest in the
entity.
(4) Mr. Santhanam, the Chairman of our Board of Directors, and his wife Revathi
Santhanam are trustees of the Santhanam Family Trust, which holds 3,500,000
shares. Two irrevocable trusts each hold 500,000 shares for the benefit of
Mr. Santhanam's two minor children. Mr. and Mrs. Santhanam disclaim
beneficial ownership of the shares held by these irrevocable trusts.
(5) Mr. Lavanty is our President and Chief Executive Officer. Excludes 694,689
shares issuable upon exercise of options, and a grant of options to
purchase an additional 290,000 shares effective on the date of this
offering.
(6) Excludes 190,000 shares issuable upon exercise of options.
(7) Excludes 60,727 shares issuable upon exercise of options.
(8) Principal address is 1155 Park Avenue, New York, New York 10128. Mr.
Ducommun, a director of our company, is the Trustee of the Palmer G. and
Charles E. Ducommun Charitable Annuity Trust which holds 241,700 shares.
Mr. Ducommum, his sister, Electra D. de Peyster, and the Ducommun and Gross
family foundations are the principal beneficiaries of the trust. Ms de
Peyster is also a shareholder of ours.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our amended and restated certificate of incorporation authorizes the
issuance of up to 25,000,000 shares of common stock, par value $0.001 per
share, and 14,779,511 shares of preferred stock, par value $0.001 per share,
the rights and preferences of which may be established from time to time by our
board of directors. As of January 27, 2000, there were outstanding 6,109,402
shares of common stock, and 14,615,511 shares of preferred stock, which are
convertible into 14,615,511 shares of common stock upon the completion of this
offering, were issued and outstanding.
Common Stock
Each holder of our common stock is entitled to one vote for each share held
of record on all matters to be voted upon by the stockholders. There are no
cumulative voting rights. Subject to the preferences of preferred stock issued
after the sale of the common stock in this offering, holders of common stock
are entitled to receive ratably any dividends that may be declared from time to
time by the board of directors out of funds legally available for that purpose.
In the event of our liquidation, dissolution or winding up, holders of common
stock would be entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference 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 and there
are no redemption or sinking fund provisions applicable to the common stock.
All outstanding shares of common stock, the shares of common stock to be issued
upon conversion of the outstanding preferred stock, the shares of common stock
to be issued in the contemporaneous private placement and the shares of common
stock offered by us in this offering, when issued and paid for, will be 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 that we may designate in
the future.
Preferred Stock
Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 14,779,511 million
shares of preferred stock, par value $0.001 per share, in one or more series,
with each of such series to have such rights and preferences, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the board of directors. The
rights of the holders of common stock will be subject to, and may be adversely
affected by, the rights of holders of any series of preferred stock that may be
issued in the future. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, a
majority of our outstanding voting stock. We currently have no plans to issue
any shares of preferred stock.
Warrants
As of January 27, 2000, we had outstanding warrants to purchase 160,000
shares of Series C Preferred Stock at an exercise price of $2.50 per share.
These warrants are exercisable for 160,000 shares of common stock upon the
completion of this offering. Each warrant has a net exercise provision under
which the holder may, in lieu of payment of the exercise price in cash,
surrender the warrant and receive a net amount of shares, based on the fair
value of our stock at the time of the exercise of the warrant, after deducting
the aggregate exercise price. The warrants for 160,000 shares of Series C
Preferred Stock will expire on November 30, 2004.
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<PAGE>
Limitation of Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
. breach of their duty of loyalty to the corporation or its stockholders
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law
. unlawful payments of dividends or unlawful stock repurchases or
redemptions
. any transaction from which the director derived an improper personal
benefit
This limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
Our bylaws provide that we will indemnify our directors, officers, employees
and other agents to the fullest extent permitted by Delaware 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 such indemnification.
We have obtained directors and officers' insurance providing indemnification
for all of our directors and officers for certain liabilities. Prior to closing
of this offering, we will enter into agreements to indemnify our directors and
executive officers, in addition to the indemnification provided for in our
bylaws. These agreements, among other things, will 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, out of such person's services as a director, officer, employee,
agent or fiduciary of ours, any subsidiary of ours 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.
At present, there is no litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for indemnification.
Registration Rights
The holders of 14,615,511 shares of preferred stock, and 1,350,000 shares of
common stock issued in connection with the acquisition of XTEND-Tech, referred
to as "registrable securities," are entitled to certain rights with respect to
registration of their shares under the Securities Act. These rights are
provided under the terms of an investors' registration rights agreement between
the holders of registrable securities and us. Beginning as soon as practicable
after January 1, 2000, holders of at least 50% of the then outstanding
registrable securities may require on up to two occasions that we register for
public resale all or a lesser amount of their registrable securities. We need
not register these shares if the requested registration would occur after we
have effected two (2) registrations, or if the requested registration would
occur within 180 days following the effective date of any Form S-1 registration
statement we have filed. Also, we may defer the registration of the shares for
up to 90 days if, in the good faith judgement of the board of directors, it
would be seriously detrimental to our stockholders and us for the registration
statement to be filed.
In addition, holders of registrable securities may require on up to four
occasions, but only once in any 12-month period that we register their shares
for public resale on a Form S-3 registration statement; provided that
. we are eligible to use Form S-3 and the value of registrable securities
is at least $500,000
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<PAGE>
. the request for Form S-3 registration does not occur within 180 days
following the effective date of any registration statement registering
shares of common stock
. the request for Form S-3 registration does not occur within 180 days
following the effective date of a registration statement registering
registrable securities required by the holders of at least 50% of the
outstanding registrable securities
We shall not be required to maintain the effectiveness of any Form S-3 for
more than 180 days from the effective date of the Form S-3. In view of market
conditions, we may reduce the number of registrable securities to be registered
on Form S-3 to not less than 50% of the shares the holders of registrable
securities have requested to be registered. Furthermore, in the event we elect
to register any of our shares of common stock for the purposes of effecting any
public offering other than our initial public offering, the holders of
registrable securities are entitled to include their shares of common stock in
the registration, but in view of market conditions, we may reduce the number of
shares proposed to be registered. All expenses in connection with any
registration will be borne by us.
Antitakeover Provisions
Certain provisions of our amended and restated certificate of incorporation
and bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control
of us. Such provisions could limit the price that certain investors might be
willing to pay in the future for shares of our common stock. Certain of these
provisions allow us to issue preferred stock without any vote or further action
by the stockholders, eliminate the right of stockholders to act by written
consent without a meeting and eliminate cumulative voting in the election of
directors. These provisions may make it more difficult for stockholders to take
certain corporate actions and could have the effect of delaying or preventing a
change in control of us.
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. 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 board of directors approved the transaction in which such stockholder
became an interested stockholder prior to the date the interested
stockholder attained such status
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers
. the business combination is approved by a majority of the board of
directors and by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder
A business combination generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, 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.
Our amended and restated certificate of incorporation provides that, upon
the closing of this offering, the board of directors will be divided into three
classes of directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
us and may maintain the incumbency of the board of directors, as the
classification of the board of directors generally increases the difficulty of
replacing a majority of the directors. Our amended and restated certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting and our bylaws eliminate the right of stockholders to call
special meetings of stockholders. The authorization of undesignated preferred
stock makes it possible for the board of
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directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of us. These and
other provisions may have the effect of deferring hostile takeovers or delaying
changes in control of our management. The amendment of any of these provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock.
Future sales of substantial amounts of common stock in the public market
following this offering could cause the prevailing market price of our common
stock to fall and impede our ability to raise equity capital at a time and on
terms favorable to us.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after January 27, 2000. Of these outstanding shares, the
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act of 1933, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act of
1933. The remaining shares of common stock outstanding upon
completion of the offering and held by existing stockholders will be
"restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933. Restricted shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act of 1933, which rules
are summarized below, or another exemption. Sales of the restricted shares in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock. All officers, directors and
certain other holders of common stock have entered into contractual lock-up
agreements, providing that they will not offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of shares of common stock owned by
them or that could be purchased by them through the exercise of options or
warrants for a period of 180 days after the date of this prospectus without the
prior written consent of Lehman Brothers Inc. As a result of these contractual
restrictions, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, additional shares will be eligible for
sale beginning 181 days after the effective date of the offering, subject in
some cases to certain volume limitations.
Eligibility of Restricted Shares for Sale in the Public Market
<TABLE>
<S> <C>
At the Effective Date.................................... None
90 Days After Effective Date............................. None
180 Days after Effective Date............................ 22,088,391 Shares
More Than 180 Days After Effective Date.................. 2,933,312 Shares
</TABLE>
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our affiliates, 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 the offering
. the average weekly trading volume of the common stock as reported through
the Nasdaq National Market 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 manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned
for at least two years the restricted shares proposed to be sold, 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.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 permits resales of shares issued
prior to the date the issuer becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, pursuant to certain compensatory benefit
plans and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities
52
<PAGE>
and Exchange Act of 1933, in reliance upon Rule 144 but without compliance with
certain restrictions, including the holding period requirements. In addition,
the Securities and Exchange Commission has indicated that Rule 701 will apply
to typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, along with the
shares acquired upon exercise of such options, including exercises after the
date the issuer becomes so subject. Securities issued in reliance on Rule 701
are restricted securities and, subject to the contractual restrictions
described above, beginning 91 days after the date of this prospectus, may be
sold by persons other than affiliates subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its one-year minimum holding period requirements.
We, our executive officers and directors and certain of our stockholders
have agreed not to sell or otherwise dispose of any shares of common stock or
any securities convertible into or exercisable or exchangeable for common
stock, or enter into any swap or similar agreement that transfers, in whole or
in part, the economic risk of ownership of the common stock, for a period of
180 days after the date of this prospectus, without the prior written consent
of Lehman Brothers Inc., subject to limited exceptions.
We intend to file a registration statement under the Securities Act of 1933
covering the shares of common stock subject to outstanding options or reserved
for issuance under the 1993 Plan. This registration statement is expected to be
filed within 90 days of effectiveness of the registration statement covering
the shares of common stock in this offering and will automatically become
effective upon filing. Accordingly, shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to affiliates
and the expiration of a 180-day lock-up period, be available for sale in the
open market, except to the extent that such shares are subject to our vesting
restrictions or the contractual restrictions described above.
53
<PAGE>
UNDERWRITING
Pursuant to the terms of an underwriting agreement, which is filed as an
exhibit to the registration statement relating to this prospectus, the
underwriters of the offering named below, for whom Lehman Brothers Inc., First
Union Securities, Inc. and Friedman, Billings, Ramsey & Co., Inc. are acting as
representatives, have each agreed to purchase from us the respective number of
shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
Underwriters Number of shares
------------ ----------------
<S> <C>
Lehman Brothers Inc.......................................
First Union Securities, Inc...............................
Friedman, Billings, Ramsey & Co., Inc. ...................
------
Total...................................................
======
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of
common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock which the underwriters have
agreed to purchase under the underwriting agreement must be purchased. The
conditions contained in the underwriting agreement include the requirement that
the representations and warranties made by us to the underwriters are true,
that there is no material change in the financial markets and that we deliver
to the underwriters customary closing documents.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares described below.
<TABLE>
<CAPTION>
Paid by Us No Exercise Full Exercise
---------- ----------- -------------
<S> <C> <C>
Per share........................................ $ $
Total............................................ $ $
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the initial public
offering price set forth on the cover page of this prospectus, and to dealers,
who may include the underwriters, at the initial public offering price less a
selling concession not in excess of $ share. The underwriters may allow,
and the dealers may reallow, a concession not in excess of $ per share
to brokers and dealers. After the offering, the underwriters may change the
offering price and other selling terms.
54
<PAGE>
We have granted to the underwriters an option to purchase up to an aggregate
of additional shares of common stock, exercisable solely to cover over-
allotments, if any, at the initial public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.
We, our executive officers and directors and certain of our other existing
stockholders have agreed not to directly or indirectly do any of the following,
whether any transaction described in clause (1) or (2) below is to be settled
by delivery of common stock or other securities, in cash or otherwise, in each
case without the prior written consent of Lehman Brothers Inc. on behalf of the
underwriters, for a period of 180 days after the date of this prospectus:
(1) offer, sell or otherwise dispose of, or enter into any transaction or
arrangement which is designed or could be expected to, result in the
disposition or purchase by any person at any time in the future of, any
shares of common stock or securities convertible into or exchangeable
for common stock or substantially similar securities, other than any of
the following:
. the common stock sold under this prospectus
. shares of common stock we issue under employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date of this prospectus or under currently
outstanding options, warrants or rights
(2) sell or grant options, rights or warrants with respect to any shares of
our common stock or securities convertible into or exchangeable for our
common stock or substantially similar securities, other than the grant
of options under option plans existing on the date hereof.
Prior to the offering, there has been no public market for the shares of our
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and
capital structure, estimates of our business potential and earnings prospects,
an overall assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "INVA."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ .
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of common stock.
55
<PAGE>
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed five percent of the total number of
shares of common stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position
or to stabilize the price of the common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it was to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters make any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada where the
sale is made.
At our request, the underwriters have reserved up to 12% shares of the
common stock offered by this prospectus for sale to our directors and to our
business associates at the initial public offering price set forth on the cover
page of this prospectus. These persons must commit to purchase no later than
the close of business on the day following the date of this prospectus. The
number of shares available for sale to the general public will be reduced to
the extent these persons purchase the reserved shares.
Fidelity Capital Markets, a division of National Financial Services
Corporation, will be facilitating a portion of the electronic distribution of
information through the Internet, their intranet and other proprietary
electronic technology. Fidelity Capital Markets will not be acting as an
underwriter of this offering.
fbr.com, a division of FBR Investments Services, Inc., which is an affiliate
of Friedman, Billings, Ramsey & Co., Inc., will be facilitating a portion of
the Internet distribution for this offering. Friedman, Billings, Ramsey & Co.,
Inc. has agreed to allocate a limited number of shares to fbr.com for sale to
its online brokerage account holders. An electronic prospectus is available on
the website maintained by fbr.com. Other than the prospectus in electronic
format, the information on the fbr.com website relating to this offering is not
a part of this prospectus and should not be relied upon by prospective
investors.
Certain of the representatives and their affiliates may in the future
provide investment banking, financial advisory and other services to us for
which these representatives may receive customary fees and commissions.
56
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The financial statements as of December 31, 1997, 1998 and 1999 and for the
three years in the period ended December 31, 1999 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission. This prospectus, which forms a part of the registration
statement, does not contain all of the information included in the registration
statement. Certain information is omitted and you should refer to the
registration statement and our exhibits. With respect to references made in
this prospectus to any contract or other document of ours, such references are
not necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract or document. You may
review a copy of the registration statement at the Securities and Exchange
Commission's public reference room at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Securities and
Exchange Commission's regional offices in Chicago, Illinois and New York, New
York. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. Our
Securities and Exchange Commission filings and the registration statement can
also be reviewed by accessing the Securities and Exchange Commission's Internet
site at http://www.sec.gov.
57
<PAGE>
INVENTA CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVENTA CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheet............................................... F-3
Consolidated Statement of Operations and Comprehensive Losses............ F-4
Consolidated Statement of Stockholders' Equity (Deficit)................. F-5
Consolidated Statement of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements............................... F-7
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Overview................................................................. F-20
Unaudited Pro Forma Combined Balance Sheet............................... F-21
Unaudited Pro Forma Combined Statement of Operations..................... F-22
Notes to Pro Forma Combined Financial Information........................ F-23
XTEND-TECH, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-24
Balance Sheet............................................................ F-25
Statement of Operations.................................................. F-26
Statement of Cash Flows.................................................. F-27
Notes to Financial Statements............................................ F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Inventa Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive losses, of
stockholders' equity (deficit) and of cash flows present fairly, in all
material respects, the financial position of Inventa Corporation and its
subsidiary (the "Company") at December 31, 1997, 1998 and 1999, and the results
of its operations and its cash flows for the years ended December 31, 1997,
1998 and 1999, in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 11, 2000
F-2
<PAGE>
INVENTA CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
-------------------------- December 31,
1997 1998 1999 1999
------- ------- -------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......... $ 671 $ 4,783 $ 3,244
Accounts receivable, net........... 622 637 2,013
Prepaid expenses and other current
assets............................ 37 142 1,675
------- ------- --------
Total current assets.............. 1,330 5,562 6,932
Property and equipment, net.......... 451 661 2,002
Other assets......................... 41 72 288
------- ------- --------
$ 1,822 $ 6,295 $ 9,222
======= ======= ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
---------------------------------
Current liabilities:
Borrowings......................... $ 300 $ -- $ 4,000
Accounts payable................... 164 523 1,409
Accrued expenses................... 326 1,125 2,783
Deferred revenue................... -- -- 483
Capital lease obligations.......... 111 112 192
------- ------- --------
Total current liabilities......... 901 1,760 8,867
Borrowings, long-term................ -- 300 --
Capital lease obligations, long-
term................................ 192 73 454
Deferred tax liabilities, long-term.. 25 17 --
------- ------- --------
1,118 2,150 9,321
------- ------- --------
Mandatorily redeemable convertible
preferred stock:
Series B mandatorily redeemable
convertible preferred stock;
$0.001 par value; 2,560,000 shares
authorized, issued and
outstanding....................... 3,200 3,200 4,195 $ --
Series C mandatorily redeemable
convertible preferred stock;
$0.001 par value; 8,220,000 shares
authorized; 0, 4,056,000 and
8,056,000 shares issued and
outstanding, respectively......... -- 5,070 13,203 --
------- ------- -------- --------
3,200 8,270 17,398 --
Commiments and contingencies (Note 6)
Stockholders' equity (deficit):
Series A convertible preferred
stock; $0.001 par value; 1,000,000
shares authorized, issued and
outstanding....................... 1 1 1 --
Common stock; $0.001 par value;
25,000,000 shares authorized;
4,642,000, 4,682,000 and 4,759,000
shares issued and outstanding,
respectively; 16,373,000
(unaudited) shares issued and
outstanding, pro forma............ 5 5 5 16
Additional paid-in capital........... 368 1,357 2,238 19,626
Deferred stock-based compensation.... -- (978) (4,340) (4,340)
Accumulated comprehensive loss....... (111) (93) (93) (93)
Accumulated deficit.................. (2,759) (4,417) (15,308) (15,308)
------- ------- -------- --------
Total stockholders' equity
(deficit)........................ (2,496) (4,125) (17,497) $ (99)
------- ------- -------- ========
$ 1,822 $ 6,295 $ 9,222
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INVENTA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSSES
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Revenues.................................... $ 5,196 $ 8,016 $ 13,520
--------- --------- ----------
Operating expenses:
Project personnel......................... 2,677 2,799 8,610
Sales and marketing....................... 1,671 1,838 4,230
General and administrative................ 3,456 4,520 9,434
Depreciation.............................. 187 251 562
Amortization of deferred stock-based
compensation............................. -- 50 1,555
Non-recurring expenses on closing of
foreign operations....................... -- 250 --
--------- --------- ----------
Total operating expenses................ 7,991 9,708 24,391
--------- --------- ----------
Loss from operations........................ (2,795) (1,692) (10,871)
Interest and other income................... 4 92 101
Interest expense............................ (83) (56) (106)
--------- --------- ----------
Loss before income taxes.................... (2,874) (1,656) (10,876)
Income tax expense.......................... (90) (2) (15)
--------- --------- ----------
Net loss.................................... (2,964) (1,658) (10,891)
Accretion of mandatorily redeemable
convertible preferred stock to redemption
value...................................... -- -- (4,128)
--------- --------- ----------
Net loss attributable to common
stockholders............................... $ (2,964) $ (1,658) $ (15,019)
Other comprehensive losses:
Foreign currency translation adjustment... (112) 18 --
--------- --------- ----------
Comprehensive loss.......................... $ (3,076) $ (1,640) $ (15,019)
========= ========= ==========
Net loss per share:
Basic and diluted......................... $ (0.65) $ (0.36) $ (3.20)
========= ========= ==========
Weighted average shares................... 4,556,893 4,658,735 4,698,483
========= ========= ==========
Pro forma net loss per share (unaudited):
Basic and diluted......................... $ (0.75)
==========
Weighted average shares................... 14,447,327
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INVENTA CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Series A
Convertible Retained Total
Preferred Stock Common Stock Additional Deferred Accumulated Earnings/ Stockholders'
----------------- ------------- Paid-in Stock-Based Comprehensive (Accumulated Equity
Shares Amount Shares Amount Capital Compensation Losses Deficit) (Deficit)
-------- ------- ------ ------ ---------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 800 $ 1 4,543 $ 5 $ 388 $ -- $ 1 $ 205 $ 600
Stock issuance costs.... -- -- -- -- (25) -- -- -- (25)
Exercise of common stock
options................ -- -- 99 -- 5 -- -- -- 5
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (112) -- (112)
Net loss................ -- -- -- -- -- -- -- (2,964) (2,964)
-------- ------- ----- ---- ------- ------- ----- -------- --------
Balance at December 31,
1997................... 800 1 4,642 5 368 -- (111) (2,759) (2,496)
Stock issuance costs.... -- -- -- -- (42) -- -- -- (42)
Exercise of common stock
options................ -- -- 40 -- 3 -- -- -- 3
Deferred stock-based
compensation........... -- -- -- -- 1,028 (1,028) -- -- --
Amortization of stock-
based compensation..... -- -- -- -- -- 50 -- -- 50
Foreign currency
translation
adjustment............. -- -- -- -- -- -- 18 -- 18
Net loss................ -- -- -- -- -- -- -- (1,658) (1,658)
-------- ------- ----- ---- ------- ------- ----- -------- --------
Balance at December 31,
1998................... 800 1 4,682 5 1,357 (978) (93) (4,417) (4,125)
Stock issuance costs.... -- -- -- -- (16) -- -- -- (16)
Exercise of Series A
convertible preferred
stock warrants......... 200 -- -- -- 100 -- -- -- 100
Exercise of common stock
options................ -- -- 77 -- 8 -- -- -- 8
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- (4,128) -- -- -- (4,128)
Deferred stock-based
compensation........... -- -- -- -- 4,917 (4,917) -- -- --
Amortization of stock-
based compensation..... -- -- -- -- -- 1,555 -- -- 1,555
Net loss................ -- -- -- -- -- -- -- (10,891) (10,891)
-------- ------- ----- ---- ------- ------- ----- -------- --------
Balance at December 31,
1999................... 1,000 $ 1 4,759 $ 5 $ 2,238 $(4,340) $ (93) $(15,308) $(17,497)
======== ======= ===== ==== ======= ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INVENTA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(2,964) $(1,658) $(10,891)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts................ 258 (49) --
Depreciation................................... 192 252 562
Deferred income taxes.......................... 99 -- --
Amortization of deferred stock-based
compensation.................................. -- 50 1,555
Changes in operating assets and liabilities:
Accounts receivable.......................... 250 78 (1,376)
Prepaid expenses and other assets............ 51 (121) (1,533)
Accounts payable............................. (151) 345 886
Accrued expenses............................. 14 797 1,658
Deferred revenue............................. -- -- 483
Income taxes payable......................... 1 (26) --
Deferred tax liabilities..................... 1 (8) (17)
------- ------- --------
Net cash used in operating activities...... (2,249) (340) (8,673)
------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment............... (50) (460) (1,261)
------- ------- --------
Net cash used in investing activities...... (50) (460) (1,261)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net of issuance
costs........................................... 3,175 5,027 4,984
Proceeds from exercise of warrants............... -- -- 100
Proceeds from issuance of common stock........... 5 3 8
Proceeds from borrowings......................... -- 300 4,092
Repayment of borrowings.......................... (165) (300) (392)
Repayment of capital lease obligations........... (93) (118) (397)
------- ------- --------
Net cash provided by financing activities.. 2,922 4,912 8,395
------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 623 4,112 (1,539)
Cash and cash equivalents, beginning of year....... 48 671 4,783
------- ------- --------
Cash and cash equivalents, end of year............. $ 671 $ 4,783 $ 3,244
======= ======= ========
Supplemental cash flow information:
Cash paid for the period:
Interest....................................... $ 77 $ 56 $ 106
======= ======= ========
Taxes.......................................... $ 49 $ -- $ --
======= ======= ========
Supplemental non-cash investing and financing
activity:
Property and equipment acquired under capital
lease........................................... $ 285 $ -- $ 678
======= ======= ========
</TABLE>
F-6
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Inventa Corporation (the "Company") was incorporated in California on
October 26, 1988. The Company provides Internet professional services including
business-to-business e-Commerce solutions to companies located primarily in the
United States. The Company architects, engineers, integrates and supports
complex business to business digital exchanges and digital customer
relationship management solutions. Digital exchanges are electronic
marketplaces that enable businesses to collaborate with trading partners,
conduct e-Commerce, manage distribution relationships and enhance business
partnerships. Digital customer relationship management is an Internet based
approach to coordinating a company's customer relationships across
communications channels, business functions and trading partners.
Basis of Presentation
The accompanying consolidated financial statements include the financial
statements of the Company and its wholly owned foreign subsidiary, ICG Systems
SDN. BHD, located in Malaysia through December 31, 1998. All intercompany
accounts between the Company and its wholly owned subsidiary have been
eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from professional services which are
generally provided to clients on either a fixed-price or a time and materials
basis. Revenue from fixed-price engagements is recognized using the percentage
of completion method (based on the ratio of costs incurred to the total
estimated project costs). Revenue from time and materials engagements is
recognized as services are rendered. Payments received in advance of services
rendered are recorded as deferred revenue. The Company reports revenue net of
reimbursable expenses which are billed to and collected from clients.
Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and are recognized in the period in which such
losses become probable and can be reasonably estimated. To date, such losses
have not been significant.
At December 31, 1997, 1998 and 1999, the Company had $33,000, $32,000 and
$1,183,000 in unbilled accounts receivable relating to revenue recognized but
not billed due to timing of customer payment terms. Unbilled accounts
receivable is included in prepaid expenses and other current assets on the
consolidated balance sheet.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of deposits in money market funds.
F-7
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risks
Financial instruments that potentially subject the Company to a
concentration credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company limits its exposure to credit loss by placing
its cash and cash equivalents with high quality financial institutions. The
Company's accounts receivable are derived from revenue earned from clients
located in the United States. The Company performs ongoing credit evaluations
of its clients and maintains an allowance for potential credit losses based
upon the expected collectability of accounts receivable.
The following table summarizes the revenues from clients in excess of 10% of
total revenues:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Company A................................................... 3% 52% 34%
Company B................................................... -- -- 20%
Company C................................................... 17% 8% 6%
Company D................................................... 18% 16% 3%
Company E................................................... 18% 5% --
Company F................................................... 15% -- --
</TABLE>
At December 31, 1997, Company E and F accounted for 15% and 17% of total
accounts receivable, respectively. At December 31, 1998, Company A and D
accounted for 38% and 27% of total accounts receivable, respectively. At
December 31, 1999, Company A and B accounted for 26% and 25% of total accounts
receivable, respectively.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable and accounts payable are carried at cost, which
approximates their fair value because of the short-term maturity of these
instruments. The carrying value of the Company's capital leases approximate
fair value because the implicit rates for these leases approximates prevailing
market rates.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets,
generally ranging from three to five years. Equipment acquired under capital
leases is amortized on a straight-line basis over the term of the lease or
estimated useful lives, whichever is shorter. Leasehold improvements are
amortized over the shorter of the term of the lease or the life of the asset.
Long-lived Assets
The Company evaluates the recoverability of its 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.
Advertising
Advertising is expensed as incurred. Advertising and public relations
expenses for the years ended December 31, 1997, 1998 and 1999, totaled $91,000,
$230,000 and $386,000, respectively.
F-8
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees," ("APB No. 25") and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25, compensation
expense is recognized based on the difference, if any, on the date of grant
between the fair value of the Company's stock and the amount an employee must
pay to acquire the stock. The compensation expense is recognized over the
option vesting period.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or
Services."
Pro Forma Stockholders' Equity (Unaudited)
Effective upon the closing of this offering, the outstanding shares of
Series A Convertible Preferred Stock, Series B and Series C Mandatorily
Redeemable Convertible Preferred Stock will automatically convert into
approximately 1,000,000, 2,560,000 and 8,056,000 shares, respectively, of
Common Stock. The pro forma effects of these transactions are unaudited and
have been reflected in the accompanying pro forma Stockholders' Equity at
December 31, 1999.
Net Loss Per Share
Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS "No. 128") and SEC
Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under the provisions of SFAS
No. 128 and SAB No. 98, 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 weight
average number of common and potential common shares outstanding during the
period, if their effect is dilutive. Potential common shares are comprised of
incremental shares of Common Stock issuable upon the exercise of stock options
and warrants and upon the conversion of Convertible Preferred Stock.
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated, (in thousands, except share and per share
data):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Historical:
Numerator:
Net loss.................................... $ (2,964) $ (1,658) $ (10,891)
Accretion of series B and C mandatorily
redeemable convertible preferred stock..... -- -- (4,128)
--------- --------- ---------
Net loss attributable to common
stockholders............................... $ (2,964) $ (1,658) $ (15,019)
========= ========= =========
Denominator:
Weighted average shares..................... 4,556,893 4,658,735 4,698,483
========= ========= =========
Net loss per share:
Basic and diluted........................... $ (0.65) $ (0.36) $ (3.20)
========= ========= =========
</TABLE>
F-9
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth common stock equivalents that are not
included in the diluted net loss per share calculation above because to do so
would be antidilutive for the period indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Weighted average effect of common stock
equivalents:
Series A convertible preferred stock.......... 800,000 800,000 1,000,000
Series B mandatorily redeemable convertible
preferred stock.............................. 2,560,000 2,560,000 2,560,000
Series C mandatorily redeemable convertible
preferred stock.............................. -- 4,055,511 8,055,511
Convertible preferred stock warrants.......... 200,000 200,000 160,000
Employee stock options........................ 425,000 1,496,000 3,492,000
--------- --------- ----------
3,985,000 9,111,511 15,267,511
========= ========= ==========
</TABLE>
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the conversion of the Company's Series A, Series B and Series C
Convertible Preferred Stock into shares of the Company's Common Stock effective
upon the closing of the Company's initial public offering, as if such
conversion occurred on January 1, 1999, or at the date of original issuance, if
later. The resulting pro forma adjustment includes (i) an increase in the
weighted average shares used to compute the basic net loss per share by
9,748,844 shares and (ii) a decrease in the net loss attributable to common
stockholders for the accretion of mandatorily redeemable convertible preferred
stock of $4,128,000. The calculation of diluted net loss per share excludes
potential shares of common stock as the effect of their inclusion would be
antidilutive. Pro forma potential common stock consists of incremental shares
of common stock issuable upon the exercise of stock options.
Foreign Currency Translation Policy
The functional currency of ICG Systems SDN. BHD. is the local currency.
Assets and liabilities are translated at exchange rates prevailing at the
balance sheet dates. Revenues, costs and expenses are translated into United
States dollars at average exchange rates for the period. Gains and losses
resulting from translation are accumulated as a component of stockholders'
equity.
Income Taxes
Income taxes are accounted for using an asset and liability approach.
Deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws. In
addition, deferred tax assets are recorded for the future benefit of utilizing
net operating loss and research and development credit carryforwards. A
valuation allowance is provided against deferred tax assets unless it is more
likely than not that they will be realized, either through the generation of
future taxable income or through carryback potential.
Comprehensive Income
The Company follows the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 establishes standards for reporting comprehensive income and its components
in financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources.
F-10
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment Information
The Company follows the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). The Company identifies its operating segments
based on business activities, management responsibility and geographical
location. During the periods presented the Company operated in a single
business segment.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivatives and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value and will be effective as
of June 15, 2000. The adoption of SFAS No. 133 is not expected to have a
material effect on the Company's results of operations, financial condition or
cash flows.
NOTE 2--BALANCE SHEET COMPONENTS (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998 1999
----- ------ ------
<S> <C> <C> <C>
Accounts receivable, net:
Accounts receivable................................. $ 955 $ 945 $2,187
Less: Allowance for doubtful accounts............... (333) (308) (174)
----- ------ ------
$ 622 $ 637 $2,013
===== ====== ======
Property and equipment, net:
Furniture and fixtures.............................. $ 144 $ 218 $ 495
Equipment........................................... 702 1,051 2,166
Leasehold improvements.............................. 47 76 407
----- ------ ------
893 1,345 3,068
Less: Accumulated depreciation ....................... (442) (684) (1,066)
----- ------ ------
$ 451 $ 661 $2,002
===== ====== ======
</TABLE>
Property and equipment includes $456,000 of equipment under capital leases
at December 31, 1997 and 1998 and $999,000 at December 31, 1999. Accumulated
depreciation of assets under capital leases totaled $179,000, $234,000 and $
337,000 at December 31, 1997, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998 1999
---- ------ ------
<S> <C> <C> <C>
Accrued expenses:
Payroll and related expenses........................... $180 $ 510 $1,896
General and administrative expenses.................... 119 614 863
Income taxes payable................................... 27 1 7
Other.................................................. -- -- 17
---- ------ ------
$326 $1,125 $2,783
==== ====== ======
</TABLE>
F-11
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3--RELATED PARTY TRANSACTIONS:
During 1997 and 1998, the Company obtained contract services from an entity
in which the Chairman, who was the Company's former President, has a
significant investment. The Company paid approximately $590,000 during 1997 and
$485,000 during 1998, which was estimated to approximate the fair market value,
for the services. This relationship was mutually terminated in October 1998.
NOTE 4--INCOME TAXES:
The provision for income taxes consists of the following, (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal....................................... $ (3) $ -- $ 13
State and local............................... 1 2 2
Other......................................... 29 -- --
------- ------- -------
27 2 15
------- ------- -------
Deferred:
Federal....................................... 53 -- --
State and local............................... 10 -- --
------- ------- -------
63 -- --
------- ------- -------
$ 90 $ 2 $ 15
======= ======= =======
Deferred tax assets and liabilities consist of the following, (in
thousands):
<CAPTION>
December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............. $ 1,102 $ 1,274 $ 5,088
Accruals and other reserves................... 53 341 316
Fixed assets.................................. -- 107 92
------- ------- -------
Total gross deferred tax assets................. 1,155 1,722 5,496
Less: Valuation allowance....................... (1,155) (1,722) (5,496)
------- ------- -------
-- -- --
------- ------- -------
Deferred tax liabilities:
Fixed assets.................................. (25) (17) --
------- ------- -------
$ (25) $ (17) --
======= ======= =======
</TABLE>
Management believes that based on a number of factors, it is more likely
than not that the deferred tax assets will not be utilized, such that a full
valuation allowance has been recorded.
As of December 31, 1999, the Company had approximately $13.0 million of
federal net operating loss carryforwards and approximately $11.0 million of
state net operating loss carryforwards available to offset future taxable
income. The federal net operating loss carryforwards will expire between 2011
and 2019 and the state net operating loss carryforwards will expire between
2004 and 2006, if not utilized.
F-12
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances including, but not limited to, a cumulative stock ownership
change of more than 50% over a three-year period, as defined. Any unused annual
limitation may be carried forward to future years for the balance of the net
operating loss carryforward period.
NOTE 5--BORROWINGS:
Line of Credit
During November 1999, the Company terminated a line of credit with Silicon
Valley Bank. The line of credit provided for borrowings of up to $1,000,000
which were secured by the Company's assets. The line of credit charged interest
at a rate of 9.00% per annum. Under the line of credit, the Company was
required to maintain certain financial ratios as stipulated in the agreement.
Equipment Lease Line
During November 1999, the Company paid in full the balance outstanding under
an equipment lease financing line with Silicon Valley Bank. The equipment lease
line provides for borrowings of up to $600,000 which are secured by the
Company's assets. The Company's ability to draw on the financing line expires
on June 22, 2000. The lease line bears interest at a rate of 9.75% per annum.
Under the line of credit, the Company is required to maintain certain financial
covenants.
Loan Agreement
On November 17, 1999, the Company entered into a loan agreement with a
financial institution. This agreement provides for borrowings of up to
$4,000,000 under a term loan ("Term Loan") and $2,000,000 under a revolving
line of credit. Borrowing under the term loan bears interest at prime rate plus
2.00% (10.75% currently) with accrued interest paid monthly and is due at
November 30, 2000. Borrowing under the line of credit is limited to the lesser
of 80% of the amount of the eligible accounts receivable or $2,000,000, and
bears interest at prime rate plus 2.00% (10.75% currently). The Company
borrowed the entire $4,000,000 available under the term loan on the date of the
agreement.
In connection with such debt financing, the Company issued warrants to
purchase 160,000 shares of Series C Mandatorily Redeemable Preferred Stock at
$2.50 per share, which expire in November 2004. The value of the warrants was
determined using the Black-Scholes valuation model. The expense amounting to
$118,000 will be recognized as additional interest expense over the term of the
borrowing arrangement. The warrants became exercisable upon the closing of the
loan agreement.
NOTE 6--COMMITMENTS AND CONTINGENCIES:
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The company accrues
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect in the financial position or results of
operations of the company.
Lease Commitments
The Company leases office space, equipment and an automobile under
noncancelable operating and capital leases. Rent expense under the operating
leases was approximately $157,000, $214,000 and $828,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
F-13
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under the capital and noncancelable operating
leases at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ended December 31, Leases Leases
------------------------ ------- ---------
(in thousands)
<S> <C> <C>
2000...................................................... $ 262 $ 976
2001...................................................... 224 508
2002...................................................... 169 196
2003...................................................... 96 116
2004...................................................... 27 --
------- -------
778 $ 1,796
=======
Less: Amounts representing interest....................... (132)
-------
Present value of minimum capital lease payments........... 646
Less: Current portion..................................... (192)
-------
Capital lease obligations, long-term...................... $ 454
=======
</TABLE>
Employment Agreements
The Company 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.
NOTE 7--CONVERTIBLE PREFERRED STOCK:
Convertible Preferred Stock at December 31, 1999, consists of the following
(in thousands):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation Redemption
Series Authorized Outstanding Amount Amount
------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
A.............................. 1,000 1,000 $ 500 $ --
B.............................. 2,560 2,560 3,200 23,040
C.............................. 8,220 8,056 10,070 72,504
------ ------ ------- -------
11,780 11,616 $13,670 $95,544
====== ====== ======= =======
</TABLE>
The holders of Convertible Preferred Stock have the following rights and
preferences:
Voting
Each share of Series A, Series B and Series C has voting rights equal to an
equivalent number of shares of Common Stock into which it is convertible and
votes together as one class with the Common Stock.
Dividends
Holders of Series A, Series B and Series C are entitled to receive
noncumulative dividends as declared by the Board of Directors at a rate of
$0.03, $0.075 and $0.10 per share, respectively, per annum prior to any
dividends being paid to holders of Common Stock. After payment of such
dividends, declared dividends shall be paid to the holders of Common Stock and
Convertible Preferred Stock in such amounts as they would be entitled to
receive if their shares had been converted into shares of Common Stock. No
dividends were declared by the Board from inception through December 31, 1999.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including merger or sale of substantially all assets, the Series A, Series B
and Series C shareholders are entitled to receive with each series
F-14
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of Convertible Preferred Stock, on a pro rata basis, a distribution of $0.50,
$1.25 and $1.25 per share, respectively, plus any unpaid but declared dividends
prior to and in preference to any distribution to the holders of Common Stock.
After the payment has been made to the holders of Series A, Series B and Series
C, the holders of Common Stock are entitled to receive $0.40 per share. The
remaining assets, if any, shall be distributed ratably among the holders of the
Common Stock, Series A, Series B and Series C shareholders.
Redemption
The holders of Series C have the right to require the Company to redeem the
then outstanding shares beginning on or after March 31, 2004 in three equal
annual installments which is the fair value of the Series C at the time of
redemption plus unpaid dividends. The holders of Series B have the right to
require the Company to redeem the then outstanding shares any time after March
2004 in three annual installments for a redemption price, which is the fair
value of the Series B at the time of redemption plus unpaid dividends. Fair
values shall be determined by the Board of Directors but if it is unacceptable
to the holders of the Series C or Series B, then it shall be determined by an
independent investment banking firm. The Series A has no redemption privileges.
As the future redemption prices of the Series B and Series C shares are
variable in amount, the difference between the Series B and Series C carrying
values and their estimated future redemption value are being accreted ratably
as a charge to additional paid-in capital. The estimate future redemption value
is based on the low-end of the range of share prices anticipated for the
proposed initial public offering of the Company's stock.
During the years ended December 31, 1997 and 1998, the carrying value of
both the Series B and Series C approximated their estimated future redemption
price and as such no accretion charges were recorded. During the year ended
December 31, 1999, the Company recorded accretion charges of $4.1 million.
Conversion
Each share of Series A, Series B and Series C is convertible at the option
of the holder into one share of Common Stock. The conversion ratio of Series B
into Common Stock is subject to certain adjustments to prevent dilution. Series
A, Series B and Series C automatically convert into Common Stock upon the
completion of an underwritten public offering with gross proceeds of at least
$5,000,000, $10,000,000 and $10,000,000 and a public offering price of not less
than $1.75, $4.00 and $4.00 per share, respectively.
Warrants
In connection with the issuance of Series A, each holder was granted a
warrant to purchase one share of preferred stock for every four shares of
Series A owned at an exercise price per share of $0.50. The warrants expire at
the earlier of December 31, 1999, the date of the Company's initial public
offering of securities, or the date of acquisition of the Company. The value of
the warrants at the time of their issuance was not material to the consolidated
financial statements.
During December 1999, warrants for an aggregate of 200,000 shares of Series
A Convertible Preferred Stock were exercised. Gross proceeds from the exercise
were $100,000.
NOTE 8--COMMON STOCK:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 25,000,000 shares of Common Stock.
F-15
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, the Company had reserved the following number of
shares of Common Stock for future issuance (in thousands):
<TABLE>
<S> <C>
Series A Convertible Preferred Stock.................................. 1,000
Series B Mandatorily Redeemable Convertible Preferred Stock........... 2,560
Series C Mandatorily Redeemable Convertible Preferred Stock........... 8,220
Options under Stock Option Plan....................................... 5,355
------
17,135
======
</TABLE>
NOTE 9--STOCK OPTION PLAN:
In 1993, the Board of Directors and shareholders adopted the 1993 Stock
Option Plan (the "1993 Plan") which provides for granting of incentive stock
options ("ISO's") and nonqualified stock options ("NSO's") for shares of Common
Stock to employees, directors and consultants of the Company. In accordance
with the 1993 Plan, the stated exercise price shall not be less than 100% and
85% of the estimated fair market value of the Common Stock as determined by the
Board of Directors on the date of grant for ISO's and NSO's, respectively.
Stock options granted to a person owning more than 10% of the combined voting
power of all classes of stock of the Company must be issued at 110% of the fair
market value of the stock on the date of grant. The 1993 Plan provides that the
options shall be exercisable over a period not to exceed ten years and shall
generally vest 25% one year after the date of grant and thereafter vest in
equal monthly installments over the remaining 36 months.
The following tables summarize stock option plan activity under the 1993
Plan (in thousands except per share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 483 $0.05 425 $0.10 1,496 $0.14
Granted................. 330 0.15 1,259 0.15 2,398 0.58
Exercised............... (99) 0.05 (41) 0.07 (76) 0.11
Canceled................ (289) 0.09 (147) 0.09 (326) 0.35
---- ----- -----
Outstanding at end of
period................. 425 $0.10 1,496 $0.14 3,492 $0.42
==== ===== =====
Options exercisable at
end of period.......... -- 348 487
==== ===== =====
Weighted average fair
value of options
granted during the
period................. $1.13 $1.13 $2.77
===== ===== =====
</TABLE>
F-16
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Options Outstanding at Options Exercisable
December 31, 1999 at December 31, 1999
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Average
Exercise Options Contractual Exercise Number Exercise
Prices Outstanding Life Price Outstanding Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.050................ 47 5.0 years $0.05 43 $0.05
$0.150................ 2,005 9.0 years 0.15 444 0.15
$0.450................ 599 9.5 years 0.45 -- --
$0.625................ 148 9.6 years 0.63 -- --
$1.000................ 192 9.8 years 1.00 -- --
$1.250................ 501 9.9 years 1.25 -- --
----- ---
3,492 9.2 years $0.42 487 $0.14
===== ===
</TABLE>
Stock-based Compensation
In connection with certain stock option grants during the year ended
December 31, 1999 the Company recorded unearned stock-based compensation
totaling $4,917,000, 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 year ended December 31, 1999 totaled $1,555,000 If the stock-based
compensation for the year ended December 31, 1999 had been allocated across the
relevant functional expense categories within operating expenses, it would be
allocated as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Project personnel............................................... $ 607
Sales and marketing............................................. 351
General and administrative...................................... 597
------
$1,555
======
</TABLE>
Fair Value Disclosures
The Company has adopted the disclosure only provision of SFAS No. 123. Had
compensation cost been determined for options issued under the 1993 Plan and
outside the 1993 Plan based on the fair value of the options at the grant date
for awards in 1997 and 1998 consistent with provisions of SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts indicated
below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Net loss attributable to common stockholders:
As reported.................................... $(2,964) $(1,658) $(15,019)
======= ======= =========
Pro forma...................................... $(3,045) $(1,865) $ (14,873)
======= ======= =========
Net loss per share--basic and diluted as
reported........................................ $ (0.65) $ (0.36) $ (3.20)
======= ======= =========
Net loss per share--basic and diluted pro forma.. $ (0.67) $ (0.40) $ (3.17)
======= ======= =========
</TABLE>
F-17
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company calculated the fair value of each option on the date of grant
using the Black-Scholes pricing model with the following assumptions used for
grants during the applicable period: annual dividend yield of 0%, risk-free
annual interest rates of 4.47% to 6.31% for options granted during the period
from January 1, 1997 through December 31, 1999 and a weighted average expected
option term of five years.
NOTE 10--EMPLOYEE BENEFIT PLAN
Effective January 1, 1996, and as amended on January 1, 1998, the Company
adopted the Inventa Corporation Retirement Savings Plan (the "Plan") which
qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code.
All full-time employees who are at least 21 years old are eligible to
participate in the Plan. Participants may contribute up to maximum allowed
under the law of their earnings to the Plan. A discretionary matching amount
may be made by the Company. The Company made matching contributions for the
years ended December 31, 1997, 1998 and 1999 of $21,000, $30,000 and $96,000,
respectively.
NOTE 11--MALAYSIAN OPERATIONS:
In November 1998, the Company announced a formal plan to close its
operations in Malaysia and focus its effort in the United States. Accordingly,
in February 1999, the Company engaged the services of a third party to assist
in the orderly liquidation of the Malaysian subsidiary. In conjunction with
this announcement, the Company made a provision of $250,000 in the consolidated
financial statements for costs to be incurred in connection with the
liquidation of the Malaysian subsidiary. The balance of this provision at
December 31, 1999 was $134,073.
NOTE 12--SEGMENT AND GEOGRAPHIC INFORMATION:
The Company operates in a single industry segment (as defined by SFAS No.
131) providing consulting and systems integration services.
The following is a summary of service revenue by geographic area (in
thousands):
<TABLE>
<CAPTION>
Years Ended December
31,
---------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Malaysia............................................... $ 748 $ 521 $ --
United States.......................................... 4,448 7,495 13,520
------ ------ -------
$5,196 $8,016 $13,520
====== ====== =======
</TABLE>
NOTE 13--SUBSEQUENT EVENTS:
Series D Mandatorily Redeemable Preferred Stock
On January 19, 2000, 3,000,000 shares of Series D Mandatorily Redeemable
Preferred Stock were issued for gross proceeds of approximately $22.2 million.
The issuance will result in a beneficial conversion feature of approximately
$4.8 million calculated in accordance with Emerging Issues Task Force No. 98-5,
which will result in an immediate charge to accumulated deficit.
Acquisition
Effective January 26, 2000, the Company acquired all the outstanding shares
of common stock of XTEND-Tech, Inc., a provider of information technology
consulting services. Total consideration paid in connection with this
acquisition was 1,350,000 shares of the Company's common stock with a value of
F-18
<PAGE>
INVENTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$12,150,000. This consideration consisted of a combination of the purchase
price paid for the outstanding common stock of XTEND-Tech and consideration to
certain employee stockholders of XTEND-Tech for continued employment with the
Company.
The acquisition will be accounted for using the purchase method of
accounting. The amount of the consideration treated as purchase price for this
acquisition was approximately $7,182,000. The purchase price was allocated to
the tangible and intangible assets acquired and liabilities assumed based upon
their respective fair values at the acquisition date. The purchase price
consisted of 798,052 shares of the Company's common stock. The estimated
allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Tangible assets.................................................. $ 775,000
Intangible assets
Workforce...................................................... 3,528,000
Covenants not to compete....................................... 882,000
Goodwill....................................................... 2,724,000
Liabilities...................................................... (727,000)
----------
$7,182,000
==========
</TABLE>
The amortization of the intangible assets will occur over the estimated
periods to be benefited. The workforce intangible asset will be amortized on a
straight-line basis over eighteen months from the acquisition date, however,
retention of the acquired employees will be evaluated in future periods to
assess whether accelerated amortization of this asset is warranted. The
covenants not to compete intangible asset will be amortized on a straight-line
basis over four years starting from the acquisition date. The goodwill is
expected to be amortized on a straight-line basis over three years from the
acquisition date.
Additionally, the Company signed restricted stock agreements with certain
employee stockholders of XTEND-Tech, Inc. as consideration for continued
employment. Under these agreements, the stockholders receive 849,150 shares of
the Company's common stock with a fair value of approximately $7,642,000 at the
effective date of the stock purchase agreement. Under the restricted stock
agreement, 297,202 shares vest immediately and therefore constitute part of the
purchase price of the tangible and intangible assets of XTEND-Tech, Inc. The
remaining 551,948 shares vest evenly over three years from the effective date
of the stock purchase agreement. The fair value of the unvested shares,
amounting to $4,968,000 has been recorded as deferred stock-based compensation
which will be amortized over the three year vesting period of the restricted
stock in accordance with FASB Interpretation No. 28.
Letter of Credit
In February 2000, the Company entered into two letters of credit for
approximately 2.8 million and 198,000 to secure lease deposits to expand into
two new office facilities. The letters of credit expire February 2001.
F-19
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
In January 2000, Inventa Corporation ("Inventa") entered into a stock
acquisition agreement to acquire all outstanding shares of XTEND-Tech, Inc.
("XTEND-Tech"). Total consideration for the shares of XTEND-Tech was
$12,150,000 consisting of 1,350,000 shares of common stock. The unaudited pro
forma combined balance sheet is based on the individual balance sheets of
Inventa and XTEND-Tech appearing elsewhere in this prospectus and has been
prepared to reflect the acquisition of the common stock of XTEND-Tech by
Inventa as of December 31, 1999. The unaudited pro forma combined statements of
operations are based on individual historical results of operations of Inventa
and XTEND-Tech for the year ended December 31, 1999, after giving effect to the
acquisition of XTEND-Tech as if it had occurred on January 1, 1999.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto of
Inventa and XTEND-Tech. The unaudited pro forma combined financial statements
are presented for illustrative purposes only and are not necessarily indicative
of results of operations that would have actually occurred had the acquisition
of XTEND-Tech by Inventa been effected on the dates assumed.
F-20
<PAGE>
INVENTA CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Inventa XTEND-Tech Adjustments Pro Forma
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents....... $ 3,244 $173 $ -- $ 3,417
Accounts receivable, net........ 2,013 504 -- 2,517
Prepaid expenses and other
current assets................. 1,675 22 -- 1,697
-------- ---- ------- --------
Total current assets.......... 6,932 699 -- 7,631
Property and equipment, net...... 2,002 76 -- 2,078
Other assets..................... 288 -- -- 288
Intangible assets................ -- -- 4,410 (1) 4,410
Goodwill......................... -- -- 2,724 (1) 2,724
-------- ---- ------- --------
$ 9,222 $775 $ 7,134 $ 17,131
======== ==== ======= ========
LIABILITIES, MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Borrowings...................... $ 4,000 $ 30 $ -- $ 4,030
Accounts payable................ 1,409 65 -- 1,474
Advances from related party..... -- 326 -- 326
Accrued expenses................ 2,780 159 -- 2,939
Deferred revenue................ 483 -- -- 483
Income taxes payable............ 3 20 -- 23
Capital lease obligations ...... 192 19 -- 211
-------- ---- ------- --------
Total current liabilities..... 8,867 619 -- 9,486
Capital lease obligations, long-
term............................ 454 48 -- 502
Borrowings, long-term............ -- 60 -- 60
-------- ---- ------- --------
9,321 727 -- 10,048
-------- ---- ------- --------
Mandatorily redeemable
convertible preferred stock:
Series B mandatorily redeemable
convertible preferred stock;
$0.001 par value; 2,560,000
shares authorized, issued and
outstanding ................... 4,195 -- -- 4,195
Series C mandatorily redeemable
convertible preferred stock;
$0.001 par value; 8,220,000
shares authorized; 8,056,000
shares issued and
outstanding.................... 13,203 -- -- 13,203
-------- ---- ------- --------
17,398 -- -- 17,398
Stockholders' equity (deficit):
Series A convertible preferred
stock; $0.001 par value;
1,000,000 shares authorized,
issued and outstanding......... 1 -- -- 1
Common stock; $0.001 par value;
25,000,000 shares authorized;
4,759,000 shares issued and
outstanding .................. 5 -- 1 (2) 6
Additional paid-in capital....... 2,238 -- 12,149 (2) 14,387
Deferred stock-based
compensation.................... (4,340) -- (4,968)(3) (9,308)
Accumulated comprehensive loss... (93) -- -- (93)
Retained earnings (accumulated
deficit)........................ (15,308) 48 (48)(8) (15,308)
-------- ---- ------- --------
Total stockholders' equity
(deficit).................... (17,497) 48 7,134 (10,315)
-------- ---- ------- --------
$ 9,222 $775 $ 7,134 $ 17,131
======== ==== ======= ========
</TABLE>
See accompanying notes to Pro Forma Combined Financial Information.
F-21
<PAGE>
INVENTA CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Inventa XTEND-Tech Adjustments Pro Forma
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................... $ 13,520 $1,951 $ (317)(6) $ 15,154
--------- ------ ------- ---------
Operating expenses:
Project personnel.......... 8,610 1,167 (317)(6) 9,460
Sales and marketing........ 4,230 410 -- 4,640
General and
administrative............ 9,434 293 -- 9,727
Depreciation............... 562 9 -- 571
Amortization of
intangibles............... -- -- 3,481 (5) 3,481
Amortization of deferred
stock-based compensation.. 1,555 -- 3,430 (4) 4,985
--------- ------ ------- ---------
Total operating
expenses................ 24,391 1,879 6,594 32,864
--------- ------ ------- ---------
Income (loss) from
operations.................. (10,871) 72 (6,911) (17,710)
Interest and other income.... 101 -- -- 101
Interest expense............. (106) (4) -- (110)
--------- ------ ------- ---------
Income (loss) before income
taxes....................... (10,876) 68 (6,911) (17,719)
Income tax expense........... (15) (20) -- (35)
--------- ------ ------- ---------
Net income (loss)............ (10,891) 48 (6,911) (17,754)
Accretion of mandatorily
redeemable convertible
preferred stock to
redemption value............ (4,128) -- -- (4,128)
--------- ------ ------- ---------
Net income (loss)
attributable to common
stockholders................ $ (15,019) $ 48 $(6,911) $ (21,882)
========= ====== ======= =========
Net loss per share:
Basic and diluted.......... $ (3.20) $ (3.98)(7)
========= =========
Weighted average shares.... 4,698,483 798,052 5,496,535 (7)
========= ======= =========
</TABLE>
See accompanying notes to Pro Forma Combined Financial Information.
F-22
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
(Continued)
(1) Reflects the preliminary allocation of the purchase price to the intangible
assets and goodwill acquired in the XTEND-Tech acquisition. The preliminary
allocation has resulted in intangible assets, including assembled workforce
and covenants not to compete, estimated at approximately $4,410,000 and
estimated goodwill of approximately $2,724,000, which are being amortized
over periods of one and one half to four years.
The total estimated purchase price for the XTEND-Tech acquisition has been
allocated on a preliminary basis to assets and liabilities based on
management's best estimates of their fair value with the excess costs over
the net assets acquired allocated to intangible assets and goodwill. This
allocation is subject to change pending a final analysis of the value of the
assets acquired and, liabilities assumed, upon closure of the acquisition.
The impact of such changes could be material.
(2) Reflects the issuance of 1,350,000 shares of Inventa Common Stock with a
fair value of $12,150,000 in connection with the XTEND-Tech acquisition.
(3) Reflects the unearned compensation recorded for restricted stock issued in
connection with the purchase of XTEND-Tech. Of the 1,350,000 shares issued,
798,052 shares with a fair value of $7,182,000 were immediately vested and
as such represent the purchase price. The remaining 551,948 shares which
were issued to XTEND-Tech employee stockholders are subject to the
Company's right to repurchase the shares upon the termination of employment
with Inventa. The fair value of these restricted shares in the amount of
$4,968,000 has been recorded as unearned deferred compensation and will be
amortized over the vesting period of the restricted shares.
(4) Reflects the amortization of the unearned deferred stock-based compensation
referred to in Note 3 above.
(5) Reflects the amortization of the intangible assets and goodwill referred to
in Note 1 above.
(6) Represents elimination of intercompany transactions with XTEND-Tech.
(7) Pro forma net loss reflects the impact of the adjustments above. Basic and
diluted net loss per share (pro forma) is computed using the weighted-
average number of shares of common stock outstanding after the issuance of
Inventa common stock in connection with the XTEND-Tech acquisition,
assuming such stock was issued on January 1, 1999 and excluding the 551,948
shares subject to repurchase.
(8) Reflects elimination of XTEND-Tech stockholders' equity.
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
XTEND-Tech, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of XTEND-Tech, Inc. (the "Company") at December 31, 1999,
and the results of its operations for the period from inception (January 29,
1999) to December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 11, 2000
F-24
<PAGE>
XTEND-TECH, INC.
BALANCE SHEET
December 31, 1999
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents........................................... $173,098
Accounts receivable, net............................................ 503,674
Prepaid expenses.................................................... 22,418
--------
Total current assets............................................... 699,190
Property and equipment, net.......................................... 75,641
--------
$774,831
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................................... $ 64,747
Advances from related party......................................... 326,435
Accrued taxes....................................................... 19,700
Accrued bonuses..................................................... 108,000
Other accrued liabilities........................................... 51,266
Capital lease obligations .......................................... 18,552
Borrowings, current portion of long-term............................ 30,000
--------
Total current liabilities.......................................... 618,700
Capital lease obligations, long-term................................. 47,954
Borrowings, long-term................................................ 60,000
--------
726,654
--------
Stockholders' equity:
Common stock; no par value; 100,000 shares authorized, issued and
outstanding........................................................ --
Retained earnings................................................... 48,177
--------
Total stockholders' equity......................................... 48,177
--------
$774,831
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
XTEND-TECH, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JANUARY 29, 1999) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
Revenues:
Revenues from third parties....................................... $1,165,192
Revenues from related parties..................................... 785,805
----------
1,950,997
----------
Operating expenses:
Project personnel................................................. 1,166,800
Sales and marketing............................................... 409,700
General and administrative ....................................... 293,148
Depreciation ..................................................... 9,331
----------
Total operating expenses........................................ 1,878,979
----------
Income from operations.............................................. 72,018
Interest expense.................................................... (3,941)
----------
Income before income taxes.......................................... 68,077
Income tax expense ................................................. (19,900)
----------
Net income.......................................................... $ 48,177
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
XTEND-TECH, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 29, 1999) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income........................................................ $ 48,177
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ................................................... 9,331
Changes in operating assets and liabilities:
Accounts receivable........................................... (503,674)
Prepaid expenses.............................................. (22,418)
Accounts payable.............................................. 64,747
Advances from related party................................... 326,435
Accrued taxes................................................. 19,700
Accrued bonuses............................................... 108,000
Other accrued liabilities..................................... 51,266
---------
Net cash provided by operating activities................... 101,564
---------
Cash flows from investing activities:
Purchase of property and equipment................................ (10,732)
---------
Net cash used in investing activities....................... (10,732)
---------
Cash flows from financing activities:
Repayment of capital lease obligations............................ (7,734)
Long term borrowings.............................................. 90,000
---------
Net cash provided by financing activities................... 82,266
---------
Net increase in cash and cash equivalents........................... 173,098
Cash and cash equivalents, beginning of period...................... --
---------
Cash and cash equivalents, end of period............................ $ 173,098
=========
Supplemental non-cash investing and financing activity:
Property and equipment acquired under capital lease .............. $ 74,240
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
XTEND-TECH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
XTEND-Tech, Inc. (the "Company") was incorporated in the state of New Jersey
on January 29, 1999. The Company is an information technology consulting
organization providing clients with technology expertise in all phases of
systems engineering and most software development methodologies for the major
industries in the United States.
The Company operations have initially been focused on the New Jersey, New
York, Pennsylvania and Delaware areas, with two offices in New Jersey.
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 revenues and expenses during the
reporting period. Actual results could differ from these estimates. Changes in
such estimates could affect reported amounts in future periods.
Financial Instruments
The Company's financial instruments including cash and cash equivalents,
accounts receivable, and accounts payable are carried at cost, which
approximates their fair value because of the short-term maturity of these
instruments. The carrying value of the Company's capital leases and the long
term borrowings approximate fair value because the implicit rates approximate
prevailing market rates.
Accounts Receivable
Bad debts are provided on the allowance method based on management's
evaluation of outstanding accounts receivable. No provision for bad debts was
considered necessary by management at December 31, 1999.
Property and Equipment
Property and equipment, primarily computer hardware, are stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line
method over the useful lives of the assets. Computer hardware is depreciated
over four years. Maintenance and repairs are charged to expense when incurred,
and the cost of additions and improvements is capitalized.
Revenue Recognition
Revenues are derived from sales of the Company's consulting services to end-
users. Revenue is recognized on a time and material basis when services are
provided.
Income Taxes
The accrual basis of accounting is used for income tax reporting purposes. A
provision of $19,900 was recorded for federal and state income taxes as of
December 31, 1999. The Company, with the consent of its shareholders, has
elected to be taxed as a "C" Corporation for federal and state income tax
purposes.
The Company utilizes the asset and liability method of accounting for income
taxes under which deferred tax assets and liabilities are recognized for the
tax consequences of temporary differences by applying enacted
F-28
<PAGE>
XTEND-TECH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period when the change in tax rates is
enacted.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Concentrations
of credit risk with respect to trade receivables are limited based on
management's evaluation of the relationship with the Company's clients. The
Company's four largest customers accounted for approximately 77% of revenues
for the period from inception (January 29, 1999) to December 31, 1999. IDCS,
Inc. (Note 2) accounted for 40% of revenues during the same period. At December
31, 1999, these four customers accounted for approximately 43% of accounts
receivable. These balances were subsequently collected.
NOTE 2--RELATED PARTY TRANSACTIONS:
Since its incorporation in January 1999, the Company's activities have been
financed on a needs basis through a prepayment note, payable to Intermodal
Database Communication Systems, Inc. ("IDCS"), a related party that owns 14.25%
of the Company. Through this prepayment note, the Company agrees to pay IDCS
the remaining prepayment principal sum that may be due to IDCS at any time upon
IDCS's request. In the event the Company refuses to repay any amount due within
3 days notice of demand, these amounts would accrue interest at a prime rate
plus 5.00%. The total advances from IDCS during the period ended December 31,
1999 amounted to $1,105,000. As of December 31, 1999, the outstanding balance
on these advances amounted to $326,435.
The Company has also entered into a capital lease agreement (Note 7) with
Selecto Flash, Inc., a related party which is represented on the Company's
Board of Directors.
NOTE 3--PROPERTY AND EQUIPMENT:
Property and equipment consist of the following as of December 31, 1999:
<TABLE>
<S> <C>
Computer equipment.................................................. $10,092
Computer equipment under capital lease.............................. 74,240
Furniture and fixtures.............................................. 640
-------
84,972
Less: Accumulated depreciation...................................... (9,331)
-------
$75,641
=======
</TABLE>
NOTE 4--EMPLOYEE BENEFIT PLAN:
The Company participates in a self directed 401(k) Plan (the Plan), covering
all employees, which qualifies under Section 401(k) of the Internal Revenue
Code. The Plan allows eligible employees to make tax deferred contributions of
up to 15% of their compensation, subject to the legal maximum amount. The
Company does not match employees' contributions. Loans to participants are
permitted in an amount not to exceed the lesser of one-half of the
participant's non-forfeitable interest under the Plan or $50,000.
The Company also provides its employees with health, long-term disability
and life insurance programs, for which the Company fully pays the premiums,
except for the life insurance covered only up to $50,000 by the Company.
Expenses incurred for health and life insurance amounted to $81,071 and $3,704,
respectively, for the period from inception (January 29, 1999) to December 31,
1999.
F-29
<PAGE>
XTEND-TECH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5-- BORROWINGS
On December 30, 1999, the Company signed a collateralized promissory note of
$90,000 with Valley National Bank. The promissory note is to be paid in 36
equal monthly installments of $2,500 and interest is calculated on the basis of
actual days elapsed over a 360-day year at prime plus 1.50%. The promissory
note is collateralized by all property, including all accounts receivable,
goods, inventory, merchandise, machinery, equipment, fixtures, instruments and
general intangibles, and all cash and non-cash proceeds therefrom. The proceeds
from the promissory note are to be used to finance the purchase of office
equipment for a new office location.
NOTE 6--STOCKHOLDERS' EQUITY:
At December 31, 1999, the capital stock of the Company consists of 100,000
shares of common stock, with no par value, that are authorized, issued and
outstanding.
NOTE 7--COMMITMENTS:
The Company entered into two operating leases for computer equipment with
Selecto Flash, Inc. and Dell Financial Services and also for a phone system
with Unistar leasing. The Company has leased, under a six-month operating
lease, office space in New Jersey since November 1999. The aggregate future
minimum lease payments, under the Company's leases are approximately as
follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ended December 31, leases leases
- ------------------------ ------- ---------
<S> <C> <C>
2000......................................................... $26,389 $20,087
2001......................................................... 23,883 12,389
2002......................................................... 21,380 11,311
2003......................................................... 11,494 --
2004......................................................... -- --
------- -------
Total payments............................................. $83,146 $43,787
=======
Less: Amounts representing interest.......................... (16,640)
-------
Present value of minimum capital lease payments.............. 66,506
Less: Current portion........................................ 18,552
-------
Capital lease obligations, long-term......................... $47,954
=======
</TABLE>
NOTE 7--SUBSEQUENT EVENTS:
Stock Purchase Agreement
Effective January 26, 1999, the shareholders of the Company sold all
outstanding shares of the Company's common stock to Inventa Corporation in
exchange for shares of Inventa Corporation common stock.
F-30
<PAGE>
ARTWORK AND DIAGRAMS
[TO BE FILED BY AMENDMENT]
<PAGE>
[ ] Shares
[Inventa Logo]
Common Stock
-----------------
PROSPECTUS
, 2000
-----------------
Lehman Brothers
First Union Securities, Inc.
Friedman Billings Ramsey
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses to be paid by the Registrant,
other than the underwriting discounts and commissions payable by the Registrant
in connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount to
be Paid
----------
<S> <C>
Registration fee............................................... $ 15,840
NASD filing fee................................................ 6,500
Nasdaq National Market......................................... 95,000
Blue sky qualification fees and expenses....................... 10,000
Printing and engraving expenses................................ 250,000
Legal fees and expenses........................................ 400,000
Accounting fees and expenses................................... 400,000
Director and officer liability insurance....................... 300,000
Transfer agent and registrar fees.............................. 25,000
Miscellaneous expenses......................................... 57,660
----------
Total ......................................................... $1,560,000
==========
</TABLE>
- --------
Item 14. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's certificate of
incorporation and bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements with its
directors, officers and certain employees that would require the Registrant,
among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service (other than liabilities arising from
willful misconduct of a culpable nature). The Registrant also intends to
maintain director and officer liability insurance, if available on reasonable
terms.
These indemnification provisions and the indemnification agreements to be
entered into between the Registrant and its officers and directors may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Registrant's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act, or otherwise.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Except as otherwise noted, we have issued and sold the following securities
within the last three years and through January 27, 2000:
On February 14, 1997, we sold an aggregate of 2,560,000 shares of our Series
B Preferred Stock at a price of $1.25 per share to five investors and their
affiliates.
On May 11, 1998, and May 28, 1999, we sold an aggregate of 8,055,511 shares
of our Series C Preferred Stock at a price of $1.25 per share to seven
investors and their affiliates.
On January 19, 2000, we sold an aggregate of 3,000,000 shares of our Series
D Preferred Stock at a price of $7.41 per share to seven investors and their
affiliates.
On January 26, 2000, we issued 1,350,000 shares of common stock in
connection with our acquisition of XTEND-Tech.
We issued 200,000 shares of our Series A Preferred Stock, at an exercise
price per share of $0.50, pursuant to the exercise of warrants issued in
connection with our original issuance of our Series A Preferred Stock.
We issued a warrant to acquire 160,000 of Series C Preferred Stock, at an
exercise price of $2.50 per share, in connection with our borrowing of
$4,000,000 under a term loan.
We issued 2,271,000 shares of common stock and 400,000 shares of our Series
A Preferred Stock pursuant to a two-for-one stock split declared on January 29,
1997.
Since our inception, we have granted options to purchase 5,211,220 shares of
our common stock to employees, directors and consultants under our 1993 Plan at
exercise prices ranging from $0.05 to $6.50 per share. Of the 5,211,220 options
granted, 4,136,790 remain outstanding, 259,402 shares of common stock have been
purchased pursuant to exercises of stock options and options to acquire
815,028 shares have been cancelled and are available for grant under our 1993
Plan.
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 either received adequate information about us or had access, through
their employment or other relationships with us, to adequate information about
us.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Reorganization among the Registrant, XTEND-Tech,
Inc. and the shareholders of XTEND-Tech, Inc. dated January 26, 2000.
3.1 Form of Amended and Restated Articles of Incorporation of Registrant
prior to completion of this offering.
3.2* Form of Certificate of Incorporation of Registrant to be effective
upon completion of this offering.
3.3 Amended and Restated Bylaws of Registrant prior to completion of this
offering.
3.4* Amended and Restated Bylaws of Registrant to be effective upon
completion of this offering.
4.1* Form of Registrant's Common Stock Certificate.
4.2 Amended and Restated Registration Rights Agreement, between the
Registrant and the parties named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
10.1 Series A Preferred Stock Purchase Agreement.
10.2 Series B Preferred Stock Purchase Agreement.
10.3 Series C Preferred Stock Purchase Agreement.
10.4 Series D Preferred Stock Purchase Agreement.
10.5 Amended and Restated Shareholders Agreement between the Registrant and
certain of its shareholders dated January 19, 2000.
10.6 Stock Purchase Warrant issued by the Registrant to Greyrock Capital, a
division of Banc of America Commercial Finance Corporation.
10.7 1993 Stock Option Plan.
10.8 Form of Stock Option Agreement.
10.9* Employees Stock Purchase Plan.
10.10 401(K) Plan.
10.11 Amended and Restated Loan and Security Agreement between Silicon
Valley Bank and the Registrant dated August 19, 1998, and amendments
and exhibits thereto.
10.12 Loan and Security Agreement between the Registrant and Greyrock
Capital, a division of Banc of America Finance Corporation, dated
November 17, 1999, and related Security Agreement in copyrighted
works.
10.13 Form of Employment, Confidential Information and Invention Assignment
Agreement between the Registrant and certain of its employees.
10.14 Employment Agreement between the Registrant and Ashok Santhanam dated
as of May 11, 1998.
10.15** Employment Agreement between the Registrant and David A. Lavanty,
dated as of December 31, 1999.
10.16 Employment Letter Agreement between the Registrant and Michael B.
Shahbazian dated February 2, 2000.
10.17* Employment Agreement between the Registrant and Richard M. Cerwonka.
10.18** Employment Letter Agreement between the Registrant and Carol C.
Halliday, dated March 12, 1999.
10.19** Employment Letter Agreement between the Registrant and Anthony H.
Moretto, dated March 17, 1999.
10.20 Employment Letter Agreement between the Registrant and Elizabeth J.
Campbell dated August 5, 1998.
10.21 Employment Letter Agreement between the Registrant and Michael
Makishima dated July 14, 1997.
10.22** Employment Letter Agreement between the Registrant and Tobias Younis,
dated October 29, 1999.
10.23** Employment Letter Agreement between the Registrant and Robert J.
Kudis, dated March 30, 1999.
10.24 Employment Letter Agreement between the Registrant and Edward F.
Leppert dated October 27, 1997.
10.25** Severance Agreement between the Registrant and Ashok Santhanam dated
January 10, 1998.
10.26 Severance Agreement between the Registrant and Elizabeth J. Campbell
dated July 14, 1999.
10.27** Severance Agreement between the Registrant and Michael Makishima dated
January 13, 1998.
10.28** Severance Agreement between the Registrant and Edward F. Leppert dated
January 13, 1998.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.29** Severance Agreement between the Registrant and Srikantan Moorthy dated
January 10, 1998.
10.30** Lease Agreement, dated September 10, 1992, between ShoreBreeze
Associates and Sega Corporation, and amendments thereto.
10.31** Lease Agreement, dated September 8, 1998, between Albany Street Plaza
Real Estate Management Company and Inventa Corporation.
10.32** Sublease Agreement, dated March 29, 1999, between Sega of America and
Inventa Corporation.
10.33** Sublease Agreement, dated September 9, 1999, between Marcam Solutions,
Inc. and Inventa Corporation.
11.1* Statement of computation of earnings per share.
21 Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1** Power of Attorney (see signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
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, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Redwood Shores, California, on the 18th day of February 2000.
INVENTA TECHNOLOGIES, INC.
By:
/s/ David A. Lavanty
----------------------------------
David A. Lavanty President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-1 has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ David A. Lavanty President and Chief Executive February 18,
_____________________________________ Officer, and Director 2000
David A. Lavanty (Principal Executive Officer)
/s/ Michael B. Shahbazian Senior Vice President and Chief February 18,
_____________________________________ Financial Officer (Principal 2000
Michael B. Shahbazian Financial Officer)
/s/ Michael Makishima (Principal Accounting Officer) February 18,
_____________________________________ 2000
Michael Makishima
* Director February 18,
_____________________________________ 2000
Ashok Santhanam
* Director February 18,
_____________________________________ 2000
Michael Bealmear
* Director February 18,
_____________________________________ 2000
Todd Dagres
* Director February 18,
_____________________________________ 2000
Robert Ducommun
* Director February 18,
_____________________________________ 2000
Frank Pinto
* Director February 18,
_____________________________________ 2000
Jake Reynolds
</TABLE>
/s/ David A. Lavanty
*By: ______________________
David A. Lavanty
Attorny-in-fact
II-5
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Reorganization among the Registrant, XTEND-Tech,
Inc. and the shareholders of XTEND-Tech, Inc. dated January 26, 2000.
3.1 Form of Amended and Restated Articles of Incorporation of Registrant
prior to completion of this offering.
3.2* Form of Certificate of Incorporation of Registrant to be effective
upon completion of this offering.
3.3 Amended and Restated Bylaws of Registrant prior to completion of this
offering.
3.4* Amended and Restated Bylaws of Registrant to be effective upon
completion of this offering.
4.1* Form of Registrant's Common Stock Certificate.
4.2 Amended and Restated Registration Rights Agreement, between the
Registrant and the parties named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
10.1 Series A Preferred Stock Purchase Agreement.
10.2 Series B Preferred Stock Purchase Agreement.
10.3 Series C Preferred Stock Purchase Agreement.
10.4 Series D Preferred Stock Purchase Agreement.
10.5 Amended and Restated Shareholders Agreement between the Registrant and
certain of its shareholders dated January 19, 2000.
10.6 Stock Purchase Warrant issued by the Registrant to Greyrock Capital, a
division of Banc of America Commercial Finance Corporation.
10.7 1993 Stock Option Plan.
10.8 Form of Stock Option Agreement.
10.9* Employees Stock Purchase Plan.
10.10 401(K) Plan.
10.11 Amended and Restated Loan and Security Agreement between Silicon
Valley Bank and the Registrant dated August 19, 1998, and amendments
and exhibits thereto.
10.12 Loan and Security Agreement between the Registrant and Greyrock
Capital, a division of Banc of America Finance Corporation, dated
November 17, 1999, and related Security Agreement in copyrighted
works.
10.13 Form of Employment, Confidential Information and Invention Assignment
Agreement between the Registrant and certain of its employees.
10.14 Employment Agreement between the Registrant and Ashok Santhanam dated
as of May 11, 1998.
10.15** Employment Agreement between the Registrant and David A. Lavanty,
dated as of December 31, 1999.
10.16 Employment Letter Agreement between the Registrant and Michael B.
Shahbazian dated February 2, 2000.
10.17* Employment Agreement between the Registrant and Richard M. Cerwonka.
10.18** Employment Letter Agreement between the Registrant and Carol C.
Halliday, dated March 12, 1999.
10.19** Employment Letter Agreement between the Registrant and Anthony H.
Moretto, dated March 17, 1999.
10.20 Employment Letter Agreement between the Registrant and Elizabeth J.
Campbell dated August 5, 1998.
10.21 Employment Letter Agreement between the Registrant and Michael
Makishima dated July 14, 1997.
10.22** Employment Letter Agreement between the Registrant and Tobias Younis,
dated October 29, 1999.
10.23** Employment Letter Agreement between the Registrant and Robert J.
Kudis, dated March 30, 1999.
10.24 Employment Letter Agreement between the Registrant and Edward F.
Leppert dated October 27, 1997.
10.25** Severance Agreement between the Registrant and Ashok Santhanam dated
January 10, 1998.
10.26 Severance Agreement between the Registrant and Elizabeth J. Campbell
dated July 14, 1999.
10.27** Severance Agreement between the Registrant and Michael Makishima dated
January 13, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.28** Severance Agreement between the Registrant and Edward F. Leppert dated
January 13, 1998.
10.29** Severance Agreement between the Registrant and Srikantan Moorthy dated
January 10, 1998.
10.30** Lease Agreement, dated September 10, 1992, between ShoreBreeze
Associates and Sega Corporation, and amendments thereto.
10.31** Lease Agreement, dated September 8, 1998, between Albany Street Plaza
Real Estate Management Company and Inventa Corporation.
10.32** Sublease Agreement, dated March 29, 1999, between Sega of America and
Inventa Corporation.
10.33** Sublease Agreement, dated September 9, 1999, between Marcam Solutions,
Inc. and Inventa Corporation.
11.1* Statement of computation of earnings per share.
21 Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1** Power of Attorney (see signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 3.1
[LOGO OF STATE OF CALIFORNIA]
[SEAL]
SECRETARY OF STATE
I, BILL JONES, Secretary of State of the State of California, hereby
certify:
That the attached transcript of 22 page(s) has been compared with the
record on file in this office, of which it purports to be a copy, and that it is
full, true and correct.
[SEAL] IN WITNESS WHEREOF, I execute this
certificate and affix the Great Seal of
the State of California.
JAN 8 2000
-----------------------------------------
/s/ Bill Jones
Secretary of State
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INVENTA CORPORATION
David A. Lavanty and Michael J. O'Donnell certify that:
1. They are the duly elected and acting President and Assistant Secretary,
respectively, of Inventa Corporation, a California corporation (the
"Corporation").
2. The Articles of Incorporation of this Corporation are hereby amended
and restated in full to read as set forth in Exhibit A attached hereto.
---------
3. The attached amendment and restatement of the Articles of Incorporation
of this Corporation has been duly approved by the Board of Directors of this
Corporation.
4. The attached amendment and restatement of the Articles of Incorporation
of this Corporation has been approved by the holders of the requisite number of
shares of this Corporation in accordance with Sections 902 and 903 of the
California Corporations Code. The total number of outstanding shares of each
class entitled to vote with respect to the attached amendment and restatement
was 800,000 shares of Series A Preferred Stock, 2,560,000 shares of Series B
Preferred Stock, 8,055,511 shares of Series C Preferred Stock and 4,755,194
shares of Common Stock. The number of shares voting in favor of the attached
amendment and restatement equaled or exceeded the vote required, such required
vote being a majority of the outstanding shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Common Stock, voting as
separate classes.
<PAGE>
The undersigned further declare under penalty of perjury that the matters
set forth in this Certificate are true and correct of their own knowledge.
Executed at Redwood Shores, California on December 29, 1999.
/s/ David A. Lavanty,
--------------------------------
David A. Lavanty,
President
/s/ Michael J. O'Donnell,
--------------------------------
Michael J. O'Donnell,
Assistant Secretary
-2-
<PAGE>
EXHIBIT A
----------
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INVENTA CORPORATION
I.
The name of this corporation is Inventa Corporation (the "Corporation").
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.
III.
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 39,779,511
shares, of which 25,000,000 shares shall be Common Stock with a par value of
$0.001 per share and of which 14,779,511 shares shall be Preferred Stock,
1,000,000 of which are designated Series A Preferred Stock with a par value of
$0.001 per share, 2,560,000 of which are designated Series B Preferred Stock
with a par value of $0.001 per share, 8,219,511 of which are designated Series C
Preferred Stock with a par value of $0.001 per share and 3,000,000 of which are
designated Series D Preferred Stock with a par value of $0.001 per share. The
Board of Directors is authorized to fix the number of shares of any series of
Preferred Stock and to determine or alter the rights, preferences, privileges,
and restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock and, within the limits and restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the number of shares
constituting any series of Preferred Stock, to increase or decrease (but not
below the number of shares of any such series then outstanding) the number of
shares of any such series subsequent to the issue of shares of that series.
<PAGE>
IV.
The rights, preferences, privileges and restrictions granted to or imposed
upon the Common Stock and Preferred Stock are as follows:
1. Dividend Provisions. The holders of shares of Series A Preferred Stock
-------------------
("Series A Preferred"), Series B Preferred Stock ("Series B Preferred"), Series
C Preferred Stock ("Series C Preferred") and Series D Preferred Stock ("Series D
Preferred") shall be entitled to receive dividends, 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 $0.03 per annum per share of Series A
Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), $0.075 per annum
per share of Series B Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares), $0.10 per annum per share of Series C Preferred (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares) and $0.59 per annum per share of Series D Preferred (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) or, if greater (as determined on a per
annum basis and on an as converted basis for the Preferred Stock), an amount
equal to that paid on the Common Stock. Such dividends shall be payable when,
as, and if declared by the Board of Directors, and shall not be cumulative, and
no right shall accrue to holders of Common Stock or Preferred Stock by reason of
the fact that dividends on said shares are not declared in any prior period.
After payment has been made to the holders of Preferred Stock of the full
amounts to which they shall be entitled as set forth in this Section 1, the
holders of Preferred Stock and Common Stock shall be entitled to receive ratably
on an as-converted basis any remaining funds declared as dividends.
2. Liquidation Preference.
----------------------
(a) Preferred Preference. In the event of any liquidation,
--------------------
dissolution, or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series C Preferred and Series D Preferred shall be entitled
to receive on a pro rata basis, prior and in preference to any distribution of
any of the assets or surplus funds of the Corporation to the holders of the
Series A Preferred, Series B Preferred and Common Stock, by reason of their
ownership of such stock, an amount per share equal to the sum of $1.25 per share
of Series C Preferred and $7.41 per share of Series D Preferred (in each case as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) plus declared and unpaid dividends, for
each share of Series C Preferred or Series D Preferred then held by them. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series C Preferred and Series D Preferred shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among the holders of the
Series C Preferred and Series D Preferred in proportion to the aggregate
liquidation preference of the shares held by each such holder.
-2-
<PAGE>
(b) After payment has been made to the holders of the Series C Preferred
and Series D Preferred of the full amounts to which they shall be entitled as
set forth in paragraph 2(a) above, the holders of Series A Preferred and Series
B Preferred 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 $0.50
for each outstanding share of Series A Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares), and $1.25 for each outstanding share of Series B Preferred (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares), plus an amount equal to any declared but
unpaid dividends for each share of Series A Preferred and Series B Preferred
then held by them. If upon the occurrence of such event, the assets and funds
thus distributed among the holders of Series A Preferred and Series B Preferred
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of this
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred and Series B Preferred in proportion
to the aggregate Series A Preferred liquidation preference and the Series B
Preferred liquidation preference.
(c) After payment has been made to the holders of the Preferred Stock of
the full amounts to which they shall be entitled to as set forth in paragraphs
2(a) and 2(b) above, the holders of the Common Stock shall then be entitled to
receive the amount of $0.40 per share for each share of Common Stock then held
by them (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), plus an amount
equal to all declared but unpaid dividends for each share of Common Stock then
held by them. If the assets and funds thus distributed among the holders of the
Common Stock shall be insufficient to permit the payment to such holders of the
full aforesaid amount, then the entire assets and funds of the Corporation
legally available for distribution, shall be distributed among the holders of
the Common Stock ratably on a per-share basis.
(d) After payment has been made to the holders of the Preferred Stock and
the Common Stock of the full amount to which they shall be entitled as set forth
in paragraphs 2(a), 2(b) and 2(c) above, the holders of the Preferred Stock and
Common Stock shall be entitled to receive ratably on a per-share basis all the
remaining assets based upon the number of shares of Common Stock into which each
share of Preferred Stock is then convertible; provided, however, that the
holders of Preferred Stock shall not be entitled to receive pursuant to this
paragraph (d) (including amounts received pursuant to paragraphs 2 (a) and 2(b)
above) more than a total of $1.00 per share of Series A Preferred, $2.50 per
share of Series B Preferred, $2.50 per share of Series C Preferred and $14.82
per share of Series D Preferred then held by them (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) plus declared and unpaid dividends.
(e) After payment has been made to the holders of the Preferred Stock and
the Common Stock of the full amounts to which they shall be entitled as set
forth in paragraphs 2(a), 2(b), 2(c) and 2(d) above, the holders of the Common
Stock shall be entitled to receive ratably on a per-share basis all the
remaining assets.
-3-
<PAGE>
(f) Mergers. Unless waived by the approval (by vote or written
-------
consent, as provided by law) of the holders of 66 2/3% of the then outstanding
Series C Preferred and holders of 66 2/3% of the then outstanding Series D
Preferred, for purposes of this Section 2, a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the Corporation, in which the
shareholders of the Corporation receive distributions in cash or securities of
another corporation or corporations as a result of such consolidation or merger,
a reorganization, including a sale of the capital stock of the Corporation,
where the shareholders of the Corporation immediately prior to the transaction
possess less than 50% of the voting power of the surviving entity (or its
parent) immediately after the transaction, or a sale of all or substantially all
of the assets of the Corporation, shall be treated as a liquidation, dissolution
or winding up of the Corporation; provided that the holders of the Preferred
Stock and the Common Stock shall each be paid the liquidation preference in cash
or in the securities received or in a combination thereof (which combination
shall be in the same proportions as the consideration received in the
transaction). Any securities to be delivered to the holders of the Preferred
Stock and Common Stock upon merger, reorganization or sale of substantially all
the assets of the Corporation shall be valued as follows:
(i) if traded on a securities exchange, the value shall
be deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) business days prior to the
closing;
(ii) if actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) business days prior to the closing; and
(iii) 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 not less than a majority of the outstanding shares of the
Preferred Stock, provided that if the Corporation and the holders of a majority
of the outstanding shares of the Preferred Stock are unable to reach agreement,
then by independent appraisal by an investment banker hired and paid by the
Corporation, but acceptable to the holders of a majority of the outstanding
shares of Preferred Stock.
(g) As authorized by Section 402.5(c) of the California Corporations
Code, the provisions of Sections 502 and 503 of the California Corporations Code
shall not apply with respect to repurchase by the Corporation of shares of
Common Stock issued to or held by employees or consultants of the Corporation or
its subsidiaries upon termination of their employment or services pursuant to
agreement providing for the right of said repurchase.
3. Conversion. The holders of Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible into share(s) of Common Stock without the payment of any additional
consideration by the holder thereof and, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for the Preferred Stock. Each share of
Preferred Stock
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<PAGE>
shall be convertible into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the applicable Original Issue Price of
such share of Preferred Stock by the Conversion Price (the "Conversion Price")
at the time in effect for a share of such series of Preferred Stock. The
Original Issue Price per share of Series A Preferred is $0.50, and the
Conversion Price per share of Series A Preferred initially shall be $0.50. The
Original Issue Price per share of Series B Preferred is $1.25, and the
Conversion Price per share of Series B Preferred initially shall be $1.25. The
Original Issue Price per share of Series C Preferred is $1.25, and the
Conversion Price per share of Series C Preferred initially shall be $1.25. The
Original Issue Price per share of Series D Preferred is $7.41, and the
Conversion Price per share of Series D Preferred initially shall be $7.41. The
Conversion Price of each series of Preferred Stock shall be subject to
adjustment from time to time as provided below. The number of shares of Common
Stock into which a share of Preferred Stock is convertible is hereinafter
referred to as the "Conversion Rate" of such series.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the then effective
Conversion Rate immediately upon the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
in which the aggregate proceeds raised equals or exceeds $20,000,000 (a
"Qualified Public Offering").
Notwithstanding the foregoing, each share of Series A Preferred, Series B
Preferred and Series C Preferred shall automatically be converted into shares of
Common Stock at the applicable effective Conversion Rate upon the approval (by
vote or written consent, as provided by law) of (i) the holders of at least 2/3
of the then outstanding shares of Series A Preferred, Series B Preferred and
Series C Preferred (voting together as a separate class) and (ii) the holders of
at least 2/3 of the then outstanding shares of Series C Preferred.
Notwithstanding the foregoing, each share of Series D Preferred shall
automatically be converted into shares of Common Stock at the applicable
effective Conversion Rate upon the approval (by vote or written consent, as
provided by law) of the holders of at least 2/3 of the then outstanding shares
of Series D Preferred.
(c) Mechanics of Conversion. Before any holder of the Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock and shall
give written notice to the Corporation at such office that he elects to convert
the same (except that no such written notice of election to convert shall be
necessary in the event of an automatic conversion pursuant to Section 3(b)
hereof). The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted (except that in the case of an automatic
conversion pursuant to Section 3(b) hereof such conversion shall be deemed to
have been made immediately prior to the closing of the offering referred to in
Section 3(b)) and the person
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<PAGE>
or persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(d) Fractional Shares. In lieu of any fractional shares to which the
-----------------
holder of Preferred Stock would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the fair market value of one share of
each such series of Preferred Stock as determined by the Board of Directors of
the Corporation. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Preferred Stock of each holder to be converted at such time into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(e) Adjustment of Conversion Price. The Conversion Price of each
------------------------------
series of Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) If the Corporation shall issue any Common Stock other than
"Excluded Stock", as defined below, without consideration or for consideration
per share less than the applicable Conversion Price for such series in effect on
the date of and immediately prior to such issuance, then and in such event, the
Conversion Price in effect for such series shall be reduced, concurrently with
such issuance, to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the total number of shares of Common
Stock outstanding (including any shares of Common Stock issuable upon conversion
of the Preferred Stock, or deemed to have been issued pursuant to subdivision
(3) of this clause (i) and to clause (ii) below) immediately prior to such
issuance plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of shares of
Common Stock so issued would purchase at such Conversion Price; and the
denominator of which shall be the total number of shares of Common Stock
outstanding (including any shares of Common Stock issuable upon conversion of
the Preferred Stock or deemed to have been issued pursuant to subdivision (3) of
this clause (i) and to clause (ii) below) immediately prior to such issuance
plus the additional shares of Common Stock issued in such issuance (but not
including any additional shares of Common Stock deemed to be issued as a result
of any adjustment in the Conversion Price resulting from such issuance).
For purposes of any adjustment of the Conversion Price pursuant
to this clause (i), the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor after
deducting any discounts or commissions paid or incurred by the Corporation in
connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined by the
Board of Directors of the Corporation, in accordance with generally accepted
accounting treatment; provided, however, that if, at the time of
-------- -------
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<PAGE>
such determination, the Corporation's Common Stock is traded in the over-the-
counter market or on a national or regional securities exchange, such fair
market value as determined by the board of directors of the Corporation shall
not exceed the aggregate "Current Market Price" (as defined below) of the shares
of Common Stock being issued.
(3) In the case of the issuance of (i) options to purchase
or rights to subscribe for Common Stock (other than Excluded Stock), (ii)
securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock), or (iii) options to purchase or rights to subscribe
for such convertible or exchangeable securities:
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise 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 subdivisions (1) and (2) above), if any,
received by the Corporation upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the Common Stock
covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange 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 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 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
subdivisions (1) and (2) above);
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion of or
exchange for such convertible or exchangeable securities, or on any change in
the minimum purchase price of such options, rights or securities, other than a
change resulting from the antidilution provisions of such options, rights or
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustment made upon (x)
the issuance of such options, rights or securities not exercised, converted or
exchanged prior to such change, as the case may be, been made upon the basis of
such change or (y) the options or rights related to such securities not
converted or exchanged prior to such change, as the case may be, been made upon
the basis of such change; and
(D) on 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 shall forthwith be readjusted to such Conversion Price as would
have been obtained had the adjustment made upon the
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<PAGE>
issuance of such options, rights, convertible or exchangeable securities or
options or rights related to such convertible or exchangeable securities, as the
case may be, been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such convertible or exchangeable
securities or upon the exercise of the options or rights related to such
convertible or exchangeable securities, as the case may be.
(ii) "Excluded Stock" shall mean:
(1) all shares of Common Stock issued and outstanding on
the date this document is filed with the California Secretary of State and all
shares issuable upon exercise of options or warrants outstanding on the date
this document is filed with the California Secretary of State;
(2) all shares of Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred and the Common Stock into which such
shares are convertible;
(3) up to 1,562,808 shares of Common Stock, warrants or
options to purchase Common Stock or other securities issued to officers,
directors, consultants or employees of the Corporation pursuant to any plan or
arrangement approved by the Board of Directors of the Corporation; and
(4) shares of Common Stock, warrants or options to
purchase Common Stock or other securities issued to officers, directors,
consultants or employees of the Corporation pursuant to any plan or arrangement
approved by a 2/3 vote of the Board of Directors of the Corporation.
All outstanding shares of Excluded Stock (including any
shares issuable upon conversion of the Preferred Stock) shall be deemed to be
outstanding for all purposes of the computations of Section 3(e)(i) above.
(iii) If the number of shares of Common Stock outstanding at any
time after the date hereof is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the date such payment is made or such change is effective, the respective
Conversion Prices of Series A Preferred, Series B Preferred, Series C Preferred
and Series D Preferred shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of any shares of such series of
Preferred Stock shall be increased in proportion to such increase of outstanding
shares of Common Stock.
(iv) If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, on the effective date of such combination, the
respective Conversion Prices of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of any shares of a
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<PAGE>
series of Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares of Common Stock.
(v) In case the Corporation shall declare a cash dividend upon
its Common Stock payable otherwise than out of retained earnings or shall
distribute to holders of its Common Stock shares of its capital stock (other
than Common Stock), stock or other securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights (excluding options to purchase and rights to
subscribe for Common Stock or other securities of the Corporation convertible
into or exchangeable for Common Stock), then, in each such case, the holders of
shares of Preferred Stock shall, concurrent with the distribution to holders of
Common Stock, receive a like distribution based upon the number of shares of
Common Stock into which such shares of Preferred Stock are convertible.
(vi) In case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the stock of the Corporation (other
than as a result of a stock dividend or subdivision, split-up or combination of
shares), or the consolidation or merger of the Corporation with or into another
person (other than a consolidation or merger in which the Corporation is the
continuing entity and which does not result in any change in the Common Stock),
or of the sale or other disposition of all or substantially all the properties
and assets of the Corporation, the shares of Preferred Stock shall, after such
reorganization, reclassification, consolidation, merger, sale or other
disposition, be convertible into the kind and number of shares of stock or other
securities or property of the Corporation or otherwise to which such holder
would have been entitled if immediately prior to such reorganization,
reclassification, consolidation, merger, sale or other disposition he had
converted his shares of Preferred Stock into Common Stock. The provisions of
this clause (vi) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other dispositions.
(vii) All calculations under this Section 3 shall be made to the
nearest cent or to the nearest one hundredth (1/100) of a share, as the case may
be.
(viii) For the purpose of any computation pursuant to this
Section 3(e), the "Current Market Price" at any date of one share of Common
Stock, shall be deemed to be the average of the highest reported bid and the
lowest reported offer prices on the preceding business day as furnished by the
National Quotation Bureau, Incorporated (or equivalent recognized source of
quotations); provided, however, that if the Common Stock is not traded in such
-------- -------
manner that the quotations referred to in this clause (viii) are available for
the period required hereunder, Current Market Price shall be determined in good
faith by the Board of Directors of the Corporation, but if challenged by the
holders of more than 50% of the outstanding Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred, voting as separate
classes, then as determined by an independent appraiser selected by the Board of
Directors of the Corporation, the cost of such appraisal to be borne equally by
the Corporation and the challenging parties.
(f) Minimal Adjustments. No adjustment in the Conversion Price need
-------------------
be made if such adjustment would result in a change in the Conversion Price of
less than $0.01. Any
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<PAGE>
adjustment of less than $0.01 which is not made shall be carried forward and
shall be made at the time of and together with any subsequent adjustment which,
on a cumulative basis, amounts to an adjustment of $0.01 or more in the
Conversion Price.
(g) No Impairment. Without the consent of the majority of the
-------------
outstanding shares of Preferred Stock, the Corporation will not 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 the 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 Preferred Stock against impairment.
(h) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Rate pursuant to this Section 3,
the 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 Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Rate of such series at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversions of such holder's shares of
Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
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, the Corporation
shall mail to each holder of Preferred Stock at least ten (10) days prior to
such record date, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution or right, and the amount
and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Preferred Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
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<PAGE>
(k) Notices. Any notice required by the provisions of this Section 3
-------
to be given to the holder of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the Corporation.
(l) Reissuance of Converted Shares. No shares of Preferred Stock
------------------------------
which have been converted into Common Stock after the original issuance thereof
shall ever again be reissued and all such shares so converted shall upon such
conversion cease to be a part of the authorized shares of the Corporation.
(m) Special Adjustment of Conversion Price for Qualified Public
-----------------------------------------------------------
Offering. Notwithstanding Section 3(a) above, in the event the Series D
- --------
Preferred is automatically converted into Common Stock by reason of a Qualified
Public Offering as set forth in Section 3(b) hereof, and the initial public
offering price per share (the "IPO Price") is less than 125% of the Original
Issue Price of the Series D Preferred (adjusted for stock splits and the like),
then the Conversion Price per share of Series D Preferred shall be reduced to a
number equal to the quotient of (i) the Conversion Price of the Series D
Preferred in effect immediately prior to such offering divided by (ii) a
fraction, the numerator of which is the Original Issue Price of the Series D
Preferred multiplied by 1.25 and the denominator of which is the IPO Price.
4. Voting Rights. The holder of each share of Preferred Stock shall be
-------------
entitled to the number of votes equal to the number of shares of Common Stock
into which each share of Preferred Stock could be converted on the record date
for the vote or consent of shareholders written consent and, except as otherwise
required by law or provided for herein, shall have voting rights and powers
equal to the voting rights and powers of the Common Stock. The holder of each
share of Preferred Stock shall be entitled to notice of any shareholders'
meeting in accordance with the bylaws of the Corporation and shall vote with
holders of the Common Stock upon the election of directors, except as provided
in Section 5 herein, and upon any other matter submitted to a vote of
shareholders, except those matters required by law to be submitted to a class
vote. Fractional votes shall not, however, be permitted and any fractional
voting rights resulting from the above formula (after aggregating all shares of
Common Stock into which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half rounded
upward to one).
5. Election of Directors. At each election of the Corporation's
---------------------
directors, (i) the holders of the Corporation's Series A Preferred shall have
the right, voting as a separate class (with cumulative voting rights as among
themselves in accordance with Section 708 of the California Corporations Code)
to elect one (1) member of the Board of Directors, (ii) the holders of the
Corporation's Series B Preferred shall have the right, voting as a separate
class (with cumulative voting rights as among themselves in accordance with
Section 708 of the California Corporations Code) to elect one (1) member of the
Board of Directors, (iii) the holders of the Corporation's Series C Preferred
shall have the right, voting as a separate class (with cumulative voting rights
as among themselves in accordance with Section 708 of the California
Corporations Code) to elect two (2) members of the Board of Directors, and (iv)
the holders of the Corporation's Common Stock
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<PAGE>
shall have the right, voting as a separate class (with cumulative voting rights
as among themselves in accordance with Section 708 of the California
Corporations Code) to elect two (2) members of the Board of Directors. Any
additional directors shall be elected by all of the holders of Common Stock and
Preferred Stock, voting as a single class.
6. Protective Provisions.
---------------------
(a) In addition to any other class vote that may be required by law,
this Corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of Preferred Stock:
(i) sell, convey or otherwise dispose of all or
substantially all of its property or business, or merge into or effect a
reorganization with any other corporation (other than a wholly owned subsidiary
corporation) in which the shareholders of this Corporation immediately prior to
the transaction possess less than 50% of the voting power of the surviving
entity (or its parent) immediately after the transaction, or sell the capital
stock of the Corporation where the shareholders of this Corporation immediately
prior to the transaction possess less than 50% of the voting power of the
Corporation immediately after the transaction;
(ii) change the rights, preferences, privileges or
restrictions of the Preferred Stock;
(iii) increase or decrease the aggregate number of authorized
shares of Preferred Stock, other than as provided in either subdivision (b) of
Section 405 or subdivision (c) of Section 902 of the California Corporations
Code;
(iv) create a new class or series of shares having rights,
preferences or privileges or increase the number of authorized shares of any
class or shares having rights, preferences or privileges equal to or senior to
any outstanding class or series;
(v) pay any dividend on or purchase, redeem or otherwise
acquire any security junior to the Preferred Stock other than repurchases at
cost from employees, consultants, lessors or suppliers upon termination of
employment, consulting, lessor-lessee, or supplier-purchaser relationship,
respectively; or
(vi) voluntarily dissolve or liquidate the Corporation.
(b) Notwithstanding the foregoing Section 6(a), in addition to any
other series vote that may be required by law, so long as 40% of the originally
issued shares of Series C Preferred 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 a majority of the then outstanding shares of
Series C Preferred:
(i) materially adversely change the rights, preferences,
privileges or restrictions of the Series C Preferred;
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<PAGE>
(ii) increase or decrease the aggregate number of authorized
shares of Series C Preferred, other than as provided in either subdivision (b)
of Section 405 or subdivision (c) of Section 902 of the California Corporations
Code; or
(iii) create a new class or series of shares having rights,
preferences or privileges senior to the Series C Preferred.
(c) Notwithstanding the foregoing Sections 6(a) and 6(b), in addition
to any other series vote that may be required by law, so long as 40% of the
originally issued shares of Series C Preferred are outstanding, this Corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of 66 2/3% of the then outstanding shares of
Series C Preferred, voluntarily dissolve or liquidate, sell, convey or otherwise
dispose of all or substantially all of its property or business, or merge into
or effect a reorganization with any other corporation (other than a wholly owned
subsidiary corporation) in which the shareholders of this Corporation
immediately prior to the transaction possess less than 50% of the voting power
of the surviving entity (or its parent) immediately after the transaction if the
consideration received by the holders of the Series C Preferred as a result of
any such liquidation, dissolution, merger or sale of all or substantially all of
the assets of the Corporation is less than $2.50 per share (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares).
(d) Notwithstanding the foregoing Section 6(a), in addition to any
other series vote that may be required by law, so long as 40% of the originally
issued shares of Series D Preferred are outstanding, this Corporation shall not
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of 66 2/3% of the then outstanding shares of Series D
Preferred, materially adversely change the rights, preferences, privileges or
restrictions of the Series D Preferred.
(e) Unless otherwise required by California law or except as provided
herein, the holders of Common Stock will not have the right to vote as a
separate class on any matter.
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, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
8. Series B Preferred - Right of Redemption.
----------------------------------------
(a) Subject to Section 8(e) herein, the Corporation shall be
obligated to redeem the Series B Preferred as follows:
(i) At any time after March 31, 2004, the holders of a majority
of the then outstanding shares of Series B Preferred (the "Series B Initiating
Holders") may require the Corporation to the extent it may lawfully do so, to
redeem all of the outstanding Series B Preferred in three (3) equal annual
installments with the first installment date being the date forty-five (45) days
after receipt by the Corporation of the Series B Exercise Notice (as defined
below), the second
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<PAGE>
installment being the date one (1) year from the first installment date and the
last installment date being a date two (2) years from such first installment
date (each a "Series B Redemption Date"). The Corporation shall effect such
redemptions on the applicable Series B Redemption Date by paying in cash in
exchange for each share of Series B Preferred to be redeemed on each applicable
Series B Redemption Date a sum equal to the fair market value per share of
Series B Preferred as of the date of receipt by the Corporation of the Series B
Exercise Notice plus all accrued and unpaid dividends thereon. The fair market
value per share of Series B Preferred for the purposes of this Section 8, shall
be determined by the Board of Directors of the Corporation. If such
determination is unacceptable to the holders of a majority of the Series B
Preferred, then the fair market value per share of Series B Preferred shall be
determined by an investment banking firm mutually acceptable to the Corporation
and the holders of a majority of the Series B Preferred. The Series B Initiating
Holders shall have the right to revoke a Series B Exercise Notice by giving
written notice to the Corporation within fifteen (15) days after their receipt
of the Series B Redemption Notice (as defined below). The total amount to be
paid for the Series B Preferred is hereinafter referred to as the "Series B
Redemption Price." The number of shares of Series B Preferred that the
Corporation shall be required to redeem on any one Series B Redemption Date
shall be equal to the amount determined by dividing (i) the aggregate number of
shares of Series B Preferred outstanding immediately prior to the Series B
Redemption Date by (ii) the number of remaining Series B Redemption Dates
(including the Series B Redemption Date to which such calculation applies).
Shares subject to redemption pursuant to this Section 8(a) shall be redeemed
from each holder of Series B Preferred on a pro rata basis.
(ii) At any time after March 31, 2004, the Series B Initiating
Holders can elect to exercise the right of first redemption pursuant to this
Section 8(a) by providing written notice (the "Series B Exercise Notice") to the
Corporation. Within fifteen (15) days after the receipt of the Series B Exercise
Notice, the Corporation shall (i) send a notice (a "Series B Redemption Notice")
to each holder of record of the Series B Preferred to be redeemed at the address
of such holder appearing on the books of the Corporation setting forth (a) the
Series B Redemption Price for the shares to be redeemed and (b) the place at
which such holders may obtain payment of the Series B Redemption Price upon
surrender of their share certificates, and (ii) send a notice to each holder of
record of the Series C Preferred at the address of such holder appearing on the
books of the Corporation notifying such holders of the election of the holders
of the Series B Preferred to exercise the right of redemption of the Series B
Preferred. If the Corporation does not have sufficient funds legally available
to redeem all shares to be redeemed at any Series B Redemption Date (including,
if applicable, those to be redeemed at the option of the Corporation), then it
shall redeem such shares pro rata (based on the portion of the aggregate Series
B Redemption Price payable to them) to the extent possible and shall redeem the
remaining shares to be redeemed as soon as sufficient funds are legally
available.
(b) On each Series B Redemption Date, the Corporation shall deposit
the portion of the Series B Redemption Price sufficient to redeem the shares to
be redeemed upon such Series B Redemption Date with a bank or trust corporation
having aggregate capital and surplus in excess of $100,000,000, as a trust fund,
with irrevocable instructions and authority to the bank or trust corporation to
pay, on and after such Series B Redemption Date, the applicable portion of the
-14-
<PAGE>
Series B Redemption Price to their respective holders upon the surrender of
their share certificates. Any monies deposited by the Corporation pursuant to
this Section 8(b) for the redemption of shares thereafter converted into shares
of Common Stock pursuant to Section 3 hereof no later than the fifth (5th) day
preceding the applicable Series B Redemption Date shall be returned to the
Corporation forthwith upon such conversion. The balance of any funds deposited
by the Corporation pursuant to this Section 8(b) remaining unclaimed at the
expiration of one (1) year following such Series B Redemption Date shall be
returned to the Corporation.
(c) On or after such Series B Redemption Date, each holder of shares
of Series B Preferred to be redeemed shall surrender such holder's certificates
representing such shares to the Corporation in the manner and at the place
designated in the Redemption Notice, and thereupon the applicable portion of the
Series B Redemption Price of such shares shall be payable to the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be canceled. In the event less
than all the shares represented by such certificates are redeemed, a new
certificate shall be issued representing the unredeemed shares. From and after
the date the Corporation deposits funds pursuant to Section 8(b) hereof with
respect to shares to be redeemed on such Series B Redemption Date, unless there
shall have been a default in payment of the applicable portion of the Series B
Redemption Price or the Corporation is unable to pay the applicable portion of
the Series B Redemption Price due to not having sufficient legally available
funds, all rights of the holders of such shares as holders of Series B Preferred
(except the right to receive the Series B Redemption Price without interest upon
surrender of their certificates), shall cease and terminate with respect to such
shares, provided that in the event that shares of Series B Preferred are not
redeemed due to a default in payment by the Corporation or because the
Corporation does not have sufficient legally available funds, such shares of
Series B Preferred shall remain outstanding and shall be entitled to all of the
rights and preferences provided herein.
(d) In the event of a call for redemption of any shares of Series B
Preferred, the Conversion Rights (as defined in Section 3) for the shares of
Series B Preferred to be redeemed on a particular Series B Redemption Date shall
terminate at the close of business on the fifth (5th) day preceding such Series
B Redemption Date, unless default is made in payment of the Series B Redemption
Price.
(e) In the event that the Series B Initiating Holders have elected to
exercise their right of redemption pursuant to this Section 8 and to the extent
that the Company receives the Series C Exercise Notice (as defined below) from
the Series C Initiating Holders (as defined below) or the Series D Exercise
Notice (as defined below) from the Series D Initiating Holders (as defined
below) prior to the deposit by the Company of funds pursuant to Section 8(b)
hereof with respect to any applicable Series B Redemption Date, the right of
redemption of the Series C Preferred and the Series D Preferred shall be
superior and in preference to the right of redemption of the Series B Preferred
and the holders of the Series C Preferred and Series D Preferred shall be
entitled to receive the full amount of the Series C Redemption Price and the
Series D Redemption Price out of legally available funds of the Corporation
prior to the payment of any portion of the Series B Redemption Price not
previously deposited by the Company pursuant to Section 8(b) or required to be
paid to the holders of the Series B Preferred pursuant to the last sentence of
Section 8(a)(ii) hereof. In such
-15-
<PAGE>
event, after the full amount of the Series C Redemption Price and the Series D
Redemption Price has been deposited pursuant to Sections 9(b) and 10(b) below,
the holders of the Series B Preferred shall be entitled to receive the full
amount of the Series B Redemption Price of the Series B Preferred. If the funds
of the Corporation legally available for redemption of shares of the Series B
Preferred, Series C Preferred or Series D Preferred are insufficient to redeem
the total number of shares of Series B Preferred, Series C Preferred or Series D
Preferred to be redeemed on a Series B Redemption Date, Series C Redemption Date
or Series D Redemption Date, those funds which are legally available will be
used to redeem the maximum possible number of such shares from first the holders
of the Series C Preferred and Series D Preferred to the extent of the full
amount of the Series C Redemption Price and Series D Redemption Price pro rata
based on the relative redemption price of such series and next to the holders of
the Series B Preferred to the extent of the full amount of the Series B
Redemption Price. The shares of Series B Preferred, Series C Preferred or Series
D Preferred not redeemed, as the case may be, shall remain outstanding and
entitled to all the rights and preferences provided herein, including the rights
of conversion set forth in Section 3. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of shares of
Series B Preferred, Series C Preferred or Series D Preferred, as the case may
be, such funds will immediately be used to redeem the balance of the shares
which the Corporation has become obliged to redeem on any Redemption Date but
which it has not redeemed.
9. Series C Preferred - Right of Redemption.
----------------------------------------
(a) Subject to Section 8(e) above, the Corporation shall be obligated
to redeem the Series C Preferred as follows:
(i) Beginning on or after March 31, 2004, the holders of 66
2/3% of the then outstanding shares of Series C Preferred (the "Series C
Initiating Holders") may require the Corporation to the extent it may lawfully
do so, to redeem all of the outstanding Series C Preferred. Such redemption
shall occur on the 45th day following the Corporation's receipt of the Series C
Exercise Notice (as defined below) (such date being herein referred to as the
"Initial Series C Redemption Date"), provided that the Series C Initiating
--------
Holders shall have the right to revoke a Series C Exercise Notice by giving
written notice to the Corporation within fifteen (15) days after their receipt
of the Series C Redemption Notice, and provided further that in lieu of
-------- -------
redeeming all of the Series C Preferred on the Initial Series C Redemption Date
the Corporation shall have the right to redeem the Series C Preferred in three
(3) equal installments, with the first installment date being the Initial Series
C Redemption Date, the second installment being the first anniversary of the
Initial Series C Redemption Date and the last installment being the second
anniversary of the Initial Series C Redemption Date (the Initial Series C
Redemption Date and each of such other redemption dates being herein referred to
as a "Series C Redemption Date"). The Corporation shall effect such redemptions
on the applicable Series C Redemption Date by paying in cash in exchange for
each share of Series C Preferred to be redeemed on each applicable Series C
Redemption Date, a sum equal to the fair market value per share of Series C
Preferred as of the date of receipt by the Corporation of the Series C Exercise
Notice plus all accrued and unpaid dividends with respect to such shares thereon
plus interest at the rate of 10% per annum payable on the amount of the unpaid
Series C Redemption Price (as hereinafter defined) accruing from the Initial
Series C Redemption
-16-
<PAGE>
Date until paid. The fair market value per share of Series C Preferred for the
purposes of this Section 9, shall be determined by the Board of Directors of the
Corporation. If such determination is unacceptable to the holders of a majority
of the Series C Preferred, then the fair market value per share of Series C
Preferred shall be determined by an investment banking firm mutually acceptable
to the Corporation and the holders of a majority of the Series C Preferred. The
total amount to be paid for the Series C Preferred is hereinafter referred to as
the "Series C Redemption Price." The number of shares of Series C Preferred that
the Corporation shall be required to redeem on any one Series C Redemption Date
shall be equal to the amount determined by dividing (i) the aggregate number of
shares of Series C Preferred outstanding immediately prior to the Series C
Redemption Date by (ii) the number of remaining Series C Redemption Dates
(including the Series C Redemption Date to which such calculation applies).
Shares subject to redemption pursuant to this Section 9(a) shall be redeemed
from each holder of Series C Preferred on a pro rata basis.
(ii) At any time after March 31, 2004, the Series C Initiating
Holders can elect to exercise the right of first redemption pursuant to this
Section 9(a) by providing written notice (the "Series C Exercise Notice") to the
Corporation. Within fifteen (15) days after the receipt of the Series C Exercise
Notice, the Corporation shall (i) send a notice (a Series C "Redemption Notice")
to each holder of record of the Series C Preferred to be redeemed at the address
of such holder appearing on the books of the Corporation setting forth (a) the
Series C Redemption Price for the shares to be redeemed and (b) the place at
which such holders may obtain payment of the Series C Redemption Price upon
surrender of their share certificates. If the Corporation does not have
sufficient funds legally available to redeem all shares to be redeemed at the
Series C Redemption Date (including, if applicable, those to be redeemed at the
option of the Corporation), then it shall redeem such shares pro rata (based on
the portion of the aggregate Series C Redemption Price payable to them) to the
extent possible and shall redeem the remaining shares to be redeemed as soon as
sufficient funds are legally available.
(b) On or prior to the Series C Redemption Date, the Corporation
shall deposit the applicable portion of the Series C Redemption Price of the
shares to be redeemed on such Series C Redemption Date with a bank or trust
corporation having aggregate capital and surplus in excess of $100,000,000, as a
trust fund, with irrevocable instructions and authority to the bank or trust
corporation to pay, on and after such Series C Redemption Date, the applicable
portion of the Series C Redemption Price of the shares to their respective
holders upon the surrender of their share certificates. Any monies deposited by
the Corporation pursuant to this Section 9(b) for the redemption of shares
thereafter converted into shares of Common Stock pursuant to Section 3 hereof no
later than the fifth (5th) day preceding the Series C Redemption Date shall be
returned to the Corporation forthwith upon such conversion. The balance of any
funds deposited by the Corporation pursuant to this Section 9(b) remaining
unclaimed at the expiration of one (1) year following such Series C Redemption
Date shall be returned to the Corporation.
(c) On or after such Series C Redemption Date, each holder of shares
of Series C Preferred to be redeemed shall surrender such holder's certificates
representing such shares to the Corporation in the manner and at the place
designated in the Series C Redemption Notice, and thereupon the applicable
portion of the Series C Redemption Price of such shares shall be payable to
-17-
<PAGE>
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be canceled. In the
event less than all the shares represented by such certificates are redeemed, a
new certificate shall be issued representing the unredeemed shares. From and
after the date the Corporation deposits funds pursuant to Section 9(b) hereof
with respect to shares to be redeemed on such Series C Redemption Date, unless
there shall have been a default in payment of the applicable portion of the
Series C Redemption Price or the Corporation is unable to pay the applicable
portion of the Series C Redemption Price due to not having sufficient legally
available funds, all rights of the holders of such shares as holders of Series C
Preferred (except the right to receive the Series C Redemption Price without
interest upon surrender of their certificates), shall cease and terminate with
respect to such shares, provided that in the event that shares of Series C
Preferred are not redeemed due to a default in payment by the Corporation or
because the Corporation does not have sufficient legally available funds, such
shares of Series C Preferred shall remain outstanding and shall be entitled to
all of the rights and preferences provided herein.
(d) In the event of a call for redemption of any shares of Series C
Preferred, the Conversion Rights (as defined in Section 3) for the shares of
Series C Preferred to be redeemed on a particular Series C Redemption Date shall
terminate at the close of business on the fifth (5th) day preceding such Series
C Redemption Date, unless default is made in payment of the Series C Redemption
Price.
10. Series D Preferred - Right of Redemption.
----------------------------------------
(a) Subject to Section 8(e) above, the Corporation shall be obligated
to redeem the Series D Preferred as follows:
(i) Beginning on or after March 31, 2004, the holders of 66
2/3% of the then outstanding shares of Series D Preferred (the "Series D
Initiating Holders") may require the Corporation to the extent it may lawfully
do so, to redeem all of the outstanding Series D Preferred. Such redemption
shall occur on the 45th day following the Corporation's receipt of the Series D
Exercise Notice (as defined below) (such date being herein referred to as the
"Initial Series D Redemption Date"), provided that the Series D Initiating
--------
Holders shall have the right to revoke a Series D Exercise Notice by giving
written notice to the Corporation within fifteen (15) days after their receipt
of the Series D Redemption Notice, and provided further that in lieu of
-------- -------
redeeming all of the Series D Preferred on the Initial Series D Redemption Date
the Corporation shall have the right to redeem the Series D Preferred in three
(3) equal installments, with the first installment date being the Initial Series
D Redemption Date, the second installment being the first anniversary of the
Initial Series D Redemption Date and the last installment being the second
anniversary of the Initial Series D Redemption Date (the Initial Series D
Redemption Date and each of such other redemption dates being herein referred to
as a "Series D Redemption Date"). The Corporation shall effect such redemptions
on the applicable Series D Redemption Date by paying in cash in exchange for
each share of Series D Preferred to be redeemed on each applicable Series D
Redemption Date, a sum equal to the fair market value per share of Series D
Preferred as of the date of receipt by the Corporation of the Series D Exercise
Notice plus all accrued and unpaid dividends with respect to such shares thereon
plus interest at the rate of 10% per annum payable on the amount of the unpaid
-18-
<PAGE>
Series D Redemption Price (as hereinafter defined) accruing from the Initial
Series D Redemption Date until paid. The fair market value per share of Series D
Preferred for the purposes of this Section 10, shall be determined by the Board
of Directors of the Corporation. If such determination is unacceptable to the
holders of a majority of the Series D Preferred, then the fair market value per
share of Series D Preferred shall be determined by an investment banking firm
mutually acceptable to the Corporation and the holders of a majority of the
Series D Preferred. The total amount to be paid for the Series D Preferred is
hereinafter referred to as the "Series D Redemption Price." The number of shares
of Series D Preferred that the Corporation shall be required to redeem on any
one Series D Redemption Date shall be equal to the amount determined by dividing
(i) the aggregate number of shares of Series D Preferred outstanding immediately
prior to the Series D Redemption Date by (ii) the number of remaining Series D
Redemption Dates (including the Series D Redemption Date to which such
calculation applies). Shares subject to redemption pursuant to this Section
10(a) shall be redeemed from each holder of Series D Preferred on a pro rata
basis.
(ii) At any time after March 31, 2004, the Series D Initiating
Holders can elect to exercise the right of first redemption pursuant to this
Section 10(a) by providing written notice (the "Series D Exercise Notice") to
the Corporation. Within fifteen (15) days after the receipt of the Series D
Exercise Notice, the Corporation shall (i) send a notice (a Series D "Redemption
Notice") to each holder of record of the Series D Preferred to be redeemed at
the address of such holder appearing on the books of the Corporation setting
forth (a) the Series D Redemption Price for the shares to be redeemed and (b)
the place at which such holders may obtain payment of the Series D Redemption
Price upon surrender of their share certificates. If the Corporation does not
have sufficient funds legally available to redeem all shares to be redeemed at
the Series D Redemption Date (including, if applicable, those to be redeemed at
the option of the Corporation), then it shall redeem such shares pro rata (based
on the portion of the aggregate Series D Redemption Price payable to them) to
the extent possible and shall redeem the remaining shares to be redeemed as soon
as sufficient funds are legally available.
(b) On or prior to the Series D Redemption Date, the Corporation
shall deposit the applicable portion of the Series D Redemption Price of the
shares to be redeemed on such Series D Redemption Date with a bank or trust
corporation having aggregate capital and surplus in excess of $100,000,000, as a
trust fund, with irrevocable instructions and authority to the bank or trust
corporation to pay, on and after such Series D Redemption Date, the applicable
portion of the Series D Redemption Price of the shares to their respective
holders upon the surrender of their share certificates. Any monies deposited by
the Corporation pursuant to this Section 10(b) for the redemption of shares
thereafter converted into shares of Common Stock pursuant to Section 3 hereof no
later than the fifth (5th) day preceding the Series D Redemption Date shall be
returned to the Corporation forthwith upon such conversion. The balance of any
funds deposited by the Corporation pursuant to this Section 10(b) remaining
unclaimed at the expiration of one (1) year following such Series D Redemption
Date shall be returned to the Corporation.
(c) On or after such Series D Redemption Date, each holder of shares
of Series D Preferred to be redeemed shall surrender such holder's certificates
representing such shares to the Corporation in the manner and at the place
designated in the Series D Redemption Notice, and
-19-
<PAGE>
thereupon the applicable portion of the Series D Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by such certificates are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the date the Corporation
deposits funds pursuant to Section 10(b) hereof with respect to shares to be
redeemed on such Series D Redemption Date, unless there shall have been a
default in payment of the applicable portion of the Series D Redemption Price or
the Corporation is unable to pay the applicable portion of the Series D
Redemption Price due to not having sufficient legally available funds, all
rights of the holders of such shares as holders of Series D Preferred (except
the right to receive the Series D Redemption Price without interest upon
surrender of their certificates), shall cease and terminate with respect to such
shares, provided that in the event that shares of Series D Preferred are not
redeemed due to a default in payment by the Corporation or because the
Corporation does not have sufficient legally available funds, such shares of
Series D Preferred shall remain outstanding and shall be entitled to all of the
rights and preferences provided herein.
(d) In the event of a call for redemption of any shares of Series D
Preferred, the Conversion Rights (as defined in Section 3) for the shares of
Series D Preferred to be redeemed on a particular Series D Redemption Date shall
terminate at the close of business on the fifth (5th) day preceding such Series
D Redemption Date, unless default is made in payment of the Series D Redemption
Price.
V.
1. Limitation of Directors' Liability. The liability of the
----------------------------------
directors of this Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
2. Indemnification of Corporate Agents. This Corporation is
-----------------------------------
authorized to indemnify its agents to the fullest extent permissible under
California law. For purposes of this provision the term "agent" has the meaning
set forth in Section 317 of the California Corporations Code.
3. Repeal or Modification. Any repeal or modification of the
----------------------
foregoing provisions of this Article V shall not adversely affect any right of
indemnification or limitation of liability of an agent of this Corporation
relating to acts or omissions occurring prior to such repeal or modification.
-20-
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
INVENTA CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES.......................................... 1
1.1 PRINCIPAL OFFICE............................................. 1
1.2 OTHER OFFICES................................................ 1
ARTICLE II - MEETINGS OF SHAREHOLDERS.................................. 1
2.1 PLACE OF MEETINGS............................................ 1
2.2 ANNUAL MEETING............................................... 1
2.3 SPECIAL MEETING.............................................. 2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS............................. 2
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 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT............ 5
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...... 6
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS.. 7
2.12 PROXIES...................................................... 8
2.13 INSPECTORS OF ELECTION....................................... 8
ARTICLE III - DIRECTORS................................................ 9
3.1 POWERS....................................................... 9
3.2 NUMBER OF DIRECTORS.......................................... 9
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS..................... 10
3.4 RESIGNATION AND VACANCIES.................................... 10
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..................... 11
3.6 REGULAR MEETINGS............................................. 11
3.7 SPECIAL MEETINGS; NOTICE..................................... 11
3.8 QUORUM....................................................... 12
3.9 WAIVER OF NOTICE............................................. 12
3.10 ADJOURNMENT.................................................. 12
3.11 NOTICE OF ADJOURNMENT........................................ 12
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............ 13
3.13 FEES AND COMPENSATION OF DIRECTORS........................... 13
3.14 APPROVAL OF LOANS TO OFFICERS................................ 13
ARTICLE IV - COMMITTEES................................................ 13
4.1 COMMITTEES OF DIRECTORS...................................... 13
4.2 MEETINGS AND ACTION OF COMMITTEES............................ 14
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V - OFFICERS................................................... 15
5.1 OFFICERS..................................................... 15
5.2 ELECTION OF OFFICERS......................................... 15
5.3 SUBORDINATE OFFICERS......................................... 15
5.4 REMOVAL AND RESIGNATION OF OFFICERS.......................... 15
5.5 VACANCIES IN OFFICES......................................... 16
5.6 CHAIRMAN OF THE BOARD........................................ 16
5.7 PRESIDENT.................................................... 16
5.8 VICE PRESIDENTS.............................................. 16
5.9 SECRETARY.................................................... 17
5.10 CHIEF FINANCIAL OFFICER...................................... 17
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND
OTHER AGENTS.............................................. 18
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.................... 18
6.2 INDEMNIFICATION OF OTHERS.................................... 18
6.3 PAYMENT OF EXPENSES IN ADVANCE............................... 19
6.4 INDEMNITY NOT EXCLUSIVE...................................... 19
6.5 INSURANCE INDEMNIFICATION.................................... 19
6.6 CONFLICTS.................................................... 19
ARTICLE VII - RECORDS AND REPORTS...................................... 20
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER................. 20
7.2 MAINTENANCE AND INSPECTION OF BYLAWS......................... 20
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS........ 21
7.4 INSPECTION BY DIRECTORS...................................... 21
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER........................ 21
7.6 FINANCIAL STATEMENTS......................................... 22
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS............... 23
ARTICLE VIII - GENERAL MATTERS......................................... 23
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING........ 23
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS.................... 23
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED ........... 24
8.4 CERTIFICATES FOR SHARES...................................... 24
8.5 LOST CERTIFICATES............................................ 24
8.6 CONSTRUCTION; DEFINITIONS.................................... 25
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IX - AMENDMENTS................................................. 25
9.1 AMENDMENT BY SHAREHOLDERS..................................... 25
9.2 AMENDMENT BY DIRECTORS........................................ 25
</TABLE>
-iii-
<PAGE>
BYLAWS
------
OF
--
INVENTA CORPORATION
-------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 PRINCIPAL OFFICE
----------------
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
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 SHAREHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the board of directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of shareholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such designation,
the annual meeting of shareholders shall be held on the second Tuesday of May in
each year at 10:00 a.m. However, if such day falls on a legal holiday, then the
meeting shall be held at the same time and place on the next
<PAGE>
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
--------------------------------
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent
by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) 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 general nature of the business to be transacted (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 shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 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-
<PAGE>
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. 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.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one (1) year from the date Of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving
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the notice, shall be prima facie evidence of the giving of such notice.
2.6 QUORUM
------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. 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.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the absence
of a quorum, no other business may be transacted at that meeting except as
provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, then notice of the adjourned meeting shall be given. Notice
of any such adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions of
Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation
may transact any business which might have been transacted at the original
meeting.
2.8 VOTING
------
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
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Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or a vote by classes is
required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit.
The candidates receiving the highest number of affirmative votes, up to the
number of directors to be elected, shall be elected; votes against any candidate
and votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
-------------------------------------------------
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken 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 person entitled to vote, who was 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. The waiver of
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notice or consent or approval need not specify either the business to be
transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 2.4 of these bylaws,
the waiver of notice or consent or approval shall state the general nature of
the proposal. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action So taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the
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shareholders without a meeting. Such notice shall be given to those shareholders
entitled to vote who have not consented in writing and shall be given in the
manner specified in Section 2.5 of these bylaws. In the case of approval of (i)
a contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Code, (ii) indemnification of a
corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization
of the corporation, pursuant to Section 1201 of the Code, and (iv) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of the Code, the notice
shall be given at least ten (10) days before the consummation of any action
authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10)days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) 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 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; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article VIII
of these bylaws.
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2.12 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. A proxy shall be deemed signed if the shareholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic transmission
or otherwise) by the shareholder or the shareholder's attorney-in-fact. A
validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) the person who executed the proxy
revokes it prior to the time of voting by delivering a writing to the
corporation stating that the proxy is revoked or by executing a subsequent proxy
and presenting it to the meeting or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
----------------------
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment. If
no inspector of election is so appointed, then the chairman of the meeting may,
and on the request of any shareholder or a shareholder's proxy shall, appoint an
inspector or inspectors of election to act at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed at
a meeting pursuant to the request of one (1) or more shareholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any shareholder or
a shareholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
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(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
Subject to the provisions of the Code and any limitations in the articles
of incorporation and these bylaws relating to action required to be approved by
the shareholders 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
-------------------
Amended July 7, 1994. See Certificate of Amendment #1
Amended February 12, 1997. See Certificate of Amendment #2
Amended 4/6/98. See Certificate of Amendment #3
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<PAGE>
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected 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.
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 or
written consent of the shareholders 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), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased, or (iv) if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election other
than to fill a vacancy created by removal,
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if by written consent, shall require the consent of the holders of a majority of
the outstanding shares entitled to vote thereon.
3.5 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 California 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
California 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, 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 directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
3.7 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 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 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 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.
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3.8 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 3.10
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
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
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 required quorum for that meeting.
3.9 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals 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.
3.10 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting 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 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
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3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.13 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 3.13 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.
3.14 APPROVAL OF LOANS TO OFFICERS*
-----------------------------
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
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
___________________
* This section is effective only if it has been approved by the shareholders
in accordance with Sections 315(b) and 152 of the Code.
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<PAGE>
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 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
all the authority of the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the board
of directors; or
(g) the appointment of any other committees of the board of directors
or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action 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
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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.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The 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, 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.
5.2 ELECTION OF OFFICERS
--------------------
The 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, subject to the rights, if any, of an officer under
any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any 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 an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any 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
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notice; and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effec-tive. Any resignation is
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party.
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 and perform
such other powers and 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
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He 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 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, 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
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of directors, these bylaws, the president or the chairman of the board.
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 directors, committees
of directors and shareholders. 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 shareholders' 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 shareholders
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 shareholders and of the board of directors required to be given by law or by
these bylaws. He 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.
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 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
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform
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<PAGE>
such other duties as may be prescribed by the board of directors or these
bylaws.
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 Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceeding (as defined in Section 317(a) of the Code), arising by reason of the
fact that such person is or was an agent of the corporation. For purposes of
this Section 6.1, a "director" or "officer" of the corporation includes 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.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317 (a) of
the Code), arising by reason of the fact that such person is or was an agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) includes any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
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<PAGE>
6.3 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending any civil or criminal action or proceeding
for which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors shall be paid by the corporation in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
6.6 CONFLICTS
---------
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Articles of
Incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
-19-
<PAGE>
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
--------------------------------------------
The corporation shall keep either at its principal executive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
------------------------------------
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the
-20-
<PAGE>
original or a copy of these bylaws as amended to date, which bylaws shall be
open to inspection by the shareholders at all reasonable times during office
hours. If the principal executive office of the corporation is outside the State
of California and the corporation has no principal business office in such
state, then the secretary shall, upon the written request of any shareholder,
furnish to that shareholder a copy of these bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
-----------------------------------------------------
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust certificate. The inspection may be made in person or by an
agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS
-----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
-------------------------------------
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
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<PAGE>
The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of changes in financial
position for the fiscal year, and (iv) any report of independent accountants or,
if-there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
--------------------
If no annual report for the fiscal year has been sent to shareholders, then
the corporation shall, upon the written request of any shareholder made more
than one hundred twenty (120) days after the close of such fiscal year, deliver
or mail to the person making the request, within thirty (30) days thereafter, a
copy of a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
-22-
<PAGE>
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or 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 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.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders 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 in the Code.
If the board of directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
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.
-23-
<PAGE>
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
-------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize 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 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 CERTIFICATES FOR SHARES
-----------------------
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the chairman of the board or
the vice chairman of the board or the president or a vice president and by the
chief financial officer or an assistant treasurer or the secretary or an
assistant secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate ceases to be that officer,
transfer agent or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, 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
-24-
<PAGE>
destruction of the certificate or the issuance of the replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENT BY SHAREHOLDERS
-------------------------
New bylaws may be adopted or these bylaws may be amended or repealed by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
----------------------
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
-25-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
INVENTA CORPORATION
Adoption by Board of Directors
------------------------------
The undersigned person appointed in the Articles of Incorporation to act
as Incorporator of Inventa Corporation hereby adopts the foregoing bylaws,
comprising twenty-five (25) pages, as the Bylaws of the corporation.
Executed this 24th day of November 1988.
----
/s/ Ashok K. Santhanam
---------------------------------
Ashok K. Santhanam, Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Inventa Corporation and that the foregoing Bylaws,
comprising twenty-five (25) pages, were adopted as the Bylaws of the corporation
on October 24, 1988, by the person appointed in the Articles of Incorporation to
act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 24th day of November, 1988
----
/s/ Ashok K. Santhanam
----------------------------------
Ashok K. Santhanam, Secretary
-26-
<PAGE>
CERTIFICATE OF AMENDMENT NO. 1
OF BYLAWS OF
INVENTA CORPORATION
Ashok K. Santhanam and Michael O'Donnell certify that:
1. They are the President and Assistant Secretary, respectively, of Inventa
Corporation, a California Corporation.
2. Section 3.2 of the Bylaws of this Corporation was amended effective July 7,
1994 by the Sole Director and by the sole shareholder to read in its
entirety as follows:
"The number of directors of the corporation shall be not less than
three (3) nor more than five (5). The exact number of directors shall be
three (3) until changed, within the limits specified above, by a bylaw
amending this Section 3.2, duly adopted by the board of directors or by the
shareholders. The indefinite number of directors may be changed, or a
definite number may be fixed without provision for an indefinite number, by
a duly adopted amendment to the Articles of Incorporation or by an
amendment to this bylaw duly adopted by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that an amendment reducing the fixed number or the minimum number
of directors to a number less than three (3) cannot be adopted if the votes
cast against its adoption at a meeting, or the shares not consenting in the
case of an action by written consent, are equal to more than sixteen and
two-thirds percent (16-2/3%) of the outstanding shares entitled to vote
thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number
of directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office
expires."
Executed on July 7, 1994.
/s/ Ashok K. Santhanam /s/ Michael O'Donnell
- ---------------------- ---------------------
Ashok K. Santhanam Michael O'Donnell
President Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT NO. 2
OF BYLAWS OF
INVENTA CORPORATION
Ashok K. Santhanam and Michael O'Donnell certify that:
1. They are the President and Assistant Secretary, respectively, of Inventa
Corporation, a California Corporation.
2. Section 3.2 of the Bylaws of this Corporation was amended effective
February 12, 1997 by the Board of Directors to read in its entirety as
follows:
"The number of directors of the corporation shall be not less than
five (5) nor more than seven (7). The exact number of directors shall be
five (5) until changed, within the limits specified above, by a bylaw
amending this Section 3.2, duly adopted by the board of directors or by the
shareholders. The indefinite number of directors may be changed, or a
definite number may be fixed without provision for an indefinite number, by
a duly adopted amendment to the Articles &Incorporation or by an amendment
to this bylaw duly adopted by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided, however,
that an amendment reducing the fixed number or the minimum number of
directors to a number less than five (5) cannot be adopted if the votes
cast against its adoption at a meeting, or the shares not consenting in the
case of an action by written consent, are equal to more than sixteen and
two-thirds percent (16-2/3%) of the outstanding shares entitled to vote
thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number
of directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office
expires."
Executed on February 12, 1997
/s/ Ashok K. Santhanam /s/ Michael O'Donnell
- ---------------------- ---------------------
Ashok K. Santhanam Michael O'Donnell
President Assistant Secretary
-28-
<PAGE>
CERTIFICATE OF AMENDMENT NO. 3
OF BYLAWS OF
INVENTA CORPORATION
Ashok K. Santhanam and Michael O'Donnell certify that:
1. They are the President and Assistant Secretary, respectively, of Inventa
Corporation, a California Corporation.
2. Section 3.2 of the Bylaws of this Corporation was amended effective April
6, 1998 by the Board of Directors to read in its entirety as follows:
"The number of directors of the corporation shall be not less than
five (5) nor more than seven (7). The exact number of directors shall be
seven (7) until changed, within the limits specified above, by a bylaw
amending this Section 3.2, duly adopted by the board of directors or by the
shareholders. The indefinite number of directors may be changed, or a
definite number may be fixed without provision for an indefinite number, by
a duly adopted amendment to the Articles of Incorporation or by an
amendment to this bylaw duly adopted by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that an amendment reducing the fixed number or the minimum number
of directors to a number less than five (5) cannot be adopted if the votes
cast against its adoption at a meeting, or the shares not consenting in the
case of an action by written consent, are equal to more than sixteen and
two-thirds percent (16-2/3%) of the outstanding shares entitled to vote
thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number
of directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office
expires."
Executed effective April 6, 1998
/s/ Ashok K. Santhanam /s/ Michael O'Donnell
- ---------------------- ---------------------
Ashok K. Santhanam Michael O'Donnell
President Assistant Secretary
<PAGE>
EXHIBIT 4.2
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (the "Agreement"),
dated as of January 26, 2000 is entered into by and among Inventa Corporation, a
California corporation (the "Company") and the holders of the Company's Series A
Preferred Stock listed on Exhibit A attached hereto (collectively, the "Series A
---------
Holders"), the holders of the Company's Series B Preferred Stock listed on
Exhibit B attached hereto (collectively, the "Series B Holders"), the holders of
- ---------
the Company's Series C Preferred Stock listed on Exhibit C attached hereto
---------
(collectively, the "Series C Holders") the holders of the Company's Series D
Preferred Stock listed on Exhibit D attached hereto (collectively, the "Series D
---------
Holders")and the Xtend-Tech Shareholders listed on Exhibit E attached hereto
---------
(collectively, the "Xtend-Tech Holders") (the Series A Holders, the Series B
Holders, the Series C Holders, the Series D Holders and the Xtend-Tech Holders
shall collectively be referred to as "Shareholders").
R E C I T A L S
---------------
A. The Series A Holders, the Series B Holders, the Series C Holders, the
Series D Holders and the Company are parties to the Restated Registration Rights
Agreement dated January 19, 2000.
B. The Xtend-Tech Holders and the Company are parties to the Agreement
and Plan of Reorganization as of the date hereof (the "Reorganization
Agreement").
C. The execution of this Agreement is in connection with the closing of
the transactions contemplated by the Reorganization Agreement.
D. The Shareholders and the Company desire that the transactions
contemplated by the Reorganization Agreement be consummated.
E. The Series A Holders, the Series B Holders, the Series C Holders, the
Series D Holders and the Company desire that this Agreement supersede the
Restated Registration Rights Agreement dated January 19, 2000 in its entirety.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock of the Company.
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Holder" shall mean any holder, or an assignee under Section 15
hereof, of outstanding Registrable Securities.
"Initiating Holders" shall mean any Holders who in the aggregate are
Holders of more than fifty percent (50%) of the outstanding Registrable
Securities.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities", subject to Sections 5(b) and 6(b) hereof,
shall mean shares of Common Stock (i) issued or issuable pursuant to the
conversion of the Shares, and (ii) issued in respect of securities issued
pursuant to the conversion of the Shares upon any stock split, stock dividend,
recapitalization, substitution, or similar event, and (iii) issued in respect to
securities issued to Xtend-Tech Holders pursuant to the stock exchange
transaction consummated in the Reorganization Agreement; provided, however, that
Registrable Securities shall not include any (a) shares of Common Stock which
have previously been registered, (b) shares of Common Stock which have
previously been sold to the public, or (c) securities which would otherwise be
Registrable Securities held by a Holder who is then permitted to sell all of
such securities within any three (3) month period following the Company's
initial public offering pursuant to Rule 144 if such securities then held by
such Holder constitute less than one percent of the Company's outstanding equity
securities.
"Registration Expenses" shall mean all expenses (excluding
underwriting discounts and selling commissions) incurred in connection with a
registration under Sections 5, 6 and 8 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration, and the
reasonable fees and expenses of one counsel for the selling Shareholders (but
excluding the compensation of regular employees of the Company, which shall be
paid in any event by the Company).
"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
"Shares" shall mean shares of the Company's Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
shares of the Company's Common Stock held by Xtend-Tech Holders.
2
<PAGE>
2. Restrictions on Transferability. The Restricted Securities held by
-------------------------------
the Shareholders shall not be transferred except upon the conditions specified
in this Agreement, which conditions are intended to insure compliance with the
provisions of the Securities Act or, in the case of Section 16 hereof, to assist
in an orderly distribution. Each Shareholder will cause any proposed transferee
of Restricted Securities held by that Shareholder to agree to take and hold
those securities subject to the provisions and upon the conditions specified in
this Agreement.
3. Restrictive Legend. Each certificate representing (i) the Shares,
------------------
and (ii) shares of the Company's Common Stock issued upon conversion of the
Shares, and (iii) any other securities issued in respect of the Shares, or the
Common Stock issued upon conversion of the Shares, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAWS. SUCH
SHARES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND
ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICE OF THE
CORPORATION.
Upon request of a holder of such a certificate, the Company shall
remove the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received either the opinion referred to in Section 4(i) or
the "no-action" letter referred to in Section 4(ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws, unless any such
transfer legend may be removed pursuant to Rule 144(k), in which case no such
opinion or "no-action" letter shall be required, and provided that the Company
shall not be obligated to remove any such legends prior to the date of the
initial public offering of the Company's Common Stock under the Securities Act.
4. Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Sections 5, 6 and 8 hereof), the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144 promulgated under the Securities Act or for a transfer
to a holder's spouse, ancestors, descendants or a trust for any of their
benefit, or in
3
<PAGE>
transactions involving the distribution without consideration of Restricted
Securities by a holder that is a partnership to any of its partners or retired
partners or to the estate of any of its partners or retired partners, or by a
holder that is a trust to any successor trust or successor trustee) by either
(i) a written opinion of legal counsel to the holder who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act or (ii) a "no-action" letter from the
Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by such holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the restrictive legend set forth in Section 3 above,
except that such certificate shall not bear such restrictive legend after the
date of the Company's initial public offering under the Securities Act if the
opinion of counsel or "no-action" letter referred to above expressly indicates
that such legend is not required in order to establish compliance with the
Securities Act or if such legend is no longer required pursuant to Rule 144(k).
5. Demand Registration.
-------------------
(a) Request for Registration. If the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration
with respect to the Registrable Securities, the Company will:
(i) promptly given written notice of the proposed registration
to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration after January 1, 2000 (including, without limitation,
the execution of an undertaking to file post effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request delivered to the Company within fifteen (15) days after
receipt of such written notice from the Company; provided that the Company shall
not be obligated to effect, or to take any action to effect, any such
registration pursuant to this Section 5:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) After the Company has effected two (2) such
registrations pursuant to this Section 5(a) and such registrations have been
declared or ordered effective, or withdrawn at the request of the majority of
the Initiating Holders, and the sales of such Registrable Securities have
closed; or
4
<PAGE>
(C) Within one hundred eighty (180) days of the effective
date of any other registration statement on Form S-1.
Subject to the foregoing clauses (A), (B) and (C), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request or
requests of the Initiating Holders; provided, however, that if the Company shall
furnish to such 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 registration statement to be filed on or before the time filing would
be required and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
(but not more than once during any twelve month period) for a period of not more
than ninety (90) days after receipt of the request of the Initiating Holders.
The registration statement filed pursuant to the request of the
Initiating Holders, may, subject to the provisions of Section 5(b) below,
include other securities of the Company which are held by officers or directors
of the Company or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration,
but the Company shall have no right to include any of its securities in any such
registration except as provided in Section 5(b) below.
(b) Underwriting. If the Initiating Holders intend to distribute the
------------
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 5, and the Company shall include such information in the written notice
referred to in Section 5(a)(i) above. The right of any Holder to registration
pursuant to Section 5 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 with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
If officers or directors of the Company shall request inclusion of
securities of the Company other than Registrable Securities in any registration
pursuant to Section 5, or if holders of securities of the Company who are
entitled by contract with the Company to have securities included in such a
registration (such officers, directors, and other shareholders being
collectively referred to as the "Other Shareholders") request such inclusion,
the Initiating Holders shall, on behalf of all Holders, offer to include the
securities of such Other Shareholders in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this
Agreement. The Company shall (together with all Holders and Other Shareholders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters (the "Underwriter") selected for such underwriting
by more than fifty percent (50%) of the Initiating Holders and reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
5, if the Underwriter determines that marketing factors require a limitation on
the number of shares to be underwritten, the Underwriter may (subject to the
allocation priority set forth below) limit the number of Registrable Securities
to be included in the registration and underwriting to not less than fifty
percent (50%) of
5
<PAGE>
the securities which Holders have requested be included therein. The Company
shall so advise all holders of securities requesting registration, and the
number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following priority:
first, among all Holders of Registrable Securities requesting inclusion (and pro
rata among such holders on the basis of all Registrable Securities then held by
such holders); and second, among all Other Shareholders in proportion, as nearly
as practicable, to the respective amounts of securities which they had requested
to be included in such registration at the time of filing the registration
statement. If any Holder or Other Shareholder disapproves of the terms of any
such underwriting, such holder may elect to withdraw therefrom by written notice
to the Company and the Underwriter. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. If
the Underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company may include its securities for its
own account in such registration if the underwriter so agrees and if the number
of Registrable Securities and other securities which would otherwise have been
included in such registration and underwriting will not thereby be limited.
6. Company Registration.
--------------------
(a) If the Company shall determine to register any of its securities
either for its own account or for the account of a security holder or holders
exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans or a registration
relating solely to a Commission Rule 145 transaction or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof (which,
to the extent then known, shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all of the Registrable Securities specified in a written request or
requests made by any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in Section 6(b) below. Such written request may specify all or a part of a
Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 6(a)(i). In such event the right of any Holder to
registration pursuant to Section 6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the Other Shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the Underwriter selected for underwriting by the Company.
Notwithstanding any other provision of
6
<PAGE>
this Section 6, if the Underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, and (a) if such
registration is the first registered offering of the Company's securities to the
public, the Underwriter may (subject to the allocation priority set forth below)
exclude from such registration and underwriting some or all of the Registrable
Securities which would otherwise be underwritten pursuant hereto, and (b) if
such registration is other than the first registered offering of the sale of the
Company's securities to the public, the Underwriter may (subject to the
allocation priority set forth below) limit the number of Registrable Securities
to be included in the secondary portion of the registration and underwriting to
not less than fifty percent (50%) of the securities which Holders have requested
be included therein. The Company shall so advise all holders of securities
requesting registration, and the number of shares of securities that are
entitled to be included in the registration and underwriting by persons other
than the Company shall be allocated in the following priority: first, to Holders
of Registrable Securities (and pro rata among such holders on the basis of all
Registrable Securities then held by such holders); and second, among all Other
Shareholders in proportion, as nearly as practicable, to the respective amounts
of securities which they had requested to be included in such registration at
the time of filing the registration statement. If any Holder or Other
Shareholder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the Underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
7. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of their shares so registered; provided, however, that the Company shall
not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by Initiating Holders, the registration
statement does not become effective, unless such withdrawal is caused by a
material adverse change in the business or operations of the Company after such
request for registration, or unless the Initiating Holders agree to have such
registration considered a registration pursuant to Section 5(a)(ii)(B). If the
Company is not required to pay any Registration Expenses, then the Holders and
Other Shareholders requesting registration shall bear such Registration Expenses
pro rata on the basis of the number of their shares so included in the
registration request, and such registration shall not be considered a
registration for purposes of Section 5(a)(ii)(B).
8. Registration on Form S-3. The Company shall use its best efforts to
------------------------
qualify for registration on Form S-3, and to that end, the Company shall comply
with the reporting requirements of the Exchange Act following the effective date
of the first registration of any securities of the Company for a registered
public offering. After the Company has qualified for the use of Form S-3,
Initiating Holders shall have the right to request four (4) registrations on
Form S-3 (such requests shall be in writing and shall state the number of shares
of Registrable Securities to be disposed of and the intended method of
disposition of such shares by each such holder), subject only to the following
limitations:
(a) The Company shall not be obligated to cause a registration on
Form S-3 to become effective prior to one hundred eighty (180) days following
the effective date of a Company-
7
<PAGE>
initiated registration (other than a registration effected solely to qualify an
employee benefit plan or to effect a business combination pursuant to Rule 145),
provided that notice of such Company-initiated registration is given to Holders
prior to receipt of a request from a holder of Registrable Securities for
registration on Form S-3, and provided that the Company shall use its best
efforts to achieve such effectiveness promptly following such one hundred eighty
(180) day period;
(b) The Company shall not be obligated to cause a registration on
Form S-3 to become effective prior to expiration of one hundred eighty (180)
days following the effective date of the most recent registration pursuant to a
request by a holder of Registrable Securities under this Agreement or pursuant
to a request by a holder of registration rights under any other agreement of the
Company granting Form S-3 demand registration rights; provided, however, that
the Company shall use its best efforts to achieve such effectiveness promptly
following such one hundred eighty (180) day period;
(c) The Company shall not be required to effect a registration
pursuant to this Section 8 more than once in any twelve (12) month period;
(d) The Company shall not be required to maintain and keep any such
registration on Form S-3 effective for a period exceeding one hundred eighty
(180) days from the effective date thereof. The Company shall give notice to all
Holders and all holders of registration rights under any other agreement of the
Company granting Form S-3 or similar demand registration rights of the receipt
of a request for registration pursuant to this Section 8 and shall provide a
reasonable opportunity for all such other holders to participate in the
registration. Subject to the foregoing, the Company will use its best efforts to
effect promptly the registration of all shares of Registrable Securities on Form
S-3 to the extent requested by the Holder or Holders thereof for purposes of
disposition. In the event the Underwriter, in the case of an underwritten
offering, determines that market factors require a limitation on the number of
shares to be underwritten, then shares shall be excluded from such registration
and underwriting pursuant to the method described in Section 6(b); and
(e) The value of the aggregate shares of Registrable Securities to be
registered on Form S-3 for each such right of registration shall be at least
$500,000.
9. Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to this Agreement, the Company will keep each Holder
advised in writing as to the initiation of such registration and as to the
completion thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of ninety (90) days
(except as set forth in Section 8(d)) or until the Holder or Holders have
completed the distribution described in the registration statement relating
thereto, whichever first occurs; and
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 5 or 8 hereof, the Company will
enter into any underwriting
8
<PAGE>
agreement reasonably necessary to effect the offer and sale of Common Stock,
provided such underwriting agreement contains customary underwriting provisions,
and provided further that if the underwriter so requests the underwriting
agreement will contain customary indemnification and contribution provisions,
and provided further that the Underwriter is reasonably acceptable to the
Company.
10. Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder, if Registrable
Securities held by such Holder are included in the securities with respect to
which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or any violation by the Company of the Securities Act including any rule or
regulation thereunder applicable to the Company relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or alleged omission) based
upon written information furnished to the Company by such Holder or underwriter
and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities or other securities
held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers and agents and each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of the
Securities Act and the rules and regulations thereunder, each other such Holder
and each of their officers, directors and partners, and each person controlling
such Holder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, and will reimburse the Company and such
Holders, directors, officers, agents, partners, persons, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
9
<PAGE>
untrue statement (or alleged untrue statement) or omission (or alleged omission)
is made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of such Holders hereunder shall be
limited to an amount equal to the net proceeds to each such Holder of securities
sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 10 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement. An indemnified party
shall have the right to retain its own 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. No Indemnifying
Party in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 10 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability 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 any untrue or alleged untrue statement of a material fact or
the omission to state a material fact that resulted in such loss, claim, damage
or liability, as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by a court of law 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;
provided, that in no event shall any contribution by a Holder thereunder exceed
the proceeds from the offering received by such Holder.
10
<PAGE>
(e) The obligations of the Company and Holders under this Section 10
shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement.
11. Information by Holder. Each Holder holding securities included in any
---------------------
registration shall furnish to the Company such information regarding such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement.
12. Limitations on Registration of Issues of Securities. From and
---------------------------------------------------
after the date of this Agreement, the Company shall not enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder the right to require the Company to initiate
any registration of any securities of the Company, provided that this Section 12
shall not limit the right of the Company to enter any agreements with any holder
or prospective holder of any securities of the Company giving such holder or
prospective holder the right to require the Company, upon any registration of
any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder. Any right given by the
Company to any holder or prospective holder of the Company's securities in
connection with the registration of securities shall be conditioned such that it
shall be consistent with the provisions of this Agreement and with the rights of
the Holders provided in this Agreement.
13. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a Shareholder owns any Restricted Securities, furnish
to the Shareholder forthwith upon request a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any time from
and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as a Shareholder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a Shareholder to sell any such
securities without registration.
14. No-Action Letter or Opinion of Counsel in Lieu of Registration.
--------------------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, if at any time after
the date of the Company's initial
11
<PAGE>
public offering of its securities under the Securities Act the Company shall
have obtained from the Commission a "no-action" letter in which the Commission
has indicated that it will take no action if, without registration under the
Securities Act, any Holder disposes of Registrable Securities covered by any
request for registration made under this Agreement in the manner in which such
Holder proposes to dispose of the Registrable Securities included in such
request, or if in the opinion of counsel for the Company concurred in by counsel
for such Holder no registration under the Securities Act is required in
connection with such disposition, the Registrable Securities included in such
request shall not be eligible for registration under this Agreement; provided,
however, with respect to any Holder who may deemed to be an "affiliate," as that
term is defined under Rule 144, if, notwithstanding the opinion of such counsel,
the Holder is unable to dispose of all of the Registrable Securities included in
his request in the manner in which such Holder so proposes without registration,
the Registrable Securities included in such request shall be eligible for
registration under this Agreement.
15. Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the Company to register a Shareholder's securities granted to such Shareholder
by the Company under Sections 5, 6 and 8 hereof may be transferred or assigned
by the Shareholder to a transferee or assignee of at least 100,000 shares of the
Restricted Securities; provided, however, that a Shareholder may transfer or
assign such rights to a partner or shareholder of Shareholder or to a successor
trust or successor trustee without restriction as to minimum shareholding. The
Company shall be given written notice by Shareholder at the time of said
transfer or assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, and provided further that the
transferee or assignee of such rights is not deemed by the Board of Directors of
the Company, in its reasonable judgment, to be a competitor of the Company; and
provided further that the transferee or assignee of such rights assumes the
obligations of a Shareholder under this Agreement.
16. "Market Stand-off" Agreement. Each Shareholder agrees, if requested
----------------------------
by the Company and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by Shareholder during a period of time
determined by the Company and its underwriters (not to exceed 180 days)
following the effective date of the Company's initial public offering of its
capital stock, provided that all officers, directors and employees of the
Company holding stock or stock options of at least one (1%) percent of the
Company's outstanding stock prior to the initial public offering of the Company
enter into similar agreements; provided, further, that with respect to the
Series C Holders and Series D Holders, the prohibition against the sale,
transfer or other dispostions of any Common Stock (or other securities) of the
Company held by them pursuant to this Section 16 shall not prohibit (i) the sale
of any shares of Common Stock purchased by such Series C Holder or Series D
Holder pursuant to a directed share program or otherwise in the Company's
initial public offering, or (ii) the sale, in the open market, of any shares of
Common Stock by such Series C Holder or Series D Holder provided that such
shares are purchased in the open market after the completion of the Company's
initial public offering.
12
<PAGE>
Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the Shares (or securities) subject to the foregoing restriction
until the end of said period.
17. Governing Law. This Agreement and the legal relations between the
-------------
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the State of California with
respect to the breach or interpretation of this Agreement or the enforcement of
any and all rights, duties, liabilities, obligations, powers, and other
relations between the parties arising under this Agreement.
18. Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties regarding rights to
registration. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto.
19. Notices, Etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or otherwise delivered by hand or by messenger, addressed (a)
if to a Shareholder, at the address or addresses set forth on Exhibit A, Exhibit
--------- -------
B, Exhibit C, Exhibit D or Exhibit E attached hereto, or at such other address
- - --------- --------- ---------
or addresses as the Shareholder shall have furnished to the other parties hereto
in writing, or (b) if to any other holder of any securities, at such address as
such holder shall have furnished the other parties hereto in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Shares who has so furnished an address to the
Company, or (c) if to the Company, at the address of its principal offices set
forth on the signature page of this Agreement, or at such other address as the
Company shall have furnished to the other parties hereto in writing.
20. Other Registration Rights. This Agreement supersedes any previous
-------------------------
agreement between the Company and any party with respect to the grant by the
Company of registration rights, including but not limited to Registration Rights
Agreement dated February 14, 1997.
21. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
22. Amendments. Any provision of this Agreement may be amended, waived or
----------
modified upon the written consent of the Company, and the Shareholders (or their
assignees to whom Shareholders have expressly assigned their rights in
compliance with Section 15 hereof) who then hold more than fifty percent (50%)
of the Registrable Securities then held by persons entitled to registration
rights hereunder, provided further, any such amendment, waiver or modification
applies by its terms to each applicable Shareholder and each such assignee and,
provided further, that a Shareholder or such assignee hereunder may waive any of
such Holder's rights or the Company's obligations hereunder without obtaining
the consent of any other Shareholder or assignee.
(Remainder of this page left intentionally blank)
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Registration Rights Agreement as of the date first above written.
"INVENTA CORPORATION"
By:_____________________________________
David A. Lavanty, President
[Signature Page to Amended and Restated Registration Rights Agreement]
<PAGE>
"SHAREHOLDERS"
________________________________________
Stephen T. Barry
BANCBOSTON VENTURES INC.
By:_____________________________________
Name: Maia D. Heymann
Title: Director
BATTERY VENTURES III, L.P.
By: Battery Partners III, L.P.
By:_____________________________________
Name:
Title:
BOSTON MILLENNIA PARTNERS
LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership,
its General Partner
By:_____________________________________
General Partner
________________________________________
Dana Callow, Jr.
________________________________________
Harry A. Caunter
[Signature Page to Amended and Restated Registration Rights Agreement]
<PAGE>
THE CHASE MANHATTAN BANK AS TRUSTEE FOR
FIRST PLAZA GROUP TRUST
By:_____________________________________
Title:__________________________________
________________________________________
Electra D. DePeyster
________________________________________
Robert Ducommun
Palmer G. and Charles E. Ducommun
Charitable Annuity Trust, u/d/t
________________________________________
Robert Ducommun, Trustee
________________________________________
Christian Dubiel
ESSEX PRIVATE PLACEMENT FUND II, LIMITED PARTNERSHIP
By: Essex Investment Mgt. Company LLC
Its General Partner
By:_____________________________________
Its:____________________________________
________________________________________
Maya S. Hattangady
[Signature Page to Amended and Restated Registration Rights Agreement]
2
<PAGE>
________________________________________
Martin J. Hernon
________________________________________
Robert W. Jevon
________________________________________
Frank P. Pinto
________________________________________
Andrew Potter
PRIVATE EQUITY PORTFOLIO II, LLC
By:_____________________________________
Name: Glen Holland
Title: Vice President
________________________________________
Suresh Shanmugham
________________________________________
Santhanam C. Shekar
________________________________________
Bruce R. Tiedemann
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
[Signature Page to Amended and Restated Registration Rights Agreement]
3
<PAGE>
TCV II STRATEGIC PARTNERS, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II, L.L.C.,
Its: Investment General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: Investment General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.
Its: General Partner
By:_____________________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
[Signature Page to Amended and Restated Registration Rights Agreement]
4
<PAGE>
________________________________________
Ramesh Vasudevan
________________________________________
Gomati Venkateswaran
________________________________________
Usha Vijayarajan
[Signature Page to Amended and Restated Registration Rights Agreement]
5
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Amended and
Restated Registration Rights Agreement as of the date first above written.
INVENTA: SHAREHOLDERS:
INVENTA CORPORATION
____________________________
Richard M. Cerwonka
By:______________________________
Title:___________________________ ____________________________
Mark Breznak
____________________________
John Pike
____________________________
Scott Gray
____________________________
John McVicker
____________________________
Michael Swafford
____________________________
Derek Nash
(Shareholder Signatures Continued
Next Page)
[Signature Page to Amended and Restated Registration Rights Agreement]
<PAGE>
___________________________________
James Z. Peepas
___________________________________
Frank Russin
___________________________________
Joseph A.DeCapuq
___________________________________
Gordon Kuhn
International Database Communication
Systems, Inc./IDCS
By:________________________________
James Z. Peepas
Chairman/CEO
[Signature Page to Amended and Restated Registration Rights Agreement]
<PAGE>
INVENTA CORPORATION
______________________________
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
______________________________
January 26, 2000
<PAGE>
EXHIBIT A
---------
SCHEDULE OF HOLDERS
OF SERIES A PREFERRED STOCK
Name and Address
- --------------------------------------------------------------------------------
Harry A. Caunter Ramesh Vasudevan
675 North Court 1369 Camwell Drive
Suites 225 & 230 West Vancouver, BC, V7S2M6
Palatine, IL 60067 Canada
Electra D. De Peyster Gomati Venkateswaran
2000 Redwood Hill Court 26 South Baog Road
Santa Rosa, CA 95404 A2 Anand Bhavan
Madras, 600017
INDIA
Robert Ducommun Usha Vijayarajan
1155 Park Ave. 2/7 12th Cross
Apt. 1 SW Rajmahal Extension
New York, NY 10128 Bangalore, 560080
INDIA
Maya S. Hattangady
414 E. Lansing Way
Fresno, CA 93704
Palmer G. and Charles E. Ducommun
Charitable Annuity Trust, u/d/t
Robert Ducommun, trustee
1155 Park Ave.
Apt. 1 SW
New York, N.Y. 10128
Andrew Potter
401 Vine Street
Menlo Park, CA 94025
Santhanam C. Shekar
349 G Street
San Rafael, CA 94901
<PAGE>
EXHIBIT B
---------
SCHEDULE OF HOLDERS
OF SERIES B PREFERRED STOCK
Name and Address
- --------------------------------------------------------------------------------
Battery Ventures L.P.
20 William Street
Wellesley, MA 01282
Harry A. Caunter
675 North Court
Suites 225 & 230
Palatine, IL 60067
Robert Ducommun
1155 Park Ave.
Apt. 1 SW
New York, N.Y. 10128
Palmer G. and Charles E. Ducommun
Charitable Annuity Trust, u/d/t
Robert Ducommun, trustee
1155 Park Ave.
Apt. 1 SW
New York, N.Y. 10128
Andrew Potter
401 Vine Street
Menlo Park, CA 94025
Ramesh Vasudevan
1369 Camwell Drive
West Vancouver, BC, V7S2M6
Canada
<PAGE>
EXHIBIT C
---------
SCHEDULE OF HOLDERS
OF SERIES C PREFERRED STOCK
Name and Address
- --------------------------------------------------------------------------------
Battery Ventures III, L.P. Suresh Shanmugham
20 William Street c/o Boston Millennia Partners
Wellesley, MA 0128230 Rose Wharf, Ste. 330
Boston, MA 02110
Boston Millennia Partners Bruce R. Tiedemann
30 Rose Wharf, Ste. 330 c/o Boston Millennia Partners
Boston, MA 02110 30 Rose Wharf, Ste. 330
Boston, MA 02110
Stephen T. Barry Harry A. Caunter
c/o Boston Millennia Partners 675 North Court
30 Rose Wharf, Ste. 330 Suites 225 & 230
Boston, MA 02110 Palatine, IL 60067
A. Dana Callow, Jr. Maya S. Hattangady
c/o Boston Millennia Partners 414 E. Lansing Way
30 Rose Wharf, Ste. 330 Fresno, CA 93704
Boston, MA 02110
Christian Dubiel Santhanam C. Shekar
c/o Boston Millennia Partners 349 G Street
30 Rose Wharf, Ste. 330 San Rafael, CA 94901
Boston, MA 02110
Martin J. Hernon TCV II (Q), L.P.
c/o Boston Millennia Partners c/o Technology Crossover Ventures
30 Rose Wharf, Ste. 330 56 Main Street, Suite 210
Boston, MA 02110 Millburn, NJ 07041
Attention: Robert C. Bensky
Robert W. Jevon
c/o Boston Millennia Partners with a copy to:
30 Rose Wharf, Ste. 330 c/o Technology Crossover Ventures
Boston, MA 02110 575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jay C. Hoag
<PAGE>
Frank P. Pinto
c/o Boston Millennia Partners
30 Rose Wharf, Ste. 330
Boston, MA 02110
TCV II Strategic Partners, L.P. TCV II, V.O.F.
c/o Technology Crossover Ventures c/o Technology Crossover Ventures
56 Main Street, Suite 210 56 Main Street, Suite 210
Millburn, NJ 07041 Millburn, NJ 07041
Attention: Robert C. Bensky Attention: Robert C. Bensky
with a copy to: with a copy to:
c/o Technology Crossover Ventures c/o Technology Crossover Ventures
575 High Street, Suite 400 575 High Street, Suite 400
Palo Alto, CA 94301 Palo Alto, CA 94301
Attention: Jay C. Hoag Attention: Jay C. Hoag.
Technology Crossover Ventures II, C.V. Technology Crossover Ventures II, C.V.
c/o Technology Crossover Ventures c/o Technology Crossover Ventures
56 Main Street, Suite 210 56 Main Street, Suite 210
Millburn, NJ 07041 Millburn, NJ 07041
Attention: Robert C. Bensky Attention: Robert C. Bensky
with a copy to: with a copy to:
c/o Technology Crossover Ventures c/o Technology Crossover Ventures
575 High Street, Suite 400 575 High Street, Suite 400
Palo Alto, CA 94301 Palo Alto, CA 94301
Attention: Jay C. Hoag Attention: Jay C. Hoag.
<PAGE>
EXHIBIT D
---------
SCHEDULE OF HOLDERS
OF SERIES D PREFERRED STOCK
<TABLE>
<CAPTION>
Name and Address
- -----------------------------------------------------------------------------------------
<S> <C>
BancBoston Ventures Inc. The Chase Manhattan Bank,
435 Tasso Street, Suite 250 As Trustee for First Plaza Group Trust
Palo Alto, CA 94301 Global Investor Services
Attn: Maia Heymann 4 Chase Metro Tech Center, 18/th/ Floor
Brooklyn, NY 11245
Attn: John F. Weeda
Private Equity Portfolio II, LLC Technology Crossover Ventures II, L.P.
175 Federal Street, 10/th/ Floor 56 Main Street, Suite 210
Boston, MA 02110 Millburn, NJ 07041
Attn: Glen Holland Attn: Robert C. Bensky
Battery Ventures III, L.P. TCV II (Q), L.P.
20 William Street 56 Main Street, Suite 210
Wellesley, MA 01282 Millburn, NJ 07041
Attn: Rick Frisbie Attn: Robert C. Bensky
Boston Millennia Partners Limited Partnership Technology Crossover Ventures II, C.V.
30 Rowes Wharf 56 Main Street, Suite 210
Boston, MA 02110 Millburn, NJ 07041
Attn: Martin J. Hernon Attn: Robert C. Bensky
Robert Ducommun TCV II Strategic Partners L.P.
1155 Park Avenue, Apt. 1 SW 56 Main Street, Suite 210
New York, NY 10128 Millburn, NJ 07041
Attn: Robert C. Bensky
Palmer G. & Charles E. Ducommun TCV II, V.O.F.
Charitable Annuity Trust 56 Main Street, Suite 210
1155 Park Avenue, Apt. 1 SW Millburn, NJ 07041
New York, NY 10128 Attn: Robert C. Bensky
Essex Private Placement Fund II,
Limited Partnership Boston Millennia Associates I, Limited
c/o Essex Investment Mgt. Company Partnership
125 High Street 30 Rowes Wharf
Boston, MA 02110 Boston, MA 02110
Attn: Susan Stickells Attn: Martin J. Hernon
</TABLE>
<PAGE>
EXHIBIT E
SCHEDULE OF XTEND-TECH HOLDERS
<PAGE>
EXHIBIT 10.1
INVENTA CORPORATION
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
July 8, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale of Series A Preferred Stock .......... 1
1.1 Sale and Issuance of Common Stock .............. 1
1.2 Closing ........................................ 1
1.3 Warrants ....................................... 1
2. Representations and Warranties of the Company .......... 1
2.1 Organization, Good Standing and Qualification .. 2
2.2 Capitalization ................................. 2
2.3 Subsidiaries ................................... 2
2.4 Authorization .................................. 2
2.5 Valid Issuance of Securities ................... 2
2.6 Governmental Consents .......................... 3
2.7 Litigation ..................................... 3
2.8 Intangible Property ............................ 3
2.9 Compliance with Other Instruments .............. 4
2.10 Disclosure ..................................... 4
2.11 Registration Rights ............................ 4
2.12 Title to Property and Assets ................... 4
2.13 Financial Statements ........................... 5
2.14 Changes ........................................ 5
2.15 Minute Books ................................... 6
2.16 Labor Agreements and Actions ................... 6
3. Representations and Warranties of the Investors ........ 7
3.1 Authorization .................................. 7
3.2 Purchase Entirely for Own Account .............. 7
3.3 Disclosure of Information ...................... 7
3.4 Economic Risk .................................. 7
3.5 Restricted Securities .......................... 8
3.6 Further Limitations on Disposition ............. 8
3.7 Legends ........................................ 8
4. California Commissioner of Corporations ................ 9
4.1 Corporate Securities Law ....................... 9
5. Conditions of Investor's Obligations at Closing ........ 9
5.1 Representations and Warranties ................. 9
5.2 Performance .................................... 9
5.3 Articles of Incorporation ...................... 9
5.4 Compliance Certificate ......................... 9
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6. Conditions of the Company's Obligations at Closing ..... 9
6.1 Representations and Warranties ................. 9
6.2 Payment of Purchase Price ...................... 10
6.3 Legal Matters .................................. 10
7. Registration Rights .................................... 10
7.1 Definitions .................................... 10
7.2 Restrictive Legend ............................. 11
7.3 Notice of Proposed Transfers ................... 11
7.4 Demand Registration ............................ 12
7.5 Piggyback Registration ......................... 12
7.6 Underwriting ................................... 13
7.7 Blue Sky ....................................... 14
7.8 Expenses of Registration ....................... 15
7.9 Registration Procedures ........................ 15
7.10 Information Furnished by Holder ................ 15
7.11 Indemnification ................................ 15
7.12 Rule 144 Reporting ............................. 17
7.13 Transfer of Registration Rights ................ 18
8. Right of First Refusal ................................. 18
8.1 Grant of Right ................................. 18
8.2 New Securities ................................. 18
8.3 Notice ......................................... 19
8.4 Sale after Notice .............................. 19
8.5 Expiration ..................................... 19
8.6 Assignment ..................................... 20
9. Covenants of the Company ............................... 20
9.1 Delivery of Financial Statements ............... 20
9.2 Termination of Information Covenant ............ 21
9.3 Key Man Life Insurance ......................... 21
9.4 Board of Directors ............................. 21
10. Miscellaneous .......................................... 21
10.1 Survival of Warranties ......................... 21
10.2 Transfer; Successors and Assigns ............... 21
10.3 Governing Law .................................. 22
10.4 Counterparts ................................... 22
10.5 Titles and Subtitles ........................... 22
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.6 Notices ........................................ 22
10.7 Finder's Fee ................................... 22
10.8 Expenses ....................................... 22
10.9 Amendments and Waivers ......................... 22
10.10 Severability ................................... 23
10.11 Aggregation of Stock ........................... 23
10.12 Entire Agreement ............................... 23
EXHIBIT A Schedule of Investors
EXHIBIT B Amended and Restated Articles of Incorporation
EXHIBIT C Schedule of Exceptions to Representations and Warranties
EXHIBIT D Form of Warrant
EXHIBIT E List of Registrable Securities
EXHIBIT F Form of Proprietary Information Agreement
</TABLE>
-iii-
<PAGE>
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made as
of the 8th day of July 1994 by and between Inventa Corporation, a California
corporation (the "Company"), and the persons and entities listed on the Schedule
of Investors attached hereto as Exhibit A (the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Series A Preferred Stock
---------------------------------------------
1.1. Sale and Issuance of Common Stock.
---------------------------------
(a) The Company shall adopt and file with the Secretary of
State of California on or before the Closing (as defined below) the Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit B.
(b) Subject to the terms and conditions of this Agreement,
the Investors agree to purchase at the Closing and the Company agrees to sell
and issue to the Investors at the Closing that number of shares of the Company's
Series A Preferred Stock (the "Stock") for the aggregate purchase price set
forth opposite each Investor's name on Exhibit A attached hereto, at a purchase
price of $1.00 per share.
1.2 Closing Date; Delivery. The purchase and sale of the Stock
------------------------
shall take place at the offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page
Mill Road, Palo Alto, California, at 9:00 a.m., on July 8, 1994, or at such
other time and place as the Company and the Investors mutually agree upon,
orally or in writing (which time and place are designated as the "Closing"). At
the Closing, the Company shall deliver to each Investor a certificate
representing the Stock which such Investor is purchasing against delivery to the
Company by such Investor of a check made payable to the Company or wire transfer
of the aggregate purchase price therefor.
1.3. Warrants. At the Closing, the Company shall issue to each
--------
Investor a Warrant ("Warrant") in the form attached hereto as Exhibit D. Each
Warrant shall be exercisable at the Investor's option for that number of shares
of Series A Preferred Stock of the Company equal to one-fourth of the number of
shares of Stock purchased by such Investor at the Closing, at an exercise price
of $1.00 per share. The Warrants shall expire at the earlier of (i) December 31,
1999, (ii) a registered public offering of the Company's securities, or (iii) a
merger, reorganization or sale of all or substantially all of the Company's
assets.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investors that,
<PAGE>
except as set forth on a Schedule of Exceptions attached hereto as Exhibit C,
specifically identifying the relevant subparagraph hereof, which exceptions
shall be deemed to be representations and warranties as if made hereunder:
2.1. Organization, Good Standing and Qualification. The Company is
---------------------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.
2.2 Capitalization.
--------------
(a) The authorized capital of the Company will consist,
immediately prior to the Closing, of (i) 500,000 shares of Preferred Stock, all
of which are designated Series A Preferred Stock, and none of which are issued
and outstanding, and (ii) 10,000,000 shares of Common Stock, of which 2,250,000
shares are issued and outstanding. The Company has reserved 675,000 shares of
its Common Stock for issuance pursuant to its 1993 Stock Option Plan. Except as
set forth in the Schedule of Exceptions attached as Exhibit C hereto, there are
no outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements, orally or in writing, for the purchase or acquisition
from the Company of any shares of its capital stock.
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the
-------------
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Stock has been taken or will be taken prior to the Closing, and
this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms.
2.5 Valid Issuance of Securities.
----------------------------
(a) The Stock that is being issued to the Investors
hereunder, when issued, sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable. Based in part upon the representations of the Investors
in this Agreement, the Stock will be issued in compliance with all applicable
federal and state securities laws.
-2-
<PAGE>
(b) The shares of Common Stock outstanding prior to the
Closing are all duly and validly authorized and issued, fully paid and
nonassessable, and were issued in compliance with all applicable federal and
state securities laws.
(c) The Warrants to be issued to the Investors in
connection with the transactions contemplated by this Agreement will be duly and
validly authorized and issued, fully paid and nonassessable, and will be issued
in compliance with all applicable federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for (a) the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, which filing will be effected in accordance with such section,
and (b) compliance with the Blue Sky Laws of the various states in which the
Investors may reside, which compliance will be effected in accordance with such
laws. The Company currently holds all licenses, permits, franchises,
registrations and qualifications which may be required to conduct its business,
and all such licenses, permits, franchises, registrations and qualifications are
valid and in full force and effect.
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or currently threatened against the Company that questions
the validity of this Agreement or the right of the Company to enter into it, or
to consummate the transactions contemplated hereby, or that might result, either
individually or in the aggregate, in any material adverse changes in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees, their
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
2.8 Intangible Property. The Company, to its knowledge after due
-------------------
inquiry, and that of its officers after due inquiry, has all right, title and
interest in and to all intangible property and
-3-
<PAGE>
technology or is able to obtain on reasonable terms, all permits, licenses and
other authority necessary to conduct its business as presently conducted. The
Company, and, to the knowledge of the Company, its officers and employees, have
not improperly used and are not making improper use of any confidential
information or trade secrets of others, including those of any former employer
of an officer or employee.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any
provisions of its Amended and Restated Articles of Incorporation or Bylaws or of
any instrument, judgment, order, writ, decree or contract to which it is a party
or by which it is bound or, to its knowledge, of any provision of federal or
state statute, rule or regulation applicable to the Company. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree, contract, rule, or statute, or of the Company's Restated Articles
of Incorporation or Bylaws, or an event which results in the creation of any
lien, charge or encumbrance upon any assets of the Company.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any license, distribution or other agreement.
2.10 Disclosure. The Company has fully provided the Investors with
----------
all the information which the Investors have requested for deciding whether to
acquire the Stock and all information which the Company believes is reasonably
necessary to enable the Investors to make such decision. Neither this Agreement
nor any other statements or certificates made or delivered in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading,
except that, with respect to financial projections, the Company represents only
that such projections were prepared in good faith and that the Company believes
there is a reasonable basis for such projections.
2.11 Registration Rights. Except as provided in Section 7 of this
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.12 Title to Property and Assets. The Company owns its property
----------------------------
and assets free and clear of all mortgages, liens, loans
-4-
<PAGE>
and encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
2.13 Financial Statements. The Company has delivered to the
--------------------
Investor its financial statements (balance sheet and profit and loss statement
and statement of shareholders equity) (i) at April 30, 1994 and the four (4)
month period then ended and (ii) at December 31, 1993 and for the fiscal year
then ended (collectively, the "Financial Statements"). The Financial Statements
are complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other. The Financial
Statements accurately set out and describe the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein.
Except as set forth in the Financial Statements, the Company has no liabilities,
contingent or otherwise, of a nature required by generally accepted accounting
principles to be reflected in a balance sheet or disclosed in the notes thereto,
other than liabilities incurred in the ordinary course of business subsequent to
April 30, 1994.
2.14 Changes. Since April 30, 1994 there has not been:
-------
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business which
have not been, in the aggregate, materially adverse.
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
-5-
<PAGE>
(e) any change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
to which the Company or any of such assets or properties is subject;
(f) any material change in any compensation arrangement or
agreement with any employee; or
(g) to the Company's knowledge, any other event or condition
of any character which might materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company
(as such business is presently conducted and as it is proposed to be conducted).
2.15 Minute Books. The Company has offered to provide to the
------------
Investors the minute books of the Company, which contain a complete summary of
all meetings of directors and shareholders since the time of incorporation and
reflect all transactions referred to in such minutes accurately in all material
respects.
2.16 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
The employment of each officer and employee of the Company is terminable at the
will of the Company.
2.17 Employee Plans. The Company has no "employee welfare benefit
--------------
plans" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA"). The Company (i) has not been required to contribute to, (ii)
has not terminated or withdrawn from, and (iii) is not aware of any withdrawal
liability assessed against the Company with respect to any defined benefit plan
as defined in Section 3(35) of ERISA or multiemployer plan as defined in Section
4001 of ERISA in which employees or former employees of the Company have
participated.
-6-
<PAGE>
2.18 Employees. The Company has not knowingly violated any
---------
employment-related laws, including, without limitation, laws relating to equal
employment opportunity, overtime pay and collective bargaining. To the
Company's knowledge, no key employee or sales representative of the Company, and
no group of employees, has any plans to terminate his or her employment with the
Company. Each United States employee of the Company with access to confidential
or proprietary information has executed a Proprietary Information Agreement, the
form of which is attached hereto as Exhibit F.
3. Representations and Warranties of the Investors. Each Investor for
-----------------------------------------------
itself hereby represents and warrants to the Company that:
3.1 Authorization. This Agreement constitutes its valid and
-------------
legally binding obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. This Agreement is made
---------------------------------
with the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Stock will be acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
By executing this Agreement, the Investor further represents that the Investor
does not presently have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to any
third person, with respect to any of the Stock. The Investor represents that it
has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. The Investor believes it has
-------------------------
received information that it considers necessary or appropriate for deciding
whether to acquire the Stock. The Investor further represents that it has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Stock. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of the Investor to rely thereon.
3.4 Economic Risk. The Investor has the capacity to protect his
-------------
own interests in connection with the purchase of the Stock, is capable of
evaluating the merits and risks of investment in the Company, can make an
informed investment decision by reason of (i) his preexisting personal or
business relationship with the Company or any of its officers, directors, or
control persons, or (ii) his business and financial knowledge and experience or
the
-7-
<PAGE>
business and financial knowledge and experience of my professional advisers,
and is able to bear the substantial economic risks of an investment in the Stock
for an indefinite period of time.
3.5 Restricted Securities. It understands that the shares of
---------------------
Common Stock sold hereunder are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such shares may be resold without registration under the
Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances. In this connection, the Investor represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.6 Further Limitations on Disposition. Without in any way
----------------------------------
limiting the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Stock unless and until:
(a) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) The Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, the Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration under the Act.
(c) Notwithstanding the provisions of paragraphs (a) and
(b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by the Investor to a shareholder, partner or other
affiliate of the Investor, if the transferee or transferees agree in writing to
be subject to the terms hereof to the same extent as if they were the Investor
hereunder.
3.7 Legends. It is understood that the Stock, and the shares of
-------
Common Stock issuable upon conversion thereof and any securities issued in
respect thereof or exchange therefor may bear one or all of the following
legends:
(a) The legend set forth in Section 7.2 hereof.
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations.
-8-
<PAGE>
(c) Any legend required by the Blue Sky laws of any other state
to the extent such laws are applicable to the shares represented by the
certificate so legended.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT IS
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations of
-----------------------------------------------
the Investors under Section 1.1 of this Agreement are subject to the
fulfillment, on or before the First Closing, of each of the following
conditions:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects as of the Closing.
5.2 Performance. The Company shall have performed and complied
-----------
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
5.3 Articles of Incorporation. The Company shall have filed with,
-------------------------
and have had accepted for filing by, the California Secretary of State the
Amended and Restated Articles of Incorporation of the Company attached as
Exhibit B hereto.
5.4 Compliance Certificate. The President of the Company shall
----------------------
deliver to the Investors at the Closing a certificate certifying that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled.
6. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to the Investors under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions
by the Investor:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investors contained in Section 3 shall be true and correct in
all material respects as of the Closing.
-9-
<PAGE>
6.2 Payment of Purchase Price. The Investors shall have delivered
-------------------------
to the Company the purchase price specified in Section 1.1 hereof.
6.3 Legal Matters. All material matters of a legal nature which
-------------
pertain to this Agreement, and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Company.
7. Registration Rights. The Company covenants and agrees as follows:
-------------------
7.1 Definitions. For purposes of this Section 7:
-----------
(a) "Commission" shall mean the Securities and Exchange
----------
Commission or any other federal agency at the time administering the Securities
Act.
(b) "Holder" shall mean any holder of outstanding
------
Registrable Securities which have not been sold to the public or an assignee or
transferee of Registration rights as permitted by Section 7.13.
(c) "Initiating Holders" shall mean Holders who in the
------------------
aggregate hold at least forty percent (40%) of the Registrable Securities.
(d) The terms "Register", "Registered" and "Registration"
-------- ---------- ------------
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act ("Registration Statement"), and
the declaration or ordering of the effectiveness of such Registration Statement.
(e) "Registrable Securities" shall mean any Common Stock
----------------------
held by the Holder as set forth on Exhibit E attached hereto, or other
securities issued as a dividend or other distribution with respect to, in
exchange for or in replacement of Registrable Securities.
(f) "Registration Expenses" shall mean all expenses incurred
---------------------
by the Company in complying with Section 7.4 or 7.5 of this Agreement,
including, without limitation, all federal and state registration, qualification
and filing fees, printing expenses, fees and disbursements of counsel for the
Company and of special counsel for the Holders (if different from the Company),
blue sky fees and expenses, and the expense of any special audits incident to or
required by any such registration and excluding any Selling Expenses.
(g) "Securities Act" shall mean the Securities Act of 1933,
--------------
as amended, or any similar federal statute, and the
-10-
<PAGE>
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
(h) "Selling Expenses" shall mean all underwriting discounts
----------------
and selling commissions applicable to the sale of Registrable Securities
pursuant to this Agreement.
7.2 Restrictive Legend . Each certificate representing (i)
------------------
the Registrable Securities and (ii) any other securities issued in respect of
the Registrable Securities upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted by the provisions of Section 7.3 below) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
The Investor and each Holder consents to the Company making a notation
on its records and giving instructions to any transfer agent of the Common Stock
in order to implement the restrictions on transfer established in this Section
7.
7.3 Notice of Proposed Transfers . The holder of each
----------------------------
certificate representing restricted securities as that term is defined in Rule
144 by acceptance thereof agrees to comply in all respects with the provisions
of this Section 7.3. Prior to any proposed sale, assignment, transfer or pledge
of any restricted securities (other than (i) a transfer not involving a change
in beneficial ownership or (ii) in transactions involving the distribution
without consideration of restricted securities by any of the Holders to any of
its partners, retired partners) unless there is in effect a registration
statement under the Securities Act covering the proposed transfer, the holder
thereof shall give written notice to the Company of such holder's intention to
effect such transfer, sale, assignment or pledge. Each such notice shall
describe the manner and circumstances of the proposed transfer, sale, assignment
or pledge in sufficient detail, and shall be accompanied, at such holder's
expense by either (i) a written opinion, addressed to the Company, of legal
counsel who shall be,
-11-
<PAGE>
and whose legal opinion shall be, reasonably satisfactory to the Company
(provided that no such opinion shall be required for transfers pursuant to Rule
144), to the effect that the proposed transfer of the restricted securities may
be effected without registration under the Securities Act, or (ii) a "no action"
letter from the Commission to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the holder of
such restricted securities shall be entitled to transfer such restricted
securities in accordance with the terms of the notice delivered by the holder to
the Company. Each certificate evidencing the restricted securities transferred
as above provided shall bear, except if such transfer is made pursuant to Rule
144, the appropriate restrictive legend set forth in Section 7.2 above, except
that such certificate shall not bear such restrictive legend if in the opinion
of counsel for such holder and the Company such legend, is not required in order
to establish compliance with any provision of the Securities Act.
7.4 Demand Registration.
-------------------
(a) Request for Registration on Form S-3. Subject to the
------------------------------------
terms of this Agreement, in the event that the Company shall receive from the
Initiating Holders a written request that the Company effect any Registration on
Form S-3 (or any successor form to Form S-3 regardless of its designation) for
an offering of Registrable Securities the reasonably anticipated aggregate
offering price to the public of which would exceed $1,000,000, the Company
shall: (i) promptly give written notice of the proposed Registration to all
other Holders; and (ii) as soon as practicable, use its best efforts to effect
Registration of the Registrable Securities specified in such request, together
with any Registrable Securities of any Holder joining in such request as are
specified in a written request made within twenty (20) days after the written
notice from the Company. The Company shall not be obligated to effect more than
four such Registrations under this Section 7.4(a), nor more than one such
Registration in any twelve-month period.
(b) Registration of Other Securities. Any Registration
--------------------------------
Statement filed pursuant to the request of the Initiating Holders under this
Section 7.4 shall only include Registrable Securities.
7.5 Piggyback Registration. Subject to the terms of this
----------------------
Agreement, if at any time or from time-to-time, the Company shall determine to
register any of its securities, either for its own account or the account of a
security holder or holders, other than a registration on Form S-8 relating
solely to employee stock option or purchase plans, a registration on Form S-4
relating solely to an SEC Rule 145 transaction, a registration on any other
-12-
<PAGE>
form (other than Form S-1 or S-3) which does not include substantially the same
information as would be required to be included in a Registration Statement
covering the sale of Registrable Securities, the Company will: (i) promptly give
each Holder written notice thereof (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under the applicable Blue Sky or other state securities laws) and (ii) include
in such Registration (and any related registration and/or qualification under
Blue Sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified in a written request delivered to the
Company by any Holder within 30 days after delivery of such written notice from
the Company.
7.6 Underwriting.
------------
(a) Notice of Underwriting. If a Registration of which the
----------------------
Company gives notice is for a Registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 7.4(a) or 7.5. In such event, the right of any
Holder to Registration shall be conditioned upon such underwriting and the
inclusion of such Holder's Registrable Securities in such underwriting to the
extent provided in this Section 7.6. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company and any
other holders distributing their securities through such underwriting) enter
into an underwriting agreement with the Underwriter's Representative for such
offering. The Holders shall have no right to participate in the selection of the
underwriters for an offering pursuant to this Section 7.6.
(b) Marketing Limitation. In the event the Underwriter's
--------------------
Representative advises the Holders seeking Registration of Registrable
Securities in writing that market factors (including, without limitation, the
aggregate number of shares of Common Stock requested to be Registered, the
general condition of the market, and the status of the persons proposing to sell
securities pursuant to the Registration) require a limitation of the number of
shares to be underwritten, the Underwriter's Representative may limit, but not
to less than 10% of the total number of shares proposed to be registered under
this Section 7.6 (unless such Registration is the Company's initial public
offering, in which case no limitation on reduction shall be imposed), the number
of shares of Registrable Securities to be included in such Registration and
underwriting; provided however, that any Registrable Securities so excluded
shall retain any and all Registration rights set forth in this Section.
(c) Allocation of Shares. In the event that the
--------------------
Underwriter's Representative limits the number of shares to be included in a
Registration pursuant to Section 7.4(b), the number
-13-
<PAGE>
of shares to be included in such Registration shall be allocated in the
following manner:
(i) in the case of a Registration pursuant to
Section 7.5, shares held by persons who are not legally entitled to include
shares in such Registration shall first be excluded from such Registration and
underwriting to the extent required by such limitation. If a limitation of the
number of shares is still required after such exclusion, shares of Registrable
Securities shall next be excluded from such Registration and underwriting to the
extent required by such limitation, all prior to any limitation on the shares to
be Registered by the Company.
The number of shares that may be included in the
Registration and underwriting by selling shareholders shall be allocated among
all Holders thereof and other holders of securities other than Registrable
Securities requesting and legally entitled to include shares in such
Registration, in proportion, as nearly as practicable, to the respective amounts
of securities (including Registrable Securities) which such Holders and such
other holders would otherwise be entitled to include in such Registration. No
Registrable Securities or other securities excluded from the underwriting by
reason of this Section 7.6(c) shall be included in the Registration Statement.
(d) Withdrawal. If any Holder disapproves of the terms of
----------
any such underwriting, he may elect to withdraw therefrom by written notice to
the Company and the underwriter delivered at least seven days prior to the
effective date of the Registration Statement. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting shall be withdrawn
from such Registration.
7.7 Blue Sky. In the event of any Registration of Registrable
--------
Securities pursuant to Section 7.4 or 7.5, the Company will exercise its best
efforts to register and/or qualify the securities covered by the Registration
Statement under such other securities or Blue Sky laws of such jurisdictions
(not exceeding 20 unless otherwise agreed to by the Company) as shall be
reasonably appropriate for the distribution of such securities; provided,
however, that (i) the Company shall not be required to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions, and (ii) notwithstanding anything in this Agreement to the
contrary, in the event any jurisdiction in which the securities shall be
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
shareholders, such expenses shall be payable pro rata by selling shareholders.
-14-
<PAGE>
7.8 Expenses of Registration. Registration expenses incurred with
------------------------
no more than two Registrations pursuant to Section 7.4, and all Registration
Expenses incurred in connection with Registrations pursuant to Section 7.5,
shall be borne by the Company, excluding underwriting discounts and commissions.
All Selling Expenses shall be borne by the holders of the securities Registered
pro rata on the basis of the number of shares registered.
7.9 Registration Procedures. The Company will keep each Holder
-----------------------
whose Registrable Securities are included in any Registration pursuant to this
Agreement advised as to the initiation and completion of such Registration. The
Company shall: (a) keep such Registration effective for a period of 120 days or
until the Holder or Holders have completed the distribution described in the
Registration Statement relating thereto, whichever first occurs; and (b) furnish
such number of prospectuses (including preliminary prospectuses) and other
documents as a Holder from time to time reasonably may request.
7.10 Information Furnished by Holder. It shall be a condition
-------------------------------
precedent of the Company's obligations under this Section that each Holder of
Registrable Securities included in any Registration furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
or Holders as the Company may reasonably request.
7.11 Indemnification.
---------------
(a) Company's Indemnification of Holders. To the extent
------------------------------------
permitted by law, the Company shall indemnify each Holder, each of its officers,
directors and constituent partners, legal counsel for the Holders, and each
person controlling such Holder, with respect to which Registration,
qualification or compliance of Registrable Securities has been effected pursuant
to this Agreement against all claims, losses, damages or liabilities (or actions
in respect thereof) to the extent such claims, losses, damages or liabilities
arise out of or are based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus or other document
(including any related Registration Statement) incident to any such
Registration, qualification or compliance, or are based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such Registration, qualification or compliance;
and the Company will reimburse each such Holder, such directors, officers,
partners or law firm, each such underwriter and each person who controls any
such Holder or underwriter, for any legal and any other expenses
-15-
<PAGE>
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that the indemnity
contained in this Section 7.11 shall not apply to amounts paid in settlement of
any such claim, loss, damage, liability or action if settlement is effected
without the consent of the Company (which consent shall not unreasonably be
withheld); and provided, further, that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based upon any untrue statement or omission based upon
written information furnished to the Company by such Holder, officer, director,
partner, counsel or controlling person and stated to be specifically for use in
connection with the Registration and offering of securities of the Company.
(b) Holder's Indemnification of Company. To the extent permitted
-----------------------------------
by law, each Holder shall, if Registrable Securities held by such Holder are
included in the securities as to which such Registration, qualification or
compliance is being effected pursuant to this Agreement, indemnify the Company,
each of its directors and officers, each legal counsel and independent
accountant of the Company, each underwriter, if any, of the Company's securities
covered by such a Registration Statement, each person who controls the Company
or such underwriter within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and constituent partners and each
person controlling such other Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact contained in
any such Registration Statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by such Holder of any rule or regulation
promulgated under the Securities Act applicable to such Holder and relating to
action or inaction required of such Holder in connection with any such
Registration, qualification or compliance; and will reimburse the Company, such
Holders, such directors, officers, partners, persons, law and accounting firms,
underwriters and control persons for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such Registration Statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder, or an officer, director, constituent
partner, counsel or controlling persons of such Holder, and stated to be
specifically for use in connection with the Registration and offering of
securities of the Company.
-16-
<PAGE>
(c) Indemnification Procedure. Promptly after receipt by
-------------------------
an indemnified party under this Section 7.11 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 7.11 notify the
indemnifying party in writing of the commencement thereof and generally
summarize such action. The indemnifying party shall have the right to
participate in and to assume the defense of such claim; provided, however, that
the indemnifying party shall be entitled to select counsel for the defense of
such claim with the approval of any parties entitled to indemnification, which
approval shall not be unreasonably withheld; provided further, however, that if
either party reasonably determines that there may be a conflict between the
position of the Company and the Holders in conducting the defense of such
action, suit or proceeding by reason of recognized claims for indemnity under
this Section 7.11 then counsel for such party shall be entitled to conduct the
defense to the extent reasonably determined by such counsel to be necessary to
protect the interest of such party. The failure to notify an indemnifying party
promptly of the commencement of any such action, if prejudicial to the ability
of the indemnifying party to defend such action, shall relieve such indemnifying
party, to the extent so prejudiced, of any liability to the indemnified party
under this Section 7.11 but the omission so to notify the indemnifying party
will not relieve such party of any liability that such party may have to any
indemnified party otherwise other than under this Section 7.11.
7.12 Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the restricted securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended.
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements);
(c) So long as a Purchaser owns any restricted securities
to furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the effective date of the first registration
statement filed
-17-
<PAGE>
by the Company for an offering of its securities to the general public), and of
the Securities Act and the Securities Exchange Act of 1934 (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Purchaser may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Purchaser to sell
any such securities without registration.
7.13 Transfer of Registration Rights. The rights to cause the
-------------------------------
Company to register securities granted Holders under Sections 7.4 and 7.5 may be
assigned to a transferee or assignee reasonably acceptable to the Company in
connection with any transfer or assignment of Registrable Securities by a Holder
provided that (i) such transfer may otherwise be effected in accordance with
applicable securities laws, and (ii) such assignee or transferee acquires either
(A) at least 50,000 shares of Registrable Securities or (B) all Registrable
Securities held by such transferring or assigning Holder. Notwithstanding the
foregoing, the rights to cause the Company to register securities may be
assigned to any constituent partner of a Holder, without compliance with item
(ii) above, provided written notice thereof is promptly given to the Company.
8. Right of First Refusal.
----------------------
8.1 Grant of Right. Except as set forth in Section 8.5, the
--------------
Company hereby grants to each Investor who continues to hold Stock the right of
first refusal to purchase all or any part of such Investor's Pro Rata Share (as
hereinafter defined) of the New Securities (as defined in Section 8.2) which the
Company may, from time to time, propose to sell and issue. The Investors may
purchase said New Securities on the same terms and at the same price at which
the Company proposes to sell the New Securities. The "Pro Rata Share" of each
Investor, for purposes of this right of first refusal, is the ratio of the total
number of shares of Common Stock held by such Investor, including (i) any shares
of Common Stock into which shares of Preferred Stock held by such Investor are
convertible, and (ii) any shares deliverable upon the exercise of options of
other rights to purchase Common Stock held by such Investor, to the total number
of shares of Common Stock outstanding immediately prior to the issuance of the
New Securities (including (i) any shares of Common Stock into which outstanding
shares of Preferred Stock are convertible and (ii) any shares deliverable upon
the exercise of options of other rights to purchase Common Stock held by such
Investor).
8.2 New Securities. "New Securities" shall mean any capital
--------------
stock of the Company, whether now authorized or not, and any rights, options or
warrants to purchase said capital stock, and
-18-
<PAGE>
securities of any type whatsoever that are, or may become, convertible into said
capital stock; provided, however, that "New Securities" does not include (i) the
-------- -------
shares of Stock purchased pursuant to this Agreement or other securities issued
or issuable upon conversion of the Stock ("Conversion Shares"), (ii) securities
offered pursuant to a registration statement filed under the Securities Act of
1933 ("Securities Act"), (iii) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of substantially all of
the assets or other reorganization, (iv) shares offered pursuant to lease
financing transactions or bank or lending institution financing transactions,
and (v) all securities hereafter issued or issuable to officers, directors,
employees or consultants of the Company (for the primary purpose of soliciting
or retaining their employment or services) pursuant to any employee or
consultant stock offering, plan or arrangement approved by the Board of
Directors.
8.3 Notice. In the event the Company proposes to undertake
------
an issuance of New Securities, it shall give to the Investors written notice
(the "Notice") of its intention, describing the type of New Securities, number
of shares, the price, the terms upon which the Company proposes to issue the
same, and notice to the effect that each Investor must respond to such Notice
within thirty (30) days after the date thereof. The Investors shall have thirty
(30) days from the date of such Notice to purchase any or all of the New
Securities for the price and upon the terms specified in the Notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased and forwarding payment for such New Securities to the Company if
immediate payment is required by such terms, or in any event no later than
forty-five (45) days after the date of the Notice.
8.4 Sale after Notice. In the event any Investor fails to
-----------------
exercise in full the right of first refusal within said thirty (30) day period,
the Company shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within thirty (30) days from the date of said agreement) to
sell the New Securities respecting which such Investor's rights were not
exercised, at a price and upon general terms no more favorable to the Investors
thereof than specified in the Notice. In the event the Company has not sold the
New Securities within said ninety (90) day period (or sold and issued New
Securities in accordance with the foregoing within thirty (30) days from the
date of said agreement), the Company shall not thereafter issue or sell any New
Securities without first offering such securities to the Investors in the manner
provided above.
8.5 Expiration. The right of first refusal granted under this
----------
Section 8 shall expire upon the earlier of:
-19-
<PAGE>
(a) The closing of the Company's sale of its Common Stock in a
bona fide, firm commitment underwritten public offering pursuant to a
registration statement declared effective by the Securities and Exchange
Commission under the Securities Act of 1933.; or
(b) The date on which the Company is acquired by another entity by
merger, purchase of substantially all of its assets or other reorganization.
8.6 Assignment. The right of first refusal granted under this
----------
Section 8 is assignable by the Investors to any transferee of a minimum of Fifty
Thousand (50,000) shares of Preferred Stock or the Common Stock into which it
has been converted.
9. Covenants of the Company.
------------------------
9.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
the Investors:
(a) as soon as practicable after the end of each fiscal year of
the Company an income statement for such fiscal year, a balance sheet of the
Company 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
audited and in reasonable detail, prepared in accordance with generally accepted
accounting principles ("GAAP");
(b) as soon as practicable after the end of each month of each
fiscal quarter of the Company an unaudited profit or loss statement and schedule
as to the sources and application of funds for each quarterly reporting period
and an unaudited balance sheet as of the end of such quarter in reasonable
detail;
(c) within ten (10) days of the end of each month, an unaudited
balance sheet as of the end of such month, including a comparison to plan, in
reasonable detail; provided, however, that the Company shall be required to
deliver such documents as required under this Section 9.1(c) only to Investors
(and affiliates of each Investor whose shares shall be aggregated with each such
Investor for purposes of this section), continuing to hold at least 100,000
shares of Series A Preferred Stock or Common Stock of the Company; and
(d) as soon as practicable after the end of each fiscal year of
the Company an annual business plan and budget; provided, however, that the
Company shall be required to deliver such documents as required under this
Section 9.1(d) only to Investors (and affiliates of each Investor whose shares
shall be aggregated with each such Investor for purposes of this section)
-20-
<PAGE>
continuing to hold at least 100,000 shares of Series A Preferred Stock or Common
Stock of the Company.
9.2 Termination of Information Covenant. The covenant set forth in
-----------------------------------
Section 9.1 shall terminate as to the Investors and be of no further force or
effect upon the initial sale of securities pursuant to a registration statement
filed by the Company under the Securities Act in connection with the firm
commitment underwritten offering of its securities to the general public is
consummated.
9.3 Key Man Life Insurance. Within thirty (30) days after the date of
----------------------
the Closing the Company shall obtain key man life insurance in an amount not
less than $2,000,000, with proceeds payable to the Company, on the life of Ashok
Santhanam.
9.4 Board of Directors.
------------------
(a) If upon the Closing, the number of authorized directors of
the Company is three, then as soon as practicable after the Closing, the Company
shall cause to be elected to its Board of Directors (i) one representative
elected by the Investors, and (ii) two representatives elected by the holders of
Common Stock of the Company, at least one of which shall be reasonably
acceptable to the Investors.
(b) If upon the Closing, the number of authorized directors of
the Company is five, then as soon as practicable after the Closing, the Company
shall cause to be elected to its Board of Directors (i) one representative
elected by the Investors, (ii) two representatives elected by the holders of
Common Stock of the Company, at least one of which shall be reasonably
acceptable to the Investors, and (iii) two representatives elected by the
Investors and the holders of Common Stock of the Company voting together as a
single class.
10. Miscellaneous.
-------------
10.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company and the Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
10.2 Transfer; Successors and Assigns. 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. 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, obliga-
-21-
<PAGE>
tions, or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
10.3 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
10.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
10.7 Finder's Fee. Except as elsewhere disclosed in this Agreement,
------------
or in Exhibit C hereto, each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, employees, or
representatives are responsible.
The Company agrees to indemnify and hold harmless the Investor from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
10.8 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 attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
-22-
<PAGE>
10.9 Amendments and Waivers. Other than as provided in Section 7
----------------------
hereof, 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 a majority of the Investors, provided that any term of Section 7 may
be amended and the observance of any term of Section 7 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 then-outstanding Registrable Securities. Any amendment or waiver effected in
accordance with this Section shall be binding upon each transferee of any Stock
or Registrable Securities, each future holder of all such securities, and the
Company.
10.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
10.11 Aggregation of Stock. All shares of Common Stock held or
--------------------
acquired by affiliated entities or person shall be aggregated for the purpose of
determining the availability of any rights under Section 7 of this Agreement.
10.12 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto pertaining to the subject matter hereof,
and any and all other written or oral agreements existing between the parties
hereto are expressly canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INVENTA CORPORATION
By: /s/ Ashok K. Santhanam
--------------------------------
Ashok K. Santhanam,
President
Address: 2620 Augustine Drive, Suite 225
Santa Clara, CA 95054
-23-
<PAGE>
INVESTORS:
/s/ Robert Ducommun /s/ Harry A. Caunter
- --------------------------- ---------------------------
ROBERT DUCOMMUN HARRY A. CAUNTER
/s/ Ramesh Vasudevan /s/ Santhanam C. Shekar
- --------------------------- ---------------------------
RAMESH VASUDEVAN SANTHANAM C. SHEKAR
/s/ Gomati Venkateswaran /s/ Usha Vijayarajan
- --------------------------- ---------------------------
GOMATI VENKATESWARAN USHA VIJAYARAJAN
/s/ Maya S. Hattangady /s/ Andrew Potter
- --------------------------- ---------------------------
MAYA S. HATTANGADY ANDREW POTTER
/s/ Electra D. de Peyster PALMER G. AND CHARLES E.
- --------------------------- DUCOMMUN CHARITABLE ANNUITY
ELECTRA D. de PEYSTER TRUST, u/d/t dated 7/21/83
By: /s/ Robert Ducommun
-----------------------
Title: Trustee
--------------------
-24-
<PAGE>
EXHIBIT A
---------
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Name and Address Shares Amount
---------------------------- -------------- ------------
<S> <C> <C>
Robert Ducommun................................... 60,000 $ 60,000
P. O. Box 1042
Ross, CA 94957
Palmer G. and Charles E. Ducommun Charitable
Annuity Trust, u/d/t 7/21/83..................... 60,000 60,000
P.O. Box 1562
Ross, CA 94957
Attn: Robert Ducommun
Electra D. de Peyster............................. 60,000 60,000
2000 Redwood Hill Court
Santa Rosa, CA 95404
Harry A. Caunter.................................. 25,000 25,000
162 Fincharn Lane
Inverness, IL 60067
Ramesh Vasudevan.................................. 100,000 100,000
10 Tangreen Court #2105
Willowdale, Ontario
CANADA
Santhanam C. Shekar............................... 25,000 25,000
331 Blackfield Drive
Tiburon, CA 94920
Gomati Venkateswaran.............................. 15,000 15,000
A-1 Anand Bhavan
Alacrity Flats
South Bhog Road
T. Nagar Madras 600017
INDIA
Usha Vijayarajan.................................. 25,000 25,000
2/7 12th Cross
Rajmahal Extension
Bangalore 560080
INDIA
Maya S. Hattangady................................ 10,000 10,000
414 E. Lansing Way
Fresno, CA 93704
Andrew Potter..................................... 20,000 20,000
923 Cowper ------- --------
Palo Alto, CA 94301
TOTAL.................... 400,000 $400,000
</TABLE>
-25-
<PAGE>
EXHIBIT 10.2
INVENTA CORPORATION
____________________________
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
____________________________
February 14, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase and Sale of Series B Preferred Stock.................... 1
1.1 Sale and Issuance of Series B Preferred Stock.............. 1
1.2 Closing Date; Delivery..................................... 1
2. Representations and Warranties of the Company.................... 1
2.1 Organization, Good Standing and Qualification.............. 1
2.2 Capitalization............................................. 2
2.3 Subsidiaries............................................... 2
2.4 Authorization.............................................. 2
2.5 Valid Issuance of Securities............................... 2
2.6 Governmental Consents...................................... 2
2.7 Litigation................................................. 3
2.8 Patent and Trademarks...................................... 3
2.9 Compliance with Other Instruments.......................... 4
2.10 Disclosure................................................. 4
2.11 Registration Rights........................................ 4
2.12 Title to Property and Assets............................... 4
2.13 Financial Statements....................................... 5
2.14 Changes.................................................... 5
2.15 Minute Books............................................... 6
2.16 Labor Agreements and Actions............................... 6
2.17 Employee Plans............................................. 7
2.18 Employees.................................................. 7
2.19 Tax Returns and Payments................................... 7
2.20 Agreements; Action......................................... 7
2.21 Obligations to Related Parties............................. 8
2.22 Qualified Small Business................................... 9
2.23 Real Property Holding Corporation.......................... 9
2.24 Insurance.................................................. 9
2.25 Investment Company Act..................................... 9
3. Representations and Warranties of the Investors.................. 9
3.1 Authorization.............................................. 9
3.2 Purchase Entirely for Own Account.......................... 9
3.3 Disclosure of Information.................................. 10
3.4 Economic Risk.............................................. 10
3.5 Restricted Securities...................................... 10
3.6 Further Limitations on Disposition......................... 10
3.7 Legends.................................................... 11
4. California Commissioner of Corporations.......................... 11
4.1 Corporate Securities Law................................... 11
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<S> <C>
5. Conditions of Investor's Obligations at Closing.................. 11
5.1 Representations and Warranties.............................. 11
5.2 Performance................................................. 12
5.3 Articles of Incorporation................................... 12
5.4 Compliance Certificate...................................... 12
5.5 Shareholders Agreement...................................... 12
5.6 Opinion of Company's Counsel................................ 12
6. Conditions of the Company's Obligations at Closing............... 12
6.1 Representations and Warranties.............................. 12
6.2 Payment of Purchase Price................................... 12
6.3 Legal Matters............................................... 12
7. Covenants of the Company......................................... 12
7.1 Delivery of Financial Statements............................ 12
7.2 Inspection Rights........................................... 13
7.3 Reservation of Common Stock................................. 13
7.4 Proprietary Information Agreement........................... 13
7.5 Termination of Information Covenant......................... 13
7.6 Board of Directors.......................................... 13
8. Miscellaneous.................................................... 13
8.1 Survival of Warranties...................................... 13
8.2 Transfer; Successors and Assigns............................ 14
8.3 Governing Law............................................... 14
8.4 Counterparts................................................ 14
8.5 Titles and Subtitles........................................ 14
8.6 Notices..................................................... 14
8.7 Finder's Fee................................................ 14
8.8 Expenses.................................................... 14
8.9 Amendments and Waivers...................................... 14
8.10 Severability................................................ 15
8.11 Entire Agreement............................................ 15
8.12 Exculpation Among Investors................................. 15
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
EXHIBITS
--------
EXHIBIT A Schedule of Investors
EXHIBIT B Amended and Restated Articles of Incorporation
EXHIBIT C Schedule of Exceptions to Representations and Warranties
EXHIBIT D Form of Proprietary Information Agreement
EXHIBIT E Shareholders Agreement
EXHIBIT F Opinion of Wilson Sonsini Goodrich & Rosati
-iii-
<PAGE>
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
THIS SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ("Agreement")
is made as of the 14th day of February 1997 by and between Inventa Corporation,
a California corporation (the "Company"), and the persons and entities listed on
the Schedule of Investors attached hereto as Exhibit A (the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Series B Preferred Stock
---------------------------------------------
1.1 Sale and Issuance of Series B Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of
State of California on or before the Closing (as defined below) the Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit B.
(b) Subject to the terms and conditions of this Agreement,
the Investors agree to purchase at the Closing and the Company agrees to sell
and issue to the Investors at the Closing that number of shares of the Company's
Series B Preferred Stock (the "Shares") for the aggregate purchase price set
forth opposite each Investor's name on Exhibit A attached hereto, at a purchase
price equal to $1.25 per share of Series B Preferred Stock.
1.2 Closing Date; Delivery. The purchase and sale of the Shares
----------------------
shall take place at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page
Mill Road, Palo Alto, California, at 9:00 a.m., on February 14, 1997, or at such
other time and place as the Company and the Investors mutually agree upon,
orally or in writing (which time and place are designated as the "Closing"). At
the Closing, the Company shall deliver to each Investor a certificate
representing the Shares which such Investor is purchasing against delivery to
the Company by such Investor of a check made payable to the Company or wire
transfer of the aggregate purchase price therefor.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investors that, except as set forth on a Schedule
of Exceptions attached hereto as Exhibit C, specifically identifying the
relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
<PAGE>
2.2 Capitalization. The authorized capital of the Company will
--------------
consist, immediately prior to the Closing, of (i) 3,560,000 shares of Preferred
Stock, 1,000,000 shares of which are designated Series A Preferred Stock and of
which 800,000 are issued and outstanding, and 2,560,000 shares of which are
designated Series B Preferred and of which none are issued and outstanding, and
(ii) 20,000,000 shares of Common Stock, of which 4,542,696 shares are issued and
outstanding. The Company has reserved 1,350,000 shares of its Common Stock for
issuance pursuant to its 1993 Stock Option Plan. Except as set forth in the
Schedule of Exceptions attached as Exhibit C hereto, there are no outstanding
options, warrants, rights (including conversion or preemptive rights) or
agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital stock.
2.3 Subsidiaries. Except as set forth in the Schedule of
------------
Exceptions,Company does not presently own or control, directly or indirectly,
any interest in any other corporation, association, or other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the Shares
has been taken or will be taken prior to the Closing, and this Agreement
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms. The Agreement, the Shareholders Agreement and the
Registration Rights Agreement, when executed and delivered, will be valid and
binding obligations of the Company enforceable in accordance with their terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; (ii) general principles of equity that restrict the
availability of equitable remedies; and (iii) to the extent that the
enforceability of the indemnification provisions in Section 10 of the
Registration Rights Agreement may be limited by applicable laws. The sale of the
Shares and the subsequent conversion of the Shares into Common Stock are not and
will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
2.5 Valid Issuance of Securities.
----------------------------
(a) The Shares that are being issued to the Investors
hereunder, when issued, sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable. The shares of Common Stock issuable upon conversion of
the Shares have been duly and validly reserved for issuance.
(b) The shares of Common Stock and Preferred Stock
outstanding prior to the Closing are all duly and validly authorized and issued,
fully paid and nonassessable and were issued in compliance with all applicable
state and federal laws concerning the issuance of securities.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation
-2-
<PAGE>
of the transactions contemplated by this Agreement, except for (a) the filing
pursuant to Section 25102(f) of the California Corporate Securities Law of 1968,
as amended, and the rules thereunder, which filing will be effected in
accordance with such section, and (b) compliance with the Blue Sky Laws of the
various states in which the Investors may reside, which compliance will be
effected in accordance with such laws. The Company currently holds all licenses,
permits, franchises, registrations and qualifications which may be required to
conduct its business, and all such licenses, permits, franchises, registrations
and qualifications are valid and in full force and effect.
2.7 Litigation. Except as set forth in the Schedule of Exceptions,
----------
there is no action, suit, proceeding or investigation pending or currently
threatened against the Company that questions the validity of this Agreement or
the right of the Company to enter into it, or to consummate the transactions
contemplated hereby, or that might result, either individually or in the
aggregate, in any material adverse changes in the assets, condition, affairs or
prospects of the Company, financially or otherwise, or any change in the current
equity ownership of the Company, nor is the Company aware that there is any
basis for the foregoing. The foregoing includes, without limitation, actions
pending or threatened (or any basis therefor known to the Company) involving the
prior employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
2.8 Patent and Trademarks. To its knowledge, the Company owns or
---------------------
possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, information and other proprietary rights
and processes necessary for its business as now conducted and as proposed to be
conducted, without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase or sale of "off the shelf" or
standard products. The Company has not received any communications alleging that
the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any employee is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions, trade secrets or
-3-
<PAGE>
proprietary information of any of its employees made prior to their employment
by the Company, except for inventions, trade secrets or proprietary information
that have been assigned to the Company.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any
provisions of its Amended and Restated Articles of Incorporation or Bylaws or of
any instrument, judgment, order, writ, decree or contract to which it is a party
or by which it is bound or, to its knowledge, of any provision of federal or
state statute, rule or regulation applicable to the Company. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree, contract, rule, or statute, or of the Company's Restated Articles
of Incorporation or Bylaws, or an event which results in the creation of any
lien, charge or encumbrance upon any assets of the Company.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any license, distribution or other agreement.
2.10 Disclosure. The Company has fully provided the Investors with
----------
all the information which the Investors have requested for deciding whether to
acquire the Shares and all information which the Company believes is reasonably
necessary to enable the Investors to make such decision. To the Company's
knowledge, there is no material information which materially adversely affects
the business or operations of the Company which has not been disclosed to the
Investors. Neither this Agreement nor any other statements or certificates made
or delivered in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading, except that, with respect to financial projections,
the Company represents only that such projections were prepared in good faith
and that the Company believes there is a reasonable basis for such projections.
2.12 Registration Rights. Except as set forth in the Registration
-------------------
Rights Agreement between the Company and the holders of the Preferred Stock of
the Company, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.12 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances. All facilities,
machinery, equipment, fixtures, vehicles and other
-4-
<PAGE>
properties owned, leased or used by the Company are in good operating condition
and repair (normal wear and tear accepted) and are reasonably fit and usable for
the purposes for which they are being used.
2.13 Financial Statements. The Company has delivered to the Investor
--------------------
(i) its unaudited financial statements (balance sheet and profit and loss
statement and statement of shareholders equity) at November 30, 1996 and the 11
month period then ended and (ii) its reviewed financial statements (balance
sheet and profit and loss statement and statement of shareholders equity) at
December 31, 1995 and for the fiscal year then ended (collectively, the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated and with each other. The Financial Statements accurately set
out and describe the financial condition and operating results of the Company as
of the dates, and for the periods, indicated therein. Except as set forth in the
Financial Statements, the Company has no liabilities, contingent or otherwise,
of a nature required by generally accepted accounting principles to be reflected
in a balance sheet or disclosed in the notes thereto, other than liabilities
incurred in the ordinary course of business subsequent to November 30, 1996.
2.14 Changes. Since November 30, 1996 there has not been:
-------
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business which
have not been, in the aggregate, materially adverse.
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(e) any change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
to which the Company or any of such assets or properties is subject;
(f) any material change in any compensation arrangement or
agreement with any employee;
-5-
<PAGE>
(g) any resignation or termination of any key officers of
the Company; and the Company, to its knowledge, does not know of the impending
resignation or termination of employment of any such officer;
(h) to the knowledge of the Company any material change,
except in the ordinary course of business, in the contingent obligations of the
Company by way of guaranty, endorsement, indemnity, warranty or otherwise;
(i) any direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business or loans to purchase Common Stock;
(j) any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder other than in the
ordinary course of business;
(k) any declaration or payment of any dividend or other
distribution of the assets of the Company;
(l) any labor organization activity;
(m) any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(n) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets; or
(o) to the Company's knowledge, any other event or condition
of any character which might materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company
(as such business is presently conducted and as it is proposed to be conducted).
2.15 Minute Books. The Company has offered to provide to the
------------
Investors the minute books of the Company, which contain a complete summary of
all meetings of directors and shareholders since the time of incorporation and
reflect all transactions referred to in such minutes accurately in all material
respects.
2.16 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business
-6-
<PAGE>
is presently conducted and as it is proposed to be conducted), nor is the
Company aware of any labor organization activity involving its employees. The
Company is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing. The employment of each officer and employee of the Company is
terminable at the will of the Company.
2.17 Employee Plans. The Company has no "employee welfare benefit
--------------
plans" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA"). The Company (i) has not been required to contribute to, (ii)
has not terminated or withdrawn from, and (iii) is not aware of any withdrawal
liability assessed against the Company with respect to any defined benefit plan
as defined in Section 3(35) of ERISA or multiemployer plan as defined in Section
4001 of ERISA in which employees or former employees of the Company have
participated.
2.18 Employees. The Company has not knowingly violated any
---------
employment-related laws, including, without limitation, laws relating to equal
employment opportunity, overtime pay and collective bargaining. To the Company's
knowledge, no key employee or sales representative of the Company, and no group
of employees, has any plans to terminate his or her employment with the Company.
Each former and current United States employee and consultant of the Company
with access to confidential or proprietary information has executed a
Proprietary Information Agreement, the form of which is attached hereto as
Exhibit D. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation has
occurred.
2.19 Tax Returns and Payments. The Company has timely filed all tax
------------------------
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised except as set forth in the Schedule
of Exceptions (i) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof, or (ii) of any deficiency in assessment
or proposed judgment to its federal, state or other taxes. The Company has no
knowledge of any liability of any tax to be imposed upon its properties or
assets as of the date of this Agreement that is not adequately provided for.
2.20 Agreements; Action.
------------------
(a) Except for agreements explicitly contemplated hereby
including proprietary agreements and agreements between the Company and its
employees with respect to the sale of the Company's Common Stock, and agreements
between the Company and the Holders with
-7-
<PAGE>
respect to their investment, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates
or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 (other than obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the license of any patent, copyright, trade secret
or other proprietary right to or from the Company (other than licenses arising
from the purchase or sale of "off the shelf" or other standard products), or
(iii) provisions restricting or affecting the development, manufacture or
distribution of the Company's products or services, or (iv) indemnification by
the Company with respect to infringements of proprietary rights (other than
indemnification obligations arising from purchase or sale agreements entered
into in the ordinary course of business).
(c) The Company has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money borrowed
or any other liabilities except as set forth in the Schedule of Exceptions
(other than with respect to dividend obligations, distributions, indebtedness
and other obligations incurred in the ordinary course of business or as
disclosed in the Financial Statements) individually in excess of $25,000 or, in
the case of indebtedness and/or liabilities individually less than $25,000, in
excess of $50,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any material amount of its assets or rights,
other than the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company has not engaged in the past three (3) months
in any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company, or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
2.21 Obligations to Related Parties. There are no obligations of the
------------------------------
Company to officers, directors, shareholders or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company and
-8-
<PAGE>
(c) for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock option
plan approved by the Board of Directors of the Company). Except as set forth in
the Schedule of Exceptions none of the officers, directors or shareholders of
the Company, or any members of their immediate families, are indebted to the
Company or have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company, except that officers, directors and/or shareholders of the Company may
own stock in publicly traded companies which may compete with the Company. No
officer, director or shareholder, or any member of their immediate families, is,
directly or indirectly, interested in any material contract with the Company
(other than such contracts as relate to any such person's ownership of capital
stock or other securities of the Company). Except as may be disclosed in the
Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
2.22 Qualified Small Business. The Company represents and warrants
------------------------
to the Investors that, to its knowledge, the Shares should qualify as "Qualified
Small Business Stock" as defined in Section 1202(c) of the Internal Revenue Code
of 1986, as amended (the "Code") as of the date hereof.
22.3 Real Property Holding Corporation. The Company is not a real
---------------------------------
property holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.
22.4 Insurance. The Company has or will obtain promptly following
---------
Closing fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
22.5 Investment Company Act. The Company is not an "investment
----------------------
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
3. Representations and Warranties of the Investors. Each Investor for
-----------------------------------------------
itself hereby represents and warrants to the Company that:
3.1 Authorization. This Agreement constitutes its valid and legally
-------------
binding obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Shares will be acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
By executing this Agreement, the Investor further represents that the Investor
does not presently have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to
-9-
<PAGE>
any third person, with respect to any of the Shares. The Investor represents
that it has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. The Investor believes it has
-------------------------
received information that it considers necessary or appropriate for deciding
whether to acquire the Shares. The Investor further represents that it has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of the Investor to rely thereon.
3.4 Economic Risk. The Investor has the capacity to protect his own
-------------
interests in connection with the purchase of the Shares, is capable of
evaluating the merits and risks of investment in the Company, can make an
informed investment decision by reason of (i) his preexisting personal or
business relationship with the Company or any of its officers, directors, or
control persons, or (ii) his business and financial knowledge and experience or
the business and financial knowledge and experience of my professional advisers,
and is able to bear the substantial economic risks of an investment in the
Shares for an indefinite period of time.
3.5 Restricted Securities. It understands that the shares of Common
---------------------
Stock sold hereunder are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such shares may be resold without registration under the
Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances. In this connection, the Investor represents that he is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.6 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Shares unless and until:
(a) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) The Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, the Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration under the Act.
(c) Notwithstanding the provisions of paragraphs (a) and
(b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by the Investor to a shareholder, partner or other
affiliate of the Investor, if the transferee or transferees agree in writing to
be subject to the terms hereof to the same extent as if they were the Investor
hereunder.
-10-
<PAGE>
3.7 Legends. It is understood that the Shares, and the shares of
-------
Common Stock issuable upon conversion thereof and any securities issued in
respect thereof or exchange therefor may bear one or all of the following
legends:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE CORPORATION.
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations.
(c) Any legend required by the Blue Sky laws of any other
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT
------------------------
IS THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations of
-----------------------------------------------
the Investors under Section 1.1 of this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects as of the Closing.
5.2 Performance. The Company shall have performed and complied
-----------
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
-11-
<PAGE>
5.3 Articles of Incorporation. The Company shall have filed with,
-------------------------
and have had accepted for filing by, the California Secretary of State the
Amended and Restated Articles of Incorporation of the Company attached as
Exhibit B hereto.
5.4 Compliance Certificate. The President of the Company shall
----------------------
deliver to the Investors at the Closing a certificate certifying that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.5 Shareholders Agreement. Each key employee of the Company who
----------------------
holds 100,000 shares of the capital stock of the company (on an as-converted
basis and as adjusted for any stock split, stock dividends, combinations,
recapitulations and the like with respect to such Shares) shall have entered
into a Shareholders Agreement with the Company, in substantially the form
attached hereto as Exhibit E.
5.6 Opinion of Company's Counsel. The Purchasers shall have
----------------------------
received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an
opinion addressed to them, dated the Closing Date, in substantially the form of
Exhibit F.
6. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to the Investors under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions by
the Investor:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investors contained in Section 3 shall be true and correct in
all material respects as of the Closing.
6.2 Payment of Purchase Price. The Investors shall have delivered
-------------------------
to the Company the purchase price specified in Section 1.1 hereof.
6.3 Legal Matters. All material matters of a legal nature which
-------------
pertain to this Agreement, and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Company.
7. Covenants of the Company.
------------------------
7.1 Delivery of Financial Statements. The Company shall deliver
--------------------------------
to each Investor who continues to hold at least 50,000 Shares (or the Common
Stock into which the Shares have been converted) (as adjusted for any stock
split, stock dividends, combinations, recapitalizations and the like with
respect to such Shares), and as long as such Investor or a principal, partner or
manager of such Investor, is not employed by or associated with a competitor of
the Company:
(a) as soon as practicable after the end of each fiscal year
of the Company an income statement for such fiscal year, a balance sheet of the
Company as of the end of such year and in any event within 120 days thereafter,
and a schedule as to the sources and applications of funds for such year, such
year-end financial reports to be audited and in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP");
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<PAGE>
(b) as soon as practicable after the end of each fiscal
quarter of the Company, and in any event within 30 days thereafter, an unaudited
profit or loss statement and schedule as to the sources and application of funds
for each quarterly reporting period; and
(c) within ten (10) days of the end of each month, an
unaudited balance sheet as of the end of such month.
7.2 Inspection Rights. Each Investor shall have the right to visit
-----------------
and inspect any of the properties of the Company or any of its subsidiaries, and
to discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under this
Section 7.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
7.3 Reservation of Common Stock. The Company will at all times
---------------------------
reserve and keep available, solely for issuance and delivery upon the conversion
of the Preferred Stock, all Common Stock issuable from time to time upon such
conversion (the "Conversion Stock").
7.4 Proprietary Information Agreement. The Company shall require
---------------------------------
all employees and consultants to execute and deliver a Proprietary Information
Agreement in the form attached hereto as Exhibit D.
7.5 Termination of Information Covenant. The covenant set forth in
-----------------------------------
Section 7.1 shall terminate as to the Investors and be of no further force or
effect upon the initial sale of securities pursuant to a registration statement
filed by the Company under the Securities Act in connection with the firm
commitment underwritten offering of its securities to the general public is
consummated.
7.6 Board of Directors. As soon as practicable after the Closing,
------------------
the Company shall cause to be elected to its Board of Directors (1)
representative elected by the holders of Series A Preferred Stock, (ii) two
representatives elected by the Investors, and (iii) one representative elected
by the holders of Common Stock of the Company. Any additional directors shall be
elected by all the holders of Common Stock and Preferred Stock, voting as a
single class. The Company shall pay the reasonable out-of-pocket expenses of
non-employee members of the Company's Board of Directors in connection with
attending Board of Directors meeting.
8. Miscellaneous.
-------------
8.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company and the Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
8.2 Transfer; Successors and Assigns. 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.
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<PAGE>
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.
8.3 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
8.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given 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 by ten (10) days' advance written notice to the
other parties.
8.7 Finder's Fee. Except as elsewhere disclosed in this Agreement,
------------
or in Exhibit C hereto, each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, employees, or
representatives are responsible.
The Company agrees to indemnify and hold harmless the Investor from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
8.8 Expenses. 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 attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
8.9 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and a majority-in-
interest of the Investors.
8.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the
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<PAGE>
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
8.11 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto pertaining to the subject matter hereof,
and any and all other written or oral agreements existing between the parties
hereto are expressly canceled.
8.12 Exculpation Among Investors. Each Investor acknowledges that
---------------------------
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each investor agrees that no Investor nor the respective
controlling persons, officers, directors, partners, agents or employees of any
Investor shall be liable for any action heretofore or hereafter taken or omitted
to be taken by any of them in connection with the Shares.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INVENTA CORPORATION
By: /s/ [SIGNATURE ILLEGIBLE]^^
------------------------------------
Title: President
----------------------------------
Address:
2620 Augustine Drive, Suite 225
Santa Clara, CA 95054
INVESTORS:
BATTERY VENTURES ANDREW POTTER
By: /s/ Todd A. Dagres /s/ Andrew Potter
----------------------------------- ------------------------------
Todd A. Dagres
Title: General Partner
--------------------------------
ROBERT DUCOMMUN RAMESH VASUDEVAN
/s/ Robert Ducommun /s/ Ramesh Vasudevan
- -------------------------------------- ------------------------------
PALMER G. AND CHARLES E. DUCOMMUN HARRY A. CAUNTER
CHARITABLE ANNUITY TRUST, u/d/t
By: /s/ Robert Ducommun /s/ Harry A. Caunter
----------------------------------- ------------------------------
Title: Trustee
-------------------------------
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<PAGE>
EXHIBIT A
---------
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Name and Address Shares Amount
- ----------------------------------------------- --------------------------------------- ------------------------------------
<S> <C> <C>
Battery Ventures 2,286,363 $ 2,857,953.75
20 William Street
Welllesley, MA 01282
Robert Ducommun 80,000 $ 100,000.00
1155 Park Ave.
Apt. 1 SW
New York, N.Y. 10128
Palmer G. and Charles E. Ducommun 40,000 $ 50,000.00
Charitable Annuity Trust, u/d/t
Robert Ducommun, trustee
1155 Park Ave.
Apt. 1 SW
New York, N.Y. 10128
Andrew Potter 21,191 $ 26,488.75
923 Cowper
Palo Alto, CA 94301
Ramesh Vasudevan 105,957 $ 132,446.25
5615 Sumac Place
North Vancouver, BC, V7R4T6
Canada
Harry A. Caunter 26,489 $ 33,111.25
675 North Court
Suites 225 & 230
Palatine, IL 60067
TOTAL 2,560,000 $ 3,200,000.00
</TABLE>
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<PAGE>
EXHIBIT 10.3
INVENTA CORPORATION
______________________________
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
______________________________
May 11, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
1. Purchase and Sale of Series C Preferred Stock.......................... 1
1.1 Sale and Issuance of Series C Preferred Stock..................... 1
1.2 Closing Date; Delivery............................................ 1
2. Representations and Warranties of the Company.......................... 1
2.1 Organization, Good Standing and Qualification.................... 1
2.2 Capitalization................................................... 2
2.3 Subsidiaries..................................................... 2
2.4 Authorization.................................................... 2
2.5 Valid Issuance of Securities..................................... 2
2.6 Governmental Consents............................................ 3
2.7 Litigation....................................................... 3
2.8 Patent and Trademarks............................................ 3
2.9 Compliance with Other Instruments................................ 4
2.10 Disclosure....................................................... 4
2.11 Registration Rights.............................................. 4
2.12 Title to Property and Assets..................................... 4
2.13 Financial Statements............................................. 5
2.14 Changes.......................................................... 5
2.15 Minute Books..................................................... 6
2.16 Labor Agreements and Actions..................................... 6
2.17 Employee Plans................................................... 7
2.18 Employees........................................................ 7
2.19 Tax Returns and Payments......................................... 7
2.20 Agreements; Action............................................... 7
2.21 Obligations to Related Parties................................... 9
2.22 Real Property Holding Corporation................................ 9
2.23 Insurance........................................................ 9
2.24 Investment Company Act........................................... 9
2.25 Qualified Small Business......................................... 9
3. Representations and Warranties of the Investors........................ 9
3.1 Authorization.................................................... 9
3.2 Purchase Entirely for Own Account................................ 9
3.3 Disclosure of Information........................................ 10
3.4 Economic Risk.................................................... 10
3.5 Restricted Securities............................................ 10
3.6 Further Limitations on Disposition............................... 10
3.7 Legends.......................................................... 11
4. California Commissioner of Corporations................................ 11
4.1 Corporate Securities Law......................................... 11
</TABLE>
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<TABLE>
<S> <C>
5. Conditions of Investor's Obligations at Closing........................ 12
5.1 Representations and Warranties................................... 12
5.2 Performance...................................................... 12
5.3 Articles of Incorporation........................................ 12
5.4 Compliance Certificate........................................... 12
5.5 Restated Shareholders Agreement.................................. 12
5.6 Restated Registration Rights Agreement........................... 12
5.7 Employment Agreement............................................. 12
5.8 Opinion of Company's Counsel..................................... 12
5.9 Legal Expenses................................................... 12
5.10 Management Rights Agreement...................................... 13
6. Conditions of the Company's Obligations at Closing..................... 13
6.1 Representations and Warranties................................... 13
6.2 Payment of Purchase Price........................................ 13
6.3 Legal Matters.................................................... 13
7. Covenants of the Company............................................... 13
7.1 Delivery of Financial Statements................................. 13
7.2 Inspection Rights................................................ 14
7.3 Reservation of Common Stock...................................... 14
7.4 Proprietary Information Agreement................................ 14
7.5 Termination of Information Covenant.............................. 14
7.6 Key Man Life Insurance........................................... 14
7.7 Chief Executive Officer Recruitment.............................. 14
8. Miscellaneous.......................................................... 14
8.1 Transfer; Successors and Assigns.................................. 14
8.2 Governing Law..................................................... 14
8.3 Counterparts...................................................... 15
8.4 Titles and Subtitles.............................................. 15
8.5 Notices........................................................... 15
8.6 Finder's Fee...................................................... 15
8.7 Expenses.......................................................... 15
8.8 Amendments and Waivers............................................ 15
8.9 Severability...................................................... 15
8.10 Entire Agreement................................................. 15
8.11 Exculpation Among Investors...................................... 16
</TABLE>
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<PAGE>
EXHIBITS
--------
EXHIBIT A Schedule of Investors
EXHIBIT B Amended and Restated Articles of Incorporation
EXHIBIT C Schedule of Exceptions to Representations and Warranties
EXHIBIT D Form of Proprietary Information Agreement
EXHIBIT E Restated Shareholders Agreement
EXHIBIT F Restated Registration Rights Agreement
EXHIBIT G Opinion of Wilson Sonsini Goodrich & Rosati
EXHIBIT H Management Rights Agreement
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<PAGE>
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
THIS SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ("Agreement")
is made as of the 11th day of May 1998 by and between Inventa Corporation, a
California corporation (the "Company"), and the persons and entities listed on
the Schedule of Investors attached hereto as Exhibit A (the "Investors").
---------
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Series C Preferred Stock
---------------------------------------------
1.1 Sale and Issuance of Series C Preferred Stock
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of California on or before the Closing (as defined below) the Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit B.
---------
(b) Subject to the terms and conditions of this Agreement, the
Investors agree to purchase at the Closing and the Company agrees to sell and
issue to the Investors at the Closing that number of shares of the Company's
Series C Preferred Stock (the "Shares") for the aggregate purchase price set
forth opposite each Investor's name on Exhibit A attached hereto, at a purchase
---------
price equal to $1.25 per share of Series C Preferred Stock.
1.2 Closing Date; Delivery. The purchase and sale of the Shares shall
----------------------
take place at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill
Road, Palo Alto, California, at 9:00 a.m., on May 11, 1998, or at such other
time and place as the Company and the Investors mutually agree upon, orally or
in writing (which time and place are designated as the "Closing"). At the
Closing, the Company shall deliver to each Investor a certificate representing
the Shares which such Investor is purchasing against delivery to the Company by
such Investor of a check made payable to the Company or wire transfer of the
aggregate purchase price therefor.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investors that, except as set forth on a Schedule
of Exceptions attached hereto as Exhibit C, specifically identifying the
---------
relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1. Organization, Good Standing and Qualification . The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.
<PAGE>
2.2 Capitalization. The authorized capital of the Company will
--------------
consist, immediately prior to the Closing, of (i) 8,119,511 shares of Preferred
Stock, 1,000,000 shares of which are designated Series A Preferred Stock and of
which 800,000 are issued and outstanding, 2,560,000 shares of which are
designated Series B Preferred Stock and of which 2,560,000 are issued and
outstanding, and 4,059,511 shares of which are designated Series C Preferred
Stock of which none are issued and outstanding, and (ii) 25,000,000 shares of
Common Stock, of which 4,642,344 shares are issued and outstanding. The Company
has reserved 1,350,000 shares of its Common Stock for issuance pursuant to its
1993 Stock Option Plan. Except as set forth in the Schedule of Exceptions
attached as Exhibit C hereto, there are no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements, orally or in writing,
for the purchase or acquisition from the Company of any shares of its capital
stock.
2.3 Subsidiaries. Except as set forth in the Schedule of Exceptions,
------------
the Company does not presently own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the Shares
has been taken or will be taken prior to the Closing, and this Agreement
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms. The Agreement, the Restated Shareholders Agreement
attached hereto as Exhibit E (the "Restated Shareholders Agreement") and the
---------
Restated Registration Rights Agreement attached hereto as Exhibit F (the
---------
"Restated Registration Rights Agreement"), when executed and delivered, will be
valid and binding obligations of the Company enforceable in accordance with
their terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (ii) general principles of equity that
restrict the availability of equitable remedies; and (iii) to the extent that
the enforceability of the indemnification provisions in Section 10 of the
Restated Registration Rights Agreement may be limited by applicable laws. The
sale of the Shares and the subsequent conversion of the Shares into Common Stock
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
2.5 Valid Issuance of Securities.
----------------------------
(a) The Shares that are being issued to the Investors hereunder,
when issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable. The shares of Common Stock issuable upon conversion of the Shares
have been duly and validly reserved for issuance.
(b) The shares of Common Stock and Preferred Stock outstanding
prior to the Closing are all duly and validly authorized and issued, fully paid
and nonassessable and were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
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<PAGE>
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for (a) the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, which filing will be effected in accordance with such section,
and (b) compliance with the Blue Sky Laws of the various states in which the
Investors may reside, which compliance will be effected in accordance with such
laws. The Company currently holds all licenses, permits, franchises,
registrations and qualifications which may be required to conduct its business,
and all such licenses, permits, franchises, registrations and qualifications are
valid and in full force and effect.
2.7 Litigation. Except as set forth in the Schedule of Exceptions,
----------
there is no action, suit, proceeding or investigation pending or currently
threatened against the Company that questions the validity of this Agreement or
the right of the Company to enter into it, or to consummate the transactions
contemplated hereby, or that might result, either individually or in the
aggregate, in any material adverse changes in the assets, condition, affairs or
prospects of the Company, financially or otherwise, or any change in the current
equity ownership of the Company, nor is the Company aware that there is any
basis for the foregoing. The foregoing includes, without limitation, actions
pending or threatened (or any basis therefor known to the Company) involving the
prior employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
2.8 Patent and Trademarks. To its knowledge, the Company owns or
---------------------
possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, information and other proprietary rights
and processes necessary for its business as now conducted and as proposed to be
conducted, without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase or sale of "off the shelf" or
standard products. The Company has not received any communications alleging that
the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor
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<PAGE>
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions, trade
secrets or proprietary information of any of its employees made prior to their
employment by the Company, except for inventions, trade secrets or proprietary
information that have been assigned to the Company.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any provisions
of its Amended and Restated Articles of Incorporation or Bylaws or of any
instrument, judgment, order, writ, decree or contract to which it is a party or
by which it is bound or, to its knowledge, of any provision of federal or state
statute, rule or regulation applicable to the Company. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree,
contract, rule, or statute, or of the Company's Restated Articles of
Incorporation or Bylaws, or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any license, distribution or other agreement.
2.10 Disclosure. The Company has fully provided the Investors with
----------
all the information which the Investors have requested for deciding whether to
acquire the Shares and all information which the Company believes is reasonably
necessary to enable the Investors to make such decision. There is no information
known to the Company which materially adversely affects the business or
operations of the Company which has not been disclosed to the Investors. Neither
this Agreement nor any other statements or certificates made or delivered in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein not
misleading, except that, with respect to financial projections, the Company
represents only that such projections were prepared in good faith and that the
Company believes there is a reasonable basis for such projections.
2.11 Registration Rights. Except as set forth in the Restated
-------------------
Registration Rights Agreement, the Company has not granted or agreed to grant
any registration rights, including piggyback rights, to any person or entity.
2.12 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens
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<PAGE>
which arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such property or assets. With respect to the
property and assets it leases, the Company is in compliance with such leases
and, to the best of its knowledge, holds a valid leasehold interest free of any
liens, claims or encumbrances. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair (normal wear and tear accepted) and are
reasonably fit and usable for the purposes for which they are being used.
2.13 Financial Statements. The Company has delivered to the Investors
--------------------
its unaudited financial statements (balance sheet and profit and loss statement
and statement of shareholders equity) at December 31, 1997 and for the fiscal
year then ended and a balance sheet and statement of operations at March 31,
1998 (collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other. The Financial
Statements accurately set out and describe the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein.
Except as set forth in the Financial Statements, the Company has no liabilities,
contingent or otherwise, of a nature required by generally accepted accounting
principles to be reflected in a balance sheet or disclosed in the notes thereto,
other than liabilities incurred in the ordinary course of business subsequent to
March 31, 1998
2.14 Changes. Since March 31, 1998, there has not been:
-------
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business which have not
been, in the aggregate, materially adverse.
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(e) any change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
to which the Company or any of such assets or properties is subject;
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<PAGE>
(f) any resignation or termination of any key officers of the
Company; and the Company, to its knowledge, does not know of the impending
resignation or termination of employment of any such officer;
(g) to the knowledge of the Company any material change, except
in the ordinary course of business, in the contingent obligations of the Company
by way of guaranty, endorsement, indemnity, warranty or otherwise;
(h) any direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business or loans to purchase Common Stock;
(i) any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder other than in the
ordinary course of business;
(j) any declaration or payment of any dividend or other
distribution of the assets of the Company;
(k) any labor organization activity;
(l) any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(m) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets; or
(n) to the Company's knowledge, any other event or condition of
any character which might materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company
(as such business is presently conducted and as it is proposed to be conducted).
2.15 Minute Books. The Company has offered to provide to the
------------
Investors the minute books of the Company, which contain a complete summary of
all meetings of directors and shareholders since the time of incorporation and
reflect all transactions referred to in such minutes accurately in all material
respects.
2.16 Labor Agreements and Actions . The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the
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<PAGE>
assets, properties, financial condition, operating results, or business of the
Company (as such business is presently conducted and as it is proposed to be
conducted), nor is the Company aware of any labor organization activity
involving its employees.
2.17 Employee Plans. The Company has no "employee welfare benefit
--------------
plans" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA"). The Company (i) has not been required to contribute to, (ii)
has not terminated or withdrawn from, and (iii) is not aware of any withdrawal
liability assessed against the Company with respect to any defined benefit plan
as defined in Section 3(35) of ERISA or multiemployer plan as defined in Section
4001 of ERISA in which employees or former employees of the Company have
participated.
2.18 Employees. The Company has not knowingly violated any
---------
employment-related laws, including, without limitation, laws relating to equal
employment opportunity, overtime pay and collective bargaining. The Company is
not aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
Except as set forth in the Schedule of Exceptions, the employment of each
officer and employee of the Company is terminable at the will of the Company.
Each former and current United States employee and consultant of the Company
with access to confidential or proprietary information has executed a
Proprietary Information Agreement, the form of which is attached hereto as
Exhibit D. To the Company's knowledge, no employee of the Company, nor any
- ---------
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation has
occurred. The Company's relations with its employees is good.
2.19 Tax Returns and Payments. The Company has timely filed all tax
------------------------
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised except as set forth in the Schedule
of Exceptions (i) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof, or (ii) of any deficiency in assessment
or proposed judgment to its federal, state or other taxes. The Company has no
knowledge of any liability of any tax to be imposed upon its properties or
assets as of the date of this Agreement that is not adequately provided for.
2.20 Agreements; Action.
------------------
(a) Except for agreements explicitly contemplated hereby
including proprietary agreements and agreements between the Company and its
employees with respect to the
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<PAGE>
sale of the Company's Common Stock, and agreements between the Company and the
Investors with respect to their investment, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 (other than obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the license of any patent, copyright, trade secret
or other proprietary right to or from the Company (other than licenses arising
from the purchase or sale of "off the shelf" or other standard products), or
(iii) provisions restricting or affecting the development, manufacture or
distribution of the Company's products or services, or (iv) indemnification by
the Company with respect to infringements of proprietary rights (other than
indemnification obligations arising from purchase or sale agreements entered
into in the ordinary course of business).
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities except as set forth in the Schedule of Exceptions (other than
with respect to dividend obligations, distributions, indebtedness and other
obligations incurred in the ordinary course of business or as disclosed in the
Financial Statements) individually in excess of $25,000 or, in the case of
indebtedness and/or liabilities individually less than $25,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any material amount of its assets or rights, other than the sale of
its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) Except as set forth in the Schedule of Exceptions, the
Company has not engaged in the past three (3) months in any material discussion
(i) with any representative of any corporation or corporations regarding the
consolidation or merger of the Company with or into any such corporation or
corporations, (ii) with any corporation, partnership, association or other
business entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of the Company, or a transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of, or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company.
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<PAGE>
2.21 Obligations to Related Parties. There are no obligations of the
------------------------------
Company to officers, directors, shareholders or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company and (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company). Except as set forth in the Schedule of Exceptions
none of the officers, directors or shareholders of the Company, or any members
of their immediate families, are indebted to the Company or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, except that officers, directors
and/or shareholders of the Company may own stock in publicly traded companies
which may compete with the Company. No officer, director or shareholder, or any
member of their immediate families, is, directly or indirectly, interested in
any material contract with the Company (other than such contracts as relate to
any such person's ownership of capital stock or other securities of the
Company). Except as may be disclosed in the Financial Statements, the Company
is not a guarantor or indemnitor of any indebtedness of any other person, firm
or corporation.
2.22 Real Property Holding Corporation. The Company is not a real
---------------------------------
property holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.
2.23 Insurance. The Company has or will obtain promptly following
---------
Closing fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
2.24 Investment Company Act. The Company is not an "investment
----------------------
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
2.25 Qualified Small Business. The Company represents and warrants to
------------------------
the Investors that, to its knowledge, the Shares should qualify as "Qualified
Small Business Stock" as defined in Section 1202(c) of the Internal Revenue Code
of 1986, as amended (the "Code") as of the date hereof.
3. Representations and Warranties of the Investors. Each Investor for
-----------------------------------------------
itself hereby represents and warrants to the Company that:
3.1 Authorization. This Agreement constitutes its valid and legally
-------------
binding obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Shares will be acquired for
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<PAGE>
investment for the Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that the
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Investor
further represents that the Investor does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Shares. The Investor represents that it has full power and authority to enter
into this Agreement.
3.3 Disclosure of Information. The Investor believes it has
-------------------------
received information that it considers necessary or appropriate for deciding
whether to acquire the Shares. The Investor further represents that it has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of the Investor to rely thereon.
3.4 Economic Risk. The Investor has the capacity to protect his own
-------------
interests in connection with the purchase of the Shares, is capable of
evaluating the merits and risks of investment in the Company, can make an
informed investment decision by reason of (i) his preexisting personal or
business relationship with the Company or any of its officers, directors, or
control persons, or (ii) his business and financial knowledge and experience or
the business and financial knowledge and experience of my professional advisers,
if any, and is able to bear the substantial economic risks of an investment in
the Shares for an indefinite period of time.
3.5 Restricted Securities. It understands that the shares of Common
---------------------
Stock sold hereunder are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such shares may be resold without registration under the
Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances. In this connection, the Investor represents that he is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.6 Further Limitations on Disposition. Without in any way
----------------------------------
limiting the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Shares unless and until:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) The Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, the Investor
-10-
<PAGE>
shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
under the Act.
(c) Notwithstanding the provisions of paragraphs (a) and (b
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by the Investor to a shareholder, partner or other affiliate of
the Investor, if the transferee or transferees agree in writing to be subject to
the terms hereof to the same extent as if they were the Investor hereunder.
3.7 Legends. It is understood that the Shares, and the shares of
-------
Common Stock issuable upon conversion thereof and any securities issued in
respect thereof or exchanged therefor may bear one or all of the following
legends:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE CORPORATION.
(b) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations.
(c) Any legend required by the Blue Sky laws of any other state
to the extent such laws are applicable to the shares represented by the
certificate so legended:
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT IS THE
-------------------------
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
-11-
<PAGE>
5. Conditions of Investor's Obligations at Closing. The obligations of
-----------------------------------------------
the Investors under Section 1.1 of this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects as of the Closing.
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 Articles of Incorporation. The Company shall have filed with,
-------------------------
and have had accepted for filing by, the California Secretary of State the
Amended and Restated Articles of Incorporation of the Company attached as
Exhibit B hereto.
- ---------
5.4 Compliance Certificate. The President of the Company shall
----------------------
deliver to the Investors at the Closing a certificate certifying that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled.
5.5 Restated Shareholders Agreement. Each key employee of the
-------------------------------
Company who holds at least 100,000 shares of the capital stock of the Company
(on an as-converted basis and as adjusted for any stock split, stock dividends,
combinations, recapitalization and the like with respect to such shares) shall
have entered into a Restated Shareholders Agreement with the Company, in
substantially the form attached hereto as Exhibit E.
---------
5.6 Restated Registration Rights Agreement. The Company shall
--------------------------------------
deliver to the Investors at the Closing copies of the Restated Registration
Rights Agreement executed by the necessary majority of the signatories thereto.
5.7 Employment Agreement. The Company shall at or prior to the
--------------------
Closing enter into an employment agreement with Ashok Santhanam mutually
acceptable to the Company, Mr. Santhanam and the Investors.
5.8 Opinion of Company's Counsel. The Purchasers shall have received
----------------------------
from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an opinion
addressed to them, dated the Closing Date, in substantially the form of Exhibit
-------
G.
- -
5.9 Legal Expenses. The Company shall pay the legal expenses of the
--------------
Investors in connection with the Series C Preferred Stock financing in an
aggregate amount not to exceed $15,000.
-12-
<PAGE>
5.10 Management Rights Agreement. The Company shall deliver to the
---------------------------
Technology Crossover Ventures entities executed copies of the Management Rights
Agreement attached hereto as Exhibit H.
---------
6. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to the Investors under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions by
the Investors:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investors contained in Section 3 shall be true and correct in
all material respects as of the Closing.
6.2 Payment of Purchase Price. The Investors shall have delivered
-------------------------
to the Company the purchase price specified in Section 1.1 hereof.
6.3 Legal Matters. All material matters of a legal nature which
-------------
pertain to this Agreement, and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Company.
7. Covenants of the Company.
------------------------
7.1 Delivery of Financial Statements. The Company shall deliver the
--------------------------------
following financial information to each Investor who continues to hold at least
50,000 Shares (or the Common Stock into which the Shares have been converted)
(as adjusted for any stock split, stock dividends, combinations,
recapitalizations and the like with respect to such Shares)(for purposes of
satisfying the 50,000 share threshold herein, shares owned by partners,
subsidiaries, parents, shareholders or affiliates will be aggregated; provided,
however, that the Company shall only be required to deliver financial
information to one representative of each group of affiliated persons or
entities), and as long as such Investor or a principal, partner or manager of
such Investor, is not employed by or associated with a competitor of the
Company:
(a) as soon as practicable after the end of each fiscal year of
the Company an income statement for such fiscal year, a balance sheet of the
Company as of the end of such year and in any event within 120 days thereafter,
and a schedule as to the sources and applications of funds for such year, such
year-end financial reports to be audited by a "Big Six" accounting firm and in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP");
(b) prior to the commencement of each fiscal year of the
Company, an operating budget and updated three year strategic plan; and
(c) within thirty (30) days of the end of each month, an
unaudited balance sheet and statement of operations as of the end of such month.
-13-
<PAGE>
7.2 Inspection Rights. Each Investor shall have the right to visit
-----------------
and inspect any of the properties of the Company or any of its subsidiaries, and
to discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under this
Section 7.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
7.3 Reservation of Common Stock. The Company will at all times
---------------------------
reserve and keep available, solely for issuance and delivery upon the conversion
of the Preferred Stock, all Common Stock issuable from time to time upon such
conversion (the "Conversion Stock").
7.4 Proprietary Information Agreement. The Company shall require
---------------------------------
all employees and consultants to execute and deliver a Proprietary Information
Agreement in the form attached hereto as Exhibit D.
---------
7.5 Termination of Information Covenant. The covenant set forth in
-----------------------------------
Section 7.1 shall terminate as to the Investors and be of no further force or
effect at such time as the initial sale of securities pursuant to a registration
statement filed by the Company under the Securities Act in connection with the
firm commitment underwritten offering of its securities to the general public is
consummated.
7.6 Key Man Life Insurance. The Company shall obtain and maintain a
----------------------
key man life insurance policy for $1,000,000 with respect to the Chief Executive
Officer of the Company with proceeds payable to the Company.
7.7 Chief Executive Officer Recruitment. The Company shall, within
-----------------------------------
six months from the date of Closing, engage an executive recruitment firm which
shall conduct a search for a Chief Executive Officer acceptable to the Board of
Directors of the Company.
8. Miscellaneous.
-------------
8.1 Transfer; Successors and Assigns. 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. 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.
8.2 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.
-14-
<PAGE>
8.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified 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 or
addresses indicated for such party on Exhibit A hereto, or at such other address
---------
or addresses as such party may designate by ten (10) days' advance written
notice to the other parties.
8.6 Finder's Fee. Except as elsewhere disclosed in this Agreement,
------------
or in Exhibit C hereto, each party represents that it neither is nor will be
---------
obligated for any finder's fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, employees, or
representatives are responsible.
The Company agrees to indemnify and hold harmless the Investor from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
8.7 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 attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
8.8 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 a majority-in-
interest of the Investors.
8.9 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.
8.10 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto pertaining to the subject matter hereof,
and any and all other written or oral agreements existing between the parties
hereto are expressly canceled.
-15-
<PAGE>
8.11 Exculpation Among Investors. Each Investor acknowledges that it
---------------------------
is not relying upon any person, firm or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each investor agrees that no Investor nor the respective
controlling persons, officers, directors, partners, agents or employees of any
Investor shall be liable for any action heretofore or hereafter taken or omitted
to be taken by any of them in connection with the Shares.
(Remainder of page left intentionally blank)
-16-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INVENTA CORPORATION
By: /s/ Ashok K. Santhanam
------------------------------
Ashok K. Santhanam, President
Address:
2620 Augustine Drive, Suite 225
Santa Clara, CA 95054
INVESTORS:
Battery Ventures L.P.
By: /s/ Todd A. Dagres
------------------------------
Name: Todd A. Dagres
Title: General Partner
BOSTON MILLENNIA PARTNERS
LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership,
its General Partner
By: /s/ Martin J. Hernon
------------------------------
General Partner
/s/ Stephen T. Barry
- -----------------------------------
Stephen T. Barry
/s/ A. Dana Callow, Jr.
- -----------------------------------
A. Dana Callow, Jr.
/s/ Christian Dubiel
- -----------------------------------
Christian Dubiel
<PAGE>
/s/ Martin J. Hernon
- ----------------------------------
Martin J. Hernon
/s/ Robert W. Jevon
- ----------------------------------
Robert W. Jevon
/s/ Frank P. Pinto
- ----------------------------------
Frank P. Pinto
/s/ Suresh Shanmugham
- ----------------------------------
Suresh Shanmugham
/s/ Bruce R. Tiedemann
- ----------------------------------
Bruce R. Tiedemann
/s/ Harry A. Caunter
- ----------------------------------
Harry A. Caunter
/s/ Maya S. Hattangady
- ----------------------------------
Maya S. Caunter
/s/ Santhanam C. Shekar
- ----------------------------------
Santhanam C. Shekar
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:_______________________________
Name: Robert C. Bensky
Title: Chief Financial Officer
-18
<PAGE>
TCV II Strategic Partners, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:/s/ Robert C. Bensky
- ----------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II, L.L.C.,
Its: Investment General Partner
By:/s/ Robert C. Bensky
- ----------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Technology Crossover Ventures II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: Investment General Partner
By:/s/ Robert C. Bensky
- ----------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Technology Crossover Ventures II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:/s/ Robert C. Bensky
- ----------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
-19-
<PAGE>
EXHIBIT 10.4
INVENTA CORPORATION
______________________________
SERIES D CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
______________________________
January 19, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase and Sale of Series D Preferred Stock........................... 1
1.1 Sale and Issuance of Series D Preferred Stock...................... 1
1.2 Closing Date; Delivery............................................. 1
2. Representations and Warranties of the Company........................... 1
2.1 Organization, Good Standing and Qualification..................... 1
2.2 Capitalization.................................................... 2
2.3 Subsidiaries...................................................... 2
2.4 Authorization..................................................... 2
2.5 Valid Issuance of Securities...................................... 2
2.6 Governmental Consents............................................. 3
2.7 Litigation........................................................ 3
2.8 Patent and Trademarks............................................. 3
2.9 Compliance with Other Instruments................................. 4
2.10 Disclosure........................................................ 4
2.11 Registration Rights............................................... 4
2.12 Title to Property and Assets...................................... 4
2.13 Financial Statements.............................................. 5
2.14 Changes........................................................... 5
2.15 Minute Books...................................................... 6
2.16 Labor Agreements and Actions...................................... 6
2.17 Employee Plans.................................................... 6
2.18 Employees......................................................... 7
2.19 Tax Returns and Payments.......................................... 7
2.20 Agreements; Action................................................ 7
2.21 Obligations to Related Parties.................................... 8
2.22 Real Property Holding Corporation................................. 9
2.23 Insurance......................................................... 9
2.24 Investment Company Act............................................ 9
2.25 Qualified Small Business.......................................... 9
2.26 Offering of Shares................................................ 9
3. Representations and Warranties of the Investors......................... 9
3.1 Authorization...................................................... 9
3.2 Purchase Entirely for Own Account.................................. 9
3.3 Disclosure of Information.......................................... 10
3.4 Economic Risk...................................................... 10
3.5 Restricted Securities.............................................. 10
3.6 Further Limitations on Disposition................................. 10
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.7 Legends............................................................ 11
4. California Commissioner of Corporations................................. 11
4.1 Corporate Securities Law........................................... 11
5. Conditions of Investor's Obligations at Closing......................... 11
5.1 Representations and Warranties..................................... 12
5.2 Performance........................................................ 12
5.3 Articles of Incorporation.......................................... 12
5.4 Compliance Certificate............................................. 12
5.5 Shareholders Agreement............................................. 12
5.6 Registration Rights Agreement...................................... 12
5.7 Opinion of Company's Counsel....................................... 12
6. Conditions of the Company's Obligations at Closing...................... 12
6.1 Representations and Warranties..................................... 12
6.2 Payment of Purchase Price.......................................... 12
6.3 Legal Matters...................................................... 12
7. Covenants of the Company................................................ 12
7.1 Delivery of Financial Statements................................... 12
7.2 Inspection Rights.................................................. 13
7.3 Reservation of Common Stock........................................ 13
7.4 Proprietary Information Agreement.................................. 13
7.5 Termination of Information Covenant................................ 13
7.6 Key Man Life Insurance............................................. 14
7.7 Qualified Small Business Stock..................................... 14
7.8 Legal Expenses..................................................... 14
8. Miscellaneous........................................................... 14
8.1 Transfer; Successors and Assigns.................................. 14
8.2 Governing Law..................................................... 14
8.3 Counterparts...................................................... 14
8.4 Titles and Subtitles.............................................. 14
8.5 Notices........................................................... 14
8.6 Finder's Fee...................................................... 15
8.7 Expenses.......................................................... 15
8.8 Amendments and Waivers............................................ 15
8.9 Severability...................................................... 15
8.10 Entire Agreement.................................................. 15
8.11 Exculpation Among Investors....................................... 15
</TABLE>
-ii-
<PAGE>
EXHIBITS
--------
EXHIBIT A Schedule of Investors
EXHIBIT B Amended and Restated Articles of Incorporation
EXHIBIT C Schedule of Exceptions to Representations and Warranties
EXHIBIT D Form of Proprietary Information Agreement
EXHIBIT E Amended and Restated Shareholders Agreement
EXHIBIT F Amended and Restated Registration Rights Agreement
EXHIBIT G Opinion of Wilson Sonsini Goodrich & Rosati
-iii-
<PAGE>
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ("Agreement")
is made as of the 19th day of January, 2000 by and between Inventa Corporation,
a California corporation (the "Company"), and the persons and entities listed on
the Schedule of Investors attached hereto as Exhibit A (the "Investors").
---------
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Series D Preferred Stock.
---------------------------------------------
1.1 Sale and Issuance of Series D Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of California on or before the Closing (as defined below) the Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit B.
---------
(b) Subject to the terms and conditions of this Agreement, the
Investors agree to purchase at the Closing and the Company agrees to sell and
issue to the Investors at the Closing that number of shares of the Company's
Series D Preferred Stock (the "Shares") for the aggregate purchase price set
forth opposite each Investor's name on Exhibit A attached hereto, at a purchase
---------
price equal to $7.41 per share of Series D Preferred Stock.
1.2 Closing Date; Delivery. The purchase and sale of the Shares shall
----------------------
take place at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill
Road, Palo Alto, California, at 9:00 a.m., on January ___, 2000, or at such
other time and place as the Company and the Investors mutually agree upon,
orally or in writing (which time and place are designated as the "Closing"). At
the Closing, the Company shall deliver to each Investor a certificate
representing the Shares which such Investor is purchasing against delivery to
the Company by such Investor of a check made payable to the Company or wire
transfer of the aggregate purchase price therefor.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investors that, except as set forth on a Schedule
of Exceptions attached hereto as Exhibit C, specifically identifying the
---------
relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
<PAGE>
2.2 Capitalization. The authorized capital of the Company will
--------------
consist, immediately prior to the Closing, of (i) 14,479,511 shares of Preferred
Stock, 1,000,000 shares of which are designated Series A Preferred Stock and of
which 800,000 are issued and outstanding, 2,560,000 shares of which are
designated Series B Preferred Stock and of which 2,560,000 are issued and
outstanding, 8,219,511 shares of which are designated Series C Preferred Stock
of which 8,055,511 are issued and outstanding, and 3,000,000 shares of which are
designated Series D Preferred Stock, none of which are issued and outstanding,
and (ii) 25,000,000 shares of Common Stock, of which 4,713,055 shares are issued
and outstanding. The Company has reserved 5,355,000 shares of its Common Stock
for issuance pursuant to its 1993 Stock Option Plan. Except as set forth in the
Schedule of Exceptions attached as Exhibit C hereto, there are no outstanding
---------
options, warrants, rights (including conversion or preemptive rights) or
agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital stock.
2.3 Subsidiaries. Except as set forth in the Schedule of Exceptions,
------------
the Company does not presently own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the Shares
has been taken or will be taken prior to the Closing, and this Agreement
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms. The Agreement, the Amended and Restated
Shareholders Agreement attached hereto as Exhibit E (the "Shareholders
---------
Agreement") and the Amended and Restated Registration Rights Agreement attached
hereto as Exhibit F (the "Registration Rights Agreement"), when executed and
---------
delivered, will be valid and binding obligations of the Company enforceable in
accordance with their terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; (ii) general principles of equity
that restrict the availability of equitable remedies; and (iii) to the extent
that the enforceability of the indemnification provisions in Section 10 of the
Registration Rights Agreement may be limited by applicable laws. The sale of the
Shares and the subsequent conversion of the Shares into Common Stock are not and
will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
2.5 Valid Issuance of Securities.
----------------------------
(a) The Shares that are being issued to the Investors hereunder,
when issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable. The shares of Common Stock issuable upon conversion of the Shares
have been duly and validly reserved for issuance.
(b) The shares of Common Stock and Preferred Stock outstanding
prior to the Closing are all duly and validly authorized and issued, fully paid
and nonassessable and were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
-2-
<PAGE>
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for (a) the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, which filing will be effected in accordance with such section,
and (b) compliance with the Blue Sky Laws of the various states in which the
Investors may reside, which compliance will be effected in accordance with such
laws. The Company currently holds all licenses, permits, franchises,
registrations and qualifications which may be required to conduct its business,
and all such licenses, permits, franchises, registrations and qualifications are
valid and in full force and effect.
2.7 Litigation. Except as set forth in the Schedule of Exceptions,
----------
there is no action, suit, proceeding or investigation pending or currently
threatened against the Company that questions the validity of this Agreement or
the right of the Company to enter into it, or to consummate the transactions
contemplated hereby, or that might result, either individually or in the
aggregate, in any material adverse changes in the assets, condition, affairs or
prospects of the Company, financially or otherwise, or any change in the current
equity ownership of the Company, nor is the Company aware that there is any
basis for the foregoing. The foregoing includes, without limitation, actions
pending or threatened (or any basis therefor known to the Company) involving the
prior employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
2.8 Patent and Trademarks. To its knowledge, the Company owns or
---------------------
possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, information and other proprietary rights
and processes necessary for its business as now conducted and as proposed to be
conducted, without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase or sale of "off the shelf" or
standard products. The Company has not received any communications alleging that
the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the
-3-
<PAGE>
Company, nor the conduct of the Company's business as proposed, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions, trade
secrets or proprietary information of any of its employees made prior to their
employment by the Company, except for inventions, trade secrets or proprietary
information that have been assigned to the Company.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any provisions
of its Restated Articles of Incorporation or Bylaws or of any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound or, to its knowledge, of any provision of federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree,
contract, rule, or statute, or of the Company's Restated Articles of
Incorporation or Bylaws, or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any license, distribution or other agreement.
2.10 Disclosure. The Company has fully provided the Investors with all
----------
the information which the Investors have requested for deciding whether to
acquire the Shares and all information which the Company believes is reasonably
necessary to enable the Investors to make such decision. There is no information
known to the Company which materially adversely affects the business or
operations of the Company which has not been disclosed to the Investors. Neither
this Agreement nor any other statements or certificates made or delivered in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein not
misleading, except that, with respect to financial projections, the Company
represents only that such projections were prepared in good faith and that the
Company believes there is a reasonable basis for such projections.
2.11 Registration Rights. Except as set forth in the Registration
-------------------
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.12 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold
-4-
<PAGE>
interest free of any liens, claims or encumbrances. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the
Company are in good operating condition and repair (normal wear and tear
accepted) and are reasonably fit and usable for the purposes for which they are
being used.
2.13 Financial Statements. The Company has delivered to the Investors
--------------------
its unaudited financial statements (balance sheet and profit and loss statement
and statement of shareholders equity) at December 31, 1998 and for the fiscal
year then ended and a balance sheet and statement of operations at September 30,
1999 (collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other. The Financial
Statements accurately set out and describe the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein.
Except as set forth in the Financial Statements, the Company has no liabilities,
contingent or otherwise, of a nature required by generally accepted accounting
principles to be reflected in a balance sheet or disclosed in the notes thereto,
other than liabilities incurred in the ordinary course of business subsequent to
September 30, 1999.
2.14 Changes. Since September 30, 1999, there has not been:
-------
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business which have not
been, in the aggregate, materially adverse.
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(e) any change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
to which the Company or any of such assets or properties is subject;
(f) any resignation or termination of any key officers of the
Company; and the Company, to its knowledge, does not know of the impending
resignation or termination of employment of any such officer;
-5-
<PAGE>
(g) to the knowledge of the Company any material change, except
in the ordinary course of business, in the contingent obligations of the Company
by way of guaranty, endorsement, indemnity, warranty or otherwise;
(h) any direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business or loans to purchase Common Stock;
(i) any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder other than in the
ordinary course of business;
(j) any declaration or payment of any dividend or other
distribution of the assets of the Company;
(k) any labor organization activity;
(l) any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(m) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets; or
(n) to the Company's knowledge, any other event or condition of
any character which might materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company
(as such business is presently conducted and as it is proposed to be conducted).
2.15 Minute Books. The Company has offered to provide to the Investors
------------
the minute books of the Company, which contain a complete summary of all
meetings of directors and shareholders since the time of incorporation and
reflect all transactions referred to in such minutes accurately in all material
respects.
2.16 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees.
2.17 Employee Plans. The Company has no "employee welfare benefit
--------------
plans" as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA"). The
-6-
<PAGE>
Company (i) has not been required to contribute to, (ii) has not terminated or
withdrawn from, and (iii) is not aware of any withdrawal liability assessed
against the Company with respect to any defined benefit plan as defined in
Section 3(35) of ERISA or multi employer plan as defined in Section 4001 of
ERISA in which employees or former employees of the Company have participated.
2.18 Employees. The Company has not knowingly violated any employment-
---------
related laws, including, without limitation, laws relating to equal employment
opportunity, overtime pay and collective bargaining. The Company is not aware
that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing. Except as set
forth in the Schedule of Exceptions, the employment of each officer and employee
of the Company is terminable at the will of the Company. Each former and current
United States employee and consultant of the Company with access to confidential
or proprietary information has executed a Proprietary Information Agreement, the
form of which is attached hereto as Exhibit D. To the Company's knowledge, no
---------
employee of the Company, nor any consultant with whom the Company has
contracted, is in violation of any term of any employment contract, proprietary
information agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, the Company because of the
nature of the business to be conducted by the Company; and to the Company's
knowledge the continued employment by the Company of its present employees, and
the performance of the Company's contracts with its independent contractors,
will not result in any such violation. The Company has not received any notice
alleging that any such violation has occurred. The Company's relations with its
employees is good.
2.19 Tax Returns and Payments. The Company has timely filed all tax
------------------------
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised except as set forth in the Schedule
of Exceptions (i) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof, or (ii) of any deficiency in assessment
or proposed judgment to its federal, state or other taxes. The Company has no
knowledge of any liability of any tax to be imposed upon its properties or
assets as of the date of this Agreement that is not adequately provided for.
2.20 Agreements; Action.
------------------
(a) Except for agreements explicitly contemplated hereby
including proprietary agreements and agreements between the Company and its
employees with respect to the sale of the Company's Common Stock, and agreements
between the Company and the Investors with respect to their investment, there
are no agreements, understandings or proposed transactions between the Company
and any of its officers, directors, affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 (other than obligations of, or payments to, the
-7-
<PAGE>
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the license of any patent, copyright, trade secret
or other proprietary right to or from the Company (other than licenses arising
from the purchase or sale of "off the shelf" or other standard products), or
(iii) provisions restricting or affecting the development, manufacture or
distribution of the Company's products or services, or (iv) indemnification by
the Company with respect to infringements of proprietary rights (other than
indemnification obligations arising from purchase or sale agreements entered
into in the ordinary course of business).
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or Series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities except as set forth in the Schedule of Exceptions (other than
with respect to dividend obligations, distributions, indebtedness and other
obligations incurred in the ordinary course of business or as disclosed in the
Financial Statements) individually in excess of $25,000 or, in the case of
indebtedness and/or liabilities individually less than $25,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any material amount of its assets or rights, other than the sale of
its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) Except as set forth in the Schedule of Exceptions, the
Company has not engaged in the past three (3) months in any material discussion
(i) with any representative of any corporation or corporations regarding the
consolidation or merger of the Company with or into any such corporation or
corporations, (ii) with any corporation, partnership, association or other
business entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of the Company, or a transaction or
Series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of, or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company.
2.21 Obligations to Related Parties. There are no obligations of the
------------------------------
Company to officers, directors, shareholders or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company and (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company). Except as set forth in the Schedule of Exceptions
none of the officers, directors or shareholders of the Company, or any members
of their immediate families, are indebted to the Company or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, except that officers, directors
and/or shareholders of
-8-
<PAGE>
the Company may own stock in publicly traded companies which may compete with
the Company. No officer, director or shareholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company (other than such contracts as relate to any such
person's ownership of capital stock or other securities of the Company). Except
as may be disclosed in the Financial Statements, the Company is not a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.
2.22 Real Property Holding Corporation. The Company is not a real
---------------------------------
property holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.
2.23 Insurance. The Company has or will obtain promptly following
---------
Closing fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
2.24 Investment Company Act. The Company is not an "investment
----------------------
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
2.25 Qualified Small Business. The Company represents and warrants to
------------------------
the Investors that, to its knowledge, the Shares should qualify as "Qualified
Small Business Stock" as defined in Section 1202(c) of the Internal Revenue Code
of 1986, as amended (the "Code") as of the date hereof.
2.26 Offering of Shares. Neither the Company nor any person authorized
------------------
or employed by the Company as agent, broker, dealer or otherwise in connection
with the offering or sale of the Shares or any security of the Company similar
to the Shares has offered the Shares or any such similar security for sale to,
or solicited any offer to buy the Shares or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under circumstances which might
require the integration of such security with the Shares under the Securities
Act of 1933, as amended (the "Act") or the rules and regulations of the
Commission thereunder), in either case so as to subject the offering, issuance
or sale of the Shares to the registration provisions of the Act.
3. Representations and Warranties of the Investors. Each Investor for
-----------------------------------------------
itself hereby represents and warrants to the Company that:
3.1 Authorization. This Agreement constitutes its valid and legally
-------------
binding obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Shares will be acquired for
-9-
<PAGE>
investment for the Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that the
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Investor
further represents that the Investor does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Shares. The Investor represents that it has full power and authority to enter
into this Agreement.
3.3 Disclosure of Information. The Investor believes it has received
-------------------------
information that it considers necessary or appropriate for deciding whether to
acquire the Shares. The Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Shares. The foregoing, however, does
not limit or modify the representations and warranties of the Company in Section
2 of this Agreement or the right of the Investor to rely thereon.
3.4 Economic Risk. The Investor has the capacity to protect his own
-------------
interests in connection with the purchase of the Shares, is capable of
evaluating the merits and risks of investment in the Company, can make an
informed investment decision by reason of (i) his preexisting personal or
business relationship with the Company or any of its officers, directors, or
control persons, or (ii) his business and financial knowledge and experience or
the business and financial knowledge and experience of my professional advisers,
if any, and is able to bear the substantial economic risks of an investment in
the Shares for an indefinite period of time.
3.5 Restricted Securities. It understands that the shares of Common
---------------------
Stock sold hereunder are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such shares may be resold without registration under the
Act, only in certain limited circumstances. In this connection, the Investor
represents that he is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
3.6 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, the Investor further agrees not to make any
disposition of all or any portion of the Shares unless and until:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
(b) (i) The Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, the Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration under the Act.
-10-
<PAGE>
(c) Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by the Investor to a shareholder, partner or other affiliate of
the Investor, if the transferee or transferees agree in writing to be subject to
the terms hereof to the same extent as if they were the Investor hereunder.
3.7 Legends. It is understood that the Shares, and the shares of
-------
Common Stock issuable upon conversion thereof and any securities issued in
respect thereof or exchanged therefor may bear one or all of the following
legends:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE CORPORATION.
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations.
(c) Any legend required by the Blue Sky laws of any other state
to the extent such laws are applicable to the shares represented by the
certificate so legended.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT IS THE
------------------------
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations of the
-----------------------------------------------
Investors under Section 1.1 of this Agreement are subject to the fulfillment, on
or before the Closing, of each of the following conditions:
-11-
<PAGE>
5.1 Representations and Warranties. The representations and warranties
------------------------------
of the Company contained in Section 2 shall be true and correct in all material
respects as of the Closing.
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 Articles of Incorporation. The Company shall have filed with, and
-------------------------
have had accepted for filing by, the California Secretary of State the Amended
and Restated Articles of Incorporation of the Company attached as Exhibit B
---------
hereto.
5.4 Compliance Certificate. The President of the Company shall deliver
----------------------
to the Investors at the Closing a certificate certifying that the conditions
specified in Sections 5.1 and 5.2 have been fulfilled.
5.5 Shareholders Agreement. The Company shall deliver to the Investors
----------------------
at the Closing copies of the Shareholders Agreement executed by the necessary
majority of the signatories thereto.
5.6 Registration Rights Agreement. The Company shall deliver to the
-----------------------------
Investors at the Closing copies of the Registration Rights Agreement executed by
the necessary majority of the signatories thereto.
5.7 Opinion of Company's Counsel. The Purchasers shall have received
----------------------------
from Wilson Sonsini Goodrich & Rosati, counsel to the Company, an opinion
addressed to them, dated the Closing Date, in substantially the form of Exhibit
-------
G.
- -
6. Conditions of the Company's Obligations at Closing. The obligations of
--------------------------------------------------
the Company to the Investors under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions by
the Investors:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investors contained in Section 3 shall be true and correct in
all material respects as of the Closing.
6.2 Payment of Purchase Price. The Investors shall have delivered to
-------------------------
the Company the purchase price specified in Section 1.1 hereof.
6.3 Legal Matters. All material matters of a legal nature which
-------------
pertain to this Agreement, and the transactions contemplated hereby, shall have
been reasonably approved by counsel to the Company.
7. Covenants of the Company.
------------------------
7.1 Delivery of Financial Statements. The Company shall deliver the
--------------------------------
following financial information to each Investor who continues to hold at least
50,000 Shares (or the Common
-12-
<PAGE>
Stock into which the Shares have been converted) (as adjusted for any stock
split, stock dividends, combinations, recapitalizations and the like with
respect to such Shares)(for purposes of satisfying the 50,000 share threshold
herein, shares owned by partners, subsidiaries, parents, shareholders or
affiliates will be aggregated; provided, however, that the Company shall only be
required to deliver financial information to one representative of each group of
affiliated persons or entities), and as long as such Investor or a principal,
partner or manager of such Investor, is not employed by or associated with a
competitor of the Company:
(a) as soon as practicable after the end of each fiscal
year of the Company an income statement for such fiscal year, a balance sheet of
the Company as of the end of such year and in any event within 120 days
thereafter, and a schedule as to the sources and applications of funds for such
year, such year-end financial reports to be audited by a "Big Five" accounting
firm and in reasonable detail, prepared in accordance with generally accepted
accounting principles ("GAAP");
(b) prior to the commencement of each fiscal year of the
Company, an operating (c) within thirty (30) days of the end of each month, an
unaudited balance sheet and statement of operations as of the end of such month.
7.2 Inspection Rights. Each Investor shall have the right to
-----------------
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the Company
or any of its subsidiaries with its officers, and to review such information as
is reasonably requested all at such reasonable times and as often as may be
reasonably requested; provided, however, that the Company shall not be obligated
under this Section 7.2 with respect to a competitor of the Company or with
respect to information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
7.3 Reservation of Common Stock. The Company will at all times
---------------------------
reserve and keep available, solely for issuance and delivery upon the conversion
of the Preferred Stock, all Common Stock issuable from time to time upon such
conversion (the "Conversion Stock").
7.4 Proprietary Information Agreement. The Company shall
---------------------------------
require all employees and consultants to execute and deliver a Proprietary
Information Agreement in the form attached hereto as Exhibit D.
---------
7.5 Termination of Information Covenant. The covenant set forth
-----------------------------------
in Section 7.1 shall terminate as to the Investors and be of no further force or
effect at such time as the initial sale of securities pursuant to a registration
statement filed by the Company under the Securities Act in connection with the
firm commitment underwritten offering of its securities to the general public is
consummated.
-13-
<PAGE>
7.6 Key Man Life Insurance. The Company shall obtain and
----------------------
maintain a key man life insurance policy for $1,000,000 with respect to the
Chief Executive Officer of the Company with proceeds payable to the Company.
7.7 Qualified Small Business Stock. The Company shall submit to
------------------------------
the Investors and to the Internal Revenue Service any reports that may be
required to be submitted to such persons under Section 1202(d)(1)(C) of the
Internal Revenue Code of 1986, as amended (the "Code") and any related Treasury
Regulations. In addition, within fifteen (15) business days after any Investor
has delivered to the Company a written request for information regarding such
Investor's stock in reasonable contemplation of the Investor's sale, exchange or
other disposition of its stock, the Company shall provide the Investor with such
information as the Investor may reasonably request in order for the Investor to
determine whether the stock held by such Investor constitutes "qualified small
business stock" as defined in Section 1202(c) of the Code. The Company's
obligation to furnish such information pursuant to this Section 7.7 shall
continue notwithstanding the fact that a class of the Company's stock may be
traded on an established securities market.
7.8 Legal Expenses. The Company shall pay the legal expenses of
--------------
the Investors in connection with the Series D Preferred Stock financing in an
aggregate amount not to exceed $25,000.
8. Miscellaneous.
-------------
8.1 Transfer; Successors and Assigns. 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. 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.
8.2 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.
8.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified 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 or
addresses
-14-
<PAGE>
indicated for such party on Exhibit A hereto, or at such other address or
---------
addresses as such party may designate by ten (10) days' advance written notice
to the other parties.
8.6 Finder's Fee. Except as elsewhere disclosed in this Agreement,
------------
or in Exhibit C hereto, each party represents that it neither is nor will be
---------
obligated for any finder's fee or commission in connection with this
transaction. The Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, employees, or
representatives are responsible.
The Company agrees to indemnify and hold harmless the Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
8.7 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 attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
8.8 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-in-interest of the Shares.
8.9 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.
8.10 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto pertaining to the subject matter hereof,
and any and all other written or oral agreements existing between the parties
hereto are expressly canceled.
8.11 Exculpation Among Investors. Each Investor acknowledges that it
---------------------------
is not relying upon any person, firm or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each investor agrees that no Investor nor the respective
controlling persons, officers, directors, partners, agents or employees of any
Investor shall be liable for any action heretofore or hereafter taken or omitted
to be taken by any of them in connection with the Shares.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INVENTA CORPORATION
By: /s/ David A. Lavanty
-------------------------------
David A. Lavanty, President
Address:
255 Shoreline Drive, 2nd Floor
Redwood Shores, CA 94065
<PAGE>
INVESTORS:
BANCBOSTON VENTURES INC.
By: /s/ Mara D. Heymann
-----------------------------
Name: Mara D. Heymann
Title: Director
PRIVATE EQUITY PORTFOLIO FUND II, LLC
BY BANKBOSTON NA, ITS MANAGER,
By: /s/ Glen Holland
-----------------------------
Name: Glen Holland
Title: Director
-2-
<PAGE>
BATTERY VENTURES III, L.P.
By: Battery Partners III, L.P.
By: /s/ Todd Dagres
-------------------------
Todd Dagres
Title: General Partner
----------------------
-3-
<PAGE>
BOSTON MILLENNIA PARTNERS LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership
Its General Partner
By: /s/ [ILLEGIBLE]^^
----------------------------
General Partner
BOSTON MILLENNIA ASSOCIATES I, PARTNERSHIP
By: /s/ [ILLEGIBLE]^^
----------------------------
General Partner
-4-
<PAGE>
/s/ Robert Ducommun
- -----------------------------------------
Robert Ducommun
PALMER G. AND CHARLES E. DUCOMMUN
CHARITABLE ANNUITY TRUST U/D/T
By: /s/ Robert Ducommun
- -----------------------------------------
Robert Ducommun, Trustee
-5-
<PAGE>
ESSEX PRIVATE PLACEMENT FUND II, LIMITED PARTNERSHIP
By: Essex Investment Mgt. Company LLC
Its General Partner
By: /s/ [ILLEGIBLE]^^
-------------------------------------
Its: Principal
-------------------------------------
-6-
<PAGE>
THE CHASE MANHATTAN BANK, AS TRUSTEE
FOR FIRST PLAZA GROUP TRUST
By: /s/ John F. Weeda
---------------------------
John F. Weeda
Title: Vice President
------------------------
The Chase Manhattan Bank Has executed this Document/Agreement
solely to its capacity as Directed Trustee of the First Plaza Group Trust
upon the direction of General Motors Investment Management
Corporation.
-7-
<PAGE>
TECHNOLOGY CROSSOVER VENTURES II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II, L.L.C.
Its: Investment General Partner
By: /s/ RBJ
---------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II, L.L.C.
Its: Investment General Partner
By: /s/ RBJ
---------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II(Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.
Its: General Partner
By: /s/ RBJ
---------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.
Its: General Partner
By: /s/ RBJ
---------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II STRATEGIC PARTNERS, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.
Its: General Partner
By: /s/ RBJ
---------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
-8-
<PAGE>
EXHIBIT A
---------
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Name and Address Shares Amount
- ----------------------------------------------- --------------------- ---------------------
<S> <C> <C>
BancBoston Ventures Inc. 944,670 $ 7,000,004.70
435 Tasso Street, Suite 250
Palo Alto, CA 94301
Attention: Maia Heymann
Private Equity Portfolio II, LLC 134,952 $ 999,994.32
c/o BancBoston Capital
175 Federal Street, 10/th/ Floor
Boston, MA 02110
Attention: Glen Holland
Battery Ventures III, L.P. 62,672 $ 464,399.52
20 William Street
Wellesley, MA 01282
Attention: Rick Frisbie
Boston Millennia Associates I, Limited 8,203 $ 60,784.23
Partnership
30 Rowes Wharf
Boston, MA 02110
Attention: Martin J. Hernon
Boston Millennia Partners Limited Partnership 417,168 $ 3,091,214.88
30 Rowes Wharf
Boston, MA 02110
Attention: Martin J. Hernon
Robert Ducommun 13,500 $ 100,035.00
1155 Park Avenue, Apt. 1 SW
New York, NY 10128
Palmer G. and Charles E. Ducommun 6,700 $ 49,647.00
Charitable Annuity Trust, u/d/t
1155 Park Avenue, Apt. 1 SW
New York, NY 10128
Attention: Robert Ducommun
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Essex Private Placement Fund II, 269,906 $ 2,000,003.46
Limited Partnership
c/o Essex Investment Mgt. Company
125 High Street
Boston, MA 02110
Attention: Susan Stickells
The Chase Manhattan Bank,
as Trustee for First Plaza Group Trust
Global Investor Services 716,858 $ 5,311,917.78
4 Chase Metro Tech Center, 18/th/ Floor
Brooklyn, NY 11245
Attention: John F. Weeda
Technology Crossover Ventures II, L.P. 203,486 $ 1,507,831.26
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
TCV II (Q), L.P. 156,443 $ 1,159,242.63
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Technology Crossover Ventures II, C.V 31,068 $ 230,213.88
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
TCV II Strategic Partners, L.P 27,764 $ 205,731.24
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
TCV II, V.O.F 6,610 $ 48,980.10
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
TOTAL 3,000,000 $22,230,000.00
</TABLE>
-3-
<PAGE>
EXHIBIT B
---------
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE>
EXHIBIT C
---------
SCHEDULE OF EXCEPTIONS
<PAGE>
EXHIBIT 10.5
INVENTA CORPORATION
_____________________
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
_____________________
January 19, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Right of First Refusal on Shareholder Transfer........................... 2
1.1 Company Right............................................................ 2
1.2 Preferred Holders' Right................................................. 2
1.3 Failure to Exercise Rights............................................... 2
1.4 Price.................................................................... 3
1.5 Transfer of Rights....................................................... 3
1.6 Prohibited Transfers..................................................... 3
1.7 Definition of "Shares"................................................... 3
1.8 Permitted Transfers...................................................... 3
ARTICLE II Right of Co-Sale on Shareholder Transfer................................ 4
2.1 Right of Co-Sale......................................................... 4
2.2 Agreement not to Transfer................................................ 4
2.3 Definition of Shares..................................................... 4
2.4 Permitted Transfers...................................................... 4
2.5 Prohibited Transfers..................................................... 5
ARTICLE III Right of First Refusal on Company Issuances........................... 6
3.1 Grant of Right........................................................... 6
3.2 New Securities........................................................... 6
3.3 Notice................................................................... 7
3.4 Sale after Company Notice................................................ 7
3.5 Assignment............................................................... 8
ARTICLE IV Termination of Rights................................................... 8
ARTICLE V Specific Performance..................................................... 8
ARTICLE VI Legends................................................................. 9
ARTICLE VII Board of Directors..................................................... 9
7.1 Board of Directors....................................................... 9
7.2 Compensation Committee................................................... 9
7.3 Audit Committee.......................................................... 10
ARTICLE VIII Reorganizations....................................................... 10
ARTICLE IX General Provisions...................................................... 10
9.1 Governing Law............................................................ 10
9.2 Entire Agreement......................................................... 10
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
9.3 Amendment................................................................ 11
9.4 Successors............................................................... 11
9.5 Invalidity of Provisions................................................. 11
9.6 Notice................................................................... 11
9.7 No Waiver................................................................ 11
9.8 Cooperation.............................................................. 12
9.9 Addition of Parties...................................................... 12
9.10 Counterparts............................................................. 12
</TABLE>
EXHIBIT A - Schedule of Purchasers
EXHIBIT B - Schedule of Holders of Series A Preferred Stock
EXHIBIT C - Schedule of Holders of Series B Preferred Stock
EXHIBIT D - Schedule of Holders of Series C Preferred Stock
EXHIBIT E - Schedule of Certain Common Stock Holders
EXHIBIT F - Form of Instrument of Accession
-ii-
<PAGE>
INVENTA CORPORATION
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
THIS AMENDED AND RESTATED SHAREHOLDERS AGREEMENT is made this 19th day of
January, 2000, between Inventa Corporation, a California corporation (the
"Company"), the purchasers of the Company's Series D Preferred Stock (the
"Purchasers") as listed on Exhibit A attached hereto, Ashok K. Santhanam
---------
("Founder"), the holders of the Company's Series A Preferred Stock (the "Series
A Holders") listed on Exhibit B attached hereto, the holders of the Company's
---------
Series B Preferred Stock (the "Series B Holders") listed on Exhibit C attached
---------
hereto, the holders of the Company's Series C Preferred Stock (the "Series C
Holders") listed on Exhibit D attached hereto, and certain holders of the
---------
Company's Common Stock (the "Common Holders") as listed on Exhibit E attached
---------
hereto. The Purchasers, Series A Holders, Series B Holders and Series C Holders
shall collectively be referred to as the "Preferred Holders". The Purchasers,
the Founder, the Preferred Holders and the Common Holders shall collectively be
referred to as the "Shareholders".
WHEREAS, Founder is the beneficial owner or may be deemed to be the
beneficial owner of 4,500,000 shares of the Common Stock of the Company.
WHEREAS, the Series A Holders and the Company are parties to the Series A
Preferred Stock Purchase Agreement dated July 8, 1994 (the "Series A
Agreement").
WHEREAS, the Series B Holders and the Company are parties to the Series B
Preferred Stock Purchase Agreement dated February 14, 1997 (the "Series B
Agreement").
WHEREAS, the Series C Holders and the Company are parties to the Series C
Preferred Stock Purchase Agreements dated May 11, 1998 and May 28, 1999 (the
"Series C Agreements").
WHEREAS, the Common Holders are the owners of 42,696 shares of the Common
Stock of the Company.
WHEREAS, the parties desire that this Agreement supersede the Restated
Shareholders Agreement dated May 11, 1998 in its entirety.
WHEREAS, the Purchasers have requested, as a condition to entering into the
Series D Convertible Preferred Stock Purchase Agreement of even date herewith
(the "Series D Agreement") that the Founder and the Shareholders enter into this
Agreement, and the Founder and the Shareholders, as an inducement to the
Purchasers to enter into the Series D Agreement of even date herewith, are
willing to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
terms hereof, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
<PAGE>
ARTICLE I
Right of First Refusal on Shareholder Transfer
----------------------------------------------
1.1 Company Right. If at any time a Shareholder desires (or is required)
-------------
to sell or transfer in any manner any Shares (as hereinafter defined) pursuant
to the terms of a bona fide offer received from a third party (a "Buyer"), the
Shareholder shall submit a written offer to sell such Shares (the "Offered
Shares") to the Company on terms and conditions, including price, not less
favorable to the Company than those on which the Shareholder proposes to sell
such Offered Shares to Buyer (the "Offer"). The Offer shall disclose the
identity of the Buyer, the number of Offered Shares, the terms of the proposed
sale or transfer and any other material facts relating to the sale or transfer.
Within fifteen (15) days after receipt of the Offer, the Company shall give
notice to the Shareholder of its intent to purchase all or some of the Offered
Shares from the Shareholder on the terms and conditions set forth in the Offer.
1.2 Preferred Holders' Right. If, for any reason whatsoever, the Company
------------------------
shall not exercise its right to purchase all of the Offered Shares as provided
herein, the Company shall promptly provide to the Preferred Holders, written
notice (the "Notice") of same (which shall include a copy of the Offer provided
to the Company pursuant to Section 1.1 hereof), and then the Preferred Holders
shall have the right, for a period of fifteen (15) days from the date of the
Notice to purchase, on a pro rata basis, on the same terms and conditions as are
set forth in the Offer, that portion of the Offered Shares which the Company
shall not have agreed to purchase from the Shareholder (all such remaining
Shares being referred to as the "Remaining Offered Shares"). For purposes of
this Section 1.2, Preferred Holder's pro rata right shall be calculated by
dividing the number of shares of Common Stock issuable upon conversion of
Preferred Stock held by such Preferred Holder by the total number of shares of
Common Stock issuable upon conversion of Preferred Stock held by all Preferred
Holders.
1.3 Failure to Exercise Rights. In the event that the Company and the
--------------------------
Preferred Holders, taken together, do not purchase all of the Offered Shares
pursuant to and within the time periods set forth above, any remaining Offered
Shares may be sold or transferred by the Shareholder at any time within 90 days
thereafter, subject to compliance with Article II. Any such sale or transfer
shall be at not less than the price nor upon other terms and conditions, if any,
not more favorable to the Buyer than those specified in the Offer. Any Offered
Shares not sold within such 90-day period shall thereafter again be subject to
the requirements of this Article I. In the event that Shares are sold or
transferred to the Preferred Holders pursuant to this subsection, said Offered
Shares shall no longer be subject to this Agreement.
1.4 Price. With respect to any Shares to be transferred pursuant to
-----
Section 1.1 hereof and as to which a price has not been set by the Shareholder
under Section 1.1 hereof, the price per Share shall be a price set by the Board
of Directors of the Company which will reflect the current value of the Shares
in terms of present earnings and future prospects of the Company. The Company
shall notify the Shareholder of the price so determined within fifteen (15) days
after receipt by it of the Offer. If the Shareholder disputes the price as set
by the Board of Directors by giving notice to the
-2-
<PAGE>
Company within ten (10) days after being informed of the price, the price of the
Shares shall be determined by an independent financial analyst selected by the
Board of Directors of the Company, with the cost of such determination to be
divided equally between the Company and the Shareholder. The Board of Directors
shall select such analyst within fifteen (15) days after receipt of notice that
the Shareholder is disputing the price set by the Board of Directors. If the
Board is not notified of any such dispute within such ten (10) day period, the
decision of the Board of Directors as to the purchase price shall be final. Any
time required to determine a purchase price or to resolve a dispute shall be
added to the fifteen (15) day period in which the Company may exercise its right
to purchase the Offered Shares.
1.5 Transfer of Rights. The right of the Preferred Holders to purchase
------------------
Offered Shares hereunder may not be assigned except to a transferee or assignee
who qualifies as a partner, subsidiary or affiliate of one of the Preferred
Holders, or a parent of one of the Preferred Holders, or any entity which has
the same parent corporation as one of the Preferred Holders.
1.6 Prohibited Transfers. The Shareholder shall not sell, assign,
--------------------
transfer, pledge, hypothecate, mortgage or dispose of, by gift or otherwise, or
in any way encumber, all or any part of the Shares owned by him during the term
of this Agreement other than in compliance with the terms of this Article I.
1.7 Definition of "Shares". For purposes of this Article I, the term
---------------------
"Shares" shall mean and include all shares of capital stock of the Company owned
by the Shareholder, whether presently held or hereafter acquired.
1.8 Permitted Transfers. The right of first refusal contained in this
-------------------
Article I shall not apply to: (a) any transfer of Shares by the Shareholder by
gift or bequest or through inheritance to, or for the benefit of, any family
member; (b) any transfer of Shares by the Shareholder to a trust for the benefit
of any family member; (c) any sale or transfer of Shares to the Company (or any
assignee of the Company) pursuant to the terms of a stock restriction or stock
repurchase agreement (which provides for such sale upon the Shareholder's
termination of employment); (d) any sale of Common Stock in a public offering
pursuant to a registration statement filed by the Company with the Securities
and Exchange Commission; (e) any pledge made pursuant to a bona fide loan
transaction that creates a mere security interest; (f) any transfer of Shares by
a Shareholder that is a partnership to its partners; or (g) any transfer of
Shares by a Shareholder that is a trust to a successor trust or successor
trustee. In the event of any transfer pursuant to (a), (b), (f) or (g), the
transferee of the Shares shall hold the Shares so acquired with all the rights
conferred by, and subject to all the restrictions imposed by, this Agreement.
ARTICLE II
Right of Co-Sale on Shareholder Transfer
----------------------------------------
2.1 Right of Co-Sale. In the event that the Shareholder desires (or is
----------------
required) to sell or transfer in any manner any Shares (as hereinafter defined)
pursuant to the terms of a bona fide offer received from a Buyer, and the
Company and the Preferred Holders do not exercise their right of
-3-
<PAGE>
first refusal as to all of the Offered Shares as set forth in Article I hereof,
each Preferred Holder shall have the right (the "Right of Co-Sale") to require,
as a condition to such sale or transfer, that the Buyer purchase from each
Preferred Holder at the same price per share and on the same terms and
conditions as involved in such sale or disposition by the Shareholder that
percentage of the Offered Shares not purchased by the Company or the Preferred
Holders pursuant to Article I above, expressed by a fraction, the numerator of
which is the number of shares of Preferred Stock (on an as-converted into Common
Stock basis) and Common Stock held by such Preferred Holder and the denominator
of which is the aggregate number of shares of Preferred Stock (on an as-
converted into Common Stock basis) and Common Stock held by all Preferred
Holders and the number of Shares held by the Shareholder. The Preferred Holders
shall act upon the Buyer's offer to buy as soon as practicable after receipt
from the Company of the Notice and in all events within fifteen (15) days after
receipt of the Notice. In the event that the Preferred Holders shall elect to
exercise their Right of Co-Sale, the Preferred Holders shall communicate in
writing such election to the Shareholder.
2.2 Agreement not to Transfer. The Shareholder shall not sell, assign,
-------------------------
transfer, pledge, hypothecate, mortgage or dispose of, by gift or otherwise, or
in any way encumber, all or any part of the Shares (as hereinafter defined)
owned by him during the term of this Agreement other than in compliance with the
terms of this Article II.
2.3 Definition of Shares. For purposes of this Article II, the term "
--------------------
Shares" shall mean and include all shares of capital stock of the Company owned
by the Shareholder, whether presently held or hereafter acquired.
2.4 Permitted Transfers. The Right of Co-Sale contained in this Article II
-------------------
shall not apply to: (a) any transfer of Shares by the Shareholder by gift or
bequest or through inheritance to, or for the benefit of, any family member; (b)
any transfer of Shares by the Shareholder to a trust for the benefit of any
family member; (c) any sale or transfer of Shares to the Company pursuant to the
terms of a stock restriction or stock repurchase agreement (which provides for
such sale upon the Shareholder's termination of employment with the Company, if
applicable); (d) any sale or transfer of Shares to the Company or the Preferred
Holders pursuant to the provisions of Article I hereof; (e) any sale of Common
Stock in a public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission; (f) any pledge made
pursuant to a bona fide loan transaction that creates a mere security interest;
(g) any transfer of Shares by a Shareholder that is a partnership to its
partners; or (h) any transfer of Shares by a Shareholder that is a trust to a
successor trust or successor trustee. In the event of any transfer pursuant to
(a), (b), (g) or (h), the transferee of the Shares shall hold the Shares so
acquired with all the rights conferred by, and subject to all the restrictions
imposed by, this Agreement.
2.5 Prohibited Transfers.
--------------------
(a) In the event that the Shareholder should sell any Shares in
contravention of the co-sale rights of each Preferred Holder under this
Agreement (a "Prohibited Transfer"), each Preferred Holder, in addition to such
other remedies as may be available at law, in equity or hereunder, shall have
the put option provided below, and such Shareholder shall be bound by the
applicable provisions of such option.
-4-
<PAGE>
(b) In the event of a Prohibited Transfer, each Preferred Holder
shall have the right to sell to such Shareholder the type and number of shares
of Common Stock equal to the number of shares each Preferred Holder would have
been entitled to transfer to the Buyer under Section 2.1 hereof had the
Prohibited Transfer been effected pursuant to and in compliance with the terms
hereof. Such sale shall be made on the following terms and conditions:
(i) The price per share at which the shares are to be sold to
the Shareholder shall be equal to the price per share paid by the Buyer to such
Shareholder in such Prohibited Transfer. The Shareholder shall also reimburse
each Preferred Holder for any and all fees and expenses, including legal fees
and expenses, incurred pursuant to the exercise or the attempted exercise of the
Preferred Holder's rights under this Article II.
(ii) Within ninety (90) days after the date on which a
Preferred Holder received notice of the Prohibited Transfer or otherwise became
aware of the Prohibited Transfer, such Preferred Holder shall, if exercising the
option created hereby, deliver to the Shareholder the certificate or
certificates representing the shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) Such Shareholder shall, upon receipt of the certificate or
certificates for the shares to be sold by a Preferred Holder, pursuant to this
Section 2.5(b), pay the aggregate purchase price therefor and the amount of
reimbursable fees and expenses, as specified in Section 2.5(b)(i), in cash or by
other means acceptable to the Preferred Holder.
(iv) Notwithstanding the foregoing, any attempt by the
Shareholder to transfer Shares in violation of Article II hereof shall be
voidable at the option of a majority in interest of the Preferred Holders if the
Preferred Holders do not elect to exercise the put option set forth in this
Section 2.5, and the Company agrees it will not effect such a transfer nor will
it treat any alleged transferee as the holder of such shares without the written
consent of a majority in interest of the Preferred Holders.
ARTICLE III
Right of First Refusal on Company Issuances
-------------------------------------------
3.1 Grant of Right. Except as set forth in Article IV, the Company hereby
--------------
grants to each Preferred Holder who continues to hold, respectively, shares of
Series A Preferred Stock purchased pursuant to the Series A Agreement, Series B
Preferred Stock purchased pursuant to the Series B Agreement, Series C Preferred
Stock purchased pursuant to the Series C Agreement and Series D Preferred Stock
purchased pursuant to the Series D Agreement (the "Preferred Shares"), the right
of first refusal to purchase all or any part of such Preferred Holder's Pro Rata
Share (as hereinafter defined) of the New Securities (as defined in Section 3.2)
which the Company may, from time to time, propose to sell and issue, with a
right of over-subscription (as provided in Section 3.3 below). The Preferred
Holders may purchase said New Securities on the same terms and at the same price
at which the Company proposes to sell the New Securities. The "Pro Rata Share"
of each Preferred
-5-
<PAGE>
Holder, for purposes of this right of first refusal, is the ratio of the total
number of shares of Common Stock held by such Preferred Holder, including (i)
any shares of Common Stock into which shares of Preferred Stock held by such
Preferred Holder are convertible, and (ii) any shares deliverable upon the
exercise of options of other rights to purchase Common Stock held by such
Preferred Holder, to the total number of shares of Common Stock outstanding
immediately prior to the issuance of the New Securities (including (i) any
shares of Common Stock into which outstanding shares of Preferred Stock are
convertible and (ii) any shares deliverable upon the exercise of options or
other rights to purchase Common Stock).
3.2 New Securities. "New Securities" shall mean any capital stock of the
--------------
Company, whether now authorized or not, and any rights, options or warrants to
purchase said capital stock, and securities of any type whatsoever that are, or
may become, convertible into said capital stock; provided, however, that "New
-------- -------
Securities" does not include (i) the Preferred Shares or other securities issued
or issuable upon conversion of the Preferred Shares ("Conversion Shares"), (ii)
securities offered pursuant to a registration statement filed under the
Securities Act of 1933, as amended (the "Act"), (iii) securities issued pursuant
to the acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets or other reorganization, (iv) shares offered
pursuant to lease financing transactions or bank or lending institution
financing transactions that are approved by the Board of Directors, (v)
securities issued in connection with any stock split, stock dividend or
recapitalization of the Company, (vi) all securities hereafter issued or
issuable to officers, directors, employees or consultants of the Company (for
the primary purpose of soliciting or retaining their employment or services)
pursuant to any employee or consultant stock offering, plan or arrangement
approved by the Board of Directors, (vii) securities issuable pursuant to
warrants outstanding as of January 7, 2000 (the "Warrant Shares") or securities
issued upon conversion of the Warrant Shares, and (viii) warrants for up to
675,000 shares to be issued to First Plaza Group Trust (or any designee thereof)
("First Plaza") upon the achievement of certain sales targets to General Motors
Corporation, or any affiliate thereof, as a result of the introduction by First
Plaza, and the shares issuable upon exercise thereof.
3.3 Notice. In the event the Company proposes to undertake an issuance of
------
New Securities, it shall give to the Preferred Holders written notice (the
"Company Notice") of its intention, describing the type of New Securities,
number of shares, the price, the terms upon which the Company proposes to issue
the same, and notice to the effect that each Preferred Holder must respond to
such Company Notice within twenty (20) days after the date thereof. The
Preferred Holders shall have twenty (20) days from the date of such Company
Notice to purchase any or all of the New Securities for the price and upon the
terms specified in the Company Notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased and
forwarding payment for such New Securities to the Company if immediate payment
is required by such terms, or in any event no later than forty-five (45) days
after the date of the Company Notice. The Company shall promptly, in writing,
inform each Preferred Holder which elects to purchase its Pro Rata Share of the
New Securities of any other Preferred Holder's failure to do so (the "Over-
subscription Notice"), in which case the Preferred Holders electing to purchase
their Pro Rata Share of the New Securities shall have the right to purchase
their Pro Rata Share of such shares (the "Over-subscription Right") and any
portion of the remainder of such shares which other Preferred Holders
-6-
<PAGE>
have elected not to purchase pursuant to the exercise of their Over-subscription
Right, for the price and upon the terms specified in the Company Notice for a
period of thirty (30) days after the date of the Over-subscription Notice. If a
Preferred Holder elects not to exercise such right, then that portion of the
shares which is not purchased may be offered to third parties on terms no less
favorable to the Company for a period of one hundred twenty (120) days.
3.4 Sale after Company Notice. In the event any Preferred Holder fails to
-------------------------
exercise in full the right of first refusal within said twenty (20) day period,
the Company shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within thirty (30) days from the date of said agreement) to
sell the New Securities respecting which such Preferred Holder's rights were not
exercised, at a price and upon general terms no more favorable to the Preferred
Holders thereof than specified in the Company Notice. In the event the Company
has not sold the New Securities within said ninety (90) day period (or sold and
issued New Securities in accordance with the foregoing within thirty (30) days
from the date of said agreement), the Company shall not thereafter issue or sell
any New Securities without first offering such securities to the Preferred
Holders in the manner provided above.
3.5 Assignment. The right of first refusal granted under this Article III
----------
is assignable by the Preferred Holders to any transferee of a minimum of fifty
thousand (50,000) shares of Series A Preferred Stock, fifty thousand (50,000)
shares of Series B Preferred Stock, fifty thousand (50,000) shares of Series C
Preferred Stock, or fifty thousand (50,000) shares of Series D Preferred Stock
(in each case as adjusted for any stock split, stock dividends, combinations,
recapitalizations and the like with respect to such shares), as applicable, or
the Common Stock into which each such series of Preferred Stock has been
converted. For the purposes of satisfying the 50,000 share threshold herein, the
number of shares of the Common Stock issuable upon conversion of applicable
series of Preferred Stock owned by the Preferred Holders shall include the
holdings of partners, subsidiaries, parents, shareholders or affiliates of the
Preferred Holders (or any entities which have the same parent corporation as the
Preferred Holders) and such holdings shall be aggregated together and with the
holdings of the Preferred Holders with respect to the applicable series of
Preferred Stock.
ARTICLE IV
Termination of Rights
---------------------
The Right of First Refusal on Shareholder Transfer, Co-Sale Right, Right of
First Refusal on Company Issuances, the right to designate members of the Board
of Directors, Compensation Committee and Audit Committee and the right to direct
the voting of the shares beneficially owned by the Founder created under
Articles I, II, III, VII and VIII of this Agreement, respectively, shall expire
upon (i) the closing of the first public offering of the Common Stock of the
Company to the general public which is effected pursuant to a registration
statement filed with, and declared effective by, the Securities and Exchange
Commission under the Securities Act of 1933, as amended; (ii) upon the closing
of a transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) which results in (a)
the holders of the
-7-
<PAGE>
outstanding voting equity securities of the Company immediately prior to such
transaction or series of related transactions holding securities representing
less than 50% of the voting power of the surviving entity immediately following
such transaction or series of related transactions or (b) the sale or
disposition by the Company of all or substantially all the Company's assets; or
(iii) with respect to the Right of First Refusal on Shareholder Transfer, the
date on which less than 50% of the Preferred Stock of the Company initially
issued remains outstanding (as adjusted for any stock split, stock dividends,
combinations, recapitalizations and the like with respect to the shares).
ARTICLE V
Specific Performance
--------------------
The rights of the parties under this Agreement are unique and, accordingly,
the parties shall, in addition to such other remedies as may be available to any
of them at law or in equity, have the right to enforce their rights hereunder by
actions for specific performance to the extent permitted by law.
ARTICLE VI
Legends
-------
The certificates representing the Shares shall bear a legend indicating the
existence of the restrictions imposed by Article I, II, III, VII and VIII of
this Agreement. Nothing in this Agreement should be construed as a modification
or amendment of any restrictions on transfer under applicable federal or state
securities laws.
ARTICLE VII
Board of Directors
------------------
7.1 Board of Directors. As soon as practicable after the Closing, the
Board of Directors of the Company shall be comprised of seven members. The
Purchasers and the Shareholders agree to cause to be elected to the Company's
Board of Directors (i) one representative elected by the holders of Series A
Preferred Stock, (ii) one representative elected by the holders of Series B
Preferred Stock (who shall be a representative of Battery Ventures L.P.), (iii)
two representatives elected by the holders of the Series C Preferred Stock (one
of whom shall be a representative of the Technology Crossover Ventures entities,
and one of whom shall be a representative of Boston Millennia Partners Limited
Partnership), (iv) two representatives elected by the holders of Common Stock of
the Company (one of whom shall be Ashok Santhanam and the other shall be
reasonably approved by the holders of the Series C Preferred Stock), and (v) the
Chief Executive Officer of the Company. In addition, the Board of Directors of
the Company shall elect Ashok Santhanam as Chairman of the Board to serve in
that capacity as long as he is a director of the Company. If any Preferred
Holder named in clause (ii) or (iii) above elects not to designate a
representative to the Board, such Preferred Holder shall have the right to
appoint an observer who shall be entitled to
-8-
<PAGE>
attend all meetings of the Board and to consult with management. The Company
shall pay the reasonable out-of-pocket expenses of non-employee members of the
Company's Board of Directors in connection with attending Board of Directors
meetings and will pay the reasonable out-of-pocket expenses of Board observers
in connection with attending Board of Directors meetings, in accordance with the
Company's standard travel policy.
7.2 Compensation Committee. The Company shall use its best efforts and the
----------------------
Purchasers and Shareholders agree to cause the Board of Directors of the Company
to appoint and maintain a Compensation Committee, which shall contain no more
than three persons, one of whom shall be a representative of Boston Millennia
Partners Limited Partnership, one of whom shall be a representative of Battery
Ventures, and one of whom shall be Ashok Santhanam. The Compensation Committee
shall administer the Company's stock option plans and make recommendations to
the Board of Directors with respect to management compensation and terms of
employment. The Board of Directors of the Company shall have the power to accept
or reject any recommendation of the Compensation Committee, but shall not
approve an employee's compensation in amounts which differ from the amounts
recommended by the Compensation Committee.
7.3 Audit Committee. The Company shall use its best efforts and the
---------------
Purchasers and Shareholders agree to cause the Board of Directors to appoint and
maintain an Audit Committee, which shall include at least one representative of
the Purchasers.
ARTICLE VIII
Reorganizations
---------------
The Shareholders hereby agree that at any meeting of the shareholders
of the Company, however called, and in any written action by consent of
shareholders of the Company, the Shareholders shall vote all shares of stock of
the Company entitled to vote held by the Shareholder as directed by the holders
of a majority of the outstanding shares of Common Stock and Common Stock
issuable upon conversion of Preferred Stock then held by the Shareholders in
connection with any reorganization of the Company pursuant to Section 1200 et.
seq. of the California Corporations Code; provided, however, that this Article
VIII shall not affect any rights granted to the Preferred Holders or the
Purchasers pursuant to Sections 6(a) and 6(c) of the Company's Amended and
Restated Articles of Incorporation. The Shareholders shall not enter into any
agreement or understanding with any person or entity to vote or give
instructions in any manner inconsistent with the preceding sentence. In the
event any Shareholder fails to vote in accordance herewith, such Shareholders
shall be deemed to have irrevocably appointed such person or persons as may be
designated by the Board of Directors of the Company as proxy to vote such
Shareholder's stock in accordance herewith.
-9-
<PAGE>
ARTICLE IX
General Provisions
------------------
9.1 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California without regard to choice of law provisions.
9.2 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof and supersedes all
prior oral or written agreements and understandings between them or any of them
as to such subject matter.
9.3 Amendment. Except as otherwise expressly provided herein, this
---------
Agreement, other than Article VII herein, may be amended only upon the written
consent of the majority of the shares beneficially owned or deemed to be
beneficially owned by the Founder, the majority-in-interest of the Preferred
Holders, the majority-in-interest of the Common Holders, and the Company;
provided, however, that Article VII herein may be amended only upon the written
consent of 2/3 of (i) the shares then beneficially owned or deemed to be
beneficially owned by the Founder and the shares then owned by the Common
Holders, (ii) the shares then owned by the Series A Holders (iii) the shares
then owned by the Series B Holders, (iv) the shares then owned by the Series C
Holders and (v) the shares then owned by the Purchasers, with each voting as a
separate class.
9.4 Successors. This Agreement shall be binding upon and shall inure to
----------
the benefit of the parties hereto and their respective heirs, executors, legal
representatives, successors, and permitted transferees, except as may be
expressly provided otherwise herein.
9.5 Invalidity of Provisions. In the case any one or more of the
------------------------
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement and such
invalid, illegal and unenforceable provision shall be reformed and construed so
that it will be valid, legal, and enforceable to the maximum extent permitted by
law.
9.6 Notice. Any notice, demand or request required or permitted to be
------
given by either the Company or the Shareholders pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth on the
Exhibits to this Agreement or such other address as a party may request by
notifying the other in writing.
9.7 No Waiver. Any party's failure to enforce any provision or provisions
---------
of this Agreement shall not in any way be construed as a waiver of any such
provision or provisions, nor prevent that party thereafter from enforcing each
and every other provision of this Agreement. The rights granted to the parties
herein are cumulative and shall not constitute a waiver of any party's right to
assert all other legal remedies available to it under the circumstances.
9.8 Cooperation. The parties agree upon request to execute any further
-----------
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
-10-
<PAGE>
9.9 Addition of Parties. The Company agrees that until the termination of
-------------------
this Agreement, it will cause each of the key employees of the Company who holds
at least 100,000 shares of the capital stock of the Company (on an as-converted
basis and as adjusted for any stock split, stock dividends, combinations,
recapitalizations and the like with respect to such shares), to enter into this
Agreement and thereby to be bound by the terms hereof, all by execution of an
Instrument of Accession in the form attached as Exhibit E hereto. Any such
person so entering into this Agreement shall be deemed to be a Shareholder for
purposes of this Agreement.
9.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
<This space intentionally left blank>
-11-
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY" INVENTA CORPORATION
a California corporation
By: /s/ David A. Lavanty, President
------------------------------------
David A. Lavanty, President
<PAGE>
"FOUNDER" Ashok K. Santhanam and Revathi Santhanam,
Trustees of the Santhanam Family Trust U/D/T
dated May 23, 1997
By:
____________________________________
Ashok K. Santhanam, Trustee
_______________________________________
Revathi Santhanam
Sujatha Ramkumar, Trustee of the Amarnath
Santhanam 1997 Trust UTA dated May 23, 1997
By:
____________________________________
Sujatha Ramkumar, Trustee
Sujatha Ramkumar, Trustee of the Rishikesh
Santhanam 1997 Trust UTA dated May 23, 1997
By:
____________________________________
Sujatha Ramkumar, Trustee
-13-
<PAGE>
"PURCHASERS"
BANCBOSTON VENTURES INC.
By: /s/ Maia D. Heymann
------------------------------------
Name: Maia D. Heymann
Title: Director
PRIVATE EQUITY PORTFOLIO FUND II, LLC
By: /s/ Glen Holland
------------------------------------
Name: Glen Holland
Title: Vice President
BATTERY VENTURES III, L.P.
By: Battery Partners III, L.P.
By: /s/ Todd Dagres
------------------------------------
Title: Todd Dagres, General Partner
BOSTON MILLENNIA PARTNERS LIMITED
PARTNERSHIP
By: Glen Partners Limited Partnership
Its General Partner
By: /s/ Martin J.
------------------------------------
General Partner
/s/ Robert Ducommun
---------------------------------------
Robert Ducommun
-14-
<PAGE>
PALMER G. AND CHARLES E. DUCOMMUN CHARITABLE
ANNUITY TRUST U/D/T
By: /s/ Robert Ducommun
------------------------------------
Robert Ducommun, Trustee
ESSEX PRIVATE PLACEMENT FUND II, LIMITED
PARTNERSHIP
By: Essex Investment Mgt. Company LLC
Its General Partner
By: /s/ [ILLEGIBLE]^^
------------------------------------
Title: Principal
---------------------------------
THE CHASE MANHATTAN BANK, AS TRUSTEE FOR
FIRST PLAZA GROUP TRUST
By: /s/ John F. Weeda
------------------------------------
Title: Vice President
---------------------------------
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
-15-
<PAGE>
TCV II Strategic Partners, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: Investment General Partner
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Technology Crossover Ventures II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: Investment General Partner
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Technology Crossover Ventures II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
-16-
<PAGE>
"OTHER SHAREHOLDERS"
BATTERY VENTURES III, L.P.
By: Battery Partners III, L.P.
By: /s/ Todd Dagres
------------------------------------
Name: Todd Dagres
Title: General Partner
BATTERY VENTURES L.P.
By: /s/ Todd Dagres
------------------------------------
Name: Todd Dagres
Title: General Partner
BOSTON MILLENNIA PARTNERS LIMITED
PARTNERSHIP
By: Martin L. Hermon, General Partner
BOSTON MILLENNIA PARTNERS LIMITED
PARTNERSHIP
By: Glen Partners Limited Partnership,
its General Partner
By: /s/ Martin L. Hermon
------------------------------------
General Partner
_______________________________________
Stephen T. Barry
_______________________________________
A. Dana Callow, Jr.
_______________________________________
Harry A. Caunter
_______________________________________
Electra D. DePeyster
-17-
<PAGE>
_______________________________________
Christian Dubiel
/s/ Robert Ducommun
---------------------------------------
Robert Ducommun
Palmer G. and Charles E. Ducommun
Charitable Annuity Trust, u/d/t
By: /s/ Robert Ducommun
------------------------------------
Robert Ducommun, Trustee
_______________________________________
Maya S. Hattangady
_______________________________________
Martin J. Hernon
_______________________________________
Ebenezer James
_______________________________________
Robert W. Jevon
_______________________________________
Ashwin Kedia
_______________________________________
B. Nagaraja Kini
_______________________________________
Muralidharam Manickam
_______________________________________
Srikantan Moorthy
-18-
<PAGE>
_______________________________________
Siby Nidhiry
_______________________________________
Frank P. Pinto
_______________________________________
Janice Porter
_______________________________________
Andrew Potter
_______________________________________
Suresh Shanmugham
_______________________________________
Santhanam C. Shekar
_______________________________________
Ramesh Sivakaminathan
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
-19-
<PAGE>
TCV II Strategic Partners, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: Investment General Partner
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Technology Crossover Ventures II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: Investment General Partner
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Technology Crossover Ventures II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
-20-
<PAGE>
EXHIBIT 10.6
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE
TRANSFER IS IN ACCORDANCE WITH RULE 144 OR SIMILAR RULE OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
No. WC-1 STOCK PURCHASE WARRANT
To Purchase Shares of Series C Preferred Stock of
Inventa Corporation
THIS CERTIFIES that, for value received, Greyrock Capital, a division of
Banc of America Commercial Finance Corporation ("Holder"), is entitled, upon the
terms and subject to the conditions hereinafter set forth, at any time on or
after the date hereof and on or prior to November 30, 2004 (the "Termination
Date"), but not thereafter, to subscribe for and purchase, from Inventa
Corporation, a California corporation (the "Company"), 160,000 shares of Series
C Preferred Stock (the "Shares") at an exercise price of $2.50 per share (the
"Exercise Price"), subject to adjustment as set forth below.
1. Title to Warrant. Prior to the expiration hereof and subject to
----------------
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company,
referred to in Section 2 hereof, by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant together with the Assignment
Form annexed hereto properly endorsed.
2. Exercise of Warrant. The purchase rights represented by this Warrant
-------------------
are exercisable by the registered holder hereof, in whole or in part, at any
time before the close of business on the Termination Date by the surrender of
this Warrant and the Notice of Exercise form annexed hereto duly executed at the
principal office of the Company at the address set forth in Section 15(c) hereof
(or such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company), and upon payment of the Exercise Price for the
Shares thereby purchased (by cash or by check or bank draft payable to the order
of the Company or by cancellation of indebtedness of the Company to the holder
hereof, if any, at the time of exercise in an amount equal to the purchase price
of the Shares thereby purchased); whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Series C Preferred
Stock so purchased. The Company agrees that if at the time of the surrender of
this Warrant and purchase the holder hereof shall be entitled to exercise this
Warrant, the shares so purchased shall be and be deemed to be issued to such
holder as the record
<PAGE>
owner of such shares at the close of business on the date on which this Warrant
shall have been exercised as aforesaid.
3. Right to Convert Warrant. The registered holder hereof shall have the
------------------------
right to convert this Warrant, by the surrender of this Warrant and the Notice
of Conversion form annexed hereto duly executed at the principal office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company), in whole but not in part, at any time
before the close of business on the Termination Date, into the Shares as
provided for in this Section 3. Upon exercise of this conversion right, the
holder hereof shall be entitled to receive that number of Shares equal to the
quotient obtained by dividing [(A - B)(X)] by (A), where:
(A) = the Fair Market Value (as defined below) of one (1) Share on
the date of conversion of this Warrant.
(B) = the Exercise Price for one (1) Share under this Warrant.
(X) = the number of Shares issuable upon exercise of this Warrant.
If the above calculation results in a zero or a negative number, then no
Shares shall be issued or issuable upon conversion of this Warrant.
"Fair Market Value" of a Share shall mean:
(a) if the conversion right is being exercised upon the occurrence
of a transaction specified in paragraph 10(a) hereof, the value
of the consideration (determined as set forth in the Company's
Articles of Incorporation, as amended) to be received pursuant
to such transaction by the holder of one (1) Share issuable
upon exercise of this Warrant;
(b) if the conversion right is being exercised upon the occurrence
of the Company's initial public offering, the initial public
offering price per share (before deducting underwriting
commissions and discounts and offering expenses) multiplied by
the number of shares of Common Stock issuable upon conversion
of one (1) Share issuable upon exercise of this Warrant;
(c) if the conversion right is being exercised after, and not in
connection with the Company's initial public offering, and:
(i) if traded on a securities exchange, the fair market value
shall be deemed to be the average of the closing prices
of the securities on such exchange over the thirty (30)
day period ending three (3) days before the day the
current fair market value of the securities is being
determined; or
-2-
<PAGE>
(ii) if actively traded over-the-counter, the fair market
value shall be deemed to be the average of the closing
bid or sale prices (whichever are applicable) over the
thirty (30) day period ending three (3) days before the
day the current fair market value of the securities is
being determined; and
(d) in all other cases, the fair value as determined in good faith
by the Company's Board of Directors.
Upon conversion of this Warrant, the registered holder hereof shall be
entitled to receive a certificate for the number of Shares determined as
aforesaid.
4. Issuance of Stock; No Fractional Shares or Scrip. Certificates for
------------------------------------------------
the stock purchased hereunder or issuable upon conversion hereof shall be
delivered to the holder hereof promptly after the date on which this Warrant
shall have been exercised or converted as aforesaid. The Company covenants that
all Shares which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue). The Company agrees that, if at the time of
the surrender of this Warrant and exercise of the rights represented hereby, the
holder hereof shall be entitled to exercise such rights, the Shares so issued
shall be and be deemed to be issued to such holder as the record owner of such
Shares as of the close of business on the date on which this Warrant shall have
been exercised or converted as aforesaid. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant. With respect to any fraction of a Share called for upon the
exercise or conversion of this Warrant, an amount equal to such fraction
multiplied by the then current price at which each Share may be purchased
hereunder shall be paid in cash to the holder of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for the Shares
---------------------------
upon the exercise or conversion of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
-------- -------
Shares are to be issued in a name other than the name of the holder of this
Warrant, this Warrant when surrendered for exercise or conversion shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance or
-------- -------
delivery of any certificates for the Shares, the Company may require, as a
condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.
6. No Rights as Shareholders. This Warrant does not entitle the holder
-------------------------
hereof to any voting rights or other rights as a shareholder of the Company
prior to the exercise or conversion thereof.
-3-
<PAGE>
7. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
--------------------------------
the surrender hereof by the registered holder at the above-mentioned office or
agency of the Company, for a new Warrant of like tenor and dated as of such
exchange.
The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered holder of this Warrant.
This Warrant may be surrendered for exchange, transfer or exercise, in
accordance with its terms, at such office or agency of the Company, and the
Company shall be entitled to rely in all respects, prior to written notice to
the contrary, upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
-------------------------------------------------
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
9. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
----------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
10. Anti-Dilution Provision.
-----------------------
(a) Merger, Sale of Assets, etc. In case of (1) the Company's
----------------------------
consolidation or merger with or into another corporation in which the Company is
not the surviving entity, or a merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding immediately
prior to the merger are converted, by virtue of the merger, into other property,
whether in the form of securities, cash or otherwise, or (2) the sale or
transfer of all or substantially all of the Company's assets, then, as part of
such reorganization, recapitalization, merger, consolidation, sale or transfer,
lawful provision shall be made so that there shall thereafter be deliverable
upon the exercise of this Warrant or any portion thereof (in lieu of or in
addition to the number of Shares theretofore deliverable, as appropriate), and
without payment of any additional consideration, the number of shares of stock
or other securities or property to which the holder of the number of Shares
which would otherwise have been deliverable upon the exercise of this Warrant or
any portion thereof at the time of such reorganization, reclassification,
recapitalization, consolidation, merger, sale or transfer would have been
entitled to receive in such reorganization, reclassification, recapitalization,
consolidation, merger, sale or transfer. This Section 10(a) shall apply to
successive reorganization, reclassifications, recapitalizations, consolidations,
mergers, sales and transfers and to the stock or securities of any other
corporation that are at the time receivable upon the exercise of this Warrant.
If the per-share consideration payable to the registered holder hereof for
Shares in connection with any transaction described in this Section 10(a) is in
a form other than cash or marketable securities, then the value of such
consideration shall be determined in good faith by the Company's Board of
Directors.
-4-
<PAGE>
(b) Reclassification, etc. If the Company at any time shall, by
----------------------
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant exist into the
same or a different number of securities of any class or classes, this Warrant
shall thereafter be to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant immediately prior to such
subdivision, combination, reclassification or other change. If the Shares
issuable upon the exercise of this Warrant are subdivided or combined into a
greater or smaller number of the Shares, the purchase price under this Warrant
shall be proportionately reduced in case of subdivision of shares or
proportionately increased in the case of combination of shares, in both cases by
the ratio which the total number of the Shares to be outstanding immediately
after such event bears to the total number of the Shares outstanding immediately
prior to such event.
(c) Cash Distributions. No adjustment on account of cash dividends on
------------------
the Shares issuable upon the exercise of this Warrant will be made to the
purchase price under this Warrant.
(d) Authorized Shares. The Company covenants that, during the period
-----------------
the Warrant is outstanding, it will reserve from its authorized and unissued
Preferred Stock a sufficient number of shares to provide for the issuance of the
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Shares upon
the exercise of the purchase rights under this Warrant.
(e) Conversion Price Adjustments. The rate at which the Shares are
----------------------------
convertible into shares of Common Stock of the Company is subject to adjustment
as set forth in the Company's Articles of Incorporation, as amended. Any
adjustment to the conversion rate of the Shares issuable upon the exercise of
this Warrant effected prior to any exercise or conversion of this Warrant shall
apply to any Shares thereafter issued pursuant to the terms hereof.
11. Registration Rights. The Shares shall have the registration rights
-------------------
set forth in the Restated Registration Rights Agreement among the Company and
certain investors dated as of May 11, 1998, as amended (the "Registration Rights
Agreement"), and, effective as of the date of issuance of such Shares, the term
"Shares" as defined in the Registration Rights Agreement shall include the
Shares issuable upon exercise of this Warrant and the term "Registrable
Securities" as defined in the Registration Rights Agreement shall include the
shares of Common Stock issuable upon conversion of the Shares.
12. Restrictions on Transferability of Securities.
---------------------------------------------
(a) Restrictions on Transferability. This Warrant, the Shares
-------------------------------
issuable upon exercise of this Warrant, and the shares of Common Stock issuable
upon conversion of the Shares (collectively the "Securities") shall not be sold,
assigned, transferred or pledged except upon the conditions specified in this
Section 12, which conditions are intended to ensure compliance with the
provisions of the Securities Act of 1933, as amended (the "Securities Act").
Each holder of any of
-5-
<PAGE>
the Securities will cause any proposed purchaser, assignee, transferee, or
pledgee of the Securities held by such holder to agree to take and hold such
Securities subject to the provisions and upon the conditions specified in this
Section 12.
(b) Restrictive Legend. Each certificate representing the Securities
------------------
and any other securities issued in respect of the Securities upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 12(c) below) be
stamped or otherwise imprinted with a legend in the following form (in addition
to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
UNLESS THE TRANSFER IS IN ACCORDANCE WITH RULE 144 OR SIMILAR RULE OR UNLESS THE
COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
Each holder of Securities and each subsequent transferee (hereinafter
collectively referred to as a "Holder") consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Securities in order to implement the restrictions on transfer established in
this Section 12.
(c) Notice of Proposed Transfers. Each Holder of a certificate
----------------------------
representing the Securities, by acceptance thereof, agrees to comply in all
respects with the provisions of this Section 12(c). Prior to any proposed sale,
assignment, transfer or pledge of any Securities (other than (i) a transfer not
involving a change in beneficial ownership, (ii) in transactions involving the
distribution without consideration of Securities by a Holder to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, (iii) a transfer to an affiliated fund, partnership or
company, which is not a competitor of the Company, subject to compliance with
applicable securities laws or (iv) transfers in compliance with Rule 144, so
long as the Company is furnished with satisfactory evidence of compliance with
such Rule), unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the Holder thereof shall give
written notice to the Company of such Holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such Holder's expense, by either
(i) an opinion of counsel (who shall, and whose opinion shall be, addressed to
the Company and reasonably satisfactory to the Company) to the effect that the
proposed transfer of the Securities may be effected without registration under
the Securities Act or (ii) a "no action" letter from the Securities and Exchange
Commission (the "Commission") to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the Holder of
such Securities shall be entitled to transfer such Securities in accordance with
the terms of the notice delivered by such Holder to the
-6-
<PAGE>
Company. Each certificate evidencing the Securities transferred as above
provided shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 12(b) above, except that
such certificate shall not bear such restrictive legend if in the opinion of
counsel for such Holder and in the opinion of counsel for the Company such
legend is not required in order to establish compliance with any provision of
the Securities Act.
(d) Removal of Restrictions on Transfer of Securities. Any legend
-------------------------------------------------
referred to in Section 12(b) hereof stamped on a certificate evidencing the
Securities and the stock transfer instructions and record notations with respect
to the Securities shall be removed, and the Company shall issue a certificate
without such legend to the Holder of the Securities if the Securities are
registered under the Securities Act, or if such Holder provides the Company with
an opinion of counsel (which may be counsel for the Company) reasonably
satisfactory to the Company to the effect that a public sale or transfer of such
security may be made without registration under the Securities Act or such
Holder provides the Company with reasonable assurances, which may, at the option
of the Company, include an opinion of counsel (which may be counsel for the
Company) reasonably satisfactory to the Company, that such security can be sold
pursuant to paragraph (k) of Rule 144 (or any successor provision) under the
Securities Act.
13. Investment Representations of Holder. With respect to the acquisition
------------------------------------
of any of the Securities, Holder hereby represents and warrants to the Company
as follows:
(a) Experience. Holder has substantial experience in evaluating and
----------
investing in private placement transactions of securities in companies similar
to the Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
Holder is an "accredited investor" within the meaning of Regulation D
promulgated under the Securities Act.
(b) Investment. Holder is acquiring the Securities for investment for
----------
its own account, not as a nominee or agent, and not with the view to, or for
resale in connection with, any distribution thereof. Holder understands that
the Securities have not been, and will not be, registered under the Securities
Act by reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of Holder's
representations as expressed herein.
(c) Rule 144. Holder acknowledges that the Securities must be held
--------
indefinitely unless subsequently registered under the Securities Act, or unless
an exemption from such registration is available. Holder is aware of the
provisions of Rules 144 and 144A promulgated under the Securities Act that
permit limited resale of securities purchased in a private placement subject to
satisfaction of certain conditions.
(d) No Public Market. Holder understands that no public market now
----------------
exists for any of the securities issued by the Company and that the Company has
made no assurances that a public market will ever exist for the Securities.
-7-
<PAGE>
(e) Access to Data. Holder has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with the Company's
management and has also had an opportunity to ask questions of the Company's
officers, which questions were answered to its satisfaction.
14. Notices.
-------
(a) Notice of Public Offering. If at any time prior to the exercise
-------------------------
or conversion of this Warrant in full the Company shall determine to effect a
registered public offering of its securities, then the Company will give the
holder of this Warrant at least thirty (30) days prior written notice of the
proposed effective date of the transaction.
(b) Notice of Record Date. If at any time prior to the exercise or
---------------------
conversion of this Warrant in full the Company takes a record of the holders of
the Company's stock for the purpose of determining the holders thereof who are
entitled to receive any 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, the Company will give to
the holder of this Warrant, at least thirty (30) days prior to the date
specified therein, written 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.
15. Miscellaneous.
-------------
(a) Issue Date. The provisions of this Warrant shall be construed and
----------
shall be given effect in all respect as if it had been issued and delivered by
the Company on the date hereof. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of the State of California and for all purposes shall be
construed in accordance with and governed by the laws of said state.
(b) Waivers and Amendments. With the written consent of the Company
----------------------
and Holder, the obligations of the Company and the rights of Holder may be
waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time of indefinitely), and
with the same consent the Company and Holder may enter into a supplementary
agreement for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Warrant.
(c) Notices. All notices and other communications required or
-------
permitted to be given under this Warrant shall be in writing and shall be deemed
effectively given upon personal delivery, delivery by nationally recognized
courier or upon deposit with the United States Post Office (by first class mail,
postage prepaid) addressed as follows: (i) if to the Company, to Inventa
Corporation, 255 Shoreline Drive, Suite 200, Redwood Shores, CA 94065,
Attention: _________________, and (ii) if to Holder, to Greyrock Capital, a
Division of Banc of America Commercial Finance Corporation, 10880 Wilshire
Blvd., Suite 1850, Los Angeles, CA 90024, Attention: ____________________.
-8-
<PAGE>
(d) Survival. The provisions of Section 12 hereof shall survive the
--------
exercise or conversion of this Warrant and shall remain in effect until such
time as Holder no longer holds Securities.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: November 17, 1999
INVENTA CORPORATION
By: /s/ Ashok Santhanam
-----------------------------
Title: Chairman
-------------------------
Agreed and Accepted:
GREYROCK CAPITAL,
a Division of Banc of America Commercial
Finance Corporation
By: /s/ Lisa Nagano
-----------------------------------
Lisa Nagano
Title: Sr. Vice President
-------------------------------
-10-
<PAGE>
NOTICE OF EXERCISE
------------------
To: Inventa Corporation
(1) The undersigned hereby elects to purchase _______________ shares of
Series C Preferred Stock of Inventa Corporation pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate of certificates representing said shares of
Series C Preferred Stock in the name of the undersigned or in such other name as
is specified below:
---------------------------------------
(Name)
--------------------------------------
(Address)
(3) The undersigned represents that the aforesaid shares of Series C
Preferred Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares.
- ------------------------------ ----------------------------------
(Date) (Signature)
<PAGE>
NOTICE OF CONVERSION
--------------------
To: Inventa Corporation
(1) The undersigned hereby elects to convert the attached Warrant into
such number of shares of Series C Preferred Stock of Inventa Corporation as is
determined pursuant to Section 3 of such Warrant, which conversion shall be
effected pursuant to the terms of the attached Warrant.
(2) Please issue a certificate of certificates representing said shares of
Inventa Corporation Series C Preferred Stock in the name of the undersigned or
in such other name as is specified below:
--------------------------------
(Name)
--------------------------------
(Address)
(3) The undersigned represents that the aforesaid shares of Inventa
Corporation Preferred Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale in connection
with, the distribution thereof and that the undersigned has no present intention
of distributing or reselling such shares.
- ------------------ ----------------------------
(Date) (Signature)
<PAGE>
ASSIGNMENT FORM
---------------
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
______________________________________________________________________________
(Please Print)
whose address is _____________________________________________________________.
(Please Print)
_____________________________________________________________________________
Dated: _____________________, _____
Holder's Signature: _______________
Holder's Address: _________________
_________________
Signature Guaranteed: _______________________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
EXHIBIT 10.7
INVENTA CORPORATION
1993 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Certain Definitions. As used herein, the following definitions shall
-------------------
apply:
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Inventa Corporation, a California corporation.
-------
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Board, provided that such leave is for a
period of not more than ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or its successor.
<PAGE>
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "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 National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported, as quoted
on such system or exchange for the last market trading day prior to the time of
determination) as reported in the Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common Stock or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(p) "Optionee" means an Employee or Consultant who receives an
--------
Option.
(q) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1993 Stock Option Plan.
----
(s) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(t) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
-2-
<PAGE>
3. Stock Subject to the Plan. Subject to the provisions of Section
-------------------------
12 of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 5,355,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Administration With Respect to Directors and Officers.
-----------------------------------------------------
With respect to grants of Options to Employees who are also officers or
directors of the Company, the Plan shall be administered by (A) the Board if the
Board may administer the Plan in compliance with Rule 16b-3 promulgated under
the Exchange Act or any successor thereto ("Rule 16b-3") with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options to Employees or Consultants who
- ---------
are neither directors nor officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of California corporate and securities laws and of the Code (the
"Applicable Laws"). Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to
time the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
-3-
<PAGE>
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation regarding any
Option or other award and/or the shares of Common Stock relating thereto, based
in each case on such factors as the Administrator shall determine, in its sole
discretion);
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock; and
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted.
(c) Effect of Committee's Decision. All decisions, determinations and
------------------------------
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
-4-
<PAGE>
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
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 term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the 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, 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
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
-5-
<PAGE>
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) other Shares which (x) in the case of Shares acquired upon exercise
of an Option either have been owned by the Optionee for more than six months on
the date of surrender or were not acquired, directly or indirectly, from the
Company, and (y) 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, (4) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market Value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised, (5) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds required to
pay the exercise price, (6) by delivering an irrevocable subscription agreement
for the Shares which irrevocably obligates the option holder to take and pay for
the Shares not more than twelve months after the date of delivery of the
subscription agreement, (7) any combination of the foregoing methods of payment,
or (8) such other consideration and method of payment for the issuance of Shares
to the extent permitted under Applicable Laws. In making its determination as
to the type of consideration to accept, the Board shall consider if acceptance
of such consideration may be reasonably expected to benefit the Company (Section
315(b) of the California Corporation law).
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a 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 stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
-6-
<PAGE>
(b) Termination of Employment. In the event of termination of an
-------------------------
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within ninety (90)
days (or such other period of time as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding ninety (90) days) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his Option to the extent
that Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's Consulting relationship
or Continuous Status as an Employee as a result of his total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options. The Option 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.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax
-7-
<PAGE>
withholding under applicable tax laws, and the Optionee is obligated to pay the
Company an amount required to be withheld under applicable tax laws, the
Optionee may satisfy the withholding tax obligation by electing to have the
Company withhold from the Shares to be issued upon exercise of the Option 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 (the "Tax
Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization or Merger. Subject to
----------------------------------------------------
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, 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.
-8-
<PAGE>
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation does not
agree to assume the Option or to substitute an equivalent option, the Board
shall notify the Optionee that the Option shall be exercisable for a period of
fifteen (15) days from the date of such notice, and the Option will terminate
upon the expiration of such period.
13. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
-9-
<PAGE>
16. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
17. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Board shall approve from time to time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
19. Information to Optionees. The Company shall provide to each Optionee,
------------------------
during the period for which such Optionee has one or more Options outstanding, a
balance sheet and an income statement at least annually. The Company shall not
be required to provide such information to key employees whose duties in
connection with the Company assure their access to equivalent information.
-10-
<PAGE>
EXHIBIT 10.8
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
Stock Option Agreement
----------------------
Inventa Corporation, a California Corporation (the "Company"), hereby grants to
________________ (the "Optionee") an Option to purchase a total of
________shares (the "Shares") of Common Stock, at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the 1993 Stock Option Plan (the "Plan") adopted by the Company
which is incorporated herein by reference. The terms defined in the Plan shall
have the same defined meanings herein.
1) Nature of the Option
If Optionee is an Employee of the Company, this Option is intended to
qualify as an Incentive Stock Option as defined in Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"). If Optionee is a
Consultant of the Company, this Option is a nonstatutory option and is not
intended to qualify for any special tax benefits to the Optionee.
2) Exercise Price
The exercise price is ______for each share of Common Stock, which price is
not less than the fair market value per share of Common Stock on the date
of grant, as determined by the Board.
3) Exercise of Option
This Option shall be exercisable during its term in accordance with the
provisions of Section 9 of the Plan as follows:
(i) Right to Exercise
(a) Subject to Subsection 3 (i) (b) and (c) below, 25% of the total number
of shares subject to this Option shall be exercisable on ________and an
additional 2.0833% of the total number of shares shall be exercisable
monthly until all of such shares are exercisable. In no event shall this
Option provide for vesting at a rate of less than 20% per year over five
years from the date of grant of this Option.
(b) This Option may not be exercised for a fraction of a Share.
(c) In the event of Optionee's death, disability or other termination of
employment, the exercisability of the Option is governed by Sections 7, 8
and 9 below.
(ii) Method of Exercise
This Option shall be exercisable by written notice which shall state the
election to exercise the Option, the number of Shares in respect of which
the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such shares
of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by Optionee and
shall be delivered in person or by certified mail to the President,
Secretary or Chief Financial Officer of the Company. The written notice
shall be accompanied by payment of the exercise price. This Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the exercise price.
No shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised
with respect to such Shares.
4) Investment Representations; Restrictions on Transfer
(i) By receipt of this Option, by its execution and by its exercise in whole or
in part, Optionee represents to the Company the following:
(a) Optionee understands that this Option and any shares purchased upon
its exercise are securities, the issuance of which requires compliance with
federal and state securities laws.
(b) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Optionee is acquiring these securities for investment for Optionee's own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act).
(c) Optionee acknowledges and understands that the securities constitute
"restricted securities" under the Securities Act and must be held
indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is unavailable. Optionee further
acknowledges and understands that the Company is under no obligation to
register the securities. Optionee understands that the certificate
evidencing the securities will be imprinted with a legend which prohibits
the transfer of the securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company, a legend prohibiting their transfer without consent of the
Commissioner of Corporations of the State of California and any other
legend required under applicable state securities laws.
(d) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof, in a nonpublic offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of exercise of the Option by the
Optionee, such exercise will be exempt from registration under the
Securities Act. In the event the Company later becomes subject to the
reporting requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, ninety (90) days thereafter the securities exempt under Rule
701 may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including among other things: (1) the sale being
made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under
the Securities Exchange Act of 1934); and, in the case of an affiliate, (2)
the availability of certain public information about the Company, and the
amount of securities being sold during any three month period not exceeding
the limitations specified in Rule 144 (e), if applicable. Notwithstanding
this paragraph 4 (i) (d), the Optionee acknowledges and agrees to the
restrictions set forth in paragraph 4 (ii).
(e) In the event that the Company does not qualify under Rule 701 at the
time of exercise of the Option, then the securities may be resold in
certain limited circumstances subject to the provisions of Rule 144, which
requires among other things: (1) the availability of certain public
information about the Company; (2) the resale occurring not less than two
years after the party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and (3) in the case of an
affiliate, or of a nonaffiliate who has held the securities less than three
years, the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term
is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the
specified limitations stated therein, if applicable.
(ii) Optionee agrees, in connection with the Company's initial underwritten
public offering of the Company's securities, (1) not to sell, make short
sale of, loan, grant any options for the purchase of, or otherwise dispose
of any shares of Common Stock of the Company held by Optionee (other than
those shares included in the registration) without the prior written
consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for one hundred
eighty (180) days from the effective date of such registration, and (2)
further agrees to execute any agreement reflecting (1) above as may be
requested by the underwriters at the time of the public offering.
5) Method of Payment
Payment of the purchase price shall be made by cash or check.
6) Restrictions on Exercise
This Option may not be exercised until such time as the Plan has been
approved by the shareholders of the Company, or if the issuance of such
Shares upon such exercise or the method of payment of consideration for
such shares would constitute a violation of any applicable federal or state
securities or other law or regulation, including any rule under Part 207 of
Title 12 of the Code of Federal Regulations (Regulation "G") as promulgated
by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or
regulation.
7) Termination of Status as an Employee or Consultant
If Optionee is an Employee and ceases to serve as an Employee or if
Optionee is a Consultant and ceases to serve as a Consultant, then Optionee
may, but only within ninety (90) days after the date he ceases to be an
Employee or Consultant (as the case may be), exercise this Option to the
extent that he was entitled to exercise it at the date of such termination.
To the extent that Optionee was not entitled to exercise this Option within
the time specified herein, this Option shall terminate.
8.) Disability of Optionee
Notwithstanding the provisions of section 7 above, if Optionee is unable to
continue his employment or consulting relationship with the Company as a
result of his permanent and total disability (as defined in Section 22 (e)
(3) of the Code), he may,
<PAGE>
but only within twelve (12) months from the date of termination of
employment or consulting relationship, exercise this Option to the extent
he was entitled to exercise it at the date of such termination. To the
extent that he was not entitled to exercise this Option at the date of
termination, or if he does not exercise such Option (which he was entitled
to exercise) within the time specified herein, this Option shall terminate.
9.) Death of Optionee
In the event of the death of the Optionee:
(i) during the term of this Option and while an Employee or Consultant of the
Company and having been in Continuous Status as an Employee or Consultant
since the date of grant of this Option, this Option may be exercised, at
any time within twelve (12) months following the date of death, by
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had Optionee continued living and remained
in Continuous Status as an Employee or Consultant twelve (12) months after
the date of death; or
(ii) within ninety (90) days after the termination of Optionee's Continuous
Status as an Employee or Consultant, this Option may be exercised, at any
time within twelve (12) months following the date of death, by Optionee's
estate or by a person who acquired the right to exercise this Option by
bequest or inheritance, but only to the extent of the right to exercise
that had accrued at the date of termination.
10) Non-Transferability of Option
This Option may not be transferred in any manner otherwise than by will or
by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by Optionee. The terms of this Option shall be
binding upon the executors, administrators, heirs, successors and assigns
of Optionee.
11) Term of Option
Notwithstanding Section 9, this Option may not be exercised more than ten
(10) years from the date of grant of this Option, and may be exercised
during such term only in accordance with the Plan and the terms of this
Option.
12) Early Disposition of Stock
If Optionee is an Employee subject to taxation of income in the United
States, Optionee understands that if he disposes of any Shares received
under this Option within two (2) years after the date of this Agreement or
within one (1) year after such Shares were transferred to him, he will be
treated for federal income tax purposes as having received ordinary income
at the time of such disposition in an amount generally measured by the
difference between the exercise price and the lower of the fair market
value of the Shares at the date of exercise or the fair market value of the
Shares at the date of disposition. The amount of such ordinary income may
be measured differently if Optionee is an officer, director or 10%
shareholder of the Company, or if the Shares were subject to a substantial
risk of forfeiture at the time they were transferred to Optionee. Optionee
--------
hereby agrees to notify the Company in writing within 30 days after the
-----------------------------------------------------------------------
date of any such disposition. Optionee understands that if he disposes of
----------------------------
such Shares at any time after the expiration of such two-year and one-year
holding periods, any gain on such sale will be taxed as long term capital
gain.
13) Taxation Upon Exercise of Option
If Optionee is a Consultant, he understands that, upon exercise of this
Option, he will recognize income for United States tax purposes in an
amount equal to the excess of the then fair market value of the Shares over
exercise price. The Company will be required to withhold tax from
Optionee's current compensation with respect to such income; to the extent
that Optionee's current compensation is insufficient to satisfy the
withholding tax liability, the Company may require the Optionee to make a
cash payment to cover such liability as a condition of exercise of this
Option. Upon a resale of such shares by the Optionee, any difference
between the sale price and the fair market value of the shares on the date
of exercise of the Option will be treated as capital gain or loss.
14) Miscellaneous
The recipient of this Option acknowledges that the Company has no
additional obligation to issue or sell securities to the Optionee.
Date of Grant: December 17, 1997
Inventa Corporation
By:____________________________________________________________________________
Title: Chairman
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION
3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT
THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT THIS OPTION, THE COMPANY'S PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE,
THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT
AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL,
AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan, a copy of which is annexed
hereto, and represents that Optionee is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions thereof. Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Board or of the Committee upon any
questions arising under the Plan.
Dated:_________________________________________________________________________
Optionee:______________________________________________________________________
Residence Address:_____________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Social Security No. ___________________________________________________________
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
INCENTIVE STOCK OPTION (ISO)
----------------------------
TO:
FROM:
DATE:
RE: Exercise of Stock Option
I hereby exercise my option to purchase_________________________shares of
Common Stock at $______________per share (total exercise price of
$__________________, effective today's date. This notice is given in accordance
with the terms of my Stock Option Agreement dated ________________,19_________.
The option price and vested amount is in accordance with Sections 2 and 3 of the
Stock Option Agreement.
Attached is a check payable to_______________________________________for
the total exercise price of the shares being purchased. The undersigned confirms
the representations made In Section 4 of the Stock Option Agreement.
Please prepare the stock certificate in the following names(s):
__________________________________________________
__________________________________________________
__________________________________________________
(If the stock is to be registered in a name other than your name, please so
advise the Company. The Stock Option Agreement requires the Company's approval
for registration in a name other than your name and requires certain agreements
from any joint owner.)
Sincerely,
__________________________________________
(Signature)
__________________________________________
(Print or Type Name)
Letter and consideration received
On _______________, 19______
By:_________________________
<PAGE>
EXHIBIT 10.10
The PruArray Prototype Plan and
Trust and IRS Opinion Letters
[LOGO OF PRUARRAY PLAN]
PruArray 401(k) Plan
<PAGE>
401(k) Plan Document
THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNITED STATES. USE
DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS
PROHIBITED BY LAW WITHOUT THE EXPRESS CONSENT OF THE AUTHOR.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Page
<S> <C>
ARTICLE I: DEFINITIONS
1.1 Actual Deferral Percentage 1
1.2 Adoption Agreement 1
1.3 Aggregate Limit 1
1.4 Annual Additions 1
1.5 Annuity Starting Date 1
1.6 Applicable Calendar Year 1
1.7 Applicable Life Expectancy 2
1.8 Average Contribution Percentage (ACP) 2
1.9 Average Deferral Percentage (ADP) 2
1.10 Break In Service 2
1.11 Code 2
1.12 Compensation 2
1.13 Contribution Percentage 3
1.14 Defined Benefit Plan 4
1.15 Defined Benefit (Plan) Fraction 4
1.16 Defined Contribution Dollar Limitation 4
1.17 Defined Contribution Plan 4
1.18 Defined Contribution (Plan) Fraction 4
1.19 Designated Beneficiary 5
1.20 Disability 5
1.21 Distribution Calendar Year 5
1.22 Early Retirement Age 5
1.23 Earned Income 5
1.24 Effective Date 5
1,25 Election Period 5
1.26 Elective Deferral 5
1.27 Eligible Participant 5
1.28 Employee 6
1.29 Employer 6
1.30 Entry Date 6
1.31 Excess Aggregate Contributions 6
1.32 Excess Amount 6
1.33 Excess Contribution 6
1.34 Excess Elective Deferrals 6
1.35 Family Member 6
1.36 First Distribution Calendar Year 6
1.37 Fund 7
1.38 Hardship 7
1.39 Highest Average Compensation 7
1.40 Highly Compensated Employee 7
1.41 Hour Of Service 7
1.42 Key Employee 8
1.43 Leased Employee 9
1.44 Limitation Year 9
1.45 Master Or Prototype Plan 9
1.46 Matching Contribution 9
1.47 Maximum Permissible Amount 9
1.48 Net Profit 9
1.49 Normal Retirement Age 9
1.50 Owner-Employee 9
1.51 Paired Plans 9
1.52 Participant 10
1.53 Participant's Benefit 10
1.54 Permissive Aggregation Group 10
1.55 Plan 10
1.56 Plan Administrator 10
1.57 Plan Year 10
1.58 Present Value 10
1.59 Projected Annual Benefit 10
1.60 Qualified Deferred Compensation Plan 10
1.61 Qualified Domestic Relations Order I0
1.62 Qualified Early Retirement Age 10
1.63 Qualified Joint And Survivor Annuity 11
1.64 Qualified Matching Contribution 11
1.65 Qualified Non-Elective Contributions 11
1.66 Qualified Voluntary Contribution 11
1.67 Required Aggregation Group 11
1.68 Required Beginning Date 11
1.69 Rollover Contribution 11
1.70 Salary Savings Agreement 11
1.71 Self-Employed Individual 11
1.72 Service 11
1.73 Service Company 12
1.74 Shareholder Employee 12
1.75 Simplified Employee Pension Plan 12
1.76 Sponsor 12
1.77 Spouse (Surviving Spouse) 12
1.78 Super Top-Heavy Plan 12
1.79 Taxable Wage Base 12
1.80 Top-Heavy Determination Date 12
1.81 Top-Heavy Plan 12
1.82 Top-Heavy Ratio 12
1.83 Top-Paid Group 13
1.84 Transfer Contribution 13
1.85 Trustee 13
1.86 Valuation Date 13
1.87 Vested Account Balance 14
1.88 Voluntary Contribution 14
1.89 Welfare Benefit Fund 14
1.90 Year Of Service 14
ARTICLE II: ELIGIBILITY REQUIREMENTS
2.1 Participation 14
2.2 Change In Classification Of Employment 14
2.3 Computation Period 15
2.4 Employment Rights 15
2.5 Service With Controlled Groups 15
2 6 Owner-Employees 15
2.7 Leased Employees 15
2.8 Omission Of Eligible Employee 16
2.9 Inclusion Of Ineligible Employee 16
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ARTICLE III: EMPLOYER CONTRIBUTIONS
3.1 Amount 16
3.2 Expenses And Fees 16
3.3 Responsibility For Contributions 16
3.4 Return Of Contributions 16
3.5 Form Of Contribution 16
ARTICLE IV: EMPLOYEE CONTRIBUTIONS
4.1 Voluntary Contributions 17
4.2 Qualified Voluntary Contributions 17
4.3 Rollover Contribution 17
4.4 Transfer Contribution 17
4.5 Employer Approval Of Transfer Contributions 18
4.6 Elective Deferrals 18
4.7 Direct Rollover Of Benefits 18
ARTICLE V: PARTICIPANT ACCOUNTS
5.1 Separate Accounts 19
5.2 Adjustments To Participant Accounts 19
5.3 Allocating Employer Contributions 19
5.4 Allocating Investment Earnings And Losses 20
5.5 Participant Statements 20
ARTICLE VI: RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 Normal Retirement Benefits 20
6.2 Early Retirement Benefits 21
6.3 Benefits On Termination Of Employment 21
6.4 Restrictions On Immediate Distributions 22
6.5 Normal Form Of Payment 23
6.6 Commencement Of Benefits 23
6.7 Claims Procedures 23
6.8 In-Service Withdrawals 23
6.9 Hardship Withdrawal 24
6.10 Order Of Withdrawals 25
ARTICLE VII: DISTRIBUTION REQUIREMENTS
7.1 Joint And Survivor Annuity Requirements 25
7.2 Minimum Distribution Requirements 25
7.3 Limits On Distribution Periods 25
7.4 Required Distributions On Or After The
Required Beginning Date 26
7.5 Required Beginning Date 26
7.6 Transitional Rule 27
7.7 Designation Of Beneficiary For Death Benefit 28
7.8 Nonexistence Of Beneficiary 28
7.9 Distribution Beginning Before Death 28
7.10 Distribution Beginning After Death 28
7.11 Distribution Of Excess Elective Deferrals 29
7.12 Distributions Of Excess Contributions 29
7.13 Distribution Of Excess Aggregate Contributions 30
ARTICLE VIII: JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 Applicability Of Provisions 30
8.2 Payment Of Qualified Joint And Survivor Annuity 30
8.3 Payment Of Qualified Pre-Retirement
Survivor Annuity 30
8.4 Qualified Election 31
8.5 Notice Requirements For Qualified Joint
And Survivor Annuity 31
8.6 Notice Requirements For Qualified Pre-
Retirement Survivor Annuity 31
8.7 Special Safe-Harbor Exception For
Certain Profit-Sharing Plans 32
8.8 Transitional Joint And Survivor
Annuity Rules 32
8.9 Automatic Joint And Survivor Annuity
And Early Survivor Annuity 33
8.10 Annuity Contracts 33
ARTICLE IX: VESTING
9.1 Employee Contributions 33
9.2 Employer Contributions 33
9.3 Computation Period 34
9.4 Requalification Prior To Five Consecutive
One-Year Breaks In Service 34
9.5 Requaliflcation After Five Consecutive
One-Year Breaks In Service 34
9.6 Calculating Vested Interest 34
9.7 Forfeitures 34
9.8 Amendment Of Vesting Schedule 34
9.9 Service With Controlled Groups 35
ARTICLE X: LIMITATIONS ON ALLOCATIONS AND ANTIDISCRIMINATION TESTING
10.1 Participation In This Plan Only 35
10.2 Disposition Of Excess Annual Additions 35
10.3 Participation In This Plan And Another
Prototype Defined Contribution Plan, Welfare
Benefit Fund, Or Other Medical Account
Maintained By The Employer 36
10.4 Disposition Of Excess Annual Additions Under 36
Two Plans
10.5 Participation In This Plan And Another
Defined Contribution Plan Which Is Not A
Master Or Prototype Plan 37
10.6 Participation In This Plan And A
Defined Benefit Plan 37
10.7 Average Deferral Percentage (ADP) Test 37
10.8 Special Rules Relating To
Application Of ADP Test 37
10.9 Average Contribution Percentage (ACP) Test 38
10.10 Special Rules Relating To Application
Of ACP Test 38
ARTICLE XI: ADMINISTRATION
11.1 Plan Administrator 39
11.2 Trustee 40
11.3 Administrative Fees And Expenses 40
11.4 Duties And Indemnification 40
11.5 Special Provisions Concerning The
Service Company 41
ARTICLE XII: TRUST FUND
12.1 The Fund 42
12.2 Control Of Plan Assets 42
12.3 Exclusive Benefit Rules 42
12.4 Assignment And Alienation Of Benefits 42
12.5 Determination of Qualified Domestic
Relations Order (QDRO) 42
ARTICLE XIII: INVESTMENTS
13.1 Fiduciary Standards 43
13.2 No Investment Discretion 43
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13.3 Investment Directions 43
13.4 Permitted Investments 44
13.5 Shareholder Rights 44
I3.6 Liquidation Of Assets 45
13.7 Arbitration 45
13.8 Participant Loans 45
13.9 Insurance Policies 47
ARTICLE XIV: TOP-HEAVY PROVISIONS
14.1 Applicability Of Rules 48
14.2 Minimum Contribution 48
14.3 Minimum Vesting 49
14.4 Limitations On Allocations 49
ARTICLE XV: AMENDMENT AND TERMINATION
15.1 Amendment By Sponsor 49
15.2 Amendment By Employer 49
15.3 Termination 49
15.4 Qualification Of Employer's Plan 50
15.5 Mergers And Consolidations 50
15.6 Resignation And Removal 50
15.7 Qualification Of Prototype 50
ARTICLE XVI: GOVERNING LAW 50
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ARTICLE I--DEFINITIONS
1.1 Actual Deferral Percentage
The ratio (expressed as a percentage and calculated separately for each
Participant) of:
(a) the amount of Employer contributions [as defined at (c) and (d)] actually
paid over to the Fund on behalf of such Participant for the Plan Year to
(b) the Participant's Compensation for such Plan Year. Unless otherwise
specified by the Employer in the Adoption Agreement, Compensation will include
all amounts earned from the Employer and actually paid during the Plan Year.
Employer contributions on behalf of any Participant shall include:
(c) any Elective Deferrals made pursuant to the Participant's deferral
election, including Excess Elective Deferrals, but excluding Elective
Deferrals that are either taken into account in the Contribution Percentage
test (provided the ADP test is satisfied both with and without exclusion of
these Elective Deferrals) or are returned as excess Annual Additions; and
(d) at the election of the Employer, Qualified Non-Elective Contributions and
Qualified Matching Contributions.
For purposes of computing Actual Deferral Percentages, an Employee who would be
a Participant but for the failure to make Elective Deferrals shall be treated as
a Participant on whose behalf no Elective Deferrals are made.
1.2 Adoption Agreement
The document attached to this Plan by which an Employer elects to establish a
qualified retirement plan and trust under the terms of this Prototype Plan and
Trust.
1.3 Aggregate Limit - The sum of:
(a) 125 percent of the greater of the ADP of the non-Highly Compensated
Employees for the Plan Year or the ACP of non-Highly Compensated Employees
under the Plan subject to Code Section 401(m) for the Plan Year beginning with
or within the Plan Year of the cash or deferred arrangement as described in
Code Section 401(k) or Code Section 402(h)(1)(B), and
(b) the lesser of 200% or two percent plus the lesser of such ADP or ACP.
Alternatively, the aggregate limit can be determined by substituting "the lesser
of 200% or 2 percent plus" for "125% of" in (a) above, and substituting "125%
of" for "the lesser of 200% or 2 percent plus" in (b) above.
1.4 Annual Additions
The sum of the following amounts credited to a Participant's account for the
Limitation Year:
(a) Employer Contributions,
(b) Employee Contributions (under Article W),
(c) forfeitures,
(d) amounts allocated after March 31, 1984 to an individual medical account,
as defined in Code Section 415(1)(2), which is part of a pension or annuity
plan maintained by the Employer (these amounts are treated as Annual Additions
to a Defined Contribution Plan though they arise under a Defined Benefit
Plan), and
(e) amounts derived from contributions paid or accrued after 1985, in taxable
years ending after 1985, which are either attributable to post-retirement
medical benefits allocated to the account of a Key Employee, or to a Welfare
Benefit Fund maintained by the Employer, are also treated as Annual Additions
to a Defined Contribution Plan. For purposes of this paragraph, an Employee is
a Key Employee if he or she meets the requirements of paragraph 1.43 at any
time during the Plan Year or any preceding Plan Year. Welfare Benefit Fund is
defined at paragraph 1.89.
(f) allocations under a Simplified Employee Pension Plan.
Excess amounts applied in a Limitation Year to reduce Employer contributions
will be considered Annual Additions for such Limitation Year, pursuant to the
provisions of Article X.
1.5 Annuity Starting Date
The first day of the first period for which an amount is paid as an annuity or
in any other form.
1.6 Applicable Calendar Year
The First Distribution Calendar Year, and in the event of the recalculation of
life expectancy, such succeeding calendar year. If payments commence in
accordance with paragraph 7.4(e) before the
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Required Beginning Date, the Applicable Calendar Year is the year such payments
commence. If distribution is in the form of an immediate annuity purchased after
the Participant's death with the Participant's remaining interest, the
Applicable Calendar Year is the year of purchase.
1.7 Applicable Life Expectancy
Used in determining the required minimum distribution. The life expectancy (or
joint and last survivor expectancy) calculated using the attained age of the
Participant (or Designated Beneficiary) as of the Participant's (or Designated
Beneficiary's) birthday in the Applicable Calendar Year reduced by one for each
calendar year which has elapsed since the date life expectancy was first
calculated. If life expectancy is being recalculated, the Applicable Life
Expectancy shall be the life expectancy as so recalculated. The life expectancy
of a non-Spouse Beneficiary may not be recalculated.
1.8 Average Contribution Percentage (ACP) The average of the Contribution
Percentages for each Highly Compensated Employee and for each non-Highly
Compensated Employee.
1.9 Average Deferral Percentage (ADP)
The average of the Actual Deferral Percentages for each Highly Compensated
Employee and for each non-Highly Compensated Employee.
1.10 Break In Service
If the Hour counting method has been chosen by the Employer in the Adoption
Agreement, a Break In Service is a 12-consecutive month period during which an
Employee fails to complete more than 500 Hours of Service. If the Elapsed Time
method has been chosen by the Employer in the Adoption Agreement, a Break In
Service is a period of severance of at least 12 consecutive months.
1.11 Code
The Internal Revenue Code of 1986, including any amendments.
1.12 Compensation
Unless otherwise specified by the Employer in the Adoption Agreement,
Compensation shall include all amounts earned from the Employer and actually
paid during the Plan Year.
(a) Code Section 3401(a) Wages. Compensation is defined as wages within the
meaning of Code Section 3401(a) for the purposes of Federal income tax
withholding at the source but determined without regard to any rules that
limit the remuneration included in wages based on the nature or location of
the employment or the services performed [such as the exception for
agricultural labor in Code Section 3401(a)(2)].
(b) Code Section 415 Compensation. For purposes of applying the limitations of
Article X and Top-Heavy Minimums, the definition of Compensation shall be Code
Section 415 Compensation defined as follows: a Participant's Earned Income,
wages, salaries, and fees for professional services and other amounts received
(without regard to whether or not an amount is paid in cash) for personal
services actually rendered in the course of employment with the Employer
maintaining the Plan to the extent that the amounts are includible in gross
income [including, but not limited to, commissions paid salesmen, compensation
for services on the basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits and reimbursements or other expense
allowances under a nonaccountable plan (as described in Regulation 1.62-
2(c))], and excluding the following:
(1) Employer contributions to a plan of deferred compensation which are not
includible in the Employee's gross income for the taxable year in which
contributed, or Employer contributions under a Simplified Employee Pension
Plan or any distributions from a plan of deferred compensation,
(2) Amounts realized from the exercise of a non-qualified stock option, or
when restricted stock (or property) held by the Employee either becomes
freely transferable or is no longer subject to a substantial risk of
forfeiture,
(3) Amounts realized from the sale, exchange or other disposition of stock
acquired under a qualified stock option; and
(4) other amounts which received special tax benefits, or contributions
made by the Employer (whether or not under a salary reduction agreement)
towards the purchase of an annuity described in Code Section 403(b) (whether
or not the amounts are actually excludable from the gross income of the
Employee).
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For purposes of applying the limitations of Article X, Compensation for a
Limitation Year is the Compensation actually paid or made available during such
Limitation Year. Notwithstanding the preceding sentence, Compensation for a
Participant in a defined contribution plan who is permanently and totally
disabled [as defined in Code Section 22(e)(3)1 is the Compensation such
Participant would have received for the Limitation Year if the Participant had
been paid at the rate of Compensation paid immediately before becoming
permanently and totally disabled. Such imputed Compensation for the disabled
Participant may be taken into account only if the participant is not a Highly
Compensated Employee [as defined in Code Section 414(q)] and contributions made
on behalf of such Participant are nonforfeitable when made.
If the Employer fails to pick the determination period in the Adoption
Agreement, the Plan Year shall be used. Unless otherwise specified by the
Employer in the adoption agreement. Compensation shall be determined as provided
in Code Section 3401(a) (as defined in this paragraph 1.12(a)). In
nonstandardized Adoption Agreement 002, the Employer may choose to eliminate or
exclude categories of Compensation which do not violate the provisions of Code
Sections 401(a)(4), 414(s) the regulations thereunder and Revenue Procedure 89-
65.
Beginning with 1989 Plan Years, the annual Compensation of each Participant
which may be taken into account for determining all benefits provided under the
Plan (including benefits under Article XIV) for any Plan Year shall not exceed
$200,000, as adjusted under Code Section 415(d). For Plan Years beginning on or
after January 1, 1994, the annual Compensation of each Participant taken into
account for determining all benefits provided under the Plan for any Plan Year
shall not exceed $150.000, as adjusted for increases in the cost-of-living in
accordance with Code Section 401(a)(17). The cost-of-living adjustment in effect
for a calendar year applies to any determination period beginning in such
calendar year.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Code Section 414(q)(6) shall apply, except in applying
such rules, the term "family" shall include only the spouse of the Participant
and any lineal descendants of the Participant who have not attained age 19
before the end of the Plan year. If, as a result of the application of such
roles the adjusted annual Compensation limitation is exceeded, then (except for
purposes of determining the portion of Compensation up to the integration level
if this Plan provides for permitted disparity), the limitation shall be prorated
among the affected individuals in proportion to each such individual's
Compensation as determined under this section prior to the application of this
limitation.
If a Plan has a Plan Year that contains fewer than 12 Calendar Months, then the
annual compensation limit for that period is an amount equal to the annual
Compensation as adjusted for the calendar year in which the compensation period
begins, multiplied by a fraction the numerator of which is the number of full
months in the short determination period and the denominator of which is 12. If
compensation for any prior plan year is taken into account in determining an
employees contributions or benefits for the current year, the compensation for
such prior year is subject to the applicable annual compensation limit in effect
for that prior year. For this purpose, for years beginning before January 1,
1990, the applicable annual compensation limit is $200,000.
Compensation shall not include deferred compensation other than contributions
through a salary reduction agreement to a cash or deferred plan under Code
Section 401(k), a Simplified Employee Pension Plan under Code Section
402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity
under Code Section 403(b). Unless elected otherwise by the Employer in the
Adoption Agreement, these deferred amounts will be considered as Compensation
for Plan purposes. These deferred amounts are not counted as Compensation for
purposes of Articles X and XIV except for Code Sections 401(k) and 401(m)
testing. When applicable to a Self-Employed Individual, Compensation shall mean
Earned Income.
1.13 Contribution Percentage
The ratio (expressed as a percentage and calculated separately for each
Participant) of:
(a) the Participant's Contribution Percentage Amounts [as defined at (c)-(f)]
for the Plan Year, to
(b) the Participant's Compensation for such Plan Year. Unless otherwise
specified by the Employer in the Adoption Agreement, Compensation will include
all amounts earned from the Employer and actually paid during the Plan Year.
Contribution Percentage Amounts on behalf of any Participant shall include:
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(c) the amount of Employee Voluntary Contributions, Matching Contributions,
and Qualified Matching Contributions (to the extent not taken into account for
purposes of the ADP test) made under the Plan on behalf of the Participant for
the Plan Year,
(d) forfeitures of Excess Aggregate Contributions or Matching Contributions
allocated to the Participant's account which shall be taken into account in
the year in which such forfeiture is allocated,
(e) at the election of the Employer, Qualified Non-Elective Contributions, and
(f) the Employer also may elect to use Elective Deferrals in the Contribution
Percentage Amounts so long as the ADP test is met before the Elective
Deferrals are used in the ACP test and continues to be met following the
exclusion of those Elective Deferrals that are used to meet the ACP test.
Contribution Percentage Amounts shall not include Matching Contributions,
whether or not Qualified, that are forfeited either to correct Excess Aggregate
Contributions, or because the contributions to which they relate are Excess
Deferrals, Excess Contributions, or Excess Aggregate Contributions.
1.14 Defined Benefit Plan
A Plan under which a Participant's benefit is determined by a formula contained
in the Plan and no individual accounts are maintained for Participants.
1.15 Defined Benefit (Plan) Fraction
A fraction, the numerator of which is the sum of the Participant's Projected
Annual Benefits under all the Defined Benefit Plans (whether or not terminated)
maintained by the Employer, and the denominator of which is the lesser of 125
percent of the dollar limitation determined for the Limitation Year under Code
Sections 415(b) and (d) or 140 percent of the Highest Average Compensation,
including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant as of the first
day of the first Limitation Year beginning after 1986, in one or more Defined
Benefit Plans maintained by the Employer which were in existence on May 6, 1986,
the denominator of this fraction will not be less than 125 percent of the sum of
the annual benefits under such plans which the Participant had accrued as of the
close of the last Limitation Year beginning before 1987, disregarding any
changes in the terms and conditions of the plan after May 5, 1986. The preceding
sentence applies only if the Defined Benefit Plans individually and in the
aggregate satisfied the requirements of Section 415 for all Limitation Years
beginning before 1987.
1.16 Defined Contribution Dollar Limitation
Thirty thousand dollars ($30,000) or if greater, one-fourth of the defined
benefit dollar limitation set forth in Code Section 415(b)(1) as in effect for
the Limitation Year.
1.17 Defined Contribution Plan
A Plan under which individual accounts are maintained for each Participant to
which all contributions, forfeitures, investment income and gains or losses, and
expenses are credited or deducted. A Participant's benefit under such Plan is
based solely on the fair market value of his or her account balance.
1.18 Defined Contribution (Plan) Fraction
A Fraction, the numerator of which is the sum of the Annual Additions to the
Participant's account under all the Defined Contribution Plans (whether or not
terminated) maintained by the Employer for the current and all prior Limitation
Years (including the Annual Additions attributable to the Participant's
nondeductible Employee contributions to all Defined Benefit Plans, whether or
not terminated, maintained by the Employer, and the Annual Additions
attributable to all Welfare Benefit Funds, as defined in paragraph 1.89 and
individual medical accounts, as defined in Code Section 415(1)(2), maintained by
the Employer), and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior Limitation Years of service with the
Employer (regardless of whether a Defined Contribution Plan was maintained by
the Employer). The maximum aggregate amount in the Limitation Year is the lesser
of 125 percent of the dollar limitation determined under Code Sections 415(b)
and (d) in effect under Code Section 415(c)(1)(A) or 35 percent of the
Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day of the first
Limitation Year beginning after 1986, in one or more Defined Contribution Plans
maintained by the Employer which were in existence on May 6, 1986, the numerator
of this fraction will be adjusted if the sum of this fraction and the Defined
Benefit Fraction would otherwise
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exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal
to the product of (1) the excess of the sum of the fractions over 1.0 times (2)
the denominator of this fraction will be permanently subtracted from the
numerator of this fraction. The adjustment is calculated using the fractions as
they would be computed as of the end of the last Limitation Year beginning
before 1987, and disregarding any changes in the terms and conditions of the
Plan made after May 6, 1986, but using the Section 415 limitation applicable to
the first Limitation Year beginning on or after January 1, 1987. The Annual
Addition for any Limitation Year beginning before 1987, shall not be re-computed
to treat all Employee Contributions as Annual Additions.
1.19 Designated Beneficiary
The individual who is designated as the beneficiary under the Plan in accordance
with Code Section 401(a)(9) and the regulations thereunder.
1.20 Disability
An illness or injury of a potentially permanent nature, expected to last for a
continuous period of not less than 12 months, certified by a physician selected
by or satisfactory to the Employer, which prevents the Employee from engaging in
any occupation for wage or profit for which the Employee is reasonably fitted by
training, education or experience.
1.21 Distribution Calendar Year
A calendar year for which a minimum distribution is required.
1.22 Early Retirement Age
The age set by the Employer in the Adoption Agreement (but not less than 55),
which is the earliest age at which a Participant may retire and receive his or
her benefits under the Plan.
1.23 Earned Income
Net earnings from self-employment in the trade or business with respect to which
the Plan is established, determined without regard to items not included in
gross income and the deductions allocable to such items, provided that personal
services of the individual are a material income-producing factor. Earned income
shall be reduced by contributions made by an Employer to a qualified plan to the
extent deductible under Code Section 404. For tax years beginning after 1989,
net earnings shall be determined taking into account the deduction for one-half
of self-employment taxes allowed to the Employer under Code Section 164(f) to
the extent deductible.
1.24 Effective Date
The date on which the Employer's retirement plan or amendment to such plan
becomes effective. Unless otherwise specified in the Adoption Agreement, the
effective date shall be the first day of the Plan Year during which the Adoption
Agreement is executed by the Employer. For amendments reflecting statutory and
regulatory changes post Tax Reform Act of 1986, the Effective Date will be the
date upon which such amendment is first administratively applied.
1.25 Election Period
The period which begins on the first day of the Plan Year in which the
Participant attains age 35 and ends on the date of the Participant's death. If a
Participant separates from service prior to the first day of the Plan Year in
which age 35 is attained, the Election Period shall begin on the date of
separation, with respect to the account balance as of the date of separation.
1.26 Elective Deferral
Employer contributions made to the Plan at the election of the Participant, in
lieu of cash Compensation. Elective Deferrals shall also include contributions
made pursuant to a Salary Savings Agreement or other deferral mechanism, such as
a cash option contribution. With respect to any taxable year, a Participant's
Elective Deferral is the sum of all Employer contributions made on behalf of
such Participant pursuant to an election to defer under any qualified cash or
deferred arrangement as described in Code Section 401(k), any simplified
employee pension cash or deferred arrangement as described in Code Section
402(h)(1)(B), any eligible deferred compensation plan under Code Section 457,
any plan as described under Code Section 501(c)(18), and any Employer
contributions made on the behalf of a Participant for the purchase of an annuity
contract under Code Section 403(b) pursuant to a Salary Savings Agreement.
Elective Deferrals shall not include any deferrals properly distributed as
Excess Annual Additions.
1.27 Eligible Participant
Any Employee who is eligible to make a Voluntary Contribution, or an Elective
Deferral (if the Employer takes such contributions into account in the
calculation of the Contribution Percentage), or to receive a
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Matching Contribution (including forfeitures) or a Qualified Matching
Contribution. If a Voluntary Contribution or Elective Deferral is required as a
condition of participation in the Plan, any Employee who would be a Participant
in the Plan if such Employee made such a contribution shall be treated as an
Eligible Participant even though no Voluntary Contributions or Elective
Deferrals are made.
1.28 Employee
Any person employed by Employer (including the Self-Employed Individuals and
partners), all Employees of a member of an affiliated service group [as defined
in Code Section 414(m)], Employees of a controlled group of corporations [as
defined in Code Section 414(b)], all Employees of any incorporated or
unincorporated trade or business which is under common control [as defined in
Code Section 414(c)], leased Employees [as defined in Code Section 414(n)] and
any Employee required to be aggregated by Code Section 414(o). All such
Employees shall be treated as employed by a single Employer.
1.29 Employer
The Self-Employed Individual, partnership, corporation or other organization
which adopts this Plan including any firm that succeeds the Employer and adopts
this Plan. For purposes of Article X, Limitations on Allocations, Employer shall
mean the Employer that adopts this Plan, and all members of a controlled group
of corporations [as defined in Code Section 414(b) as modified by Code Section
415(h)], all commonly controlled trades or businesses [as defined in Code
Section 414(c) as modified by Code Section 415(h)] or affiliated service groups
[as defined in Code Section 414(m)] of which the adopting Employer is a part,
and any other entity required to be aggregated with the Employer pursuant to
regulations under Code Section 414(0).
1.30 Entry Date
The date on which an Employee commences participation in the Plan as
determined by the Employer in the Adoption Agreement. Unless the Employer
specifies otherwise in the Adoption Agreement, Entry into the Plan shall be on
the first day of the Plan Year or the first day of the seventh month of the Plan
Year coinciding with or following the date on which an Employee meets the
eligibility requirements.
1.31 Excess Aggregate Contributions
The excess, with respect to any Plan Year, of:
(a) The aggregate Contribution Percentage Amounts taken into account in
computing the numerator of the Contribution Percentage actually made on behalf
of Highly Compensated Employees for such Plan Year, over
(b) The maximum Contribution Percentage Amounts permitted by the ACP test
(determined by reducing contributions made on behalf of Highly Compensated
Employees in order of their Contribution Percentages beginning with the
highest of such percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to paragraph 1.34 and then determining Excess Contributions
pursuant to paragraph 1.33.
1.32 Excess Amount
The excess of the Participant's Annual Additions for the Limitation Year over
the Maximum Permissible Amount.
1.33 Excess Contribution
With respect to any Plan Year, the excess of:
(a) The aggregate amount of Employer contributions actually taken into account
in computing the ADP of Highly Compensated Employees for such Plan Year, over
(b) The maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly Compensated
Employees in order of the ADPs, beginning with the highest of such
percentages).
1.34 Excess Elective Deferrals
Those Elective Deferrals that are includible in a Participant's gross income
under Code Section 402(g) to the extent such Participant's Elective Deferrals
for a taxable year exceed the dollar limitation under such Code Section. Excess
Elective Deferrals shall be treated as Annual Additions under the Plan, unless
such amounts are distributed no later than the first April 15th following the
close of the Participant's taxable year.
1.35 Family Member
The Employee's Spouse, any lineal descendants and ascendants and the Spouse of
such lineal descendants and ascendants.
1.36 First Distribution Calendar Year
For distributions beginning before the Participant's death, the First
Distribution Calendar Year is the
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calendar year immediately preceding the calendar year which contains the
Participant's Required Beginning Date. For distributions beginning after the
Participant's death, the First Distribution Calendar Year is the calendar year
in which distributions are required to begin pursuant to paragraph 7.10.
1.37 Fund
All contributions received by the Trustee under this Plan and Trust, investments
thereof and earnings and appreciation thereon.
1.38 Hardship
An immediate and heavy financial need of the Employee where such Employee lacks
other available resources.
1.39 Highest Average Compensation
The average Compensation for the three consecutive Years of Service with the
Employer that produces the highest average. A Year of Service with the Employer
is the 12-consecutive month period defined in the Adoption Agreement.
1.40 Highly Compensated Employee
Any Employee who performs service for the Employer during the determination year
and who, during the immediate prior year:
(a) received Compensation from the Employer in excess of $75,000 [as adjusted
pursuant to Code Section 415(d)]; or
(b) received Compensation from the Employer in excess of $50,000 [as adjusted
pursuant to Code Section 415(d)] and was a member of the Top-Paid Group for
such year; or
(c) was an officer of the Employer and received Compensation during such year
that is greater than 50 percent of the dollar limitation in effect under Code
Section 415(b)(1)(A).
Notwithstanding (a), (b) and (c), an Employee who was not Highly Compensated
during the preceding Plan Year shall not be treated as a Highly Compensated
Employee with respect to the current Plan Year unless such Employee is a member
of the 100 Employees paid the greatest Compensation during the year for which
such determination is being made.
(d) Employees who are five percent (5%) Owners at any time during the
immediate prior year or determination year.
Highly Compensated Employee includes Highly Compensated active Employees and
Highly Compensated former Employees.
1.41 Hour Of Service
(a) Hour Counting Method:
(1) Each hour for which an Employee is paid, or entitled to payment, for the
performance of duties for the Employer. These hours shall be credited to the
Employee for the computation period in which the duties are performed; and
(2) Each hour for which an Employee is paid, or entitled to payment, by the
Employer on account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including disability), layoff, jury
duty, military duty or leave of absence. No more than 501 Hours of Service
shall be credited under this paragraph for any single continuous period
(whether or not such period occurs in a single computation period). Hours
under this paragraph shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which are incorporated
herein by this reference; and
(3) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer. The same Hours of Service shall
not be credited both under paragraph (a) or paragraph (b), as the case may
be, and under this paragraph (c). These hours shall be credited to the
Employee for the computation period or periods to which the award or
agreement pertains rather than the computation period in which the award,
agreement or payment is made.
(4) Hours of Service shall be credited for employment with the Employer and
with other members of an affiliated service group [as defined in Code Section
414(m)], a controlled group of corporations [as defined in Code Section
414(b)], or a group of trades or businesses under common control [as defined
in Code Section 414(c)] of which the adopting Employer is a member, and any
other entity required to be aggregated with the Employer pursuant to Code
Section 414(o) and the regu-
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lations thereunder. Hours of Service shall also be credited for any
individual considered an Employee for purposes of this Plan under Code
Section 414(n) or Code Section 414(o) and the regulations thereunder.
(5) Solely for purposes of determining whether a Break in Service, as defined
in paragraph 1.10, for participation and vesting purposes has occurred in a
computation period, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such absence, or in
any case in which such hours cannot be determined, 8 Hours of Service per day
of such absence. For purposes of this paragraph, an absence from work for
maternity or paternity reasons means an absence by reason of the pregnancy of
the individual, by reason of a birth of a child of the individual, by reason
of the placement of a child with the individual in connection with the
adoption of such child by such individual, or for purposes of caring for such
child for a period beginning immediately following such birth or placement.
The Hours of Service credited under this paragraph shall be credited in the
computation period in which the absence begins if the crediting is necessary
to prevent a Break in Service in that period, or in all other cases, in the
following computation period. No more than 501 hours will be credited under
this paragraph.
(6) Unless specified otherwise in the Adoption Agreement, the Hours of
Service Method shall be used. Also, unless specified otherwise in the
Adoption Agreement, Hours of Service shall be determined on the basis of
actual hours for which an Employee is paid or entitled to payment.
(b) Elapsed Time Method
(1) For purposes of this section, Hour of Service shall mean each hour for
which an Employee is paid or entitled to payment for the performance of
duties for the Employer.
(2) Break In Service is a period of severance of at least 12 consecutive
months.
(3) Period of severance is a continuous period of time during which the
Employee is not employed by the Employer. Such period begins on the date the
Employee retires, quits or is discharged, or if earlier, the 12 month
anniversary of the date on which the Employee was otherwise first absent from
service.
(4) In the case of an individual who is absent from work for maternity or
paternity reasons, the 12-consecutive month period beginning on the first
anniversary of the first date of such absence shall not constitute a Break In
Service. For purposes of this paragraph, an absence from work for maternity
or paternity reasons means an absence (i) by reason of the pregnancy of the
individual, (ii) by reason of the birth of a child of the individual, (iii)
by reason of the placement of a child with the individual in connection with
the adoption of such child by such individual, or (iv) for purposes of caring
for such child for a period beginning immediately following such birth or
placement.
(5) Each Employee will share in Employer contributions for the period
beginning on the date the Employee commences participation under the plan and
ending on the date on which such Employee severs employment with the Employer
or is no longer a member of an eligible class of Employees.
(6) If the Employer is a member of an affiliated service group (under section
414(m)), a controlled group of corporations (under section 414(b)), a group
of trades or businesses under common control (under section 414(c)) or any
other entity required to be aggregated with the Employer pursuant to section
414(o), service will be credited for any employment for any period of time
for any other member of such group. Service will also be credited for any
individual required under section 414(n) or section (414)(o) to be considered
an Employee of any Employer aggregated under section 414(b), (c), or (m).
1.42 Key Employee
Any Employee or former Employee (and the beneficiaries of such employee) who at
any time during the determination period was an officer of the Employer if such
individual's annual compensation exceeds 50% of the dollar limitation under Code
Section 415(b)(1)(A) (the defined benefit maximum
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annual benefit), an owner (or considered an owner under Code Section 318) of one
of the ten largest interests in the employer if such individual's compensation
exceeds 100% of the dollar limitation under Code Section 415(c)(1)(A), a 5%
owner of the Employer. or a 1% owner of the Employer who has an annual
compensation of more than $150,000. For purposes of determining who is a Key
Employee, annual compensation shall mean Compensation as defined for Article X,
but including amounts deferred through a salary reduction agreement to a cash or
deferred plan under Code Section 401(k), a Simplified Employee Pension Plan
under Code Section 408(k), a cafeteria plan under Code Section 125 or a tax-
deferred annuity under Code Section 403(b). The determination period is the Plan
Year containing the Determination Date and the four preceding Plan Years. The
determination of who is a Key Employee will be made in accordance with Code
Section 416(i)(1) and the regulations thereunder.
1.43 Leased Employee
Any person (other than an Employee of the recipient) who, pursuant to an
agreement between the recipient and any other person ("leasing organization"),
has performed services for the recipient [or for the recipient and related
persons determined in accordance with Code Section 414(n)(6)] on a substantially
full-time basis for a period of at least one year, and such services are of a
type historically performed by Employees in the business field of the recipient
Employer.
1.44 Limitation Year
The Plan Year as designated by the Employer in the Adoption Agreement for
purposes of determining the maximum Annual Addition to a Participant's account.
All qualified plans maintained by the Employer must use the same Limitation
Year. If the Limitation Year is amended to a different 12-consecutive month
period, the new Limitation Year must begin on a date within the Limitation Year
in which the amendment is made.
1.45 Master Or Prototype Plan
A plan, the form of which is the subject of a favorable opinion letter from the
Internal Revenue Service.
1.46 Matching Contribution
An Employer contribution made to this or any other defined contribution plan on
behalf of a Participant on account of an Employee Voluntary Contribution made by
such Participant, or on account of a Participant's Elective Deferral, under a
Plan maintained by the Employer.
1.47 Maximum Permissible Amount
The maximum Annual Addition that may be contributed or allocated to a
Participant's account under the plan for any Limitation Year shall not exceed
the lesser of:
(a) the Defined Contribution Dollar Limitation, or
(b) 25% of the Participant's Compensation for the Limitation Year.
The compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits [within the meaning of Code Section 401(h) or
Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under
Code Section 415(1)(1) or 419(d)(2). If a short Limitation Year is created
because of an amendment changing the Limitation Year to a different 12-
consecutive month period, the Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year divided by 12.
1.48 Net Profit
The current and accumulated operating earnings of the Employer before Federal
and State income taxes, excluding nonrecurring or unusual items of income, and
before contributions to this and any other qualified plan of the Employer.
Unless otherwise specified in the Adoption Agreement, profits will not be
required for Profit-Sharing contributions to the Plan.
1.49 Normal Retirement Age
The age, set by the Employer in the Adoption Agreement, at which a Participant
may retire and receive his or her benefits under the Plan. Unless otherwise
specified in the Adoption Agreement, the Normal Retirement Age shall be 65.
1.50 Owner-Employee
A sole proprietor, or a partner owning more than 10% of either the capital or
profits interest of the partnership.
1.51 Paired Plans
Two or more Plans maintained by the Sponsor designed so that a single or any
combination of Plans adopted by an Employer will meet the antidiscrimination
rules, the contribution and benefit limitations, and the Top-Heavy provisions of
the Code.
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1.52 Participant
Any Employee who has met the eligibility requirements and is participating in
the Plan.
1.53 Participant's Benefit
The account balance as of the last Valuation Date in the calendar year
immediately preceding the Distribution Calendar Year (valuation calendar year)
increased by the amount of any contributions or forfeitures allocated to the
account balance as of the dates in the valuation calendar year after the
Valuation Date and decreased by distributions made in the valuation calendar
year after the Valuation Date. A special exception exists for the second
distribution Calendar Year. For purposes of this paragraph, if any portion of
the minimum distribution for the First Distribution Calendar Year is made in the
second Distribution Calendar Year on or before the Required Beginning Date, the
amount of the minimum distribution made in the second distribution calendar year
shall be treated as if it had been made in the immediately preceding
Distribution Calendar Year.
1.54 Permissive Aggregation Group
Used for Top-Heavy testing purposes, it is the Required Aggregation Group of
plans plus any other plan or plans of the Employer which, when considered as a
group with the Required Aggregation Group. would continue to satisfy the
requirements of Code Sections 401(a)(4) and 410.
1.55 Plan
The Employer's retirement plan as embodied herein and in the Adoption Agreement.
1.56 Plan Administrator
The Employer.
1.57 Plan Year
The 12-consecutive month period designated by the Employer in the Adoption
Agreement. If no such period is designated, the Plan Year shall be the
Employer's taxable year.
1.58 Present Value
Used for Top-Heavy test and determination purposes, when determining the Present
Value of accrued benefits, with respect to any Defined Benefit Plan maintained
by the Employer, interest and mortality rates shall be determined in accordance
with the provisions of the respective plan. If applicable. interest and
mortality assumptions will be specified in Section 11 of the Adoption Agreement.
1.59 Projected Annual Benefit
Used to test the maximum benefit which may be obtained from a combination of
retirement plans, it is the annual retirement benefit (adjusted to an actuarial
equivalent straight life annuity if such benefit is expressed in a form other
than a straight life annuity or Qualified Joint and Survivor Annuity) to which
the Participant would be entitled under the terms of a Defined Benefit Plan or
plans, assuming:
(a) the Participant will continue employment until Normal Retirement Age under
the plan (or current age, if later), and
(b) the Participant's Compensation for the current Limitation Year and all
other relevant factors used to determine benefits under the plan will remain
constant for all future Limitation Years.
1.60 Qualified Deferred Compensation Plan
Any pension, profit-sharing, stock bonus, or other plan which meets the
requirements of Code Section 401 and includes a trust exempt from tax under Code
Section 501(a) or any annuity plan described in Code Section 403(a).
An Eligible Retirement Plan is an individual retirement account (IRA) as
described in section 408(a) of the Code, an individual retirement annuity (IRA)
as described in section 408(b) of the Code, an annuity plan as described in
section 403(a) of the Code, or a qualified trust as described in section 401(a)
of the Code, which accepts Eligible Rollover Distributions. However, in the case
of an Eligible Rollover Distribution to a surviving Spouse, an Eligible
Retirement Plan is an individual retirement account or individual retirement
annuity.
1.61 Qualified Domestic Relations Order
A QDRO is a signed Domestic Relations Order issued by a State Court which
creates, recognizes or assigns to an alternate payee(s) the right to receive all
or part of a Participant's Plan benefit and which meets the requirements of Code
Section 414(p). An alternate payee is a Spouse. former Spouse, child, or other
dependent who is treated as a beneficiary under the Plan as a result of the
QDRO.
1.62 Qualified Early Retirement Age
For purposes of paragraph 8.9, Qualified Early Retirement Age is the latest of:
(a) the earliest date, under the Plan, on which the Participant may elect to
receive retirement benefits, or
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(b) the first day of the 120th month beginning before the Participant reaches
Normal Retirement Age, or
(c) the date the Participant begins participation.
1.63 Qualified Joint And Survivor Annuity
An immediate annuity for the life of the Participant with a survivor annuity for
the life of the Participant's Spouse which is at least one-half of but not more
than the amount of the annuity payable during the joint lives of the Participant
and the Participant's Spouse. The exact amount of the Survivor Annuity is to be
specified by the Employer in the Adoption Agreement. If not designated by the
Employer, the Survivor Annuity will be 1/2 of the amount paid to the Participant
during his or her lifetime. The Qualified Joint and Survivor Annuity will be the
amount of benefit which can be provided by the Participant's Vested Account
Balance.
1.64 Qualified Matching Contribution
Matching Contributions which when made are subject to the distribution and
nonforfeitability requirements under Code Section 401(k).
1.65 Qualified Non-Elective Contributions Contributions (other than Matching
Contributions or Qualified Matching Contributions) made by the Employer and
allocated to Participants' accounts that the Participants may not elect to
receive in cash until distributed from the Plan; that are nonforfeitable when
made; and that are distributable only in accordance with the distribution
provisions that are applicable to Elective Deferrals and Qualified Matching
Contributions.
1.66 Qualified Voluntary Contribution
A tax-deductible voluntary Employee contribution. These contributions may no
longer be made to the Plan.
1.67 Required Aggregation Group
Used for Top-Heavy testing purposes, it consists of:
(a) each qualified plan of the Employer in which at least one Key Employee
participates or participated at any time during the determination period
(regardless of whether the plan has terminated), and
(b) any other qualified plan of the Employer which enables a plan described in
(a) to meet the requirements of Code Sections 401(a)(4) or 410.
1.68 Required Beginning Date
The date on which a Participant is required to take his or her first minimum
distribution under the Plan. The rules are set forth at paragraph 7.5.
1.69 Rollover Contribution
A contribution made by a Participant of an amount distributed to such
Participant from another Qualified Deferred Compensation Plan in accordance with
Code Sections 402(a)(5), (6), and (7). An Eligible Rollover Distribution is any
distribution of all or any portion of the balance to the credit of the
Participant except that an Eligible Rollover Distribution does not include:
(a) any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Participant or the joint lives (or joint life expectancies)
of the Participant and the Participant's Designated Beneficiary, or for a
specified period of ten years or more;
(b) any distribution to the extent such distribution is required under section
401(a)(9) of the Code; and
(c) the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation
with respect to employer securities).
A Direct Rollover is a payment by the plan to the Eligible Retirement Plan
specified by the Participant.
1.70 Salary Savings Agreement
An agreement between the Employer and a participating Employee where the
Employee authorizes the Employer to withhold a specified percentage of his or
her Compensation for deposit to the Plan on behalf of such Employee.
1.71 Self-Employed Individual
An individual who has Earned Income for the taxable year from the trade or
business for which the Plan is established including an individual who would
have had Earned Income but for the fact that the trade or business had no Net
Profit for the taxable year.
1.72 Service
The period of current or prior employment with the Employer. If the Employer
maintains a plan of a predecessor employer, Service for such predecessor shall
be treated as Service for the Employer.
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1.73 Service Company
Prudential Mutual Fund Services, Inc., or its successor serving from time to
time.
1.74 Shareholder Employee
An Employee or Officer who owns [or is considered as owning within the meaning
of Code Section 318(a)(1)], on any day during the taxable year of an electing
small business corporation (S Corporation), more than 5% of such corporation's
outstanding stock.
1.75 Simplified Employee Pension Plan
An individual retirement account which meets the requirements of Code Section
408(k), and to which the Employer makes contributions pursuant to a written
formula. These plans are considered for contribution limitation and Top-Heavy
testing purposes.
1.76 Sponsor
Shall be Prudential Mutual Fund Management, Inc.
1.77 Spouse (Surviving Spouse)
The Spouse or Surviving Spouse of the Participant, provided that a former Spouse
will be treated as the Spouse or Surviving Spouse and a current Spouse will not
be treated as the Spouse or Surviving Spouse to the extent provided under a
Qualified Domestic Relations Order as described in Code Section 414(p).
1.78 Super Top-Heavy Plan
A Plan described at paragraph 1.81 under which the Top-Heavy Ratio [as defined
at paragraph 1.82] exceeds 90%.
1.79 Taxable Wage Base
For plans with an allocation formula which takes into account the Employer's
contribution under the Federal Insurance Contributions Act (FICA), the
contribution and benefit base in effect under Section 230, of the Social
Security Act, at the beginning of the Plan Year, or the amount elected by the
Employer in the Adoption Agreement.
1.80 Top-Heavy Determination Date
For any Plan Year subsequent to the first Plan Year, the last day of the
preceding Plan Year. For the first Plan Year of the Plan, the last day of that
year.
1.81 Top-Heavy Plan
For any Plan Year beginning after 1983, the Employer's Plan is top-heavy if any
of the following conditions exist:
(a) If the Top-Heavy Ratio for the Employer's Plan exceeds 60% and this Plan
is not part of any required Aggregation Group or Permissive Aggregation Group
of Plans.
(b) If the Employer's plan is a part of a Required Aggregation Group of plans
but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the
group of plans exceeds 60%.
(c) If the Employer's plan is a part of a Required Aggregation Group and part
of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the
Permissive Aggregation Group exceeds 60%.
1.82 Top-Heavy Ratio
(a) If the Employer maintains one or more Defined Contribution plans
(including any Simplified Employee Pension Plan) and the Employer has not
maintained any Defined Benefit Plan which during the 5-year period ending on
the Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio
for this Plan alone, or for the Required or Permissive Aggregation Group as
appropriate, is a fraction,
(1) the numerator of which is the sum of the account balances of all Key
Employees as of the Determination Date(s) [including any part of any account
balance distributed in the 5-year period ending on the Determination
Date(s)], and
(2) the denominator of which is the sum of all account balances [including
any part of any account balance distributed in the 5-year period ending on
the Determination Date(s)], both computed in accordance with Code Section 416
and the regulations thereunder.
Both the numerator and denominator of the Top-Heavy Ratio are increased to
reflect any contribution not actually made as of the Determination Date, but
which is required to be taken into account on that date under Code Section 416
and the regulations thereunder.
(b) If the Employer maintains one or more Defined Contribution Plans
(including any Simplified Employee Pension Plan) and the Employer maintains or
has maintained one or more Defined Benefit Plans which during the 5-year
period ending on the Determination Date(s) has or has had any accrued
benefits, the Top-Heavy
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Ratio for any Required or Permissive Aggregation Group as appropriate is a
fraction, the numerator of which is the sum of account balances under the
aggregated Defined Contribution Plan or Plans for all Key Employees,
determined in accordance with (a) above, and the Present Value of accrued
benefits under the aggregated Defined Benefit Plan or Plans for all Key
Employees as of the Determination Date(s), and the denominator of which is the
sum of the account balances under the aggregated Defined Contribution Plan or
Plans for all Participants, determined in accordance with (a) above, and the
Present Value of accrued benefits under the Defined Benefit Plan or Plans for
all Participants as of the Determination Date(s), all determined in accordance
with Code Section 416 and the regulations thereunder. The accrued benefits
under a Defined Benefit Plan in both the numerator and denominator of the Top-
Heavy Ratio are increased for any distribution of an accrued benefit made in
the 5-year period ending on the Determination Date.
(c) For purposes of (a) and (b) above, the value of account balances and the
Present Value of accrued benefits will be determined as of the most recent
Valuation Date that falls within or ends with the 12-month period ending on
the Determination Date, except as provided in Code Section 416 and the
regulations thereunder for the first and second plan years of a Defined
Benefit Plan. The account balances and accrued benefits of a participant (1)
who is not a Key Employee but who was a Key Employee in a prior year, or (2)
who has not been credited with at least one hour of service with any Employer
maintaining the Plan at any time during the 5-year period ending on the
Determination Date, will be disregarded. The calculation of the Top-Heavy
Ratio, and the extent to which distributions, rollovers, and transfers are
taken into account will be made in accordance with Code Section 416 and the
regulations thereunder. Qualified Voluntary Employee Contributions will not be
taken into account for purposes of computing the Top-Heavy Ratio. When
aggregating plans the value of account balances and accrued benefits will be
calculated with reference to the Determination Dates that fall within the same
calendar year. The accrued benefit of a Participant other than a Key Employee
shall be determined under (1) the method, if any, that uniformly applies for
accrual purposes under all Defined Benefit Plans maintained by the Employer,
or (2) if there is no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional rule of Code
Section 411 (b)(1)(C).
1.83 Top-Paid Group
The group consisting of the top 20% of Employees when ranked on the basis of
Compensation paid during such year. For purposes of determining the number of
Employees in the group (but not who is in it), the following Employees shall be
excluded:
(a) Employees who have not completed 6 months of Service.
(b) Employees who normally work less than 17-1/2 hours per week.
(c) Employees who normally do not work more than 6 months during any year.
(d) Employees who have not attained age 21.
(e) Employees included in a collective bargaining unit, covered by an
agreement between employee representatives and the Employer, where retirement
benefits were the subject of good faith bargaining and provided that 90% or
more of the Employer's Employees are covered by the agreement.
(f) Employees who are nonresident aliens and who receive no earned income
which constitutes income from sources within the United States.
1.84 Transfer Contribution
A non-taxable transfer of a Participant's benefit directly from a Qualified
Deferred Compensation Plan to this Plan.
1.85 Trustee
The individual(s) or institution appointed by the Employer in the Adoption
Agreement.
1.86 Valuation Date
The last business day of each Plan Year or such other date consistent with the
operational cycle of the Service Company, as agreed to by the Employer and the
Service Company on which Participant accounts are revalued in accordance with
Article V hereof. For Top-Heavy purposes, the date selected by the Employer as
of which the Top-Heavy Ratio is calculated.
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The value of mutual funds and other marketable investments shall be determined
using the most recent price quoted on a national securities exchange or over the
counter market. The value of investments for which there is no market shall be
determined in the sole judgement of the Employer or issuer and neither the
Trustee nor Service Company shall have responsibility with respect to the
valuation of such assets.
1.87 Vested Account Balance
The aggregate value of the Participant's Vested Account Balances derived from
Employer and Employee contributions (including Rollovers), whether vested before
or upon death, including the proceeds of insurance contracts, if any, on the
Participant's life. The provisions of Article VIII shall apply to a Participant
who is vested in amounts attributable to Employer contributions, Employee
contributions (or both) at the time of death or distribution.
1.88 Voluntary Contribution
An Employee contribution made to the Plan by or on behalf of a Participant that
is included in the Participant's gross income in the year in which made and that
is maintained under a separate account to which earnings and losses are
allocated.
1.89 Welfare Benefit Fund
Any fund that is part of a plan of the Employer, or has the effect of a plan,
through which the Employer provides welfare benefits to Employees or their
beneficiaries. For these purposes, Welfare Benefits means any benefit other than
those with respect to which Code Section 83(h) (relating to transfers of
property in connection with the performance of services), Code Section 404
(relating to deductions for contributions to an Employee's trust or annuity and
Compensation under a deferred payment plan), Code Section 404A (relating to
certain foreign deferred compensation plans) apply. A "Fund" is any social club,
voluntary employee benefit association, supplemental unemployment benefit trust
or qualified group legal service organization described in Code Section
501(c)(7), (9), (17) or (20); any trust, corporation, or other organization not
exempt from income tax, or to the extent provided in regulations, any account
held for an Employer by any person.
1.90 Year Of Service
If the Hour counting method has been chosen by the Employer in the Adoption
Agreement, a Year Of Service is a 12-consecutive month period during which an
Employee is credited with not less than 1,000 (or such lesser number as
specified by the Employer in the Adoption Agreement, Hours of Service. If the
Elapsed Time Method has been chosen by the Employer in the Adoption Agreement,
an Employee will receive credit for the aggregate of all time period(s)
commencing with the Employee's first day of employment or reemployment and
ending on the date a Break In Service begins. The first day of employment or
reemployment is the first day the Employee performs an Hour of Service. An
Employee will also receive credit for any period of severance of less than 12
consecutive months. Fractional periods of a year will be expressed in terms of
days.
ARTICLE II--ELIGIBILITY REQUIREMENTS
2.1 Participation
Unless otherwise specified in the Adoption Agreement, the Plan shall cover all
Employees having completed at least one Year of Service and who have attained
age 21. Employees who meet the eligibility requirements in the Adoption
Agreement on the Effective Date of the Plan shall become Participants as of the
Effective Date of the Plan. Unless stated to the contrary in the Adoption
Agreement, all Employees employed on the Effective Date of the Plan may
participate, even if they have not satisfied the Plan's specified eligibility
requirements. Other Employees shall become Participants on the Entry Date
coinciding with or immediately following the date on which they meet the
eligibility requirements. The Employee must satisfy the eligibility requirements
specified in the Adoption Agreement and be employed on the Entry Date to become
a Participant in the Plan. In the event an Employee who is not a member of the
eligible class of Employees becomes a member of the eligible class, such
Employee shall participate immediately if such Employee has satisfied the
minimum age and service requirements and would have previously become a
Participant had he or she been in the eligible class. A former Participant shall
again become a Participant upon returning to the employ of the Employer. For
this purpose, Participant's Compensation and Service shall be considered from
date of rehire.
2.2 Change In Classification Of Employment
If a Participant is transferred to an ineligible class of
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Employees, or is otherwise reclassified as an ineligible Employee, any
contribution or allocation of forfeitures which would otherwise be made for him
hereunder for the Plan Year of such transfer or reclassification shall be made.
No contribution or allocation of forfeitures for or by him shall be made,
however, for any subsequent Plan Year prior to the Plan Year in which he again
becomes a Participant.
2.3 Computation Period
To determine Years of Service and Breaks in Service for purposes of eligibility,
the 12-consecutive month period shall commence on the date on which an Employee
first performs an Hour of Service for the Employer and each anniversary thereof,
such that the succeeding 12-consecutive month period commences with the
employee's first anniversary of employment and so on. If, however, the period so
specified is one year or less, the succeeding 12-consecutive month period shall
commence on the first day of the Plan Year prior to the anniversary of the date
they first performed an Hour of Service regardless of whether the Employee is
entitled to be credited with 1,000 (or such lesser number as specified by the
Employer in the Adoption Agreement) Hours of Service during their first
employment year.
2.4 Employment Rights
Participation in the Plan shall not confer upon a Participant any employment
rights, nor shall it interfere with the Employer's right to terminate the
employment of any Employee at any time.
2.5 Service With Controlled Groups
All Years of Service with other members of a controlled group of corporations
[as defined in Code Section 414(b)], trades or businesses under common control
[as defined in Code Section 414(c)], or members of an affiliated service group
[as defined in Code Section 414(m)] shall be credited for purposes of
determining an Employee's eligibility to participate
2.6 Owner-Employees
If this Plan provides contributions or benefits for one or more Owner-Employees
who control both the business for which this Plan is established and one or more
other trades or businesses, this Plan and the Plan established for other trades
or businesses must, when looked at as a single Plan, satisfy Code Sections
401(a) and (d) for the Employees of this and all other trades or businesses.
If the Plan provides contributions or benefits for one or more Owner-Employees
who control one or more other trades or businesses, the Employees of the other
trades or businesses must be included in a Plan which satisfies Code Sections
401(a) and (d) and which provides contributions and benefits not less favorable
than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two or more
trades or businesses which are not controlled, and the individual controls a
trade or business, then the contributions or benefits of the Employees under the
plan of the trades or businesses which are controlled must be as favorable as
those provided for him or her under the most favorable plan of the trade or
business which is not controlled.
For purposes of the preceding sentences, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the Owner-
Employee, or two or more Owner-Employees together:
(a) own the entire interest in an unincorporated trade or business, or
(b) in the case of a partnership, own more than 50% of either the capital
interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more Owner-
Employees shall be treated as owning any interest in a partnership which is
owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control within the meaning
of the preceding sentence.
2.7 Leased Employees
Any leased Employee shall be treated as an Employee of the recipient Employer;
however, contributions or benefits provided by the leasing organization which
are attributable to services performed for the recipient Employer shall be
treated as provided by the recipient Employer. A leased Employee shall not be
considered an Employee of the recipient if such Employee is covered by a money
purchase pension plan providing:
(a) a non-integrated Employer contribution rate of at least 10% of
Compensation, [as defined in Code Section 415(c)(3) but including amounts
contributed by the Employer pursuant to a salary reduction agreement, which
are excludable from the Employee's gross income under a cafeteria
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plan covered by Code Section 125, a cash or deferred profit-sharing plan under
Section 401(k) of the Code, a Simplified Employee Pension Plan under Code
Section 402(h)(1)(B ) and a tax-sheltered annuity under Code Section 403(b)],
(b) immediate participation, and
(c) full and immediate vesting.
This exclusion is only available if Leased Employees do not constitute more than
twenty percent (20%) of the recipients non-highly compensated work force.
2.8 Omission Of Eligible Employee
If, in any Plan Year, any Employee who should be included as a Participant in
the Plan is erroneously omitted and discovery of such omission is not made until
after a contribution for the year has been made, the omitted Employee shall be
included in the next valuation. The Employer shall make any additional
contribution with respect to the omitted Employee that may be deemed necessary.
Such contribution shall be made regardless of whether it is deductible in whole
or in part in any taxable year under applicable provisions of the Code. The
Employee shall receive credit under the terms of the Plan for any period during
which he should have been included as a Participant.
2.9 Inclusion Of Ineligible Employee
If in any Plan Year. any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall be removed from the ineligible Employee's Account
and treated as a forfeiture.
ARTICLE III--EMPLOYER CONTRIBUTIONS
3.1 Amount
The Employer intends to make periodic contributions to the Plan in accordance
with the formula or formulas selected in the Adoption Agreement. However, the
Employer's contribution for any Plan Year shall be subject to the limitations on
allocations contained in Article X.
3.2 Expenses And Fees
The Employer shall also be authorized to reimburse the Fund for all expenses and
fees incurred in the administration of the Plan or Trust and paid out of the
assets of the Fund. Such expenses shall include, but shall not be limited to,
fees for professional services, printing and postage. Commissions may not be
reimbursed.
3.3 Responsibility For Contributions
The Trustee shall not be required to determine if the Employer has made a
contribution or if the amount contributed is in accordance with the Adoption
Agreement or the Code. The Employer shall have sole responsibility in this
regard. The Trustee shall be accountable solely for contributions actually
received by it, within the limits of Article XI.
3.4 Return Of Contributions
Contributions made to the Fund by the Employer shall be irrevocable except as
provided below:
(a) Any contribution forwarded to the Trustee because of a mistake of fact,
provided that the contribution is returned to the Employer within one year of
the contribution.
(b) In the event that the Commissioner of Internal Revenue determines that the
Plan is not initially qualified under the Internal Revenue Code, any
contribution made incident to that initial qualification by the Employer must
be returned to the Employer within one year after the date the initial
qualification is denied, but only if the application for the qualification is
made by the time prescribed by law for filing the Employer's return for the
taxable year in which the Plan is adopted, or such later date as the Secretary
of the Treasury may prescribe.
(c) Contributions forwarded to the Trustee are presumed to be deductible and
are conditioned on their deductibility. Contributions which are determined to
not be deductible will be returned to the Employer.
3.5 Form Of Contribution
Except as contemplated in paragraphs 4.3 and 4.4, no contribution shall be made
in property other than United States currency or such other property as is
acceptable to the Service Company.
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ARTICLE IV--EMPLOYEE CONTRIBUTIONS
4.1 Voluntary Contributions
Unless otherwise specified in the Adoption Agreement, an Employee may not make
Voluntary Contributions to the Plan established hereunder. If permitted, they
will be made in a uniform and nondiscriminatory manner. Such contributions are
subject to the limitations on Annual Additions and are subject to
antidiscrimination testing.
4.2 Qualified Voluntary Contributions
A Participant may no longer make Qualified Voluntary Contributions to the Plan.
Amounts already contributed may not remain in the Trust Fund. The Participant
must withdraw the Qualified Voluntary Contribution amounts already contributed
by making a written application to the Plan Administrator.
4.3 Rollover Contribution
Unless provided otherwise in the Adoption Agreement, a Participant and an
Employee in an eligible class of Employees who has not met the eligibility
requirements for participation in the Plan may make a Rollover Contribution to
any Defined Contribution Plan established hereunder of all or any part of an
amount distributed or distributable to him or her from a Qualified Deferred
Compensation Plan provided:
(a) the amount distributed to the Participant is deposited in the Plan no
later than the sixtieth day after such distribution was received by the
Participant,
(b) the amount distributed is not one of a series of substantially equal
periodic payments made for the life (or life expectancy) of the Participant or
the joint lives (or joint life expectancies) of the Participant and the
Participant's Designated Beneficiary, or for a specified period of ten years
or more;
(c) the amount distributed is not required under section 401(a)(9) of the
Code;
(d) if the amount distributed included property such property is rolled over,
or if sold the proceeds of such property may be rolled over,
(e) the amount distributed is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect
to employer securities).
In addition, if the Adoption Agreement allows Rollover Contributions, the Plan
will also accept any Eligible Rollover Distribution (as defined at paragraph
1.69) directly to the Plan.
Rollover Contributions, which relate to distributions prior to January 1, 1993,
must be made in accordance with paragraphs (a) through (e) and additionally meet
the requirements of paragraph (f):
(f) the distribution from the Qualified Deferred Compensation Plan constituted
the Participant's entire interest in such Plan and was distributed within one
taxable year to the Participant:
(1) on account of separation from Service, a Plan termination, or in the case
of a profit-sharing or stock bonus plan, a complete discontinuance of
contributions under such plan within the meaning of Section 402(a)(6)(A) of
the Code, or
(2) in one or more distributions which constitute a qualified lump sum
distribution within the meaning of Code Section 402(e)(4)(A), determined
without reference to subparagraphs (B) and (H),
Such Rollover Contribution may also be made through an individual Retirement
Account qualified under Code Section 408 where the IRA was used as a conduit
from the Qualified Deferred Compensation Plan, the Rollover Contribution is made
in accordance with the rules provided under paragraph (a) through (e) and the
Rollover Contribution does not include any regular IRA contributions, or
earnings thereon, which the Participant may have made to the IRA. Rollover
Contributions which relate to distributions prior to January 1, 1993, may be
made through an IRA in accordance with paragraphs (a) through (f) and additional
requirements as provided in the previous sentence. The Trustee shall not be held
responsible for determining the tax-free status of any Rollover Contribution
made under this Plan.
4.4 Transfer Contribution
Unless provided otherwise in the Adoption Agreement, a Participant and an
Employee in an eligible class of Employees who has not met the eligibility
requirements for participation in the Plan,
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may, subject to the provisions of paragraph 4.5, also arrange for the direct
transfer of his or her benefit from a Qualified Deferred Compensation Plan to
this Plan. For accounting and record keeping purposes, Transfer Contributions
shall be identical to Rollover Contributions.
In the event the Employer accepts a Transfer Contribution from a Plan in which
the Employee was directing the investments of his or her account, the Employer
may continue to permit the Employee to direct his or her investments in
accordance with paragraph 13.7 with respect only to such Transfer Contribution.
Notwithstanding the above, the Employer may refuse to accept such Transfer
Contributions.
Notwithstanding anything to the contrary, if a Participant changes
classification of employment between eligible and ineligible classes, then the
Employer may transfer said Participant's account balance between the appropriate
plans maintained by the Employer, so long as such transfer will not result in an
illegal cut back in benefits in violation of Code Section 41 l(d)(6).
4.5 Employer Approval Of Transfer Contributions
The Employer maintaining a safe-Harbor Profit-Sharing Plan in accordance with
the provisions of paragraph 8.7, acting in a nondiscriminatory manner, may in
its sole discretion refuse to allow Transfer Contributions to its profit-sharing
plan, if such contributions are directly or indirectly being transferred from a
defined benefit plan, a money purchase pension plan (including a target benefit
plan), a stock bonus plan, or another profit-sharing plan which would otherwise
provide for a life annuity form of payment to the Participant.
4.6 Elective Deferrals
A Participant may enter into a Salary Savings Agreement with the Employer
authorizing the Employer to withhold a portion of such Participant's
Compensation not to exceed $7,000 per calendar year as adjusted under Code
Section 415(d) or, if lesser, the percentage of Compensation specified in the
Adoption Agreement and to deposit such amount to the Plan. No Participant shall
be permitted to have Elective Deferrals made under this Plan or any other
qualified plan maintained by the Employer, during any taxable year, in excess of
the dollar limitation contained in Code Section 402(g) in effect at the
beginning of such taxable year.
Thus, the $7,000 limit may be reduced if a Participant contributes pre-tax
contributions to qualified plans of this or other Employers. Any such
contribution shall be credited to the Employee's Salary Savings Account. Unless
otherwise specified in the Adoption Agreement, a Participant may amend his or
her Salary Savings Agreement to increase, decrease or terminate the percentage
upon 30 days written notice to the Employer. If a Participant terminates his or
her agreement, such Participant shall not be permitted to put a new Salary
Savings Agreement into effect until the first pay period in the next Plan Year,
unless otherwise stated in the Adoption Agreement. The Employer may also amend
or terminate said agreement on written notice to the Participant. If a
Participant has not authorized the Employer to withhold at the maximum rate and
desires to increase the total withheld for a Plan Year, such Participant may
authorize the Employer upon 30 days notice to withhold a supplemental amount up
to 100% of his or her Compensation for one or more pay periods. In no event may
the sum of the amounts withheld under the Salary Savings Agreement plus the
supplemental withholding exceed 25% of a Participant's Compensation for a Plan
Year. Elective Deferrals shall be deposited in the Trust no later than the date
described in Section 2510.3-102 of the Department of Labor Regulations.
4.7 Direct Rollover Of Benefits
Notwithstanding any provision of the plan to the contrary that would otherwise
limit a Participant's election under this Paragraph, for distributions made on
or after January 1, 1993, a Participant may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an Eligible
Rollover Distribution paid directly to an Eligible Retirement Plan specified by
the Participant in a Direct Rollover. Any portion of a distribution which is not
paid directly to an Eligible-Retirement Plan shall be distributed to the
Participant. For purposes of this Paragraph, a Surviving Spouse or a spouse or
former spouse who is an alternate payee under a Qualified Domestic Relations
Order as defined in section 414(p) of the Code, will be permitted to elect to
have any Eligible Rollover Distribution paid directly to an individual
retirement account (IRA), an individual retirement annuity (IRA), or another
qualified retirement Plan.
The plan provisions otherwise applicable to distributions continue to apply to
Rollover and Transfer Contributions.
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ARTICLE V--PARTICIPANT ACCOUNTS
5.1 Separate Accounts
The Employer shall establish a separate bookkeeping account for each Participant
showing the total value of his or her interest in the Fund. Each Participant's
account shall be separated for bookkeeping purposes into the following sub-
accounts:
(a) Employer contributions.
(1) Matching Contributions.
(2) Qualified Matching Contributions.
(3) Qualified Non-Elective Contributions.
(4) Discretionary Contributions.
(5) Elective Deferrals.
(b) Voluntary Contributions (and additional amounts including required
contributions and, if applicable, either repayments of loans previously
defaulted on and treated as "deemed distributions" on which a tax report has
been issued, and amounts paid out upon a separation from service which have
been included in income and which are repaid after being re-hired by the
Employer).
(c) Transfer Contributions.
(d) Rollover Contributions.
5.2 Adjustments To Participant Accounts
As of each Valuation Date of the Plan, the Employer shall add to each account:
(a) the Participant's share of the Employer's contribution and forfeitures as
determined in the Adoption Agreement,
(b) any Elective Deferrals, Voluntary, Rollover or Transfer Contributions made
by the Participant,
(c) any repayment of amounts previously paid out to a Participant upon a
separation from Service and repaid by the Participant since the last Valuation
Date, and
(d) the Participant's proportionate share of any investment earnings and
increase in the fair market value of the Fund since the last Valuation Date,
as determined at paragraph 5.4.
The Employer shall deduct from each account:
(e) any withdrawals or payments made from the Participant's account since the
last Valuation Date, and the Participant's proportionate share of any decrease
in the fair market value of the Fund since the last Valuation Date, as
determined at paragraph 5.4.
5.3 Allocating Employer Contributions
The Employer's contribution shall be allocated to Participants in accordance
with the allocation formula selected by the Employer in the Adoption Agreement,
and the minimum contribution and allocation requirements for Top-Heavy Plans.
Unless otherwise specified in the Adoption Agreement, the Plan will not be
integrated with Social Security. Beginning with the 1990 Plan Year and
thereafter, for plans on Standardized Adoption Agreement 001, Participants who
are credited with more than 500 Hours of Service or are employed on the last day
of the Plan Year must receive a full allocation of Employer contributions. In
Nonstandardized Adoption Agreement 002, Employer contributions shall be
allocated to the accounts of Participants employed by the Employer on the last
day of the Plan Year unless indicated otherwise in the Adoption Agreement. In
the case of a non-Top-Heavy, Nonstandardized Plan, Participants must also have
completed a Year of Service unless otherwise specified in the Adoption
Agreement. For Nonstandardized Adoption Agreement 002, the Employer may only
apply the last day of the Plan Year and Year of Service requirements if the Plan
satisfies the requirements of Code Sections 401 (a)(26) and 410(b) and the
regulations thereunder including the exception for 401(k) plans. If, when
applying the last day and Year of Service requirements, the Plan fails to
satisfy the aforementioned requirements, additional Participants will be
eligible to receive an allocation of Employer Contributions until the
requirements are satisfied. Participants who are credited with a Year of
Service, but not employed at Plan Year end, are the first category of additional
Participants eligible to receive an allocation. If the requirements are still
not satisfied, Participants credited with more than 500 Hours of Service and
employed at Plan Year end are the next category of Participants eligible to
receive an allocation. Finally, if necessary to satisfy the said requirements,
any Participant credited with more than 500 Hours of Service will be eligible
for an allocation of Employer Contributions. The Service requirement is not
applicable with respect to any Plan Year during which the Employer's Plan is
Top-Heavy.
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In the event the Employer selects an integrated allocation formula, the
Employer's contribution will be allocated in accordance with the following
method unless otherwise specified in the Adoption Agreement:
(a) First, to the extent contributions and forfeitures are sufficient, all
Participants will receive an allocation equal to 3% of their Compensation.
(b) Next, any remaining Employer Contributions and forfeitures will be
allocated to Participants who have Compensation in excess of the Taxable Wage
Base (excess Compensation). Each such Participant will receive an allocation
in the ratio that his or her excess compensation bears to the excess
Compensation of all Participants. Participants may only receive an allocation
of 3% of excess Compensation.
(c) Next, any remaining Employer contributions and forfeitures will be
allocated to all Participants in the ratio that their Compensation plus excess
Compensation bears to the total Compensation plus excess Compensation of all
Participants. Participants may only receive an allocation of up to 2.7% of
their Compensation plus excess Compensation, under this allocation method. If
the Taxable Wage Base as defined in Section 3 of the Adoption Agreement is
less than the maximum, but more than the greater of $10,000 or 20% of the
maximum, then the 2.7% must be reduced. If the amount specified is greater
than 80% but less than 100% of the maximum Taxable Wage Base, the 2.7% must be
reduced to 2.4%. If the amount specified is greater than the greater of
$10,000 or 20% of the maximum Taxable Wage Base, but not more than 80%, 2.7%
must be reduced to 1.3%.
(d) Next, any remaining Employer contributions and forfeitures will be
allocated to all Participants (whether or not they received an allocation
under the preceding paragraphs) in the ratio that each Participant's
Compensation bears to all Participants' Compensation.
If the Plan is not Top-Heavy, subparagraphs (a) and (b) above may be
disregarded and 5.7%, 5.4% or 4.3% may be substituted for 2.7%, 2.4% or 1.3%
where it appears in (c) above.
5.4 Allocating Investment Earnings And Losses Participant's share of investment
earnings and any or decrease in the fair market value of the Fund shall be based
on the proportionate value of all active accounts (other than accounts with
segregated investments) as of the last Valuation Date less withdrawals since the
last Valuation Date. If applicable, segregated accounts may be allocated
earnings, up through the date of segregation, under the above method, at the
Plan Administrator's discretion. If Employer and/or Employee contributions are
made monthly, quarterly, or on some other systematic basis, the adjusted value
of such accounts for allocation of investment Income and gains or losses shall
include one-half the contributions for such period. If Employer and/or Employee
contributions are not made on a systematic basis, it is assumed that they are
made at the end of the valuation period and therefore will not receive an
allocation of investment earnings and gains or losses for such period.
Notwithstanding the above, if contributions are made on a nonsystematic basis,
at the Plan Administrator's discretion, such contributions will be credited with
an allocation of the actual investment earnings and gains and losses from the
actual date of deposit of each such contribution until the end of the period. In
no event shall this election of allocating gains and losses be used to
discriminate. Finally, the Plan Administrator may elect to disregard
nonsystematic contributions mad, during the year, altogether, and allocate
earnings exclusively on the basis of all active accounts (other than accounts
with segregated investments) as of the last Valuation Date less withdrawals
since the last Valuation Date, or, if applicable, take into consideration any
systematic contributions, as provide, above. Accounts with segregated
investments shall receive only the income or loss on such segregate,
investments.
5.5 Participant Statements
The Employer shall periodically (not less often than annually), prepare a
statement for each Participant showing the additions to and subtractions from
his or her account since the last such statement and the fair market value of
his or her account as of the date for which the statement is prepared.
ARTICLE VI--RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 Normal Retirement Benefits
A Participant shall be entitled to receive the balance held in his or her
account from Employer contributions upon attaining Normal Retirement Age or at
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such earlier dates as the provisions of this Article VI may allow. If the
Participant elects to continue working past his or her Normal Retirement Age, he
or she will continue as an active Plan Participant and no distribution shall be
made to such Participant until his or her actual retirement date unless the
employer elects otherwise in the Adoption Agreement, or a minimum distribution
is required by law. Settlement shall be made in the normal form, or if elected,
in one of the optional forms of payment provided below.
6.2 Early Retirement Benefits
If the Employer so provides in the Adoption Agreement, an Early Retirement
Benefit will be available to individuals who meet the age and Service
requirements. An individual who meets the Early Retirement Age requirements and
separates from Service, will become fully vested, regardless of any vesting
schedule which otherwise might apply. If a Participant separates from Service
before satisfying the age requirements, but after having satisfied the Service
requirement, the Participant will be entitled to elect an Early Retirement
benefit upon satisfaction of the age requirement.
6.3 Benefits On Termination Of Employment
(a) If a Participant terminates employment prior to Normal Retirement Age,
such Participant shall be entitled to receive the vested balance held in his
or her account payable at Normal Retirement Age in the normal form, or if
elected, in one of the optional forms of payment provided hereunder. If
applicable, the Early Retirement Benefit provisions may be elected.
Notwithstanding the preceding sentence, a former Participant may, if allowed
in the Adoption Agreement, make application to the Employer requesting early
payment of any deferred vested and nonforfeitable benefit due.
(b) If a Participant terminates employment, and the value of that
Participant's vested account balance derived from Employer and Employee
contributions is not greater than $3,500, the Participant may receive a lump
sum distribution of the value of the entire vested portion of such account
balance and the non-vested portion will be treated as a forfeiture. The
Employer shall continue to follow their consistent policy, as may be
established, regarding immediate cash-outs of Vested Account Balances of
$3,500 or less. For purposes of this Article, if the value of a Participant's
Vested Account Balance is zero, the Participant shall be deemed to have
received a distribution of such Vested Account Balance immediately following
termination. Likewise, if the Participant is reemployed prior to incurring 5
consecutive 1-year Breaks In Service they will be deemed to have immediately
repaid such distribution. For Plan Years beginning prior to 1989, a
Participant's Vested Account Balance shall not include Qualified Voluntary
Contributions. Notwithstanding the above, if the Employer maintains or has
maintained a policy of not distributing any amounts until the Participant's
Normal Retirement Age, the Employer can continue to uniformly apply such
policy.
(c) If a Participant terminates employment with a Vested Account Balance
derived from Employer and Employee contributions in excess of $3,500, and
elects (with his or her Spouse's consent, if required) to receive 100% of the
value of his or her Vested Account Balance in a lump sum, the non-vested
portion will be treated as a forfeiture. The Participant (and his or her
Spouse, if required) must consent to any distribution, when the Vested
Account Balance described above exceeds $3,500 or if at the time of any prior
distribution it exceeded $3,500. For purposes of this paragraph, for Plan
Years beginning prior to 1989, a Participant's Vested Account Balance shall
not include Qualified Voluntary Contributions.
(d) Distribution of less than 100% of the Participant's Vested Account Balance
shall be permitted upon termination of employment.
(e) If a Participant who is not 100% vested receives or is deemed to receive a
distribution pursuant to this paragraph and resumes employment covered under
this Plan, the Participant shall have the right to repay to the Plan the full
amount of the distribution attributable to Employer contributions on or before
the earlier of the date that the Participant incurs 5 consecutive 1-year
Breaks in Service following the date of distribution or five years after the
first date on which the Participant is subsequently reemployed. In such event,
the Participant's account shall be restored to the value thereof at the time
the distribution was made and may further be increased by the Plan's income
and investment gains and/or losses on the undistributed amount
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from the date of distribution to the date of repayment.
(f) A Participant shall also have the option, to postpone payment of his or
her Plan benefits until the first day of April following the calendar year in
which he or she attains age 70-1/2. Any balance of a Participant's account
resulting from his or her Employee contributions not previously withdrawn, if
any, may be withdrawn by the Participant immediately following separation from
Service.
(g) If a Participant ceases to be an active Employee as a result of a
Disability as defined at Paragraph 1.21, such Participant shall be able to
make an application for a disability retirement benefit payment. The
Participant's account balance will be deemed "immediately distributable" as
set forth in paragraph 6.4, and will be fully tested pursuant to paragraph
9.2.
6.4 Restrictions On Immediate Distributions
(a) An account balance is immediately distributable if any part of the account
balance could be distributed to the Participant (or Surviving Spouse) before
the Participant attains (or would have attained if not deceased) the later of
the Normal Retirement Age or age 62.
(b) If the value of a Participant's vested account balance derived from
Employer and Employee Contributions exceeds (or at the time of any prior
distribution exceeded) $3,500, and the account balance is immediately
distributable, the Participant and his or her Spouse (or where either the
Participant or the Spouse has died, the Survivor) must consent to any
distribution of such account balance. The consent of the Participant and the
Spouse shall be obtained in writing within the 90-day period ending on the
annuity starting date, which is the first day of the first period for which an
amount is paid as an annuity or any other form. The Plan Administrator shall
notify the Participant and the Participant's Spouse of the right to defer any
distribution until the Participant's account balance is no longer immediately
distributable. Such notification shall include a general description of the
material features, and an explanation of the relative values of, the optional
forms of benefit available under the plan in a manner that would satisfy the
notice requirements of Code Section 417(a)(3), and shall be provided no less
than 30 days and no more than 90 days prior to the annuity starting date.
(c) Notwithstanding the foregoing, only the Participant need consent to the
commencement of a distribution in the form of a qualified Joint and Survivor
Annuity while the account balance is immediately distributable. Furthermore,
if payment in the form of a Qualified Joint and Survivor Annuity is not
required with respect to the Participant pursuant to paragraph 8.7 of the
Plan, only the Participant need consent to the distribution of an account
balance that is immediately distributable. Neither the consent of the
Participant nor the Participant's Spouse shall be required to the extent that
a distribution is required to satisfy Code Section 401(a)(9) or Code Section
415. In addition, upon termination of this Plan if the Plan does not offer an
annuity option (purchased from a commercial provider), the Participant's
account balance may, without the Participant's consent, be distributed to the
Participant or transferred to another Defined Contribution Plan [other than an
employee stock ownership plan as defined in Code Section 4975(e)(7)] within
the same controlled group.
(d) For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the first Plan Year
beginning after 1988, the Participant's vested account balance shall not
include amounts attributable to Qualified Voluntary Contributions.
(e) If a distribution is one to which Code Section 401(a)(11) and 417 do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:
(1) the Plan Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively elects a
distribution.
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6.5 Normal Form Of Payment
The normal form of payment for a profit- sharing plan satisfying the
requirements of paragraph 8.7 hereof shall be a lump sum with no option for
annuity payments. For all other plans, the normal form of payment hereunder
shall be a Qualified Joint and Survivor Annuity as provided under Article VIII.
A Participant whose vested account balance derived from Employer and Employee
contributions exceeds $3,500, or if at the time of any prior distribution it
exceeded $3,500, shall (with the consent of his or her Spouse) have the right to
receive his or her benefit in a lump sum or in monthly, quarterly, semi-annual
or annual payments from the Fund over any period not extending beyond the life
expectancy of the Participant and his or her Beneficiary. For purposes of this
paragraph, for Plan Years prior to 1989, a Participant's Vested Account Balance
shall not include Qualified Voluntary Contributions. The normal form of payment
shall be automatic, unless the Participant files a written request with the
Employer prior to the date on which the benefit is automatically payable.
electing a lump sum or installment payment option. No amendment to the Plan may
eliminate one of the optional distribution forms listed above.
6.6 Commencement Of Benefits
(a) Unless the Participant elects otherwise, distribution of benefits will
begin no later than the 60th day after the close of the Plan Year in which the
latest of the following events occurs:
(1) the Participant attains age 65 (or normal retirement age if earlier),
(2) the 10th anniversary of the year in which the Participant commenced
participation in the Plan, or
(3) the Participant terminates Service with the Employer.
(b) Notwithstanding the foregoing, the failure of a Participant and Spouse (if
necessary) to consent to a distribution while a benefit is immediately
distributable, within the meaning of paragraph 6.4 hereof, shall be deemed an
election to defer commencement of payment of any benefit sufficient to satisfy
this paragraph.
6.7 Claims Procedures
Upon retirement, death, or other severance of employment, the Participant or his
or her representative may make application to the Employer requesting payment of
benefits due and the manner of payment. If no application for benefits is made,
the Employer shall automatically pay any vested benefit due hereunder in the
normal form at the time prescribed at paragraph 6.4. If an application for
benefits is made, the Employer shall accept, reject, or modify such request and
shall notify the Participant in writing setting forth the response of the
Employer and in the case of a denial or modification the Employer shall:
(a) state the specific reason or reasons for the denial,
(b) provide specific reference to pertinent Plan provisions on which the
denial is based,
(c) provide a description of any additional material or information necessary
for the Participant or his representative to perfect the claim and an
explanation of why such material or information is necessary, and
(d) explain the Plan's claim review procedure as contained in this Plan.
In the event the request is rejected or modified, the Participant or his or her
representative may within 60 days following receipt by the Participant or
representative of such rejection or modification, submit a written request for
review by the Employer of its initial decision. Within 60 days following such
request for review, the Employer shall render its final decision in writing to
the Participant or representative stating specific reasons for such decision. If
the Participant or representative is not satisfied with the Employer's final
decision, the Participant or representative can institute an action in a federal
court of competent jurisdiction; for this purpose, process would be served on
the Employer.
6.8 In-Service Withdrawals
An Employee may withdraw all or any part of the fair market value of his or her
Voluntary Contributions, Qualified Voluntary Contributions, Rollover
Contributions, upon written request to the Employer. Transfer Contributions,
which originate from a Plan meeting the safe-harbor provisions of paragraph 8.7,
may also be withdrawn, by an Employee, upon written request to the Employer.
Transfer Contributions not meeting the safe-harbor provisions may only be
withdrawn upon retirement,
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death, disability, termination or termination of the Plan, and will be subject
to Spousal consent requirements contained in Code Sections 411(a)(11) and 417.
No such withdrawals are permitted from a money purchase plan until the
participant reaches Normal Retirement Age. Such request shall include the
Employee's address, social security number, birthdate, and amount of the
withdrawal. If at the time a distribution of Qualified Voluntary Contributions
is received the Participant has not attained age 59-1/2 and is not disabled, as
defined at Code Section 22(e)(3), the Participant will be subject to a federal
income tax penalty, unless the distribution is rolled over to a qualified plan
or individual retirement plan within 60 days of the date of distribution. A
Participant may withdraw all or any part of the fair market value of his or her
pre-1987 Voluntary Contributions with or without withdrawing the earnings
attributable thereto. Post-1986 Voluntary Contributions may only be withdrawn
along with a portion of the earnings thereon. The amount of the earnings to be
withdrawn is determined by using the formula: DA [1-(V / V+E)], where DA is the
distribution amount, V is the amount of Voluntary Contributions and V+E is the
amount of Voluntary Contributions plus the earnings attributable thereto. A
Participant withdrawing his or her other contributions prior to attaining age
59-1/2, will be subject to a federal tax penalty to the extent that the
withdrawn amounts are includible in income. Any Participant in a profit-sharing
plan may, if permitted by the Employer in the Adoption Agreement, withdraw all
or any part of the fair market value of any of such vested contributions, plus
the investment earnings thereon, after attaining age 59-1/2 without separating
from Service. Such Employer contributions may not have been used to satisfy the
antidiscrimination test of Code Section 401(k). Such distributions shall not be
eligible for redeposit to the Fund. A withdrawal under this paragraph shall not
prohibit such Participant from sharing in any future Employer Contribution he or
she would otherwise be eligible to share in. A request to withdraw amounts
pursuant to this paragraph must if applicable, be consented to by the
Participant's Spouse. The consent shall comply with the requirements of
paragraph 6.4 relating to immediate distributions.
6.9 Hardship Withdrawal
Unless otherwise specified by the Employer in the Adoption Agreement, a
Participant may not request a Hardship withdrawal prior to attaining age 59-1/2.
If permitted and the Participant has not attained age 59-1/2, the Participant
may be subject to a federal income tax penalty. Such request shall be in writing
to the Employer who shall have sole authority to authorize a hardship
withdrawal, pursuant to the rules below. Hardship withdrawals may include
Elective Deferrals regardless of when contributed and any earnings accrued and
credited thereon as of the last day of the Plan Year ending before July 1, 1989
and Employer related contributions including but not limited to Employer
Matching Contributions, plus the investment earnings thereon to the extent
vested. Qualified Matching Contributions, Qualified Non-Elective Contributions
and Elective Deferrals reclassified as Voluntary Contributions plus the
investment earnings thereon are only available for hardship withdrawal prior to
age 59-1/2 to the extent that they were credited to the Participant's Account as
of the last day of the Plan Year ending prior to July 1, 1989. The Plan
Administrator may limit withdrawals to Elective Deferrals and the earnings
thereon as stipulated above. Hardship withdrawals are subject to the Spousal
consent requirements contained in Code Sections 401(a)(11) and 417. Only the
following reasons are valid to obtain hardship withdrawal:
(a) medical expenses [within the meaning of Code Section 213(d)], incurred or
necessary for the medical care of the Participant, his or her Spouse, children
and other dependents,
(b) the purchase (excluding mortgage payments) of the principal residence for
the Participant,
(c) payment of tuition and related educational expenses for the next twelve
(12) months of post-secondary education for the Participant, his or her
Spouse, children or other dependents, or
(d) the need to prevent eviction of the Employee from or a foreclosure on the
mortgage of, the Employee's principal residence.
Furthermore, the following conditions must be met in order for a withdrawal to
be authorized:
(e) the Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all plans maintained by the
Employer,
(f) all plans maintained by the Employer, other
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than flexible benefit plans under Code Section 125 providing for current
benefits, provide that the Employee's Elective Deferrals and Voluntary
Contributions will be suspended for twelve months after the receipt of the
Hardship distribution,
(g) the distribution is not in excess of the amount of the immediate and heavy
financial need [(a) through (d) above], including amounts necessary to pay any
federal, state or local income tax or penalties reasonably anticipated to
result from the distribution, and
(h) all plans maintained by the Employer provide that an Employee may not make
Elective Deferrals for the Employee's taxable year immediately following the
taxable year of the hardship distribution in excess of the applicable limit
under Code Section 402(g) for such taxable year, less the amount of such
Employee's pre-tax contributions for the taxable year of the hardship
distribution.
If a distribution is made at a time when a Participant has a nonforfeitable
right to less than 100% of the account balance derived from Employer
contributions and the Participant may increase the nonforfeitable percentage in
the account:
(i) A separate account will be established for the Participant's interest in
the Plan as of the time of the distribution, and
(j) At any relevant time the Participant's nonforfeitable portion of the
separate account will be equal to an amount ("X") determined by the formula:
X = P [AB + (R X D)] - (R X D)
For purposes of applying the formula: "P" is the nonforfeitable percentage at
the relevant time, "AB" is the account balance at the relevant time, "D" is the
amount of the distribution and "R" is the ratio of the account balance at the
relevant time to the account balance after distribution.
6.10 Order Of Withdrawals
Unless the Participant directs otherwise, withdrawals shall be made:
(a) First, from amounts attributable to Voluntary Contributions;
(b) Second, from amounts attributable to Rollover Contributions;
(c) Third, from amounts attributable to Transfer Contributions;
(d) Fourth, from amounts attributable to Elective Deferrals;
(e) Fifth, from amounts attributable to Qualified Non-Elective Contributions;
(f) Sixth, from amounts attributable to Qualified Matching Contributions;
(g) Seventh. from amounts attributable to vested matching Contributions; and
(h) Eighth, from amounts attributable to vested Discretionary Contributions.
ARTICLE VII - DISTRIBUTION REQUIREMENTS
7.1 Joint And Survivor Annuity Requirements
All distributions made under the terms of this Plan must comply with the
provisions of Article VIII including, if applicable, the safe harbor provisions
thereunder.
7.2 Minimum Distribution Requirements
All distributions required under this Article shall be determined and made in
accordance with the minimum distribution requirements of Code Section 401(a)(9)
and the regulations thereunder, including the minimum distribution incidental
benefit rules found at Regulations Section 1.401(a)(9)-2. The entire interest of
a Participant must be distributed or begin to be distributed no later than the
Participant's Required Beginning Date. Life expectancy and joint and last
survivor life expectancy are computed by using the expected return multiples
found in Tables V and VI of Regulations Section 1.72-9.
In determining required distributions under the Plan, Participants and/or their
Spouse (Surviving Spouse) shall have the right to have their life expectancy
recalculated annually. Whether the Participant only or both the Participant and
Spouse's lives shall be recalculated shall be determined by the Participant.
7.3 Limits On Distribution Periods
As of the First Distribution Calendar Year, distribu-
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<PAGE>
tions if not made in a single-sum, may only be made over one of the following
periods (or a combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a Designated Beneficiary,
(c) a period certain not extending beyond the life expectancy of the
participant, or
(d) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated beneficiary.
7.4 Required Distributions On Or After The Required Beginning Date
(a) If a participant's benefit is to be distributed over (1) a period not
extending beyond the life expectancy of the Participant or the joint life and
last survivor expectancy of the Participant and the Participant's Designated
Beneficiary or (2) a period not extending beyond the life expectancy of the
Designated Beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the First Distribution
Calendar Year, must at least equal the quotient obtained by dividing the
Participant's benefit by the Applicable Life Expectancy.
(b) For calendar years beginning before 1989. If the Participant's Spouse is
not the Designated Beneficiary, the method of distribution selected must have
assured that at least 50% of the Present Value of the amount available for
distribution was to be paid within the life expectancy of the Participant.
(c) For calendar years beginning after 1988, the amount to be distributed each
year, beginning with distributions for the First Distribution Calendar Year
shall not be less than the quotient obtained by dividing the Participant's
benefit by the lesser of (1) the Applicable Life Expectancy or (2) if the
Participant's Spouse is not the Designated Beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of Regulations Section
1.401(a)(9)-2. Distributions after the death of the Participant shall be
distributed using the Applicable Life Expectancy as the relevant divisor
without regard to Regulations Section 1.401(a)(9)-2.
(d) The minimum distribution required for the Participant's First Distribution
Calendar Year must be made on or before the Participant's Required Beginning
Date. The minimum distribution for other calendar years, including the minimum
distribution for the Distribution Calendar Year in which the Participant's
Required Beginning Date occurs, must be made on or before December 31 of that
Distribution Calendar Year.
(e) If the Participant's benefit is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder shall be made in
accordance with the requirements of Code Section 401(a)(9) and the Regulations
thereunder.
(f) For purposes of determining the amount of the required distribution for
each Distribution Calendar Year, the account balance to be used is the account
balance determined as of the last valuation preceding the Distribution
Calendar Year. This balance will be increased by the amount of any
contributions or forfeitures allocated to the account balance after the
valuation date in such preceding calendar year. Such balance will also be
decreased by distributions made after the Valuation Date in such preceding
Calendar Year.
(g) For purposes of subparagraph 7.4(f), if any portion of the minimum
distribution for the First Distribution Calendar Year is made in the second
Distribution Calendar Year on or before the Required Beginning Date, the
amount of the minimum distribution made in the second Distribution Calendar
Year shall be treated as if it had been made in the immediately preceding
Distribution Calendar Year.
7.5 Required Beginning Date
(a) General Rule. The Required Beginning Date of a Participant is the first
day of April of the calendar year following the calendar year in which the
Participant attains age 70-1/2.
(b) Transitional Rules. The Required Beginning Date of a Participant who
attains age 70-1/2 before 1988, shall be determined in accordance with (1) or
(2) below:
(1) Non-5-percent owners. The Required Beginning Date of a Participant who
is not a 5-percent owner is the first day of April of the calendar year
following the calendar year in
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<PAGE>
which the later of retirement or attainment of age 70-1/2 occurs. In the case
of a Participant who is not a 5-percent owner who attains age 70-1/2 during
1988 and who has not retired as of January 1, 1989, the Required Beginning
Date is April 1, 1990.
(2) 5-percent owners. The Required Beginning Date of a Participant who is a
5-percent owner during any year beginning after 1979, is the first day of
April following the later of:
(i) the calendar year in which the Participant attains age 70-1/2, or
(ii) the earlier of the calendar year with or within which ends the plan
year in which the Participant becomes a 5-percent owner, or the calendar
year in which the Participant retires.
(c) A Participant is treated as a 5-percent owner for purposes of this
Paragraph if such Participant is a 5-percent owner as defined in Code Section
416(i) (determined in accordance with Code Section 416 but without regard to
whether the Plan is Top-Heavy) at any time during the Plan Year ending with or
within the calendar year in which such Owner attains age 66-1/2 or any
subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under this paragraph,
they must continue to be distributed, even if the Participant ceases to be a
5-percent owner in a subsequent year.
7.6 Transitional Rule
(a) Notwithstanding the other requirements of this Article and subject to the
requirements of Article VIII, Joint and Survivor Annuity Requirements,
distribution on behalf of any Employee, including a 5-percent owner, may be
made in accordance with all of the following requirements (regardless of when
such distribution commences):
(1) The distribution by the Trust is one which would not have disqualified
such Trust under Code Section 401(a)(9) as in effect prior to amendment by
the Deficit Reduction Act of 1984.
(2) The distribution is in accordance with a method of distribution
designated by the Employee whose interest in the Trust is being distributed
or, if the Employee is deceased, by a beneficiary of such Employee.
(3) Such designation was in writing, was signed by the Employee or the
beneficiary, and was made before 1984.
(4) The Employee had accrued a benefit under the Plan as of December 31,
1983.
(5) The method of distribution designated by the Employee or the
beneficiary specifies the time at which distribution will commence, the
period over which distributions will be made, and in the case of any
distribution upon the Employee's death, the beneficiaries of the Employee
listed in order of priority.
(b) A distribution upon death will not be covered by this transitional rule
unless the information in the designation contains the required information
described above with respect to the distributions to be made upon the death of
the Employee.
(c) For any distribution which commences before 1984, but continues after
1983, the Employee or the beneficiary, to whom such distribution is being
made, will be presumed to have designated the method of distribution under
which the distribution is being made if the method of distribution was
specified in writing and the distribution satisfies the requirements in
subparagraphs (a)(1) and (5) above.
(d) If a designation is revoked, any subsequent distribution must satisfy the
requirements of Code Section 401(a)(9) and the regulations thereunder. If a
designation is revoked subsequent to the date distributions are required to
begin, the Trust must distribute by the end of the calendar year following the
calendar year in which the revocation occurs the total amount not yet
distributed which would have been required to have been distributed to satisfy
Code Section 401(a)(9) and the regulations thereunder, but for the section
242(b)(2) election of the Tax Equity and Fiscal Responsibility Act of 1982.
For calendar years beginning after 1988, such distributions must meet the
minimum distribution incidental benefit requirements in section 1.401(a)(9)-2
of the Income Tax Regulations. Any changes in the designation will be
considered to be a revocation
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<PAGE>
of the designation. However, the mere substitution or addition of another
beneficiary (one not named in the designation) under the designation will not be
considered to be a revocation of the designation, so long as such substitution
or addition does not alter the period over which distributions are to be made
under the designation, directly or indirectly (for example, by altering the
relevant measuring life). In the case in which an amount is transferred or
rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 of
the regulations shall apply.
7.7 Designation Of Beneficiary For Death Benefit
Each Participant shall file a written designation of beneficiary with the
Employer upon qualifying for participation in this Plan. Such designation shall
remain in force until revoked by the Participant by filing a new beneficiary
form with the Employer. The Participant may elect to have a portion of his or
her account balance invested in an insurance contract. If an insurance contract
is purchased under the Plan, the Trustee must be named as Beneficiary under the
terms of the contract. However, the Participant shall designate a Beneficiary to
receive the proceeds of the contract after settlement is received by the
Trustee. Under a profit-sharing plan satisfying the requirements of paragraph
8.7, the Designated Beneficiary shall be the Participant's Surviving Spouse, if
any, unless such Spouse properly consents otherwise.
7.8 Nonexistence Of Beneficiary
Any portion of the amount payable hereunder which is not disposed of because of
the Participant's or former Participant's failure to designate a beneficiary, or
because all of the Designated Beneficiaries predeceased the Participant, shall
be paid to his or her Spouse. If the Participant had no Spouse at the time of
death, payment shall be made to the personal representative of his or her estate
in a lump sum.
7.9 Distribution Beginning Before Death
If the Participant dies after distribution of his or her interest has begun, the
remaining portion of such interest will continue to be distributed at least as
rapidly as under the method of distribution being used prior to the
Participant's death.
7.10 Distribution Beginning After Death
If the Participant dies before distribution of his or her interest begins,
distribution of the Participant's entire interest shall be completed by December
31 of the calendar year containing the fifth anniversary of the Participant's
death except to the extent that an election is made to receive distributions in
accordance with (a) or (b) below:
(a) If any portion of the Participant's interest is payable to a Designated
Beneficiary, distributions may be made over the life or over a period certain
not greater than the life expectancy of the Designated Beneficiary commencing
on or before December 31 of the calendar year immediately following the
calendar year in which the Participant died;
(b) If the Designated Beneficiary is the Participant's surviving Spouse, the
date distributions are required to begin in accordance with (a) above shall
not be earlier than the later of (1) December 31 of the calendar year
immediately following the calendar year in which the participant died or (2)
December 31 of the calendar year in which the Participant would have attained
age 70-1/2.
If the Participant has not made an election pursuant to this paragraph 7.10 by
the time of his or her death, the Participant's Designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December 31 of
the calendar year in which distributions would be required to begin under this
section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the participant. If the Participant has no
Designated Beneficiary, or if the Designated Beneficiary does not elect a method
of distribution, then distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
For purposes of this paragraph if the Surviving Spouse dies after the
Participant, but before payments to such Spouse begin, the provisions of this
paragraph with the exception of paragraph (b) therein, shall be applied as if
the Surviving Spouse were the Participant. For the purposes of this paragraph
and paragraph 7.9, distribution of a Participant's interest is considered to
begin on the Participant's Required Beginning Date (or, if the preceding
sentence is applicable, the date distribution is required to begin to the
Surviving Spouse). If distribution in the form of an annuity described
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In paragraph 7.4(e) irrevocably commences to the Participant before the Required
Beginning Date, the date distribution is considered to begin is the date
distribution actually commences.
For purposes of paragraph 7.9 and this paragraph, if an amount is payable to
either a minor or an individual who has been declared incompetent, the benefits
shall be paid to the legally appointed guardian for the benefit of said minor or
incompetent individual, unless the court which appointed the guardian has
ordered otherwise.
7.11 Distribution Of Excess Elective Deferrals
(a) Notwithstanding any other provision of the Plan, Excess Elective Deferrals
plus any income and minus any loss allocable thereto, shall be distributed no
later than April 15, 1988, and each April 15 thereafter, to Participants to
whose accounts Excess Elective Deferrals were allocated for the preceding
taxable year, and who claim Excess Elective Deferrals for such taxable year.
Excess Elective Deferrals shall be treated as Annual Additions under the plan,
unless such amounts are distributed no later than the first April 15th
following the close of the Participant's taxable year. A Participant is deemed
to notify the Plan Administrator of any Excess Elective Deferrals that arise
by taking into account only those Elective Deferrals made to this Plan and any
other plans of this Employer.
(b) Furthermore, a Participant who participates in another plan allowing
Elective Deferrals may assign to this Plan any Excess Elective Deferrals made
during a taxable year of the Participant, by notifying the Plan Administrator
of the amount of the Excess Elective Deferrals to be assigned. The
Participant's claim shall be in writing; shall be submitted to the Plan
Administrator not later than March 1 of each year; shall specify the amount of
the Participant's Excess Elective Deferrals for the preceding taxable year;
and shall be accompanied by the Participant's written statement that if such
amounts are not distributed, such Excess Elective Deferrals. when added to
amounts deferred under other plans or arrangements described in Code Sections
401(k), 408(k) [Simplified Employee Pensions], or 403(b) [annuity programs for
public schools and charitable organizations] will exceed the $7,000 limit as
adjusted under Code Section 415(d) imposed on the Participant by Code Section
402(g) for the year in which the deferral occurred.
(c) Excess Elective Deferrals shall be adjusted for any income or loss up to
the end of the taxable year, during which such excess was deferred. Income or
loss will be calculated under the method used to calculate investment earnings
and losses elsewhere in the Plan or any other reasonable method. Whichever
method is selected shall be used for all Participants and for all corrective
distributions made from the Plan for the Plan Year.
(d) If the Participant receives a return of his or her Elective Deferrals, the
amount of such contributions which are returned must be brought into the
Employee's taxable income.
7.12 Distributions of Excess Contributions
(a) Notwithstanding any other provision of this Plan, Excess Contributions,
plus any income and minus any loss allocable thereto, shall be distributed no
later than the last day of each Plan Year to Participants to whose accounts
such Excess Contributions were allocated for the preceding Plan Year. If such
excess amounts are distributed more than 2-1/2 months after the last day of
the Plan Year in which such excess amounts arose, a ten (10) percent excise
tax will be imposed on the Employer maintaining the Plan with respect to such
amounts. Such distributions shall be made to Highly Compensated Employees on
the basis of the respective portions of the Excess Contributions attributable
to each of such Employees. Excess Contributions of Participants who are
subject to the Family Member aggregation rules of Code Section 414(q)(6) shall
be allocated among the Family Members in proportion to the Elective Deferrals
(and amounts treated as Elective Deferrals) of each Family Member that is
combined to determine the Average Deferral Percentage.
(b) Excess Contributions (including the amounts recharacterized) shall be
treated as Annual Additions under the Plan.
(c) Excess Contributions shall be adjusted for any income or loss up to the
end of the Plan Year. Income or loss will be calculated under the method used
to calculate investment earnings and losses elsewhere in the Plan.
29
<PAGE>
(d) Excess Contributions shall be distributed from the Participant's Elective
Deferral account and Qualified Matching Contribution account (if applicable)
in proportion to the Participant's Elective Deferrals and Qualified Matching
Contributions (to the extent used in the ADP test) for the Plan Year. Excess
Contributions shall be distributed from the Participant's Qualified Non-
Elective Contribution account only to the extent that such Excess
Contributions exceed the balance in the Participant's Elective Deferral
account and Qualified Matching Contribution account.
7.13 Distribution Of Excess Aggregate Contributions
(a) Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall be
forfeited, if forfeitable, or if not forfeitable, distributed no later than
the last day of each Plan Year to Participants to whose accounts such Excess
Aggregate Contributions were allocated for the preceding Plan Year. Excess
Aggregate Contributions shall be allocated to Participants who are subject to
the Family Member aggregation rules of Code Section 414(q)(6) in the manner
prescribed by the regulations.
If such Excess Aggregate Contributions are distributed more than 2-1/2 months
after the last day of the Plan Year in which such excess amounts arose, a ten
(10) percent excise tax will be imposed on the Employer maintaining the Plan
with respect to those amounts. Excess Aggregate Contributions shall be treated
as Annual Additions under the plan.
(b) Excess Aggregate Contributions shall be adjusted for any income or loss up
to the end of the Plan Year. The income or loss allocable to Excess Aggregate
Contributions is the sum of income or loss for the Plan Year allocable to the
Participant's Voluntary Contribution account, Matching Contribution account
(if any, and if all amounts therein are not used in the ADP test) and, if
applicable. Qualified Non-Elective Contribution account and Elective Deferral
account. Income or loss will be calculated under the method used to calculate
investment earnings and losses elsewhere in the Plan.
(c) Forfeitures of Excess Aggregate Contributions may either be reallocated to
the accounts of non-Highly Compensated Employees or applied to reduce Employer
contributions, as elected by the employer in the Adoption Agreement.
(d) Excess Aggregate Contributions shall be forfeited if such amount is not
vested. If vested, such excess shall be distributed in the following order:
(i) First, from the Participant?s Voluntary Contribution account;
(ii) Second, from the Participant?s Matching Contribution account; and
(iii) Third, from the Participant?s Qualified Matching Contribution account
(if applicable).
ARTICLE VIII - JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 Applicability Of Provisions
The provisions of this Article shall apply to any Participant who is credited
with at least one Hour of Service with the Employer on or after August 23, 1984
and such other Participants as provided in paragraph 8.8.
8.2 Payment Of Qualified Joint And Survivor Annuity
Unless an optional form of benefit is selected pursuant to a Qualified Election
within the 90-day period ending on the Annuity Starting Date, a married
Participant's Vested Account Balance will be paid in the form of a Qualified
Joint and Survivor Annuity and an unmarried Participant's Vested Account Balance
will be paid in the form of a life annuity. The Participant may elect to have
such annuity distributed upon attainment of the Early Retirement Age under the
Plan.
8.3 Payment Of Qualified Pre-Retirement Survivor Annuity
Unless an optional form of benefit has been selected within the Election Period
pursuant to a Qualified Election, if a Participant dies before benefits have
commenced then the Participant's vested account balance shall be paid in the
form of an annuity for the life of the Surviving Spouse. The Surviving Spouse
may elect to have such annuity distributed within a reasonable period after the
Participant's death.
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A Participant who does not meet the age 35 requirement set forth in the Election
Period as of the end of any current Plan Year may make a special qualified
election to waive the qualified Pre-retirement Survivor Annuity for the period
beginning on the date of such election and ending on the first day of the Plan
Year in which the Participant will attain age 35. Such election shall not be
valid unless the Participant receives a written explanation of the Qualified
Pre-retirement Survivor Annuity in such terms as are comparable to the
explanation required under paragraph 8.5. Qualified Pre-retirement Survivor
Annuity coverage will be automatically reinstated as of the first day of the
Plan Year in which the Participant attains age 35. Any new waiver on or after
such date shall be subject to the full requirements of this Article.
8.4 Qualified Election
A Qualified Election is an election to either waive a Qualified Joint and
Survivor Annuity or a qualified pre-retirement survivor annuity. Any such
election shall not be effective unless:
(a) the Participant's Spouse consents in writing to the election;
(b) the election designates a specific beneficiary, including any class of
beneficiaries or any contingent beneficiaries, which may not be changed
without spousal consent (or the Spouse expressly permits designations by the
Participant without any further spousal consent);
(c) the Spouse's consent acknowledges the effect of the election; and
(d) the Spouse's consent is witnessed by a Plan representative or notary
public.
Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity
shall not be effective unless the election designates a form of benefit payment
which may not be changed without spousal consent (or the Spouse expressly
permits designations by the Participant without any further spousal consent). If
it is established to the satisfaction of the Plan Administrator that there is no
Spouse or that the Spouse cannot be located, a waiver will be deemed a Qualified
Election. Any consent by a Spouse obtained under this provision (or
establishment that the consent of a Spouse may not be obtained) shall be
effective only with respect to such Spouse. A consent that permits designations
by the Participant without any requirement of further consent by such Spouse
must acknowledge that the Spouse has the right to limit consent to a specific
beneficiary, and a specific form of benefit where applicable, and that the
Spouse voluntarily elects to relinquish either or both of such rights. A
revocation of a prior waiver may be made by a Participant without the consent of
the Spouse at any time before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under this provision shall
be valid unless the Participant has received notice as provided in paragraphs
8.5 and 8.6 below.
8.5 Notice Requirements For Qualified Joint And Survivor Annuity
In the case of a Qualified Joint and Survivor Annuity, the Plan Administrator
shall, no less than 30 days and no more than 90 days prior to the Annuity
Starting date, provide each Participant a written explanation of:
(a) the terms and conditions of a Qualified Joint and Survivor Annuity;
(b) the Participant's right to make and the effect of an election to waive the
Qualified Joint and Survivor Annuity form of benefit;
(c) the rights of a Participant?s Spouse; and
(d) the right to make, and the effect of, a revocation of a previous election
to waive the Qualified Joint and Survivor Annuity.
8.6 Notice Requirements For Qualified Pre-Retirement Survivor Annuity
In the case of a qualified pre-retirement survivor annuity as described in
paragraph 8.3, the Plan Administrator shall provide each Participant within the
applicable period for such Participant a written explanation of the qualified
pre-retirement survivor annuity in such terms and in such manner as would be
comparable to the explanation provided for meeting the requirements of paragraph
8.5 applicable to a Qualified Joint and Survivor Annuity. The applicable period
for a Participant is whichever of the following periods ends last:
(a) the period beginning with the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35;
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(b) a reasonable period ending after the individual becomes a Participant;
(c) a reasonable period ending after this Article first applies to the
Participant. Notwithstanding the foregoing, notice must be provided within a
reasonable period ending after separation from Service in the case of a
Participant who separates from Service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable period ending
after the events described in (b) and (c) is the end of the two-year period
beginning one-year prior to the date the applicable event occurs, and ending
one-year after that date. In the case of a Participant who separates from
Service before the Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year prior to separation and
ending one year after separation. If such a Participant subsequently returns to
employment with the Employer, the applicable period for such Participant shall
be re-determined.
8.7 Special Safe-Harbor Exception For Certain Profit-Sharing Plans
(a) This paragraph shall apply to a Participant in a profit-sharing plan, and
to any distribution, made on or after the first day of the first plan year
beginning after 1988, from or under a separate account attributable solely to
Qualified Voluntary contributions, as maintained on behalf of a Participant in
a money purchase pension plan, (including a target benefit plan) if the
following conditions are satisfied:
(1) the Participant does not or cannot elect payments in the form of a life
annuity; and
(2) on the death of a Participant, the Participant's Vested Account Balance
will be paid to the Participant's Surviving Spouse, but if there is no
Surviving Spouse, or if the Surviving Spouse has consented in a manner
conforming to a Qualified Election, then to the Participant's Designated
Beneficiary.
The Surviving Spouse may elect to have distribution of the Vested Account
Balance commence within the 90-day period following the date of the
Participant's death. The account balance shall be adjusted for gains or losses
occurring after the Participant?Participant's death in accordance with the
provisions of the Plan governing the adjustment of account balances for other
types of distributions. These safe-harbor rules shall not be operative with
respect to a Participant in a profit-sharing plan if that plan is a direct or
indirect transferee of a Defined Benefit Plan, money purchase plan, a target
benefit plan, stock bonus plan, or profit-sharing plan which is subject to the
survivor annuity requirements of Code Section 401(a)(11) and Code Section 417,
and would therefore have a Qualified Joint and Survivor Annuity as its normal
form of benefit.
(b) The Participant may waive the spousal death benefit described in this
paragraph at any time provided that no such waiver shall be effective unless
it satisfies the conditions (described in paragraph 8.4) that would apply to
the Participant's waiver of the Qualified Pre-Retirement Survivor Annuity.
(c) If this paragraph 8.7 is operative, then all other provisions of this
Article other than paragraph 8.8 are inoperative.
8.8 Transitional Joint And Survivor Annuity Rules
Special transition rules apply to Participants who were not receiving benefits
on August 23, 1984.
(a) Any living Participant not receiving benefits on August 23, 1984, who
would otherwise not receive the benefits prescribed by the previous paragraphs
of this Article, must be given the opportunity to elect to have the prior
paragraphs of this Article apply if such Participant is credited with at least
one Hour of Service under this Plan or a predecessor Plan in a Plan Year
beginning on or after January 1, 1976 and such Participant had at least 10
Years of Service for vesting purposes when he or she separated from Service.
(b) Any living Participant not receiving benefits on August 23, 1984, who was
credited with at least one Hour of Service under this Plan or a predecessor
Plan on or after September 2, 1974. And who is not otherwise credited with any
Service in a Plan Year beginning on or after January 1, 1976, must be given
the opportunity to have his or her benefits paid in accordance with paragraph
8.9.
(c) The respective opportunities to elect [as described in (a) and (b) above]
must be afforded
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to the appropriate Participants during the period commencing on August 23, 1984
and ending on the date benefits would otherwise commence to said Participants.
8.9 Automatic Joint And Survivor Annuity And Early Survivor Annuity
Any Participant who has elected pursuant to paragraph 8.8(b) and any Participant
who does not elect under paragraph 8.8(a) or who meets the requirements of
paragraph 8.8(a), except that such Participant does not have at least 10 years
of vesting Service when he or she separates from Service, shall have his or her
benefits distributed in accordance with all of the following requirements if
benefits would have been payable in the form of a life annuity.
(a) Automatic Joint and Survivor Annuity. If benefits in the form of a life
annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after Normal
Retirement, or
(2) dies on or after Normal Retirement Age while still working for the
Employer, or
(3) begins to receive payments on or after the Qualified Early Retirement
Age, or
(4) separates from Service on or after attaining Normal Retirement (or the
Qualified Early Retirement Age) and after satisfying the eligibility
requirements for the payment of benefits under the Plan and thereafter dies
before beginning to receive such benefits, then such benefits will be
received under this Plan in the form of a Qualified Joint and Survivor
Annuity, unless the Participant has elected otherwise during the Election
Period. The Election Period must begin at least 6 months before the
Participant attains Qualified Early Retirement Age and end not more than 90
days before the commencement of benefits. Any election will be in writing
and may be changed by the Participant at any time.
(b) Election of Early Survivor Annuity. A Participant who is employed after
attaining the Qualified Early Retirement Age will be given the opportunity to
elect, during the Election Period, to have a survivor annuity payable on
death. If the Participant elects the survivor annuity, payments under such
annuity must not be less than the payments which would have been made to the
Spouse under the Qualified Joint and Survivor Annuity if the Participant had
retired on the day before his or her death. Any election under this provision
will be in writing and may be changed by the Participant at any time. The
Election Period begins on the later of:
(1) the 90th day before the Participant attains the Qualified Early
Retirement Age, or
(2) the date on which participation begins, and ends on the date the
Participant terminates employment.
8.10 Annuity Contracts
Any annuity contract distributed under this Plan must be nontransferable. The
terms of any annuity contract purchased and distributed by the Plan to a
Participant or Spouse shall comply with the requirements of this Plan.
ARTICLE IX - VESTING
9.1 Employee Contributions
A Participant shall always have a 100% vested and nonforfeitable interest in his
or her Elective Deferrals, Voluntary Contributions, Qualified Voluntary
Contributions, Rollover Contributions, and Transfer Contributions plus the
earnings thereon. No forfeiture of Employer related contributions (including any
minimum contributions made under paragraph 14.2) will occur solely as a result
of an Employee's withdrawal of any Employee contributions.
9.2 Employer Contributions
A Participant shall acquire a vested and nonforfeitable interest in his or her
account attributable to Employer contributions in accordance with the table
selected in the Adoption Agreement, provided that if a Participant is not
already fully vested, he or she shall become so upon attaining Normal Retirement
Age, Early Retirement Age, on death prior to normal retirement, on retirement
due to Disability, or on termination of the Plan. If no table is selected in the
Adoption Agreement, an Employee shall acquire a vested and nonforfeitable
interest in his or her account attributable to Employer contributions in
accordance with the following percentages: 20% after 2 Years Of Service, 20%
additional for each of
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the following Years Of Service, reaching 100% after 6 Years Of Service with the
Employer.
9.3 Computation Period
The computation period for purposes of determining Years of Service and Breaks
in Service for purposes of computing a Participant's nonforfeitable right to his
or her account balance derived from Employer contributions shall be the Plan
Year. In the event a former Participant with no vested interest in his or her
Employer contribution account requalifies for participation in the Plan after
incurring a Break in Service, such Participant shall be credited for vesting
with all pre-break and post-break Service.
9.4 Requalification Prior To Five Consecutive One-Year Breaks In Service
The account balance of such Participant shall consist of any undistributed
amount in his or her account as of the date of re-employment plus any future
contributions added to such account plus the investment earnings on the account.
The vested account balance of such Participant shall be determined by
multiplying the Participant's account balance (adjusted to include any
distribution or redeposit made under paragraph 6.3) by such Participant's vested
percentage. All Service of the Participant, both prior to and following the
break, shall be counted when computing the Participant's vested percentage.
9.5 Requalification After Five Consecutive One-Year Breaks In Service
If such Participant is not fully vested upon reemployment, a new account shall
be established for such Participant to separate his or her deferred vested and
nonforfeitable account, if any, from the account to which new allocations will
be made. The Participant?s deferred account to the extent remaining shall be
fully vested and shall continue to share in earnings and losses of the Fund.
When computing the Participant's vested portion of the new account, all pre-
break and post-break Service shall be counted. However, notwithstanding this
provision, no such former Participant who has had five consecutive one-year
Breaks in Service shall acquire a larger vested and nonforfeitable interest in
his or her prior account balance as a result of requalification hereunder.
9.6 Calculating Vested Interest
A Participant's vested and nonforfeitable interest shall be calculated by
multiplying the fair market value of his or her account attributable to Employer
contributions on the Valuation Date preceding distribution by the decimal
equivalent of the vested percentage as of his or her termination date. The
amount attributable to Employer contributions for purposes of the calculation
includes amounts previously paid out pursuant to paragraph 6.3 and not repaid if
the non-vested portion has not been forfeited. The Participant's vested and
nonforfeitable interest, once calculated above, shall be reduced to reflect
those amounts previously paid out to the Participant and not repaid by the
Participant. The Participant's vested and nonforfeitable interest so determined
shall continue to share in the investment earnings and any increase or decrease
in the fair market value of the Fund up to the Valuation Date preceding or
coinciding with payment.
9.7 Forfeitures
Any balance in the account of a Participant who has separated from Service to
which he or she is not entitled under the foregoing provisions, shall be
forfeited and applied as provided in the Adoption Agreement. A forfeiture may
only occur if the Participant has received a distribution from the Plan or if
the Participant has incurred five consecutive 1-year Breaks in Service.
Furthermore, a Highly Compensated Employee's Matching Contributions may be
forfeited, even if vested, if the contributions to which they relate are Excess
Deferrals, Excess Contributions or Excess Aggregate Contributions.
9.8 Amendment Of Vesting Schedule
No amendment to the Plan shall have the effect of decreasing a Participant's
vested interest determined without regard to such amendment as of the later of
the date such amendment is adopted or the date it becomes effective. Further, if
the vesting schedule of the Plan is amended, or the Plan is amended in any way
that directly or indirectly affects the computation of any Participant's
nonforfeitable percentage or if the Plan is deemed amended by an automatic
change to or from a Top-Heavy vesting schedule, each Participant with at least
three Years of Service with the Employer may elect, within a reasonable period
after the adoption of the amendment, to have his or her nonforfeitable
percentage computed under the Plan without regard to such amendment. For
Participants who do not have at least one Hour of Service in any Plan Year
beginning after 1988, the preceding sentence shall be
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applied by substituting "Five Years of Service" for "Three Years of Service"
where such language appears. The period during which the election may be made
shall commence with the date the amendment is adopted and shall end on the later
of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the amendment by
the Employer or the Trustee. If the Trustee is asked to so notify, the Fund
will be charged for the costs thereof.
No amendment to the Plan shall be effective to the extent that it has the effect
of decreasing a Participant's accrued benefit. Notwithstanding the preceding
sentence, a Participant's account balance may be reduced to the extent permitted
under section 412(c)(8) of the Code (relating to financial hardships). For
purposes of this paragraph, a Plan amendment which has the effect of decreasing
a Participant's account balance or eliminating an optional form of benefit, with
respect to benefits attributable to service before the amendment, shall be
treated as reducing an accrued benefit.
9.9 Service With Controlled Groups
All Years of Service with other members of a controlled group of corporations
[as defined in Code Section 414(b)], trades or businesses under common control
[as defined in Code Section 414(c)], or members of an affiliated service group
[as defined in Code Section 414(m)] shall be considered for purposes of
determining a Participant nonforfeitable percentage.
ARTICLE X - LIMITATIONS ON ALLOCATIONS AND ANTIDISCRIMINATION TESTING
10.1 Participation In This Plan Only
If the Participant does not participate in and has never participated in another
qualified plan, a Welfare Benefit Fund (as defined in paragraph 1.89) or an
individual medical account, as defined in Code Section 415(1)(2), or a
Simplified Employee Pension Plan, as defined in Code Section 408(k), maintained
by the adopting Employer, which provides an Annual Addition as defined in
paragraph 1.4, the amount of Annual Additions which may be credited to the
Participant,s account for any Limitation Year will not exceed the lesser of the
Maximum Permissible Amount or any other limitation contained in this Plan. If
the Employer contribution that would otherwise be contributed or allocated to
the Participant's account would cause the Annual Additions for the Limitation
Year to exceed the Maximum Permissible Amount, the amount contributed or
allocated will be reduced so that the Annual Additions for the Limitation Year
will equal the Maximum Permissible Amount. Prior to determining the
Participant's actual Compensation for the Limitation Year, the Employer may
determine the Maximum Permissible Amount for a Participant on the basis of a
reasonable estimate of the Participant's Compensation for the Limitation Year,
uniformly determined for all Participants similarly situated. As soon as is
administratively feasible after the end of the Limitation Year, the Maximum
Permissible Amount for the Limitation Year will be determined on the basis of
the Participant?s actual Compensation for the Limitation Year.
10.2 Disposition Of Excess Annual Additions
If, pursuant to paragraph 10.1 or as a result of the allocation of forfeitures,
there is an Excess Amount, the excess will be disposed of under one of the
following methods as determined in the Adoption Agreement. If no election is
made in the Adoption Agreement then method "(a)" below shall apply.
(a) Suspense Account Method
(1) Any Elective Deferrals and nondeductible Employee Voluntary
Contributions, to the extent they would reduce the Excess Amount, will be
returned to the Participant;
(2) If after the application of paragraph (1) an Excess Amount still
exists, and the Participant is covered by the Plan at the end of the
Limitation Year, the Excess Amount in the Participant's account will be
used to reduce Employer contributions (including any allocation of
forfeitures) for such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(3) If after the application of paragraph (1) an Excess Amount still
exists, and the Participant is not covered by the Plan at the end of the
Limitation Year, the Excess Amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce
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future Employer contributions (including allocation of any forfeitures) for all
remaining Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary;
(4) If a suspense account is in existence at any time during the
Limitation Year pursuant to this paragraph, it will not participate in the
allocation of investment gains and losses. If a suspense account is in
existence at any time during a particular Limitation Year, all amounts in
the suspense account must be allocated and reallocated to Participants'
accounts before any Employer contributions or any Employee Contributions
may be made to the Plan for that Limitation Year. Excess amounts may not
be distributed to Participants or former Participants.
(b) Spillover Method
(1) Any Elective Deferrals and nondeductible Employee Voluntary
Contributions, to the extent they would reduce the Excess Amount, will be
returned to the Participant.
(2) Any Excess Amount which would be allocated to the account of an
individual Participant under the Plan's allocation formula will be
reallocated to other Participants in the same manner as other Employer
contributions. No such reallocation shall be made to the extent that it
will result in an Excess Amount being created in such Participant's own
account.
(3) To the extent that amounts cannot be reallocated under (1) above, the
suspense account provisions of (a) above will apply.
10.3 Participation In This Plan And Another Qualified Master and Prototype
Defined Contribution Plan, Welfare Benefit Fund, Individual Medical Account Or
Simplified Employee Pension Plan Maintained The Employer
The Annual Additions which may be credited to a Participant's account under this
Plan for any Limitation Year will not exceed the Maximum Permissible Amount
reduced by the Annual Additions credited to a Participant's account under the
other qualified Master or Prototype Defined Contribution Plans, Welfare Benefit
Funds, and individual medical accounts as defined in Code Section 415(1)(2), or
Simplified Employee Pension Plan, maintained by the Employer, which provide an
Annual Addition as defined in paragraph 1.4 for the same Limitation Year. If the
Annual Additions, with respect to the Participant under other Defined
Contribution Plans and Welfare Benefit Funds maintained by the Employer, are
less than the Maximum Permissible Amount and the Employer contribution that
would otherwise be contributed or allocated to the Participant?s account under
this Plan would cause the Annual Additions for the Limitation Year to exceed
this limitation, the amount contributed or allocated will be reduced so that the
Annual Additions under all such plans and funds for the Limitation Year will
equal the Maximum Permissible Amount. If the Annual Additions with respect to
the Participant under such other Defined Contribution Plans and Welfare Benefit
Funds in the aggregate are equal to or greater than the Maximum Permissible
Amount, no amount will be contributed or allocated to the Participant's account
under this Plan for the Limitation Year. Prior to determining the Participant's
actual Compensation for the Limitation Year, the Employer may determine the
Maximum Permissible Amount for a Participant in the manner described in
paragraph 10.1. As soon as administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation Year will be
determined on the basis of the Participant's actual Compensation for the
Limitation Year.
10.4 Disposition Of Excess Annual Additions Under Two Plans
If, pursuant to paragraph 10.3 or as a result of forfeitures, a Participant's
Annual Additions under this Plan and such other plans would result in an Excess
Amount for a Limitation Year, the Excess Amount will be deemed to consist of the
Annual Additions last allocated except that Annual Additions attributable to a
Simplified Employee Pension Plan will be deemed to have been allocated first,
followed by Annual Additions attributable to a Welfare Benefit Fund or
Individual Medical Account as defined in Code Section 415(1)(2) regardless of
the actual allocation date. If an Excess Amount was allocated to a Participant
on an allocation date of this Plan which coincides with an allocation date of
another plan, the Excess Amount attributed to this Plan will be the product of:
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(a) the total Excess Amount allocated as of such date, times
(b) the ratio of:
(1) the Annual Additions allocated to the Participant for the Limitation
Year as of such date under the Plan, to
(2) the total Annual Additions allocated to the Participant for the
Limitation Year as of such date under this and all the other qualified
Master or Prototype Defined Contribution Plans.
Any Excess Amount attributed to this Plan will be disposed of in the manner
described in paragraph 10.2.
10.5 Participation In This Plan And Another Defined Contribution Plan Which Is
Not A Qualified Master Or Prototype Plan
If the Participant is covered under another qualified Defined Contribution Plan
maintained by the Employer which is not a qualified Master or Prototype Plan,
Annual Additions which may be credited to the Participant's account under this
Plan for any Limitation Year will be limited in accordance with paragraphs 10.3
and 10.4 as though the other plan were a Master or Prototype Plan, unless the
Employer provides other limitations in the Adoption Agreement.
10.6 Participation In This Plan And A Defined Benefit Plan
If the Employer maintains, or at any time maintained, a qualified Defined
Benefit Plan covering any Participant in this Plan, the sum of the Participant's
Defined Benefit Plan Fraction and Defined Contribution Plan Fraction will not
exceed 1.0 in any Limitation Year. For any Plan Year during which the Plan is
Top-Heavy, the Defined Benefit and Defined Contribution Plan Fractions shall be
calculated in accordance with Code Section 416(h). The Annual Additions which
may be credited to the Participant's account under this Plan for any Limitation
Year will be limited in accordance with the provisions set forth in the Adoption
Agreement.
10.7 Average Deferral Percentage (A D P) Test
With respect to any Plan Year, the Average Deferral Percentage for Participants
who are Highly Compensated Employees and the Average Deferral Percentage for
Participants who are non-Highly Compensated Employees must satisfy one of the
following tests:
(a) Basic Test - The Average Deferral Percentage for Participants who are
Highly Compensated Employees for the Plan Year is not more than 1.25 times the
Average Deferral Percentage for Participants who are non-Highly Compensated
Employees for the same Plan Year, or
(b) Alternative Test - The Average Deferral Percentage for Participants who
are Highly Compensated Employees for the Plan Year does not exceed the Average
Deferral Percentage for Participants who are non-Highly Compensated Employees
for the same Plan Year by more than 2 percentage points provided that the
Average Deferral Percentage for Participants who are Highly Compensated
Employees is not more than 2.0 times the Average Deferral Percentage for
Participants who are non-Highly Compensated Employees.
10.8 Special Rules Relating To Application Of ADP Test
(a) The Actual Deferral Percentage for any Participant who is a Highly
Compensated Employee for the Plan Year and who is eligible to have Elective
Deferrals (and Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, if treated as Elective Deferrals for purposes of the
ADP test) allocated to his or her accounts under two or more arrangements
described in Code Section 401(k), that are maintained by the Employer, shall
be determined as if such Elective Deferrals (and, if applicable, such
Qualified Non-Elective Contributions or Qualified Matching Contributions, or
both) were made under a single arrangement. If a Highly Compensated Employee
participates in two or more cash or deterred arrangements that have different
Plan Years, all cash or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
(b) In the event that this Plan satisfies the requirements of Code Sections
401(k), 401(a)(4), or 410(b), only if aggregated with one or more other plans,
or if one or more other plans satisfy the requirements of such Code Sections
only if
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XXX gated with this Plan, then this Section shall XXX applied by determining the
Actual Deferral Percentage of Employees as if all such plans XXX a single plan.
For Plan Years beginning XXX 1989, plans may be aggregated in order to XXX Code
Section 401(k) only if they have the XXX Plan Year.
XXX For purposes of determining the Actual Deferral Percentage of a Participant
who is a 5-percent owner or one of the ten most highly-paid XXXly Compensated
Employees, the Elective Deferrals (and Qualified Non-Elective Contributions or
Qualified Matching Contributions, or both, if treated as Elective Referrals for
purposes of the ADP test) and Compensation of such Participant shall include the
Elective Deferrals (and, if applicable, Qualified Non-Elective Contributions and
Qualified Matching Contributions, or both) for the XXX Year of Family Members as
defined in paragraph 1.36 of this Plan. Family Members, with respect to such
Highly Compensated Employees, shall be disregarded as separate Employees in
determining the ADP both for Participants who are non-Highly Compensated
Employees and for participants who are Highly Compensated Employees. In the
event of repeal of the family aggregation rules under Code Section 414(q)(6),
all applications of such rules under this Plan will cease as of the effective
date of such repeal.
(d) For purposes of determining the ADP test, Elective Deferrals, Qualified Non-
Elective Contributions and Qualified Matching Contributions must be made before
the last day of the twelve-month period immediately following the Plan Year to
which contributions relate.
(e) The Employer shall maintain records sufficient to demonstrate satisfaction
of the ADP test [the amount of Qualified Non-Elective Contributions or Qualified
Matching Contributions, or both, used in such test.
(f) The determination and treatment of the Actual Deferral Percentage amounts of
any Participant shall satisfy such other requirements may be prescribed by the
Secretary of the Treasury.
10.9 Average Contribution Percentage (ACP) Test
If the Employer makes Matching Contributions or if the Plan allows Employees to
make Voluntary Contributions the Plan must meet additional nondiscrimination
requirements provided under Code Section 401(m). If Employee Contributions
(including any Elective Deferrals recharacterized as Voluntary Contributions)
are made pursuant to this Plan, then in addition to the ADP test referenced in
paragraph 10.7, the Average Contribution Percentage test is also applicable. The
Average Contribution Percentage for Participants who are Highly Compensated
Employees for each Plan Year and the Average Contribution Percentage for
Participants who are Non-Highly Compensated Employees for the same Plan Year
must satisfy one of the following tests:
(a) Basic Test - The Average Contribution Percentage for Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Participants who are non-Highly Compensated
Employees for the same Plan Year multiplied by 1.25; or
(b) Alternative Test - The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the Average Contribution
Percentage for Participants who are non-Highly Compensated Employees for the
same Plan Year multiplied by two (2), provided that the Average Contribution
Percentage for Participants who are Highly Compensated Employees does not
exceed the Average Contribution Percentage for Participants who are non-Highly
Compensated Employees by more than two (2) percentage points.
10.10 Special Rules Relating To Application Of ACP Test
(a) If one or more Highly Compensated Employees participate in both a cash or
deferred arrangement and a plan subject to the ACP test maintained by the
Employer and the sum of the ADP and ACP of those Highly Compensated Employees
subject to either or both tests exceeds the Aggregate Limit, then the ADP or
ACP of those Highly Compensated Employees who also participate in a cash or
deferred arrangement will be reduced (beginning with such Highly
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Compensated Employee whose ADP or ACP is the highest) as set forth in the
Adoption Agreement so that the limit is not exceeded. The amount by which each
Highly Compensated Employee's Contribution Percentage Amounts is reduced shall
be treated as an Excess Aggregate Contribution. The ADP and ACP of the Highly
Compensated Employees are determined after any corrections required to meet the
ADP and ACP tests. Multiple use does not occur if both the ADP and ACP of the
Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP
of the non-Highly Compensated Employees.
(b) For purposes of this Article, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible to have
Contribution Percentage Amounts allocated to his or her account under two or
more plans described in Code Section 401(a), or arrangements described in Code
Section 401(k) that are maintained by the Employer, shall be determined as if
the total of such Contribution Percentage Amounts was made under each Plan. If
a Highly Compensated Employee participates in two or more cash or deferred
arrangements that have different plan years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a single
arrangement.
(c) In the event that this Plan satisfies the requirements of Code Sections
401(a)(4), 401(m), or 410(b) only if aggregated with one or more other plans,
or if one or more other plans satisfy the requirements of such Code Sections
only if aggregated with this Plan, then this Section shall be applied by
determining the Contribution Percentage of Employees as if all such plans were
a single plan. For plan years beginning after 1989, plans may be aggregated in
order to satisfy Code Section 401(m) only if the aggregated plans have the
same Plan Year.
(d) For purposes of determining the Contribution percentage of a Participant
who is a five-percent owner or one of the ten most highly-paid, Highly
Compensated Employees, the Contribution Percentage Amounts and Compensation of
such Participant shall include the Contribution Percentage Amounts and
Compensation for the Plan Year of Family Members as defined in Paragraph 1.36
of this Plan. Family Members, with respect to Highly Compensated Employees,
shall be disregarded as separate Employees in determining the Contribution
Percentage both for Participants who are non-Highly Compensated Employees and
for Participants who are Highly Compensated Employees. In the event of repeal
of the family aggregation rules under Code Section 414(q)(6), all applications
of such rules under this Plan will cease as of the effective date of such
repeal.
(e) For purposes of determining the Contribution Percentage test, Employee
Contributions are considered to have been made in the Plan Year in which
contributed to the trust. Matching Contributions and Qualified Non-Elective
Contributions will be considered made for a Plan Year if made no later than
the end of the twelve-month period beginning on the day after the close of the
Plan Year.
(f) The Employer shall maintain records sufficient to demonstrate satisfaction
of the ACP test and the amount of Qualified Non-Elective Contributions or
Qualified Matching Contributions, or both, used in such test.
(g) The determination and treatment of the Contribution Percentage of any
Participant shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
(h) Qualified Matching Contributions and Qualified Non-Elective Contributions
used to satisfy the ADP test may not be used to satisfy the ACP test.
ARTICLE XI - ADMINISTRATION
11.1 Plan Administrator
The Employer shall be the named fiduciary and Plan Administrator. These duties
shall include:
(a) appointing the Plan's attorney, accountant, actuary, or any other party
needed to administer the Plan,
(b) directing the Trustee with respect to payments from the Fund,
(c) communicating with Employees regarding their participation and benefits
under the Plan, including the administration of all claims procedures,
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(d) filing any returns and reports with the Internal Revenue Service,
Department of Labor, or any other governmental agency,
(e) reviewing and approving any financial reports, investment reviews, or
other reports prepared by any party appointed by the Employer under paragraph
(a).
(f) establishing a funding policy and investment objectives consistent with
the purposes of the Plan and the Employee Retirement Income Security Act of
1974, and
(g) construing and resolving any question of Plan interpretation. The Plan
Administrator's interpretation of Plan provisions including eligibility and
benefits under the Plan is final, and unless it can be shown to be arbitrary
and capricious will not be subject to "de novo" review.
11.2 Trustee
The Trustee shall only be responsible for maintaining the trust account(s) in
accordance with applicable laws on behalf of the Employer. The Trustee's tries
shall include:
(a) receiving contributions under the terms of the Plan, but not determining
the amount or enforcing the payment thereof,
(b) making distributions from the Fund in accordance with written instructions
received from an authorized representative of the Employer, and
(c) keeping accurate and detailed records of all contributions, receipts,
investments, distributions, disbursements and all other transactions with
respect to each account (in the case of Employee Investment Direction) or the
Fund (in the case of Employer Investment Direction). Periodically (not less
than annually), the Trustee shall provide a transcript of all activity in the
account or in the Fund (which may consist of regularly issued statements from
the Service Company). In the case of Employee Investment Direction, each such
transcript will be provided to the Participant. In the case of Employer
Investment Direction. each such transcript will be provided to the Employer.
Each such transcript shall be the sole accounting required of the Trustee.
Unless the Participant or Employer files a written objection to tile
transcript within 60 days following the date it is furnished, he shall be
deemed to have consented to the accounting, and the Trustee and Service
Company shall be forever released and discharged from all liability and
accountability to anyone with respect to its acts, transactions, duties,
obligations or responsibilities as shown in, or reflected by the transcript.
(d) employing such agents, attorneys or other professionals as the Trustee may
deem necessary or advisable in the performance of its duties.
The Trustee's duties shall be limited to those described above. The Employer
shall be responsible for any other administrative duties required under the Plan
or by applicable law.
11.3 Administrative Fees And Expenses
All reasonable costs, charges and expenses incurred by the Trustee and Service
Company in connection with the administration of the Fund and all reasonable
costs, charges and expenses incurred by the Plan Administrator in connection
with the administration of the Plan (including fees for legal services rendered
to the Trustee and Service Company or Plan Administrator) may be paid by the
Employer, but if not paid by the Employer when due, shall be paid from the Fund.
Such reasonable compensation to the Trustee and Service Company as may be agreed
upon from time to time between the Employer and the Trustee and Service Company
and such reasonable compensation to the Plan Administrator as may be agreed upon
from time to time between the Employer and Plan Administrator and the
compensation of the Service Company in accordance with its fee schedule as in
effect at the applicable time, may be paid by the Employer, but if not paid by
the Employer when due shall be paid by the Fund. The Trustee and Service Company
shall have the right to liquidate trust assets to cover its fees.
Notwithstanding the foregoing, no compensation other than reimbursement for
expenses shall be paid to a Plan Administrator who is the Employer or a full-
time Employee of the Employer. In the event any part of the Trust becomes
subject to tax, all taxes incurred will be paid from the Fund unless the Plan
Administrator advises the Trustee not to pay such tax.
11.4 Duties And Indemnification
(a) The Trustee shall have the authority and discretion to manage and govern
the Fund to the extent provided in this instrument, but does not
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guarantee the Fund in any manner against investment loss or depreciation in
asset value, or guarantee the adequacy of the Fund to meet and discharge all or
any liabilities of the Plan.
(b) The Trustee shall not be liable for the making, retention or sale of any
investment or reinvestment made by it, as herein provided, or for any loss to,
or diminution of the Fund, or for any other loss or damage which may result
from the discharge of its duties hereunder except to the extent it is
judicially determined that tile Trustee has failed to exercise the care,
skill, prudence and diligence under the circumstances then prevailing that a
prudent person acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character with like aims.
(c) The Employer warrants that all directions issued to the Trustee by it or
the Plan Administrator will be in accordance with the terms of the Plan and
not contrary to the provisions of the Employee Retirement Income Security Act
of 1974 and regulations issued thereunder.
(d) The Trustee shall not be answerable for any action taken pursuant to any
direction, consent, certificate, or other paper or document on the belief that
the same is genuine and signed by the proper person. All directions by the
Employer, Participant or the Plan Administrator shall be given in a manner and
form prescribed by the Trustee and approved by the Service Company. The
Employer shall deliver to the Trustee certificates evidencing the individual
or individuals authorized to act as set forth in the Adoption Agreement or as
the Employer may subsequently inform the Trustee in writing and shall deliver
to the Trustee specimens of their signatures.
(e) The duties and obligations of the Trustee shall be limited to those
expressly imposed upon it by this instrument or subsequently agreed upon by
the parties. Responsibility for administrative duties required under the Plan
or applicable law not expressly imposed upon or agreed to by the Trustee shall
rest solely with the Employer.
(f) The Trustee shall be indemnified and saved harmless by the Employer from
and against any and all liability to which the Trustee may be subjected,
including all expenses reasonably incurred in its defense, for any action or
failure to act resulting from compliance with the instructions of the
Employer, the employees or agents of the Employer, the Plan Administrator, or
any other fiduciary to the Plan, and for any liability arising from the
actions or non-actions of any predecessor Trustee or fiduciary or other
fiduciaries of the Plan.
(g) The Trustee shall not be responsible in any way for the application of any
payments it is directed to make or for the adequacy of the Fund to meet and
discharge any and all liabilities under the Plan.
(h) With respect to non-mutual fund investments, the Trustee in administering
the Trust Fund is authorized and empowered to exercise generally, any of the
powers which a trustee might customarily exercise in connection with
investments held by the Trust Fund and to do all other acts that the Trustee
may deem necessary or proper to carry out any of the powers and duties set
forth in this Article XI.
11.5 Special Provisions Concerning The Service Company
(a) To the full extent permitted under ERISA, the Code, any other applicable
federal or state law, the regulations, rules and interpretations thereunder,
and subject to any written instrument executed by the Trustee and the Service
Company allocating responsibilities between them, all ministerial functions
assigned to the Trustee under the Plan shall be delegated to the Service
Company. All instructions required to be given to the Trustee under the Plan
will be effective if given to the Service Company in the manner prescribed by
the Service Company. To the extent the Service Company is performing a
function assigned to the Trustee under the Plan, the Service Company shall
have the benefit of all of the limitations of the scope of the Trustee's
duties and liabilities, all rights of indemnification granted to the Trustee
and all other protections of any nature afforded the Trustee under the Plan.
(b) It is understood and agreed that while the Service Company will perform
certain ministerial duties (such as custodial, reporting, recording, and
bookkeeping functions) with respect to Plan assets, such duties do not involve
the exercise of
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any discretionary authority or other authority to manage or control Plan assets.
(c) With respect to any transaction which the service Company is directed to
engage in, the employer, the Trustee, the Named Investment Fiduciary and the
person directing the transaction shall be responsible for making sure that the
transaction does not violate any applicable provision of law or disqualify the
Plan under the Code, and the Service Company shall have no responsibility
therefor.
(d) The Employer and, where the Service Company is following the directions or
instructions of a Participant, the Trustee, Plan Administrator or the Named
Investment Fiduciary, such Participant, the Trustee, Plan Administrator or the
Named Investment Fiduciary (as the case may be) shall at all times fully
indemnify and save harmless the Service Company from any liability which may
arise in connection with this Plan, except liability arising from the gross
negligence or willful misconduct of the Service Company. For purposes of this
Section 11.5, "liability" shall include, without limitation, taxes, expenses,
claims, damages, actions, suits, attorneys; fees, expenses of litigation or
preparation for threatened litigation, and any other charges. The Service
Company shall be liable for its own gross negligence or willful misconduct in
the performance of the duties expressly assumed by it under the Plan.
ARTICLE XII - TRUST FUND
12.1 The Fund
The Fund shall consist of all contributions made under Article III and Article
IV of the Plan and the investment thereof and earnings thereon. All
contributions and the earnings thereon less payments made under the terms of the
Plan, shall constitute the Fund. The Fund shall be administered as provided in
this document.
12.2 Control Of Plan Assets
The assets of the Fund or evidence of ownership shall be held by the Trustee
under the terms of the Plan and Trust. If the assets represent amounts
transferred from another trustee under a former Plan, the Trustee named
hereunder shall not be responsible for the propriety of any investment under the
former plan.
12.3 Exclusive Benefit Rules
No part of the Fund shall be used for, or diverted to, purposes other than for
the exclusive benefit of Participants, former Participants with a vested
interest, and the beneficiary or beneficiaries of deceased Participants having a
vested interest in the Fund at death.
12.4 Assignment And Alienation Of Benefits
No right or claim to, or interest in, any part of the Fund, or any payment from
the Fund, shall be assignable, transferable, or subject to sale, mortgage,
pledge, hypothecation, commutation, anticipation. garnishment, attachment,
execution, or levy of any kind. The Trustee shall not recognize any attempt to
assign, transfer, sell, mortgage, pledge, hypothecate, commute, or anticipate
the same, except to the extent required by law. The preceding sentences shall
also apply to the creation, assignment, or recognition of a right to any benefit
payable with respect to a Participant pursuant to a domestic relations order,
unless such order is determined to be a qualified domestic relations order, as
defined in Code Section 414(p). or any domestic relations order entered before
January 1, 1985 which the Plan attorney and Plan Administrator deem to be
qualified.
12.5 Determination Of Qualified Domestic Relations Order (QDRO)
A Domestic Relations Order shall specifically state all of the following in
order to be deemed a Qualified Domestic Relations Order ("QDRO"):
(a) The name and last known mailing address (if any) of the Participant and of
each alternate payee covered by the QDRO. However, if the QDRO does not
specify the current mailing address of the alternate payee, but the Plan
Administrator has independent knowledge of that address, the QDRO will still
be valid.
(b) The dollar amount or percentage of the Participant's benefit to be paid by
the Plan to each alternate payee, or the manner in which the amount or
percentage will be determined.
(c) The number of payments or period for which the order applies.
(d) The specific plan (by name) to which the Domestic Relations Order
applies.
The Domestic Relations Order shall not be deemed a QDRO if it requires the Plan
to provide:
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(e) any type or form of benefit, or any option not already provided for in the
Plan;
(f) increased benefits, or benefits in excess of the Participant's vested
rights;
(g) payment of a benefit earlier than allowed by the Plan's earliest
retirement provisions or in the case of a profit-sharing plan, prior to the
allowability of in-service withdrawals, or
(h) payment of benefits to an alternate payee which are required to be paid to
another alternate payee under another QDRO.
Promptly, upon receipt of a Domestic Relations Order ("Order") which may or may
not be "Qualified", the Plan Administrator shall notify the Participant and any
alternate payee(s) named in the Order of such receipt, and include a copy of
this paragraph 12.5. The Plan Administrator shall then forward the Order to the
Plan?s legal counsel for an opinion as to whether or not the Order is in fact
"Qualified" as defined in Code Section 414(p). Within a reasonable time after
receipt of the Order, not to exceed 60 days, the Plan's legal counsel shall make
a determination as to its "Qualified" status and the Participant and any
alternate payee(s) shall be promptly notified in writing of the determination.
If the "Qualified" status of the Order is in question, there will be a delay in
any payout to any payee including the Participant, until the status is resolved.
In such event, the Plan Administrator shall segregate the amount that would have
been payable to the alternate payee(s) if the Order had been deemed a QDRO. If
the Order is not Qualified, or the status is not resolved (for example, it has
been sent back to the Court for clarification or modification) within 18 months
beginning with the date the first payment would have to be made under the Order,
the Plan Administrator shall pay the segregated amounts plus interest to the
person(s) who would have been entitled to the benefits had there been no Order.
If a determination as to the Qualified status of the Order is made after the 18
month period described above, then the Order shall only be applied on a
prospective basis. If the Order is determined to be a QDRO, the Participant and
alternate payee(s) shall again be notified promptly after such determination.
Once an Order is deemed a QDRO, the Plan Administrator shall pay to the
alternate payee(s) all the amounts due under the QDRO, including segregated
amounts plus interest which may have accrued during a dispute as to the Order's
qualification.
Unless specified otherwise in the Adoption Agreement, the earliest retirement
age with regard to the Participant against whom the order is entered shall be
the date the order is determined to be qualified. This will only allow payouts
to alternate payee(s) and not the Participant.
ARTICLE XIII - INVESTMENTS
13.1 Fiduciary Standards
The Trustee shall invest and reinvest income in the same Fund in accordance with
the investment objectives established by the Employer, provided that:
(a) such investments are prudent under the Employee Retirement Income Security
Act of 1974 and the regulations promulgated thereunder,
(b) such investments are sufficiently diversified or otherwise insured or
guaranteed to minimize the risk of large losses, and
(c) such investments are similar to those which would be purchased by another
professional money manager for a like plan with similar investment objectives.
13.2 No Investment Discretion
The Plan Sponsor and the Trustee shall have no discretion to direct any
investments of the Trust and are authorized solely to make and hold investments
only as directed pursuant to Section 13.3.
13.3 Investment Directions
(a) Responsibility for directing the Trustee with respect to the investment of
the Trust Fund shall be allocated to the Employer, or a named fiduciary
appointed by the Employer for that purpose (the "Named Investment Fiduciary"),
the Participants, or any investment manager (an "Investment Manager"), who
meets the requirements of Section 3(38) of the Employee Retirement Income
Security Act of 1974 (ERISA) appointed by the Named Investment Fiduciary, all
as provided in the Plan (including the Adoption Agreement). To the extent
investment responsibility is allocated to the Participant, the
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Designated Beneficiary of a deceased Participant shall discharge the
responsibility subsequent to the Participant?s death and any reference to the
Participant in any provision of the Plan pertaining to investment directions
shall in such event be construed as a reference to the Designated Beneficiary.
(b) Investment directions shall be given in a manner and form prescribed by
the Trustee and shall be subject to such limitations, including limitations as
to the frequency with which any standing investment instructions may be
changed and funds may be moved among investment choices, as the Employer or
other Named Investment Fiduciary shall prescribe. If Investment responsibility
is allocated to Participants, to the extent permitted by the Trustee,
investment directions may be given directly to the Service Company in a manner
and form prescribed by the Service Company.
(c) Cash for which no investments are directed shall be automatically invested
in such investment or investments as the Employer or other Named Investment
Fiduciary shall select from the investments the Service Company makes
available for that purpose unless and until the person responsible for giving
directions directs otherwise. Such automatic investment shall be made at
regular intervals and pursuant to procedures provided by the Service Company
(which procedures may, without limitation, provide for more frequent intervals
only if reinvested balances exceed a stated amount). Absent a contrary
direction in accordance with the preceding provisions of Section 13.2 the
Service Company is hereby directed to make such automatic investments.
Notwithstanding other provisions of the Plan to the contrary, if another
qualified plan is amended and restated in the form of this Plan, the Employer or
the named investment fiduciary shall have the power to prescribe rules regarding
the investment of the assets held under the other qualified plan until such time
as any resulting reconciliation of Participant Accounts is completed and the
assets may be reinvested in investments permitted under Section 13.4 of the
Plan.
13.4 Permitted Investments
Except as Section 13.9 may apply, all amounts held n the Trust Fund under the
Plan shall be invested in mutual fund shares and annuities which are offered
through the Service Company, and such other investments as shall be accepted in
writing by the Service Company for availability under the Plan.
All dividends, including capital gain dividends, paid by any mutual fund shall
be reinvested in full and fractional shares of the mutual fund paying the
dividend in the manner specified in the prospectus of the mutual fund, and such
dividends shall be credited to the Trust Fund.
Each of the mutual funds in which the Plan may invest carries its own fees and
expenses, which may include management fees, Rule 12b-1 fees and/or other fees
and expenses, which are described in detail in each fund's prospectus.
Participants who invest in these mutual funds will, as shareholders of those
funds, bear their prorata portion of each fund's fees and expenses. Employer
acknowledges that Prudential Mutual Fund Distributors (PMFD) and Prudential
Securities Incorporated (PSI) may act as distributor of each fund's shares and
that PSI, PMFD and Prusec Securities Corporation (Prusec) are subsidiaries of
The Prudential Insurance Company of America (Prudential) (through which the
Guaranteed Interest Account is offered) and are each affiliated with the Funds
as described in each fund?s prospectus. Employer acknowledges that Prudential,
PMFD, PSI and Prusec are not fiduciaries to the Plan, have no obligation to the
Plan or the Participants and are acting solely in their own interest. Employer
further acknowledges that Prudential, PMFD, PSI and Prusec may be deemed to
benefit from advisory and other fees paid to it or its affiliates in connection
with the management and operation of the mutual funds in which the Participants
may invest, from sales charges and contingent deferred sales charges imposed as
described in the prospectus and from fees paid to The Prudential Insurance
Company of America in connection with the Guaranteed Interest Account.
13.5 Shareholder Rights
The Trustee shall exercise any rights of a shareholder (including voting rights)
with respect to any securities held, but only in accordance with the
instructions of the Participant or the Designated Beneficiary of a deceased
Participant subject to and except as permitted by any applicable rules of the
Securities and Exchange Commission and any national securities exchange.
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13.6 Liquidation Of Assets
If the Trustee must liquidate assets in order to make distributions, transfer
assets, or pay fees, expenses or taxes assessed against all or a part of the
Fund, and the Trustee is not instructed as to the liquidation of such assets,
assets will be liquidated in accordance with the rules and procedures
customarily followed by the Service Company, which rules shall be formulated in
a manner to eliminate the potential for exercise of discretion by the Service
Company in the liquidation of assets and shall be applied consistently with
respect to all similarly situated plans in the form of the Prototype Plan;
provided that if a contribution is being made to an affected subaccount as of
the date the Trustee would otherwise be liquidating assets pursuant to this
section, the Trustee may withdraw the necessary amount of cash and invest the
remainder of the contribution in investments in the same proportion as would
have resulted had the withdrawal not been made. The Trustee is expressly
authorized to liquidate assets in order to satisfy the Trust Fund's obligation
to pay the Trustee's compensation if such compensation is not paid on a timely
basis.
13.7 Arbitration
This Plan requires that certain controversies be arbitrated as provided below.
In this regard it is to be noted that:
(a) Arbitration is final and binding on the parties.
(b) The parties are waiving their right to seek remedies in court including
the right to jury trial.
(c) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(d) The arbitrator's award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification of
rulings by the arbitrators is strictly limited.
(e) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
Unless the following procedure for the resolution of controversies is not
enforceable under ERISA, any controversy arising out of or relating to the Plan,
or with respect to transactions of any kind executed by, through or with the
Service Company or otherwise pertaining to the Plan shall be settled by
arbitration. The arbitration may be before either the National Association of
Securities Dealers, Inc. (NASD) or the New York Stock Exchange, Inc., as
Employer/Employee, as the case may be, may elect and shall be governed by the
laws of the State of New York. If Employer/Employee does not make the above
election by registered mail addressed to PSI at its main office within 5
business days after demand by PSI that Employer/Employee make such election,
then PSI shall have the right to elect the arbitration tribunal of its choice.
Notice preliminary to, in conjunction with or incident to arbitration, may be
sent to Employer/Employee by mail and personal service is hereby waived.
Judgment upon any award rendered by the arbitrators may be entered in any court
having jurisdiction thereof, without notice to Employer/Employee.
No person shall bring a putative or certified class action to arbitration, nor
seek to enforce any pre-dispute arbitration agreement against any person who has
initiated in court a putative class action; or who is a member of a putative
class who has not opted out of the class with respect to any claims encompassed
by the putative class action until: (i) the class certification is denied; or
(ii) the class is decertified; or (iii) the customer is excluded from the class
by the court. Such forbearance to enforce an agreement to arbitrate shall not
constitute a waiver of any rights under this agreement except to the extent
stated herein.
13.8 Participant Loans
Unless otherwise specified in the Adoption Agreement, Participant Loans will not
be permitted. If permitted by the Adoption Agreement, a Participant may make
application to the Employer requesting a loan from the Fund. Loans shall be made
available to all Participants on a reasonably equivalent basis and shall not be
made available to highly compensated employees who are Participants in amounts
greater than made available to all other Participants. The Employer will
administer all Participant Loans unless the Trustee otherwise agrees in writing
to accept these duties. Loan administration duties shall include, but are not
limited to. approving or disapproving loan applications from Participants, loan
origination and closing, providing proper disclosures to Participant borrowers
under applicable federal and state lending laws, notifying Participant borrowers
of default, and col-
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lecting current and past due payments on such XXXans. The Employer will notify
the Trustee of any XXXans to be made from the Fund. The Trustee will reflect the
amount of each such loan and its repayments on records of the Fund. Any loan
granted hereunder shall be made subject to the following liens:
(a) No loan when aggregated with any outstanding Participant loan(s), shall
exceed the lesser of (i) $50,000 reduced by the excess, if any, of the highest
outstanding balance of loans during the one year period ending on the day
before the loan is made, over the outstanding balance of loans from the Plan
on the date the loan is made or (ii) one-half of the fair market value of a
Participant's vested account balance built up from Employer Contributions,
Voluntary Contributions, and Rollover Contributions. For the purpose of the
above limitation, all loans from all plans of the Employer and other members
of a group of employers described in Code Sections 414(b), 414(c), and 414(m)
are aggregated. An assignment or pledge of any portion of the Participant?s
interest in the Plan and a loan, pledge, or assignment with respect to any
insurance contract purchased under the Plan, will be treated as a loan under
this paragraph.
(b) All applications must be made on forms provided by the Employer and must
be signed by the Participant.
(c) Any loan granted hereunder shall bear interest at a rate reasonable at the
time of application, considering the purpose of the loan and the rate being
charged by representative commercial banks in the local area for a similar
loan unless the Employer sets forth a different method for determining loan
interest rates in its loan procedures. The loan agreement shall also provide
that the payment of principal and interest be amortized in level payments not
less frequently than quarterly.
(d) The term of such loan shall not exceed five years except in the case of a
loan for the purpose of acquiring any house, apartment, condominium, or mobile
home (not used on a transient basis) which is used or is to be used within a
reasonable time as the principal residence of the Participant. The term of
such loan shall be determined by the Employer considering the maturity dates
quoted by representative commercial banks in the local area for a similar
loan.
(e) The principal and interest paid by a Participant on his or her loan shall
be credited to the Fund in the same manner as for any other Plan investment.
Loans will be treated as segregated investments of the individual
Participants.
(f) If a Participant's loan application is approved by the Employer, such
Participant shall be required to sign a note, loan agreement, and assignment
of one-half of his or her interest in the Fund as collateral for the loan. The
Participant, except in the case of a profit-sharing plan satisfying the
requirements of paragraph 8.7, must obtain the consent of his or her Spouse,
if any, within the 90 day period before the time his or her account balance is
used as security for the loan. A new consent is required if the account
balance is used for any renegotiation, extension, renewal or other revision of
the loan, including an increase in the amount thereof. The consent must be
written, must acknowledge the effect of the loan, and must be witnessed by a
plan representative or notary public. Such consent shall thereafter be binding
with respect to the consenting Spouse or any subsequent Spouse.
(g) If a valid Spousal consent has been obtained, then, notwithstanding any
other provision of this Plan, the portion of the Participant's vested account
balance used as a security interest held by the Plan by reason of a loan
outstanding to the Participant shall be taken into account for purposes of
determining the amount of the account balance payable at the time of death or
distribution, but only if the reduction is used as repayment of the loan. If
less than 100% of the Participant's vested account balance (determined without
regard to the preceding sentence) is payable to the surviving Spouse, then the
account balance shall be adjusted by first reducing the vested account balance
by the amount of the security used as repayment of the loan, and then
determining the benefit payable to the Surviving Spouse.
(h) The Employer may also require additional collateral in order to adequately
secure the loan.
(i) A Participant's loan shall immediately become due and payable if such
Participant terminates
46
<PAGE>
employment for any reason or fails to make a principal and/or interest payment
as provided in the loan agreement. If such Participant terminates employment,
the Employer shall immediately request payment of principal and interest on
the loan. If the Participant refuses payment following termination, the
Employer shall reduce the Participant's vested account balance by the
remaining principal and interest on his or her loan. If the Participant's
vested account balance is less than the amount due, the Employer shall take
whatever steps are necessary to collect the balance due directly from the
Participant. However, no foreclosure on the Participant's note or attachment
of the Participant's account balance will occur until a distributable event
occurs in the Plan.
(j) No loans will be made to Owner-Employees (as defined in paragraph 1.50) or
Shareholder-Employees (as defined in paragraph 1.74), unless an exemption from
the prohibited transactions rules is first obtained from the Department of
Labor.
(k) If a Participant requests a loan, the funds to be loaned will be taken
from the subaccount or subaccounts specified by the Participant or, in the
absence of such a specification, form the subaccounts in the order specified
in Section 6.10 pertaining to withdrawals. If specific assets of the Trust
Fund are allocable to individual Participants' Accounts, such assets equal in
value to the amount of the loan shall be sold at the direction of the
Participant to provide the funds to be loaned.
13.9 Insurance Policies
Unless otherwise specified in the Adoption Agreement, the insurance provisions
of this Section 13.9 shall not be applicable. If agreed upon by the Trustee and
approved by the Employer in the Adoption Agreement, Employees may elect the
purchase of life insurance policies under the Plan. If elected, the maximum
annual premium for a whole life policy shall not exceed 50% of the aggregate
cumulative Employer contributions allocated to the account of a Participant.
Whole life policies are policies with both nondecreasing death benefits and
nonincreasing premiums. The maximum annual premium for term contracts or
universal life policies and all other policies which are not whole life shall
not exceed 25% of aggregate Employer contributions allocated to the account of a
Participant. The maximum annual premiums for a Participant with both a whole
life and a term contract or universal life policies shall be limited to one-half
of the whole life premiums plus the term premium but shall not exceed 25% of the
aggregate Employer contributions allocated to the account of a Participant. It
may also be elected to have policies purchased on behalf of a Participant's
spouse, their dependents, or any individual in whom the Participant has an
insurable interest. If any policy is maintained on the joint lives of a
Participant and another individual, it may not be maintained under the Plan
should the other individual predecease the Participant. Any policies purchased
under this Plan shall be held subject to the following rules:
(a) The Trustee shall be applicant and owner of any policies issued.
(b) All policies or contracts purchased shall be endorsed as nontransferable,
and must provide that proceeds will be payable to the Trustee; however, the
Trustee shall be required to pay over all proceeds of the contracts to the
Participant's Designated Beneficiary in accordance with the distribution
provisions of this Plan. Under no circumstances shall the Trust retain any
part of the proceeds.
(c) Each Participant shall be entitled to designate a beneficiary under the
terms of any contract issued; however, such designation will be given to the
Trustee which must be the named beneficiary on any policy. Such designation
shall remain in force, until revoked by the Participant, by filing a new
beneficiary form with the Trustee. A Participant's Spouse will be the
Designated Beneficiary of the proceeds in all circumstances unless a Qualified
Election has been made in accordance with paragraph 8.4. The beneficiary of a
deceased Participant shall receive, in addition to the proceeds of the
Participant's policy or policies, the amount credited to such Participant's
investment account.
(d) A Participant who is uninsurable or insurable at substandard rates, may
elect to receive a reduced amount of insurance, if available, or may waive the
purchase of any insurance.
(e) At the discretion of the Participant, any dividends or credits earned on a
life insurance con-
47
<PAGE>
tract shall, either be allocated to the Participant's account in the Fund,
applied in reduction of any premiums thereon, or, if no premiums are due.
applied to increase the proceeds of the life insurance contract.
(f) If Employer contributions are inadequate to pay all premiums on all
insurance policies, the Trustee may, at the option of the Employer, utilize
other amounts remaining in each Participant's account to pay the premiums on
his or her respective policy or policies, allow the policies to lapse, reduce
the policies to a level at which they may be maintained, or borrow against the
policies on a prorated basis, provided that the borrowing does not
discriminate in favor of the policies on the lives of Officers, Shareholders,
and highly compensated Employees.
(g) On retirement or termination of employment of a Participant, the Employer
shall direct the Trustee to cash surrender the Participant's policy and credit
the proceeds to his or her account for distribution under the terms of the
Plan. However, before so doing, the Trustee shall first offer to distribute
the policy to the Participant as a part of the benefit distribution. If a
Participant on whose life an insurance policy is held under the Plan does not
make a timely direction regarding the policy under this Section (g), the
Participant shall be deemed to have directed that the policy be converted into
cash to be distributed in the manner in which the balance of the Participant's
Account is to be distributed. All distributions resulting from the application
of this paragraph shall be subject to the Joint and Survivor Annuity Rules of
Article VIII, if applicable.
(h) The Employer shall be solely responsible to see that these insurance
provisions are administered properly and that if there is any conflict between
the provisions of this Plan and any insurance contracts issued that the terms
of this Plan will control.
ARTICLE XIV - TOP-HEAVY PROVISIONS
14.1 Applicability Of Rules
If the Plan is or becomes Top-Heavy in any Plan Year beginning after 1983, the
provisions of this Article will supersede any conflicting provisions in the Plan
or Adoption Agreement.
14.2 Minimum Contribution
Notwithstanding any other provision in the Employer's Plan, for any Plan Year in
which the Plan is Top-Heavy or Super Top-Heavy, the aggregate Employer
contributions and forfeitures allocated on behalf of any Participant (without
regard to any Social Security contribution) under this Plan and any other
Defined Contribution Plan of the Employer shall be lesser of 3% of such
Participant's Compensation or the largest percentage of Employer contributions
and forfeitures, as a percentage of the Key Employee?s annual Compensation
allocated on behalf of any Key Employee for that year.
Each Participant who is employed by the Employer on the last day of the Plan
Year shall be entitled to receive an allocation of the Employer's minimum
contribution for such Plan Year. The minimum allocation applies even though
under other Plan provisions the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because the Participant fails to make Mandatory Contributions to the Plan, the
Participant's Compensation is less than a stated amount, or the Participant
fails to complete 1,000 Hours of Service (or such lesser number designated by
the Employer in the Adoption Agreement) during the Plan Year. A Paired profit-
sharing plan designated to provide the minimum Top-Heavy contribution must do so
regardless of profits. An Employer may make the minimum Top-Heavy contribution
available to all Participants or just non-Key Employees.
For purposes of computing the minimum allocation, Compensation shall mean
Compensation as defined in the second paragraph of paragraph 1.12 of the Plan.
The Top-Heavy minimum contribution does not apply to any Participant to the
extent the Participant is covered under any other plan(s) of the Employer and
the Employer has provided in Section 11 of the Adoption Agreement that the
minimum allocation or benefit requirements applicable to Top-Heavy Plans will be
met in the other plan(s).
If a Key Employee makes an Elective Deferral or has an allocation of Matching
Contributions made to his or her account, a Top-Heavy minimum will be required
for non-Key Employees who are Participants, however, neither Elective Deferrals
by nor Matching Contributions to non-Key Employees
48
<PAGE>
may be taken into account for purposes of satisfying the Top-Heavy Minimum
Contribution requirement.
14.3 Minimum Vesting
For any Plan Year in which this Plan is Top-Heavy, the minimum vesting schedule
elected by the Employer in the Adoption Agreement will automatically apply to
the Plan. If the vesting schedule selected by the Employer in the Adoption
Agreement is less liberal than the allowable schedule, the schedule will
automatically be modified. If the vesting schedule under the Employer's Plan
shifts in or out of the Top-Heavy schedule for any Plan Year, such shift is an
amendment to the vesting schedule and the election in paragraph 9.8 of the Plan
applies. The minimum vesting schedule applies to all accrued benefits within the
meaning of Code Section 411(a)(7) except those attributable to Employee
contributions, including benefits accrued before the effective date of Code
Section 416 and benefits accrued before the Plan became Top-Heavy. Further, no
reduction in vested benefits may occur in the event the Plan?s status as Top-
Heavy changes for any Plan Year. However, this paragraph does not apply to the
account balances of any Employee who does not have an Hour of Service after the
Plan initially becomes Top-Heavy and such Employee?s account balance
attributable to Employer contributions and forfeitures will be determined
without regard to this paragraph.
14.4 Limitations On Allocations
In any Plan Year in which the Top-Heavy Ratio exceeds 90% (i.e., the Plan
becomes Super Top-Heavy), the denominators of the Defined Benefit Fraction (as
defined in paragraph 1.15) and Defined Contribution Fraction (as defined in
paragraph 1.18) shall be computed using 100% of the dollar limitation instead of
125%.
ARTICLE XV - AMENDMENT AND TERMINATION
15.1 Amendment By Sponsor
The Sponsor may amend any or all provisions of this Plan and Trust at any time
without obtaining the approval or consent of any Employer which has adopted this
Plan and Trust provided that no amendment shall authorize or permit any part of
the corpus or income of the Fund to be used for or diverted to purposes other
than for the exclusive benefit of Participants and their beneficiaries, or
eliminate an optional form of distribution. In the case of a mass-submitted
plan, the mass-submitter shall amend the Plan on behalf of the Sponsor.
15.2 Amendment By Employer
The Employer may amend any option in the Adoption Agreement, and may include
language as permitted in the Adoption Agreement,
(a) to satisfy Code Section 415, or
(b) to avoid duplication of minimums under Code Section 416, because of
the required aggregation of multiple plans.
The Employer may add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as an individually designed plan for which the Employer must
obtain a separate determination letter.
If the Employer amends the Plan and Trust other than as provided above, the
Employer?s Plan shall no longer participate in this Prototype Plan and will be
considered an individually designed plan.
15.3 Termination
Employers shall have the right to terminate their Plans upon 60 days notice in
writing to the Trustee. If the Plan is terminated, partially terminated, or if
there is a complete discontinuance of contributions under a profit-sharing plan
maintained by the Employer, all amounts credited to the accounts of Participants
shall vest and become nonforfeitable. In the event of a partial termination,
only those who are affected by such partial termination shall be fully vested.
In the event of termination, the Employer shall direct the Trustee with respect
to the distribution of accounts to or for the exclusive benefit of Participants
or their beneficiaries. The Trustee shall dispose of the Fund in accordance with
the written directions of the Plan Administrator, provided that no liquidation
of assets and payment of benefits, (or provision therefor), shall actually be
made by the Trustee until after it is established by the Employer in a manner
satisfactory to the Trustee, that the applicable requirements, if any, of ERISA
and the Internal Revenue Code governing the termination of employee benefit
plans, have been or are being, complied with, or that appropriate
authorizations, waivers, exemptions, or variances have been, or are being
obtained.
49
<PAGE>
15.4 Qualification Of Employer's Plan
If the adopting Employer fails to attain or retain Internal Revenue Service
qualification, such Employer's Plan shall no longer participate in this
Prototype Plan and will be considered an individually designed plan.
15.5 Mergers And Consolidations
(a) In the case of any merger or consolidation of the Employer's Plan with, or
transfer of assets or liabilities of the Employer's Plan to, any other plan.
Participants in the Employer's Plan shall be entitled to receive benefits
immediately after the merger, consolidation, or transfer which are equal to or
greater than the benefits they would have been entitled to receive immediately
before the merger, consolidation, or transfer if the Plan had then terminated.
(b) Any corporation into which tile Trustee or any successor trustee may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Trustee or any successor trustee may
be a party, or any corporation to which all or substantially all the trust
business of the Trustee or any successor trustee may be transferred, shall be
the successor of such Trustee without the filing of any instrument or
performance of any further act, before any court.
15.6 Resignation And Removal
The Trustee may resign by written notice to the Employer which shall be
effective 60 days after delivery. The Employer may discontinue its participation
in this Prototype Plan and Trust effective upon 60 days written notice to the
Sponsor. In such event the Employer shall, prior to the effective date thereof,
amend the Plan to eliminate any reference to this Prototype Plan and Trust and
appoint a successor trustee or arrange for another funding agent. The Trustee
shall deliver the Fund to its successor on the effective date of the resignation
or removal, or as soon thereafter as practicable, provided that this shall not
waive any lien the Trustee may have upon the Fund for its compensation or
expenses. If the Employer fails to amend the Plan and appoint a successor
trustee, or other funding agent within the said 60 days, or such longer period
as the Trustee may specify in writing, the Plan shall be deemed individually
designed and the Employer shall be deemed the successor trustee. The Employer
must then obtain its own determination letter.
15.7 Qualification Of Prototype
The Sponsor intends that this Prototype Plan will meet the requirements of the
Code as a qualified Prototype Retirement Plan and Trust. Should the Commissioner
of Internal Revenue or any delegate of the Commissioner at any time determine
that the Plan and Trust fails to meet the requirements of the Code, the Sponsor
will amend the Plan and Trust to maintain its qualified status.
ARTICLE XVI - GOVERNING LAW
Construction, validity and administration of the Prototype Plan and Trust, and
any Employer Plan and Trust as embodied in the Prototype document and
accompanying Adoption Agreement, shall be governed by Federal law to the extent
applicable and to the extent not applicable by the laws of the
State/Commonwealth in which the principal office of the Sponsor is located.
50
<PAGE>
Internal Revenue Service Department of the Treasury
Plan Description: Prototype
Standardized Profit Sharing Plan
with CODA
XX FN: 50296321903-001 Case: 9400380 Washington, DC 20224
EIN: 13-3408212
XX PD: 03 Plan: 001 Letter Serial No:
D256803b
Person to Contact: Mr. Dua
PRUDENTIAL MUTUAL FUND MANAGEMENT INC
Telephone Number: (202) 622-8380
1 SEAPORT PLAZA
Refer Reply to: CP:E:EP:Q:3
NEW YORK, NY 10292
Date: 03/11/94
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does not
in and of itself adversely affect the plan's acceptability under section 401 of
the Internal Revenue Code. This opinion relates only to the amendment to the
form of the plan. It is not an opinion as to the acceptability of any other
amendment or of the form of the plan as a whole, or as to the effect of other
Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). An employer who adopts this plan will be considered to have a plan
qualified under Code section 401(a) provided all the terms of the plan are
followed, and the eligibility requirements and contribution or benefit
provisions are not more favorable for highly compensated employees than for
other employees. Except as stated below, the Key District Director will not
issue a determination Letter with regard to this plan.
Our opinion does not apply to the form of the plan for purposes of Code section
401(a)16) if: (1) an employer ever maintained another qualified plan for one or
more employees who are covered by this plan, other than a specified paired plan
within the meaning of section 7 of Rev. Proc. 89-9, 1989-1 c.a. 780; or (2)
after December 31, 1985, the employer maintains a welfare benefit fund defined
in Code section 419(e), which provides post retirement medical benefits
allocated to separate accounts for key employees as defined in Code section
419A(d)(3).
An employer that has adopted a standardized plan may not rely on this opinion
Letter with respect to: (1) whether any amendment or series of amendments to the
plan satisfies the nondiscrimination requirements of section 1.401(a)(4)-5(a) of
the regulations, except with respect to plan amendments granting past service
that meet the safe harbor described in section 1.401(a)(4)-5(a)(5) and are not
part of a pattern of amendments that significantly discriminates in favor of
highly compensated employees; or (2) whether the plan satisfies the effective
availability requirement of section 1.401(a)(4)-4(c) of the regulations with
respect to any benefit, right or feature.
An employer that has adopted a standardized plan as an amendment to a plan other
than a standardized plan may not rely on this opinion letter with respect to
whether a benefit, right or other feature that is prospectively eliminated
satisfies the current availability requirements of section 1.401(a)-4 of the
regulations.
<PAGE>
PRUDENTIAL MUTUAL FUND MANAGEMENT INC
FFN: 50296321903-001
Page 2
The employer may request a determination (1) as to whether the plan, considered
with all related qualified plans and, if appropriate, welfare benefit funds,
satisfies the requirements of Code section 401(a)(16) as to Limitations on
benefits and contributions in Code section 415; (2) regarding the
nondiscriminatory effect of grants of past service; and (3) with respect to
whether a prospectively eliminated benefit, right or feature satisfies the
current availability requirements.
Our opinion does not apply to the form of the plan for purposes of section
401(a) of the Code unless the terms of the plan, as adopted or amended, that
pertain to the requirements of sections 401(a)(4), 401(a)(5), 401(a)(17),
401(L), 410(b) and 414(s) of the Code, as amended by the Tax Reform Act of 1986
or subsequent Legislation, (a) are made effective retroactively to the first day
of the first plan year beginning after December ]1, 1988 (or such other date on
which these requirements first became effective with respect to this plan); or
(b) are made effective no Later than the first day on which the employer is no
Longer entitled, under regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions of the plan
constitute such an interpretation.
This Letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9, 1989-1 C.B.
780. The applicability of such provisions may be determined by reference to the
initial opinion Letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading Of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours,
/s/ ^^SIGNATURE ILLEGIBLE^^
Chief Employee Plans Qualifications Branch
<PAGE>
Internal Revenue Service Department of the Treasury
Plan Description: Prototype
Standardized Profit Sharing Plan
with CODA
XX FN: 50296321903-001 Case: 9400380 Washington, DC 20224
EIN: 13-3408212
XX PD: 03 Plan: 001 Letter Serial No:
D256803b
Person to Contact: Mr. Dua
PRUDENTIAL MUTUAL FUND MANAGEMENT INC
Telephone Number: (202) 622-8380
1 SEAPORT PLAZA
Refer Reply to: CP:E:EP:Q:3
NEW YORK, NY 10292
Date: 03/11/94
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does not
in and of itself adversely affect the plan's acceptability under section 401 of
the Internal Revenue Code. This opinion relates only to the amendment to the
form of the plan. It is not an opinion as to the acceptability of any other
amendment or of the form of the plan as a whole, or as to the effect of other
Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
An employer who adopts the amended form of the plan after the date of the
amendment should apply for a determination letter by filing an application with
the Key District Director of Internal Revenue on Form 5307, Short Form
Application for Determination for Employee Benefit Plan.
This letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9, 1989-1 C.B.
780. The applicability of such provisions may be determined by reference to the
initial opinion letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours,
/s/ ^^SIGNATURE ILLEGIBLE^^
Chief Employee Plans Qualifications Branch
<PAGE>
EXHIBIT 10.11
- --------------------------------------------------------------------------------
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
INVENTA CORPORATION
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1 ACCOUNTING AND OTHER TERMS.................................................................. 4
--------------------------
2 LOAN AND TERMS OF PAYMENT................................................................... 4
-------------------------
2.1 Credit Extensions.................................................................... 4
2.2 Overadvances......................................................................... 5
2.3 Interest Rate, Payments.............................................................. 5
2.4 Fees................................................................................. 6
3 CONDITIONS OF LOANS......................................................................... 6
-------------------
3.1 Conditions Precedent to Initial Credit Extension..................................... 6
3.2 Conditions Precedent to all Credit Extensions........................................ 6
4 CREATION OF SECURITY INTEREST............................................................... 6
-----------------------------
4.1 Grant of Security Interest........................................................... 6
5 REPRESENTATIONS AND WARRANTIES.............................................................. 6
------------------------------
5.1 Due Organization and Authorization................................................... 6
5.2 Collateral........................................................................... 7
5.3 Litigation........................................................................... 7
5.4 No Material Adverse Change in Financial Statements................................... 7
5.5 Solvency............................................................................. 7
5.6 Regulatory Compliance................................................................ 7
5.7 Subsidiaries......................................................................... 7
5.8 Full Disclosure...................................................................... 7
6 AFFIRMATIVE COVENANTS....................................................................... 8
---------------------
6.1 Government Compliance................................................................ 8
6.2 Financial Statements, Reports, Certificates.......................................... 8
6.3 Inventory; Returns................................................................... 8
6.4 Taxes................................................................................ 8
6.5 Insurance............................................................................ 9
6.6 Primary Accounts..................................................................... 9
6.7 Financial Covenants.................................................................. 9
6.8 Further Assurances................................................................... 9
7 NEGATIVE COVENANTS.......................................................................... 9
------------------
7.1 Dispositions......................................................................... 9
7.2 Changes in Business, Ownership, Management or Business Locations.....................10
7.3 Mergers or Acquisitions..............................................................10
7 4 Indebtedness.........................................................................10
7.5 Encumbrance..........................................................................10
7.6 Distributions; Investments...........................................................10
7.7 Transactions with Affiliates.........................................................10
7.8 Subordinated Debt....................................................................10
7.9 Compliance...........................................................................10
8 EVENTS OF DEFAULT...........................................................................11
-----------------
8.1 Payment Default......................................................................11
8.2 Covenant Default.....................................................................11
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
8.3 Material Adverse Change..............................................................11
8.4 Attachment...........................................................................11
8.5 Insolvency...........................................................................11
8.6 Other Agreements.....................................................................11
8.7 Judgments............................................................................12
8.8 Misrepresentations...................................................................12
9 BANK'S RIGHTS AND REMEDIES..................................................................12
--------------------------
9.1 Rights and Remedies...................................................................12
9.2 Power of Attorney.....................................................................12
9.3 Accounts Collection...................................................................13
9.4 Bank Expenses.........................................................................13
9.5 Bank's Liability for Collateral.......................................................13
9.6 Remedies Cumulative...................................................................13
9.7 Demand Waiver.........................................................................13
10 NOTICES....................................................................................13
-------
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER.................................................13
------------------------------------------
12 GENERAL PROVISIONS.........................................................................14
------------------
12.1 Successors and Assigns..............................................................14
12.2 Indemnification.....................................................................14
12.3 Time of Essence.....................................................................14
12.4 Severability of Provision...........................................................14
12.5 Amendments in Writing, Integration..................................................14
12.6 Counterparts........................................................................14
12.7 Survival............................................................................14
12.8 Confidentiality.....................................................................15
12.9 Effect of Amendment and Restatement.................................................15
12.10 Attorneys' Fees, Costs and Expenses................................................15
13 DEFINITIONS................................................................................15
-----------
13.1 Definitions.........................................................................15
</TABLE>
3
<PAGE>
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated August 19,
1998, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and INVENTA CORPORATION ("Borrower"), whose
address is 2620 Augustine Drive, Santa Clara, California 95054.
RECITALS
A. Bank and Borrower are parties to that certain Promissory Note, Business
Loan Agreement, and Commercial Security Agreement, each dated May 30, 1995, as
amended and that certain Promissory Note dated July 27, 1998 (collectively, the
"Original Agreement").
B. Borrower and Bank desire in this Agreement to set forth their agreement
with respect to a working capital and equipment loan and to amend and restate in
its entirety without novation the Original Agreement in accordance with the
provisions herein.
AGREEMENT
The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
--------------------------
Accounting terms not defined in this Agreement will be construed following
GAAP Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document. This Agreement shall be construed to impart upon Bank a
duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Credit Extensions.
Borrower will pay Bank the unpaid principal amount of all Credit Extensions
and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 Revolving Advances.
(a) Bank will make Advances not exceeding (i) the lesser of (A) the
Committed Revolving Line or (B) the Borrowing Base, whichever is less, minus
(ii) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit). Amounts borrowed under this Section may be
repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity Date,
when all Advances and other amounts due under this Agreement are immediately
payable.
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2.1.2 Letters of Credit.
Bank will issue or have issued Letters of Credit for Borrower's account not
exceeding (i) the lesser of the Committed Revolving Line or the Borrowing Base
minus (ii) the outstanding principal balance of the Advances; however, the face
amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) may not exceed $250,000.
Each Letter of Credit will have an expiry date of no later than 180 days after
the Revolving Maturity Date, but Borrower's reimbursement obligation will be
secured by cash on terms acceptable to Bank at any time after the Revolving
Maturity Date if the term of this Agreement is not extended by Bank.
2.1.3 Equipment Advances.
(a) Through July 27, 1999 (the "Equipment Availability End Date"), Bank
will continue to make advances ("Equipment Advance" and, collectively,
"Equipment Advances") not exceeding the Committed Equipment Line. The Equipment
Advances may only be used to finance Equipment and may not exceed 100% of the
equipment invoice excluding taxes, shipping, warranty charges, freight discounts
and installation expense. Software may constitute up to 25% of the aggregate
Equipment Advances. Each Equipment Advance must be for a minimum of $10,000.
(b) Interest continues to accrue from the date of each Equipment Advance at
the rate in Section 2.3(a) and is payable monthly until the Equipment
Availability End Date occurs. Equipment Advances outstanding on the Equipment
Availability End Date are payable in 36 equal monthly installments of principal,
plus accrued interest, beginning on the 27th of each month following the
Equipment Availability End Date and ending on July 27, 2002 (the "Equipment
Maturity Date"). Equipment Advances when repaid may not be reborrowed.
(c) To obtain an Equipment Advance, Borrower must notify Bank (the notice
is irrevocable) by facsimile no later than 3:00 p.m. Pacific time 1 Business Day
before the day on which the Equipment Advance is to be made. The notice in the
form of Exhibit B (Payment/Advance Form) must be signed by a Responsible Officer
or designee and include a copy of the invoice for the Equipment being financed.
2.2 Overadvances.
If Borrower's Obligations under Section 2.1.1 and 2.1.2 exceed the lesser
of either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower
must immediately pay Bank the excess.
2.3 Interest Rate, Payments.
(a) Interest Rate. (i) Advances accrue interest on the outstanding
principal balance at a per annum rate of 0.75 percentage point above the Prime
Rate; and (ii) Equipment Advances accrue interest on the outstanding principal
balance at a per annum rate of 1 percentage point above the Prime Rate. After an
Event of Default, Obligations accrue interest at 5 percent above the rate
effective immediately before the Event of Default. The interest rate increases
or decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable on
the 18th of each month. Interest due on the Equipment Advances is payable on the
27th of each month. Bank may debit any of Borrower's deposit accounts including
Account Number 273056170 for principal and interest payments or any amounts
Borrower owes Bank. Bank will notify Borrower when it debits Borrower's
accounts. These debits are not a set-off. Payments received after 12:00 noon
Pacific time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue.
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2.4 Fees.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of $3,600 for
the Committed Revolving Line due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and expenses) incurred through and after the date of this Agreement, are payable
when due.
3 CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Credit Extension.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.
3.2 Conditions Precedent to all Credit Extensions.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially true
on the date of the Payment/Advance Form and on the effective date of each Credit
Extension and no Event of Default may have occurred and be continuing, or result
from the Credit Extension. Each Credit Extension is Borrower's representation
and warranty on that date that the representations and warranties of Section 5
remain true.
4 CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5 REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
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5.2 Collateral.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has no notice of any actual or imminent Insolvency Proceeding of any
account debtor whose accounts are an Eligible Account in any Borrowing Base
Certificate. All Inventory is in all material respects of good and marketable
quality, free from material defects.
5.3 Litigation.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 No Material Adverse Change in Financial Statements.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 Solvency.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 Regulatory Compliance.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
5.7 Subsidiaries.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 Full Disclosure.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
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6 AFFIRMATIVE COVENANTS
---------------------
Borrower will do all of the following:
6.1 Government Compliance.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could have a material adverse
effect on Borrower's business or operations. Borrower will comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
(a) Borrower will deliver to Bank: (i) as soon as available, but no later
than 30 days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during the period, in a form and certified by a Responsible Officer acceptable
to Bank; (ii) as soon as available, but no later than 90 days after the last day
of Borrower's fiscal year, audited consolidated financial statements prepared
under GAAP, consistently applied, together with an unqualified opinion on the
financial statements from an independent certified public accounting firm
acceptable to Bank; (iii) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $100,000 or more; and (iv) budgets, sales
projections, operating plans or other financial information Bank requests.
(b) Within 20 days after the last day of each month, Borrower will deliver
to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form
of Exhibit C, with aged listings of accounts receivable and accounts payable.
(c) Within 30 days after the last day of each month, Borrower will deliver
to Bank with the monthly financial statements a Compliance Certificate signed by
a Responsible Officer in the form of Exhibit D.
(d) At such times as outstanding Advances exist, or prior to an Advance if
no outstanding Advances exist (provided an Accounts audit has not been conducted
within the last 6 months) Bank has the right to audit Borrower's Accounts at
Borrower's expense, but the audits will be conducted no more often than every 6
months unless an Event of Default has occurred and is continuing.
6.3 Inventory; Returns.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.
6.4 Taxes.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
8
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6.5 Insurance.
Borrower will keep its business and the Collateral insured for risks and in
amounts, as Bank requests. Insurance policies will be in a form, with companies,
and in amounts that are satisfactory to Bank. All property policies will have a
lender's loss payable endorsement showing Bank as an additional loss payee and
all liability policies will show the Bank as an additional insured and provide
that the insurer must give Bank at least 20 days notice before canceling its
policy. At Bank's request, Borrower will deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy will, at
Bank's option, be payable to Bank on account of the Obligations.
6.6 Primary Accounts.
Borrower will maintain its primary depository and operating accounts with
Bank.
6.7 Financial Covenants.
Borrower will maintain as of the last day of each month:
(i) Quick Ratio. A ratio of Quick Assets to Current Liabilities
of at least 1.75 to 1.00.
(ii) Debt/Tangible Net Worth Ratio. A ratio of Total Liabilities
less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more
than 1.25 to 1.00.
(iii) Liquidity Coverage. Maintain unrestricted cash (and
equivalents) plus net availability under the Committed Revolving Line of not
less than 2 times outstanding Equipment Advances. Upon Borrower achieving 6
consecutive months of Debt Service Coverage of at least 2.00 to 1.00, the
Liquidity Coverage will be replaced with a Debt Service Coverage ratio of at
least 2.00 to 1.00.
(iv) Debt Service Coverage (if applicable). Maintain Debt Service
Coverage of at least 2.00 to 1.00 at such time as Borrower has complied with the
provisions as set forth in (iii) above.
(v) Profitability. Borrower will be profitable each quarter, except that
Borrower may suffer losses, provided such losses do not exceed $600,000 for the
quarter ended June 30, 1998; $350,000 for the quarter ending September 30, 1998.
6.8 Further Assurances.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
------------------
Borrower will not do any of the following:
7.1 Dispositions.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
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7.2 Changes in Business, Ownership, Management or Business Locations.
Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower or have a material change
in its ownership of greater than 25%. Borrower will not, without at least 30
days prior written notice, relocate its chief executive office or add any new
offices or business locations.
7.3 Mergers or Acquisitions.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, provided no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement
and result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge
or consolidate a Subsidiary into another Subsidiary or into Borrower.
7.4 Indebtedness.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 Distributions; Investments.
Directly or indirectly acquire or own any Person, or make any Investment in
any Person, other than Permitted Investments, or permit any of its Subsidiaries
to do so. Pay any dividends or make any distribution or payment or redeem,
retire or purchase any capital stock.
7.7 Transactions with Affiliates.
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 Subordinated Debt.
Make or permit any payment on any Subordinated Debt, except under the terms
of the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank's prior written consent.
7.9 Compliance.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Advance for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could have a
material adverse effect on Borrower's business or operations or cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
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8 EVENTS OF DEFAULT
-----------------
Any one of the following is an Event of Default:
8.1 Payment Default.
If Borrower fails to pay any of the Obligations;
8.2 Covenant Default.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, the
failure to cure the default is not an Event of Default (but no Credit Extensions
will be made during the cure period);
8.3 Material Adverse Change.
(i) If there occurs a material impairment in the perfection or priority of
the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 Attachment.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 Insolvency.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 Other Agreements.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;
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8.7 Judgments.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 Misrepresentations.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies.
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 Power of Attorney.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has
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occurred. Bank's appointment as Borrower's attorney in fact, and all of Bank's
rights and powers, coupled with an interest, are irrevocable until all
Obligations have been fully repaid and performed and Bank's obligation to
provide Credit Extensions terminates.
9.3 Accounts Collection.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 Bank's Liability for Collateral.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
9.6 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
9.7 Demand Waiver.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
-------
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
------------------------------------------
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Santa Clara County, California.
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BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
------------------
12.1 Successors and Assigns.
This Agreement binds and is for the benefit of the successors and permitted
assigns of each party. Borrower may not assign this Agreement or any rights
under it without Bank's prior written consent which may be granted or withheld
in Bank's discretion. Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank's obligations, rights and benefits under this
Agreement.
12.2 Indemnification.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 Severability of Provision.
Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
12.5 Amendments in Writing, Integration.
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
12.6 Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 Survival.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
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12.8 Confidentiality.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 Effect of Amendment and Restatement.
This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and shall continue to be
outstanding under this Agreement. All security interests granted under the
Original Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Agreement.
12.10 Attorneys' Fees, Costs and Expenses.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.
13 DEFINITIONS
-----------
13.1 Definitions.
In this Agreement:
"Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" is a loan advance (or advances) under the
Committed Revolving Line.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"Borrower's Books" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
15
<PAGE>
"Borrowing Base" is 80% of Eligible Accounts, (subject to Bank's receipt of
a satisfactory Accounts audit), as determined by Bank from Borrower's most
recent Borrowing Base Certificate.
"Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"Closing Date" is the date of this Agreement.
"Code" is the California Uniform Commercial Code.
"Collateral" is the property described on Exhibit A.
---------
"Committed Equipment Line" is a Credit Extension of up to $300,000.
"Committed Revolving Line" is an Advance of up to $1,200,000.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Credit Extension" is each Advance, Equipment Advance, Letter of Credit, or
any other extension of credit by Bank for Borrower's benefit.
"Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"Debt Service Coverage" is net income plus depreciation and amortization
divided by interest expense for the previous 3 month period and the scheduled
principal payments due on Borrower's debt for the next 3 month period, all on a
rolling 3 month basis.
"Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower notice. Unless Bank
- ---
agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of invoice
date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have not
been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that
exceed that percentage, unless the Bank approves in writing;
16
<PAGE>
(e) Accounts for which the account debtor does not have its principal place
of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to the
amount owed (sometimes called "contra" accounts, accounts payable, customer
deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which goods
are consigned, sales guaranteed, sale or return, sale on approval, bill and
hold, or other terms if account debtor's payment may be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate, officer,
employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Advance" is defined in Section 2.1.3.
"Equipment Availability End Date" is defined in Section 2.1.3.
"Equipment Maturity Date" is defined in Section 2.1.3.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
17
<PAGE>
"Letter of Credit" is defined in Section 2.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"Material Adverse Change" is defined in Section 8.3.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"Original Agreement" has the meaning set forth in recital paragraph A.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other Loan
Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing Date; and
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor's Corporation
or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit
issued maturing no more than 1 year after issue.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or arising
under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
--
property and improvements and the proceeds of the equipment;
18
<PAGE>
(d) Leases or subleases and licenses or sublicenses granted in the ordinary
course of Borrower's business and any interest or title of a lessor, licensor or
under any lease or license, if the leases, subleases, licenses and sublicenses
--
permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"Quick Assets" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of fewer than 12 months determined according to GAAP.
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" is August 18, 1999.
"Schedule" is any attached schedule of exceptions.
"Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (and identified as subordinated by Borrower and Bank).
"Subsidiary" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
-----
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
---
"Total Liabilities" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
BORROWER:
INVENTA CORPORATION
By: /s/ [ILLEGIBLE]^^
-------------------------------
Title: President
-----------------------------
19
<PAGE>
BANK:
SILICON VALLEY BANK
By:_________________________________
Title:______________________________
20
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
21
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:____________________
FAX#: (408) 496-2426 TIME:____________________
- --------------------------------------------------------------------------------
FROM: INVENTA CORPORATION
---------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:___________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:___________________________________________________________
PHONE NUMBER:___________________________________________________________________
FROM ACCOUNT #____________________ TO ACCOUNT # ______________________________
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $_______________________________________
PRINCIPAL PAYMENT (ONLY) $_______________________________________
INTEREST PAYMENT (ONLY) $_______________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_______________________________________
OTHER INSTRUCTIONS:_____________________________________________________________
________________________________________________________________________________
All Borrower's representations and warranties in the Amended and Restated Loan
and Security Agreement are true, correct and complete in all material respects
on the date of the telephone request for and Advance confirmed by this Borrowing
Certificate; but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
that date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
___________________________________ _________________________________
Authorized Requester Phone #
___________________________________ _________________________________
Received By (Bank) Phone #
___________________________________
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
22
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
- --------------------------------------------------------------------------------
Borrower: INVENTA CORPORATION Lender: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $1,200,000
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $ ________________
2. Additions (please explain on reverse) $ ________________
3. TOTAL ACCOUNTS RECEIVABLE $ ________________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $ ________________
5. Balance of 50% over 90 day accounts $ ________________
6. Credit balances $ ________________
7. Concentration Limits $ ________________
8. Foreign Accounts $ ________________
9. Governmental Accounts $ ________________
10. Contra Accounts $ ________________
11. Promotion or Demo Accounts $ ________________
12. Intercompany/Employee Accounts $ ________________
13. Other (please explain on reverse) $ ________________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $ ________________
15. Eligible Accounts (#3 minus #14) $ ________________
16. LOAN VALUE OF ACCOUNTS (80% of #15, subject to satisfactory Accounts audit) $ ________________
BALANCES
17. Maximum Loan Amount $ ________________
18. Total Funds Available [Lesser of #17 or #16] $ ________________
19. Present balance owing on Line of Credit $ ________________
20. Outstanding under Sublimits (LC) $ ________________
21. RESERVE POSITION (#18 minus #19 and #20) $ ________________
</TABLE>
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Amended and Restated Loan and Security
Agreement between the undersigned and Silicon Valley Bank.
COMMENTS: ---------------------
BANK USE ONLY
INVENTA CORPORATION
Rec'd By:____________
Auth. Singer
By: ____________________________
Authorized Signer Date: _______________
Verified:____________
Auth. Singer
Date:________________
_____________________
---------------------
23
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: INVENTA CORPORATION
The undersigned authorized officer of INVENTA CORPORATION ("Borrower")
certifies that under the terms and conditions of the Amended and Restated Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower
is in complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties in
the Agreement are true and correct in all material respects on this date.
Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column.
Reporting Covenant Required Complies
------------------ -------- --------
Monthly financial statements + CC Monthly within 30 days Yes No
Annual (Audited) FYE within 90 days Yes No
A/R & AP Agings Monthly within 20 days Yes No
Borrowing Base Certificate Monthly within 20 days Yes No
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.75:1.00 _____:1.00 Yes No
Maximum Debt/Tangible Net Worth 1.25:1.00 _____:1.00 Yes No
Minimum Liquidity * 2x outstanding Equipment Advances
Minimum Debt Service Coverage * 2.00:1.00 _____:1.00 Yes No
Quarterly $ Yes No
Profitability:
Losses not to exceed: $600,000 for the quarter
ended 6/30/98 Yes No
$350,000 for the quarter
ending 9/30/98
* Upon Borrower's achievement of 6 consecutive months of Debt Service Coverage
of at least 2.00 to 1.00, the minimum Liquidity covenant shall be replaced with
a Debt Service Coverage ratio of at least 2.00 to 1.00. Debt Service Coverage
shall be defined as, net income plus depreciation and amortization divided by
interest expense for the previous 3 month period and the scheduled principal
payments due on Borrower's debt for the next 3 month period, all on a rolling 3
month basis.
24
<PAGE>
Comments Regarding Exceptions: See Attached. ------------------------------
Sincerely, BANK USE ONLY
INVENTA CORPORATION Received By:_________________
AUTHORIZED SIGNER
________________________________
SIGNATURE Date:________________________
________________________________ Verified:____________________
TITLE AUTHORIZED SIGNER
________________________________ Date:________________________
DATE
Compliance Status: Yes No
------------------------------
2
<PAGE>
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: INVENTA CORPORATION
LOAN OFFICER: Tim Walsh
DATE: August 19, 1998
Revolving Loan Fee $3,600.00
Documentation Fee 350.00
TOTAL FEE DUE $3,950.00
=========
Please indicate the method of payment:
( ) A check for the total amount is attached.
( ) Debit DDA # ______________ for the total amount.
( ) Loan proceeds
Borrower:
By: /s/ [ILLEGIBLE]^^
- -----------------------------------
(Authorized Signer)
___________________________________
Silicon Valley Bank (Date)
Account Officer's Signature
<PAGE>
CORPORATE BORROWING RESOLUTION
Borrower: INVENTA CORPORATION Bank: Silicon Valley Bank
2620 Augustine Drive 3003 Tasman Drive
Santa Clara, CA 95054 Santa Clara, CA 95054-1191
I, the undersigned Secretary or Assistant Secretary of INVENTA CORPORATION
("Borrower"), HEREBY CERTIFY that Borrower is a corporation duly organized and
existing under and by virtue of the laws of the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held, at
which a quorum was present and voting, the following resolutions were adopted.
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of Borrower, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
/s/ [ILLEGIBLE]^^ PRESIDENT
- ------------------------ ----------------------- __________________________
/s/ [ILLEGIBLE]^^ CONTROLLER /s/ [ILLEGIBLE]^^
- ------------------------ ------------------------ --------------------------
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
Borrow Money. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment should be
borrowed.
Execute Loan Documents. To execute and deliver to Bank the loan documents
of Borrower, on Bank's forms, at such rates of interest and on such terms
as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of Borrower to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the loan documents, or
any portion of the loan documents.
Grant Security. To grant a security interest to Bank in any of Borrower's
assets, which security interest shall secure all of Borrower's obligations
to Bank
Negotiate Items. To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to Borrower or in which Borrower may have an interest, and
either to receive cash for the same or to cause such proceeds to be
credited to the account of Borrower with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
Letters of Credit. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
<PAGE>
Foreign Exchange Contracts. To execute and deliver foreign contracts,
either spot or forward, from time to time, in such amount as, in the
judgment of the officer or officers herein authorized.
Issue Warrants. To issue warrants to purchase Borrower's capital stock, for
such class, series and number, and on such terms, as an officer of Borrower
shall deem appropriate.
Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and performs such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements, including agreements waiving the right to a trial by jury, as
they may in their discretion deem reasonably necessary or proper in order
to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of the
Borrower and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Borrower; and that
they are in full force and effect and have not been modified or revoked in any
manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on August 19, 1998 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED AND ATTESTED BY:
X /s/ [ILLEGIBLE]^^
---------------------------------------
Secretary or Assistant Secretary
X /s/ [ILLEGIBLE]^^
---------------------------------------
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
2
<PAGE>
THIS STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. FILE NO. OF ORIG. FINANCING 1A. DATE OF FILING OF ORIG. FINANCING 1B. DATE OF ORIG. FINANCING 1C. PLACE OF FILING ORIG.
STATEMENT STATEMENT STATEMENT FINANCING STATEMENT
92054928 3/18/92 CALIFORNIA
- -----------------------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY NO.,
INVENTA CORPORATION FEDERAL TAX NO.
- ------------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
2620 Augustine Drive, Suite 225 Santa Clara, CA 95054
- ------------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR
FEDERAL TAX NO.
- ------------------------------------------------------------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL TAX
NO. BANK TRANSIT AND A.B.A. NO.
NAME SILICON VALLEY BANK
MAILING ADDRESS 3003 Tasman Drive
CITY Santa Clara STATE CA ZIP CODE 95054
- ------------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX
NO. BANK TRANSIT AND A.B.A. NO.
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
6. A [_] CONTINUATION - The original Financing Statement between the foregoing Debtor and Secured Party bearing the file number
and date shown above is continued. If collateral is crops or timber, check here [_] and insert description of real
property on which growing or to be grown in Item 7 below
------------------------------------------------------------------------------------------------------------------------------
B [_] RELEASE- From the collateral described in the Financing Statement bearing the file number shown above, the Secured Party
releases the collateral described in item 7 below.
------------------------------------------------------------------------------------------------------------------------------
C [_] ASSIGNMENT- The Secured Party certifies that the Secured Party has assigned to the Assignee above named, the Secured
Party's rights under the Financing Statement bearing the file number shown above in the collateral described in item 7
below.
------------------------------------------------------------------------------------------------------------------------------
D [_] TERMINATION- The Secured Party certifies that the Secured Party no longer claims a security interest under Financing
Statement bearing the file number shown above.
------------------------------------------------------------------------------------------------------------------------------
E [X] AMENDMENT- The Financing Statement bearing the file number shown above is amended as set forth in item 7 below.
(Signature of Debtor required on all amendments.)
------------------------------------------------------------------------------------------------------------------------------
F [_] OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
7. Amend Collateral to include Exhibit "A" attached hereto
- ------------------------------------------------------------------------------------------------------------------------------------
trans 3371 C 9. This Space Use of Filing Officer
INVENTA CORPORATION (Date)_______ 19___ O (Date, Time, Filing Office)
D
E
------
- ----------------------------------------------------------------------------------------- 1
By: /s/ [ILLEGIBLE]^^ President
------------------------------------------------------------------------------------ 2
SIGNATURE(S) OF DEBTOR(S) 111/tmw (TITLE)
3
SILICON VALLEY BANK
4
- -----------------------------------------------------------------------------------------
5
By: _____________________________________________________________________________________
6
- -----------------------------------------------------------------------------------------
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE) 7
- -----------------------------------------------------------------------------------------
Return Copy to 8
NAME Data File Services, Inc.
ADDRESS P.O. Box 275 9
CITY AND Van Nuys
STATE CA
91408-2750
(1) FLING OFFICER COPY
</TABLE>
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
<PAGE>
<TABLE>
THIS STATEMENT is presented for filing pursuant to the California Uniform Commercial Code
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1. FILE NO. OF ORIG. FINANCING STATEMENT 1A. DATE OF FILING OF 1B. DATE OF ORIG. 1C. PLACE OF FILING
ORIG. FINANCING FINANCING ORIG. FINANCING
STATEMENT STATEMENT STATEMENT
92054928 3/18/92 CALIFORNIA
- ---------------------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY
INVENTA CORPORATION NO., FEDERAL TAX NO.
- ---------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
2620 Augustine Drive, Suite 225 Santa Clara, CA 95054
- ---------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR
FEDERAL TAX NO.
- ---------------------------------------------------------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY
NO., FEDERAL TAX NO.
BANK TRANSIT AND
A.B.A. NO.
NAME SILICON VALLEY BANK
MAILING ADDRESS 3003 Tasman Drive
CITY Santa Clara STATE CA ZIP CODE 95054
- ---------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY
NO., FEDERAL TAX NO.
BANK TRANSIT AND
A.B.A. NO.
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------------------
6. A [_] CONTINUATION - The original Financing Statement between the foregoing Debtor and Secured Party bearing the file number
and date shown above is continued. If collateral is crops or timber, check here [_] and insert description of real
property on which growing or to be grown in Item 7 below
---------------------------------------------------------------------------------------------------------------------------
B [_] RELEASE- From the collateral described in the Financing Statement bearing the file number shown above, the Secured
Party releases the collateral described in item 7 below.
---------------------------------------------------------------------------------------------------------------------------
C [_] Assignment- The Secured Party certifies that the Secured Party has assigned to the Assignee above named, the Secured
Party's rights under the Financing Statement bearing the file number shown above in the collateral described in item 7
below.
---------------------------------------------------------------------------------------------------------------------------
D [_] TERMINATION- The Secured Party certifies that the Secured Party no longer claims a security interest under Financing
Statement bearing the file number shown above.
---------------------------------------------------------------------------------------------------------------------------
E [X] AMENDMENT- The Financing Statement bearing the file number shown above is amended as set forth in item 7 below.
(Signature of Debtor required on all amendments.)
---------------------------------------------------------------------------------------------------------------------------
F [_] OTHER
---------------------------------------------------------------------------------------------------------------------------
7. Amend Collateral to include Exhibit "A" attached hereto
- ---------------------------------------------------------------------------------------------------------------------------------
trans 3371 C 9. This Space Use of Filing Officer
INVENTA CORPORATION (Date) _____________________ 19 __________ O (Date, Time, Filing Office)
D
E
-----
- ---------------------------------------------------------------------------------------
1
2
By: ___________________________________________________________________________________
SIGNATURE(S) OF DEBTOR(S) 1111/tmw (TITLE)
SILICON VALLEY BANK 3
- ---------------------------------------------------------------------------------------
4
By: ___________________________________________________________________________________
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- ---------------------------------------------------------------------------------------
5
Return copy to
Name Data File Services, Inc. 6
Address P.O Box 275
City and Van Nuys 7
State CA
91408-2750 8
Uniform Commercial Code - FORM UCC -2 9
(2) FLING OFFICER COPY - ACKNOWLEDGEMENT
</TABLE>
31
<PAGE>
<TABLE>
THIS STATEMENT is presented for filing pursuant to the California Uniform Commercial Code
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1. FILE NO. OF ORIG. FINANCING STATEMENT 1A. DATE OF FILING OF 1B. DATE OF ORIG. 1C. PLACE OF FILING
ORIG. FINANCING FINANCING ORIG. FINANCING
STATEMENT STATEMENT STATEMENT
92054928 3/18/92 CALIFORNIA
- ---------------------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY
INVENTA CORPORATION NO., FEDERAL TAX NO.
- ---------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
2620 Augustine Drive, Suite 225 Santa Clara, CA 95054
- ---------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR
FEDERAL TAX NO.
- ---------------------------------------------------------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY
NO., FEDERAL TAX NO.
BANK TRANSIT AND
A.B.A. NO.
NAME SILICON VALLEY BANK
MAILING ADDRESS 3003 Tasman Drive
CITY Santa Clara STATE CA ZIP CODE 95054
- ---------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY
NO., FEDERAL TAX NO.
BANK TRANSIT AND
A.B.A. NO.
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------------------
6. A [_] CONTINUATION - The original Financing Statement between the foregoing Debtor and Secured Party bearing the file number
and date shown above is continued. If collateral is crops or timber, check here [_] and insert description of real
property on which growing or to be grown in Item 7 below.
---------------------------------------------------------------------------------------------------------------------------
B [_] RELEASE- From the collateral described in the Financing Statement bearing the file number shown above, the Secured
Party releases the collateral described in item 7 below.
---------------------------------------------------------------------------------------------------------------------------
C [_] Assignment- The Secured Party certifies that the Secured Party has assigned to the Assignee above named, the Secured
Party's rights under the Financing Statement bearing the file number shown above in the collateral described in item 7
below.
---------------------------------------------------------------------------------------------------------------------------
D [_] TERMINATION- The Secured Party certifies that the Secured Party no longer claims a security interest under Financing
Statement bearing the file number shown above.
---------------------------------------------------------------------------------------------------------------------------
E [X] AMENDMENT- The Financing Statement bearing the file number shown above is amended as set forth in item 7 below.
(Signature of Debtor required on all amendments.)
---------------------------------------------------------------------------------------------------------------------------
F [_] OTHER
---------------------------------------------------------------------------------------------------------------------------
7. Amend Collateral to include Exhibit "A" attached hereto
- ---------------------------------------------------------------------------------------------------------------------------------
trans 3371 C 9. This Space Use of Filing Officer
INVENTA CORPORATION (Date) _____________________ 19 __________ O (Date, Time, Filing Office)
D
E
-----
- ---------------------------------------------------------------------------------------
1
2
By: ___________________________________________________________________________________
SIGNATURE(S) OF DEBTOR(S) 1111/tmw (TITLE)
SILICON VALLEY BANK 3
- ---------------------------------------------------------------------------------------
4
By: ___________________________________________________________________________________
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- ---------------------------------------------------------------------------------------
5
Return copy to
Name Data File Services, Inc. 6
Address P.O. Box 275
City and Van Nuys 7
State CA
91408-2750 8
Uniform Commercial Code - Form UCC-2 9
</TABLE>
FILE COPY - DEBTOR
<PAGE>
<TABLE>
THIS STATEMENT is presented for filing pursuant to the California Uniform Commercial Code
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1. FILE NO. OF ORIG. FINANCING STATEMENT 1A. DATE OF FILING OF 1B. DATE OF ORIG. 1C. PLACE OF FILING
ORIG. FINANCING FINANCING ORIG. FINANCING
STATEMENT STATEMENT STATEMENT
92054928 3/18/92 CALIFORNIA
- ---------------------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY
INVENTA CORPORATION NO., FEDERAL TAX NO.
- ---------------------------------------------------------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
2620 Augustine Drive, Suite 225 Santa Clara, CA 95054
- ---------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR
FEDERAL TAX NO.
- ---------------------------------------------------------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. SOCIAL SECURITY
NO., FEDERAL TAX NO.
BANK TRANSIT AND
A.B.A. NO.
NAME SILICON VALLEY BANK
MAILING ADDRESS 3003 Tasman Drive
CITY Santa Clara STATE CA ZIP CODE 95054
- ---------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY
NO., FEDERAL TAX NO.
BANK TRANSIT AND
A.B.A. NO.
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- ---------------------------------------------------------------------------------------------------------------------------------
6. A [_] CONTINUATION - The original Financing Statement between the foregoing Debtor and Secured Party bearing the file number
and date shown above is continued. If collateral is crops or timber, check here [_] and insert description of real
property on which growing or to be grown in Item 7 below
---------------------------------------------------------------------------------------------------------------------------
B [_] RELEASE- From the collateral described in the Financing Statement bearing the file number shown above, the Secured
Party releases the collateral described in item 7 below.
---------------------------------------------------------------------------------------------------------------------------
C [_] Assignment- The Secured Party certifies that the Secured Party has assigned to the Assignee above named, the Secured
Party's rights under the Financing Statement bearing the file number shown above in the collateral described in item 7
below.
---------------------------------------------------------------------------------------------------------------------------
D [_] TERMINATION- The Secured Party certifies that the Secured Party no longer claims a security interest under Financing
Statement bearing the file number shown above.
---------------------------------------------------------------------------------------------------------------------------
E [X] AMENDMENT- The Financing Statement bearing the file number shown above is amended as set forth in item 7 below.
(Signature of Debtor required on all amendments.)
---------------------------------------------------------------------------------------------------------------------------
F [_] OTHER
---------------------------------------------------------------------------------------------------------------------------
7. Amend Collateral to include Exhibit "A" attached hereto
- ---------------------------------------------------------------------------------------------------------------------------------
trans 3371 C 9. This Space Use of Filing Officer
INVENTA CORPORATION (Date) _____________________ 19 __________ O (Date, Time, Filing Office)
D
E
-----
- ---------------------------------------------------------------------------------------
1
2
By: ___________________________________________________________________________________
SIGNATURE(S) OF DEBTOR(S) 1111/tmw (TITLE)
SILICON VALLEY BANK 3
- ---------------------------------------------------------------------------------------
4
By: ___________________________________________________________________________________
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
- ---------------------------------------------------------------------------------------
5
Return copy to
Name Data File Services, Inc. 6
Address P.O Box 275
City and Van Nuys 7
State CA
91408-2750 8
Uniform Commercial Code - FORM UCC -2 9
(2) FLING OFFICER COPY - SECURED PARTY
</TABLE>
33
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
Protection of semiconductor chips, now owned or hereafter acquired all claims
for damages by way of any past, present and future infringement of any of the
foregoing and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
<PAGE>
COMMERCIAL SECURITY AGREEMENT
================================================================================
Borrower: INVENTA CORPORATION Lender: Silicon Valley Bank
2620 Augustine Drive, Suite 225 Santa Clara Technology
Santa Clara, CA 95054 3000 Lakeside Drive
Santa Clara, CA 95054
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT is entered into between INVENTA CORPORATION
(referred to below as "Grantor"); and Silicon Valley Bank (referred to below as
"Lender"). For valuable consideration, Grantor grants to Lender a security
interest in the Collateral to secure the Indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security Agreement, as
this Commercial Security Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Commercial
Security Agreement from time to time.
Collateral. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
Inventory, Chattel Paper, Accounts, Deposit Accounts, Contract Rights,
Equipment, General Intangibles, Fixtures, Documents and Instruments
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions for
any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale, lease, or
other disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale, destruction,
loss, or other disposition of any of the property described in this
Collateral section.
(e) All records and data relating to any of the property described in this
Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of Grantor's
right, title, and interest in and to all computer software required to
utilize, create, maintain, and process any such records or data on
electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"Events of Default."
Grantor. The word "Grantor" means INVENTA CORPORATION, its successors and
assigns.
Guarantor. The word "Guarantor" means and includes without limitation each and
all of the guarantors, sureties, and accommodation parties in connection with
the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the
Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents.
Lender. The word "Lender" means Silicon Valley Bank, its successors and
assigns.
Note. The word "Note" means the notes, credit agreements or letters of credit
in any principal amount from Borrower to Lender, together with all renewals
of, extensions of, modifications of, refinancings of, consolidations of and
substitutions for the notes, credit agreements, or letters of credit.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the documents
evidencing or constituting the Collateral, and Grantor will note Lender's
interest upon any and all chattel paper if not delivered to Lender for
possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement. Lender
may at any time, and without further authorization from Grantor, file a
carbon, photographic or other reproduction of any financing statement or of
this Agreement for use as a financing statement. Grantor will reimburse Lender
for all expenses for the perfection and the continuation of the perfection of
Lender's security interest in the Collateral. Grantor promptly will notify
Lender before any change in Grantor's name including any change to the assumed
business names of Grantor. This is a continuing Security Agreement and will
continue in effect even though all or any part of the Indebtedness is paid in
full and even though for a period of time Grantor may not be indebted to
Lender.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and its
certificate or articles of incorporation and bylaws do not prohibit any term
or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, contract fights, chattel paper, or general intangibles, the
Collateral is enforceable in accordance with its terms, is genuine, and
complies with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated on the
Collateral have authority and capacity to contract and are in fact obligated
as they appear to be on the Collateral.
Location of the Collateral. Grantor, upon request of Lender, will deliver to
Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased
<PAGE>
================================================================================
COMMERCIAL SECURITY AGREEMENT
(Continued)
================================================================================
by Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d) all
other properties where Collateral is or may be located. Except in the ordinary
course of its business, Grantor shall not remove the Collateral from its
existing locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent the
Collateral consists of intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of its
business, including the sales of inventory, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the State of
California, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not sell,
offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor
is not in default under this Agreement, Grantor may sell inventory, but only in
the ordinary course of its business and only to buyers who qualify as a buyer in
the ordinary course of business. A sale in the ordinary course of Grantor's
business does not include a transfer in partial or total satisfaction of a debt
or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security interest, encumbrance,
or charge, other than the security interest provided for in this Agreement,
without the prior written consent of Lender. This includes security interests
even if junior in right to the security interests granted under this Agreement.
Unless waived by Lender, all proceeds from any disposition of the Collateral
(for whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement shall not
constitute consent by Lender to any sale or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and encumbrances
except for the lien of this Agreement. No financing statement covering any of
the Collateral is on file in any public office other than those which reflect
the security interest created by this Agreement or to which Lender has
specifically consented. Grantor shall defend Lender's rights in the Collateral
against the claims and demands of all other persons.
Collateral Schedules and Locations. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall require,
such lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral. Such
information shall be submitted for Grantor and each of its subsidiaries or
related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all tangible
Collateral in good condition and repair. Grantor will not commit or permit
damage to or destruction of the Collateral or any part of the Collateral. Lender
and its designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral wherever located.
Grantor shall immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any request
for credit or adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the Collateral
or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments
and liens upon the Collateral, its use or operation, upon this Agreement, upon
any promissory note or notes evidencing the Indebtedness, or upon any of the
other Related Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender's interest in
the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days, Grantor
shall deposit with Lender cash, a sufficient corporate surety bond or other
security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, attorneys' fees or other charges
that could accrue as a result of foreclosure or sale of the Collateral. In any
contest Grantor shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the contest
proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly with
all laws, ordinances, rules and regulations of all governmental authorities, now
or hereafter in effect, applicable to the ownership, production, disposition, or
use of the Collateral. Grantor may contest in good faith any such law, ordinance
or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral never
has been, and never will be so long as this Agreement remains a lien on the
Collateral, used for the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened release of any hazardous waste or
substance, as those terms are defined in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49
U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the
California Health and Safety Code, Section 25100, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum by-products or any fraction
thereof and asbestos. The representations and warranties contained herein are
based on Grantor's due diligence in investigating the Collateral for hazardous
wastes and substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes liable
for cleanup or other costs under any such laws, and (b) agrees to indemnify and
hold harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to indemnify shall
survive the payment of the Indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks
insurance, including without limitation fire, theft and liability coverage
together with such other insurance as Lender may require with respect to the
Collateral, in form, amounts, coverages and basis reasonably acceptable to
Lender and issued by a company or companies reasonably acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at least
ten (10) days' prior written notice to Lender and not including any disclaimer
of the insurer's liability for failure to give such a notice. Each insurance
policy also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Grantor or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require. If
Grantor at any time fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such insurance
as Lender deems appropriate, including if it so chooses "single interest
insurance," which will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of any
loss or damage to the Collateral. Lender may make proof of loss if Grantor fails
to do so within fifteen (15) days of the casualty. All proceeds of any insurance
on the Collateral, including accrued proceeds thereon, shall be held by Lender
as part of the Collateral. If Lender consents to repair or replacement of the
damaged or destroyed Collateral, Lender shall, upon satisfactory proof of
expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost
of repair or restoration. If Lender does not consent to repair or replacement of
the Collateral, Lender shall retain a sufficient amount of the proceeds to pay
all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds
which have not been disbursed within six (6) months after their receipt and
<PAGE>
================================================================================
COMMERCIAL SECURITY AGREEMENT
(Continued)
================================================================================
which Grantor has not committed to the repair or restoration of the Collateral
shall be used to repay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created by
monthly payments from Grantor of a sum estimated by Lender to be sufficient to
produce, at least fifteen (15) days before the premium due date, amounts at
least equal to the insurance premiums to be paid. If fifteen (15) days before
payment is due, the reserve funds are Insufficient, Grantor shall upon demand
pay any deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account which
Lender may satisfy by payment of the insurance premiums required to be paid by
Grantor as they become due. Lender does not hold the reserve funds in trust
for Grantor, and Lender is not the agent of Grantor for payment of the
insurance premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the property
insured; (e) the then current value on the basis of which insurance has been
obtained and the manner of determining that value; and (f) the expiration date
of the policy. In addition, Grantor shall upon request by Lender (however not
more often than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in any
of the Related Documents or in any other agreement between Lender and Grantor.
Insolvency. The dissolution or termination of Grantor's existence as a going
business, the insolvency of Grantor, the appointment of a receiver for any
part of Grantor's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or by any governmental agency against
the Collateral or any other collateral securing the Indebtedness. This
includes a garnishment of any of Grantor's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or such Guarantor dies or becomes
incompetent.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness, including
any prepayment penalty which Grantor would be required to pay, immediately due
and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. Lender may require Grantor to assemble
the Collateral and make it available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the property of
Grantor to take possession of and remove the Collateral. If the Collateral
contains other goods not covered by this Agreement at the time of
repossession, Grantor agrees Lender may take such other goods, provided that
Lender makes reasonable efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer, or
otherwise deal with the Collateral or proceeds thereof in its own name or that
of Grantor. Lender may sell the Collateral at public auction or private sale.
Unless the Collateral threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor reasonable
notice of the time after which any private sale or any other intended
disposition of the Collateral is to be made. The requirements of reasonable
notice shall be met if such notice is given at least ten (10) days, or such
lesser time as required by state law, before the time of the sale or
disposition. All expenses relating to the disposition of the Collateral,
including without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall have
the following rights and remedies regarding the appointment of a receiver: (a)
Lender may have a receiver appointed as a matter of right, (b) the receiver
may be an employee of Lender and may serve without bond, and (c) all fees of
the receiver and his or her attorney shall become part of the Indebtedness
secured by this Agreement and shall be payable on demand, with interest at the
Note rate from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a receiver,
may collect the payments, rents, income, and revenues from the Collateral.
Lender may at any time in its discretion transfer any Collateral into its own
name or that of its nominee and receive the payments, rents, income, and
revenues therefrom and hold the same as security for the Indebtedness or apply
it to payment of the Indebtedness in such order of preference as Lender may
determine. Insofar as the Collateral consists of accounts, general
intangibles, insurance policies, instruments, chattel paper, choses in action,
or similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender
may determine, whether or not Indebtedness or Collateral is then due. For
these purposes, Lender may, on behalf of and in the name of Grantor, receive,
open and dispose of mail addressed to Grantor; change any address to which
mail and payments
<PAGE>
================================================================================
COMMERCIAL SECURITY AGREEMENT
(Continued)
================================================================================
are to be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining on
the Indebtedness due to Lender after application of all amounts received from
the exercise of the rights provided in this Agreement. Grantor shall be liable
for a deficiency even if the transaction described in this subsection is a
sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may
be amended from time to time. In addition, Lender shall have and may exercise
any or all other rights and remedies it may have available at law, in equity,
or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by
this Agreement or the Related Documents or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement shall
be effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Santa Clara
County, State of California. (Initial Here /s/ ) Lender and Grantor hereby
--------
waive the right to any jury trial in any action, proceeding, or counterclaim
brought by either Lender or Grantor against the other. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's
costs and expenses, including attorneys' fees and Lender's legal expenses,
incurred in connection with the enforcement of this Agreement. Lender may pay
someone else to help enforce this Agreement, and Grantor shall pay the costs
and expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Grantor also
shall pay all court costs and such additional fees as may be directed by the
court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under this
Agreement shall be joint and several, and all references to Grantor shall mean
each and every Grantor. This means that each of the persons signing below is
responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be given
in writing and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party, to whom the
notice is to be given at the address shown above. Any party may change its
address for notices under this Agreement-by giving formal written notice to
the other parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if there is more
than one Grantor, notice to any Grantor will constitute notice to all
Grantors. For notice purposes, Grantor agrees to keep Lender informed at all
times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing
or payable from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants issued in payment
for the Collateral; (c) to settle or compromise any and all claims arising
under the Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any claim or
claims or to take any action or institute or take part in any proceedings,
either in its own name or in the name of Grantor, or otherwise, which in the
discretion of Lender may seem to be necessary or advisable. This power is
given as security for the Indebtedness, and the authority hereby conferred is
and shall be irrevocable and shall remain in full force and effect until
renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted preference
claim in Borrower's bankruptcy will become a part of the Indebtedness and, at
Lender's option, shall be payable by Borrower as provided above in the
"EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance,
such finding shall not render that provision invalid or unenforceable as to
any other persons or circumstances. If feasible, any such offending provision
shall be deemed to be modified to be within the limits of enforceability or
validity; however, if the offending provision cannot be so modified, it shall
be stricken and all other provisions of this Agreement in all other respects
shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer of
the Collateral, this Agreement shall be binding upon and inure to the benefit
of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of any
of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this Agreement,
the granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is required and
in all cases such consent may be granted or withheld in the sole discretion of
Lender.
Waiver of Co-obligor's Rights. If more than one person is obligated for the
Indebtedness, Borrower irrevocably waives, disclaims and relinquishes all
claims against such other person which Borrower has or would otherwise have by
virtue of payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of indemnity, contribution or
exoneration.
ADDITIONAL PROVISION. If any law is passed that requires additional action on
the part of Lender, Grantor shall fully cooperate with Lender in complying with
the law and accordingly, shall reimburse Lender for all costs and expenses which
Lender incurs to comply with the law.
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of March 3, 1999, by
and between Inventa Corporation ("Borrower") and Silicon Valley Bank ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
------------------------------------
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, an Amended and Restated Loan and Security Agreement, dated August 19,
1998, as may be amended from time to time, (the "Loan Agreement"). The Loan
Agreement provided for, among other things, a Committed Revolving Line in the
original principal amount of One Million Two Hundred Thousand Dollars
($1,200,000) and a Committed Equipment Line in the original principal amount of
Three Hundred Thousand Dollars ($300,000). Defined terms used but not otherwise
defined herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as described in the Loan Agreement.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Waiver of Covenant Default.
--------------------------
1. Bank hereby waives Borrower's existing default under the Loan
Agreement by virtue of Borrower's failure to comply with the
Profitability covenant as of the quarter ended December 31, 1998.
Bank's waiver of Borrower's compliance of this covenant shall apply
only to the foregoing period. Accordingly, for the quarter ending
March 31, 1999, Borrower shall be in compliance with this covenant.
Bank's agreement to waive the above-described default (1) in no way
shall be deemed an agreement by Bank to waive Borrower's compliance
with the above-described covenant as of all other dates and (2)
shall not limit or impair the Bank's right to demand strict
performance of this covenant as of all other dates and (3) shall
not limit or impair the Bank's right to demand strict performance
of all other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
------------------
necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing below)
-------------------
understands and agrees that in modifying the existing Indebtedness, Bank is
relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or
<PAGE>
guarantor will be released by virtue of this Loan Modification Agreement. The
terms of this paragraph apply not only to this Loan Modification Agreement, but
also to all subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
INVENTA CORPORATION SILICON VALLEY BANK
By: /s/ [ILLEGIBLE]^^ By: /s/ Timothy M. Walsh
------------------- ------------------------
Name: [ILLEGIBLE]^^ Name: Tim Walsh
------------------- ------------------------
Title: Controller Title: Vice President
------------------ -----------------------
2
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of June 22, 1999, by
and between Inventa Corporation ("Borrower") and Silicon Valley Bank a
California-chartered bank ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
------------------------------------
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, an Amended and Restated Loan and Security Agreement, dated August 19,
1998, as may be amended from time to time, (the "Loan Agreement"). The Loan
Agreement provided for, among other things, a Committed Revolving Line in the
original principal amount of One Million Two Hundred Thousand Dollars
($1,200,000), a Committed Equipment Line in the original principal amount of
Three Hundred Thousand Dollars ($300,000) Defined terms used but not otherwise
defined herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as described in the Loan Agreement and a Commercial
Security Agreement dated May 30, 1995.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement
---------------------------------
1. Section 2.1.4 entitled "Equipment Advances II" is hereby
incorporated into the Loan Agreement to read as follows:
(a) Through June 22, 2000 (the "Equipment Availability End
Date II"), Bank will make advances ("Equipment Advance II" and,
collectively, "Equipment Advances II") not exceeding the
Committed Equipment Line II, The Equipment Advances II may only
be used to purchase Equipment and may not exceed 100% of the
equipment invoice excluding taxes, shipping, warranty charges,
freight discounts and installation expense. Software may
constitute up to 25% of the aggregate Equipment Advances II. Each
Equipment Advance II must be for minimum of $10,000.00.
(b) Interest accrues from the date of each Equipment Advance
II at a rate in Section 2.3(a) and is payable monthly until the
Equipment Availability End Date II occurs. Equipment Advances II
outstanding on the Equipment Availability End Date II are payable
in 36 equal monthly installments of principal, plus accrued
interest, beginning on the 22nd day of each month following the
Equipment Availability End Date II and ending on June 22, 2003
(the "Equipment Maturity Date II"). Equipment Advances II when
repaid may not be reborrowed.
(c) To obtain an Equipment Advance II, Borrower must notify
Bank (the notice is irrevocable) by facsimile no later than 3:00
p.m. Pacific time 1 Business day before the day on which the
Equipment Advance is to be made. The notice must be signed by a
Responsible Officer or designee and include a copy of the invoice
for the Equipment being financed.
1
<PAGE>
2. Section 2.3 (a) entitled "Interest Rate, Payments" is hereby
amended in part to provide that Equipment Advances II shall
accrue interest on the outstanding principal balance at a per
annum rate of 1.50 percentage point above the Prime Rate.
3. Section 6.7 entitled "Financial Covenants" is hereby amended in
part as follows:
(v) Profitability. Borrower will be profitable on a quarterly
basis, except that Borrower may have a maximum loss of $2,300,000
for the quarter ending June 30, 1999; $2,325,000 for the quarter
ending September 30, 1999; $300,000 for the quarter ending
December 31, 1999 and profitable for the quarter ending March
31, 2000 and thereafter.
(vi) Remaining Months Liquidity. Borrower will maintain, as of
the last day of each month, at least four months Remaining Months
Liquidity. "Remaining Months Liquidity" is cash on hand (and cash
equivalents) plus availability under the Committed Revolving
Line, divided by Cash Burn. If cash (and cash equivalents)
increases from the prior period, "Cash Burn" is cash (prior
period) minus cash (current period) plus increases/less decreases
in short and long term borrowings plus increases/less decreases
in stock, paid-in capital and Subordinated Debt, If cash (and
cash equivalents) decreases from prior period. "Cash Burn" is
cash (prior period) less (current period) minus increases/plus
decreases in short and long term borrowings minus increases/plus
decreases in stock, paid-in capital and subordinated debt. Upon
Borrower achieving 6 consecutive months of Debt Service Coverage
of at least 2.00 to 1.00, the Remaining Months Liquidity and
Minimum Liquidity covenant shall be replaced with a Debt Service
Coverage of at least 2.00 to 1.00.
4. The following defined terms as set forth in Section 13.1 entitled
"Definitions" is hereby amended and/or incorporated to read as
follows:
"Committed Revolving Line" is $1,000,000.
"Committed Equipment Line II" is a Credit Extension of up to
$300,000.
"Credit Extension" is each Advance, Equipment Advance, Equipment
Advance II, Term Loan or any other extension of credit by Bank
for Borrower's benefit.
"Equipment Advances II" is defined in Section 2.1.4
"Equipment Availability End Date II" is defined in Section 2.1.4
"Equipment Maturity Date II" is defined in Section 2.1.4
Subletter (b) under the term defined as "Eligible Accounts" is
hereby amended as follows:
Account for an account debtor, including Affiliates, whose
total obligation to Borrower exceed 35% of all Accounts, for the
amounts that exceed that percentage, unless the Bank approves in
writing.
B. Waiver of Financial Covenant Defaults.
-------------------------------------
1. Bank hereby waives Borrower's existing defaults under the Loan
Agreement by virtue of Borrower's failure to comply with the
Quick Ratio covenant for the months ended March 31, 1999 and
April 30, 1999, the Debt/Tangible Net Worth Ratio for
2
<PAGE>
the month ended April 30, 1999 and the Profitability covenant as
of fiscal quarter ended March 31, 1999. Bank's waiver of
Borrower's compliance of these covenants shall apply only to the
foregoing periods. Accordingly, for the month ended May 30, 1999,
Borrower shall be in compliance with the Quick Ratio and
Debt/Tangible Net Worth Ratio covenants and for the fiscal
quarter ending June 30, 1999, Borrower shall be in compliance
with the Profitability covenant, as amended herein.
Bank's agreement to waive the above-described defaults (1) in no
way shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenants as of all other
dates and (2) shall not limit or impair the Bank's right to
demand strict performance of these covenants as of all other
dates and (3) shall not limit or impair the Bank's right to
demand strict performance of all other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
------------------
necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of Two
-------------------
Thousand Five Hundred and 00/100 Dollars ($2,500.00) (the "Loan Fee") plus all
out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing below)
-------------------
understands and agrees that in modifying the existing Indebtedness, Bank is
relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
----------
conditioned upon Borrower's payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
INVENTA CORPORATION SILICON VALLEY BANK
By: /s/ Ashok Santhanam By: /s/ Timothy M. Walsh
---------------------------- -----------------------------
Name: Ashok Santhanam Name: Timothy M. Walsh
--------------------------- --------------------------
Title: Chairman Title: V P
-------------------------- --------------------------
3
<PAGE>
[LOGO]
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: Inventa Corporation
LOAN OFFICER: Tim Walsh
DATE: June 22, 1999
Loan Fee $2,500.00
Documentation Fee 500.00
TOTAL FEE DUE $3,000.00
------------- =========
Please indicate the method of payment:
[ ] A check for the total amount is attached.
[X] Debit DDA #__________ for the total amount.
[ ] Loan proceeds
Inventa Corporation
/s/ [ILLEGIBLE]^^ 7/1/99
- ----------------------------------
(Date)
/s/ Timothy M. Walsh 7/6/99
- ----------------------------------
Silicon Valley Bank (Date)
Account Officer's Signature
1
<PAGE>
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: INVENTA CORPORATION
The undersigned authorized officer of INVENTA CORPORATION ("Borrower")
certifies that under the terms and conditions of the Amended and Restated Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower
is in complete compliance for the period ending _____________ with all required
covenants except as noted below and (ii) all representations and warranties in
the Agreement are true and correct in all material respects on this date.
Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.
Please Indicate compliance status by circling Yes/No under "Complies" column.
Reporting Covenant Required Complies
- ------------------ -------- --------
Monthly financial statements + CC Monthly within 30 days Yes No
Annual (Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 20 days Yes No
Borrowing Base Certificate Monthly within 20 days Yes No
Financial Covenant Required Actual Complies
- ------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.75:1.00 ____:1,00 Yes No
Maximum Debt/Tangible Net Worth 1.25:1.00 ____:1.00 Yes No
Minimum Liquidity 2X outstandings _____X Yes No
Under Equipment Notes
Profitability: Quarterly
Losses not to exceed: $2,300,000 for the quarter
ended 6/30/99 Yes No
$2,325,000 for the quarter
ending 9/30/99
$300,000 for the quarter ending
12/31/99
Profitable beginning quarter
ending 3/31/00
Remaining Months Liquidity: 4 months Yes No
Upon Borrower's achievement of a Debt Service Coverage ratio of at least 2.00 to
1.00 for six consecutive months, the Minimum Liquidity and the Remaining Months
Liquidity covenants shall be replaced with a Minimum Debt Service Ratio of 2.00
to 1.00.
<PAGE>
BORROWING BASE CERTIFICATE
- --------------------------------------------------------------------------------
Borrower INVENTA CORPORATION Lender: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $300,000
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $_____________
2. Additions (please explain on reverse) $_____________
3. TOTAL ACCOUNTS RECEIVABLE $_____________
ACCOUNTS RECEIVABLE DEDUCTIONS (without
duplication)
1. Amounts over 90 days due $_____________
5. Balance of 50% over 90 day accounts $_____________
6. Credit balances $_____________
7. Concentration Limits 35% $_____________
8. Foreign Accounts $_____________
9. Governmental Accounts $_____________
10. Contra Accounts $_____________
11. Promotion or Demo Accounts $_____________
12. Intercompany/Employee Accounts $_____________
13. Other (please explain on reverse) $_____________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_____________
15. Eligible Accounts (#3 minus #14) $_____________
16. LOAN VALUE OF ACCOUNTS (80% of #15, subject to satisfactory Accounts audit) $_____________
BALANCES
17. Maximum Loan Amount $_____________
18. Total Funds Available [Lesser of #17 or #16] $_____________
19. Present balance owing on Line of Credit $_____________
20. Outstanding under Sublimits (LC) $_____________
21. RESERVE POSITION (#18 minus #19 and #20) $_____________
</TABLE>
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Amended and Restated Loan and Security
Agreement between the undersigned and Silicon Valley Bank.
COMMENTS: ------------------------------
INVENTA CORPORATION BANK USE ONLY
By:______________________________ Rec'd By: __________________
Authorized Signer Auth. Signer
Date:_______________________
Verified: __________________
Auth. Signer
Date:_______________________
_______________________
------------------------------
1
<PAGE>
Comments Regarding Exceptions: See Attached. --------------------------------
BANK USE ONLY
Sincerely, Received by: ___________________
AUTHORIZED SIGNER
INVENTA CORPORATION Date:___________________________
__________________________________ Verified: ______________________
SIGNATURE AUTHORIZED SIGNER
__________________________________ Date:___________________________
TITLE
Compliance Status: Yes No
__________________________________ --------------------------------
DATE
By:_______________________________
Name:_____________________________
Title:____________________________
2
<PAGE>
EXHIBIT 10.12
greyrock
capital
A Bank of America Company
Loan and Security Agreement
Borrower: Inventa Corporation
Address: 255 Shoreline Drive, 2nd Floor
Redwood Shores, California 94065
Date: November 17, 1999
This Loan and Security Agreement is entered into on the above date between
GREYROCK CAPITAL, a Division of Banc of America Commercial Finance Corporation
(Greyrock), whose address is 10880 Wilshire Blvd. Suite 1850, Los Angeles, CA
90024 and the borrower named above (Borrower), whose chief executive office is
located at the above address (Borrower's Address). The Schedule to this
Agreement (the Schedule) being signed concurrently is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set forth
in Section 8 below.)
1. LOANS.
1.1 Loans. Greyrock will make loans to Borrower (the Loans), in amounts
determined by Greyrock in its * , up to the amounts (the Credit Limit) shown on
the Schedule, provided no Default or Event of Default has occurred and is
continuing. If at any time or for any reason the total of all outstanding Loans
and all other Obligations exceeds the Credit Limit, Borrower shall immediately
pay the amount of the excess to Greyrock, without notice or demand.
*good faith business judgment
1.2 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement or in another written agreement signed by
Greyrock and Borrower. Interest shall be payable monthly, on the last day of
the month. Interest may, in Greyrock's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans.
1.3 Fees. Borrower shall pay Greyrock the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Greyrock and are
not refundable.
2. SECURITY INTEREST.
2.1 Security Interest. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Greyrock a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the Collateral): All Receivables,
Inventory, Equipment, Investment Property and General Intangibles, including,
without limitation, all of Borrower's Deposit Accounts, all money, all
collateral in which Greyrock is granted a security interest pursuant to any
other present or future agreement, all property now or at any time in the future
in Greyrock's possession, and all proceeds (including proceeds of any insurance
policies, proceeds of proceeds and claims against third parties), all products
of the foregoing, and all books and records related to any of the foregoing.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Greyrock to enter into this Agreement and to make Loans,
Borrower represents and warrants to Greyrock as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower.
The execution, delivery and performance by Borrower of this Agreement, and all
other documents contemplated hereby (i) have been duly and validly authorized,
(ii) are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (iii) do not violate Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material
-1-
<PAGE>
Greyrock Capital Loan and Security Agreement
- --------------------------------------------------------------------------------
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Greyrock 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Greyrock at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 Title to Collateral; Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Greyrock now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Greyrock and the Collateral against all claims
of others. Borrower is not and will not become a lessee under any real
property lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right to remove any Collateral from the leased
premises. Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise), Borrower shall, whenever requested by Greyrock, use
its best efforts to cause such third party to execute and deliver to Greyrock,
in form acceptable to Greyrock, such waivers and subordinations as Greyrock
shall specify, so as to ensure that Greyrock'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.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral in good
working condition, ordinary wear and tear excepted, and Borrower will not use
the Collateral for any unlawful purpose. Borrower will immediately advise
Greyrock in writing of any material loss or damage to the Collateral.
3.6 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.
3.7 Financial Condition, Statements and Reports. All financial statements
now or in the future delivered to Greyrock have been, and will be, prepared in
conformity with generally accepted accounting principles * and now and in the
future will fairly reflect the financial condition of Borrower, at the times
and for the periods therein stated. Between the last date covered by any such
statement provided to Greyrock and the date hereof, there has been no material
adverse change in the financial condition or business of Borrower. Borrower is
now and will continue to be solvent.
*(except for the absence of footnotes and subject to normal year-end
adjustments with respect to unaudited financial statements)
3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and Borrower has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies Greyrock in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. Borrower is unaware of any claims or adjustments proposed for any
of Borrower's prior tax years which could result in additional taxes becoming
due and payable by Borrower. Borrower has paid, and shall continue to pay all
amounts necessary to fund all present and future pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guarantee Corporation or any other governmental
agency. Borrower shall, at all times, maintain a separate payroll account which
shall be used exclusively for payment of payroll and payroll taxes and other
items related directly to payroll.
3.9 Compliance with Law. * Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
*Unless noncompliance would not materially adversely affect (i) Borrower's
financial condition as reflected in its financial
-2-
<PAGE>
Greyrock Capital Loan and Security Agreement
- --------------------------------------------------------------------------------
statements previously delivered to Greyrock, (ii) Borrower's operations, or
(iii) Borrower's business,
3.10 Litigation. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Greyrock in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower * any single claim of $50,000
or more, or involving $100,000 or more in the aggregate.
* which can reasonably be expected to result in liability with respect to
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes.
3.12 Year 2000 Compliance. The Borrower has (i) initiated a review and
assessment of all areas within its and each of its subsidiaries' business and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its subsidiaries (or its suppliers
and vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, implemented that plan in accordance with
that timetable. The Borrower reasonably believes that all computer applications
(including those of its suppliers and vendors) that are material to its or any
of its subsidiaries' business and operations will on a timely basis be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure
to do so could not reasonably be expected to have material adverse effect. The
Borrower will promptly notify Greyrock in the event the Borrower discovers or
determines that any computer application (including those of its suppliers and
vendors) that is material to its or any of its subsidiaries' business and
operations will not be Year 2000 compliant on a timely basis, except to the
extent that such failure could not reasonably be expected to have a material
adverse effect.
4. RECEIVABLES.
4.1 Representations Relating to Receivables. Borrower represents and
warrants to Greyrock as follows: Each Receivable with respect to which Loans
are requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed, bona fide, existing, unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services, in the ordinary course of Borrower's business.
4.2 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Greyrock as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall comply
with all applicable laws and governmental rules and regulations. All signatures
and endorsements on all documents, instruments, and agreements relating to all
Receivables are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.
4.3 Schedules and Documents relating to Receivables. Borrower shall deliver
to Greyrock transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Greyrock's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Greyrock's security interest and other rights in all of
Borrower's Receivables, nor shall Greyrock's failure to advance or lend against
a specific Receivable affect or limit Greyrock's security interest and other
rights therein. Together with each such schedule and assignment, or later if
requested by Greyrock, Borrower shall furnish Greyrock with copies (or, at
Greyrock's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Receivables, and Borrower warrants the
genuineness of all of the foregoing. Borrower shall also furnish to Greyrock an
aged accounts receivable trial balance in such form and at such intervals as
Greyrock shall request. In addition, Borrower shall deliver to Greyrock the
originals of all instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Receivables, immediately
upon receipt thereof and in the same form as received, with all necessary
endorsements.
4.4 Collection of Receivables. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Greyrock, and Borrower shall deliver all such payments and proceeds to Greyrock,
within one business day after receipt of the same, in their original form, duly
endorsed, to be applied to the Obligations in such order as Greyrock shall
determine.
4.5 Disputes. Borrower shall notify Greyrock promptly of all disputes or
claims relating to Receivables on the regular reports to Greyrock. Borrower
shall not forgive, or settle any Receivable for less than payment in
-3-
<PAGE>
Greyrock Capital Loan and Security Agreement
- --------------------------------------------------------------------------------
full, or agree to do any of the foregoing, except that Borrower may do so,
provided that: (i) Borrower does so in good faith, in a commercially reasonable
manner, in the ordinary course of business, and in arm's length transactions,
which are reported to Greyrock on the regular reports provided to Greyrock; (ii)
no Default or Event of Default has occurred and is continuing; and (iii) taking
into account all such settlements and forgiveness, the total outstanding Loans
and other Obligations will not exceed the Credit Limit.
4.6 Returns. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Greyrock). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) not accept any
return without Greyrock's prior written consent, (ii) hold the returned
Inventory in trust for Greyrock, (iii) segregate all returned Inventory from all
of Borrower's other property, (iv) immediately notify Greyrock of the return
of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Greyrock's request deliver such
returned Inventory to Greyrock.
4.7 Verification. Greyrock may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Greyrock or such other name as Greyrock may choose, and Greyrock or
its designee may, at any time, notify Account Debtors that it has a security
interest in the Receivables.
4.8 No Liability. Greyrock shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Greyrock be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Greyrock from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 Insurance. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Greyrock, in such form and amounts as Greyrock
may reasonably require, and Borrower shall provide evidence of such insurance to
Greyrock, so that Greyrock is satisfied that such insurance is, at all times, in
full force and effect. * Upon receipt of the proceeds of any such insurance,
Greyrock shall apply such proceeds in reduction of the Obligations as Greyrock
shall determine in its sole discretion, except that, provided no Default or
Event of Default has occurred and is continuing, Greyrock shall release to
Borrower insurance proceeds with respect to Equipment totaling less than
$100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Greyrock may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Greyrock may, but
is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Greyrock copies of all reports made to insurance companies.
* All liability insurance policies of Borrower shall name Greyrock as an
additional insured, and all property casualty and related insurance policies of
Borrower shall name Greyrock as a loss payee thereon and Borrower shall cause a
lenders loss payee endorsement in form reasonably acceptable to Greyrock to be
delivered to Greyrock.
5.2 Reports. Borrower, at its expense, shall provide Greyrock with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Greyrock shall from time to time reasonably
specify.
5.3 Access to Collateral, Books and Records. At reasonable times, and on one
business day's notice, Greyrock, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records.
Greyrock shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but Greyrock shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $600 per person per day (or such higher amount as shall represent
Greyrock's then current standard charge for the same), plus reasonable out-of-
pockets expenses. Borrower shall not be charged more than $3,000 per audit
(plus reasonable out-of-pockets expenses), nor shall audits be done more
frequently than four times per calendar year, provided that the foregoing limits
shall not apply after the occurrence of a Default or Event of Default, nor shall
they restrict Greyrock's right to conduct audits at its own expense (whether or
not a Default or Event of Default has occurred). * Borrower will not enter into
any agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address,
without first obtaining Greyrock's written consent, which may be conditioned
upon such accounting firm, service bureau or other third party
-4-
<PAGE>
Greyrock Capital Loan and Security Agreement
- --------------------------------------------------------------------------------
agreeing to give Greyrock the same rights with respect to access to books and
records and related rights as Greyrock has under this Agreement.
* With the exception of books and records more than three years old,
5.4 Remittance of Proceeds. All proceeds arising from the sale or other
disposition of any Collateral shall be delivered, in kind, by Borrower to
Greyrock in the original form in which received by Borrower not later than the
following business day after receipt by Borrower, to be applied to the
Obligations in such order as Greyrock shall determine; provided that, if no
Default or Event of Default has occurred and is continuing, and if no term loan
is outstanding hereunder, then Borrower shall not be obligated to remit to
Greyrock the proceeds of the sale of Equipment which is sold in the ordinary
course of business, in a good-faith arm's length transaction. Except for the
proceeds of the sale of Equipment as set forth above, Borrower shall not
commingle proceeds of Collateral with any of Borrower's other funds or property,
and shall hold such proceeds separate and apart from such other funds and
property and in an express trust for Greyrock. Nothing in this Section limits
the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
5.5 Negative Covenants. Except as may be permitted in the Schedule*,
Borrower shall not, without Greyrock's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity**; (ii)
acquire any assets, except in the ordinary course of business ***; (iii) enter
into any other transaction outside the ordinary course of business ++++; (iv)
sell or transfer any Collateral, except that, provided no Default or Event of
Default has occurred and is continuing, Borrower may (a) sell finished Inventory
in the ordinary course of Borrower's business, and (b) sell Equipment in the
ordinary course of business, in good-faith arm's length transactions; (v) store
any Inventory or other Collateral with any warehouseman or other third party;
(vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or
other contingent basis; (vii) make any loans of any money or other assets****;
(viii) incur any debts, outside the ordinary course of business, which would
have a material, adverse effect on Borrower or on the prospect of repayment of
the Obligations; (ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity +; (x) pay or declare any dividends on
Borrower's stock (except for dividends payable solely in stock of Borrower);
(xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any
of Borrower's stock ++; (xii) make any change in Borrower's capital structure
which would have a material adverse effect on Borrower or on the prospect of
repayment of the Obligations; or (xiii) dissolve or elect to dissolve; or (xiv)
agree to do any of the foregoing. +++
*or as set forth in the Schedule
**, except in a transaction in which (A) the shareholders of Borrower hold at
least 50% of the common stock and all other capital stock of the surviving
corporation immediately after such merger or consolidation, (B) Borrower is the
surviving corporation and (C) no Default or Event of Default shall exist either
immediately prior to or after giving effect to the transaction;
*** or except in a transaction or a series of transactions not involving the
payment of an aggregate amount in excess of $300,000, provided that no Default
or event of Default shall exist either immediately prior to or after giving
effect to the transaction;
**** except (A) advances to customers or suppliers, in each case, if created,
acquired or made in the ordinary course of business, (B) travel advances,
employee relocation loans and other employee loans and advances in the ordinary
course of business, (C) loans to employees, officers and directors for the
purpose of purchasing equity securities of Borrower, (D) other loans to officers
and employees approved by the Board of Directors of Borrower, and (E) other
loans and extensions of credit not otherwise permitted hereunder, provided that
the aggregate amount of all of the foregoing items (A) through (E) shall not
exceed $300,000 at any one time outstanding, and provided, further, that no
Default or event of Default shall exist either immediately prior to or after
giving effect to the making of any of the foregoing advances, loans or other
extensions of credit;
+(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 Greyrock
on account of the Obligations, except that Borrower may issue guarantees in the
ordinary course of its business in an aggregate amount at any one time
outstanding not to exceed $250,000);
++, except that Borrower may repurchase stock owned by employees, directors
and consultants of Borrower pursuant to terms of employment, consulting or other
stock restriction agreements at such time as any such employee, director or
consultant terminates his or her affiliation with Borrower, provided that no
Default or event of Default shall exist either immediately prior to or after
giving effect to any such repurchase and provided that the aggregate purchase
price so paid in any fiscal year shall not exceed $100,000;
+++ The provisions of this Section 5.5 shall not prohibit (i) issuance by
Borrower of common stock upon exercise of stock options, (ii) sale of shares of
Borrower's capital stock for cash, (iii) issuance of convertible debentures
subordinate in all respects to the
-5-
<PAGE>
Obligations pursuant to subordination provisions acceptable to Greyrock in its
discretion, (iv) sale by Borrower of worn out or obsolete equipment not to
exceed $100,000 in any fiscal year, (v) indebtedness for borrowed money existing
on the date of this Agreement to the extent listed and described on Exhibit A
hereto, (vi) Borrower from incurring indebtedness for or with respect to capital
leases or for the purchase price of capital assets incurred in the ordinary
course of business so long as the aggregate amount of indebtedness permitted by
this clause (vi) shall not exceed $1,000,000 in any fiscal year, (vii)
indebtedness of Borrower to subsidiaries incurred in the ordinary course of
business and consistent with past practices, (viii) extensions, refinancings,
modifications, amendments and restatements of any of the items of permitted
indebtedness set forth above in this sentence, provided that the amount thereof
is not increased and the terms thereof are not modified to impose more
burdensome terms upon Borrower, outside of the ordinary course of Borrower's
business.
++++other than transactions permitted by the other provisions of this Section
5.5
5.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Greyrock with respect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Greyrock, make
available Borrower and its officers, employees and agents, and Borrower's books
and records, without charge, to the extent that Greyrock may deem them
reasonably necessary in order to prosecute or defend any such suit or
proceeding.
5.7 Notification of Changes. Borrower will promptly notify Greyrock in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, and any material adverse change in the
business or financial affairs of Borrower.
5.8 Investment Property. Upon the request of Greyrock, Borrower shall deliver
to Greyrock all certificated securities included in Investment Property, with
all necessary endorsements, and obtain such account control agreements with
securities intermediaries and take such other action with respect to any
Investment Property, as Greyrock shall request, in form and substance
satisfactory to Greyrock. Borrower shall have the right to retain all Investment
Property payments and distributions, unless and until a Default or an Event of
Default has occurred. If a Default or an Event of Default exists, Borrower
shall hold all payments on, and proceeds of, and distributions with respect to,
Investment Property in trust for Greyrock, and Borrower shall deliver all such
payments, proceeds and distributions to Greyrock, immediately upon receipt, in
their original form, duly endorsed, to be applied to the Obligations in such
order as Greyrock shall determine. Upon the request of Greyrock, any such
distributions and payments with respect to any Investment Property held in any
securities account shall be held and retained in such securities account as part
of the Collateral.
5.9 Further Assurances. Borrower agrees, at its expense, on request by
Greyrock, to execute all documents and take all actions, as Greyrock may deem
reasonably necessary or useful in order to perfect and maintain Greyrock's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
5.10 Indemnity. Borrower hereby agrees to indemnify Greyrock and hold
Greyrock harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description *, which
Greyrock may sustain or incur based upon or arising out of any of the
Obligations, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Greyrock and Borrower, any actual or alleged failure of
Greyrock to comply with any writ of attachment or other legal process relating
to Borrower or any of its property, or any other matter, cause or thing
whatsoever occurred, done, omitted or suffered to be done by Greyrock relating
to Borrower or the Obligations (except any such amounts sustained or incurred as
the result of the gross negligence or willful misconduct of Greyrock or any of
its directors, officers, employees, agents, attorneys, or any other person
affiliated with or representing Greyrock). Notwithstanding any provision in
this Agreement to the contrary, the indemnity agreement set forth in this
Section shall survive any termination of this Agreement and shall for all
purposes continue in full force and effect.
* which are asserted by third parties (i.e., a Person other than Borrower),
6. TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the Maturity Date); provided that the
Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty days prior to the next Maturity Date, that such party elects to terminate
this Agreement effective on the next Maturity Date.
6.2 Early Termination. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three business days after
written notice of termination is given to Greyrock; or (ii) by Greyrock at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Greyrock under
this Section 6.2, Borrower shall pay to Greyrock a termination fee (the
Termination Fee) in the amount shown on the Schedule. The Termination Fee shall
be due and payable on the effective date of termination and thereafter shall
bear
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Greyrock Capital Loan and Security Agreement
- --------------------------------------------------------------------------------
interest at a rate equal to the highest rate applicable to any of the
Obligations.
6.3 Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding letters of
credit issued based upon an application, guarantee, indemnity or similar
agreement on the part of Greyrock, then on such date Borrower shall provide to
Greyrock cash collateral in an amount equal to 110% of the face amount of all
such letters of credit plus all interest, fees and costs due or (in Greyrock's
estimation) likely to become due in connection therewith, to secure all of the
Obligations relating to said letters of credit, pursuant to Greyrock's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Greyrock's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Greyrock, Greyrock may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right
or remedy of Greyrock, nor shall any such termination relieve Borrower of any
Obligation to Greyrock, until all of the Obligations have been paid and
performed in full. Upon payment and performance in full of all the Obligations
and termination of this Agreement, Greyrock shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be reasonably required to terminate Greyrock's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events shall
constitute an Event of Default under this Agreement, and Borrower shall give
Greyrock immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Greyrock by Borrower or
any of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit; or (d) Borrower shall fail to perform any non-monetary
Obligation which by its nature cannot be cured; or (e) Borrower shall fail to
perform any other non-monetary Obligation, which failure is not cured within *
business days after the date performance is due; or (f) any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) dissolution, termination of existence, insolvency
or business failure of Borrower or any Guarantor; or appointment of a receiver,
trustee or custodian, for all or any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceeding by Borrower or
any Guarantor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect; or (j) the commencement of any
proceeding against Borrower or any Guarantor under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect,
which is not cured by the dismissal thereof within 45 days after the date
commenced; or (k) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing; or (l) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (m) Borrower makes any payment on account of any indebtedness
or obligation which has been subordinated to the Obligations other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits or
terminates its subordination agreement; or (n) there shall be a change in the
record or beneficial ownership of an aggregate of more than 20% of the
outstanding shares of stock of Borrower, in one or more transactions, compared
to the ownership of outstanding shares of stock of Borrower in effect on the
date hereof, without the prior written consent of Greyrock; or (o) Borrower
shall generally not pay its debts as they become due, 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 (p) there shall be a material adverse change in Borrower's business or
financial condition. Greyrock may cease making any Loans hereunder during any
of the above cure periods, and thereafter if an Event of Default has occurred.
*10
7.2 Remedies. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, Greyrock, at its option, and without notice
or demand of any kind (all of which are hereby expressly waived by Borrower)*,
may do any one or more of the following: (a) Cease making Loans or otherwise
extending credit to Borrower under this Agreement or any other document or
agreement; (b) Accelerate and declare all or
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Greyrock Capital Loan and Security Agreement
- --------------------------------------------------------------------------------
any part of the Obligations to be immediately due, payable, and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any Obligation; (c) Take possession of any or all of
the Collateral wherever it may be found, and for that purpose Borrower hereby
authorizes Greyrock without judicial process to enter onto any of Borrower's
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as Greyrock deems it reasonably necessary in order to complete the enforcement
of its rights under this Agreement or any other agreement; provided, however,
that should Greyrock seek to take possession of any of the Collateral by Court
process, Borrower hereby irrevocably waives: (i) any bond and any surety or
security relating thereto required by any statute, court rule or otherwise as an
incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Greyrock retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to assemble
any or all of the Collateral and make it available to Greyrock at places
designated by Greyrock which are reasonably convenient to Greyrock and Borrower,
and to remove the Collateral to such locations as Greyrock may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral prior to
a disposition thereof and, for such purpose and for the purpose of removal,
Greyrock shall have the right to use Borrower's premises, vehicles, hoists,
lifts, cranes, equipment and all other property without charge; (f) Collect,
receive, dispose of and realize upon any Investment Property, including
withdrawal of any and all funds from any securities accounts; (g) Sell, lease or
otherwise dispose of any of the Collateral, in its condition at the time
Greyrock obtains possession of it or after further manufacturing, processing or
repair, at one or more public and/or private sales, in lots or in bulk, for
cash, exchange or other property, or on credit, and to adjourn any such sale
from time to time without notice other than oral announcement at the time
scheduled for sale. Greyrock shall have the right to conduct such disposition on
Borrower's premises without charge, for such time or times as Greyrock deems
reasonable, or on Greyrock's premises, or elsewhere and the Collateral need not
be located at the place of disposition. Greyrock 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; (h) Demand payment
of, and collect any Receivables and General Intangibles comprising Collateral
and, in connection therewith, Borrower irrevocably authorizes Greyrock 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 Greyrock's sole discretion, to grant extensions of
time to pay, compromise claims and settle Receivables, General Intangibles and
the like for less than face value; and (i) Demand and receive possession of any
of Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or referring thereto. Borrower recognizes
that Greyrock may be unable to make a public sale of any or all of the
Investment Property, by reasons of prohibitions contained in applicable
securities laws or otherwise, and expressly agrees that a private sale to a
restricted group of purchasers for investment and not with a view to any
distribution thereof shall be considered a commercially reasonable sale. All
reasonable attorneys' fees, expenses, costs, liabilities and obligations
incurred by Greyrock 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.
*except that, prior or concurrently with the taking of the first of any of the
following actions, Greyrock shall give Borrower one general written notice
stating that Greyrock is "proceeding to exercise its rights and remedies" or
words to that effect
7.3 Standards for Determining Commercial Reasonableness. Borrower and
Greyrock agree that a sale or other disposition (collectively, sale) of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general, non-
specific terms; (iii) The sale is conducted at a place designated by Greyrock,
with or without the Collateral being present; (iv) The sale commences at any
time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash
or by cashier's check or wire transfer is required; (vi) With respect to any
sale of any of the Collateral, Greyrock may (but is not obligated to) direct any
prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Greyrock shall be free to employ other methods
of noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
7.4 Power of Attorney. Upon the occurrence and during the continuance of any
Event of Default, without limiting Greyrock's other rights and remedies,
Borrower grants to Greyrock an irrevocable power of attorney coupled with an
interest, authorizing and permitting Greyrock (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Greyrock
agrees to exercise the following powers in a commercially reasonable manner:
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Greyrock Capital Loan and Security Agreement
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(a) Execute on behalf of Borrower any documents that Greyrock may, in its sole
discretion, deem advisable in order to perfect and maintain Greyrock's security
interest in the Collateral, or in order to exercise a right of Borrower or
Greyrock, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements; (b) Execute
on behalf of Borrower any document exercising, transferring or assigning any
option to purchase, sell or otherwise dispose of or to lease (as lessor or
lessee) any real or personal property which is part of Greyrock's Collateral or
in which Greyrock has an interest; (c) Execute on behalf of Borrower, any
invoices relating to any Receivable, any draft against any Account Debtor and
any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice
of Lien, claim of mechanic's, materialman's or other lien, or assignment or
satisfaction of mechanic's, materialman's or other lien; (d) Take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral;
endorse the name of Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into Greyrock's possession; (e) Endorse all
checks and other forms of remittances received by Greyrock; (f) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (g) Grant extensions of time to pay,
compromise claims and settle Receivables and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to secure the
release of any liens therefor, or both; (i) Settle and adjust, and give releases
of, any insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Greyrock the same rights
of access and other rights with respect thereto as Greyrock has under this
Agreement; (k) Execute and deliver to any securities intermediary or other
Person any entitlement order, account control agreement or other notice,
document or instrument with respect to any Investment Property, and (l) Take any
action or pay any sum required of Borrower pursuant to this Agreement and any
other present or future agreements. Any and all reasonable sums paid and any and
all reasonable costs, expenses, liabilities, obligations and reasonable
attorneys' fees incurred by Greyrock 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 Greyrock's rights under the foregoing
power of attorney or any of Greyrock's other rights under this Agreement be
deemed to indicate that Greyrock is in control of the business, management or
properties of Borrower.
7.5 Application of Proceeds. All proceeds realized as the result of any
sale or other disposition of the Collateral shall be applied by Greyrock first
to the reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Greyrock in the exercise of its rights under this Agreement, second
to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Greyrock shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; Borrower shall remain liable to Greyrock for any deficiency.
If Greyrock, in its sole discretion, directly or indirectly enters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Greyrock shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Greyrock of the cash therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set forth
in this Agreement, Greyrock shall have all the other rights and remedies
accorded a secured party under the California Uniform Commercial Code and under
all other applicable laws, and under any other instrument or agreement now or in
the future entered into between Greyrock and Borrower, and all of such rights
and remedies are cumulative and none is exclusive. Exercise or partial exercise
by Greyrock of one or more of its rights or remedies shall not be deemed an
election, nor bar Greyrock from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Greyrock to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
Account Debtor means the obligor on a Receivable.
--------------
Affiliate means, with respect to any Person, a relative, partner,
---------
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
Agreement and this Agreement means this Loan and Security Agreement and all
--------- --------------
modifications and amendments thereto, extensions thereof, and replacements
therefor.
Business Day means a day on which Greyrock is open for business.
------------
Code means the Uniform Commercial Code as adopted and in effect in the
----
State of California from time to time.
Collateral has the meaning set forth in Section 2.1 above.
----------
Default means any event which with notice or passage of time or both, would
-------
constitute an Event of Default.
Deposit Account has the meaning set forth in Section 9105 of the Code.
---------------
Eligible Receivables means unconditional Receivables arising in the
--------------------
ordinary course of Borrower's business from the completed sale of goods or
rendition of
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Greyrock Capital Loan and Security Agreement
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services, which Greyrock, in its sole judgment, shall deem eligible
for borrowing, based on such considerations as Greyrock may from time to time
deem appropriate.
Equipment means all of Borrower's present and hereafter acquired machinery,
---------
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
Event of Default means any of the events set forth in Section 7.1 of this
----------------
Agreement.
General Intangibles means all general intangibles of Borrower, whether now
-------------------
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Greyrock, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including life insurance, key man insurance,
credit insurance, liability insurance, property insurance and other insurance),
tax refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or granted to
Borrower, all rights to indemnification and all other intangible property of
every kind and nature (other than Receivables).
Guarantor means any Person who has guaranteed any of the Obligations.
---------
Inventory means all of Borrower's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
Investment Property means any and all investment property of Borrower,
-------------------
including all securities, whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts and commodity accounts,
and all financial assets held in any securities account or otherwise, wherever
located, and whether now existing or hereafter acquired or arising.
Obligations means all present and future Loans, advances, debts,
-----------
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Greyrock, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Greyrock in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, loan fees,
termination fees, minimum interest charges and any other sums chargeable to
Borrower under this Agreement or under any other present or future instrument or
agreement between Borrower and Greyrock.
Permitted Liens means the following: (i) purchase money security interests
---------------
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes *; (iv) additional security interests and liens which are
subordinate to the security interest in favor of Greyrock and are consented to
in writing by Greyrock (which consent shall not be unreasonably withheld); (v)
security interests being terminated substantially concurrently with this
Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent; ** (vii) liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by liens of
the type described above in clauses (i) *** above, provided that any extension,
renewal or replacement lien is limited to the property encumbered by the
existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; (viii) Liens in favor of customs and
revenue authorities which secure payment of customs duties in connection with
the importation of goods. Greyrock will have the right to require, as a
condition to its consent under subparagraph (iv) above, that the holder of the
additional security interest or lien sign an intercreditor agreement on
Greyrock's then standard form, acknowledge that the security interest is
subordinate to the security interest in favor of Greyrock, and agree not to take
any action to enforce its subordinate security interest so long as any
Obligations remain outstanding, and that Borrower agree that any uncured default
in any obligation secured by the subordinate security interest shall also
constitute an Event of Default under this Agreement.
*, fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings, provided
the same have no priority over any of Greyrock's security interests
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Greyrock Capital Loan and Security Agreement
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** more than 45 days or are being contested in good faith by appropriate
proceedings, (vi-a) 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 30 days of the entry thereof, provided that, if the judgment is
not fully covered by insurance or execution thereof has not been so stayed and
bonded, Greyrock shall not be required to make any Loans or otherwise extend
credit to or for the benefit of Borrower; (vi-b) liens (1) upon or in any
equipment acquired or to be acquired, held or leased by the Borrower to secure
the purchase price of such equipment or indebtedness incurred solely for the
purpose of financing the acquisition of such equipment or (2) existing on such
equipment at the time of its acquisition or lease, provided that the lien is
--------
confined solely to the equipment so acquired and improvements thereon; (vi-c)
liens securing reimbursement obligations of Borrower with respect to commercial
letters of credit, provided that such encumbrances shall attach only to
documents or other property relating to such letters of credit and products and
proceeds thereof that are not Collateral under this Agreement subsequent to the
delivery of such property to Borrower; (vi-d) liens which constitute rights of
set-off of a customary nature or bankers' liens on amounts on deposit, whether
arising by contract or by operation of law, in connection with arrangements
entered into with depository institutions in the ordinary course of business;
(vi-e) liens in existence on the date hereof and listed on Exhibit B hereto;
*** through (vi)
Person means any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
Receivables means all of Borrower's now owned and hereafter acquired
-----------
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, documents and all other forms of obligations
at any time owing to Borrower, all guaranties and other security therefor, all
merchandise returned to or repossessed by Borrower, and all rights of stoppage
in transit and all other rights or remedies of an unpaid vendor, lienor or
secured party.
Other Terms. All accounting terms used in this Agreement, unless otherwise
-----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Greyrock
(including proceeds of Receivables and payment of the Obligations in full) shall
be deemed applied by Greyrock on account of the Obligations three Business Days
after receipt by Greyrock of immediately available funds. Greyrock shall not,
however, be required to credit Borrower's account for the amount of any item of
payment which is unsatisfactory to Greyrock in its discretion, and Greyrock may
charge Borrower's Loan account for the amount of any item of payment which is
returned to Greyrock unpaid.
9.2 Application of Payments. All payments with respect to the Obligations
may be applied, and in Greyrock's sole discretion reversed and re-applied, to
the Obligations, in such order and manner as Greyrock shall determine in its
sole discretion.
9.3 Charges to Account. Greyrock may, in its discretion, require that
Borrower pay monetary Obligations in cash to Greyrock *, to Borrower's Loan
account, in which event they will bear interest at the same rate applicable to
the Loans.
* if Borrower does not have Loans available to it hereunder in the
amount of such Obligations; otherwise Greyrock shall charge monetary Obligations
9.4 Monthly Accountings. Greyrock shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Greyrock), unless Borrower
notifies Greyrock in writing to the contrary within sixty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Greyrock or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, or at the expiration of
one business day following delivery to the private delivery service, or two
business days following the deposit thereof in the United States mail, with
postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the
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Greyrock Capital Loan and Security Agreement
- --------------------------------------------------------------------------------
remainder of this Agreement, which shall continue in full force and effect.
9.7 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Greyrock and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.
9.8 Waivers. The failure of Greyrock at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Greyrock shall not waive
or diminish any right of Greyrock later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Greyrock shall be deemed to have been
waived by any act or knowledge of Greyrock or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Greyrock and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Greyrock on which Borrower is or may in any way be liable, and notice of any
action taken by Greyrock, unless expressly required by this Agreement.
9.9 Amendment. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Greyrock.
9.10 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.11 Attorneys Fees and Costs. Borrower shall reimburse Greyrock for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Greyrock, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Greyrock incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Greyrock's security interest in, the Collateral; and otherwise represent
Greyrock in any litigation relating to Borrower. If either Greyrock or Borrower
files any lawsuit against the other predicated on a breach of this Agreement,
the prevailing party in such action shall be entitled to recover its reasonable
costs and attorneys' fees, including (but not limited to) reasonable attorneys'
fees and costs incurred in the enforcement of, execution upon or defense of any
order, decree, award or judgment. All attorneys' fees and costs to which
Greyrock may be entitled pursuant to this Paragraph shall immediately become
part of Borrower's Obligations, shall be due on demand, and shall bear interest
at a rate equal to the highest interest rate applicable to any of the
Obligations.
9.12 Benefit of Agreement. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Greyrock; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Greyrock, and any prohibited
assignment shall be void. No consent by Greyrock to any assignment shall release
Borrower from its liability for the Obligations.
9.13 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 Limitation of Actions. Any claim or cause of action by Borrower
against Greyrock, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Greyrock, its directors, officers, employees, agents, accountants or
attorneys, 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 one year after the first act, occurrence or omission upon which
such claim or cause of action, or any part thereof, is based, and the service of
a summons and complaint on an officer of Greyrock, or on any other person
authorized to accept service on behalf of Greyrock, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Greyrock in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.15 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and Greyrock acknowledge that the
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Greyrock Capital Loan and Security Agreement
- --------------------------------------------------------------------------------
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Greyrock or Borrower under any
rule of construction or otherwise.
9.16 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Greyrock and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Greyrock to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Greyrock's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights 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. *
*9.16A Confidentiality. Greyrock covenants and agrees, on a continuing
basis, to use reasonable efforts (but in no event less than the same degree of
care that it exercises with respect to its own proprietary information of the
same types) to maintain the confidentiality of and not to disclose to any person
other than its officers, directors, attorneys and accountants, affiliates,
participants, prospective participants, assignees and prospective assignees, and
such other persons to whom Greyrock shall at any time be required to make such
disclosure in accordance with applicable law, any and all proprietary, trade
secret or confidential information provided to or received by Greyrock 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.
9.17 Mutual Waiver of Jury Trial. BORROWER AND GREYROCK EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GREYROCK AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GREYROCK OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR
BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
Borrower:
INVENTA CORPORATION
By /s/ David A Lavanty
---------------------------------
President or Vice President
Greyrock:
GREYROCK CAPITAL,
a Division of Banc of America Commercial Finance Corporation
By /s/ Lisa Nagano
---------------------------------
Title LISA NAGANO
------------------------------
SR VICE PRESIDENT
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<PAGE>
[LOGO OF GREYROCK CAPITAL APPEARS HERE]
Schedule to
Loan and Security Agreement
Borrower: Inventa Corporation
Address: 255 Shoreline Drive, 2nd Floor
Redwood Shores, California 94065
Date: November 17, 1999
This Schedule is an integral part of the Loan and Security Agreement between
Greyrock Capital, a Division of Banc of America Commercial Finance Corporation
(Greyrock) and the above-borrower (Borrower) of even date.
================================================================================
1. CREDIT LIMIT
(Section 1.1): (a) Credit Limit. An amount not to exceed the sum of (1)
------------
and (2) below:
(1) The unpaid principal balance of the $4,000,000
Term Loan being made concurrently herewith (the
"Term Loan") outstanding from time to time; plus
(2) The lesser of (A) or (B) below:
(A) $2,000,000 at any one time outstanding; or
(B) 80% of the amount of Borrower's Eligible
Receivables (as defined in Section 8 above).
(b) Term Loan.
---------
(1) The Term Loan shall be borrowed by Borrower and
disbursed concurrently herewith and shall be due on the
earlier of (i) November 30, 2000 (the "Term Loan Due
Date"), or (ii) termination of this Agreement, or (iii)
the date of the sale of all or a substantial part of
the assets of the Borrower. An extension of the term of
this Agreement, whether pursuant to Section 6.1 or
otherwise, shall not extend the Term Loan Due Date.
Nothing herein limits the provisions of Section 5.5
(which requires Greyrock's consent to the actions
specified therein), or any of the other provisions of
this Agreement.
(2) Accrued interest on the Term Loan shall be paid
monthly on the last day of each month as provided in
Section 1.2 above.
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<PAGE>
Greyrock Capital Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
(3) The Term Loan may not be repaid and reborrowed,
and the Term Loan may not be prepaid.
================================================================================
2. INTEREST.
Interest Rate (Section 1.2):
A rate equal to the "Prime Rate" plus 2% per annum,
calculated on the basis of a 360-day year for the
actual number of days elapsed, provided that the
interest rate in effect in each month shall not be
less than 8% per annum, regardless of the amount of
the Obligations outstanding. 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 each month shall be based on the highest
"Prime Rate" in effect during said month. "Prime Rate"
means the announced "Prime Rate" or the substitute
therefor of the Bank of America N.A. (or its
successor) whether or not that rate is the lowest
interest rate charged by said bank. 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.
================================================================================
3. FEES (Section 1.3/Section 6.2):
Loan Fee: $50,000, payable concurrently herewith.
Termination Fee: Not applicable.
NSF Check Charge: $15.00 per item.
Wire Transfers: $15.00 per transfer.
================================================================================
4. MATURITY DATE
(Section 6.1): November 30, 2000, subject to automatic renewal as
provided in Section 6.1 above, and early termination
as provided in Section 6.2 above.
================================================================================
5. REPORTING.
(Section 5.2):
Borrower shall provide Greyrock with the following:
1. Annual financial statements, as soon as available, and
in any event within 90 days following the end of
Borrower's fiscal year, certified by independent
certified public accountants acceptable to Greyrock.
2. Quarterly unaudited financial statements, as soon as
available, and in any event within 45 days after the
end of each fiscal quarter of Borrower.
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Greyrock Capital Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
3. Monthly unaudited financial statements, as soon as
available, and in any event within 30 days after the
end of each month.
4. Monthly Receivable agings, aged by invoice date, within
10 days after the end of each month.
5. Monthly accounts payable agings, aged by invoice date,
and outstanding or held check registers within 10 days
after the end of each month.
================================================================================
6. BORROWER INFORMATION:
Prior Names of
Borrower
(Section 3.2): None
Prior Trade
Names of Borrower
(Section 3.2): None
Existing Trade
Names of Borrower
(Section 3.2): None
Other Locations and
Addresses (Section 3.3): (1) 120 Albany Place, Suite 700, New
Brunswick, NJ,
(2) One Lincoln Centre, Suite 120 Oakbrook
Terrace, IL,
(3) 12030 Sunrise Valley Drive, Suite 322,
Reston VA.
Material Adverse
Litigation (Section 3.10): None
================================================================================
7. OTHER COVENANTS:
(1) Warrants. The Borrower shall provide Greyrock with five-
year warrants to purchase 160,000 shares of preferred stock
of the Borrower, on the terms set forth in the Warrant to
Purchase Stock and related documents being executed
concurrently with this Agreement, at $2.50 per share. Such
warrants shall contain such terms and provisions as Borrower
and Greyrock shall agree. Said warrants shall be deemed
fully earned on the date hereof, shall be in addition to all
interest and other fees, and shall be non-refundable.
(2) Copyright Filings. Concurrently, Borrower is executing
and delivering to Greyrock a Security Agreement in
Copyrighted Works (the "Copyright Agreement"). As soon as
reasonably possible, but in any event within 45 days after
the date hereof, Borrower shall (i) duly file applications
for copyright registration with the United States Copyright
Office of all of Borrower's computer software, the licensing
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<PAGE>
Greyrock Capital Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
of which results in Receivables, (ii) provide copies of
all such copyright applications to Greyrock, and (iii)
cooperate with Greyrock in causing the Copyright
Agreement to be recorded in the United States Copyright
Office.
Borrower: Greyrock:
INVENTA CORPORATION GREYROCK CAPITAL,
a Division of Banc of America Commercial
Finance Corporation
By /s/ David A. Lavanty
-------------------------------
President or Vice President By /s/ Lisa Nagano
---------------------------------------
Title LISA NAGANO
------------------------------------
Sr. VICE PRESIDENT
-4-
<PAGE>
Exhibit A
Indebtedness for Borrowed Money
Existing on the Date of this Agreement
(Section 5.5)
Financing provided by Silicon Valley Bank. See Tab No. 8 for amount.
<PAGE>
Exhibit B
Existing Liens
(Section 5.5)
Liens shown on that certain UCC Search in the office of the California Secretary
of State, with respect to Borrower, dated as of October 20, 1999, previously
obtained by Greyrock (other than the security interest in favor of Silicon
Valley Bank, which shall be terminated substantially concurrently herewith)
<PAGE>
EXHIBIT 10.12
continued
SECURITY AGREEMENT IN COPYRIGHTED WORKS
This Security Agreement In Copyrighted Works (this "Agreement") is made at
Los Angeles, California as of November 17, 1999, is entered into between INVENTA
CORPORATION, a California corporation ("Grantor"), which has a mailing address
at 255 Shoreline Drive, 2nd Floor, Redwood Shores, California 94065, and
GREYROCK CAPITAL, a Division of Banc of America Commercial Finance Corporation
("Greyrock"), which has a mailing address at 10880 Wilshire Blvd., Suite 1850,
Los Angeles, CA 90024.
RECITALS
A. Greyrock is providing financing to Grantor pursuant to the Loan and
Security Agreement of even date herewith between Greyrock and Grantor (as
amended from time to time, the "Loan Agreement"). Pursuant to the Loan
Agreement, Grantor has granted to Greyrock a security interest in all of
Grantor's present and future assets, including without limitation all of
Grantor's present and future general intangibles, and including without
limitation the "Copyrights" (as defined below), to secure all of its present and
future indebtedness, liabilities, guaranties and other obligations to Greyrock.
B. To supplement Greyrock's rights in the Copyrights, Grantor is
executing and delivering this Agreement.
NOW, THEREFORE, for valuable consideration, Grantor agrees as follows:
1. Assignment. To secure the complete and timely payment and performance
----------
of all "Obligations" (as defined in the Loan Agreement), and without limiting
any other security interest Grantor has granted to Greyrock, Grantor hereby
hypothecates to Greyrock and grants, assigns, and conveys to Greyrock a security
interest in Grantor's entire right, title, and interest in and to all of the
following, now owned and hereafter acquired (collectively, the "Collateral"):
(a) Registered Copyrights and Applications for Copyright
----------------------------------------------------
Registrations. All of Grantor's present and future United States registered
- -------------
copyrights and copyright registrations, including, without limitation, the
registered copyrights listed in Schedule A to this Agreement (and including all
----------
of the exclusive rights afforded a copyright registrant in the United States
under 17 U.S.C. (S)106 and any exclusive rights which may in the future arise by
act of Congress or otherwise) and all of Grantor's present and future
applications for copyright registrations (including applications for copyright
registrations of derivative works and compilations) (collectively, the
"Registered Copyrights"), and any and all royalties, payments, and other amounts
payable to Grantor in connection with the Registered Copyrights, together with
all renewals and extensions of the Registered Copyrights, the right to recover
for all past, present, and future infringements of the Registered Copyrights,
and all computer programs, computer databases, computer program flow diagrams,
source codes, object codes and all tangible property embodying or incorporating
the Registered Copyrights, and all other rights of every kind whatsoever
accruing thereunder or pertaining thereto.
(b) Unregistered Copyrights. All of Grantor's present and future
-----------------------
copyrights which are not registered in the United States Copyright Office (the
"Unregistered Copyrights"), whether now owned or hereafter acquired, including
without limitation the Unregistered Copyrights listed in Schedule B to this
----------
Agreement, and any and all royalties, payments, and other amounts payable to
Grantor in connection with the Unregistered Copyrights, together with all
renewals and extensions of the Unregistered Copyrights, the right to recover for
all past, present, and future infringements of the Unregistered Copyrights, and
all computer programs, computer databases, computer program flow diagrams,
source codes, object codes and all tangible property embodying or incorporating
the Unregistered Copyrights, and all other rights of every kind
-1-
<PAGE>
whatsoever accruing thereunder or pertaining thereto. The Registered Copyrights
and the Unregistered Copyrights collectively are referred to herein as the
"Copyrights."
(c) Licenses. All of Grantor's right, title and interest in and to
--------
any and all present and future license agreements with respect to the
Copyrights, including without limitation the license agreements listed in
Schedule C to this Agreement (the "Licenses").
- ----------
(d) Accounts Receivable. All present and future accounts, accounts
-------------------
receivable and other rights to payment arising from, in connection with or
relating to the Copyrights.
(e) Proceeds. All cash and non-cash proceeds of any and all of the
--------
foregoing.
2. Representations. Grantor represents and warrants that:
---------------
(a) Each of the Copyrights is valid and enforceable (except to the
extent that the Unregistered Copyrights must be registered to be enforced);
(b) Except for the security interest granted hereby and the non-
exclusive licenses granted to Grantor's licensees with respect to the Copyrights
in the ordinary course of business of Grantor, Grantor is (and upon creation of
all future Copyrights, will be) the sole and exclusive owner of the entire and
unencumbered right, title, and interest in and to each of the Copyrights and
other Collateral, free and clear of any liens, charges, or encumbrances;
(c) There is no pending claim that the use of any of the Copyrights
does or may infringe upon or violate the rights of any third person nor does
Grantor have knowledge of any pending or threatened infringement of any of the
Copyrights by any third person.
(d) Listed on Schedules A and B are all copyrights owned by Grantor,
in which Grantor has an interest, or which are used in Grantor's business.
(e) Listed on Schedule C are all Licenses to which Grantor is a
party.
(f) Each employee, agent and/or independent contractor who has
participated in the creation of the property constituting the Collateral has
either executed an assignment of his or her rights of authorship to Grantor or
is an employee of Grantor acting within the scope of his or her employment and
was such an employee at the time of said creation.
(g) All of Grantor's present and future software, computer programs
and other works of authorship subject to United States copyright protection, the
sale, licensing or other disposition of which results in royalties receivable,
license fees receivable, accounts receivable or other sums owing to Grantor
(collectively, "Receivables"), have been and shall be registered with the United
States Copyright Office prior to the date Grantor requests or accepts any loan
from Greyrock with respect to such Receivables and prior to the date Grantor
includes any such Receivables in any accounts receivable aging, borrowing base
report or certificate or other similar report provided to Greyrock*, and Grantor
shall provide to Greyrock copies of all such registrations promptly upon the
receipt of the same.
*(except that Grantor shall have 45 days after the date hereof to duly file
applications for registration of all of its present software with the United
States Copyright Office (as provided in the Schedule to the Loan Agreement), and
during such 45-day period, and thereafter provided that said applications duly
proceed to registration, Grantor may request and accept loans with respect to
Receivables arising from the licensing of such software)
-2-
<PAGE>
3. Covenants. Until all of the Obligations have been satisfied in full
---------
and the Loan Agreement has terminated:
(a) Grantor shall not grant a security interest in any of the
Copyrights or other Collateral to any other person and shall not enter into any
agreement or take any action that is inconsistent with Grantor's obligations
hereunder or Grantor's other Obligations or would impair Greyrock's rights,
under this Agreement or otherwise, without Greyrock's prior written consent.
(b) Grantor shall ensure that each use of the Copyrights described in
Section 1 of this Agreement carries a complete and accurate copyright notice.
(c) Grantor shall use its best efforts to preserve and defend
Grantor's rights in the Copyrights unless Grantor, with the concurrence of
Greyrock, reasonably determines that a Copyright is not worth preserving or
defending.
(d) Grantor shall undertake all reasonable measures to cause its
employees, agents and independent contractors to assign to Grantor all rights of
authorship to any copyrighted material in which Grantor has or may subsequently
acquire any right or interest.
4. License Rights. Grantor may license or sublicense the Copyrights
--------------
only in the ordinary course of business and only on a non-exclusive basis, and
only to the extent of Grantor's rights and subject to Greyrock's security
interest and Grantor's obligations under this Agreement.
5. Greyrock May Supplement. Grantor authorizes Greyrock to modify this
-----------------------
Agreement by amending Schedule A or B to include any future copyrights to be
included in the Copyrights. Grantor shall from time to time update the lists of
Registered Copyrights and Unregistered Copyrights on Schedules A and B and lists
of License Agreements on Schedule C as Grantor obtains or acquires copyrights or
grants or obtains licenses in the future. Notwithstanding the foregoing, no
failure to so modify this Agreement or amend Schedules A or B or C shall in any
way affect, invalidate or detract from Greyrock's continuing security interest
in all Copyrights, whether or not listed on Schedule A or B and all license
agreements whether or not listed on Schedule C.
6. Default. Upon an Event of Default (as defined in the Loan Agreement)
-------
Greyrock shall have, in addition to all of its other rights and remedies under
the Loan Agreement, all rights and remedies of a secured party under the Uniform
Commercial Code (as enacted in any jurisdiction in which the Copyrights or other
Collateral are located or deemed to be located) or other applicable law. Upon
occurrence of an Event of Default, Grantor shall, upon request of Greyrock, give
written notice to all parties to the Licenses that all payments thereunder shall
be made to Greyrock, and Greyrock may itself give such notice.
7. Fees and Expenses. On demand by Greyrock, without limiting any of the
-----------------
terms of the Loan Agreement, Grantor shall pay all reasonable fees, costs, and
expenses (including without limitation reasonable attorneys' fees and legal
expenses) incurred by Greyrock in connection with (a) preparing this Agreement
and all other documents relating to this Agreement, (b) consummating this
transaction, (c) filing or recording any documents (including all taxes in
connection therewith) in public offices; and (d) paying or discharging any
taxes, counsel fees, maintenance fees, encumbrances, or other amounts in
connection with protecting, maintaining, or preserving the Copyrights or
defending or prosecuting any actions or proceedings arising out of or related to
the Copyrights.
8. Greyrock's Rights. In the event that Grantor fails to use its best
-----------------
efforts to preserve and defend Grantor's rights in the Copyrights (except as
permitted by paragraph 3(c) hereof) within a reasonable period of time after
learning of the existence of any actual or threatened infringement thereof, upon
twenty (20) days prior written notice to Grantor, Greyrock shall have the right,
but shall in no way be obligated to, bring suit or take any other action, in its
own name or in Grantor's name, to enforce or preserve Greyrock's or Grantor's
rights in the Copyrights.
-3-
<PAGE>
Grantor shall at the request of Greyrock and at Grantor's expense do any lawful
acts and execute any documents requested by Greyrock to assist with such
enforcement. In the event Grantor has not taken action to enforce or preserve
Greyrock's and Grantor's rights in the Copyrights and Greyrock thereupon takes
such action, Grantor, upon demand, shall promptly reimburse and indemnify
Greyrock for all costs and expenses incurred in the exercise of Greyrock's or
Grantor's rights under this Section 8.
9. No Waiver. No course of dealing between Grantor and Greyrock, nor
---------
any failure to exercise nor any delay in exercising, on the part of Greyrock,
any right, power, or privilege under this Agreement or under the Loan Agreement
or any other agreement, shall operate as a waiver. No single or partial
exercise of any right, power, or privilege under this Agreement or under the
Loan Agreement or any other agreement by Greyrock shall preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege by Greyrock.
10. Rights Are Cumulative. All of Greyrock's rights and remedies with
---------------------
respect to the Copyrights and other Collateral whether established by this
Agreement, the Loan Agreement, or any other documents or agreements, or by law
shall be cumulative and may be exercised concurrently or in any order.
11. Copyright Office. At the request of Greyrock, Grantor shall execute
----------------
any further documents necessary or appropriate to create and perfect Greyrock's
security interest in the Copyrights, including without limitation any documents
for filing with the United States Copyright Office and/or any applicable state
office. Greyrock may record this Agreement, an abstract thereof, or any other
document describing Greyrock's interest in the Copyrights with the United States
Copyright Office, at the expense of Grantor.
12. Indemnity. Grantor shall protect, defend, indemnify, and hold
---------
harmless Greyrock and Greyrock's assigns from all liabilities, losses, and costs
(including without limitation reasonable attorneys' fees) incurred or imposed on
Greyrock relating to the matters in this Agreement, including, without
limitation, in connection with Greyrock's defense of any infringement action
brought by a third party against Greyrock.
13. Severability. The provisions of this Agreement are severable. If any
------------
provision of this Agreement is held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such provision or part thereof in any other jurisdiction, or any
other provision of this Agreement in any jurisdiction.
14. Amendments; Entire Agreement. This Agreement is subject to
----------------------------
modification only by a writing signed by the parties, except as provided in
Section 5 of this Agreement. To the extent that any provision of this Agreement
conflicts with any provision of the Loan Agreement, the provision giving
Greyrock greater rights or remedies shall govern, it being understood that the
purpose of this Agreement is to add to, and not detract from, the rights granted
to Greyrock under the Loan Agreement. This Agreement, the Loan Agreement, and
the documents relating thereto comprise the entire agreement of the parties with
respect to the matters addressed in this Agreement.
15. Further Assurances. At Greyrock's request, Grantor shall execute and
------------------
deliver to Greyrock any further instruments or documentation, and perform any
acts, that may be reasonably necessary or appropriate to implement this
Agreement, the Loan Agreement or any other agreement, and the documents relating
thereto, including without limitation any instrument or documentation reasonably
necessary or appropriate to create, maintain, perfect, or effectuate Greyrock's
security interests in the Copyrights or other Collateral.
16. Release. At such time as Grantor shall completely satisfy all of the
-------
Obligations and the Loan Agreement shall be terminated, Greyrock shall execute
and deliver to Grantor all
-4-
<PAGE>
assignments and other instruments as may be reasonably necessary or proper to
terminate Greyrock's security interest in the Copyrights, subject to any
disposition of the Copyrights which may have been made by Greyrock pursuant to
this Agreement. For the purpose of this Agreement, the Obligations shall be
deemed to continue if Grantor enters into any bankruptcy or similar proceeding
at a time when any amount paid to Greyrock could be ordered to be repaid as a
preference or pursuant to a similar theory, and shall continue until it is
finally determined that no such repayment can be ordered.
17. True and Lawful Attorney. Grantor hereby appoints Greyrock as
------------------------
Grantor's true and lawful attorney, with full power of substitution, to do any
or all of the following, in the name, place and stead of Grantor: (a) execute
an abstract of this Agreement or any other document describing Greyrock's
interest in the Copyrights, for filing with the United States Copyright Office;
(b) execute any modification of this Agreement pursuant to Section 5 of this
Agreement; and (c) following an Event of Default (as defined in the Loan
Agreement) execute any assignments, notices or transfer documents for purposes
of transferring title or right to receive any of the Copyrights or other
Collateral to any person, including without limitation Greyrock.
18. Successors. The benefits and burdens of this Agreement shall inure to
----------
the benefit of and be binding upon the respective successors and permitted
assigns of the parties; provided that Grantor may not transfer any of the
Collateral or any rights hereunder, without the prior written consent of
Greyrock, except as specifically permitted hereby.
19. Governing Law. The validity and interpretation of this Agreement and
-------------
the rights and obligations of the parties shall be governed by the laws of the
State of California, excluding its conflict of law rules to the extent such
rules would apply the law of another jurisdiction, and the United States.
20. Waiver of Right to Jury Trial. Greyrock and Grantor 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: (i) this Agreement; or (ii) any other present or
future instrument or agreement between Greyrock and Grantor; or (iii) any
conduct, acts or omissions of Greyrock or Grantor or any of their directors,
officers, employees, agents, attorneys or any other persons affiliated with
Greyrock or Grantor; in each of the foregoing cases, whether sounding in
contract or tort or otherwise.
WITNESS the execution hereof as of the date first written above.
Grantor:
Inventa Corporation
By: /s/ David A. Lavanty
--------------------------------
Name (please print):
David A. Lavanty
------------------------------------
Title: President & CEO
------------------------------
Chairman of the Board, President, or
Vice President
-5-
<PAGE>
Accepted.
Greyrock:
GREYROCK CAPITAL,
a Division of Banc of America Commercial Finance Corporation
By: /s/ Lisa Nagano
------------------------
Name (please print):
LISA NAGANO
- ---------------------------
Title: SR. VICE PRESIDENT
-6-
<PAGE>
Schedule A
to
Security Agreement in Copyrighted Works
Inventa Corporation
Registered Copyrights
U.S. Copyrights
- ---------------
REGISTRATION DATE
TITLE OF WORK/YEAR OF NUMBER OF ISSUANCE
---------------------- ------ -----------
CREATION
--------
-7-
<PAGE>
Schedule B
to
Security Agreement in Copyrighted Works
Inventa Corporation
Unregistered Copyrights
(Where No Copyright Application Is Pending)
Copyright Description
- ---------------------
See attached list of software applications.
-8-
<PAGE>
Schedule C
to
Security Agreement in Copyrighted Works
Inventa Corporation
License Agreements
-9-
<PAGE>
EXHIBIT 10.13
INVENTA CORPORATION
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
As a condition of my employment with Inventa Corporation, its subsidiaries,
affiliates, successors or assigns (the "Company"), and in consideration of my
employment with the Company and my receipt of the compensation now and hereafter
paid to me by the Company, I agree to the following:
(a) At-Will Employment. I understand and acknowledge that my
------------------
employment with the Company is for an unspecified duration and constitutes
"at-will" employment. I acknowledge that this employment relationship may be
terminated at any time, with or without good cause or for any or no cause, at
the option either of the Company or myself, with or without notice.
(b) Confidential Information.
------------------------
(i) Company Information. I agree at all times during the term
-------------------
of my employment and thereafter, to hold in strictest confidence, and not to
use, except for the benefit of the Company, or to disclose to any person, firm
or corporation without written authorization of the Board of Directors of the
Company, any Confidential Information of the Company. I understand that
"Confidential Information" means any of the Company's proprietary information,
technical data, trade secrets or know-how, including, but not limited to,
research, product plans, products, services, customer lists and customers
(including, but not limited to, customers of the Company on whom I called or
with whom I became acquainted during the term of my employment), markets,
software, developments, inventions, processes, formulas, technology, designs,
drawings, engineering, hardware configuration information, marketing, finances
or other business information disclosed to me by the Company either directly or
indirectly in writing, orally or by drawings or observation of parts or
equipment. I further understand that Confidential Information does not include
any of the foregoing items which has become publicly known and made generally
available through no wrongful act of mine or of others who were under
confidentiality obligations as to the item or items involved.
(ii) Former Employer Information. I agree that I will not,
---------------------------
during my employment with the Company, improperly use or disclose any
proprietary information or trade secrets of any former or concurrent employer or
other person or entity and that I will not bring onto the premises of the
Company any unpublished document or proprietary information belonging to any
such employer, person or entity unless consented to in writing by such employer,
person or entity.
(iii) Third Party Information. I recognize that the Company has
-----------------------
received and in the future will receive from third parties their confidential or
proprietary information subject to
<PAGE>
a duty on the Company's part to maintain the confidentiality of such information
and to use it only for certain limited purposes. I agree to hold all such
confidential or proprietary information in the strictest confidence and not to
disclose it to any person, firm or corporation or to use it except as necessary
in carrying out my work for the Company consistent with the Company's agreement
with such third party.
(c) Inventions.
----------
(i) Inventions Retained and Licensed. I have attached hereto,
--------------------------------
as Exhibit A, a list describing all inventions, original works of authorship,
---------
developments, improvements, and trade secrets which were made by me prior to my
employment with the Company (collectively referred to as "Prior Inventions"),
which belong to me, which relate to the Company's proposed business, products or
research and development, and which are not assigned to the Company hereunder;
or, if no such list is attached, I represent that there are no such Prior
Inventions. If in the course of my employment with the Company, I incorporate
into a the Company product, process or machine a Prior Invention owned by me or
in which I have an interest, the Company is hereby granted and shall have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make,
have made, modify, use and sell such Prior Invention as part of or in connection
with such product, process or machine.
(ii) Assignment of Inventions. I agree that I will promptly
------------------------
make full written disclosure to the Company, will hold in trust for the sole
right and benefit of the Company, and hereby assign to the Company, or its
designee, all my right, title, and interest in and to any and all inventions,
original works of authorship, developments, concepts, improvements or trade
secrets, whether or not patentable or registrable under copyright or similar
laws, which I may solely or jointly conceive or develop or reduce to practice,
or cause to be conceived or developed or reduced to practice, during the period
of time I am in the employ of the Company (collectively referred to as
"Inventions"), except as provided in Section 3(f) below. I further acknowledge
that all original works of authorship which are made by me (solely or jointly
with others) within the scope of and during the period of my employment with the
Company and which are protectible by copyright are "works made for hire," as
that term is defined in the United States Copyright Act.
(iii) Inventions Assigned to the United States. I agree to
----------------------------------------
assign to the United States government all my right, title, and interest in and
to any and all Inventions whenever such full title is required to be in the
United States by a contract between the Company and the United States or any of
its agencies.
(iv) Maintenance of Records. I agree to keep and maintain
----------------------
adequate and current written records of all Inventions made by me (solely or
jointly with others) during the term of my employment with the Company. The
records will be in the form of notes, sketches, drawings, and any other format
that may be specified by the Company. The records will be available to and
remain the sole property of the Company at all times.
(v) Patent and Copyright Registrations. I agree to assist the
----------------------------------
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the
-2-
<PAGE>
Inventions and any copyrights, patents, mask work rights or other intellectual
property rights relating thereto in any and all countries, including the
disclosure to the Company of all pertinent information and data with respect
thereto, the execution of all applications, specifications, oaths, assignments
and all other instruments which the Company shall deem necessary in order to
apply for and obtain such rights and in order to assign and convey to the
Company, its successors, assigns, and nominees the sole and exclusive rights,
title and interest in and to such Inventions, and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto. I further
agree that my obligation to execute or cause to be executed, when it is in my
power to do so, any such instrument or papers shall continue after the
termination of this Agreement. If the Company is unable because of my mental or
physical incapacity or for any other reason to secure my signature to apply for
or to pursue any application for any United States or foreign patents or
copyright registrations covering Inventions or original works of authorship
assigned to the Company as above, then I hereby irrevocably designate and
appoint the Company and its duly authorized officers and agents as my agent and
attorney in fact, to act for and in my behalf and stead to execute and file any
such applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent or copyright registrations thereon
with the same legal force and effect as if executed by me.
(vi) Exception to Assignments. I understand that the provisions
------------------------
of this Agreement requiring assignment of Inventions to the Company do not apply
to any invention which qualifies fully under the provisions of California Labor
Code Section 2870 (attached hereto as Exhibit B). I will advise the Company
---------
promptly in writing of any inventions that I believe meet the criteria in
California Labor Code Section 2870 and not otherwise disclosed on Exhibit A.
---------
(d) Conflicting Employment. I agree that, during the term of my
----------------------
employment with the Company, I will not engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of my employment, nor will I engage in any other activities that conflict
with my obligations to the Company.
(e) Returning the Company Documents. I agree that, at the time of
-------------------------------
leaving the employ of the Company, I will deliver to the Company (and will not
keep in my possession, recreate or deliver to anyone else) any and all devices,
records, data, notes, reports, proposals, lists, correspondence, specifications,
drawings blueprints, sketches, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by me pursuant
to my employment with the Company or otherwise belonging to the Company, its
successors or assigns. In the event of the termination of my employment, I
agree to sign and deliver the "Termination Certification" attached hereto as
Exhibit C.
- ---------
(f) Notification of New Employer. In the event that I leave the
----------------------------
employ of the Company, I hereby grant consent to notification by the Company to
my new employer about my rights and obligations under this Agreement.
(g) Solicitation of Employees. I agree that for a period of twelve
-------------------------
(12) months immediately following the termination of my relationship with the
Company for any reason, whether
-3-
<PAGE>
with or without cause, I shall not either directly or indirectly solicit,
induce, recruit or encourage any of the Company's employees to leave their
employment, or take away such employees, or attempt to solicit, induce, recruit,
encourage or take away employees of the Company, either for myself or for any
other person or entity.
(h) Conflict of Interest Guidelines. I agree to diligently adhere to
-------------------------------
the Conflict of Interest Guidelines attached as Exhibit D hereto.
---------
(i) Representations. I agree to execute any proper oath or verify any
---------------
proper document required to carry out the terms of this Agreement. I represent
that my performance of all the terms of this Agreement will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not
entered into, and I agree I will not enter into, any oral or written agreement
in conflict herewith.
(j) Arbitration and Equitable Relief.
--------------------------------
(i) Arbitration. Except as provided in Section 10(b) below, I
-----------
agree that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement, shall be
settled by arbitration to be held in San Francisco County, California, in
accordance with the rules then in effect of the American Arbitration
Association. The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction. The
Company and I shall each pay one-half of the costs and expenses of such
arbitration, and each of us shall separately pay our counsel fees and expenses.
(ii) Equitable Remedies. I agree that it would be impossible or
------------------
inadequate to measure and calculate the Company's damages from any breach of the
covenants set forth in Sections 2, 3, and 5 herein. Accordingly, I agree that
if I breach any of such Sections, the Company will have available, in addition
to any other right or remedy available, the right to obtain an injunction from a
court of competent jurisdiction restraining such breach or threatened breach and
to specific performance of any such provision of this Agreement. I further
agree that no bond or other security shall be required in obtaining such
equitable relief and I hereby consent to the issuance of such injunction and to
the ordering of specific performance.
(k) General Provisions.
------------------
(i) Governing Law; Consent to Personal Jurisdiction. This
-----------------------------------------------
Agreement will be governed by the laws of the State of California. I hereby
expressly consent to the personal jurisdiction of the state and federal courts
located in California for any lawsuit filed there against me by the Company
arising from or relating to this Agreement.
(ii) Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding between the Company and me relating to the subject
matter herein and merges all prior discussions between us. No modification of or
amendment to this Agreement, nor any waiver of
-4-
<PAGE>
any rights under this agreement, will be effective unless in writing signed by
the party to be charged. Any subsequent change or changes in my duties, salary
or compensation will not affect the validity or scope of this Agreement.
(iii) Severability. If one or more of the provisions in this
------------
Agreement are deemed void by law, then the remaining provisions will continue in
full force and effect.
(iv) Successors and Assigns. This Agreement will be binding
----------------------
upon my heirs, executors, administrators and other legal representatives and
will be for the benefit of the Company, its successors, and its assigns.
Date: _________________
___________________________________
Signature
___________________________________
Name of Employee (typed or printed)
_______________________
Witness
-5-
<PAGE>
EXHIBIT A
---------
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Identifying Number
Title Date or Brief Description
-----------------------------------------------------------------------
____ No inventions or improvements
____ Additional Sheets Attached
Signature of Employee: __________________________
Print Name of Employee: _________________________
Date: _________________
-6-
<PAGE>
EXHIBIT B
---------
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
(l) "Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(i) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(ii) Result from any work performed by the employee for the
employer.
(m) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
-7-
<PAGE>
EXHIBIT C
---------
INVENTA CORPORATION
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed
to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to the Company, its subsidiaries, affiliates, successors or
assigns (the "Company").
I further certify that I have complied with all the terms of the Company's
Employment Confidential Information and Invention Assignment Agreement signed by
me, including the reporting of any inventions and original works of authorship
(as defined therein), conceived or made by me (solely or jointly with others)
covered by that agreement.
I further agree that, in compliance with the Employment, Confidential
Information and Invention Assignment Agreement, I will preserve as confidential
all trade secrets, confidential knowledge, data or other proprietary information
relating to products, processes, know-how, designs, formulas, developmental or
experimental work, computer programs, data bases, other original works of
authorship, customer lists, business plans, financial information or other
subject matter pertaining to any business of the Company or any of its
employees, clients, consultants or licensees.
I further agree that for twelve (12) months from this date, I will not hire
any employees of the Company and I will not solicit, induce, recruit or
encourage any of the Company's employees to leave their employment.
Date: ___________________ ______________________________
(Employee's Signature)
______________________________
(Type/Print Employee's Name)
-8-
<PAGE>
EXHIBIT D
---------
INVENTA CORPORATION
CONFLICT OF INTEREST GUIDELINES
It is the policy of the Company to conduct its affairs in strict compliance
with the letter and spirit of the law and to adhere to the highest principles of
business ethics. Accordingly, all officers, employees and independent
contractors must avoid activities which are in conflict, or give the appearance
of being in conflict, with these principles and with the interests of the
Company. The following are potentially compromising situations which must be
avoided. Any exceptions must be reported to the President and written approval
for continuation must be obtained.
(n) Revealing confidential information to outsiders or misusing
confidential information. Unauthorized divulging of information is a violation
of this policy whether or not for personal gain and whether or not harm to the
Company is intended. (The Employment, Confidential Information and Invention
Assignment Agreement elaborates on this principle and is a binding agreement.)
(o) Accepting or offering substantial gifts, excessive entertainment,
favors or payments which may be deemed to constitute undue influence or
otherwise be improper or embarrassing to the Company.
(p) Participating in civic or professional organizations that might
involve divulging confidential information of the Company.
(q) Initiating or approving personnel actions affecting reward or
punishment of employees or applicants where there is a family relationship or is
or appears to be a personal or social involvement.
(r) Initiating or approving any form of personal or social harassment
of employees.
(s) Investing or holding outside directorship in suppliers,
customers, or competing companies, including financial speculations, where such
investment or directorship might influence in any manner a decision or course of
action of the Company.
(t) Borrowing from or lending to employees, customers or suppliers.
(u) Acquiring real estate of interest to the Company.
(v) Improperly using or disclosing to the Company any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity with whom obligations of confidentiality exist.
(w) Unlawfully discussing prices, costs, customers, sales or markets
with competing companies or their employees.
-9-
<PAGE>
(x) Making any unlawful agreement with distributors with respect to
prices.
(y) Improperly using or authorizing the use of any inventions which
are the subject of patent claims of any other person or entity.
(z) Engaging in any conduct which is not in the best interest of the
Company.
Each officer, employee and independent contractor must take every necessary
action to ensure compliance with these guidelines and to bring problem areas to
the attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
-10-
<PAGE>
EXHIBIT 10.14
INVENTA CORPORATION
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This Employment and Noncompetition Agreement (the "Agreement") is made by
and between Inventa Corporation, a California corporation (the "Company") and
Ashok K. Santhanam ("Executive") as of May 11, 1998.
RECITALS
A. The Company desires to have Executive's active services as President
and Chairman of the Board of the Company for the period set forth in this
Agreement.
B. The Company and the Executive are parties to a Severance Agreement
dated January ___, (the "Severance Agreement").
C. The Company and Executive desire to enter into this Agreement on the
terms and conditions set forth in this Agreement and that this Agreement
supersede the Severance Agreement in its entirety so that the Severance
Agreement shall be null and void.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and in consideration of Executive's continued employment by the Company, the
parties hereto agree as follows:
1. Duties and Scope of Employment
------------------------------
(a) Duties. The Company shall employ Executive to render services to
------
the Company. Executive agrees that he will devote his full business time and
efforts to the business of the Company, excluding reasonable vacation and sick
leave in accordance with the Company's policies. In the course of Executive's
employment, Executive shall perform the duties of President and Chairman of the
Board of the Company under the direction of the Board of Directors. On the date
of hire by the Company of a Chief Executive Officer, Executive shall resign as
President of the Company but shall remain Chairman of the Board of Directors. No
other term or provision of this Agreement will otherwise be affected.
(b) Term of Employment. Executive's employment with the Company
------------------
pursuant to this Agreement shall be effective January 1, 1998 (the "Effective
Date") and shall continue until terminated in accordance with this Agreement.
<PAGE>
2. Compensation
------------
(a) Base Compensation. The Company shall pay the Executive as
-----------------
compensation for his service a base salary at the annualized rate of $160,000
("Salary") effective March 1, 1998. Such Salary shall be reviewed at least
annually and not later than January 31 of each calendar year hereafter during
the Employment Period and shall be increased from time to time subject to
accomplishment of such performance and contribution goals and objectives as may
be established from time to time by the Board of Directors in consultation with
Executive. Any increase to Executive's Salary shall be retroactively applied as
of January 1 of the applicable calendar year. Such Salary shall be paid
periodically in accordance with normal Company payroll. The annual compensation
(including bonus and benefit amounts pursuant to Section 2(b) and (c) below)
specified in this Section 2(a), together with any increases in such compensation
that the board of Directors may grant from time to time, is referred to in this
Agreement as "Base Compensation."
(b) Bonuses. In addition to Executive's base salary, Executive shall
-------
be entitled to receive an annual performance bonus (the "Performance Bonus") in
the maximum amount of $90,000 to be paid on January 15 of each calendar year
hereafter, subject to the satisfaction of certain performance goals mutually
determined and reviewed by the Board of Directors in consultation with
Executive, or in the event of Executive's death or disability, in consultation
with Executive's estate or legal representative, as the case may be. The
Performance Bonus shall be subject to annual review and increase by mutual
agreement, provided that Executive is employed by the Company on such dates.
(c) Executive Benefits. The Executive shall be eligible to
------------------
participate in the Executive benefit plans and executive compensation programs
maintained by the Company applicable to other key executives of the Company,
including (without limitation) retirement plans, savings or profit-sharing
plans, deferred compensation plans, supplemental retirement or excess-benefit
plans, life, disability, health, accident and other insurance programs, paid
vacations, and similar plans or programs, subject in each case to the generally
applicable terms and conditions of the plan or program in question and to the
determination of any committee administering such plan or program.
(d) Car Payments. During the Employment Period and any renewal
------------
thereof, the Company shall pay the lease payments on the Executive's current or
subsequent car. To the extent that such car is used for other than the Company's
business purposes, Executive shall report such use to the Company and the extent
of such personal use shall be treated as compensation to the Executive.
(e) Expenses During Employment. The Company shall reimburse the
--------------------------
Executive for all reasonable business, entertainment and travel expenses
actually incurred or paid by the Executive in the performance of his services on
behalf of the Company, in accordance with the Company's expense reimbursement
policy as from time to time in effect.
-2-
<PAGE>
3. Termination of Employment
-------------------------
(a) By Death. The Employment Period shall terminate automatically
---------
upon the death of the Executive. In such event, the Company shall pay to
Executive's beneficiaries or his estate, as the case may be, any accrued Salary,
the pro rata amount of the Performance Bonus determined in accordance with
Section 2(b) above, any vested deferred compensation (other than pension plan or
Profit-sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plan of the Company in which Executive
is a participant to the full extent of Executive's rights under such plan, any
accrued vacation pay and any appropriate business expenses incurred by Executive
in connection with his duties hereunder, all to the date of termination
(collectively "Accrued Compensation"), but no other compensation or
reimbursement of any kind, including, without limitation, severance
compensation, and thereafter, the Company's obligations hereunder shall
terminate. Nothing in this Section shall affect any entitlement of the
Executive's heirs to the benefits of any life insurance provided by the Company
as act forth above.
(b) By Disability. If the Executive is prevented from properly
-------------
performing his duties hereunder by reason of any physical or mental incapacity
for a period of more than 60 days in the aggregate in any 365-day period, then,
to the extent permitted by law, the Company may terminate the Employment Period
on the 60th day of such incapacity. In such event, the Company shall pay to
Executive all Accrued Compensation, and shall continue to pay to Executive the
Salary and the pro rata amount of the Performance Bonus determined in accordance
with Section 2(b) above until such time as Executive shall become entitled to
receive disability insurance payments under the disability insurance policy
maintained by the Company (but not more than 90 days following termination), but
no other compensation or reimbursement of any kind, including without
limitation, severance compensation, and thereafter the Company's obligations
hereunder shall terminate. Nothing in this Section shall affect Executive's
rights under any disability plan in which he is a participant.
(c) By Resignation or By Company for Cause. If Executive's employment
--------------------------------------
with the Company terminates due to his voluntary resignation or if the Company
terminates Executive's employment due to Cause (as defined below), the Company
shall pay Executive all Accrued Compensation less the pro rata amount of the
Performance Bonus (which shall not be paid to Executive), but no other
compensation or reimbursement of any kind, including without limitation,
severance compensation, and thereafter the Company's obligations hereunder shall
terminate. Termination shall be for "Cause" in the event of the occurrence of
any of the following: (i) Executive's conviction by, or entry of a plea of
guilty or nolo contendere in, a court of competent and final jurisdiction for
any crime which constitutes a felony in the jurisdiction involved, which
conviction materially injures the Company; or (ii) Executive's commission of a
material act of fraud or misappropriation of funds, whether prior to or
subsequent to the date hereof, upon the Company; or (iii) gross negligence by
Executive in the scope of Executive's services to the Company; or (iv)
Executive's failure to follow the reasonable policies or directions of the Board
of Directors of the Company; or (v) Executive's intentional breach of any
material term of this Agreement; provided that in the event that any of the
foregoing events is capable of being cured, the Company shall
-3-
<PAGE>
provide written notice to the Executive describing the nature of such event and
the Executive shall thereafter have ten (10) business days to cure such event.
(d) By Company for Other Than Cause. If the Company terminates
-------------------------------
Executive's employment with the Company for any reason other than Cause,
Executive shall be entitled to receive: (i) Accrued Compensation to the date of
termination; (ii) continued payment by the Company of the lease payments on the
Executive's car for twelve (12) months after the date of termination of
employment (the "Termination Date"); (iii) severance compensation equal to
Executive's Base Compensation, immediately prior to the termination, for twelve
(12) months after the Termination Date payable in accordance with the Company's
normal payroll; (iv) payment of all costs which the Company would otherwise have
incurred to maintain all of Executive's health and welfare, and retirement
benefits (either on the same or substantially equivalent terms and conditions)
if the Executive had continued to render services to the Company for twelve (12)
months after the Termination Date. In addition, in the event of any termination
of Executive's employment pursuant to this Section 3(d), any options currently
or subsequently granted to Executive which have not then vested will continue to
vest in accordance with their stated vesting schedule(s) during the twelve (12)
month period after the date of termination and to be exercisable during such
twelve (12) month period to the extent vested, including any options which would
not otherwise have been exercisable during the first year after grant of such
options. "Other than for Cause" shall include, but not be limited to the
following: (i) without the Executive's express written consent, the assignment
to the Executive of any duties or the reduction of the Executive's duties,
either of which results in a significant diminution in the Executive's position
or responsibilities with the Company in effect immediately prior to such
assignment, or the removal of the Executive from such position and
responsibilities except as contemplated by Section 1(a) above; (ii) without the
Executive's express written consent, a substantial reduction, without good
business reasons, of the facilities and perquisites (including office space and
location) available to the Executive immediately prior to such reduction; (iii)
a reduction by the Company in the Base Compensation of the Executive as in
effect immediately prior to such reduction, other than a bonus reduction
resulting from application of a bonus formula or plan on a basis that is
consistent with prior practice; (iv) a material reduction by the Company in the
kind or level of Executive benefits to which the Executive is entitled
immediately prior to such reduction with the result that the Executive's overall
benefits package is significantly reduced; (v) the relocation of the Executive
to a facility or a location more than 25 miles from the Executive's then present
location, without the Executive's express written consent; provided, however,
that this Section 3(d)(v) shall not apply if Executive is relocated to new
headquarters of the Company if such relocation of the Company's headquarters is
to a location no more than 50 miles from the Executive's current location; (vi)
if, at the election of the Board of Directors, the Executive is no longer the
Chairman of the Board; or (vii) the failure of the Company to obtain the
assumption of this Agreement by any successors. If Executive resigns due to one
of the above enumerated factors within three (3) months after the date of the
occurance of one of the above enumerated factors, such resignation shall be
deemed a termination by the Company for Other Than Cause and shall be governed
by this Section 3(d).
-4-
<PAGE>
(e) No Duty to Mitigate. The Executive shall not be required to
-------------------
mitigate the amount of any payment contemplated by Section 3(d) (whether by
seeking new employment or in any other manner).
4. Covenants Not to Compete or Solicit.
-----------------------------------
(a) Non-Competition. The Executive agrees that he will not, while
---------------
employed by the Company and for a period of one (1) year following termination
of such employment in the case of termination of Executive's employment by the
Company for Other than for Cause, or for a period of two (2) years following
termination of such employment in the case of a voluntary termination or a
termination of Executive's employment by the Company for Cause, directly or
indirectly (other than on behalf of the Company), without the prior written
consent of the Company, engage in a Competitive Business Activity anywhere in
the Restricted Territory. Engaging in a "Competitive Business Activity" shall
mean engaging in, whether independently or as an employee, agent, consultant,
advisor, independent contractor, partner, stockholder, officer, director or
otherwise, any business which is materially competitive with the business of the
Company as conducted or actively planned to be conducted by the Company during
his employment by it, provided that Executive shall not be deemed to engage in a
Competitive Business Activity solely by reason of (i) owning 2% or less of the
outstanding common stock of any corporation if such class of common stock is
registered under Section 12 of the Securities Exchange Act of 1934, or (ii)
after the termination of his employment by the Company, being employed by or
otherwise providing services to a corporation having total revenue of at least
$250 million (or such lower number as may be agreed by the Company) so long as
such services are provided solely to a division or other business unit of such
corporation which does not engage in a business which is then competitive with
the business of the Company. The term "Restricted Territory" shall mean each
state of the United States, each province of Canada, and each other country in
the world in which the Company, during the term of this non-competition
provision, sells or markets its products and services or otherwise engages in
business. Notwithstanding the foregoing, in the event that, prior to the
termination of Executive's employment by the Company, the Company enters or
actively plans to enter a new line of business which is materially competitive
with the business of Challenger Systems, Inc. ("Challenger"), the Company and
Executive shall in good faith negotiate the application of this non-competition
provision to Executive's ownership of stock in Challenger. Executive shall,
during the term of this non-competition provision, if he continues to own stock
of or otherwise to be affiliated with Challenger, provide the Board of Directors
of the Company from time to time information regarding Challenger's business
activities pertinent hereto.
(b) Non-Solicit of Employees. The Executive agrees that he will not,
------------------------
while employed by the Company and for a period of two (2) years following
termination of such employment:
(i) directly solicit, encourage, or take any other action which
is intended to induce any other employee of the Company or any of its
subsidiaries to terminate his or her employment with the Company or any of its
subsidiaries; or
-5-
<PAGE>
(ii) directly interfere in any manner with the contractual or
employment relationship between the Company or any of its subsidiaries and any
such employee of the Company or any of its subsidiaries.
The foregoing shall not prohibit the Executive or any entity with
which the Executive may be affiliated from hiring a former or existing employee
of the Company or any of its subsidiaries, provided that such hiring does not
result from the direct actions of Executive.
(c) Non-Solicit of Customers with respect to Competitive Business
-------------------------------------------------------------
Activity. The Executive agrees that he will not, while employed by the Company
- --------
and for a period of two (2) years following termination of such employment,
directly or indirectly, whether for his own account or for the account of any
other individual or entity, solicit the business or patronage of any customers
of the Company with respect to products and/or services directly related to a
Competitive Business Activity.
(d) Severability. The scope of the geographic, time and subject
------------
matter restrictions set forth in this Section 4 are intended to conform to
applicable law. If, however, a court determines that the scope of any such
restriction exceeds what is permitted by law, then such restriction shall be
limited or otherwise reformed as necessary to comply with and be enforceable
under applicable law. If a court determines that any provision of this Section 4
is unenforceable and cannot be reformed, then such provision shall be deemed
eliminated from this Section to the extent necessary to permit the remaining
provisions of this Section to be enforced.
5. Confidential Information.
------------------------
(a) Company Information. Executive agrees at all times during the
-------------------
term of Executive's employment and thereafter, to hold in strictest confidence,
and not to use, except for the benefit of the Company, or to disclose to any
person, firm or corporation without written authorization of the Board of
Directors of the Company, any Confidential Information of the Company. Executive
understands that "Confidential Information" means any Company proprietary
information, technical data, trade secrets or know-how, including, but not
limited to, research, product plans, products, services, customer lists and
customers (including, but not limited to, customers of the Company on whom
Executive called or with whom Executive became acquainted during the term of
Executive's employment), markets, software, developments, inventions, processes,
formulas, technology, designs, drawings, engineering, hardware configuration
information, marketing, finances or other business information disclosed to
Executive by the Company either directly or indirectly in writing, orally or by
drawings or observation of parts or equipment. Executive further understands
that Confidential Information does not include any of the foregoing items which
has become publicly known or made generally available through no wrongful act of
Executive's or of others who were under confidentiality obligations as to the
item or items involved.
-6-
<PAGE>
(b) Former Employer Information. Executive agrees that Executive will
---------------------------
not, during Executive's employment with the Company, improperly use or disclose
any proprietary information or trade secrets of any former or concurrent
employer or other person or entity and that Executive will not bring onto the
premises of the Company any unpublished document or proprietary information
belonging to any such employer, person or entity unless consented to in writing
by such employer, person or entity.
(c) Third Party Information. Executive recognizes that the Company
-----------------------
has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on the Company's part
to maintain the confidentiality of such information and to use it only for
certain limited purposes. Executive agrees to hold all such confidential or
proprietary information in the strictest confidence and not to disclose it to
any person, firm or corporation or to use it except as necessary in carrying out
Executive's work for the Company consistent with the Company's agreement with
such third party.
6. Representations. Executive has not entered into, and will not enter
---------------
into, any oral or written agreement in conflict herewith.
7. Arbitration. Executive and Company agree that any dispute or
-----------
controversy arising out of or relating to any interpretation, construction,
performance or breach of this Agreement shall be settled by arbitration of a
single arbitrator to be held in Santa Clara, California, in accordance with the
rules then in effect of the American Arbitration Association. The arbitrator
may grant injunctions or other relief in such dispute or controversy. The
decision of the arbitrator shall be final, conclusive and binding on the parties
to the arbitration. Judgment may be entered on the arbitrator's decision in any
court having jurisdiction. The Company and Executive shall each pay one-half of
the costs and expenses of such arbitration, and each party shall separately pay
counsel fees and expenses.
8. General Provisions
------------------
(a) Governing Law; Consent to Personal Jurisdiction. This Agreement
-----------------------------------------------
will be governed by the laws of the State of California. Executive and Company
hereby expressly consent to the personal jurisdiction of the state and federal
courts located in California for any lawsuit filed relating to this Agreement.
(b) Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding between the Company and Executive relating to the subject
matter herein and merges all prior discussions between the parties. No
modification of or amendment to this agreement, nor any waiver of any rights
under this agreement, will be effective unless in writing signed by both parties
hereto. Any subsequent change or changes in Executive's duties, salary or
compensation will not affect the validity or scope of this agreement.
-7-
<PAGE>
(c) Severability. If one or more of the provisions in this Agreement
------------
are deemed void by law, then the remaining provisions will continue in full
force and effect.
(d) Successors.
-----------
(i) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and assets shall assume the obligations under this Agreement and agree expressly
to perform the obligations under this Agreement in the same manner and to the
same extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and assets which
executes and delivers an appropriate assumption agreement or which becomes bound
by the terms of this Agreement by operation of law.
(ii) Executive's Successors. The terms of this Agreement and all
----------------------
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successor, heirs, distributees, devisees or legatees.
(e) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instruments.
IN WITNESS WHEREOF, each of the parties has executed this Agreement of the
Company by its duly authorized officer, as of the day and year first written
above.
ASHOK SANTHANAM, an individual
Date: May 1, 1998 /s/ [ILLEGIBLE]^^
--------------------- --------------------------------
INVENTA CORPORATION
Date: May 1, 1998 By: /s/ [ILLEGIBLE]^^
--------------------- --------------------------------
-8-
<PAGE>
EXHIBIT 10.16
February 2, 2000
Mr. Michael Shahbazian
1292 Estate Drive
Los Altos, CA 94024
Dear Mike:
As Dave discussed with you, we are pleased to offer you the position of Senior
Vice President and Chief Financial Officer with Inventa. You will report to
Dave Lavanty, President and CEO and will be based out of our Redwood Shores
headquarters. Your responsibility will encompass all financial operations for
the firm.
Your base salary will be $7916.66 which is paid semi-monthly, and is equivalent
to $190,000 when paid over a year. Salaries are reviewed at least once a year
and are adjusted as needed in relation to individual performance and salaries in
the marketplace. You will also be eligible to receive a quarterly performance
bonus of 40% of your base salary. The metrics for payment of the bonus will be
based on 50% Company revenue performance and 50% personal MBO's performance.
Under the terms of the company's Incentive Stock Option Plan, you will also
receive an option to acquire 225,000 shares of Inventa common stock at an
exercise price per share equal to the market value as determined by the Board of
Directors on the next option grant date. This option will vest 25% on your
first anniversary of employment and ratably every month over the next three
years until fully vested after four years of employment. You may receive
additional option grants over time as a result of performance and/or added
responsibilities. All option grants are, of course, subject to approval by the
Inventa Board of Directors.
Additionally, under separate cover, you will receive an employment agreement as
prepared by our attorneys. This agreement will allow salary and benefit
continuation for 6 months after a "change of control and/or involuntary
termination without cause", event.
You will be entitled to the complete Inventa benefits package, which is outlined
in the enclosed Benefits Summary. Please feel free to call Michelle Burnham at
650-413-1128 or send e-mail to [email protected] if you have any questions or
--------------------
would like more information on the benefits.
Upon joining Inventa, you will be required to sign a Confidentiality and
Proprietary Information Agreement as a condition of employment with the company.
Your employment is at-will which means either you or the company can terminate
your employment at any time. If your employment terminates for any reason, you
shall not be entitled to any payments, benefits, damages, awards or compensation
other than as provided by this offer letter, or as may otherwise be available in
accordance with the Company's established employee plans and policies at the
time of termination.
<PAGE>
Michael Shahbazian
Page 2
The United States government requires all new employees to present evidence of
their identity and legal right to work in this country within three days of the
date they begin work. The enclosed "Lists of Acceptable Documents" show the
documents you may present to fulfill these requirements. Please note you must
either 1) present a document from List A or 2) present one document from List B
and one document from List C. You will need to bring appropriate documents with
you the day you report for work. If you elect to use a U.S. social security
card as proof of employment eligibility, it must be an original card.
If you have any questions regarding this offer please feel free to contact Dave
or myself. Please note that this offer is contingent upon a successful
completion of a background check based on the information you will provide to us
on the " Release Form for Consumer Reports" (attached). If this offer is
acceptable to you, please sign and date the original in the spaces provided
below and, if you know it, indicate the date you can begin work. Please keep
the copy of this letter for your records and return the original to me by
February 4, 2000.
Mike, we are committed to building Inventa into a world-class company. You will
be a major part of that effort, as well, our success. This will require
dedication and hard work from all of us. We feel you would be a valuable
addition to Inventa and look forward to having you as part of our team in
meeting this challenge.
Sincerely,
Elizabeth Campbell
Vice President, Human Resources
Inventa Corporation
Enclosures (3)
SIGNATURE: ______________________________________
DATE: ___________________________________________
STARTING DATE: __________________________________
<PAGE>
EXHIBIT 10.20
[Inventa Letterhead]
August 5, 1998
Elizabeth J. Campbell
3725 El Centro Avenue
Paid Alto, CA 94306
Dear Elizabeth:
As Michael Makishima, Inventa Corporation Controller, discussed in his recent
telephone conversation with you, we are pleased to offer you a position as
Director of Human Resources with Inventa. In this position, you will be based at
Inventa's Santa Clara office and will report to Michael.
Your base salary will be $4,166.67 which is paid semi-monthly and is equivalent
to $100,000 when paid over a year. Salaries are reviewed at least once a year
and are adjusted as needed in relation to individual performance and salaries in
the marketplace. You will also be eligible to receive an annual performance
bonus that is based on company and individual performance. The target bonus
percentage for your position and salary grade level is 25%. In lieu of a 1998
bonus, you shall receive a sign-on bonus of $10,000, payable on the first pay
period following your start date. If you leave the company within your first
year of employment, the $10,000 is repayable to the company.
Under the terms of the company's Incentive Stock Option Plan, you will receive
and option to acquire 20,000 shares of Inventa common stock at an exercise price
per share equal to the market value as determined by the Board of Directors on
the next option grant date. This option will vest 25% on your first anniversary
of employment, and ratably every month over the next three years until fully
vested after four years of employment. You may receive additional option grants
over time as a result of performance and/or added responsibilities. All option
grants are, of course, subject to approval by the Inventa Board of Directors.
You will be entitled to the complete Inventa benefits package which is outlined
in the enclosed Benefits Summary. The Inventa 401(k) Plan allows you to defer
paying taxes on up to approximately 19% of your compensation or $10,000 per
year, whichever is less, by investing that amount in one or more of the
investment vehicles provided by the Plan. Inventa also matches 25% on the first
4% of compensation you contribute to the Plan. Please feel free to call me at
408-987-0220, ext. 320 or send e-mail to [email protected] if you have any
------------------
questions or would like more information on the benefits.
Upon joining Inventa, you will be required to sign a Confidentiality and
Proprietary Information Agreement as a condition of employment with the company.
Your employment is at will which means either you or the company can terminate
your employment at any time.
<PAGE>
Elizabeth J. Campbell [Inventa Letterhead]
Page 2
The United States government requires all new employees to present evidence of
their identity and legal right to work in the this country within three days of
the date they begin work. The enclosed "Lists of Acceptable Documents" show the
documents you may present to fulfill these requirements. Please note you must
either 1) present a document from List A or 2) present one document from List B
and one document from List C. You will need to bring appropriate documents with
you the day you report for work. If you elect to use a U.S. social security card
as proof of employment eligibility, it must be an original card.
If you have any questions regarding this offer please don't hesitate to contact
me. If this offer is acceptable to you, please sign and date the original in the
spaces provided below and return it to me in the enclosed FedEx envelope. The
copy is for your records.
Elizabeth, Inventa management and employees are committed to build Inventa into
a world-class company. Of course, this will require dedication and hard work
from everyone. We feel you would be a valuable addition to Inventa and look
forward to having you as part of the team in meeting this challenge.
Sincerely
/s/ Dixie E. Smith
- ---------------------
Dixie E. Smith
Acting Human Resources Manager
Inventa Corporation
Enclosures (3)
SIGNATURE:__________________________
DATE:_______________________________
<PAGE>
EXHIBIT 10.21
[LETTERHEAD OF INVENTA]
July 14, 1997
Michael S. Makishima
949 Exmoor Way
Sunnyvale, CA 94087
Dear Michael:
It was a pleasure to meet with you and I am happy to offer you a position as
Controller with Inventa.
In this position, you will be responsible for the accounting and financial
aspects of the business, managing human resources, and managing information
systems and facilities. You will be based at Inventa's Santa Clara office, and
report to the President. Upon joining the company, you will be required to sign
a Confidentiality and Proprietary Information Agreement as a condition of
employment with Inventa.
Your base starting salary will be $90,000 per year, which will be reviewed based
on your performance at least annually. In addition, you will also be eligible to
receive an annual performance bonus that is based on company and individual
performance -- for your grade level the target bonus percentage is 25% of annual
salary.
You will also receive, under the terms of the company's Incentive Stock Option
Plan, an option to acquire 30,000 shares of Inventa common stock at an exercise
price per share equal to the market value as determined by the Board of
Directors on the next option grant date -- this option will vest fully over four
years of employment with the company. You may also, based on performance and/or
added responsibilities, receive additional option grants over time.
You will further be entitled to the complete Inventa benefits package outlined
on the attached sheets.
This offer of employment expires at 5:00 PM on July 15, 1997 and is contingent
upon your availability to start work at Inventa on or prior to July 21, 1997.
Michael, we think we have something special here at Inventa and plan to build it
into something great. Doing so will require a lot of hard work. I look forward
to having you as part of our team in meeting this challenge.
Sincerely,
/s/ Ashok Santhanam
Ashok Santhanam
Inventa Corporation
I accept the terms of employment as offered in the letter above. I understand
and agree that my employment with Inventa is at will, and that either the
company or I can terminate my employment at any time.
/s/Michael S. Makishima Date: 7/14/97
----------------------- -------
Michael S. Makishima
<PAGE>
EXHIBIT 10.24
CONFIDENTIAL [Inventa Letterhead]
- ------------
October 27, 1997
Edward Leppert
9 Exeter Lane
Belle Mead, NJ 08502
Dear Ed:
As we have discussed, I am happy to offer you a position as Managing Director,
Operations with Inventa.
In this position, you will manage Operations for Inventa's first office in the
Eastern United States, to be located in New York or Northern New Jersey. You
will work closely with our sales organization to develop new business and manage
the delivery of booked engagements to achieve high customer satisfaction and
Inventa's profitability objectives. As such, you will be responsible for the P&L
of the office. Upon joining the company, you will be required to sign a
Confidentiality and Proprietary Information Agreement as a condition of
employment with Inventa.
Your base starting salary will be $160,000 per year, which will be reviewed
based on your performance at least annually. In addition, you will be eligible
to receive an annual performance bonus that is based on company and individual
performance -- your target bonus percentage is 25% of annual salary. You will be
permitted, through December 31, 1998, a draw of $10,000 per year ($833.33 per
month) in addition to your base salary, which will be recoverable from your
actual annual performance bonus award. You will further be entitled to the
complete Inventa benefits package outlined on the attached sheets.
You will also receive, under the terms of the company's Incentive Stock Option
Plan, an option to acquire 45,000 shares of Inventa common stock at an exercise
price per share equal to the market value as determined by the Board of
Directors on the next option grant date -- this option will vest fully over four
years of employment with the company. You may also, based on performance and/or
added responsibilities, receive additional option grants over time.
In addition, should your employment with Inventa be involuntarily terminated
within twelve months of your start date for any reason other than your work
performance or conduct, Inventa will provide a severance package consisting of
three months' base salary, payable on your termination date. Further, during
this twelve month period, should it become necessary to establish a key
management severance plan in anticipation of a "change-of-control" in the
company, you will be included as a participant in the plan and its terms will
supersede the three-month severance provision in this letter.
This offer of employment expires on October 29, 1997 and is contingent upon
<PAGE>
Mr. Edward Leppert Page 2
October 27, 1997
Confidential
- ------------
your availability to start work at Inventa between November 17, 1997 and
November 24, 1997.
Ed, we think we have something special here at Inventa and plan to build it into
something great. Doing so will require a lot of hard work. I look forward to
having you as part of our team in meeting this challenge.
Sincerely,
/s/ Ashok Santhanam
Ashok Santhanam
President
Inventa Corporation
I accept the terms of employment as offered in the letter above. I understand
and agree that my employment with Inventa is at will, and that either the
company or I can terminate my employment at any time.
/s/ Edward Leppert
----------------------
Date: 10/29/97
Edward Leppert
/s/ Edward Leppert
-----------------------
<PAGE>
EXHIBIT 10.26
SEVERANCE AGREEMENT
-------------------
This Severance Agreement (the "Agreement") is made and entered into
effective as of July 14, 1999, by and between Elizabeth Campbell (the
"Employee") and Inventa Corporation, a California corporation (the "Company").
RECITALS
A. The Company may from time to time need to address the possibility of an
acquisition transaction or change of control event. The Board of Directors of
the Company (the "Board") recognizes that such events can be a distraction to
the Employee and can cause the Employee to consider alternative employment
opportunities. The Board has determined that it is in the best interests of the
Company and its stockholders to assure that the Company will have the continued
dedication and objectivity of the Employee, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined in Section 6 below) of
the Company.
B. The Board believes that it is in the best interests of the Company and
its stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee with
certain benefits upon a Change of Control and, under certain circumstances, upon
termination of the Employee's employment in connection with a Change of Control,
which benefits are intended to provide the Employee with financial security and
provide sufficient incentive and encouragement to the Employee to remain with
the Company notwithstanding the possibility of a Change of Control.
D. To accomplish the foregoing objectives, the Board has directed the
Company, upon execution of this Agreement by the Employee, to agree to the terms
provided herein.
AGREEMENT
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of the Employee by the Company, the
parties agree as follows:
1. Duties and Scope of Employment. The Company shall employ the Employee
------------------------------
in the position of Director of Human Resources, as such position has been
defined in terms of responsibilities and compensation as of the effective date
of this Agreement; provided, however, that the Board shall have the right, at
any time prior to the occurrence of a Change of Control, to revise such
responsibilities and compensation as the Board in its discretion may deem
necessary or appropriate. The Employee shall comply with and be bound by the
Company's operating policies, procedures and practices from time to time in
effect during his employment. During the term of the Employee's employment with
the Company, the Employee shall continue to devote his full time,
<PAGE>
skill and attention to his duties and responsibilities, and shall perform them
faithfully, diligently and competently, and the Employee shall use his best
efforts to further the business of the Company and its affiliated entities.
2. Compensation. The Company shall pay the Employee as compensation for
------------
his services a base salary at the annualized rate of $115,000. Such salary shall
be paid periodically in accordance with normal Company payroll practices. The
annualized compensation specified in this 2, as such compensation may be
increased or decreased by the Board or the Compensation Committee of the Board,
is referred to in this Agreement as "Base Compensation."
3. Employee Benefits. The Employee shall be eligible to participate in the
-----------------
employee benefit plans and executive compensation programs maintained by the
Company applicable to other key executives of the Company, including, without
limitation, retirement plans, savings or profit-sharing plans, stock option,
incentive or other bonus plans, life, disability, health, accident and other
insurance programs, paid vacations, and similar plans or programs, subject in
each case to the generally applicable terms and conditions of the applicable
plan or program in question and to the sole determination of the Board or any
committee administering such plan or program.
4. Employment Relationship. The Company and the Employee acknowledge that
-----------------------
the Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
policies at the time of termination.
5. Termination Without Cause Following a Change of Control. In the event
-------------------------------------------------------
of the Employee's termination of employment without cause within 6 months
following a Change of Control, the Company shall
(a) continue to pay to the Employee as provided herein Employee's Base
Compensation over the period equal to six (6) months from the date of
termination, or, if sooner, until the date Employee obtains other full-time
employment, as severance compensation;
(b) pay all costs which the Company would otherwise have incurred to
maintain all of Employee's health and welfare, and retirement benefits (either
on the same or substantially equivalent terms and conditions) if the Employee
had continued to render services to the Company for six (6) continuous months
after the date of termination of employment, or, if sooner, until the Employee
obtains other full-time employment; and
(c) permit options granted to the Employee which have not then vested
to continue to vest in accordance with their stated vesting schedule(s) during
the six (6) month period after the date of termination and to be exercisable
during such six (6) month period to the extent
-2-
<PAGE>
vested, including any options which would not otherwise have been exercisable
during the first year after grant of such options.
During the period when such severance compensation is being paid to
Employee, Employee shall not (i) engage, directly or indirectly, in providing
services to any other business, program or project that is competitive to a
program or project being conducted by the Company or any affiliated company at
the time of such employment termination (provided that Executive may own less
than one percent (1%) of the outstanding securities of any publicly-traded
corporation), or (ii) solicit, or attempt to solicit on behalf of himself or any
other party, any employee or exclusive consultant of the Company.
For purposes of this Agreement, "cause" shall mean the discharge resulting
from a determination by the Board of Directors of the Company that the Employee
(i) has been convicted of a misdemeanor or felony involving
dishonesty, fraud, theft or embezzlement or any other felony,
(ii) has failed or refused in any material respect, to follow
reasonable written policies or directives established by the Board of Directors,
(iii) has willfully and persistently failed to attend to
material duties or obligations imposed on him under this Agreement, or
(iv) has performed or failed to act, which if he were
prosecuted and convicted would constitute a crime or offense involving money or
property of the Company (in either case in an amount or at a value in excess of
$1,000), or which would constitute a felony in the jurisdiction involved.
(d) Notwithstanding the foregoing, if, following a Change of Control,
the Employee resigns from employment by the Company or the acquiring company (or
a subsidiary thereof) due to a relocation of the Employee beyond a 30-mile
radius from the Company's headquarters as it existed on the day before the
execution of the definitive agreement with respect to the Change of Control, the
Employee shall receive the severance compensation described in Sections 5(a),
5(b) and 5(c) above. For purposes of this subsection, a change in employment
title or level by itself shall not constitute a material adverse change.
6. Definition of Change of Control. "Change of Control" shall mean the
-------------------------------
occurrence of any of the following events:
(a) The acquisition by any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Company, of the
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing more than
fifty
-3-
<PAGE>
percent (50%) of the total voting power represented by the Company's then
outstanding voting securities; or
(b) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the approval by the stockholders of the Company of a plan of
complete liquidation of the Company or of an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
7. Limitation on Payments.
----------------------
(a) In the event that the severance and other benefits provided for in
this Agreement or otherwise payable to the Employee (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and (ii) but for this Section 7 would be subject
to the excise tax imposed by Section 4999 of the Code, then the severance
compensation under Section 5 shall occur either (i) in full, or (ii) as to such
lesser amount which would result in no portion of such severance compensation
being subject to excise tax under Section 4999 of the Code, whichever of the
foregoing amounts, taking into account the applicable federal, state and local
income taxes and the excise tax imposed by Section 4999, results in the receipt
by the Employee on an after-tax basis, of the greatest benefits under this
Agreement, notwithstanding that all or some portion of such severance benefits
may be taxable under Section 4999 of the Code.
(b) Unless the Company and the Employee otherwise agree in writing,
any determination required under this Section 7 shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon the Employee and the Company
for all purposes. For purposes of making the calculations required by this
Section 7, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 7.
8. Certain Business Combinations. In the event it is determined by the
-----------------------------
Board, upon receipt of a written opinion of the Company's independent public
accountants, that the enforcement of any or sub of this Agreement, upon a Change
of Control, would preclude accounting for any proposed business combination of
the Company involving a Change of Control as a pooling of interests, and the
Board otherwise desires to approve such a proposed business transaction which
requires as a condition to the closing of such transaction that it be accounted
for as a pooling of
-4-
<PAGE>
interests, then any such of this Agreement shall be null and void, but only if
the absence of enforcement of such would preserve the pooling treatment. For
purposes of this 8, the Board's determination shall only require the approval of
a majority of the disinterested Board members.
9. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether direct
--------------------
or indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and assets which executes and
delivers the assumption agreement described in this Section 9(a) or which
becomes bound by the terms of this Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement and all rights
---------------------
of the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, devisees and legatees.
10. Notice. Notices and all other communications contemplated by this
------
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
11. Miscellaneous Provisions.
------------------------
(a) Waiver. No provision of this Agreement shall be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(b) Whole Agreement. No agreements, representations or understandings
---------------
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof.
(c) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
-5-
<PAGE>
(d) Severability. The invalidity or unenforceability of any provision
------------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(e) Arbitration. Any dispute or controversy arising out of, relating
-----------
to or in connection with this Agreement shall be settled exclusively by binding
arbitration in San Francisco, California, in accordance with the National Rules
for the Resolution of Employment Disputes of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. The Company and the Employee shall each pay one-
half of the costs and expenses of such arbitration, and each shall separately
pay its counsel fees and expenses. Punitive damages shall not be awarded.
(f) No Assignment of Benefits. The rights of any person to payments or
-------------------------
benefits under this Agreement shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this Section 11(f) shall be void.
(g) Assignment by Company. The Company may assign its rights under
---------------------
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment. In the case of
any such assignment, the term "Company" when used in a section of this Agreement
shall mean the corporation that actually employs the Employee.
(h) Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
-6-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
COMPANY: INVENTA CORPORATION
By:
Title:
EMPLOYEE: /s/ Elizabeth Campbell
---------------------------------
Elizabeth Campbell
-7-
<PAGE>
Exhibit 21
----------
Subsidiaries of Inventa
Technologies, Inc.
XTENDTech, Inc., a New Jersey Corporation
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to Registration
Statement on Form S-1 of our reports dated February 11, 2000 relating to the
consolidated financial statements for Inventa Corporation, and February 11, 2000
relating to the financial statements of XTEND-Tech, Inc., which appear in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
February 18, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INVENTA
CORPORATION BALANCE SHEETS AT DECEMBER 31, 1999 AND STATEMENT OF OPERATIONS FOR
YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
*Identify the financial statement(s) to be reference in the legend:
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 3,244 4,783 671
<SECURITIES> 0 0 0
<RECEIVABLES> 2,187 945 955
<ALLOWANCES> 174 308 333
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 6,932 5,562 1,330
<PP&E> 3,068 1,345 893
<DEPRECIATION> 1,066 684 442
<TOTAL-ASSETS> 9,222 6,295 1,822
<CURRENT-LIABILITIES> 8,867 1,760 901
<BONDS> 0 0 0
17,398 8,270 3,200
1 1 1
<COMMON> 5 5 5
<OTHER-SE> (17,503) (4,119) (2,502)
<TOTAL-LIABILITY-AND-EQUITY> 9,222 6,295 1,822
<SALES> 13,520 8,016 5,196
<TOTAL-REVENUES> 13,520 8,016 5,196
<CGS> 0 0 0
<TOTAL-COSTS> 24,391 9,708 7,991
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 106 0 0
<INTEREST-EXPENSE> 106 56 83
<INCOME-PRETAX> (10,876) (1,656) (2,874)
<INCOME-TAX> 15 2 90
<INCOME-CONTINUING> (10,891) (1,658) (2,964)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (10,891) (1,658) (2,964)
<EPS-BASIC> (3.20) (0.36) (0.65)
<EPS-DILUTED> (3.20) (0.36) (0.65)
</TABLE>
