<PAGE>
As filed with the Securities and Exchange Commission on April 21, 2000
Registration No. 333-95813
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 4
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 April 21, 2000
PROSPECTUS
3,500,000 Shares
[Inventa Logo]
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. No public market
currently exists for our shares.
We have applied to list the shares on the Nasdaq National Market under the
symbol "INVA." We anticipate the initial public offering price to be between
$10.00 and $12.00 per share.
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 525,000
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
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
Front Cover: Inventa Logo
Inside Front Cover: Inventa Logo
Front Gatefold: a diagram using three dimensional geometric shapes
(cylinders, cubes and spheres), and three dimensional free-form shapes
(clouds) to depict electronic commerce between an Inventa client, and their
trading partners (customers and suppliers)
Back Cover: Inventa Logo
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 26
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 40
Certain Relationships and Related Transactions............................. 50
Principal Stockholders..................................................... 51
Description of Capital Stock............................................... 53
Shares Eligible for Future Sale............................................ 57
Underwriting............................................................... 59
Legal Matters.............................................................. 62
Experts.................................................................... 62
Additional Information..................................................... 62
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 helping businesses to
use the Internet to engage in electronic commerce activities with other
businesses in order to improve their productivity and expand their online
offerings. We principally create and support:
. Electronic markets that allow businesses to interact over the Internet
with their trading partners, conduct commerce electronically and process
business transactions in real time
. Electronic customer relationship management systems that enable
businesses to use the Internet to manage their relationships with
business customers and other trading partners
Since 1995, we have focused exclusively on engagements that enable our
clients to utilize the Internet to conduct electronic commerce with other
businesses. We believe that our early focus on business-to-business electronic
commerce engagements, our experience with business processes and our
methodologies for approaching these engagements enable us to rapidly and
efficiently implement advanced Internet systems for our clients. In 1999, our
clients included Automatic Data Processing, Inc., Amkor Technology, Inc.,
Cadence Design Systems, Inc., Citigroup, Inc., Crane Co., ePolicy.com, Fujitsu
PC Corporation, GoTo.com, Inc., Pure Markets Corporation, Shaman
Botanicals.com, Siemens Corporation, SMART Modular Technologies, Inc., Sun
Microsystems, Inc. and Trade Pacific Investments Limited, or tradepac.com.
Examples of some of our recent engagements include:
. GoTo.com--we designed an electronic customer relationship management
system that allows our client and its customers to track the progress of
customer care. Among other features, the system allows users to access
answers to frequently asked questions in real time
. Pure Markets--we created an electronic market for commercial leasing
transactions that provides for online bidding, execution of leasing
transactions and automation of routine business processes
. tradepac.com--we designed an electronic market for inventory liquidation
that provides for online bidding and that matches buyers worldwide with
sellers from the Asia-Pacific region
Our Solution
We deliver our services through teams of talented professionals with
extensive experience in business process analysis, project management and
software engineering. Using our proprietary LightSpeed delivery model and i2K
architectural framework, our professionals are able to quickly design and
engineer Internet-based electronic commerce applications that are integrated
with our clients' existing internal systems. Our approach allows us to quickly
deliver, with predictable fees and project schedules, complex systems that are
capable of being rapidly expanded and extended to handle large numbers of
transactions and connections to trading partners' systems.
We engineer our e-commerce systems 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 flow of information in
multiple directions
. 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
1
<PAGE>
Our experience and expertise have allowed us to offer two products in the
form of packaged service offerings, eCare and eSales. eCare is our Internet-
based customer support service offering developed to enable our clients to
provide high-quality customer service and improve their customer retention.
eSales is our packaged service offering developed to help clients generate
revenue through Internet-based channels. Each of our packaged service offerings
addresses predetermined business functions and is implemented using a
combination of commercially available software and the collective knowledge of
our professionals. We believe that our packaged service offerings allow us to
leverage our extensive experience, reduce our project risk and speed the time
in which our clients reach the market.
Our Market Opportunity
Businesses are increasingly using electronic commerce to interact with other
businesses. This enhances their competitive positions by improving operating
efficiencies, strengthening their relationships with trading partners and
enabling them to identify and capitalize on business opportunities. Developing
and supporting business-to-business electronic commerce systems requires
substantial expertise with respect to, among other matters:
. design of new business processes and systems that integrate with
existing operations
. selection of appropriate Internet technologies
. management of a fast-paced implementation process
Many businesses lack this expertise. As a result, an increasing number of
businesses from start-up ventures to large corporations engage Internet
professional services firms like ours to help them design, implement and
integrate their electronic commerce systems. International Data Corporation
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.
Our Strategy
Our strategy is to enhance our position and reputation as a leading provider
of Internet professional services for businesses to interact electronically
with other businesses. The key elements of our growth strategy are to:
. maintain our exclusive focus on engagements that enable our business
clients to utilize the Internet to engage in electronic commerce with
other businesses
. maintain our technology leadership by pursuing highly complex
engagements
. continue to offer packaged services such as eCare and eSales and
introduce new packaged services that target other business processes
. hire, train and retain skilled 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
Recent Developments
Our revenues for the quarter ended March 31, 2000, totaled $9.3 million,
including $813,000 of revenues attributable to XTEND-Tech, Inc., which we
acquired in January 2000. Excluding revenues attributable to XTEND-Tech, our
revenues were $8.4 million as compared with $1.8 million for the quarter ended
March 31, 1999, and $5.6 million for the quarter ended December 31, 1999. This
represents an increase of 364% over revenues for the quarter ended March 31,
1999, and 51% over revenues for the quarter ended December 31, 1999. We
attribute our revenue growth primarily to an increase in the volume of services
delivered to new clients. Project personnel expenses increased to $5.5 million
compared to $1.2 million for the quarter ended March 31, 1999, and $3.4 million
for the quarter ended December 31, 1999. This increase was primarily due to an
increase in headcount of project personnel to 174, compared to 47 as of March
31, 1999, and 112 as of December 31, 1999. Our loss from operations (excluding
depreciation, deferred stock-based compensation, and amortization of
intangibles related to the acquisition of XTEND-Tech) increased to $2.3 million
compared to $1.5 million for the quarter ended March 31, 1999, and decreased
from $3.1 million for the quarter ended December 31, 1999. We primarily
attribute our loss from operations to our continued investments in hiring
project personnel, and sales, marketing and administrative personnel, as well
as investments in office facilities and related infrastructure. During the
quarter ended March 31, 2000, we began 18 new client engagements.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Inventa.. 3,500,000 shares
Common stock outstanding after
this offering................... 25,196,929 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>
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.
Common stock outstanding after this offering:
. is based on the number of shares outstanding as of February 29, 2000
. assumes the conversion of all outstanding shares of series A, B, C and D
preferred stock into an aggregate of 14,615,511 shares of common stock,
which will automatically occur at the completion of this offering
. includes 293,255 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
. includes 290,000 shares issuable at the completion of this offering in
connection with an employment agreement
. excludes 3,993,653 shares of common stock issuable upon the exercise of
stock options outstanding at February 29, 2000, at a weighted average
exercise price of $1.81 per share
. excludes 713,184 shares of common stock reserved for future grant under
our stock option plans
. excludes 160,000 shares of common stock issuable upon the exercise of
warrants outstanding at February 29, 2000, at an exercise price of $2.50
per share
Additional Information
We were incorporated in California in 1988 as Inventa Corporation. We
reincorporated in Delaware on March 23, 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
$14.9 million in connection with the acquisition of XTEND-Tech, Inc.,
which had an effective date of January 1, 2000
. acquisition of assets and liabilities of XTEND-Tech. See details in our
consolidated 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 our 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
See Note 1 of the notes to our consolidated financial statements for a
description of the methods we used to compute our weighted average shares and
basic and diluted net loss per share and pro forma basic and diluted net loss
per share.
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 $11.00 per share, the midpoint of the anticipated range, and
the application of the net proceeds as described in "Use of Proceeds," after
deducting the estimated underwriting discount and estimated offering expenses.
In addition, the unaudited pro forma, as adjusted, balance sheet data gives
effect to the sale of 293,255 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 and the application of the net proceeds of $3.0 million.
<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) (10,906)
Net loss........................................... (2,964) (1,658) (15,788)
Net loss per share:
Basic and diluted................................ $ (0.65) $ (0.36) $ (3.36)
======= ======= ========
Weighted average shares.......................... 4,557 4,659 4,698
Pro forma net loss per share (unaudited):
Basic and diluted................................ -- -- $ (0.76)
========
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 $58,862
Working capital............................... (1,842) 20,438 57,683
Total assets.................................. 9,222 40,928 74,173
Long-term borrowings and capital lease
obligations, net of current portion.......... 454 562 562
Mandatorily redeemable convertible preferred
stock........................................ 18,132 -- --
Total stockholders' equity (deficit).......... (18,138) 30,973 68,218
</TABLE>
4
<PAGE>
RISK FACTORS
Investing in shares of our common stock involves risks. 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
We may have difficulty managing our growth, which could damage our ability to
retain clients and become profitable
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 year ended December 31, 1998. Our staff increased
from 57 full-time employees at December 31, 1998, to 245 at February 29, 2000.
Our future success will depend on our ability to manage our growth, 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
If we are unable to manage our growth, our ability to retain clients and
become profitable could be damaged.
We have a history of operating losses, and we may never achieve significant or
sustained profitability
We reported an operating loss of $10.9 million and a net loss of $15.8
million for the year ended December 31, 1999. 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 may not 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.
If we do not retain our key management personnel and professionals or if we
fail to recruit additional professionals, our ability to serve existing and new
clients would be impaired
Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining experienced, knowledgeable management and
professionals. This dependence is particularly important to our business
because we believe personal relationships are critical to obtaining and
maintaining a cohesive culture. In 1999, 8.7% of our professional staff and
14.5% of our non-professional staff, which includes management and support
staff, left us. If a significant number of our senior management personnel or
professionals leave, we may be unable to complete or retain existing
engagements or bid for new projects. 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.
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 may not be able to attract a sufficient number of
qualified employees in the future, and we may not be successful in motivating
and retaining the employees we do attract. If we cannot attract, motivate and
retain qualified management and professionals, our ability to provide our
services to new and existing clients will be impaired.
Our management team has limited experience working together, which could affect
their ability to function effectively as a team
We have employed our president and chief executive officer only since
January 1999. Five of our other officers, including our chief financial
officer, 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 may hurt our ability to manage our business and growth,
obtain and execute client engagements, maintain a cohesive culture and compete
effectively.
We depend heavily on a limited number of clients. The loss of a principal
client or a reduction in the work we perform for any particular client could
harm our reputation and reduce our revenues
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. Our clients retain us on an engagement-by-engagement basis, rather
than under long-term contracts. Our contracts typically provide that our
clients can terminate the contracts without penalty. 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 reputation and reduce our revenues.
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. Less than 10% of our contracts provide for financial penalties if we
do not meet specified deadlines. To date, we have not had to pay any of these
penalties. 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
. 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. 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.
Quarterly fluctuations in our revenues and earnings could affect the market
price of our common stock
Our quarterly revenues and earnings have varied in the past and may vary
significantly. This fluctuation may cause our operating results to be below the
expectations of securities analysts and investors, and the price of our stock
may fall. Factors that could cause quarterly fluctuations include:
. the number, size and scope of client engagements commenced or completed
during a quarter
6
<PAGE>
. 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.
Competition from larger, more established competitors with greater financial
resources and from new competitors could result in price reductions and reduced
revenues and loss of current and future clients
The Internet professional services market is intensely competitive. We
expect competition to continue and intensify, which could result in price
reductions, reduced revenues and the loss of current and future clients. 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. This ability of
our competitors may place us at a disadvantage in responding to our
competitors' pricing strategies, technological advances, advertising campaigns,
strategic partnerships and other initiatives.
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 competitors.
If we do not keep pace with technological changes, industry standards and
client preferences, our reputation could be harmed, and we could lose clients,
which would reduce our revenues
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 may
not 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 harm our reputation and cause us to lose current and potential business
opportunities, resulting in reduced revenues.
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
7
<PAGE>
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 reduce our revenues and impair our results
of operations, 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 could result in substantial costs
or limit our ability to use intellectual property in the future
It is possible that other parties may assert infringement claims against us
in the future or claim that we have violated their intellectual property
rights. While we know of no basis for any claims of this type, authorship of
intellectual property rights can be difficult to verify. Competitors could
assert, for example, that former employees of theirs whom we have hired have
misappropriated their proprietary information for our benefit. A successful
infringement claim against us could damage us in the following ways:
. we may be liable for damages and litigation costs, including attorneys'
fees
. we may be prohibited from further use of the intellectual property in
dispute
. 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.
If we are not able to resell or reuse intellectual property developed for
specific clients, our ability to provide our services efficiently would be
impaired
Our LightSpeed delivery model and i2K architectural model, as well as our
knowledge management system, known as Inside Inventa, depend heavily 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. Our clients may demand similar or
other restrictions in the future, and disputes may arise that affect our
ability to resell or reuse such applications, processes and other intellectual
property. These disputes could damage our relationships with our clients and
divert our management's attention. A successful suit that prevents us from
reusing information and techniques would also impair our ability to provide our
services efficiently.
If we are unable to maintain our reputation and expand our name recognition, we
may have difficulty in attracting new clients and retaining current clients and
professionals
We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and retaining our clients and
professional staff. We also believe that the importance of 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 effective 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 could suffer adverse publicity as well as economic liability.
8
<PAGE>
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 most
of our engagements, we begin work for clients on the basis of a limited
statement of work or a verbal agreement 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.
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
In the future, we may need to raise additional funds through public or
private debt or equity financings to take advantage of expansion or acquisition
opportunities, develop new solutions or compete effectively in the marketplace.
Any additional capital raised through the sale of equity or equity-linked
debt securities would dilute your ownership percentage in us. Those securities
could also have rights, preferences or privileges senior to those of your
common stock. Furthermore, we may not be able to obtain additional financing
when needed or on terms favorable to us or our stockholders. If additional
financing is not available on favorable terms, or at all, this may limit our
ability to develop or enhance our services, take advantage of business
opportunities or respond to competitive pressures.
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 electronic commerce adoption include:
. actual or perceived lack of security of information
. 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 electronic commerce model
Our success will depend on market acceptance of our industry
Widespread market acceptance of the outsourcing of the design, development
and maintenance of Internet-based applications to Internet professional
services firms like ours 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
9
<PAGE>
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. Our revenues will decline 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 electronic 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
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
If the market price of our common stock fluctuates significantly, you may not
be able to sell our shares at or above the initial public offering price, and
therefore, you may suffer a loss on your investment
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
10
<PAGE>
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 securities litigation, it could cause a substantial loss
and divert resources and the attention of senior management from our business.
Because an active trading market for our common stock may not develop after
this offering, it may be difficult for you to sell your shares
There is currently no trading market for our common stock. Accordingly, an
active public trading market may not develop or be sustained after this
offering. If an active and liquid trading market does not develop, you may have
difficulty selling your shares.
The sale or availability for sale of substantial amounts of our common stock
could cause our stock price to decline
Sales of substantial amounts of our common stock in the public market after
the completion of this offering or the public 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 25,196,929 shares of common stock outstanding immediately
after this offering including those shares issued upon conversion of the
convertible securities, shares issued in the contemporaneous private placement,
and those shares issuable at the close of this offering under an employment
agreement, or 25,721,929 shares if the underwriters exercise their over-
allotment option in full. The 3,500,000 shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless held by our "affiliates" as that term is defined in Rule
144 under the Securities Act. The remaining shares are "restricted securities,"
and will become eligible for sale in the public market at various times after
180 days after the date of this prospectus, subject to the limitations and
other conditions of Rule 144 under the Securities Act.
In connection with this offering, we, our executive officers and directors
and 21 of our stockholders and their affiliates have agreed, except in limited
circumstances, not to sell the 20,533,342 shares of common stock owned by them
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 16,238,238 shares,
representing 64% 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 77% 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
11
<PAGE>
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
and will pay a higher price for our common stock than paid by our existing
stockholders
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
$8.58 per share, representing the difference between our book value per share
as of December 31, 1999, after giving effect to this offering and the initial
public offering price. 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.
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, the forward-looking
statements contained in this prospectus may not be realized.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the offering will be
approximately $34.2 million at an assumed initial public offering price of
$11.00 per share, the mid-point of the anticipated range, and approximately
$39.6 million 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%). The proceeds of this loan were used to pay off our
equipment lease line with a balance of $375,000. The remaining proceeds
are being used to fund working capital and to purchase equipment.
. 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 our 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 lines of credit
facilities restrict our ability to declare and pay any dividends without the
prior consent of our lenders.
13
<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 the 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 $ 241
======== ======== =======
Long-term borrowings and capital lease
obligations, net of current portion........... 454 562 562
-------- -------- -------
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.................................... 4,373 -- --
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.................................... 13,759 -- --
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.................................... -- -- --
-------- -------- -------
18,132 -- --
-------- -------- -------
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; 20,724,913 shares
issued and outstanding, pro forma and
24,518,168 shares issued and outstanding pro
forma, as adjusted.......................... 5 20 24
Additional paid-in capital................... 1,861 67,829 105,070
Deferred stock-based compensation............ (4,662) (10,733) (10,733)
Accumulated deficit.......................... (15,343) (26,143) (26,143)
-------- -------- -------
Total stockholders' equity (deficit)....... (18,138) 30,973 68,218
-------- -------- -------
Total capitalization..................... $ 640 $ 31,776 $69,021
======== ======== =======
</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
. 1,474,000 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."
14
<PAGE>
DILUTION
On a pro forma basis after giving effect to the conversion of 11,615,511
outstanding shares of series A, B, and C preferred stock, the issuance and
subsequent conversion of 3,000,000 shares of series D preferred stock at $7.41
per share, the issuance of 1,350,000 shares of common stock in connection with
the acquisition of XTEND-Tech, and the acquisition of the net tangible assets
of XTEND-Tech, our pro forma net tangible book value as of December 31, 1999,
was $22.2 million or $1.07 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. After giving effect to the sale of
3,500,000 shares of common stock offered by this prospectus at an assumed
initial public offering price of $11.00 per share and receipt of the estimated
net proceeds from the sale, and the sale of 293,255 shares at $10.23 per share
in connection with our contemporaneous private placement and receipt of the
estimated net proceeds of $3.0 million from the sale, our pro forma net
tangible book value as of December 31, 1999, would have been approximately
$59.4 million or $2.42 per share. This represents an immediate increase in net
tangible book value of $1.35 per share to existing stockholders and an
immediate dilution of $8.58 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............... $11.00
------
Pro forma net tangible book value per share as of December 31,
1999......................................................... $1.07
Increase per share attributable to new investors.............. $1.35
-----
Pro forma net tangible book value per share after this
offering..................................................... $ 2.42
------
Net tangible book value dilution per share to new investors... $ 8.58
======
</TABLE>
The following table sets forth as of December 31, 1999, assuming the pro
forma effects described above, the difference between the number of shares of
common stock purchased from us, the total consideration and the average price
per share paid by the existing stockholders and by the new investors at an
assumed initial public offering price of $11.00 per share for shares purchased
in this offering, before deducting the estimated underwriting discounts and
estimated offering expenses and $10.23 for shares purchased in the
contemporaneous private placement:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 20,724,913 85.0% $36,021,925 46.0% $ 1.74
New investors............... 3,793,255 15.0 41,500,000 54.0 $10.94
---------- ----- ----------- -----
Total..................... 24,518,168 100.0% $77,521,925 100.0%
========== ===== =========== =====
</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 $2.60 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 $2.59
and the dilution to new public investors would be $8.41 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 3,492,000 shares of common
stock at a weighted average exercise price of $0.42 per share, excluding
warrants to purchase 160,000 shares of series C preferred stock at $2.50 per
share. If all such options and warrants had been exercised on December 31,
1999, and the underwriters' over-allotment option is exercised in full, our net
tangible book value on that date would have been $66.7 million or $2.33 per
share, the increase in net tangible book value attributable to new investors
would have been $1.26 per share, and the dilution in net tangible book value to
new investors would have been $8.67 per share.
15
<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 related 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>
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 4,519 9,434
Depreciation.................. 149 131 187 252 562
Amortization of deferred
stock-based compensation..... -- -- -- 50 1,590
Non-recurring expenses on
closing of foreign
operations................... -- -- -- 250 --
------ ------ ------- ------- --------
Total operating expenses..... 2,357 5,024 7,991 9,708 24,426
------ ------ ------- ------- --------
Income (loss) from operations.. 59 8 (2,795) (1,692) (10,906)
Other income (expense), net.... (16) (51) (79) 36 (5)
------ ------ ------- ------- --------
Income (loss) before income
taxes......................... 43 (43) (2,874) (1,656) (10,911)
Income tax benefit (expense)... (16) 14 (90) (2) (15)
------ ------ ------- ------- --------
Net income (loss).............. 27 (29) (2,964) (1,658) (10,926)
Accretion of mandatorily
redeemable convertible
preferred stock to redemption
value......................... -- -- -- -- (4,862)
------ ------ ------- ------- --------
Net income (loss) attributable
to common stockholders........ $ 27 $ (29) $(2,964) $(1,658) $(15,788)
====== ====== ======= ======= ========
Net income (loss) per share:
Basic and diluted............. $ 0.01 $(0.01) $ (0.65) $ (0.36) $ (3.36)
====== ====== ======= ======= ========
Weighted average shares....... 4,529 4,541 4,557 4,659 4,698
Pro forma net loss per share
(unaudited):
Basic and diluted............. -- -- -- -- $ (0.76)
========
Weighted average shares....... -- -- -- -- 14,447
========
</TABLE>
16
<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 (1,842)
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 18,132
Total stockholders' equity
(deficit)...................... 627 600 (2,496) (4,125) (18,138)
</TABLE>
17
<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
related notes to those consolidated 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 derived from fixed-price, fixed-time projects to decrease through
our wider use of a time and materials approach as our revenues grow and our
client base diversifies. Due to the highly complex and innovative nature of the
Internet based applications we are developing for our clients, we expect our
clients to more frequently select the time and materials approach for the
initial phases of their projects. We prefer this approach for the initial
phases of our engagements, which include defining functionality, determining
the scope of the project and developing a project plan, because the time and
materials approach affords greater flexibility.
Due to our use of fixed-price, fixed-time 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 invoice for an advance payment from our
clients upon contract signing, with additional billings upon our attainment of
project milestones. This practice of invoicing in advance of revenue
recognition in combination with significant new projects in the fourth quarter
of 1999 have resulted in an increase in the current year's receivables, as a
percentage of revenues, as compared to prior years. 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.
18
<PAGE>
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
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. This acquisition will expand the breadth of our service offerings
and contribute to our future revenue growth. XTEND-Tech has a cost structure
that is similar to ours. We issued 1,350,000 shares of our common stock in
connection with this acquisition with an estimated fair value of approximately
$14.9 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 stockholders 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 $8.8 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
employee-stockholders of XTEND-Tech as consideration for continued employment.
The fair value of the unvested shares, which relate to these restricted stock
agreements, amounting to $6.1 million, has been recorded as deferred stock-
based compensation, which will be amortized over the three-year vesting period
of the restricted stock.
19
<PAGE>
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>
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>
1999 Compared to 1998
Revenues. Our revenues increased 69% to $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 primarily to an increase in the volume of
services delivered to new clients. We will continue to focus our efforts on new
client capture and expect this trend to continue. In 1999, our five largest
clients accounted for approximately 75% of our revenues. In 1998, our five
largest clients accounted for approximately 85% of our revenues. Compared to
the fourth quarter of 1998, the decline in revenues in the first quarter of
1999 can be attributed to a delay by a major client in its transition from its
legacy business systems. The decline in the second quarter of 1999 can be
attributed to the loss of a major client.
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 to accommodate
current and anticipated increases in demand for our services. This increase in
project personnel resulted in a decline in utilization levels to approximately
60% in 1999, from an average of approximately 76% in 1998. 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.
20
<PAGE>
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, 1998. 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 upon a cumulative
stock ownership change of more than 50% over a three-year period. Any unused
annual limitation may be carried forward to future years for the balance of the
net operating loss carryforward period.
1998 Compared to 1997
Revenues. Our revenues increased 53% to $8.0 million for the year ended
December 31, 1998, compared to $5.2 million for the year ended December 31,
1997. We attribute approximately 35% of our revenue growth to an increase in
the volume of services delivered to new clients and approximately 65% to
additional projects for existing clients. In 1998, our five largest clients
accounted for approximately 85% of our revenues. In 1997, our five largest
clients accounted for approximately 55% of our revenues.
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 during the second
half of 1998. As a percentage of revenues, project personnel expenses declined
to 35% for the year ended December 31, 1998, compared to 51% for the year ended
December 31, 1997. The decrease in project personnel expenses in 1998 as a
percentage of revenues was the result of our delay of hiring additional
personnel until the second half of 1998, which resulted in a higher utilization
rate and a slower growth of expenses relative to the growth in revenues.
21
<PAGE>
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. Also, reflected in the
results for the quarter ended December 31, 1998, was a reduction in costs
associated with a decrease in hiring activity, an adjustment to the incentive
compensation accrual, based on a revision of management's estimate of the
required level, and savings associated with a reduction in professional
services expenses.
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. This amount consisted of
$157,000 for the write-down from the liquidation of the assets, $47,000 for
remaining trade obligations and $46,000 for legal and other professional
services to be provided during the liquidation process. Operations ceased
during 1998, and all employee severance related costs were incurred prior to
December 31, 1998. During 1999, the liquidation of the assets and settlement of
the obligations was completed. As of December 31, 1999, $41,000 remains accrued
to cover a pending claim from a former customer of the Malaysian subsidiary. We
anticipate that this claim will be settled during 2000.
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.
22
<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 unaudited quarterly
financial statements, which in our opinion, have been prepared on a basis
consistent with our audited 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 the 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
---------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 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 1,266 907 1,380 2,001 2,346 3,707
Depreciation........... 52 59 63 78 84 118 164 196
Amortization of
deferred stock-based
compensation.......... -- -- -- 50 179 225 432 754
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 9,677
------ ------ ------ ------ ------- ------- ------- -------
Loss from operations.... (541) (461) (306) (384) (1,791) (2,704) (2,330) (4,081)
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) (4,100)
Income tax expense...... -- -- -- (2) (5) (5) (5) --
------ ------ ------ ------ ------- ------- ------- -------
Net loss................ $ (556) $ (457) $ (285) $ (360) $(1,779) $(2,716) $(2,331) $(4,100)
====== ====== ====== ====== ======= ======= ======= =======
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>
23
<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 resulting from increased sales
revenue in the fourth quarter, partially offset by increases in accounts
payable and accrued expenses resulting from increased operating expenses
associated with the sales revenue growth. The losses during 1999 resulted in
negative working capital of $1.9 million for the period ending December 31,
1999, versus positive working capital of $429,000 and $3.8 million,
respectively, for the periods ending December 31, 1997, and December 31, 1998.
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 a term loan and under equipment leases, which funded our purchases of
furniture and equipment. Our equipment leasing arrangements consist primarily
of us paying rental fees to third-party leasing providers at interest rates
between 11.00% and 13.00%. Borrowings under the term loan bear interest at the
prime rate plus 2.00% (10.75% currently), with accrued interest paid monthly,
and are due at November 30, 2000. As of December 31, 1999, we borrowed $4.0
million, the entire amount available under the term loan. We have $2.0 million
available under a revolving line of credit. Borrowing under the line of credit
is limited to the lesser of 80% of the amount of eligible accounts receivable
or $2.0 million and bears interest at the prime rate plus 2.00% (10.75%
currently). We have never borrowed under the line of credit. 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. The difference between the deemed fair value of the Series D
preferred stock of $11.00, the mid-point of the range of share prices
anticipated for this offering, and the price per share of $7.41 was considered
to be a beneficial conversion feature analogous to a dividend to the preferred
stockholders. The value of the beneficial conversion feature of $10.8 million
will be recognized in fiscal 2000 as a non-cash charge to net loss attributable
to common stockholders. In February 2000, we 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. These letters of credit expire in February
2001, and are secured by certificates of deposit in the same amounts.
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
24
<PAGE>
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 twelve 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 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.
25
<PAGE>
BUSINESS
Overview
We are a leading Internet professional services firm providing strategy,
technology, implementation and support services solutions to large corporations
and emerging Internet businesses that engage in e-commerce with other
businesses. We focus on helping our clients conceive and implement e-markets
and electronic customer relationship management systems. E-markets are
electronic marketplaces that enable businesses to collaborate with trading
partners, conduct e-commerce, manage distribution relationships and enhance
business partnerships. Electronic customer relationship management 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 well-suited to developing the extremely
complex, highly integrated systems required for effective business-to-business
e-commerce solutions. Our professionals create scalable, reliable and
integrated business systems using our proprietary LightSpeed delivery model and
i2K architectural framework. We provide our services through our staff of 168
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 e-commerce
transactions. Forrester Research, Inc. estimates that the total value of goods
exchanged in the United States business-to-consumer 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 business-to-consumer 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 business
opportunities by developing various Internet-based business models. Forrester
Research, Inc. estimates that the total value of goods exchanged in the United
States business-to-business e-commerce market will increase from $43.1 billion
in 1998 to $2.7 trillion in 2004, representing a 99% six-year compound annual
growth rate.
An important emerging Internet-based business model is the electronic
market. Electronic markets provide Internet-based trading hubs where multiple
buyers and sellers communicate and conduct electronic commerce. The creation of
these e-markets enables innovative methods for trading between business
partners, including auctions, reverse auctions, aggregation, inventory
liquidation and on-line negotiation. These electronic markets 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 e-markets include
autoExchange.com, ePolicy.com, Pure Markets, tradepac.com and VerticalNet.
Businesses are rapidly developing e-markets and other business-to-business
e-commerce systems in order to fully realize the market opportunity. Business-
to-business 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
26
<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 business-to-business systems are highly complex and often involve a
greater number of steps per transaction and more processes than business-to-
consumer systems, creating a longer, more intricate commerce chain and
resulting in a more complex delivery infrastructure. Some of the typical
differences between business-to-consumer and business-to-business e-commerce
are highlighted below:
<TABLE>
<CAPTION>
Characteristic Business-to-Consumer Business-to-Business
-------------- ---------------------------- -------------------------------------
<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 and inspections
- -------------------------------------------------------------------------------------
Infrastructure .Supplier-side systems only .Real-time, customized front-end
.Tight back-office integration
.Security and bandwidth for heavy
volumes
- -------------------------------------------------------------------------------------
Outcome
Objective .Building brand .Enabling commerce between businesses
</TABLE>
Developing and supporting business-to-business 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 business-
to-business e-commerce solutions to hire, develop and retain these
professionals. As a result, an increasing number of businesses, from start-ups
to Fortune 1000 companies, engage third-party Internet professional services
firms to help them design and implement business-to-business e-commerce
systems.
The demand for these and related Internet and e-commerce services is
projected to grow dramatically. International Data Corporation 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.
27
<PAGE>
We believe there are only a few Internet professional services firms with an
exclusive focus on business-to-business e-commerce engagements. Additionally,
we believe that in order to be successful in this market, Internet professional
services firms must possess an integrated model of business-to-business-
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. We provide business-
to-business e-commerce systems solutions to large corporations and emerging
Internet businesses and focus on building and supporting complex e-markets and
electronic customer relationship management solutions.
The key elements of our solution are:
Early and Exclusive Business-to-Business e-Commerce Focus. We have delivered
business-to-business software applications for our clients since 1995. We
provide our services through teams of talented professionals with extensive
experience in business process analysis, project management and software
engineering. We believe our early vision and business-to-business experience
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 interact with 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 have developed while
working on prior engagements.
Proprietary i2K Architectural Model. i2K is a collection of principles,
methods and frameworks we have created to guide development of complex
e-commerce systems. Using i2K we help our clients to develop e-markets and
electronic customer relationship management systems that leverage and integrate
information between their Internet-based and legacy systems and those of their
trading partners. We believe the successful design and implementation of
projects using our i2K model result in secure, reliable systems and a highly
extendable architectural platform.
Packaging of Services. Based on our extensive experience in business-to-
business e-markets and electronic customer relationship management solutions,
we have developed modular solutions tailored for discrete business processes.
Our packaged service offerings are comprised of three major elements: pre-
defined business functions, proven business practices and pre-defined
technology architecture. We believe packaging our services in this manner
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 business-to-
business e-commerce solutions to our clients. Our core competencies range from
business process analysis and technology architecture to Internet application
development and post-launch managed web services.
We believe our breadth of capabilities enables us to engineer and deliver
complete electronic markets and electronic customer relationship management
solutions for a fixed price and within fixed timeframes.
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
28
<PAGE>
the dissemination of this intellectual capital across our organization. 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; and detailed information on the resources
required to achieve specific tasks on a project. We believe this expanding base
of readily accessible knowledge enables us to meet our clients' ever-increasing
expectations for our performance, improves our ability to forecast the
estimated time and resources required to complete our client engagements and
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 Internet professional services in the context of business-to-
business e-commerce. The key elements of our growth strategy are to:
Maintain Our Exclusive Business-to-Business e-Commerce Focus. We intend to
maintain our exclusive focus on business-to-business e-commerce. We believe
this segment of the market is the most strategic to our clients, is the fastest
growing segment of the e-commerce market and is best aligned with our core
competencies. Currently, we target two major business-to-business e-commerce
practice areas:
. e-markets, where we engineer and support business-to-business electronic
markets that facilitate the timely exchange of information and goods
between trading partners
. electronic customer relationship management, where we deliver solutions
for a broad range of business-to-business 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 business-to-business e-commerce processes
and relationships in which our clients and prospective clients are likely to
engage, including electronic partner relationship management and electronic
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 some of the most challenging business-to-business e-
commerce problems with leading-edge Internet technologies. We believe working
on 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
business-to-business 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
. enhancing our knowledge management infrastructure to improve the breadth,
depth and quality of access to technology-related information by our
professionals
Continue to Package Our Services. We intend to continue to package our
services. We believe packaging our services:
. permits faster and more predictable project implementations resulting in
higher operating margins
29
<PAGE>
. 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 packaged service offerings beyond our current eSales
and eCare products 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 packaging of
our services.
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 systems and business processes . 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 business-to-business 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
Our Services
We have developed a broad range of capabilities in designing and
implementing business-to-business e-commerce systems and applications 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
30
<PAGE>
. 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
business-to-business e-commerce practice areas, e-markets and electronic
customer relationship management, as described below:
Electronic Markets. We engineer and support business-to-business
marketplaces that are highly scalable and extendable to accommodate the rapid
growth that well-designed and well-marketed business-to-business systems are
likely to experience.
Electronic Customer Relationship Management. We design and engineer
Internet-based systems and applications for a broad range of business-to-
business 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 design them using standard Internet
technologies and commercially available 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. Using
LightSpeed, we usually complete entire projects for our clients in five to six
months.
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<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 business-to-business solution. We then arrive at a
shared vision of our clients' business-to-business
initiative and explore potential software applications,
identify architectural issues and highlight potential
obstacles to success. Finally, we deliver an agreed-upon
business-to-business 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 principles,
methods and frameworks for business-to-business e-commerce solutions. It
provides a schematic for developing electronic markets and electronic customer
relationship management systems that are scalable, adaptable, integrated with
our clients' Internet-based and 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 with those of their trading partners. Accessing and combining this
information in meaningful ways is essential to leveraging the potential of the
Internet.
Packaged Service Offerings. We have combined our LightSpeed delivery model,
our i2K architectural model, commercially available software and the collective
knowledge of our professionals into packaged service offerings for specific
business processes. We currently have targeted two critical business processes
with these Internet offerings, sales through our eSales offering and customer
care through our eCare offering. With eSales and eCare, we can quickly assess
and analyze our clients' businesses 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 business-to-business
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
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<PAGE>
. sales or customer service case management
. custom database-driven views of customers, products, suppliers and orders
. e-mail messaging
. 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 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
Pure Markets
Cadence Design Systems
Shaman Botanicals.com
Citigroup
Siemens
Crane Co.
SMART Modular Technologies
ePolicy.com
Sun Microsystems
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
since the beginning of 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.
Vastera Inc.
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<PAGE>
Case Studies
<TABLE>
<C> <S>
The Problem
ADP ADP recognized an opportunity to enhance and extend its service offerings
to small business customers after seeing an increasing number of small
businesses obtaining Internet access. In addition, their market was
changing as new competitors arrived with other offerings. In order for
ADP to compete, sustain its leadership position and protect its brand, it
needed to deliver a digital offering for its customers. ADP believed the
new offering should provide its customers a payroll choice model, improve
the level and quality of customer service, and increase customer
convenience and control. ADP required that the system provide unlimited
access to its customers for entering payroll data and reduce the number
of errors entered into payroll databases. Bringing the service to market
quickly was critical, as was seamless integration with legacy payroll
systems, application of complex payroll and taxation issues and security.
- -------------------------------------------------------------------------------
Our Solution: Electronic Customer Relationship Management System
Our solution, EasyPayNet, is an easy to use, fully functional Web-based
payroll system that accesses ADP's wide range of services, including
federal, state and local tax filing, direct deposit and 401(k) services.
Moreover, access is available 24 hours a day, seven days a week through a
secure global network. In the Innovate stage, our business analysts
identified and prioritized the functional requirements for providing
payroll services over the Internet to ADP customers. We provided ADP with
insights and options on how to leverage Internet technologies to provide
functionality to their customers that it could not with its existing
systems. We prioritized the resulting functionality for progressive
releases of the solution and described the expected customer experience
in each one of these releases. In the Blueprint stage, our architects
defined the requirements for the first release, identified and selected
the architectural and technology components and developed an application
prototype. We selected Oracle's Relational DBMS as the database on NT
servers, integrated with legacy data from an IBM AS/-400 using Oracle
replication services. We created custom application services adapters for
replication from the AS/-400 platform. We then selected Active Software's
ActiveWeb technology on a Microsoft IIS WebServer for application
services. We created a user experience base using a combination of custom
HTML and Java Servelets. In the Create and Launch stage, we completed the
technical design of the application and data models and identified legacy
system integration requirements. We developed, tested and deployed the
first release of the application and then delivered a production support
environment that includes application support and maintenance services.
Since the first release, we have implemented incremental enhancements,
installing changes based on customer feedback. In addition, we have
improved the level and quality of the infrastructure, optimized
application performance and created a framework for enabling the
integration of ADP's trading partners. The project was delivered in time
to meet ADP's expectations for sustaining its competitive position and
expanding its offerings via a digital channel.
- -------------------------------------------------------------------------------
The Benefits
The increased flexibility that EasyPayNet provides meets the unique needs
of ADP's small business customers and increases ADP's competitiveness by
streamlining operations on the Internet. In addition to satisfying its
current customers, ADP is selling the service to a new market of
customers it could not previously serve. As a by-product of the solution,
ADP re-evaluated all its existing business processes and expects to
derive infrastructure efficiencies.
</TABLE>
34
<PAGE>
<TABLE>
<C> <S>
The Problem
Cadence Design Cadence Design Systems is the leading vendor of engineering
Systems design software. Its Customer Support organization realized
it lacked value-added support services for its clients, a
result of its inability to access an enterprise-wide profile
of important customer information. Cadence needed an
effective, seamless and transparent integration of key
supply chain databases. Cadence wanted a single system to
provide all the services it required. Cadence wanted to
leverage its nonintegrated legacy information sources,
rather than engineer a completely new solution.
- -------------------------------------------------------------------------------
Our Solution: Electronic Customer Relationship Management
System
Our Innovate stage with Cadence enabled evaluation of the
strengths and weaknesses of its existing service model and
resulted in an initial architecture that met expectations
for integration of the heterogeneous legacy systems. In our
Blueprint Stage, our architects developed requirements for a
global customer entitlement system and the framework for
data mining, extracting and integrating from the legacy
customer service systems. Cadence was presented a discovery
document with implementation and architectural roadmaps and
a functionality prioritization matrix. In our Create and
Launch Stage, our engineers developed the global customer
entitlement system using NetDynamics Application Server as
the core, Oracle as the back-end database server, Sun
Solaris as the implementation platform, and completely
customized the integration solution in HTML and Java. The
application also used Oracle's Data Replication services.
Our engineers developed several adapters to integrate
Cadence's legacy systems, with order processing
applications, the Scopus Call Tracking System and their
online technical support system. The entire project was
completed in 16 weeks.
- -------------------------------------------------------------------------------
The Benefits
The system now presents a global and accurate view of
customer service entitlements by customer and product.
Customer Service representatives are making better decisions
and customers are experiencing less frustration. Cadence
expects to earn additional revenue, to reduce its case load
</TABLE> and to experience cost savings of approximately $720,000
annually.
35
<PAGE>
<TABLE>
<C> <S>
The Problem
ePolicy.com Cal-Surance, Inc., a leading insurance broker based in Southern
California, wanted to find a more effective and efficient way to
sell and service commercial insurance for small businesses and
professionals.
- -------------------------------------------------------------------------------
Our Solution: Electronic Market
In our Innovate Stage, our analysts developed an Internet
strategy, competitive analysis and solution portfolio for Cal-
Surance. Our business analysts identified that the opportunity
space for real-time online quoting and purchasing of insurance
was tightly connected to the concept of progressive disclosure of
information and the simplification of the quoting process. In our
Blueprint Stage, our architects prioritized the application
portfolio into three distinct development phases: customer,
partner and internal interaction. Our engineers also designed the
application framework: Microsoft Commerce Server on NT for the
core, Oracle for the back-end database server, Sun Solaris for
the application platform, TideStone's NT spreadsheet/matrix
quoting engine, Active Server Pages for the presentation layer,
Microsoft COM for back-end integration, CyberSource for debit and
credit card payments and custom engineered adapters for legacy
claims systems. Our architects proceeded to complete the customer
facing system blueprint phase in three weeks, producing a
functional requirements document, concept prototype, detailed
project plan and a fixed-price, fixed-time guaranteed proposal.
In our Create and Launch Stage, our engineers were required to
perform significant customization on the components in order to
meet the specifications and requirements defined in the
blueprint. Two releases covered the seven life cycle customer
states: prospecting, buying, insured, renewing, maintaining,
canceling and formerly insured. The site's functionality was
defined in three weeks. In three months, the first release was
uploaded for testing and review, and the second release followed
six weeks later.
- -------------------------------------------------------------------------------
The Benefits
Our solution enables the offering of a broader set of products
through a new digital channel. The electronic market was
eventually spun off into a new company, ePolicy.com, a business-
to-business Internet company that is creating a new way for
</TABLE> professionals and small business to purchase insurance.
36
<PAGE>
<TABLE>
<C> <S>
The Problem
Pure Markets The equipment leasing industry has multiple layers of
intermediaries and complex product offerings, creating an
inefficient market. This inefficiency results in lost
opportunities and higher costs. Pure Markets wanted to
create an electronic market to enable lessees and lessors to
conduct leasing transactions more efficiently and
effectively.
- -------------------------------------------------------------------------------
Our Solution: Electronic Market
Their electronic market, Pure Markets.com, empowers lessees
to easily and quickly structure their lease finance request,
to solicit bids from a greater number of lessors and to
identify and select the optimal bid (on features and cost)
through PureMarket's intelligent bid comparator. Lessors
benefit by expanding the breadth of their market, being able
to target transactions attractive to them, reducing
origination costs, and increasing the share of leasing as a
finance option. In the Innovate stage, we defined the
technical capability needed to transform Pure Markets'
vision into a business reality. We helped Pure Markets
define its requirements and presented it with an
implementable technology architecture. In the Blueprint
Stage, we conducted extensive interviews with Pure Markets'
employees to define and document the variety of leasing
structures our solution would have to accommodate, and to
develop processes, user interface, application functionality
and data management services that comprised the leasing
electronic market. This stage required substantial
interaction between our project team and Pure Markets'
representatives due to the complexity of the user
interfaces. At the conclusion of the Blueprint Stage, we
delivered a comprehensive functional specification, a
functionality prioritization matrix and a schedule for
release delivery. In the Create and Launch stage, we used
Oracle as the database system on a Sun Solaris platform,
ColdFusion as the application server on an NT platform and
completed the presentation layer in a combination of HTML,
Java and ColdFusion applets. Our rapid and thorough
Blueprint Stage greatly facilitated Pure Markets'
development of this highly complex application.
- -------------------------------------------------------------------------------
The Benefits
Pure Markets benefited by being able to achieve a rapid
time-to-market for an electronic market, a new channel that
brings together lessees and lessors on the Internet. Lessees
now have the opportunity to easily request bids from a
larger population of lessors and to compare bids using a
normalizing analytical tool, thereby enabling faster,
</TABLE> simpler and more effective decisions. Lessors have access to
a much larger market, with greater targeting precision and
lower origination costs.
Employees
As of February 29, 2000, we had 245 employees. Of these employees, 168 were
consulting and services delivery professionals, and 77 were personnel
performing marketing, sales, human resources, finance, accounting, legal,
internal information systems and administrative functions, including 11
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.
Competition
The market for Internet professional services is intensely competitive. 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
37
<PAGE>
resource scheduling and ability to recruit and retain professionals. While we
primarily use the fixed-price, fixed-time pricing model, most of our
competitors use both fixed-price and time and materials pricing models for
their projects. We are not aware of a trend toward either pricing model.
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 competitors.
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, Selectica, Silknet Software,
webMethods 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 business-to-business 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.
Our most significant recent marketing initiative occurred in January 2000,
when we committed $300,000 to become the leading sponsor of the Inventa
Everest Environmental Expedition. This expedition involves the most
comprehensive clean-up of debris from the high camps of Mount Everest planned
to date.
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
38
<PAGE>
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.
Development of Our Business
We were incorporated in California in 1988 as Inventa Corporation. From 1988
to 1994, we were a client-server technology-based, system services firm. We
formed our Malaysian subsidiary in 1994 to serve the Asian markets. During
1995, we began to focus on Internet applications for business and in 1996 began
to focus exclusively on Internet business applications. We established our New
York area office in 1997. We decided to close our Malaysian subsidiary in 1998,
as a result of the Asian economic crisis, which prevented us from successfully
developing our business in that region. During 1999, we established offices in
the Chicago and Washington, D.C. areas. We reincorporated in Delaware in March
2000.
Facilities
Our principal executive offices are located in approximately 45,000 square
feet of leased office space in Redwood Shores, California. The lease for this
office space is for a term of seven years and expires in May 2007. 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.
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<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
Jon Q. Reynolds, Jr................. 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
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<PAGE>
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 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
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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.
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 Design Systems 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 and in 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.
Jon Q. Reynolds, Jr. 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.
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Board Committees
Our board of directors has a compensation committee and an audit committee.
The Compensation Committee is comprised of Jon Q. Reynolds, Jr., 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.
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 and 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, Jon Q.
Reynolds, Jr. replaced Ashok Santhanam on this committee. During the year ended
December 31, 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 who are employees for serving on our board
of directors. Directors who are not employees are paid $10,000 per year for
service on our board and $1,500 for each committee meeting they attend, and
they are reimbursed for all reasonable expenses incurred by them in attending
board and committee meetings. Non-employee directors are granted options to
acquire 30,000 shares of our common stock upon their initial appointment to our
board. Upon reelection, they receive additional grants of options to acquire
15,000 shares if elected for a three-year term, 10,000 shares if elected for a
two-year term and 5,000 shares if elected for a one-year term. Directors who
are employees are eligible to receive options under our 1993 Stock Option Plan
and 2000 Stock Plan.
Executive Compensation
The following table summarizes the compensation paid to or earned by our
Chief Executive Officer and our four other most highly compensated executive
officers for the year ended December 31, 1999.
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>
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The following table sets forth information with respect to stock options
granted during the year ended December 31, 1999, to our Chief Executive Officer
and our four other most highly compensated executive officers in 1999:
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 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
an additional 290,000 shares of common stock to be purchased at a purchase
price of $6.50 per share effective on the date of this offering.
(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.
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The following table sets forth information regarding exercised stock options
during the year ended December 31, 1999, and unexercised options held as of
December 31, 1999, by our Chief Executive Officer and our four other most
highly compensated executive officers in 1999:
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 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 Mr. Santhanam, our founder and Chairman of the Board of Directors. The
term of the agreement shall continue unless we or Mr. Santhanam elects 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 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 or 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 elects 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 or our clients with respect to a competitive business activity for
one year following his termination for any reason. The agreement provides 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
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signing of the agreement. Finally, the agreement provides for the purchase by
Mr. Lavanty of up to 290,000 shares of common stock at a purchase price of
$6.50 per share upon completion of this offering.
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 (1) continue to pay Mr. Shahbazian his base compensation
and benefits for six months and (2) permit Mr. Shahbazian's unvested options to
continue to vest for six months. The agreement provides 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 (1) continue to pay
Mr. Moretto his base compensation for 12 months and (2) permit Mr. Morretto's
unvested options to continue to vest for 12 months. The agreement provides 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 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 (1) continue
to pay Mr. Younis his base compensation for six months and (2) 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 provides 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 or within six months following a change of
control, we will (1) continue to pay Mr. Kudis his base compensation for six
months and (2) permit Mr. Kudis' unvested options to continue to vest for six
months. The agreement provides 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 (1) a
change of control and termination without cause or (2) a change of control and
a relocation of the employee beyond a 30-mile radius from their office
locations.
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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 February 29, 2000,
options issued under the 1993 Plan to purchase a total of 3,993,653 shares of
common stock at a weighted average exercise price of $1.81 were outstanding, of
which options to purchase 203,603 shares at a weighted average exercise price
of $0.15 were fully vested. As of February 29, 2000, we had 713,184 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
. payment for the exercise of an option may be in cash or 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 any board
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.
Our 1993 Plan provides that in the event of our merger with or into another
corporation or a sale of substantially all of our assets, each option or right
shall be assumed or an equivalent option or right substituted by the successor
corporation. If the outstanding options or rights are not assumed or
substituted, the option or stock purchase right will immediately fully vest and
become exercisable. 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.
2000 Stock Plan. Our 2000 Stock Plan was approved by our board of directors
in February 2000. As of March 1, 2000, we had reserved a total of 7,000,000
shares of our common stock for issuance under the 2000 Stock Plan of which
7,000,000 shares were available for issuance. Beginning in the year ending
December 31, 2001, we will increase the plan annually by an amount equal to the
lesser of 1,500,000 shares or 5% of the outstanding shares on the determination
date set by our board of directors, or a lesser amount determined by our board
of directors. The 2000 Stock Plan provides for the granting to our employees of
incentive stock options within the meaning of Section 422 of the United States
tax code, and for the granting to employees, including officers and directors,
non-employee directors and consultants, of non-statutory stock options and
stock purchase rights. Unless terminated sooner, the 2000 Stock Plan will
terminate automatically in 2010.
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Our 2000 Stock Plan is administered by our board of directors. Our board of
directors determines the terms of the options or stock purchase rights granted,
including the exercise price, the number of shares subject to each option or
stock purchase right, the vesting and the form of consideration payable upon
exercise. In addition, the board of directors has the authority to amend,
suspend or terminate the 2000 Stock Plan, provided that no board action may
affect any share of common stock previously issued and sold or any option
previously granted and then outstanding under the 2000 Stock Plan. Our board of
directors has the exclusive authority to interpret and apply the provisions of
the 2000 Stock Plan.
Options and stock purchase rights granted under our 2000 Stock Plan are not
generally transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the 2000 Stock Plan must generally be exercised within
three months of the end of the optionee's status as our employee or consultant
or within twelve months after his or her termination by death or disability,
but in no event later than the expiration of the option's ten year term. In the
case of stock purchase rights, unless the board of directors determines
otherwise, the agreement evidencing the grant shall provide that we have a
repurchase option exercisable upon the voluntary or involuntary termination of
his or her employment for any reason, including death or disability. In this
event, the purchase price per share will be equal to the original price and may
be paid by cancellation of his or her outstanding indebtedness to us, if any.
Our repurchase option shall lapse at a rate determined by the board of
directors. The exercise price of any incentive stock options granted under the
2000 Stock Plan and any non-statutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
United States tax code must be at least equal to the fair value of our common
stock on the date of grant. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of any incentive stock option granted must
equal at least 110% of the fair value on the grant date, and the term of this
incentive stock option must not exceed five years. The term of all other
options granted under the 2000 Stock Plan may not exceed ten years.
Our 2000 Stock Plan provides that in the event of our merger with or into
another corporation or a sale of substantially all of our assets, each option
or right shall be assumed or an equivalent option or right substituted by the
successor corporation. If the outstanding options or rights are not assumed or
substituted, the option or stock purchase right will immediately fully vest and
become exercisable.
2000 Employee Stock Purchase Plan Our 2000 Employee Stock Purchase Plan was
adopted by our board of directors in March 2000. A total of 500,000 shares of
common stock have been reserved for issuance under our 2000 Employee Stock
Purchase Plan, plus, beginning in the year ending December 31, 2001, we will
increase the plan annually by an amount equal to the lesser of 600,000 shares,
or 2.0% of the outstanding shares on the determination date set by our board of
directors, or a lesser amount determined by our board of directors.
Our 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the United States tax code, contains consecutive six month
offering and purchase periods. The offering periods generally start on the
first trading day on or after May 1 and ends on November 1 of each year, except
for the first offering period, which commences on the first trading day on or
after the effective date of this offering and ends on the last trading day on
or before April 30, 2003.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, any employee who immediately after grant
owns 5% or more of the total combined voting power of all classes of our
capital stock, or whose rights to purchase stock under all of our employee
stock purchase plans accrues at a rate which exceeds $25,000 worth of stock for
each calendar year may not be granted an option to purchase stock under this
plan. The 2000 Employee Stock Purchase Plan permits participants to purchase
common stock through payroll deductions of up to 10% of the participant's
compensation. Compensation is defined as the participant's base straight time
gross earnings and commissions but is exclusive of payments for overtime, shift
premium
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payments, incentive compensation, incentive payments, bonuses and other
compensation. The maximum number of shares a participant may purchase during a
single purchase period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 2000 Employee Stock Purchase Plan is generally 85% of the
lower of the fair value of the common stock at the beginning of the offering
period or at the end of the purchase period. Participants may end their
participation at any time during an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with us.
Rights granted under the 2000 Employee Stock Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the plan. The 2000 Employee Stock
Purchase Plan provides that, in the event of our merger with or into another
corporation or a sale of substantially all our assets, each outstanding option
may be assumed or substituted for by the successor corporation. If the
successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened and a new
exercise date will be set. The 2000 Employee Stock Purchase Plan will terminate
automatically in 2010, unless terminated earlier. Our board of directors has
the authority to amend or terminate the purchase plan, except that no board
action may adversely affect any outstanding rights to purchase stock under the
2000 Employee Stock Purchase Plan. Our board of directors has the exclusive
authority to interpret and apply the provisions of the 2000 Employee Stock
Purchase Plan.
401(k) Plan. We have a 401(k) savings 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 United States tax 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) savings plan is intended to qualify under Section 401(k)
of the United States tax code so that contributions by our employees to our
401(k) savings plan and income earned on plan contributions are not taxable to
employees until withdrawn from the 401(k) savings 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.
49
<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
Entities affiliated with
Technology Crossover
Ventures(3)............... -- -- -- 3,152,000 425,371
Battery Ventures III,
L.P.(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, one of our directors, is a Partner of Boston Millennia
Partners Limited Partnership. Mr. Pinto disclaims beneficial ownership of
the securities held by this entity except to the extent of his pecuniary
interest therein.
(3) Includes shares purchased by TCV II, V.O.F., Technology Crossover Ventures
II, L.P., TCV II (Q), L.P., TCV II Strategic Partners, L.P., and Technology
Crossover Ventures II, C.V. Mr. Reynolds, one of our directors, is a Member
of Technology Crossover Management II, L.L.C., which is the General Partner
of each of these funds. Mr. Reynolds disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest therein.
(4) Mr. Dagres, one of our directors, 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.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 29, 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
. our Chief Executive Officer and each of our four other most highly
compensated executive officers in 1999
. 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 February 29, 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 February 29, 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 21,113,674 shares of
common stock outstanding as of February 29, 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(9)
------------------ ----------------------
Beneficial Owner Number Percent Number Percent
- ------------------------------------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Boston Millennia Partners Limited
Partnership(1)..................... 3,577,371 16.9% 3,793,109(10) 15.1%
Frank Pinto(1)...................... 3,577,371 16.9 3,793,109(10) 15.1
Entities associated with Technology
Crossover Ventures(2).............. 3,577,371 16.9 3,722,826(11) 14.8
Jon Q. Reynolds, Jr.(2)............. 3,577,371 16.9 3,722,826(11) 14.8
Battery Ventures III, L.P.(3)....... 3,925,035 18.6 3,997,762(12) 15.9
Todd Dagres(3)...................... 3,925,035 18.6 3,997,762(12) 15.9
Ashok Santhanam(4).................. 4,500,000 21.3 4,500,000 17.9
David A. Lavanty(5)................. 288,333 1.4 578,333(13) 2.3
Anthony H. Moretto(6)............... 50,000 * 50,000 *
Carol C. Halliday................... -- * -- *
Michael Makishima(7)................ 24,896 * 24,896 *
Robert Ducommun(8).................. 560,200 2.7 560,200 2.2
Michael Bealmear.................... 40,000 * 40,000 *
All executive officers and directors
as a group (ten persons)........... 16,543,206 77.1 17,267,126 68.5
</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, one of our directors, is a Partner of
Boston Millennia Partners Limited Partnership and Boston Millennia
Associates I Partnership. Although he shares voting and investment control
over shares held by these entities, Mr. Pinto disclaims beneficial
ownership of the shares held by these entities except to the extent of his
pecuniary interest therein.
51
<PAGE>
(2) Consists of 55,592 shares held by TCV II, V.O.F., 1,711,320 shares held by
Technology Crossover Ventures II, L.P., 1,315,687 shares held by TCV II
(Q), L.P., 233,488 shares held by TCV II Strategic Partners, L.P. and
261,284 shares held by Technology Crossover Ventures II, C.V. Mr.
Reynolds, one of our directors, is a Member of Technology Crossover
Management II, L.L.C., which is the General Partner of each of these
funds. Although Mr. Reynolds shares voting and investment control over
these shares held by these entities, he disclaims beneficial ownership of
such shares except to the extent of his pecuniary interest therein. The
address for each of these persons and entities is c/o Technology Crossover
Ventures, 575 High Street, Suite 400, Palo Alto, California 94301.
(3) Principal address is 20 William Street, Wellesley, Massachusetts 01282.
Mr. Dagres, one of our directors, is a General Partner of Battery
Ventures. Although Mr. Dagres shares voting and investment control over
shares held by this entity, he 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 576,677
shares issuable upon exercise of options.
(6) Excludes 190,000 shares issuable upon exercise of options.
(7) Excludes 70,104 shares issuable upon exercise of options.
(8) Principal address is 1155 Park Avenue, New York, New York 10128. Mr.
Ducommun, one of our directors, is the Trustee of the Palmer G. and
Charles E. Ducommun Charitable Annuity Trust, which holds 241,700 shares.
Mr. Ducommun, 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.
(9) Includes 3,500,000 shares to be issued in this offering, 293,255 shares to
be issued in the contemporaneous private placement and 290,000 shares to
be issued to David Lavanty upon closing of this offering.
(10) Includes 70,283 shares to be issued in the contemperaneous provide
placement and 145,455 shares expected to be issued in this offering.
(11) Includes 145,455 shares expected to be issued in this offering.
(12) Includes 72,727 shares expected to be issued in this offering.
(13) Includes 290,000 shares to be issued to David Lavanty upon closing of this
offering.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our amended and restated certificate of incorporation authorizes the
issuance of up to 70,000,000 shares of common stock, par value $0.001 per
share, and 10,000,000 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 February 29, 2000, there were outstanding 6,498,163
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. As of February 29, 2000, we had 70
holders of record of our common stock and 30 holders of record of our preferred
stock.
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 completion 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 10,000,000 million
shares of preferred stock, par value $0.001 per share, in one or more series,
with each series to have 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. Any 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 February 29, 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.
53
<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. Prior to the completion 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 have been
granted rights to require us to register their shares under the Securities Act
provided under the terms of an investors' registration rights agreement between
the holders of our securities and us. Beginning as soon as practicable after
January 1, 2000, holders of at least 50% of the covered securities may require
on up to two occasions that we register for public resale all or a lesser
amount of their securities. We need not register these shares if the requested
registration would occur after we have effected two 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 judgment 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 our securities who are parties to the agreement 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 the securities to be
included is at least $500,000
54
<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
securities required to be registered by the holders of at least 50% of
the outstanding securities
We are not 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 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 securities who are
parties to the agreement 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
The 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 investors might be willing to
pay in the future for shares of our common stock. 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 delay or prevent 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 completion 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
55
<PAGE>
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
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 First Union
National Bank.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our 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
25,196,929 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after February 29, 2000. Of these outstanding shares, the 3,500,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act. The
remaining 21,696,929 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. 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, 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 our common
stock. We, our executive officers and directors and stockholders who hold of
more than 100,000 shares of our 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 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............................ 21,504,146 Shares
More Than 180 Days After Effective Date.................. 4,346,436 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 251,969 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 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 compensatory stock or option plans or
contracts commencing 90 days after the issuer becomes subject to the reporting
requirements of the Exchange Act, in reliance upon
57
<PAGE>
Rule 144 but without compliance with the holding period requirements and other
restrictions. In addition, the 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 Exchange Act, 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 stockholders who hold more than
100,000 shares of our stock 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 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 that 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 the shares are subject to our vesting
restrictions or the contractual restrictions described above.
58
<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>
Number of
Underwriters shares
------------ ---------
<S> <C>
Lehman Brothers Inc..............................................
First Union Securities, Inc......................................
Friedman, Billings, Ramsey & Co., Inc. ..........................
Fidelity Capital Markets, a division of National Financial
Services Corporation............................................
---
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 that 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 525,000 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 $ per 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.
59
<PAGE>
We have granted to the underwriters an option to purchase up to an aggregate
of 525,000 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 stockholders who hold more than
100,000 shares of our stock 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 that 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 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 $1,560,000.
Until the distribution of the common stock is completed, rules of the
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 the common
stock.
60
<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% of the shares of
the common stock offered by this prospectus for sale to our directors, prior
investors and other persons associated with Inventa 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. Approximately one-third of these reserved shares, but in no
event more than the number of shares determined by dividing $4 million by the
initial public offering price, have been reserved for and are expected to be
issued to parties to a letter agreement dated May 11, 1998, between the Company
and those parties, each of whom purchased shares of the series C preferred
stock.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as a selling group member in this offering and will be
facilitating a portion of the electronic distribution of information through
the Internet, their intranet and other proprietary electronic technology.
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.
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.
61
<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. The
underwriters in this offering are represented 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.
62
<PAGE>
INVENTA TECHNOLOGIES, INC.
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-21
Unaudited Pro Forma Combined Balance Sheet............................... F-22
Unaudited Pro Forma Combined Statement of Operations..................... F-23
Notes to Pro Forma Combined Financial Information........................ F-24
XTEND-TECH, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-25
Balance Sheet............................................................ F-26
Statement of Operations.................................................. F-27
Statement of Cash Flows.................................................. F-28
Notes to Financial Statements............................................ F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Inventa Technologies, Inc.
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 Technologies, Inc. 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 TECHNOLOGIES, INC.
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'
DEFICIT
---------------------------------
Current liabilities:
Borrowings......................... $ 300 $ -- $ 4,000
Accounts payable................... 164 523 1,409
Accrued expenses................... 326 1,125 2,690
Deferred revenue................... -- -- 483
Capital lease obligations.......... 111 112 192
------- ------- --------
Total current liabilities......... 901 1,760 8,774
Borrowings, long-term................ -- 300 --
Capital lease obligations, long-
term................................ 192 73 454
Deferred tax liabilities, long-term.. 25 17 --
------- ------- --------
1,118 2,150 9,228
------- ------- --------
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 4,373 $ --
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 13,759 --
------- ------- -------- --------
3,200 8,270 18,132 --
Commitments and contingencies (Note
6)
Stockholders' 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; 16,375,000
(unaudited) shares issued and
outstanding, pro forma............ 5 5 5 16
Additional paid-in capital........... 368 1,357 1,861 19,983
Deferred stock-based compensation.... -- (978) (4,662) (4,662)
Accumulated comprehensive loss....... (111) (93) -- --
Accumulated deficit.................. (2,759) (4,417) (15,343) (15,343)
------- ------- -------- --------
Total stockholders' deficit....... (2,496) (4,125) (18,138) $ (6)
------- ------- -------- ========
$ 1,822 $ 6,295 $ 9,222
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INVENTA TECHNOLOGIES, INC.
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 (exclusive of deferred
stock-based compensation of $621 in
1999)..................................... 2,677 2,799 8,610
Sales and marketing (exclusive of deferred
stock-based compensation of $359 in
1999)..................................... 1,671 1,838 4,230
General and administrative (exclusive of
deferred stock-based compensation of $610
in 1999).................................. 3,456 4,519 9,434
Depreciation............................... 187 252 562
Amortization of deferred stock-based
compensation.............................. -- 50 1,590
Non-recurring expenses on closing of
foreign operations........................ -- 250 --
--------- --------- ----------
Total operating expenses................. 7,991 9,708 24,426
--------- --------- ----------
Loss from operations......................... (2,795) (1,692) (10,906)
Interest and other income.................... 4 92 101
Interest expense............................. (83) (56) (106)
--------- --------- ----------
Loss before income taxes..................... (2,874) (1,656) (10,911)
Income tax expense........................... (90) (2) (15)
--------- --------- ----------
Net loss..................................... (2,964) (1,658) (10,926)
Accretion of mandatorily redeemable
convertible preferred stock to redemption
value....................................... -- -- (4,862)
--------- --------- ----------
Net loss attributable to common
stockholders................................ $ (2,964) $ (1,658) $ (15,788)
Other comprehensive losses:
Foreign currency translation adjustment.... (112) 18 --
--------- --------- ----------
Comprehensive loss........................... $ (3,076) $ (1,640) $ (15,788)
========= ========= ==========
Net loss per share:
Basic and diluted.......................... $ (0.65) $ (0.36) $ (3.36)
========= ========= ==========
Weighted average shares.................... 4,556,893 4,658,735 4,698,483
========= ========= ==========
Pro forma net loss per share (unaudited):
Basic and diluted.......................... $ (0.76)
==========
Weighted average shares.................... 14,447,327
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INVENTA TECHNOLOGIES, INC.
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........ -- -- -- -- (4,862) -- -- -- (4,862)
Deferred stock-based
compensation, net of
cancellations.......... -- -- -- -- 5,274 (5,274) -- -- --
Amortization of stock-
based compensation..... -- -- -- -- -- 1,590 -- -- 1,590
Write off of accumulated
foreign currency
translation
adjustment............. 93 93
Net loss................ -- -- -- -- -- -- -- (10,926) (10,926)
-------- ------- ----- ---- ------- ------- ----- -------- --------
Balance at December 31, $
1999................... 1,000 $ 1 4,759 $ 5 $ 1,861 $(4,662) -- $(15,343) $(18,138)
======== ======= ===== ==== ======= ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INVENTA TECHNOLOGIES, INC.
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) $(10,926)
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 1,590
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
======= ======= ========
Write-off of accumulated foreign currency
translation adjustment against accrued liquidation
costs............................................. $ -- $ -- $ 93
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INVENTA TECHNOLOGIES, INC.
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 reincorporated in Delaware as Inventa
Technologies, Inc. on March 23, 2000 (unaudited). 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 electronic
markets and electronic customer relationship management systems. E-markets are
electronic marketplaces that enable businesses to collaborate with trading
partners, conduct e-commerce, manage distribution relationships and enhance
business partnerships. Electronic 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.
Client billings are generated upon achievement of milestones defined in the
engagement contracts. 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 milestone achievement.
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 TECHNOLOGIES, INC.
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% 35%
Company B................................................... -- -- 21%
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, short-term borrowings 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. The fair value of long-term borrowings are estimated
based on current interest rates available to the Company for debt instruments
with similar terms, degrees of risk, and remaining maturities. The carrying
values of these obligations approximate their fair values.
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. In that
event, a loss is recognized based on the amount by which the carrying value
F-8
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
exceeds the fair value of the long-lived asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the
cost of disposal. No losses from impairment have been recognized in the
financial statements.
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.
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
periods the employee performs the related services, generally the vesting
period of four years, consistent with the multiple option method described in
FASB Interpretation No. 28 ("FIN 28"). Use of this method resulted in
amortization of the deferred compensation at a rate of approximately 60%, 25%,
12%, and 3% over the respective four year 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" which require that such equity instruments are recorded at their fair
value on the measurement date, which is typically the date of grant.
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 weighted
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.
F-9
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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) $ (10,926)
Accretion of series B and C mandatorily
redeemable convertible preferred stock..... -- -- (4,862)
--------- --------- ---------
Net loss attributable to common
stockholders............................... $ (2,964) $ (1,658) $ (15,788)
========= ========= =========
Denominator:
Weighted average shares..................... 4,556,893 4,658,735 4,698,483
========= ========= =========
Net loss per share:
Basic and diluted........................... $ (0.65) $ (0.36) $ (3.36)
========= ========= =========
</TABLE>
The following table sets forth potential common stock 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>
Effect of potential common stock:
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 $4,862,000. 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.
F-10
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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>
F-11
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.................... 119 614 770
Income taxes payable................................... 27 1 7
Other.................................................. -- -- 17
---- ------ ------
$326 $1,125 $2,690
==== ====== ======
</TABLE>
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
==== ==== ====
</TABLE>
F-12
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets and liabilities consist of the following, (in
thousands):
<TABLE>
<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>
The Company has incurred losses for the years ended December 31, 1997, 1998
and 1999. Management believes that, based on the history of such losses and
projected near-term future losses, the weight of available evidence indicates
that it is more likely than not that the Company will not be able to realize
its deferred tax assets and thus a full valuation reserve has been recorded at
December 31, 1997, 1998 and 1999.
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.
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.
F-13
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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. Assets
of the Company, including cash and cash equivalents, accounts receivable and
property and equipment, are pledged as collateral for borrowings under this
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.
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>
F-14
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 28,160
C.............................. 8,220 8,056 10,070 88,616
------ ------ ------- --------
11,780 11,616 $13,770 $116,776
====== ====== ======= ========
</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 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
F-15
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 estimated future redemption
value of $11.00 as of December 31, 1999 is based on the mid-point 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.
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....................................... 1,474
------
13,254
======
</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
F-16
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $2.91
===== ===== =====
</TABLE>
<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>
F-17
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $5,274,000 for the difference between the exercise price of the stock
options and the deemed fair value of the Company's stock at the date of the
grant. Stock-based compensation amortization recognized during the year ended
December 31, 1999 totaled $1,590,000. 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............................................... $ 621
Sales and marketing............................................. 359
General and administrative...................................... 610
------
$1,590
======
</TABLE>
Fair Value Disclosures
The Company has adopted the disclosure only provision of SFAS No. 123. Had
compensation cost been determined for options issued 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) $(15,788)
======= ======= =========
Pro forma...................................... $(3,045) $(1,865) $ (15,890)
======= ======= =========
Net loss per share--basic and diluted as
reported........................................ $ (0.65) $ (0.36) $ (3.36)
======= ======= =========
Net loss per share--basic and diluted pro forma.. $ (0.67) $ (0.40) $ (3.38)
======= ======= =========
</TABLE>
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.
F-18
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. This amount consisted of $157,000 for
the write-down from the liquidation of the assets, $47,000 for remaining trade
obligations, and $46,000 for legal and other professional services to be
provided during the liquidation process. Operations ceased during 1998 and all
employee severance related costs were incurred prior to December 31, 1998.
During 1999, the liquidation of the assets and settlement of the obligations
was completed. As of December 31, 1999, $41,000 remains accrued to cover a
pending claim from a former customer of the Malaysian subsidiary. The Company
anticipates that this claim will be settled during 2000.
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 at a price of $7.41 per share for gross proceeds of
approximately $22.2 million. The difference between the deemed fair value of
the series D preferred stock of $11.00 and the price per share of $7.41 was
considered to be a beneficial conversion feature analogous to a dividend to the
preferred stockholders as prescribed under the provisions of EITF 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios. Due to the conversion rights, the
deemed fair value of the Series D preferred stock was based on the mid-point of
the range of share prices anticipated for the proposed initial public offering
of the Company's common stock. The value of the beneficial conversion feature
of $10.8 million was recognized immediately as a charge to net loss
attributable to common stockholders at the date of issuance as the preferred
stockholders have the right to immediately convert their preferred shares at
their option.
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
$14,850,000. The deemed fair value of the Company's common stock on the date
the merger agreement was
F-19
<PAGE>
INVENTA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
signed was $11.00 per share. The deemed fair value of the common stock was
based on the mid-point of the range of share prices anticipated for the
proposed initial public offering. The 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 $8,779,000. 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...................................................... 5,100,000
Covenants not to compete....................................... 1,000,000
Goodwill....................................................... 2,631,000
Liabilities...................................................... (727,000)
----------
$8,779,000
==========
</TABLE>
The amortization of the intangible assets will occur over the estimated
periods to be benefited. The estimated weighted average period to be benefitted
from the intangible assets for the workforce, covenants not to compete and the
residual goodwill, created as a result of the acquisition of XTEND-Tech, Inc.
is approximately three years.
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 $9,341,000 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 are subject to the Company's right to repurchase upon
termination of employment for $0.01 per share. Twenty three percent of these
restricted shares vest and are released from the Company's repurchase right on
the first anniversary of the effective date of the agreement. The remaining
shares vest and are released from the Company's repurchase right evenly over
the two years following the first anniversary. The fair value of the unvested
shares, amounting to $6,071,000 has been recorded as deferred stock-based
compensation which will be amortized over the three year vesting period of the
restricted stock as described above 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 and are
collateralized by certificates of deposit in the same amounts.
Reincorporation (unaudited)
On March 23, 2000, the Company reincorporated in Delaware as Inventa
Technologies, Inc.
F-20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
In January 2000, Inventa Technologies, Inc. ("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
$14,850,000 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-21
<PAGE>
INVENTA TECHNOLOGIES, INC.
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................ -- -- 6,100 (1) 6,100
Goodwill......................... -- -- 2,631 (1) 2,631
-------- ---- ------- --------
$ 9,222 $775 $ 8,731 $ 18,728
======== ==== ======= ========
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................ 2,687 159 -- 2,846
Deferred revenue................ 483 -- -- 483
Income taxes payable............ 3 20 -- 23
Capital lease obligations ...... 192 19 -- 211
-------- ---- ------- --------
Total current liabilities..... 8,774 619 -- 9,393
Capital lease obligations, long-
term............................ 454 48 -- 502
Borrowings, long-term............ -- 60 -- 60
-------- ---- ------- --------
9,228 727 -- 9,955
-------- ---- ------- --------
Mandatorily redeemable
convertible preferred stock:
Series B mandatorily redeemable
convertible preferred stock;
$0.001 par value; 2,560,000
shares authorized, issued and
outstanding ................... 4,929 -- -- 4,929
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
-------- ---- ------- --------
18,132 -- -- 18,132
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....... 1,861 -- 14,849 (2) 16,710
Deferred stock-based
compensation.................... (4,662) -- (6,071)(3) (10,733)
Accumulated comprehensive loss... -- -- -- --
Retained earnings (accumulated
deficit)........................ (15,343) 48 (48)(8) (15,343)
-------- ---- ------- --------
Total stockholders' equity
(deficit).................... (18,138) 48 8,731 (9,359)
-------- ---- ------- --------
$ 9,222 $775 $ 8,731 $ 18,728
======== ==== ======= ========
</TABLE>
See accompanying notes to Pro Forma Combined Financial Information.
F-22
<PAGE>
INVENTA TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR YEAR 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
(exclusive of deferred
stock-based compensation
of $2,056, pro forma)..... 8,610 1,167 (317)(6) 9,460
Sales and marketing
(exclusive of deferred
stock-based compensation
of $1,793, pro forma)..... 4,230 410 -- 4,640
General and administrative
(exclusive of deferred
stock based compensation
of $1,088, pro forma)..... 9,434 293 -- 9,727
Depreciation............... 562 9 -- 571
Amortization of
intangibles............... -- -- 2,910 (5) 2,910
Amortization of deferred
stock-based compensation.. 1,590 -- 3,347 (4) 4,937
--------- ------ ------- ---------
Total operating
expenses................ 24,426 1,879 5,940 32,245
--------- ------ ------- ---------
Income (loss) from
operations.................. (10,906) 72 (6,257) (17,091)
Interest and other income.... 101 -- -- 101
Interest expense............. (106) (4) -- (110)
--------- ------ ------- ---------
Income (loss) before income
taxes....................... (10,911) 68 (6,257) (17,100)
Income tax expense........... (15) (20) -- (35)
--------- ------ ------- ---------
Net income (loss)............ (10,926) 48 (6,257) (17,135)
Accretion of mandatorily
redeemable convertible
preferred stock to
redemption value............ (4,862) -- -- (4,862)
--------- ------ ------- ---------
Net income (loss)
attributable to common
stockholders................ $ (15,788) $ 48 $(6,257) $ (21,997)
========= ====== ======= =========
Net loss per share:
Basic and diluted.......... $ (3.36) $ (4.00)(7)
========= =========
Weighted average shares.... 4,698,483 798,052 5,496,535 (7)
========= ======= =========
</TABLE>
See accompanying notes to Pro Forma Combined Financial Information.
F-23
<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
estimated at approximately $5,100,000, covenants not to compete, estimated
at approximately $1,000,000 and estimated goodwill of approximately
$2,631,000, which are being amortized over their weighted average life of
three 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 $14,850,000 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 $8,779,000 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
$6,071,000 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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<PAGE>
3,500,000 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 February 29, 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 to 11
individuals and one institutional investor in connection with our acquisition
of XTEND-Tech. These issuances were deemed to be exempt from registration under
the Securities Act in reliance upon Section 4(2) of the Securities Act, as
transactions by an issuer not involving any public offering.
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 5,586,220 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 5,586,220 options
granted, 3,993,653 remain outstanding, 648,163 shares of common stock have been
purchased pursuant to exercises of stock options and options to acquire
944,404 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 purposes 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
(incorporated by reference to Exhibit 2.1 filed as an exhibit to
Amendment No. 3).
3.1** Form of Amended and Restated Certificate of Incorporation of
Registrant prior to completion of this offering (incorporated by
reference to Exhibit 3.1 filed as an exhibit to Amendment No. 3).
3.2 Form of Amended and Restated 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 (incorporated by reference to Exhibit 3.3 filed as an
exhibit to Amendment No. 1).
3.4** Amended and Restated Bylaws of Registrant to be effective upon
completion of this offering (incorporated by reference to Exhibit 3.4
filed as an exhibit to Amendment No. 3).
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 (incorporated by reference
to Exhibit 4.2 filed as an exhibit to Amendment No. 3).
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 (incorporated by reference
to Exhibit 10.1 filed as an exhibit to Amendment No. 3).
10.2** Series B Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.2 filed as an exhibit to Amendment No. 3).
10.3** Series C Preferred Stock Purchase Agreement dated May 11, 1998
(incorporated by reference to Exhibit 10.3 filed as an exhibit to
Amendment No. 3).
10.4** Series D Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.4 filed as an exhibit to Amendment No. 3).
10.5** Amended and Restated Shareholders Agreement between the Registrant and
certain of its shareholders dated January 19, 2000 (incorporated by
reference to Exhibit 10.5 filed as an exhibit to Amendment No. 1).
10.6** Stock Purchase Warrant issued by the Registrant to Greyrock Capital, a
division of Banc of America Commercial Finance Corporation
(incorporated by reference to Exhibit 10.6 filed as an exhibit to
Amendment No. 1).
10.7** 1993 Stock Option Plan (incorporated by reference to Exhibit 10.7
filed as an exhibit to Amendment No. 1).
10.8** Form of Stock Option Agreement (incorporated by reference to Exhibit
10.8 filed as an exhibit to Amendment No. 1).
10.9** 2000 Stock Plan and Related form of Stock Option Agreement
(incorporated by reference to Exhibit 10.9 filed as an exhibit to
Amendment No. 3).
10.10** Employee Stock Purchase Plan. (incorporated by reference to Exhibit
10.10 filed as an exhibit to Amendment No. 3)
10.11** 401(K) Plan (incorporated by reference to Exhibit 10.10 filed as an
exhibit to Amendment No. 1).
10.12** Amended and Restated Loan and Security Agreement between Silicon
Valley Bank and the Registrant dated August 19, 1998, and amendments
and exhibits thereto (incorporated by reference to Exhibit 10.11
filed as an exhibit to Amendment No. 1).
10.13** 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 (incorporated by reference to Exhibit 10.12 filed as an exhibit
to Amendment No. 1).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.14** Form of Employment, Confidential Information and Invention Assignment
Agreement between the Registrant and certain of its employees
(incorporated by reference to Exhibit 10.13 filed as an exhibit to
Amendment No. 1).
10.15** Employment Agreement between the Registrant and Ashok Santhanam dated
as of May 11, 1998 (incorporated by reference to Exhibit 10.14 filed
as an exhibit to Amendment No. 1).
10.16** Employment Agreement between the Registrant and David A. Lavanty,
dated as of December 31, 1998 (incorporated by reference to Exhibit
10.10 filed as an exhibit to the Form S-1).
10.17** Employment Letter Agreement between the Registrant and Michael B.
Shahbazian dated February 2, 2000 (incorporated by reference to
Exhibit 10.16 filed as an exhibit to Amendment No. 1).
10.18** Employment Letter Agreement between the Registrant and Carol C.
Halliday, dated March 12, 1999 (incorporated by reference to Exhibit
10.14 filed as an exhibit to the Form S-1).
10.19** Employment Letter Agreement between the Registrant and Anthony H.
Moretto, dated March 17, 1999 (incorporated by reference to Exhibit
10.11 filed as an exhibit to the Form S-1).
10.20** Employment Letter Agreement between the Registrant and Elizabeth J.
Campbell, dated August 5, 1998 (incorporated by reference to Exhibit
10.20 filed as an exhibit to Amendment No. 1).
10.21** Employment Letter Agreement between the Registrant and Michael
Makishima, dated July 14, 1997 (incorporated by reference to Exhibit
10.21 filed as an exhibit to Amendment No. 1).
10.22** Employment Letter Agreement between the Registrant and Tobias Younis,
dated October 29, 1999 (incorporated by reference to Exhibit 10.12
filed as an exhibit to the Form S-1).
10.23** Employment Letter Agreement between the Registrant and Robert J.
Kudis, dated March 30, 1999 (incorporated by reference to Exhibit
10.13 filed as an exhibit to the Form S-1).
10.24** Employment Letter Agreement between the Registrant and Edward F.
Leppert, dated October 27, 1997 (incorporated by reference to Exhibit
10.24 filed as an exhibit to Amendment No. 1).
10.25** Severance Agreement between the Registrant and Ashok Santhanam, dated
January 10, 1998 (incorporated by reference to Exhibit 10.16 filed as
an exhibit to the Form S-1).
10.26** Severance Agreement between the Registrant and Elizabeth J. Campbell,
dated July 14, 1999 (incorporated by reference to Exhibit 10.26 filed
as an exhibit to Amendment No. 1).
10.27** Severance Agreement between the Registrant and Michael Makishima,
dated January 13, 1998 (incorporated by reference to Exhibit 10.18
filed as an exhibit to the Form S-1).
10.28** Severance Agreement between the Registrant and Edward F. Leppert,
dated January 13, 1998 (incorporated by reference to Exhibit 10.17
filed as an exhibit to the Form S-1).
10.29** Severance Agreement between the Registrant and Srikantan Moorthy,
dated January 10, 1998 (incorporated by reference to Exhibit 10.19
filed as an exhibit to the Form S-1).
10.30** Lease Agreement, dated February 1, 2000 between National Rural
Utilities Cooperative Finance Corporation and the Registrant and the
related Letter of Credit (incorporated by reference to Exhibit 10.30
filed as an exhibit to Amendment No. 2).
10.31** Lease Agreement, dated February 2, 2000, between Shorebreeze
Associates, LLC and the Registrant and the related Letter of Credit
(incorporated by reference to Exhibit 10.31 filed as an exhibit to
Amendment No. 2).
10.32** Lease Agreement, dated September 10, 1992, between ShoreBreeze
Associates and the Registrant and Sega Corporation, and amendments
thereto (incorporated by reference to Exhibit 10.6 filed as an
exhibit to the Form S-1).
10.33** Lease Agreement, dated September 8, 1998, between Albany Street Plaza
Real Estate Management Company and the Registrant (incorporated by
reference to Exhibit 10.7 filed as an exhibit to the form S-1).
10.34** Sublease Agreement, dated March 29, 1999, between Sega of America and
the Registrant (incorporated by reference to Exhibit 10.5 filed as an
exhibit to the Form S-1).
10.35** Sublease Agreement, dated September 9, 1999, between Marcam Solutions,
Inc. and the Registrant (incorporated by reference to Exhibit 10.8
filed as an exhibit to the Form S-1).
10.36** Letter Agreement, dated May 11, 1998, regarding the Directed Share
Program between the Registrant and the parties named therein
(incorporated by reference to Exhibit 10.36 filed as an exhibit to
Amendment No. 3).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.37** Letter Agreement, dated January 14, 2000, regarding the private
placement of Common Stock between the Registrant and the parties
named therein (incorporated by reference to Exhibit 10.37 filed as an
exhibit to Amendment No. 3).
10.38** Letter Agreement, dated as of January 28, 2000, between the Registrant
and the parties named therein (incorporated by reference to Exhibit
10.38 filed as an exhibit to Amendment No. 3).
10.39** Form of Stock Restriction Agreement entered into by
shareholder/employees of XTEND-Tech (incorporated by reference to
Exhibit 10.39 filed as an exhibit to Amendment No. 3).
10.40 Series C Stock Purchase Agreement dated May 28, 1999.
21** Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 filed as an exhibit to Amendment No. 1).
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) (incorporated by reference to
Exhibit 24.1 filed as an exhibit to the Form S-1).
24.2** Power of Attorney (incorporated by reference to Exhibit 24.2 filed as
an exhibit to Amendment No. 3).
27.1** Financial Data Schedule (incorporated by reference to Exhibit 27.1
filed as an exhibit to Amendment No. 2).
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules.
Valuation and Qualifying Accounts (see page S-2)
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 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 20th day of April 2000.
INVENTA TECHNOLOGIES, INC.
/s/ David A. Lavanty
By: _________________________________
David A. Lavanty President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 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 April 20, 2000
_____________________________________ Officer, and Director
David A. Lavanty (Principal Executive Officer)
/s/ Michael B. Shahbazian Senior Vice President and Chief April 20, 2000
_____________________________________ Financial Officer (Principal
Michael B. Shahbazian Financial Officer)
* Vice President of Finance April 20, 2000
_____________________________________ (Principal Accounting Officer)
Michael Makishima
/s/ Ashok Santhanam Director April 20, 2000
_____________________________________
Ashok Santhanam
* Director April 20, 2000
_____________________________________
Michael Bealmear
* Director April 20, 2000
_____________________________________
Todd Dagres
* Director April 20, 2000
_____________________________________
Robert Ducommun
* Director April 20, 2000
_____________________________________
Frank Pinto
* Director April 20, 2000
_____________________________________
Jon Q. Reynolds, Jr.
</TABLE>
/s/ Ashok Santhanam
*By: ___________________________
Ashok Santhanam
Attorney-in-fact
II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Inventa Technologies, Inc.,
Our audits of the financial statements referred to in our report dated
February 11, 2000 appearing in this Amendment No. 3 to Registration Statement
(No. 333-95813) on Form S-1 also included an audit of the Financial Statement
Schedule listed in the index of this Form S-1. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 11, 2000
S-1
<PAGE>
INVENTA TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance
at the Charged to Deductions Balance at
Allowance for doubtful beginning of costs and the end of
accounts the period and expenses write-offs the period
- ---------------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31,
1997................... 75 258 -- 333
Year ended December 31,
1998................... 333 49 74 308
Year ended December 31,
1999................... 308 -- 134* 174
</TABLE>
- --------
* primarily relates to the liquidation of the assets of the former Malaysian
subsidiary
S-2
<PAGE>
EXHIBIT INDEX
<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
(incorporated by reference to Exhibit 2.1 filed as an exhibit to
Amendment No. 3).
3.1** Form of Amended and Restated Certificate of Incorporation of
Registrant prior to completion of this offering (incorporated by
reference to Exhibit 3.1 filed as an exhibit to Amendment No. 3).
3.2 Form of Amended and Restated 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 (incorporated by reference to Exhibit 3.3 filed as an
exhibit to Amendment No. 1).
3.4** Amended and Restated Bylaws of Registrant to be effective upon
completion of this offering (incorporated by reference to Exhibit 3.4
filed as an exhibit to Amendment No. 3).
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 (incorporated by reference
to Exhibit 4.2 filed as an exhibit to Amendment No. 3).
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 (incorporated by reference
to Exhibit 10.1 filed as an exhibit to Amendment No. 3).
10.2** Series B Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.2 filed as an exhibit to Amendment No. 3).
10.3** Series C Preferred Stock Purchase Agreement dated May 11, 1998
(incorporated by reference to Exhibit 10.3 filed as an exhibit to
Amendment No. 3).
10.4** Series D Preferred Stock Purchase Agreement (incorporated by reference
to Exhibit 10.4 filed as an exhibit to Amendment No. 3).
10.5** Amended and Restated Shareholders Agreement between the Registrant and
certain of its shareholders dated January 19, 2000 (incorporated by
reference to Exhibit 10.5 filed as an exhibit to Amendment No. 1).
10.6** Stock Purchase Warrant issued by the Registrant to Greyrock Capital, a
division of Banc of America Commercial Finance Corporation
(incorporated by reference to Exhibit 10.6 filed as an exhibit to
Amendment No. 1).
10.7** 1993 Stock Option Plan (incorporated by reference to Exhibit 10.7
filed as an exhibit to Amendment No. 1).
10.8** Form of Stock Option Agreement (incorporated by reference to Exhibit
10.8 filed as an exhibit to Amendment No. 1).
10.9** 2000 Stock Plan and Related form of Stock Option Agreement
(incorporated by reference to Exhibit 10.9 filed as an exhibit to
Amendment No. 3).
10.10** Employee Stock Purchase Plan. (incorporated by reference to Exhibit
10.10 filed as an exhibit to Amendment No. 3)
10.11** 401(K) Plan (incorporated by reference to Exhibit 10.10 filed as an
exhibit to Amendment No. 1).
10.12** Amended and Restated Loan and Security Agreement between Silicon
Valley Bank and the Registrant dated August 19, 1998, and amendments
and exhibits thereto (incorporated by reference to Exhibit 10.11
filed as an exhibit to Amendment No. 1).
10.13** 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 (incorporated by reference to Exhibit 10.12 filed as an exhibit
to Amendment No. 1).
10.14** Form of Employment, Confidential Information and Invention Assignment
Agreement between the Registrant and certain of its employees
(incorporated by reference to Exhibit 10.13 filed as an exhibit to
Amendment No. 1).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.15** Employment Agreement between the Registrant and Ashok Santhanam dated
as of May 11, 1998 (incorporated by reference to Exhibit 10.14 filed
as an exhibit to Amendment No. 1).
10.16** Employment Agreement between the Registrant and David A. Lavanty,
dated as of December 31, 1998 (incorporated by reference to Exhibit
10.10 filed as an exhibit to the Form S-1).
10.17** Employment Letter Agreement between the Registrant and Michael B.
Shahbazian dated February 2, 2000 (incorporated by reference to
Exhibit 10.16 filed as an exhibit to Amendment No. 1).
10.18** Employment Letter Agreement between the Registrant and Carol C.
Halliday, dated March 12, 1999 (incorporated by reference to Exhibit
10.14 filed as an exhibit to the Form S-1).
10.19** Employment Letter Agreement between the Registrant and Anthony H.
Moretto, dated March 17, 1999 (incorporated by reference to Exhibit
10.11 filed as an exhibit to the Form S-1).
10.20** Employment Letter Agreement between the Registrant and Elizabeth J.
Campbell, dated August 5, 1998 (incorporated by reference to Exhibit
10.20 filed as an exhibit to Amendment No. 1).
10.21** Employment Letter Agreement between the Registrant and Michael
Makishima, dated July 14, 1997 (incorporated by reference to Exhibit
10.21 filed as an exhibit to Amendment No. 1).
10.22** Employment Letter Agreement between the Registrant and Tobias Younis,
dated October 29, 1999 (incorporated by reference to Exhibit 10.12
filed as an exhibit to the Form S-1).
10.23** Employment Letter Agreement between the Registrant and Robert J.
Kudis, dated March 30, 1999 (incorporated by reference to Exhibit
10.13 filed as an exhibit to the Form S-1).
10.24** Employment Letter Agreement between the Registrant and Edward F.
Leppert, dated October 27, 1997 (incorporated by reference to Exhibit
10.24 filed as an exhibit to Amendment No. 1).
10.25** Severance Agreement between the Registrant and Ashok Santhanam, dated
January 10, 1998 (incorporated by reference to Exhibit 10.16 filed as
an exhibit to the Form S-1).
10.26** Severance Agreement between the Registrant and Elizabeth J. Campbell,
dated July 14, 1999 (incorporated by reference to Exhibit 10.26 filed
as an exhibit to Amendment No. 1).
10.27** Severance Agreement between the Registrant and Michael Makishima,
dated January 13, 1998 (incorporated by reference to Exhibit 10.18
filed as an exhibit to the Form S-1).
10.28** Severance Agreement between the Registrant and Edward F. Leppert,
dated January 13, 1998 (incorporated by reference to Exhibit 10.17
filed as an exhibit to the Form S-1).
10.29** Severance Agreement between the Registrant and Srikantan Moorthy,
dated January 10, 1998 (incorporated by reference to Exhibit 10.19
filed as an exhibit to the Form S-1).
10.30** Lease Agreement, dated February 1, 2000 between National Rural
Utilities Cooperative Finance Corporation and the Registrant and the
related Letter of Credit (incorporated by reference to Exhibit 10.30
filed as an exhibit to Amendment No. 2).
10.31** Lease Agreement, dated February 2, 2000, between Shorebreeze
Associates, LLC and the Registrant and the related Letter of Credit
(incorporated by reference to Exhibit 10.31 filed as an exhibit to
Amendment No. 2).
10.32** Lease Agreement, dated September 10, 1992, between ShoreBreeze
Associates and the Registrant and Sega Corporation, and amendments
thereto (incorporated by reference to Exhibit 10.6 filed as an
exhibit to the Form S-1).
10.33** Lease Agreement, dated September 8, 1998, between Albany Street Plaza
Real Estate Management Company and the Registrant (incorporated by
reference to Exhibit 10.7 filed as an exhibit to the form S-1).
10.34** Sublease Agreement, dated March 29, 1999, between Sega of America and
the Registrant (incorporated by reference to Exhibit 10.5 filed as an
exhibit to the Form S-1).
10.35** Sublease Agreement, dated September 9, 1999, between Marcam Solutions,
Inc. and the Registrant (incorporated by reference to Exhibit 10.8
filed as an exhibit to the Form S-1).
10.36** Letter Agreement, dated May 11, 1998, regarding the Directed Share
Program between the Registrant and the parties named therein
(incorporated by reference to Exhibit 10.36 filed as an exhibit to
Amendment No. 3).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.37** Letter Agreement, dated January 14, 2000, regarding the private
placement of Common Stock between the Registrant and the parties
named therein (incorporated by reference to Exhibit 10.37 filed as an
exhibit to Amendment No. 3).
10.38** Letter Agreement, dated as of January 28, 2000, between the Registrant
and the parties named therein (incorporated by reference to Exhibit
10.38 filed as an exhibit to Amendment No. 3).
10.39** Form of Stock Restriction Agreement entered into by
shareholder/employees of XTEND-Tech (incorporated by reference to
Exhibit 10.39 filed as an exhibit to Amendment No. 3).
10.40 Series C Stock Purchase Agreement dated May 28, 1999.
21** Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 filed as an exhibit to Amendment No. 1).
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) (incorporated by reference to
Exhibit 24.1 filed as an exhibit to the Form S-1).
24.2** Power of Attorney (incorporated by reference to Exhibit 24.2 filed as
an exhibit to Amendment No. 3).
27.1** Financial Data Schedule (incorporated by reference to Exhibit 27.1
filed as an exhibit to Amendment No. 2).
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 1.1
3,500,000 Shares
INVENTA TECHNOLOGIES, INC.
Common Stock, par value $.001 per share
UNDERWRITING AGREEMENT
----------------------
April __, 2000
Lehman Brothers Inc.
First Union Securities, Inc.
Friedman, Billings, Ramsey& Co.
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Inventa Technologies, Inc., a Delaware corporation (the "Company"),
proposes to sell 3,500,000 shares (the "Firm Stock") of the Company's common
stock, par value $.001 per share (the "Common Stock"). In addition, the Company
proposes to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional 525,000 shares of the
Common Stock on the terms and for the purposes set forth in Section (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company by the Underwriters named
in Schedule 1 hereto (the "Underwriters").
1. Representations, Warranties and Agreements of the Company. The Company
represents, warrants and agrees that:
(a) A registration statement on Form S-1 and amendments thereto, with
respect to the Stock have (i) been prepared by the Company in conformity
with the requirements of the Securities Act of 1933 (the "Securities Act")
and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, (ii) been
filed with the Commission under the Securities Act and (iii) become
effective under the Securities Act; and a second registration statement on
Form S-1 with respect to the Stock (i) may also be prepared by the Company
in conformity with the requirements of the Securities Act and the Rules and
Regulations and (ii) if to be so prepared, will be filed with the
Commission under the Securities Act pursuant to Rule 462(b) of the Rules
and Regulations on the
<PAGE>
date hereof. Copies of the first such registration statement and the
amendments to such registration statement, together with the form of any
such second registration statement, have been delivered by the Company to
you as the representatives (the "Representatives") of the Underwriters. As
used in this Agreement, "Effective Time" means (i) with respect to the
first such registration statement, the date and the time as of which such
registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission and (ii) with
respect to any second registration statement, the date and time as of which
such second registration statement is filed with the Commission, and
"Effective Times" is the collective reference to both Effective Times;
"Effective Date" means (i) with respect to the first such registration
statement, the date of the Effective Time of such registration statement
and (ii) with respect to any second registration statement, the date of the
Effective Time of such second registration statement, and "Effective Dates"
is the collective reference to both Effective Dates; "Preliminary
Prospectus" means each prospectus included in any such registration
statement, or amendments thereof, before it became effective under the
Securities Act and any prospectus filed with the Commission by the Company
with the consent of the Representatives pursuant to Rule 424(a) of the
Rules and Regulations; "Primary Registration Statement" means the first
registration statement referred to in this Section 1(a), as amended at its
Effective Time, "Rule 462(b) Registration Statement" means the second
registration statement, if any, referred to in this Section 1(a), as filed
with the Commission, and "Registration Statements" means both the Primary
Registration Statement and any Rule 462(b) Registration Statement,
including in each case all information contained in the final prospectus
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section hereof and deemed to be a part of
the Registration Statements as of the Effective Time of the Primary
Registration Statement pursuant to paragraph (b) of Rule 430A of the Rules
and Regulations; and "Prospectus" means such final prospectus, as first
filed with the Commission pursuant to paragraph (1) or (4) of Rule 424(b)
of the Rules and Regulations. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus.
(b) The Primary Registration Statement conforms (and the Rule 462(b)
Registration Statement, if any, the Prospectus and any further amendments
or supplements to the Registration Statements or the Prospectus, when they
become effective or are filed with the Commission, as the case may be, will
conform) in all respects to the requirements of the Securities Act and the
Rules and Regulations and do not and will not, as of the applicable
effective date (as to the Registration Statements and any amendment
thereto) and as of the applicable filing date (as to the Prospectus and any
amendment or supplement thereto) contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that no
representation or warranty is made as to information contained in or
omitted from the Registration Statements or the Prospectus in reliance upon
and in conformity with written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically for
inclusion therein.
<PAGE>
(c) The Company and each of its subsidiaries (as defined in Section )
have been duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good standing
as foreign corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses requires such qualification and the failure to so qualify would
have a material adverse effect on the Company or its subsidiaries or their
respective operations or assets, and have all power and authority necessary
to own or hold their respective properties and to conduct the businesses in
which they are engaged; and none of the subsidiaries of the Company (other
than XTENDtech, Inc. (the "Significant Subsidiary")) is a "significant
subsidiary", as such term is defined in Rule 405 of the Rules and
Regulations.
(d) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable and (except for directors' qualifying
shares and except as set forth in the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) The unissued shares of the Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly authorized
and, when issued and delivered against payment therefor as provided herein,
will be duly and validly issued, fully paid and non-assessable; and the
Stock will conform to the descriptions thereof contained in the Prospectus.
(f) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby and
the migratory merger of the Company to Delaware (such actions are herein
collectively called the "Reorganization") do not and will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any material indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the properties or assets of the
Company or any of its subsidiaries is subject, nor will such actions result
in any violation of the provisions of the charter or by-laws of the Company
or any of its subsidiaries or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or assets;
and except for the registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations or qualifications
as may be required under the Exchange Act, applicable state securities laws
and the rules and regulations of the National Association of Securities
Dealers, Inc. in connection with the purchase and distribution of the Stock
<PAGE>
by the Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or body
is required for the execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated hereby
and pursuant to the Reorganization.
(g) Except as described in the Prospectus and the exhibits to either
of the Registration Statements, there are no contracts, agreements or
understandings between the Company and any person granting such person the
right (other than rights which have been waived or satisfied) to require
the Company to file a registration statement under the Securities Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statements or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Securities Act.
(h) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period preceding
the date of the Prospectus, including any sales pursuant to Rule 144A
under, or Regulations D or S of, the Securities Act.
(i) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
such date, there has not been any change in the capital stock or long-term
debt of the Company or its subsidiaries or any material adverse change, or
any development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus.
(j) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statements or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at the
dates and for the periods indicated, and have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved. The pro forma financial statements
(including the related notes and supporting schedules) filed as part of the
Registration Statements or included in the Prospectus have been prepared on
a basis consistent with the historical financial statements of the Company
and its subsidiaries, and give effect to assumptions used in the
preparation thereof on a reasonable basis and in good faith and present
fairly the historical and proposed transactions contemplated by the
Prospectus; and such pro forma financial statements comply as to form in
all material respects with the requirements applicable to pro
<PAGE>
forma financial statements included in registration statements on Form S-1
under the Securities Act.
(k) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letter referred to in Section hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations.
(l) The Company and each of its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to
all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and all real property
and buildings held under lease by the Company and its subsidiaries are held
by them under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries.
(m) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in similar
businesses in similar industries.
(n) Except as described in the Prospectus, the Company and each of
its subsidiaries own or possess adequate rights to use all material
patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights and
licenses necessary for the conduct of their respective businesses and have
no reason to believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim of conflict
with, any such rights of others.
(o) There are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property
or asset of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, might have
a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of the
Company and its subsidiaries; and to the best of the Company's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(p) There are no contracts or other documents that are required to be
described in the Prospectus or filed as exhibits to either of the
Registration Statements by the Securities Act or by the Rules and
Regulations that have not been described in the Prospectus or filed as
exhibits to either of the Registration
<PAGE>
Statements or incorporated therein by reference as permitted by the Rules
and Regulations.
(q) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand that is required to
be described in the Prospectus which is not so described.
(r) No labor disturbance by the employees of the Company exists or,
to the knowledge of the Company, is imminent that might be expected to have
a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of the
Company and its subsidiaries.
(s) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(t) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon other than any taxes that the Company or any of
its subsidiaries is contesting in good faith, and no tax deficiency has
been determined adversely to the Company or any of its subsidiaries that
has had (nor does the Company have any knowledge of any tax deficiency
that, if determined adversely to the Company or any of its subsidiaries,
might have) a material adverse effect on the consolidated financial
position, stockholders' equity, results of operations, business or
prospects of the Company and its subsidiaries.
(u) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company has not (i) issued or granted any securities, (ii)
incurred any liability or obligation, direct or contingent, other than
liabilities and obligations that were incurred in the ordinary course of
business, (iii) entered into any transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital stock.
<PAGE>
(v) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls that (A) provide reasonable
assurance that transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain accountability for
its assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its
assets is compared with existing assets at reasonable intervals.
(w) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any material
respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or observance
of any term, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is in violation in any material
respect of any law, ordinance, governmental rule, regulation or court
decree to which it or its properties or assets may be subject or has failed
to obtain any material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of its
properties or assets or to the conduct of its business.
(x) Neither the Company nor any subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940
and the rules and regulations of the Commission thereunder.
2. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 3,500,000 shares of
the Firm Stock to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the Firm
Stock set opposite that Underwriter's name in Schedule 1 hereto. The respective
purchase obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Company grants to the Underwriters an option to purchase
up to 525,000 shares of Option Stock. Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Stock and is exercisable
as provided in Section hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Stock other than in 100 share amounts.
The price of both the Firm Stock and any Option Stock shall be $[_____] per
share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on the First Delivery Date or the Second Delivery Date (as hereinafter
defined), as the case may be, except upon payment for all the Stock to be
purchased on such Delivery Date as provided herein.
<PAGE>
3. Offering of Stock by the Underwriters.
Upon authorization by the Representatives of the release of the Firm Stock,
the several Underwriters propose to offer the Firm Stock for sale upon the terms
and conditions set forth in the Prospectus; provided, however, that no Stock
registered pursuant to the Rule 462(b) Registration Statement, if any, shall be
offered prior to the Effective Time thereof.
4. Delivery of and Payment for the Stock. Delivery of and payment for
the Firm Stock shall be made at the office of Simpson Thacher & Bartlett at 425
Lexington Avenue, New York, New York, at 10:00 A.M., New York City time, on the
[third][fourth] full business day following the date of this Agreement or at
such other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to
as the "First Delivery Date." On the First Delivery Date, the Company shall
deliver or cause to be delivered certificates representing the Firm Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire of immediately available
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Firm Stock shall be registered
in such names and in such denominations as the Representatives shall request in
writing not less than two full business days prior to the First Delivery Date.
For the purpose of expediting the checking and packaging of the certificates for
the Firm Stock, the Company shall make the certificates representing the Firm
Stock available for inspection by the Representatives in New York, New York, not
later than 2:00 P.M., New York City time, on the business day prior to the First
Delivery Date.
At any time on or before the thirtieth day after the date of this Agreement
the option granted in Section may be exercised by written notice being given to
the Company by the Representatives. Such notice shall set forth the aggregate
number of shares of Option Stock as to which the option is being exercised, the
names in which the shares of Option Stock are to be registered, the
denominations in which the shares of Option Stock are to be issued and the date
and time, as determined by the Representatives, when the shares of Option Stock
are to be delivered; provided, however, that this date and time shall not be
earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date").
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 4 (or at
such other place as shall be determined by agreement between the Representatives
and the Company) at 10:00 A.M., New York time, on the Second Delivery Date. On
the Second Delivery Date, the Company shall deliver or cause to be delivered the
certificates representing the Option Stock to the Representatives for the
account of each Underwriter against payment to or upon the order of the Company
of the purchase price by wire transfer of immediately available funds. Time
shall be of the essence, and delivery at the time and place specified pursuant
to this Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Stock shall be registered in such names
and in
<PAGE>
such denominations as the Representatives shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Rule 462(b) Registration Statement, if necessary,
in a form approved by the Representatives and to file such Rule 462(b)
Registration Statement with the Commission on the date hereof; to prepare
the Prospectus in a form approved by the Representatives and to file such
Prospectus pursuant to Rule 424(b) under the Securities Act not later than
10:00 A.M., New York City time, on the day following the execution and
delivery of this Agreement; to make no further amendment or any supplement
to the Registration Statements or to the Prospectus except as permitted
herein; to advise the Representatives, promptly after it receives notice
thereof, of the time when any amendment to either Registration Statement
has been filed or becomes effective or any supplement to the Prospectus or
any amended Prospectus has been filed and to furnish the Representatives
with copies thereof; to advise the Representatives, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the qualification of the
Stock for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by
the Commission for the amending or supplementing of the Registration
Statements or the Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel
for the Underwriters a signed copy of each of the Registration Statements
as originally filed with the Commission, and each amendment thereto filed
with the Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives in New York City such
number of the following documents as the Representatives shall reasonably
request: conformed copies of the Registration Statements as originally
filed with the Commission and each amendment thereto (in each case
excluding exhibits other than this Agreement and the computation of per
share earnings) and each Preliminary Prospectus, the Prospectus (not later
than 10:00 A.M., New York City time, of the day following the execution and
delivery of this Agreement) and any amended or supplemented Prospectus (not
later than 10:00 A.M., New York City time, on the day following the date of
such amendment or supplement); and, if the delivery of a prospectus is
required at any time prior to the expiration of nine months after the
Effective Time of the Primary Registration Statement in connection with the
offering
<PAGE>
or sale of the Stock (or any other securities relating thereto) and if at
such time any event shall have occurred as a result of which the Prospectus
as then amended or supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary during such same period to amend or
supplement the Prospectus in order to comply with the Securities Act, to
notify the Representatives and, upon their request, to prepare and furnish
without charge to each Underwriter and to any dealer in securities as many
copies as the Representatives may from time to time reasonably request of
an amended or supplemented Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is required
to deliver a prospectus in connection with sales of any of the Stock at any
time nine months or more after the Effective Time of the Primary
Registration Statement, upon the request of the Representatives but at the
expense of such Underwriter, to prepare and deliver to such Underwriter as
many copies as the Representatives may from time to time reasonably request
of an amended or supplemented Prospectus complying with Section 10(a)(3) of
the Securities Act;
(d) To file promptly with the Commission any amendment to the
Registration Statements or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Representatives,
be required by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission (i) any amendment to either
of the Registration Statements or supplement to the Prospectus or (ii) any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a
copy thereof to the Representatives and counsel for the Underwriters and
obtain the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date of the Primary
Registration Statement (it being understood that the Company shall have
until at least 410 days after the end of the Company's current fiscal
quarter), to make generally available to the Company's security holders and
to deliver to the Representatives an earnings statement of the Company and
its subsidiaries (which need not be audited) complying with Section 11(a)
of the Securities Act and the Rules and Regulations (including, at the
option of the Company, Rule 158);
(g) For a period of five years following the Effective Date of the
Primary Registration Statement, to furnish to the Representatives copies of
all materials furnished by the Company to its shareholders and all public
reports and all reports and financial statements furnished by the Company
to the principal national securities exchange or automatic quotation system
upon which the Common Stock may be listed or quoted pursuant to
requirements of or agreements with such exchange or system or to the
Commission pursuant to the Exchange Act or any rule or regulation of the
Commission thereunder, other than documents filed by EDGAR;
<PAGE>
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for as
long as may be necessary to complete the distribution of the Stock;
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(i) For a period of 180 days from the date of the Prospectus, not to,
directly or indirectly (whether any transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise) (i)
offer for sale, sell or otherwise dispose of (or enter into any transaction
or device which is designed to, 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 the Stock and
shares of Common Stock issued pursuant to employee benefit plans, qualified
stock option plans or other employee compensation plans existing on the
date hereof or under currently outstanding options, warrants or rights, or
(ii) sell or grant options, rights or warrants with respect to any shares
of Common Stock or securities convertible into or exchangeable for Common
Stock or substantially similar securities, other than the grant of options
under option plans existing on the date hereof, without the prior written
consent of Lehman Brothers Inc.; and to cause each officer and director of
the Company to furnish to the Representatives, prior to the First Delivery
Date, a letter or letters, in form and substance satisfactory to counsel
for the Underwriters pursuant to which each such person shall agree for a
period of 180 days from the date of the Prospectus not to, directly or
indirectly (whether any transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise) (i) offer for sale, sell
or otherwise dispose of (or enter into any transaction or device which is
designed to, 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 or (ii) sell or grant options, rights or
warrants with respect to any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or substantially similar
securities, without the prior written consent of Lehman Brothers Inc.
(j) Prior to the Effective Date of the Primary Registration
Statement, to apply for the listing of the Stock on the NASDAQ National
Market System and to use its best efforts to complete that listing, subject
only to official notice of issuance, prior to the First Delivery Date;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the Underwriters and receive and consider its
comments thereon, and to deliver
<PAGE>
promptly to the Representatives a signed copy of each report on Form SR
filed by it with the Commission;
(l) To apply the net proceeds from the sale of the Stock being sold
by the Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statements and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statements as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus, all as provided in
this Agreement; (d) the costs of reproducing and distributing this Agreement
(exclusive of legal fees and expenses of the Underwriters); (e) the costs of
distributing the terms of agreement relating to the organization of the
underwriting syndicate and selling group to the members thereof by mail, telex
or other means of communication; (f) the filing fees incident to securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of sale of the Stock; (g) any applicable listing or other fees; (h) the
fees and expenses of qualifying the Stock under the securities laws of the
several jurisdictions as provided in Section 5(h) and of preparing, printing and
distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the Underwriters not to exceed $7,500); (i) all costs and expenses of
the Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of shares of the Stock by the
Underwriters to [directors of the Company, certain holders of Common Stock and
preferred stock convertible into Common Stock and other persons associated with
the Company, as described in Section 9; and (j) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement; provided that, except as provided in this Section 6 and in Sections 8
and, the Underwriters shall pay their own costs and expenses, including the
costs and expenses of their counsel, any transfer taxes on the Stock which they
may sell and the expenses of advertising any offering of the Stock made by the
Underwriters.
7. Conditions of Underwriters' Obligations. The respective obligations of
the Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company contained
herein, to the performance by the Company of its obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Rule 462(b) Registration Statement, if any, and the
Prospectus shall have been timely filed with the Commission in accordance
with Section 5(a); no stop order suspending the effectiveness of either of
the Registration Statements or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened by
the Commission; and any request of the Commission for
<PAGE>
inclusion of additional information in either of the Registration
Statements or the Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company
on or prior to such Delivery Date that either of the Registration
Statements or the Prospectus or any amendment or supplement thereto
contains any untrue statement of a fact which, in the opinion of Simpson
Thacher & Bartlett, counsel for the Underwriters, is material or omits to
state any fact which, in the opinion of such counsel, is material and is
required to be stated therein or is necessary to made the statements
therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Stock, the
Registration Statements and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby and the
Reorganization shall be reasonably satisfactory in all material respects to
counsel for the Underwriters, and the Company shall have furnished to such
counsel all documents and information that they may reasonably request to
enable them to pass upon such matters.
(d) Wilson Sonsini Goodrich & Rosati shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed
to the Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing as foreign
corporations in each jurisdiction in which their respective ownership
or lease of property or the conduct of their respective businesses
requires such qualification (other than those jurisdictions in which
the failure to so qualify would not have a material adverse effect on
the Company or the Company and its subsidiaries taken as a whole), and
have all corporate power and authority necessary to own or hold their
respective properties and conduct the businesses in which they are
engaged;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the shares of Stock being delivered on such
Delivery Date) have been duly and validly authorized and issued, are,
to the best of such counsel's knowledge, fully paid and non-assessable
and conform to the description thereof contained in the Prospectus;
and all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued and are,
to the best of such counsel's knowledge, fully paid, non-assessable
and (except for directors' qualifying shares and except
<PAGE>
as set forth in the Prospectus) are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or
claims;
(iii) There are no preemptive or other rights to subscribe for
or to purchase, nor any restriction upon the voting or transfer of,
any shares of the Stock pursuant to the Company's charter or by-laws
or any agreement or other instrument known to such counsel;
(iv) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property or asset of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, might reasonably be expected to
have a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of
the Company and its subsidiaries; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(v) The Primary Registration Statement was declared effective
under the Securities Act, the Rule 462(b) Registration Statement, if
any, was filed with the Commission on the date specified therein, the
Prospectus was filed with the Commission pursuant to the subparagraph
of Rule 424(b) of the Rules and Regulations specified in such opinion
on the date specified therein and no stop order suspending the
effectiveness of the either of the Registration Statements has been
issued and, to the knowledge of such counsel, no proceeding for that
purpose is pending or threatened by the Commission;
(vi) The Registration Statements, as of their respective
Effective Dates, and the Prospectus, as of its date, and any further
amendments or supplements thereto, as of their respective dates, made
by the Company prior to such Delivery Date (other than the financial
statements and other financial data contained therein, as to which
such counsel need express no opinion) complied as to form in all
material respects with the requirements of the Securities Act and the
Rules and Regulations;
(vii) The statements made in the Prospectus under the caption
"Certain Relationships and Related Transactions" insofar as they
purport to constitute summaries of the terms of federal statutes,
rules and regulations thereunder constitute accurate summaries of the
terms of such statutes, rules and regulations in all material
respects;
(viii) To the best of such counsel's knowledge, there are no
contracts or other documents that are required to be described in the
Prospectus or filed as exhibits to the Registration Statements by the
Securities Act or by the
<PAGE>
Rules and Regulations that have not been described or filed as
exhibits to the Registration Statements or incorporated therein by
reference as permitted by the Rules and Regulations;
(ix) This Agreement has been duly authorized, executed and
delivered by the Company;
(x) The issue and sale of the shares of Stock being delivered on
such Delivery Date by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of
the transactions contemplated hereby and pursuant to the
Reorganization do not and will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the properties
or assets of the Company or any of its subsidiaries is subject, nor
will such actions result in any violation of the provisions of the
charter or by-laws of the Company or any of its subsidiaries or any
statute or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or
assets; and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act, applicable state securities laws (as to which such counsel
expresses no opinion) and the rules and regulations of the National
Association of Securities Dealers, Inc. (as to which such counsel
expresses no opinion except with respect to the listing requirements
thereof) in connection with the purchase and distribution of the Stock
by the Underwriters, no consent, approval, authorization or order of,
or filing or registration with, any such court or governmental agency
or body is required for the execution, delivery and performance of
this Agreement by the Company and the consummation of the transactions
contemplated hereby and pursuant to the Reorganization; and
(xi) Except as described in the Prospectus and the Registration
Statements and the exhibits thereto, to the best of such counsel's
knowledge, there are no contracts, agreements or understandings
between the Company and any person granting such person the right
(other than rights which have been waived or satisfied) to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statements or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act.
<PAGE>
In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United
States of America, the laws of the State of California and the General
Corporation Law of the State of Delaware and that such counsel is not
admitted in the State of Delaware; and (ii) rely (to the extent such
counsel deems proper and specifies in its opinion), as to matters
involving the application of the laws of other states upon the opinion
of other counsel of good standing, provided that such other counsel is
satisfactory to counsel for the Underwriters and furnishes a copy of
its opinion to the Representatives. Such counsel shall also have
furnished to the Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such
counsel has acted as counsel to the Company on a regular basis
[(although the Company is also represented by other outside counsel
with respect to [specify matters handled by other counsel])], has
acted as counsel to the Company in connection with previous financing
transactions and has acted as counsel to the Company in connection
with the preparation of the Registration Statements, and (y) based on
the foregoing, no facts have come to the attention of such counsel
which lead them to believe that the Registration Statements, as of
their respective Effective Dates, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein
not misleading, or that the Prospectus contains any untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading. The foregoing opinion and statement may be qualified by a
statement to the effect that such counsel does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statements or the Prospectus
except for the statements made in the Prospectus under the captions
"Description of Capital Stock" and "Certain Relationships and Related
Transactions], insofar as such statements relate to the Stock and
concern legal matters.
(e) With respect to the letter of PricewaterhouseCoopers LLP
delivered to the Representatives concurrently with the execution of
this Agreement (as used in this paragraph, the "initial letter"), the
Company shall have furnished to the Representatives a letter (as used
in this paragraph, the "bring-down letter") of such accountants,
addressed to the Underwriters and dated such Delivery Date (i)
confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as
of the date of the bring-down letter (or, with respect to matters
involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date of the bring-down
letter), the conclusions and findings of such firm with respect to the
financial information and other matters covered by the initial letter
and (iii) confirming in all material respects the conclusions and
findings set forth in the initial letter.
<PAGE>
(f) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date;
the Company has complied with all its agreements contained herein; and
the conditions set forth in Section 7(a) have been fulfilled;
(ii) (A) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated
in the Prospectus or (B) since such date there has not been any change
in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective
change other than changes generally affecting the economy or the
Company's industry, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus; and
(iii) They have carefully examined the Registration Statements
and the Prospectus and, in their opinion (A) the Registration
Statements, as of their respective Effective Dates, and the
Prospectus, as of each of the Effective Dates, did not include any
untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (B) since the Effective Date of
the Primary Registration Statement, no event has occurred that should
have been set forth in a supplement or amendment to either of the
Registration Statements or the Prospectus.
(g) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus or
(ii) since such date there shall not have been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any
change, or any development involving a prospective change other than
changes generally affecting the economy or the Company's industry, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause (i)
or (ii), is, in the judgment of the Representatives, so material and
adverse
<PAGE>
as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Stock being delivered on such Delivery Date
on the terms and in the manner contemplated in the Prospectus.
(h) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or (iv) there shall have been a declaration of a national
emergency or war by the United States or there shall have occurred such a
material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(i) The NASDAQ National Market System shall have approved the Stock
for inclusion, subject only to official notice of issuance and evidence of
satisfactory distribution.
(j) The directors and executive officers of the Company listed on
Schedule 2 shall have entered into a written agreement in the form of Annex
A hereto (each such agreement, a "Lock-up Agreement"), and executed
-----------------
originals each Lock-up Agreement shall have been delivered to the
Representatives.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter, its
officers and employees and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Stock), to which that Underwriter, officer,
employee or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, either of the
Registration Statements or the Prospectus, or in any amendment or supplement
thereto or (B) in any materials
<PAGE>
or information provided to investors by, or with the approval of, the Company in
connection with the marketing of the offering of the Stock, including any
roadshow or investor presentation made to investors by the Company (whether in
person or electronically ) ("Roadshow Materials"), (ii0 the omission or alleged
omission to state in any Preliminary Prospectus, either of the Registration
Statements or the Prospectus, or in any amendment or supplement thereto, or in
any Roadshow Materials any material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any act or
failure to act, or any alleged act or failure to act, by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided that the Company shall not be
liable in the case of any matter covered by this clause (iii) to the extent that
it is determined in a final judgement by a court of competent jurisdiction that
such loss, claim, damage, liability or action resulted directly from any such
act or failure to act undertaken or omitted to be taken by such Underwriter
through its gross negligence or wilful misconduct), and shall reimburse each
Underwriter and each such officer, employee and controlling person promptly upon
demand for any legal or other expenses reasonably incurred by that Underwriter,
officer, employee or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statements or the Prospectus, or in
any such amendment or supplement, or in any Roadshow Materials in reliance upon
and in conformity with the written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically for
inclusion therein and described in Section 8(e); and provided further that as to
any Preliminary Prospectus this indemnity agreement shall not inure to the
benefit of any Underwriter, its officers or employees or any person controlling
that Underwriter on account of any loss, claim, damage, liability or action
arising from the sale of Stock to any person by that Underwriter if that
Underwriter failed to send or give a copy of the Prospectus, as the same may be
amended or supplemented, to that person within the time required by the
Securities Act, and the untrue statement or alleged untrue statement of any
material fact or omission or alleged omission to state a material fact in such
Preliminary Prospectus was corrected in the Prospectus, unless such failure
resulted from non-compliance by the Company with Section 5(c). The foregoing
indemnity agreement is in addition to any liability that the Company may
otherwise have to any Underwriter or to any officer, employee or controlling
person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and hold
harmless the Company, its officers and employees, each of its directors and each
person, if any, who controls the Company within the meaning of the Securities
Act, from and against any loss, claim, damage or liability, joint or several, or
any action in respect thereof, to which the Company or any such director,
officer or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, either of the
Registration Statements or the Prospectus, or in any amendment or supplement
thereto, or (B) in any Roadshow Materials or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, either of the Registration
Statements or the Prospectus, or in any amendment or
<PAGE>
supplement thereto, or in any Roadshow Materials any material fact required to
be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with the written information furnished to the Company through the
Representatives by or on behalf of that Underwriter specifically for inclusion
therein and described in Section 8(e), and shall reimburse the Company and any
such director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability that
any Underwriter may otherwise have to the Company or any such director, officer
or controlling person.
(c) Promptly after receipt by an indemnified party under this Section of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
claim or the commencement of that action; provided, however, that the failure to
notify the indemnifying party shall not relieve it from any liability that it
may have under this Section 8 except to the extent it has been materially
prejudiced by such failure and, provided further, that the failure to notify the
indemnifying party shall not relieve it from any liability that it may have to
an indemnified party otherwise than under this Section 8. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Company under this Section if, in the reasonable judgment of the
Representatives, it is advisable for the Representatives and those Underwriters,
officers, employees and controlling persons to be jointly represented by
separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Company, any indemnified party shall have the right
to employ separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the employment thereof has been specifically
authorized by the indemnifying party in writing, (ii) such indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party and in the reasonable judgment of such
counsel it is advisable for such indemnified party to employ separate counsel or
(iii) the indemnifying party has failed to assume the defense of such action and
employ counsel reasonably satisfactory to the indemnified party, in which case,
if such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, that the
indemnifying party
<PAGE>
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for all such
indemnified parties, which firm shall be designated in writing by the
Representatives, if the indemnified parties under this Section 8 consist of any
Underwriter or any of their respective officers, employees or controlling
persons, or by the Company, if the indemnified parties under this Section
consist of the Company or any of the Company's directors, officers, employees or
controlling persons. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or (ii) be liable for any settlement
of any such action effected without its written consent (which consent shall not
be unreasonably withheld), but if settled with its written consent or if there
be a final judgment of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss of liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability,
or any action in respect thereof, referred to therein, then each indemnifying
party shall, in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such proportion
as shall be appropriate to reflect the relative benefits received by the Company
on the one hand and the Underwriters on the other from the offering of the Stock
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other with respect to
the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other with respect to such offering shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Stock purchased under this Agreement (before deducting expenses) received by the
Company, on the one hand, and the total underwriting discounts and commissions
received by the Underwriters with respect to the shares of the Stock purchased
under this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the shares of the Stock under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Underwriters, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 8(d) were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result
<PAGE>
of the loss, claim, damage or liability, or action in respect thereof, referred
to above in this Section 8(d) shall be deemed to include, for purposes of this
Section 8(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(d), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Stock underwritten by it and distributed to the public
was offered to the public exceeds the amount of any damages that such
Underwriter has otherwise paid or become liable to pay by reason of any untrue
or alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute as provided in this Section 8(d) are several in proportion to their
respective underwriting obligations and not joint.
(e) The Underwriters severally confirm that the statements with
respect to the public offering of the Stock set forth on the cover page of, and
under the caption "Underwriting" in, the Prospectus are correct and constitute
the only information furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statements and the
Prospectus.
9. Directed Share Program.
It is understood and agreed that approximately [_________] shares of
the Firm Stock ("Directed Shares") will initially be reserved by the
Underwriters for offer and sale to directors of the Company, certain holders of
Common Stock and preferred stock convertible into Common Stock and other persons
associated with the Company ("Directed Share Participants") upon the terms and
conditions set forth in the Prospectus and in accordance with the rules and
regulations of the National Association of Securities Dealers, Inc. (the
"Directed Share Program"). Under no circumstances will any Underwriter be liable
to the Company or to any Directed Share Participant for any action taken or
omitted to be taken in good faith in connection with such Directed Share
Program. To the extent that any Directed Shares are not affirmatively
reconfirmed for purchase by any Directed Share Participant on or immediately
after the date of this Agreement, such Directed Shares may be offered to the
public as part of the public offering contemplated hereby.
The Company agrees to pay all fees and disbursements incurred by the
Underwriters in connection with the Directed Share Program, including counsel
fees and any stamp duties or other taxes incurred by the Underwriters in
connection with the Directed Share Program.
In connection with the offer and sale of the Directed Shares, the Company
agrees, promptly upon a request in writing, to indemnify and hold harmless the
Underwriters from and against any loss, claim, damage, expense, liability or
action which (i) arises out of, or is based upon, any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by or with the approval of the Company for distribution to Directed Share
Participants in connection with the Directed Share Program 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, (ii) arises out of
the failure of any Directed Share Program participant to pay for and accept
delivery of Directed Shares that the Directed Share Participant agreed to
purchase or (iii) is otherwise related
<PAGE>
to the Directed Share Program, other than losses, claims, damages or liabilities
(or expenses relating thereto) that are finally judicially determined to have
resulted directly from the bad faith or gross negligence of such Underwriters.
10. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the performance of
its obligations under this Agreement, the remaining non-defaulting Underwriters
shall be obligated to purchase the Stock that the defaulting Underwriter agreed
but failed to purchase on such Delivery Date in the respective proportions that
the number of shares of the Firm Stock set opposite the name of each remaining
non-defaulting Underwriter in Schedule 1 hereto bears to the total number of
shares of the Firm Stock set opposite the names of all the remaining non-
defaulting Underwriters in Schedule 1 hereto; provided, however, that the
remaining non-defaulting Underwriters shall not be obligated to purchase any of
the Stock on such Delivery Date if the total number of shares of the Stock which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
date exceeds 9.09% of the total number of shares of the Stock to be purchased on
such Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of shares of the Stock that
it agreed to purchase on such Delivery Date pursuant to the terms of Section 2.
If the foregoing maximums are exceeded, the remaining non-defaulting
Underwriters, or those other underwriters satisfactory to the Representatives
who so agree, shall have the right, but shall not be obligated, to purchase, in
such proportion as may be agreed upon among them, all the Stock to be purchased
on such Delivery Date. If the remaining Underwriters or other underwriters
satisfactory to the Representatives do not elect to purchase the shares that the
defaulting Underwriter or Underwriters agreed but failed to purchase on such
Delivery Date, this Agreement (or, with respect to the Second Delivery Date, the
obligation of the Underwriters to purchase, and of the Company to sell, the
Option Stock) shall terminate without liability on the part of any non-
defaulting Underwriter or the Company, except that the Company will continue to
be liable for the payment of expenses to the extent set forth in Sections 6 and
12. As used in this Agreement, the term "Underwriter" includes, for all purposes
of this Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 10, purchases Firm Stock that a
defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Stock of a defaulting
or withdrawing Underwriter, either the Representatives or the Company may
postpone the First Delivery Date for up to seven full business days in order to
effect any changes that in the opinion of counsel for the Company or counsel for
the Underwriters may be necessary in the Registration Statement, the Prospectus
or in any other document or arrangement.
11. Termination. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the Company
prior to delivery of and payment for the Firm Stock if, prior to that time, any
of the events described in Sections 7(g) or 7(h) shall have occurred or if the
Underwriters shall decline to purchase the Stock for any reason permitted under
this Agreement.
<PAGE>
12. Reimbursement of Underwriters' Expenses. If the Company shall fail to
tender the Stock for delivery to the Underwriters for any reason permitted under
this Agreement, the Company shall reimburse the Underwriters for the reasonable
fees and expenses of their counsel and for such other out-of-pocket expenses as
shall have been incurred by them in connection with this Agreement and the
proposed purchase of the Stock, and upon demand the Company shall pay the full
amount thereof to the Representatives. If this Agreement is terminated pursuant
to Section 11 by reason of the default of one or more Underwriters, the Company
shall not be obligated to reimburse any defaulting Underwriter on account of
those expenses.
13. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax:
212-528-8822);
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Primary Registration Statement, Attention: [_________] (Fax: _________);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
14. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of and be binding upon the Underwriters, the Company and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except that (A) the representations,
warranties, indemnities and agreements of the Company contained in this
Agreement shall also be deemed to be for the benefit of the officers and
employees of each Underwriter and the person or persons, if any, who control
each Underwriter within the meaning of Section 15 of the Securities Act and (B)
the indemnity agreement of the Underwriters contained in Section of this
Agreement shall be deemed to be for the benefit of directors, officers and
employees of the Company and any person controlling the Company within the
meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section , any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
15. Survival. The respective indemnities, representations, warranties and
agreements of the Company and the Underwriters contained in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Stock and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
<PAGE>
16. Definition of the Terms "Business Day" and "Subsidiary". For purposes
of this Agreement, (a) "business day" means any day on which the New York Stock
Exchange, Inc. is open for trading and (b) "subsidiary" has the meaning set
forth in Rule 405 of the Rules and Regulations.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of New York.
18. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
If the foregoing correctly sets forth the agreement between the Company and
the Underwriters, please indicate your acceptance in the space provided for that
purpose below.
Very truly yours,
INVENTA TECHNOLOGIES, INC.
By _______________________________________
[Insert title of person executing
agreement]
Accepted:
Lehman Brothers Inc.
First Union Securities, Inc.
Friedman, Billings, Ramsey& Co.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By Lehman Brothers Inc.
By _________________________________________________________
Authorized Representative
<PAGE>
SCHEDULE 1
Number of
Underwriters Shares
------------ ---------
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . .
First Union Securities, Inc. . . . . . . . . . . . . . .
Friedman, Billings, Ramsey & Co. . . . . . . . . . . . .
_________
Total................................................
=========
<PAGE>
SCHEDULE 2
Name of Officers and Directors
- ------------------------------
<PAGE>
ANNEX A
April __, 2000
Lehman Brothers Inc.
First Union Securities, Inc.
Friedman, Billings, Ramsey & Co.
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
The undersigned have been informed that Inventa Technologies, Inc.
(the "Company") proposes to issue 3,500,000 shares of its common stock (the
"Shares"). The undersigned have been informed that the Company has prepared a
preliminary prospectus regarding the shares and will enter into an underwriting
agreement with respect to the Shares (the "Underwriting Agreement") with Lehman
Brothers Inc., First Union Securities, Inc. and Friedman, Billings, Ramsey &
Co., as representatives on behalf of the underwriters named in such Underwriting
Agreement (the "Underwriters").
1.1.1 To facilitate the sale of the Shares to be purchased thereunder and
in consideration of the Underwriters entering into the Underwriting Agreement,
the undersigned hereby irrevocably confirms, covenants and agrees for the
benefit of the Company and the Underwriters for a period of 180 days from the
date hereof, that the undersigned will not, directly or indirectly (whether any
transaction is to be settled by delivery of the Company's common stock or other
securities, in cash or otherwise) (i) offer for sale, sell or otherwise dispose
of (or enter into any transaction or device that is designed to, or could be
expected to, result in the disposition or purchase by any person at any time in
the future of) any shares of the Company's common stock or securities
convertible into or exchangeable for the Company's common stock or substantially
similar securities or (ii) sell or grant options, rights or warrants with
respect to any shares of the Company's common stock or securities convertible
into or exchangeable for the Company's common stock or substantially similar
securities, without the prior written consent of Lehman Brothers Inc.
The undersigned acknowledges and agrees that this agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
undersigned, the Company and the Underwriters.
Very truly yours,
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INVENTA TECHNOLOGIES, INC.
Inventa Technologies, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
A. The name of the corporation is Inventa Technologies, Inc. The
corporation was originally incorporated under the same name, and the original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on January 12, 2000.
B. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of the corporation.
C. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
The name of this corporation is Inventa Technologies, Inc.
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The corporation is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the corporation is authorized
to issue is 70,000,000 shares. The number of shares of Common Stock authorized
is 60,000,000. The number of shares of Preferred authorized is 10,000,000.
<PAGE>
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the board of directors (authority to do so being hereby expressly vested in the
board). The board of directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The board of directors, 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, may increase or decrease (but not below the
number of shares of any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
The authority of the board of directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the number
of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
(c) the right or obligation, if any, of the corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the
amount or amounts per share that the shares of such class or series of Preferred
Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
(e) the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock;
(h) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
-2-
<PAGE>
(i) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the board of directors of the
corporation, acting in accordance with this Restated Certificate of
Incorporation, may deem advisable and are not inconsistent with law and the
provisions of this Restated Certificate of Incorporation.
ARTICLE V
The corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
ARTICLE VI
The corporation is to have perpetual existence.
ARTICLE VII
1. Limitation of Liability. To the fullest extent permitted by the
-----------------------
General Corporation Law of the State of Delaware as the same exists or as may
hereafter be amended, a director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
2. Indemnification. The corporation shall indemnify to the fullest extent
---------------
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director or officer of the corporation, or any predecessor of the
corporation, or serves or served at any other enterprise as a director, officer
or employee at the request of the corporation or any predecessor to the
corporation and may indemnify to the fullest extent permitted by law any person
made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that
such person or his or her testator or intestate is or was an employee of the
corporation, or any predecessor of the corporation, or serves or served at any
other enterprise as a director, officer or employee at the request of the
corporation or any predecessor to the corporation.
3. Amendments. Neither any amendment nor repeal of this Article VII, nor
----------
the adoption of any provision of the corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent provision.
-3-
<PAGE>
ARTICLE VIII
In the event any shares of Preferred Stock shall be redeemed or converted
pursuant to the terms hereof, the shares so converted or redeemed shall not
revert to the status of authorized but unissued shares, but instead shall be
canceled and shall not be re-issuable by the corporation.
ARTICLE IX
Holders of stock of any class or series of the corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders, unless such cumulative voting is
required pursuant to Sections 214 of the Delaware General Corporation Law, in
which event each such holder shall be entitled to as many votes as shall equal
the number of votes which (except for this provision as to cumulative voting)
such holder would be entitled to cast for the election of directors with respect
to his shares of stock multiplied by the number of directors to be elected by
him, and the holder may cast all of such votes for a single director or may
distribute them among the number of directors to be voted for, or for any two or
more of them as such holder may see fit, so long as the name of the candidate
for director shall have been placed in nomination prior to the voting and the
stockholder, or any other holder of the same class or series of stock, has given
notice at the meeting prior to the voting of the intention to cumulate votes.
1. Number of Directors. The number of directors which constitutes
-------------------
the whole Board of Directors of the corporation shall be designated in the
Amended and Restated Bylaws of the corporation. The directors shall be divided
into three classes with the term of office of the first class (Class I) to
expire at the annual meeting of stockholders held in 2001; the term of office of
the second class (Class II) to expire at the annual meeting of stockholders held
in 2002; the term of office of the third class (Class III) to expire at the
annual meeting of stockholders held in 2003; and thereafter for each such term
to expire at each third succeeding annual meeting of stockholders after such
election.
2. Election of Directors. Elections of directors need not be by written
---------------------
ballot unless the Amended and Restated Bylaws of the corporation shall so
provide.
ARTICLE X
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Amended and Restated Bylaws of the corporation.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with the
Amended and Restated Bylaws, no special meetings of the stockholders shall be
called by stockholders without approval of the Board of
-4-
<PAGE>
Directors, and no action, including the removal of directors without cause shall
be taken by the stockholders by written consent. The affirmative vote of sixty-
six and two-thirds percent (66 2/3%) of the then outstanding voting securities
of the corporation, voting together as a single class, shall be required for the
amendment, repeal or modification of the provisions of Article IX, Article X or
Article XII of this Amended and Restated Certificate of Incorporation or
Sections 2.3 (Special Meeting), 2.4 (Notice of Stockholders' Meeting), 2.4
(Advanced Notice of Stockholder Nominees and Stockholder Business), 2.8
(Voting), or 2.10 (Stockholder Action by Written Consent Without a Meeting), or
3.2 (Number of Directors) of the corporation's Amended and Restated Bylaws.
ARTICLE XII
Meetings of stockholders may be held within or without the State of
Delaware, as the Amended and Restated Bylaws may provide. The books of the
corporation may be kept (subject to any provision contained in the statutes)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Amended and Restated
Bylaws of the corporation.
-5-
<PAGE>
IN WITNESS WHEREOF, Inventa Technologies, Inc. has caused this certificate
to be signed by David A. Lavanty, its Chief Executive Officer, this ____ day of
February, 2000.
-----------------------------------------
David A. Lavanty, Chief Executive Officer
<PAGE>
EXHIBIT 4.1
INVENTA
INVENTA TECHNOLOGIES, INC.
COMMON STOCK
INCORPORATED UNDER THE LAWS OF CUSIP 46121B 10 2
THE STATE OF DELWARE SEE REVERSE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY THAT
IS THE OWNER OF
fully paid and non-assessable shares, $0.001 par value, of the COMMON STOCK of
_______________________________________________________________________________
_________________________INVENTA TECHOLOGIES, INC._____________________________
(hereinafter called the "Corporation"). transferable on the books of the
Corporation in person, or by duly authorized allomey, upon surrender of this
certificate property endorsed.
This certificate is not valid countersigned by a Transfer Agent and registered
by a Registrar.
WITINESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ [signature] /s/ [signature]
CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
FIRST UNION NATIONAL BANK
TRANSFER AGENT AND REGISTRAR
<PAGE>
INVENTA
INVENTA TECHNOLOGIES, INC.
COMMON STOCK
COM
INCORPORATED UNDER THE LAWS OF CUSIP 46121B 10 2
THE STATE OF DELWARE SEE REVERSE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY THAT
IS THE OWNER OF
fully paid and non-assessable shares, $0.001 par value, of the COMMON STOCK of
_______________________________________________________________________________
_________________________INVENTA TECHOLOGIES, INC._____________________________
(hereinafter called the "Corporation"). transferable on the books of the
Corporation in person, or by duly authorized allomey, upon surrender of this
certificate property endorsed.
This certificate is not valid countersigned by a Transfer Agent and registered
by a Registrar.
WITINESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ [signature] /s/ [signature]
CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
FIRST UNION NATIONAL BANK
BY TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE>
INVETA TECHNOLOGIES, INC.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, A COPY OF THE DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. ANY SUCH REQUESTS MAY BE ADDRESSED TO THE SECRETARY
OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as thought they were written our in full
according to applicable laws or regulations:
TENCOM -as tenants in common UNIF GIFT MIN ACT-______Custodian_______
TEN ENT -as tenants by the entireties (cust) (minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minor
survivorship and not as tenants
in common Act______________
(state)
Addition abbreviations may also be used though not in the above list.
For Value Received, _______________________ hereby see, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
| |
| |
| |
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP OR POSTAL CODE, OF
ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common Stock represented by the within certificate, and do hereby
Irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________________
_____________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAMES AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:
________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.O RULE 17Ad-15.
<PAGE>
EXHIBIT 10.40
INVENTA CORPORATION
______________________________
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
______________________________
May 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <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................................................................. 8
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>
-i-
<PAGE>
<TABLE>
<S> <C> <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 Waiver, Consent and Amendment................................................................... 12
5.6 Opinion of Company's Counsel.................................................................... 12
5.7 Legal Expenses.................................................................................. 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.......................................................................... 13
7.7 Qualified Small Business Stock.................................................................. 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.................................................................................... 14
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>
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT ("Agreement")
is made as of the 28th day of May 1999 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 Certificate of
Amendment of 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 28, 1999, 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) 12,119,511 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 8,059,511 shares of which are designated Series C Preferred
Stock of which 4,055,511 are issued and outstanding, and (ii) 25,000,000 shares
of Common Stock, of which 4,685,954 shares are issued and outstanding. The
Company has reserved 3,155,000 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 and the Waiver, Consent and
Amendment attached hereto as Exhibit E (the "Waiver, Consent and Amendment"),
---------
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 dated May 11, 1998, as
amended by the Waiver, Consent and Amendment (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.
<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
<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 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.
<PAGE>
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 March
31, 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
March 31, 1999
2.14 Changes. Since March 31, 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;
<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 assets, properties, financial condition,
operating results, or business of the Company (as such
<PAGE>
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 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
<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) 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
<PAGE>
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 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,
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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
Certificate of Amendment of 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 Waiver, Consent and Amendment. The Company shall deliver to the
-----------------------------
Investors at the Closing copies of the Waiver, Consent and Amendment executed by
the necessary majority of the signatories thereto.
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.
- -
5.7 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.
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
<PAGE>
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.
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.
<PAGE>
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.
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 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
<PAGE>
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.
(Remainder of page left intentionally blank)
<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
INVESTORS:
BATTERY VENTURES III, L.P.
By: Battery Partners III, L.P.
By:
______________________________
Name:
Title:
BOSTON MILLENNIA PARTNERS BOSTON MILLENNIA PARTNERS
LIMITED PARTNERSHIP LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership, By: Glen Partners Limited
its General Partner Partnership,
its General Partner
By: By:
______________________________ ______________________________
General Partner General Partner
______________________________
Robert Ducommun
PALMER G. AND CHARLES E. DUCOMMUN
CHARITABLE ANNUITY TRUST, U/D/T
By:
______________________________
Robert Ducommun, Trustee
<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
INVESTORS:
BATTERY VENTURES III, L.P.
By: Battery Partners III, L.P.
By:
______________________________
Name:
Title:
BOSTON MILLENNIA PARTNERS BOSTON MILLENNIA PARTNERS
LIMITED PARTNERSHIP LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership, By: Glen Partners Limited
its General Partner Partnership,
its General Partner
By: By:
______________________________ ______________________________
General Partner General Partner
______________________________
Robert Ducommun
PALMER G. AND CHARLES E. DUCOMMUN
CHARITABLE ANNUITY TRUST, U/D/T
By:
______________________________
Robert Ducommun, Trustee
<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
INVESTORS:
BATTERY VENTURES III, L.P.
By: Battery Partners III, L.P.
By:
______________________________
Name:
Title:
BOSTON MILLENNIA PARTNERS BOSTON MILLENNIA PARTNERS
LIMITED PARTNERSHIP LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership, By: Glen Partners Limited
its General Partner Partnership,
its General Partner
By: By:
______________________________ ______________________________
General Partner General Partner
______________________________
Robert Ducommun
PALMER G. AND CHARLES E. DUCOMMUN
CHARITABLE ANNUITY TRUST, U/D/T
By:
______________________________
Robert Ducommun, Trustee
<PAGE>
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:
_______________________________
Robert C. Bensky
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:
_______________________________
Robert C. Bensky
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:
_______________________________
Robert C. Bensky
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:
_______________________________
Robert C. Bensky
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:
_______________________________
Robert C. Bensky
Chief Financial Officer
<PAGE>
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:
_______________________________
Robert C. Bensky
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:
_______________________________
Robert C. Bensky
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:
_______________________________
Robert C. Bensky
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:
_______________________________
Robert C. Bensky
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:
_______________________________
Robert C. Bensky
Chief Financial Officer
<PAGE>
EXHIBIT A
---------
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Name and Address Shares Amount
<S> <C> <C>
Battery Ventures III, L.P. 776,000 $ 970,000.00
20 William Street
Wellesley, MA 01282
Attention: Rick Frisbie
Boston Millennia Associates I Partnership 28,900 $ 36,125.00
30 Rowes Wharf
Boston, MA 02110
Attention: Martin J. Hernon
Boston Millennia Partners Limited Partnership 1,523,100 $1,903,875.00
30 Rowes Wharf
Boston, MA 02110
Attention: Martin J. Hernon
Robert Ducommun 75,000 $ 93,750.00
1155 Park Avenue
Apt. 1 SW
New York, NY 10128
Palmer G. and Charles E. Ducommun 45,000 $ 56,250.00
Charitable Annuity Trust, u/d/t
1155 Park Avenue
Apt. 1 SW
New York, NY 10128
Attention: Robert Ducommun
TCV II (Q), L.P. 570,795 $ 713,493.75
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
with a copy to:
c/o Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jon Q. Reynolds, Jr.
<PAGE>
TCV II Strategic Partners, L.P. 101,296 $ 126,620.00
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
with a copy to:
c/o Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jon Q. Reynolds, Jr.
TCV II, V.O.F. 24,118 $ 30,147.50
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
with a copy to:
c/o Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jon Q. Reynolds, Jr.
Technology Crossover Ventures II, C.V. 113,355 $ 141,693.75
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
with a copy to:
c/o Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jon Q. Reynolds, Jr.
Technology Crossover Ventures II, L.P. 742,436 $ 928,045.00
c/o Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
<PAGE>
with a copy to:
c/o Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jon Q. Reynolds, Jr.
TOTAL 4,000,000 $5,000,000.00
<PAGE>
EXHIBIT B
---------
CERTIFICATE OF AMENDMENT OF
RESTATED ARTICLES OF INCORPORATION
<PAGE>
[LETTERHEAD OF THE STATE OF CALIFORNIA]
SECRETARY OF STATE
I, BILL JONES, Secretary of State of the State of California, hereby
certify:
That the attached transcript of 2 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.
IN WITNESS WHEREOF, I execute
this certificate and affix
the Great Seal of the State
[THE GREAT SEAL OF THE STATE OF CALIFORNIA] of California this day of
May 26, 1999
------------------------
/s/ Bill Jones
Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION OF
INVENTA CORPORATION
The undersigned, David A. Lavanty and Michael J. O'Donnell, hereby certify
that:
1. They are the duly elected and acting President and Assistant Secretary,
respectively, of Inventa Corporation, a California corporation.
2. Article III of the Restated Articles of Incorporation of this
corporation is hereby amended in its entirety to read as follows:
"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 37,119,511
shares, of which 25,000,000 shares shall be Common Stock with a par value
of $0.001 per share and of which 12,119,511 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 and 8,059,511 of which
are designated Series C 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."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders 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 amendment was
4,685,954 shares of Common
<PAGE>
Stock, 800,000 shares of Series A Preferred Stock, 2,560,000 shares of Series B
Preferred Stock, and 4,055,511 shares of Series C Preferred Stock. The number of
shares voting in favor of the amendment equaled or exceeded the vote required,
such required vote being a majority of the outstanding shares of the Common
Stock, Preferred Stock, and Series C Preferred Stock, voting as separate
classes.
The undersigned further declare under penalty of perjury that the matters set
forth in the foregoing Certificate of Amendment of Articles of Incorporation are
true and correct of our own knowledge.
Executed at Redwood Shores, California this 24th day of May, 1999.
/s/ David A. Lavanty
--------------------------------
David A. Lavanty, President
/s/ Michael J. O'Donnell
--------------------------------
Michael J. O'Donnell,
Assistant Secretary
[SEAL OF THE SECRETARY OF STATE]
<PAGE>
EXHIBIT C
---------
SCHEDULE OF EXCEPTIONS
<PAGE>
EXHIBIT C
---------
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions, dated as of the Closing Date, is made and
given pursuant to Section 2 of the Inventa Corporation Series C Convertible
Preferred Stock Purchase Agreement dated May 28, 1999 (the "Agreement").
The section numbers in this Schedule of Exceptions correspond to the
section numbers in the Agreement; however, any information disclosed herein
under any section number shall be deemed to be disclosed and incorporated into
any other section number under the Agreement where such disclosure would be
appropriate. Unless the context otherwise requires, all capitalized terms shall
have the same meanings assigned to them in the Agreement.
2.2 Capitalization.
--------------
On July 8, 1994, the Company granted warrants to purchase 100,000
shares of Series A Preferred Stock of the Company (200,000 shares after taking
into account the Company's 2-for-1 stock split effective as of January 29,
1997). The Series A Preferred Stock warrants are exercisable at $0.50 per
share. The Company has reserved a total of 3,155,000 shares of common stock
under the Company's 1993 Stock Option Plan (the "Plan"). As of the Closing,
options for 2,308,634 shares were outstanding under the Plan and 660,412 shares
remained available for future issuance under the Plan.
2.3 Subsidiaries.
------------
The Company has a wholly-owned subsidiary in Singapore called ICG
Systems (Far East) Pte. Ltd. and two wholly-owned subsidiaries in Malaysia
called ICG Systems Sdn. Bhd and Baktimaka Sdn. Bhd. The Company is currently in
the process of liquidating all three subsidiaries.
2.7 Litigation.
----------
The Internal Revenue Service ("IRS") has made assessments on the
Company's former Indian subsidiary called Inventa Software India Pvt. Ltd. (now
called Ventura Data Systems Pvt. Ltd. since the Company's divestiture of its
ownership) with respect to federal tax returns filed by the Company for tax
years 1990 and 1991 which included payments of certain expenses (the "Disputed
Payments") for work done for the Company in the United States by employees of
the Company's former subsidiary. The Company has appealed the assessments. No
determination has yet been made by the IRS. Should the IRS determine that the
Company has a tax liability with respect to the Disputed Payments, the Company
expects that such tax liability, including penalties will not exceed $150,000.
The Company has filed a legal petition for the liquidation of the
Malaysian company Inventa Software (M) SDN. BHD which petition has been
approved.
<PAGE>
2.8 Patents.
-------
The Company does not currently have the legal right to the name
"Inventa" in Singapore. Further, the Company does not currently have the legal
right to the name "Inventa" in Malaysia subject to liquidation of the Malaysian
company Inventa Software (M) SDN.BHD (see Section 2.7). A Company trademark
status report is attached hereto as Exhibit A.
2.9 Compliance with Other Instruments.
---------------------------------
(a) As of December 31, 1998, the Company was in violation of certain
financial covenants and ratios under the Company's revolving credit facility
with Silicon Valley Bank. The bank has agreed to waive such defaults as set
forth in a modification agreement dated March 3, 1999.
2.13 Financial Statements.
--------------------
The Company's auditors have conducted audit procedures regarding the
Company's financial statements for the fiscal year ended December 31, 1998. The
Company and its auditors are currently engaged in discussions related to expense
recognition associated with the issuance of options under the Company's 1993
Stock Option Plan.
2.14 Changes.
-------
(f) The Company has notified Carl Zegalia, its Director of Eastern
Region Sales, that his services are no longer required by the Company. The
parties are currently involved in transitional discussions.
2.17 Employee Plans.
--------------
The Company has adopted a 401(k) savings plan (the "401(k) Plan").
Participants in the 401(k) Plan may defer compensation in an amount not in
excess of the annual statutory limit. The Company makes matching contributions
in an amount equal to twenty five percent (25%) of the first four percent (4%)
of an individual employee's salary contributed to the 401(k) Plan.
The Company maintains performance incentive bonus plans which provide
for bonus payments to employees upon the attainment of specific performance
criteria.
2.18 Employees.
---------
Subsequent to July 8, 1994, every United States employee and
consultant with access to confidential or proprietary information of the Company
has executed a Proprietary Information Agreement ("Proprietary Information
Agreement"), substantially in the form attached to the Agreement as Exhibit D.
Prior to July 8, 1994, the Company did not require its employees or
-2-
<PAGE>
consultants to sign a Proprietary Information Agreement. Certain employees and
consultants of the Company's foreign subsidiaries have not signed a Proprietary
Information Agreement.
In January 1999, the Company entered into an Employment and
Noncompetition Agreement with David Lavanty for a term of three years. The
agreement provides for severance payments and accelerated vesting of stock
options in the event of termination under certain circumstances and upon a
change of control of the Company.
The Company has notified Carl Zegalia, its Director of Eastern Region
Sales, that his services are no longer required by the Company. The parties are
currently involved in transitional discussions.
The Company currently has severance agreements with Ashok Santhanam,
David Lavanty, Ed Leppert, Robert Kudis, Tony Moretto, Michael Makishima,
Srikantan Moorthy, Sanjoy Bose, Massimo Chiocca and Carl Zegalia which provide
for severance payments upon a "change of control" of the Company (as such term
is defined in such agreement).
2.19 Tax Returns and Payments.
------------------------
See Section 2.7 above regarding the examination of the Company by the
Internal Revenue Service.
2.20 Agreements; Action.
------------------
(a) The Company currently has severance agreements with Ashok
Santhanam, David Lavanty, Ed Leppert, Robert Kudis, Tony Moretto, Michael
Makishima, Srikantan Moorthy, Sanjoy Bose, Massimo Chiocca and Carl Zegalia
which provide for severance payments upon a "change of control" of the Company
(as such term is defined in such agreement).
The Company entered into an Employment and Noncompetition Agreement
with David Lavanty as described in Section 2.18 above.
In November, 1996, the Company entered into a thirty six (36) month
automobile lease agreement for the benefit of Ashok Santhanam, the Company's
President. The lease agreement is personally guaranteed by Ashok Santhanam.
(b) The Company entered into a Master Services Agreement with ADP,
Inc. in December 1998, pursuant to which the Company has agreed that (i) for a
period of twenty-four (24) months following the termination of such agreement,
the Company will not provide any Deliverable (as defined in the agreement) to
any provider of payroll software, payroll or payroll related services, and (ii)
for a period of twelve (12) months following the termination of such agreement,
the
-3-
<PAGE>
Company will not build or develop an Internet-enabling application/program which
contains similar functionality to the applications/programs developed pursuant
to the agreement.
The Company entered into a Software Development Agreement with Cal-
Surance Associates, Inc. in February 1999, pursuant to which the Company has
agreed that for a period of twenty-four (24) months following completion of the
Engagement (as defined in the agreement), the Company will not undertake an
engagement for any brokerage firms that sell professional liability insurance,
insurance companies that sell professional liability insurance, or other
insurance companies selling, marketing or intending to sell or market
professional liability insurance, where the deliverables of such engagement are
substantially similar in the purpose to or substantially competitive with those
provided under the Engagement.
The Company leases office space for its headquarters at 255 Shoreline
Drive, Redwood Shores, California under a lease agreement expiring in March
2001, with monthly lease payments of approximately $56,778, and additional space
at 2620 Augustine Drive, Santa Clara, California under a lease agreement
expiring in February 2000, with monthly lease payments of approximately $6,524.
In addition, the Company leases office space in New Brunswick, New Jersey;
Plymouth Meeting, Pennsylvania; and New York, New York under three lease
agreements expiring, respectively, in October 2003, December 1999 and September
1999. The monthly lease payments under such agreements are approximately
$11,266, $6,500 and $2,200, respectively.
The Company leases various equipment under operating lease
arrangements. At December 31, 1998, the minimum aggregate payments under
operating equipment leases for the 1999 and 2000 fiscal years are, respectively,
$20,742 and $11,974.
The Company leases various equipment under capital lease arrangements.
At December 31, 1998, the minimum aggregate payments under capital equipment
leases for the 1999 and 2000 fiscal years are, respectively, $131,496 and
$60,308.
(c) On May 30, 1995, the Company entered into an agreement for a
$200,000 revolving credit facility with Silicon Valley Bank. On July 29, 1996,
the parties signed a loan modification agreement increasing the revolving credit
facility to $500,000. In July 1997, the agreement was modified to increase the
revolving credit facility to $1.2 million. This credit facility expires on July
27, 1999 and as of March 31, 1999, no balance was outstanding on the credit
facility. The credit facility bears interest at the bank's prime rate plus 2
percent (2%). On July 27, 1998, the Company also obtained a $300,000 equipment
line from Silicon Valley Bank. The line was fully drawn down as of March 31,
1999 and bears interest at the bank's prime rate plus one percent (1%).
2.23 Insurance.
---------
The Company is in the process of obtaining directors and officers
liability insurance and "key man" life insurance policies.
-4-
<PAGE>
EXHIBIT D
---------
FORM OF PROPRIETARY INFORMATION AGREEMENT
<PAGE>
EXHIBIT D
----------
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 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.
<PAGE>
(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.
<PAGE>
(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 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.
---------
<PAGE>
(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 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.
<PAGE>
(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 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
<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: _________________
<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."
<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)
<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.
<PAGE>
(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.
(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.
<PAGE>
EXHIBIT E
---------
WAIVER, CONSENT AND AMENDMENT
<PAGE>
INVENTA CORPORATION
WAIVER, CONSENT AND AMENDMENT
1. The undersigned holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock (collectively the
"Preferred Stock") and Common Stock of Inventa Corporation (the "Company")
hereby consent to the issuance by the Company of a number of additional shares
of Common Stock having an aggregate purchase price of $3,000,000 (the "Shares")
in a private placement to certain investors (the "Purchasers") pursuant to the
Private Placement Agreement dated as of January 28, 2000 (the "Placement
Agreement").
2. The undersigned holders of Preferred Stock hereby (i) waive the right
of first refusal granted to such holders pursuant to the Company's Amended and
Restated Shareholders Agreement dated as of January 19, 2000, attached hereto as
Exhibit A (the "Shareholders Agreement"), and any other similar rights they may
- ---------
have, to purchase the Shares, and (ii) consent to the inclusion of the Shares
among the securities that are excluded from the definition of "New Securities"
as defined in Section 3.3 of the Shareholders Agreement.
3. The undersigned holders of Preferred Stock hereby (i) consent to the
inclusion of the Purchasers as parties to the Amended and Restated Registration
Rights Agreement dated as of January 26, 2000, attached hereto as Exhibit B (the
---------
"Rights Agreement"), and acknowledge that the Purchasers shall be treated as
"Holders" for purposes of the Rights Agreement, and (ii) consent to the
inclusion of the Shares as "Shares" as defined in Section 1 of the Rights
Agreement, and the inclusion of the shares of Common Stock issuable upon
conversion of the Shares as "Registrable Securities" as defined in Section 1 of
the Rights Agreement with the result that the holders of such shares shall be
entitled to exercise the registration rights set forth in the Rights Agreement
on the same basis as the other holders of Registrable Securities.
This Waiver, Consent and Amendment shall be effective with regard to all
holders of Preferred Stock for purposes of the Shareholders Agreement upon
execution by the Company and the holders of a majority in interest of each of
(i) the shares beneficially owned or deemed to be beneficially owned by the
Founder, (ii) the Series C Preferred Stock, and (iii) the Series A Preferred
Stock, Series B Preferred Stock and shares held by the Common Holders (as
defined in the Shareholders Agreement), voting together as a single class, as
provided in Section 9.3 of the Shareholders Agreement.
This Waiver, Consent and Amendment shall be effective with regard to all
holders of Preferred Stock for purposes of the Rights Agreement upon execution
by the Company and the holders of a majority in interest of the Common Stock
issuable upon conversion of the outstanding Preferred Stock as provided in
Section 22 of the Rights Agreement.
<PAGE>
This Waiver, Consent and Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument. This Waiver, Consent and Amendment is
executed effective as of February ___, 2000.
THE COMPANY: INVENTA CORPORATION
a California corporation
By:
--------------------------------
David A. Lavanty, President
"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
[Signature Page to Amended and Restated Registration Rights Agreement]
2
<PAGE>
- -------------------------------------
Dana Callow, Jr.
- -------------------------------------
Harry A. Caunter
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
[Signature Page to Amended and Restated Registration Rights Agreement]
3
<PAGE>
ESSEX PRIVATE PLACEMENT FUND II, LIMITED PARTNERSHIP
By: Essex Investment Mgt. Company LLC
Its General Partner
By:
----------------------------------
Its:
---------------------------------
- -------------------------------------
Maya S. Hattangady
- -------------------------------------
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
[Signature Page to Amended and Restated Registration Rights Agreement]
4
<PAGE>
- -------------------------------------
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
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
[Signature Page to Amended and Restated Registration Rights Agreement]
5
<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:
----------------------------------
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
- -------------------------------------
Ramesh Vasudevan
- -------------------------------------
Gomati Venkateswaran
- -------------------------------------
Usha Vijayarajan
[Signature Page to Amended and Restated Registration Rights Agreement]
6
<PAGE>
BOSTON MILLENNIA ASSOCIATES I PARTNERSHIP
By: Glen Partners Limited Partnership,
its General Partner
By:
----------------------------------
General Partner
- -------------------------------------
Mukund Ramkumar
- -------------------------------------
Jagdish R. Mundkur
- -------------------------------------
Laxmi J. Mundkur
- -------------------------------------
Amaey J. Mundkur
- -------------------------------------
Gauri J. Mundkur
[Signature Page to Amended and Restated Registration Rights Agreement]
7
<PAGE>
EXHIBIT A
---------
RESTATED SHAREHOLDERS AGREEMENT
<PAGE>
EXHIBIT B
----------
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
2
</TABLE>
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement (No. 333-95813)
on Form S-1 of our reports dated February 11, 2000 relating to the consolidated
financial statements and financial statement schedules for Inventa
Technologies, Inc., 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
April 20, 2000
